Canon 2015 Annual Report Download - page 59

CANON ANNUAL REPORT 2015 57
STRATEGY BUSINESS SEGMENT CORPORATE STRUCTURE FINANCIAL SECTION CORPORATE DATA
impact of price protection obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general
and administrative expenses in the consolidated statements
of income. Estimates for accrued product warranty costs are
based on historical experience, and are affected by ongoing
product failure rates, specific product class failures outside of
the baseline experience, material usage and service delivery
costs incurred in correcting a product failure.
Taxes collected from customers and remitted to govern-
mental authorities are excluded from revenues in the consoli-
dated statements of income.
(r) Research and Development Costs
Research and development costs are expensed as incurred.
(s) Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses
were ¥80,907 million, ¥79,765 million and ¥86,398 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥52,504 million, ¥49,576 mil-
lion and ¥47,460 million for the years ended December 31, 2015,
2014 and 2013, respectively, and are included in selling, general and
administrative expenses in the consolidated statements of income.
(u) Derivative Financial Instruments
All derivatives are recognized at fair value and are included in
prepaid expenses and other current assets, or other current lia-
bilities in the consolidated balance sheets.
Canon uses and designates certain derivatives as a hedge
of a forecasted transaction or the variability of cash flows to
be received or paid related to a recognized asset or liability
(“cash flow” hedge). Canon formally documents all relation-
ships between hedging instruments and hedged items, as well
as its risk-management objective and strategy for undertaking
various hedge transactions. Canon also formally assesses, both
at the hedge’s inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
When it is determined that a derivative is not highly effective
as a hedge or that it has ceased to be a highly effective hedge,
Canon discontinues hedge accounting prospectively. Changes
in the fair value of a derivative that is designated and quali-
fies as a cash flow hedge are recorded in other comprehen-
sive income (loss), until earnings are affected by the variability
in cash flows of the hedged item. Gains and losses from hedg-
ing ineffectiveness are included in other income (deductions).
Gains and losses related to the components of hedging instru-
ments excluded from the assessment of hedge effectiveness
are included in other income (deductions).
Canon also uses certain derivative financial instruments which are
not designated as hedges. The changes in fair values of these deriva-
tive financial instruments are immediately recorded in earnings.
Canon classifies cash flows from derivatives as cash flows from
operating activities in the consolidated statements of cash flows.
(v) Guarantees
Canon recognizes, at the inception of a guarantee, a liability for the
fair value of the obligation it has undertaken in issuing guarantees.
(w) Recently Issued Accounting Guidance
In September 2015, the Financial Accounting Standards Board
(“FASB”) issued an amendment which requires an acquirer in
a business combination to recognize the effect on earnings
of any adjustments identified during the measurement period
after an acquisition in the same period the adjustment is iden-
tified, as opposed to the prior guidance which required mate-
rial adjustments be retrospectively adjusted. Canon adopted
this amended guidance from the quarter beginning October 1,
2015. This adoption did not have a material impact on its con-
solidated results of operations and financial condition.
In May 2014, the FASB issued a new accounting standard
related to revenue from contracts with customers. This stan-
dard requires an entity to recognize revenue when promised
goods or services are transferred to customers in an amount
that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. This stan-
dard was originally planned to be effective for annual report-
ing periods beginning after December 15, 2016, however, in
August 2015, the FASB issued an accounting standard update
for a one-year deferral of the effective date. Early adoption as
of the original effective date is permitted. This standard may
be applied retrospectively to each prior reporting period pre-
sented or retrospectively with the cumulative effect of initially
applying this standard recognized at the date of initial applica-
tion. Canon has not selected a transition method and is cur-
rently evaluating the adoption date and the effect that the
adoption of this standard will have on its consolidated results
of operations and financial condition.
In July 2015, the FASB issued an amendment which requires
an entity to measure inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably pre-
dictable costs of completion, disposal, and transportation.
This guidance is effective for annual reporting periods begin-
ning after December 15, 2016, and early adoption is permit-
ted. Canon is currently evaluating the adoption date and does
not expect the adoption of this guidance to have a material
impact on its consolidated results of operations and financial
condition.
In November 2015, the FASB issued an amendment which
requires deferred tax assets and liabilities be classified as noncur-
rent in the consolidated balance sheets. This guidance is effec-
tive for annual reporting periods beginning after December 15,
2016, and early adoption is permitted. Canon will early adopt
this amended guidance from the quarter beginning January 1,
2016, on a prospective basis, and prior periods were not ret-
rospectively adjusted. The adoption of this guidance will have
an impact on its consolidated balance sheets as our current
deferred tax assets were ¥55,108 million and current deferred