Mercedes 2012 Annual Report Download - page 198

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7 | Consolidated Financial Statements | Notes to the Consolidated Financial Statements
2. Accounting estimates and assessments
In the consolidated financial statements, to a certain degree,
estimates, assessments and assumptions have to be made
which can affect the amounts and reporting of assets and liabili-
ties, the reporting of contingent assets and liabilities on the
balance sheet date and the amounts of income and expense
reported for the period. The major items affected by such esti-
mates, assessments and assumptions are described as follows.
Actual amounts may differ from the estimates. Changes in the
estimates, assessments and assumptions can have a material
impact on the consolidated financial statements.
Recoverable amounts of cash-generating units and invest-
ments accounted for using the equity method. In the
context of impairment tests for non-financial assets, estimates
have to be made to determine the recoverable amounts of
cash-generating units. Assumptions have to be made in partic-
ular with regard to future cash inflows and outflows for the
planning period and the following periods. The estimates include
assumptions regarding future market share and the growth
of the respective markets as well as regarding the products’
profitability. On the basis of the impairment tests carried
out in 2012, the recoverable amounts are substantially larger
than the net assets of the Group’s cash-generating units.
When objective evidence of impairment is present, estimates
and assessments also have to be made to determine the
recoverable amount of an equity method financial investment.
The determination of the recoverable amount is based on
assumptions regarding future business developments for the
determination of the expected future cash flows of that finan-
cial investment. See Note 13 for the presentation of carrying
values and fair values of equity-method financial investments
in listed companies.
Equipment on operating leases. Daimler regularly reviews
the factors determining the values of its leased vehicles.
In particular, it is necessary to estimate the residual values
of vehicles at the end of their leases, which constitute a
substantial part of the expected future cash flows from leased
assets. In this context, assumptions have to be made regarding
the future supply of and demand for vehicles, as well as the
development of vehicle prices. Those assumptions are determined
either by qualified estimates or by expertise provided by third
parties; qualified estimates are based, as far as they are publicly
available, on external data with consideration of internally
available additional information such as historical experience
of price developments and recent sale prices. The residual
values thus determined serve as a basis for systematic deprecia-
tion; changes in residual values lead either to prospective
adjustments to the systematic depreciation or, in the case
of a significant drop in expected residual values, to impairment.
If systematic depreciation is prospectively adjusted, changes
in estimates of residual values do not have a direct effect but
are equally distributed over the remaining periods of the
lease contracts.
Collectability of receivables from financial services. The
Group regularly estimates the risk of default on receivables
from financial services. Many factors are taken into consideration
in this context, including historical loss experience, the size
and composition of certain portfolios, current economic events
and conditions and the estimated fair values and adequacy
of collateral. Changes in economic conditions can lead to changes
in our customers’ creditworthiness and to changes in used
vehicle prices which would have a direct effect on the market
values of the vehicles assigned as collateral. Changes to
the estimation and assessment of these factors influence the
allowance for credit losses with a resulting impact on the
Group’s net results. See also Notes 14 and 31 for further infor-
mation.
Product warranties. The recognition and measurement
of provisions for product warranties is generally connected
with estimates.
The Group provides various types of product warranties
depending on the type of product and market conditions.
Provisions for product warranties are generally recognized
when vehicles are sold, upon lease inception, or when new
warranty programs are initiated. Based on historical warranty
claim experience, assumptions have to be made on the type
and extent of future warranty claims and customer goodwill,
as well as on possible recall or buyback campaigns for each
model series. In addition, the estimates also include assumptions
on the amounts of potential repair costs per vehicle and
the effects of possible time or mileage limits. The provisions
are regularly adjusted to reflect new information.
Further information on provisions for other risks is provided
in Note 23.
Legal proceedings. Various legal proceedings, claims and
governmental investigations are pending against Daimler AG
and its subsidiaries on a wide range of topics. Adverse
decisions in one or more of those proceedings could require
us to pay substantial compensatory and punitive damages
or to undertake service actions, recall campaigns or other costly
actions. Litigation and governmental investigations often
involve complex legal issues and are connected with a high
degree of uncertainty. Accordingly, the assessment of whether
an obligation exists on the balance sheet date as a result of
an event in the past, and whether a future cash outflow is likely
and the obligation can be reliably estimated, largely depends
on estimations by the management.