Berkshire Hathaway 2013 Annual Report Download - page 35

Notes to Consolidated Financial Statements (Continued)
(1) Significant accounting policies and practices (Continued)
(d) Investments (Continued)
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, we record the investment at cost and subsequently increase or decrease the carrying
amount of the investment by our proportionate share of the net earnings or losses and other comprehensive income of
the investee. We record dividends or other equity distributions as reductions in the carrying value of the investment. In
the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if
other investments in the investee are at-risk, even if we have not committed to provide financial support to the investee.
Such additional equity method losses, if any, are based upon the change in our claim on the investee’s book value.
Investment gains and losses arise when investments are sold (as determined on a specific identification basis) or are
other-than-temporarily impaired. If a decline in the value of an investment below cost is deemed other than temporary,
the cost of the investment is written down to fair value, with a corresponding charge to earnings. Factors considered in
determining whether an impairment is other than temporary include: the financial condition, business prospects and
creditworthiness of the issuer, the relative amount of the decline, our ability and intent to hold the investment until the
fair value recovers and the length of time that fair value has been less than cost. With respect to an investment in a
fixed maturity security, we recognize an other-than-temporary impairment if we (a) intend to sell or expect to be
required to sell the security before its amortized cost is recovered or (b) do not expect to ultimately recover the
amortized cost basis even if we do not intend to sell the security. We recognize losses under (a) in earnings and under
(b) we recognize the credit loss component in earnings and the difference between fair value and the amortized cost
basis net of the credit loss in other comprehensive income.
(e) Receivables, loans and finance receivables
Receivables of the insurance and other businesses are stated net of estimated allowances for uncollectible balances.
Allowances for uncollectible balances are provided when it is probable counterparties or customers will be unable to
pay all amounts due based on the contractual terms. Receivables are generally written off against allowances after all
reasonable collection efforts are exhausted.
Loans and finance receivables consist primarily of manufactured housing installment loans originated or purchased.
Loans and finance receivables are stated at amortized cost based on our ability and intent to hold such loans and
receivables to maturity and are stated net of allowances for uncollectible accounts. Amortized cost represents
acquisition cost, plus or minus origination and commitment costs paid or fees received, which together with acquisition
premiums or discounts, are deferred and amortized as yield adjustments over the life of the loan. Loans and finance
receivables include loan securitizations issued when we have the power to direct and the right to receive residual
returns. Substantially all of these loans are secured by real or personal property or other assets of the borrower.
Allowances for credit losses from manufactured housing loans include estimates of losses on loans currently in
foreclosure and losses on loans not currently in foreclosure. Estimates of losses on loans in foreclosure are based on
historical experience and collateral recovery rates. Estimates of losses on loans not currently in foreclosure consider
historical default rates, collateral recovery rates and existing economic conditions. Allowances for credit losses also
incorporate the historical average time elapsed from the last payment until foreclosure.
Loans in which payments are delinquent (with no grace period) are considered past due. Loans which are over 90 days
past due or in foreclosure are placed on nonaccrual status and interest previously accrued but not collected is reversed.
Subsequent amounts received on the loans are first applied to the principal and interest owed for the most delinquent
amount. Interest income accruals are resumed once a loan is less than 90 days delinquent.
Loans in the foreclosure process are considered non-performing. Once a loan is in foreclosure, interest income is not
recognized unless the foreclosure is cured or the loan is modified. Once a modification is complete, interest income is
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