Honda 2013 Annual Report Download - page 42

If our estimates of unrecognized tax benefits and potential
tax benefits are not representative of actual outcomes, our
consolidated financial statements could be materially affected
in the period of settlement or when the statutes of limitations
expire, as we treat these events as discrete items in the period
of resolution. Since it is difficult to estimate actual payment in
the future related to our uncertain tax positions, unrecognized
tax benefit totaled ¥39,151 million is not represented in the
table above.
At March 31, 2013, we had no material capital lease obliga-
tions or long-term liabilities reflected on our balance sheet
under U.S. GAAP other than those set forth in the table on the
previous page.
Application of Critical Accounting Policies
Critical accounting policies are those which require us to
apply the most difficult, subjective or complex judgments,
often requiring us to make estimates about the effect of mat-
ters that are inherently uncertain and which may change in
subsequent periods, or for which the use of different esti-
mates that could have reasonably been used in the current
period would have had a material impact on the presentation
of our financial condition and results of operations. Further
changes in the economic environment surrounding us, effects
by market conditions, effects of currency fluctuations or other
factors have combined to increase the uncertainty inherent in
such estimates and assumptions.
The following is not intended to be a comprehensive list of
all our accounting policies.
We have identified the following critical accounting policies
with respect to our financial presentation.
Product Warranty
We warrant our products for specific periods of time.
Product warranties vary depending upon the nature of the
product, the geographic location of their sales and other factors.
We recognize costs for general warranties on products we
sell and product recalls. We provide for estimated warranty
costs at the time products are sold to customers or the time
new warranty programs are initiated. Estimated warranty
costs are provided based on historical warranty claim experi-
ence with consideration given to the expected level of future
warranty costs, including current sales trends, the expected
number of units to be affected and the estimated average
repair cost per unit for warranty claims. Our products contain
certain parts manufactured by third party suppliers. Since
suppliers typically warrant these parts, the expected receiv-
ables from warranties of these suppliers are deducted from
our estimates of accrued warranty obligations.
We believe our accrued warranty liability is a “critical
accounting estimate” because changes in the calculation can
materially affect net income attributable to Honda Motor Co.,
Ltd., and require us to estimate the frequency and amounts
of future claims, which are inherently uncertain.
Our policy is to continuously monitor warranty cost accru-
als to determine the adequacy of the accrual. Therefore,
warranty expense accruals are maintained at an amount we
deem adequate to cover estimated warranty expenses.
Actual claims incurred in the future may differ from the
original estimates, which may result in material revisions to
the warranty expense accruals.
The changes in provisions for those product warranties and
net sales and other operating revenue for each of the years in
the three-year period ended March 31, 2013 are as follows:
Yen (millions)
Fiscal years ended March 31 2012 2013
Provisions for product
warranties
Balance at beginning of year ¥ 213,943 ¥ 170,562
Warranty claims paid during
the period (82,547) (64,942)
Liabilities accrued for
warranties issued during
the period 60,004 97,108
Changes in liabilities for
pre-existing warranties
during the period* (17,697) (8,583)
Foreign currency translation (3,141) 13,888
Balance at end of year 170,562 208,033
Net sales and other operating
revenue ¥7,948,095 ¥9,877,947
Note: Changes in liabilities for pre-existing warranties during the period for the
fiscal year ended March 31, 2012, was ¥17.6 billion, due mainly to the
change of the expected level of future warranty costs, including the
expected number of units to be affected and estimated average repair
cost per unit for product recalls.
Credit Losses
Our finance subsidiaries provide retail lending and leasing to
customers and wholesale financing to dealers primarily to
support sales of our products. Honda classifies retail and
direct financing lease receivables (consumer finance receiv-
ables) derived from those services as finance subsidiaries-
receivables. Operating leases are classified as property on
operating leases. Certain finance receivables related to
sales of inventory are included in trade accounts and notes
receivable and other assets in the consolidated balance
sheets. Receivables on past due operating lease rental
payments are included in other current assets in the
consolidated balance sheets.
Annual Report 201340