Berkshire Hathaway 2008 Annual Report Download - page 36

Notes to Consolidated Financial Statements (Continued)
(1) Significant accounting policies and practices (Continued)
(k) Revenue recognition (Continued)
Service revenues derive primarily from pilot training and flight operations and flight management activities. Service
revenues are recognized as the services are performed. Services provided pursuant to a contract are either recognized
over the contract period or upon completion of the elements specified in the contract depending on the terms of the
contract. Revenues related to the sales of fractional ownership interests in aircraft are recognized ratably over the term
of the related management services agreement as the transfer of ownership interest in the aircraft is inseparable from
the management services agreement.
Interest income from investments in bonds and loans is earned under the constant yield method and includes accrual
of interest due under terms of the bond or loan agreement as well as amortization of acquisition premiums and
accruable discounts. In determining the constant yield for mortgage-backed securities, anticipated counterparty
prepayments are estimated and evaluated periodically. Dividends from equity securities are earned on the ex-dividend
date.
Operating revenue of utilities and energy businesses resulting from the distribution and sale of natural gas and
electricity to customers is recognized when the service is rendered or the energy is delivered. Amounts recognized
include unbilled as well as billed amounts. Rates charged are generally subject to Federal and state regulation or
established under contractual arrangements. When preliminary rates are permitted to be billed prior to final approval
by the applicable regulator, certain revenue collected may be subject to refund and a liability for estimated refunds is
accrued.
(l) Losses and loss adjustment expenses
Liabilities for unpaid losses and loss adjustment expenses represent estimated claim and claim settlement costs of
property/casualty insurance and reinsurance contracts with respect to losses that have occurred as of the balance sheet
date. The liabilities for losses and loss adjustment expenses are recorded at the estimated ultimate payment amounts,
except that amounts arising from certain workers’ compensation reinsurance business are discounted as discussed
below. Estimated ultimate payment amounts are based upon (1) individual case estimates, (2) reports of losses from
policyholders and (3) estimates of incurred but not reported losses.
Provisions for losses and loss adjustment expenses are reported in the accompanying Consolidated Statements of
Earnings after deducting amounts recovered and estimates of amounts recoverable under reinsurance contracts.
Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to
the underlying insurance and reinsurance contracts.
The estimated liabilities of workers’ compensation claims assumed under certain reinsurance contracts are carried in
the Consolidated Balance Sheets at discounted amounts. Discounted amounts are based upon an annual discount rate
of 4.5% for claims arising prior to 2003 and 1% for claims arising after 2002, consistent with discount rates used
under statutory accounting principles. The periodic discount accretion is included in the Consolidated Statements of
Earnings as a component of losses and loss adjustment expenses.
(m) Deferred charges reinsurance assumed
The excess of estimated liabilities for claims and claim costs over the consideration received with respect to
retroactive property and casualty reinsurance contracts that provide for indemnification of insurance risk is established
as deferred charges at inception of such contracts. The deferred charges are subsequently amortized using the interest
method over the expected claim settlement periods. Changes to the estimated timing or amount of loss payments
produce changes in periodic amortization. Such changes in estimates are determined retrospectively and are included
in insurance losses and loss adjustment expenses in the period of the change.
(n) Insurance premium acquisition costs
Costs that vary with and are related to the issuance of insurance policies are deferred, subject to ultimate recoverability,
and are charged to underwriting expenses as the related premiums are earned. Acquisition costs consist of commissions,
premium taxes, advertising and other underwriting costs. The recoverability of premium acquisition costs generally
reflects anticipation of investment income. The unamortized balances of deferred premium acquisition costs are included
in other assets and were $1,698 million and $1,519 million at December 31, 2008 and 2007, respectively.
34