CHS 2011 Annual Report Download - page 37

36 2011 CHS
NOTE 1
Summary of Significant
Accounting Policies, continued
and direct labor costs. The costs of turnarounds are
deferred when incurred and amortized on a straight-line
basis over the period of time estimated to lapse until the
next turnaround occurs, which is generally 2-4 years.
The amortization expense related to turnaround costs are
included in cost of goods sold in the Consolidated State-
ments of Operations. The selection of the deferral
method, as opposed to expensing the turnaround costs
when incurred, results in deferring recognition of the
turnaround expenditures. The deferral method also
results in the classification of the related cash outflows
as investing activities in the Consolidated Statements of
Cash Flows, whereas expensing these costs as incurred,
would result in classifying the cash outflows as oper-
ating activities.
REVENUE RECOGNITION
The Company provides a wide variety of products and
services, from production agricultural inputs such as
fuels, farm supplies and crop nutrients, to agricultural
outputs that include grain and oilseed, processed grains
and oilseeds and food products. Grain and oilseed sales
are recorded after the commodity has been delivered to
its destination and final weights, grades and settlement
prices have been agreed upon. All other sales are rec-
ognized upon transfer of title, which could occur upon
either shipment or receipt by the customer, depending
upon the terms of the transaction. Amounts billed to a
customer as part of a sales transaction related to ship-
ping and handling are included in revenues. Service
revenues are recorded only after such services have
been rendered.
ENVIRONMENTAL EXPENDITURES
Liabilities, including legal costs, related to remediation
of contaminated properties are recognized when the
related costs are considered probable and can be rea-
sonably estimated. Estimates of environmental costs
are based on current available facts, existing technol-
ogy, undiscounted site-specific costs and currently
enacted laws and regulations. Recoveries, if any, are
recorded in the period in which recovery is received.
Liabilities are monitored and adjusted as new facts or
changes in law or technology occur. Environmental
expenditures are capitalized when such costs provide
future economic benefits.
INCOME TAXES
The Company is a nonexempt agricultural cooperative and
files a consolidated federal income tax return with its 80%
or more owned subsidiaries. The Company is subject to tax
on income from nonpatronage sources and undistributed
patronage-sourced income. Income tax expense is prima-
rily the current tax payable for the period and the change
during the period in certain deferred tax assets and liabil-
ities. Deferred income taxes reflect the impact of tempo-
rary differences between the amounts of assets and
liabilities recognized for financial reporting purposes
and such amounts recognized for federal and state income
tax purposes, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. Valuation
allowances have been established primarily for capital
loss carryforwards.
USE OF ESTIMATES
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America (U.S. GAAP) requires manage-
ment to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the
financial statements and the reported amounts of reve-
nues and expenses during the reporting period. Actual
results could differ from those estimates.
RECENT ACCOUNTING
PRONOUNCEMENTS
In April 2011, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update
(ASU) No. 2011-02, “Receivables (Topic 310): A Cred-
itor’s Determination of Whether a Restructuring is a
Troubled Debt Restructuring.” ASU No. 2011-02 clar-
ifies the accounting principles applied to loan modifi-
cations and addresses the recording of an impairment
loss. This guidance is effective for the interim and
annual periods beginning on or after June 15, 2011.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS