Berkshire Hathaway 2010 Annual Report Download - page 36

BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
(1) Significant accounting policies and practices
(a) Nature of operations and basis of consolidation
Berkshire Hathaway Inc. (“Berkshire”) is a holding company owning subsidiaries engaged in a number of diverse
business activities, including property and casualty insurance and reinsurance, railroad, utilities and energy, finance,
manufacturing, service and retailing. In these notes the terms “us,” “we,” or “our” refer to Berkshire and its
consolidated subsidiaries. Further information regarding our reportable business segments is contained in Note 21.
Significant business acquisitions completed over the past three years are discussed in Note 2.
The accompanying Consolidated Financial Statements include the accounts of Berkshire consolidated with the
accounts of all subsidiaries and affiliates in which we hold a controlling financial interest as of the financial statement
date. Normally a controlling financial interest reflects ownership of a majority of the voting interests. We consolidate
a variable interest entity (“VIE”) when we possess both the power to direct the activities of the VIE that most
significantly impact its economic performance and we are either obligated to absorb the losses that could potentially
be significant to the VIE or we hold the right to receive benefits from the VIE that could potentially be significant to
the VIE.
Intercompany accounts and transactions have been eliminated. Certain amounts in prior year presentations have been
reclassified to conform with the current year presentation.
(b) Use of estimates in preparation of financial statements
The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted
in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the period. In particular, estimates of unpaid losses and loss adjustment expenses and related recoverables under
reinsurance for property and casualty insurance are subject to considerable estimation error due to the inherent
uncertainty in projecting ultimate claim amounts that will be settled over many years. In addition, estimates and
assumptions associated with the amortization of deferred charges reinsurance assumed, determinations of fair values
of certain financial instruments and evaluations of goodwill for impairment require considerable judgment. Actual
results may differ from the estimates used in preparing our Consolidated Financial Statements.
(c) Cash and cash equivalents
Cash equivalents consist of funds invested in U.S. Treasury Bills, money market accounts, demand deposits and other
investments with a maturity of three months or less when purchased.
(d) Investments
We determine the appropriate classification of investments in fixed maturity and equity securities at the acquisition
date and re-evaluate the classification at each balance sheet date. Held-to-maturity investments are carried at
amortized cost, reflecting the ability and intent to hold the securities to maturity. Trading investments are carried at
fair value and include securities acquired with the intent to sell in the near term. All other securities are classified as
available-for-sale and are carried at fair value with net unrealized gains or losses reported as a component of
accumulated other comprehensive income.
We utilize the equity method of accounting with respect to investments when we possess the ability to exercise
significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise
significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee.
This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to
exercise significant influence is restricted. We apply the equity method to investments in common stock and to other
investments when such other investments possess substantially identical subordinated interests to common stock. In
applying the equity method with respect to investments previously accounted for at cost or fair value, the carrying
value of the investment is adjusted on a step-by-step basis as if the equity method had been applied from the time the
investment was first acquired.
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