Mercedes 2013 Annual Report Download - page 198

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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 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 a fair
value hedge, a cash flow hedge or a hedge of a net investment
in a foreign business operation. In a fair value hedge, the fair value
of a recognized asset or liability or an unrecognized firm com-
mitment 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 hedging relationship, the nature
of the risk being hedged, the identification of the hedging instru-
ment and the hedged item, as well as a description of the
method used to assess hedge effectiveness. Hedging transac-
tions are expected to be highly effective in achieving offset-
ting risks from changes in fair value or cash flows and are regu-
larly assessed to determine that they have actually been
highly effective throughout the financial reporting 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 com-
prehensive income/loss, depending on whether the derivative
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 portion of
the hedging instrument are recognized in other comprehensive
income/loss. Amounts recognized in other comprehensive
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.
Pensions and similar obligations. The measurement of
defined benefit plans for pensions and other post-employment
benefits (medical care) in accordance with IAS 19 Employee
Benefits is based on the projected unit credit method. Plan assets
invested to cover defined pension benefit obligations and
other post-employment benefit obligations (medical care) are
measured at fair value and offset against the corresponding
obligations. For the valuation of defined post-employment bene-
fit plans, differences between actuarial assumptions used
and actual developments as well as changes in actuarial assump-
tions result in actuarial gains and losses, which have a direct
impact on the consolidated statement of financial position or
on the consolidated statement of income.
The balance of defined benefit plans for pensions and other
post-employment benefits and plan assets (net pension
obligation or net pension assets) accrues interest at the discount
rate used as a basis for the measurement of the gross pension
obligation. The resulting net interest expense or income is recog-
nized in profit and loss under interest expense or interest
income in the consolidated statement of income. The other
expenses resulting from pension obligations and other post-
employment benefit obligations (medical care), which mainly
result from entitlements acquired during the year under
review, are taken into consideration in the functional costs
in the consolidated statement of income.