Panasonic 2006 Annual Report Download - page 60

58 Matsushita Electric Industrial Co., Ltd. 2006
The Company also occasionally offers incentive pro-
grams to its distributors in the form of rebates. These
rebates are accrued at the later of the date at which the
related revenue is recognized or the date at which the
incentive is offered, and are recorded as reductions of
sales in accordance with EITF 01-09, “Accounting for
Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor’s Products).”
(e) Leases (See Note 7)
Prior to April 1, 2005, a subsidiary of the Company
leased machinery and equipment to third parties. Leases
of such assets were principally accounted for as direct
financing leases and included in “Trade receivables—
Accounts” and “Noncurrent receivables” in the
accompanying consolidated balance sheet.
On April 1, 2005, the Company sold the majority
shares of this subsidiary to a third party, and began to
account for its remaining investment using the equity
method.
(f) Inventories (See Note 4)
Finished goods and work in process are stated at the
lower of cost (average) or market. Raw materials are
stated at cost, principally on a first-in, first-out basis,
not in excess of current replacement cost.
(g) Foreign Currency Translation (See Note 14)
Foreign currency financial statements are translated in
accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, “Foreign Currency Transla-
tion,” under which all assets and liabilities are translated
into yen at year-end rates and income and expense
accounts are translated at weighted-average rates.
Adjustments resulting from the translation of financial
statements are reflected under the caption, “Accumulated
other comprehensive income (loss),” a separate compo-
nent of stockholders’ equity.
(h) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Deprecia-
tion is computed primarily using the declining balance
method based on the following estimated useful lives:
Buildings ......................................... 5 to 50 years
Machinery and equipment............... 2 to 10 years
(i) Goodwill and Other Intangible Assets (See Note 9)
Goodwill represents the excess of costs over the fair
value of net assets of businesses acquired. The Com-
pany adopted the provisions of SFAS No. 142,
“Goodwill and Other Intangible Assets.” Goodwill and
intangible assets acquired in a purchase business com-
bination and determined to have an indefinite useful
life are not amortized, and are instead tested for
impairment at least annually based on assessment of
current estimated fair value of the intangible asset.
SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values,
and reviewed for impairment based on an assessment of
the undiscounted cash flows expected by the asset. An
impairment charge is recognized for the amount by
which the carrying amount of the asset exceeds the fair
value of the asset.
( j) Investments and Advances (See Notes 5, 6 and 14)
Investments and advances primarily consist of invest-
ments in and advances to associated companies, cost
method investments, available-for-sale securities, and
long-term deposits. Cost method investments and
long-term deposits are recorded at historical cost.
The equity method is used to account for invest-
ments in associated companies in which the Company
exerts significant influence, generally having a 20% to
50% ownership interest, and corporate joint ventures.
The Company also uses the equity method for some
subsidiaries if the minority shareholders have substan-
tive participating rights. Under the equity method of
accounting, investments are stated at their underlying
net equity value after elimination of intercompany
profits. The cost method is used when the Company
does not have significant influence.
The excess of cost of the stock of the associated com-
panies over the Company’s share of their net assets at the
acquisition date, included in the equity investment bal-
ance, is recognized as equity method goodwill. Such
equity method goodwill is not being amortized and is
instead tested for impairment as part of the equity
method investment.
The Company accounts for debt and equity securi-
ties in accordance with SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities.”
SFAS No. 115 requires that certain investments in
debt and equity securities be classified as held-to-maturity,
trading, or available-for-sale securities. The Company
classifies its existing marketable equity securities other
than investments in associated companies and all debt
securities as available-for-sale. Available-for-sale securi-
ties are carried at fair value with unrealized holding
gains or losses included as a component of accumulated
other comprehensive income (loss), net of applicable
taxes.
Realized gains and losses are determined on the
average cost method and reflected in earnings.
On a continuous basis, but no less frequently than
at the end of each semi-annual period, the Company
evaluates the carrying amount of each of the investments
in associated companies, cost method investments and
available-for-sale securities for possible other-than-
temporary impairment. Factors considered in assessing
whether an indication of other-than-temporary impair-
ment exists include the period of time the fair value has
been below the carrying amount or cost basis of invest-
ment, financial condition and prospects of each
investee, and other relevant factors.