Mercedes 2012 Annual Report Download - page 196

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7 | Consolidated Financial Statements | Notes to the Consolidated Financial Statements
Available-for-sale financial assets. If an available-for-sale
financial asset is impaired, the difference between its cost
(net of any principal payment and amortization) and its current
fair value (less any impairment loss previously recognized
in the statement of income) is reclassified from other compre-
hensive income/loss to the statement of income. Reversals
with respect to equity instruments classified as available for
sale are recognized in other comprehensive income/loss.
Reversals of impairment losses on debt instruments are reversed
through the statement of income if the increase in fair value
of the instrument can be objectively attributed to an event
occurring after the impairment losses were recognized in the
statement of income.
Financial liabilities. Financial liabilities primarily include
trade payables, liabilities to banks, bonds, derivative financial
liabilities and other liabilities.
Financial liabilities measured at amortized cost. After initial
recognition, financial liabilities are subsequently measured
at amortized cost using the effective interest method.
Financial liabilities at fair value through profit or loss. Financial
liabilities at fair value through profit or loss include financial
liabilities held for trading. Derivatives, including embedded
derivatives separated from the host contract which are not used
as hedging instruments in hedge accounting, are classified
as held for trading. Gains or losses on liabilities held for trading
are recognized in profit or loss.
Derivative financial instruments and hedge accounting.
The Group uses derivative financial instruments exclusively
for hedging of financial risks that arise from its commercial
business or refinancing activities. These are mainly interest
rate risks, currency risks and commodity price risks.
Embedded derivatives are separated from the host contract,
which is not measured at fair value through profit or loss,
if an analysis shows that the economic characteristics and risks
of embedded derivatives are not closely related to those
of the host contract.
Derivative financial instruments are measured at fair value
upon initial recognition and at each subsequent reporting date.
The fair value of listed derivatives is equal to their positive
or negative market value. If a market value is not available, fair
value is calculated using standard financial valuation models
such as discounted cash flow or option pricing models. Deriva-
tives are presented as assets if their fair value is positive
and as liabilities if the fair value is negative.
If the requirements for hedge accounting set out in IAS39
are met, Daimler designates and documents the hedge relation-
ship from the date a derivative contract is entered into as
either a fair value hedge or a cash flow hedge. In a fair value
hedge, the fair value of a recognized asset or liability or
an unrecognized firm commitment is hedged. In a cash flow
hedge, the variability of cash flows to be received or paid
from expected transactions related to a recognized asset or
liability or a highly probable forecast transaction are hedged.
The documentation of the hedging relationship includes the
objectives and strategy of risk management, the type of hedg-
ing relationship, the nature of risk being hedged, the identifi-
cation of the hedging instrument and the hedged item, as well
as a description of the method used to assess hedge effec-
tiveness. The hedging transactions are expected to be highly
effective in achieving offsetting changes in fair value or cash
flows and are regularly assessed to determine that they have
actually been highly effective throughout the financial report-
ing periods for which they are designated.
Changes in the fair value of derivative financial instruments
are recognized periodically in either profit or loss or other
comprehensive income/loss, depending on whether the deriv-
ative is designated as a hedge of changes in fair value or cash
flows. For fair value hedges, changes in the fair value of the
hedged item and the derivative are recognized in profit or loss.
For cash flow hedges, fair value changes in the effective por-
tion of the hedging instrument are recognized in other compre-
hensive income/loss. Amounts recognized in other com-
prehensive income/loss are reclassified to the statement of
income when the hedged transaction affects the statement
of income. The ineffective portions of fair value changes are
recognized in profit or loss.
If derivative financial instruments do not or no longer qualify
for hedge accounting because the qualifying criteria for
hedge accounting are not or are no longer met, the derivative
financial instruments are classified as held for trading and
are measured at fair value through profit or loss.