Canon 2008 Annual Report Download - page 48

46
bundled with
p
roduct maintenance contracts, revenue is fi rst
allocated considering the relative fair value of the lease and
non-lease deliverables based upon the estimated relative fair
values o
f
each element. Lease deliverables
g
enerall
y
include
equipment,
fi
nancin
g
and executor
y
costs, while non-lease
deliverables generally consist of product maintenance contracts
and su
pp
lies
.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative
f
air value
if such element meets the criteria for treatment as a se
p
arate
unit of accounting as prescribed in the Emerging Issues Task
Force
(
“EITF”
)
Issue No.00-21, “Revenue Arrangements with
Multiple Deliverables.” Otherwise, revenue is de
f
erred until the
undelivered elements are
f
ul
fi
lled and accounted
f
or as a sin
g
le
unit of accounting
.
Ca
n
o
n r
eco
r
ds
est
im
ated
r
educt
i
o
n
s
to
sa
l
es
at
t
h
e
t
im
e
o
f
sale
f
or sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
re
d
uctions in sa
l
es are
b
ase
d
u
p
on
h
istorica
l
tren
d
s an
d
ot
h
er
known factors at the time of sale. In addition, Canon
p
rovides
price protection to certain resellers o
f
its products, and records
reductions to sales
f
or the estimated impact o
f
price protection
o
bl
i
g
ations w
h
en announce
d.
Estimate
d
pro
d
uct warranty costs are recor
d
e
d
at t
h
e time
revenue is recognized and are included in selling, general and
administrative expenses. Estimates
f
or accrued product warranty
costs are based on historical experience, and are a
ff
ected b
y
on
g
oin
g
product failure rates, specifi c product class failures
outside of the baseline experience, material usage and service
delivery costs incurred in correcting a product
f
ailure
.
A
llowance
f
or doubt
f
ul receivables
Allowance for doubtful receivables is determined using a com
-
bination of factors to ensure that Canon’s trade and fi nancing
receivables are not overstated due to uncollectibility. Canon
maintains an allowance
f
or doubt
f
ul receivables
f
or all customers
based on a variet
y
of factors, includin
g
the len
g
th of time receiv
-
a
bl
es are past
d
ue, tren
d
s in overa
ll
weig
h
te
d
average ris
k
rating
of the total portfolio, macroeconomic conditions, signifi cant
one-time events and historical experience. Also, Canon records
speci
fi
c reserves
f
or individual accounts when Canon becomes
aware of a customer’s inability to meet its fi nancial obligations
to Canon, such as in the case of bankruptcy fi lings or deteriora
-
tion in the customer’s operating results or
fi
nancial position. I
f
circumstances related to customers chan
g
e, estimates o
f
the
recoverabilit
y
of receivables would be further ad
j
usted
.
Va
l
uat
i
o
n
of
inv
e
n
to
ri
es
Inventories are stated at the lower o
f
cost or market value. Cost
is determined b
y
the avera
g
e method
f
or domestic inventories and
principally the fi rst-in, fi rst-out method for overseas inventories.
Market value is the estimated selling price in the ordinary course
o
f
business less the estimated costs o
f
completion and the esti
-
mated costs necessar
y
to make a sale. Canon routinel
y
reviews
its inventories for their salabilit
y
and for indications of obsoles
-
ce
n
ce
to
dete
rmin
e
if inv
e
n
to
ri
es
s
h
ou
l
d
be
wri
tte
n-
do
wn
to
market value. Judgments and estimates must be made and used
in connection wit
h
esta
bl
is
h
in
g
suc
h
a
ll
owances in an
y
accountin
g
period. In estimating the market value of its inventories, Canon
considers the age of the inventories and the likelihood of spoilage
or chan
g
es in market demand
f
or its inventories
.
I
mpairment of long-lived asset
s
In accordance with Statement of Financial Accounting Standards
No.144, “Accounting
f
or the Impairment or Disposal o
f
Long-Lived
Assets”, lon
g
-lived assets, such as propert
y
, plant and equipment,
an
d
acquire
d
intan
g
i
bl
es su
bj
ect to amortization, are reviewe
d
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recov
-
erable. I
f
the carr
y
in
g
amount o
f
the asset exceeds its estimated
undiscounted
f
uture cash
fl
ows, an impairment char
g
e is reco
g-
nized in the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Determining the fair value
o
f
the asset involves the use o
f
estimates and assumptions.
These estimates and assumptions include
f
uture market condi
-
tions, net sa
l
es
g
rowt
h
rate,
g
ross mar
g
in an
d
d
iscount rate.
T
h
oug
h
Canon
b
e
l
ieves t
h
at t
h
e estimates an
d
assumptions are
reasonable, actual
f
uture results may di
ff
er
f
rom these estimates
and assumptions
.
P
roperty, p
l
ant an
d
equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated principally by the declining-balance method, except
f
or certain assets which are depreciated b
y
the strai
g
ht-line
m
et
h
od
o
v
e
r
t
h
e
est
im
ated
use
f
u
l liv
es
o
f
t
h
e
assets.
I
ncome taxe
s
Canon considers man
y
f
actors when evaluatin
g
and estimatin
g
income tax uncertainties. These
f
actors include an evaluation o
f
the technical merits of the tax
p
ositions as well as the amounts
and
p
robabilities of the outcomes that could be realized u
p
on
settlement. The actual resolutions o
f
those uncertainties will
inevitabl
y
di
ff
er
f
rom those estimates, and such di
ff
erences ma
y
be
m
ate
ri
a
l
to
t
h
e
fi n
a
n
c
i
a
l
state
m
e
n
ts.
Va
l
uat
i
o
n
of
defe
rr
ed
ta
x
assets
Canon currentl
y
has si
g
ni
fi
cant de
f
erred tax assets, which are
sub
j
ect to periodic recoverabilit
y
assessments. Realization o
f
Canon’s deferred tax assets is principally dependent upon its
achievement of projected future taxable income. Canon’s judg-
ments regarding
f
uture pro
fi
tability may change due to
f
uture
market conditions, its abilit
y
to continue to success
f
ull
y
execute
its operatin
g
restructurin
g
activities and other factors. An
y
changes in these factors may require possible recognition of
signifi cant valuation allowances to reduce the net carrying value
o
f
these de
f
erred tax asset balances. When Canon determines
that certain de
f
erred tax assets ma
y
not be recoverable, the
amounts w
h
ic
h
may not
b
e rea
l
ize
d
are c
h
arge
d
to income tax
expense and will adversely affect net income
.
Employee retirement and severance bene
fi
t plans
Canon has si
g
nifi cant emplo
y
ee retirement and severance
benefi t obligations that are recognized based on actuarial
valuations. Inherent in these valuations are key assumptions,