Berkshire Hathaway 2009 Annual Report Download - page 32

Notes to Consolidated Financial Statements (Continued)
(1) Significant accounting policies and practices (Continued)
(f) Derivatives
We carry derivative contracts at estimated fair value in the accompanying Consolidated Balance Sheets. Such
balances reflect reductions permitted under master netting agreements with counterparties. The changes in fair value
of derivative contracts that do not qualify as hedging instruments for financial reporting purposes are recorded in
earnings as derivative gains/losses.
Cash collateral received from or paid to counterparties to secure derivative contract assets or liabilities is included in
other liabilities or assets of finance and financial products businesses. Securities received from counterparties as
collateral are not recorded as assets and securities delivered to counterparties as collateral continue to be reflected as
assets in our Consolidated Balance Sheets.
(g) Fair value measurements
As defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability
between market participants in the principal market or in the most advantageous market when no principal market
exists. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange
and not under duress. Nonperformance or credit risk is considered in determining the fair value of liabilities.
Considerable judgment may be required in interpreting market data used to develop the estimates of fair value.
Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be
realized in a current or future market exchange.
Effective April 1, 2009, the FASB amended ASC 820 Fair Value Measurements and Disclosures to clarify that
adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to
estimate fair value. This amendment prescribes no specific methodology for making adjustments to transaction prices
or quoted prices but rather confirms that different valuation techniques may be appropriate under the circumstances to
determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. In
August 2009, the FASB issued Accounting Standards Update 2009-05, “Measuring Liabilities at Fair Value” (“ASU
2009-05”). ASU 2009-05 provides guidance on valuing a liability when a quoted price in an active market is not
available and was effective October 1, 2009. The adoption of the amendment to ASC 820 and ASU 2009-05 did not
have a material impact on our Consolidated Financial Statements.
(h) Inventories
Inventories consist of manufactured goods and purchased goods acquired for resale. Manufactured inventory costs
include raw materials, direct and indirect labor and factory overhead. Inventories are stated at the lower of cost or
market. As of December 31, 2009, approximately 40% of the total inventory cost was determined using the
last-in-first-out (“LIFO”) method, 32% using the first-in-first-out (“FIFO”) method, with the remainder using the
specific identification method or average cost methods. With respect to inventories carried at LIFO cost, the aggregate
difference in value between LIFO cost and cost determined under FIFO methods was $661 million and $607 million
as of December 31, 2009 and 2008, respectively.
(i) Property, plant and equipment
Additions to property, plant and equipment are recorded at cost. The cost of major additions and betterments are
capitalized, while the cost of replacements, maintenance and repairs that do not improve or extend the useful lives of
the related assets are expensed as incurred. Interest over the construction period is capitalized as a component of cost
of constructed assets. In addition, the cost of constructed assets of certain of our regulated utility and energy
subsidiaries that are subject to ASC 980 Regulated Operations also includes an equity allowance for funds used during
construction. Also see Note 1(p).
Depreciation is provided principally on the straight-line method over estimated useful lives. Depreciation of assets of
certain regulated utility and energy subsidiaries is provided over recovery periods based on composite asset class lives
as agreed to by regulators.
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