Berkshire Hathaway 2009 Annual Report Download - page 33

Notes to Consolidated Financial Statements (Continued)
(1) Significant accounting policies and practices (Continued)
(i) Property, plant and equipment (Continued)
We evaluate property, plant and equipment for impairment when events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable or the assets are being held for sale. Upon the occurrence of a
triggering event, we review the asset to assess whether the estimated undiscounted cash flows expected from the use
of the asset plus residual value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value
exceeds the estimated recoverable amounts, we write down the asset to the estimated present value of the expected
future cash flows from use of the asset. Impairment losses are reflected in the Consolidated Statements of Earnings,
except with respect to impairments of assets of certain domestic regulated utility and energy subsidiaries where
impairment losses are offset by the establishment of a regulatory asset to the extent recovery in future rates is
probable.
(j) Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business
acquisitions. We evaluate goodwill for impairment at least annually. Evaluating goodwill for impairment involves a
two-step process. The first step is to estimate the fair value of the reporting unit. There are several methods of
estimating a reporting unit’s fair value, including market quotations, asset and liability fair values and other valuation
techniques, such as discounted projected future net earnings or net cash flows and multiples of earnings. If the
carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, a second step is performed.
Under the second step, the identifiable assets, including identifiable intangible assets, and liabilities of the reporting
unit are estimated at fair value as of the current testing date. The excess of the estimated fair value of the reporting
unit over the estimated fair value of net assets establishes the implied value of goodwill. The excess of the recorded
goodwill over the implied value is charged to earnings as an impairment loss. A significant amount of judgment is
required in estimating the fair value of the reporting unit and performing goodwill impairment tests.
(k) Revenue recognition
Insurance premiums for prospective property/casualty insurance and reinsurance and health reinsurance policies are
earned in proportion to the level of protection provided. In most cases, premiums are recognized as revenues ratably
over the term of the contract with unearned premiums computed on a monthly or daily pro rata basis. Premiums for
retroactive reinsurance property/casualty policies are earned at the inception of the contracts. Premiums for life
reinsurance contracts are earned when due. Premiums earned are stated net of amounts ceded to reinsurers. Premiums
are estimated with respect to certain reinsurance contracts where reports from ceding companies for the period are not
contractually due until after the balance sheet date. For contracts containing experience rating provisions, premiums
are based upon estimated loss experience under the contract.
Sales revenues derive from the sales of manufactured products and goods acquired for resale. Revenues from sales are
recognized upon passage of title to the customer, which generally coincides with customer pickup, product delivery or
acceptance, depending on terms of the sales arrangement.
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.
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