DuPont 2014 Annual Report Download - page 64

E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements (continued)
(Dollars in millions, except per share)
F-11
Inventories
The company's inventories are valued at the lower of cost or market. Elements of cost in inventories include raw materials, direct
labor and manufacturing overhead. Stores and supplies are valued at cost or market, whichever is lower; cost is generally determined
by the average cost method.
As of December 31, 2014 and 2013 approximately 50 percent, 25 percent and 25 percent of the company’s inventories were
accounted for under the first-in first out (FIFO), last-in first out (LIFO) and average cost methods, respectively. Inventories
accounted for under the FIFO method are primarily comprised of products with shorter shelf lives such as seeds, certain food-
ingredients and enzymes.
Property, Plant and Equipment
Property, plant and equipment is carried at cost and is depreciated using the straight-line method. Property, plant and equipment
placed in service prior to 1995 is depreciated under the sum-of-the-years' digits method or other substantially similar methods.
Substantially all equipment and buildings are depreciated over useful lives ranging from 15 to 25 years. Capitalizable costs
associated with computer software for internal use are amortized on a straight-line basis over 5 to 7 years. When assets are
surrendered, retired, sold or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed
from the accounts and included in determining gain or loss on such disposals.
Maintenance and repairs are charged to operations; replacements and improvements are capitalized.
Goodwill and Other Intangible Assets
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not
individually identified and separately recognized. Goodwill and indefinite-lived intangible assets are tested for impairment at least
annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the asset may
be impaired. Impairment exists when carrying value exceeds fair value. The company's fair value methodology is based on prices
of similar assets or other valuation methodologies including discounted cash flow techniques. During the third quarter 2014, the
company changed its annual impairment testing from September 30th to July 1st. The company believes this timing is preferable
as it better aligns the goodwill impairment test with its strategic business planning cycle. This change did not result in the delay,
acceleration or avoidance of an impairment charge. The change was applied prospectively, as retrospective application would
have been impractical because the company is unable to objectively select assumptions that would have been used in previous
periods without the benefit of hindsight. The company completed its annual impairment testing in the third quarter of 2014 and
determined that no adjustments to the carrying value of goodwill or indefinite lived intangible assets were necessary.
Definite-lived intangible assets, such as purchased and licensed technology, patents and customer lists are amortized over their
estimated useful lives, generally for periods ranging from 1 to 20 years or amortized based on units of production. The company
continually evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed
from the Consolidated Balance Sheets.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances
indicate the carrying value may not be recoverable. The carrying value of a long-lived asset group is considered impaired when
the total projected undiscounted cash flows from the assets are separately identifiable and are less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The
company's fair value methodology is an estimate of fair market value which is made based on prices of similar assets or other
valuation methodologies including present value techniques. Long-lived assets to be disposed of other than by sale are classified
as held for use until their disposal. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at
the lower of carrying amount or fair market value less cost to sell. Depreciation is discontinued for long-lived assets classified as
held for sale.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses include costs (primarily consisting
of employee costs, materials, contract services, research agreements, and other external spend) relating to the discovery and
development of new products, enhancement of existing products and regulatory approval of new and existing products.