Suzuki 2005 Annual Report Download - page 30

(c)Reserve for warranty costs
The reserve for warranty costs is appropriated into the account to allow for an
estimated costs related to maintenance services of the products sold. This
estimate, which is affected by the actual defect ratio of products and repairing
costs is, in principle, based on warranty agreements and historical results.
Therefore if the estimates differ from the actual defect ratio of products and
repairing costs, this reserve may need to be revised.
(d)Allowance for product liabilities
With regard to the products exported to the North American market, to prepare for
any payment of compensation not covered by "Product Liability Insurance", the
anticipated amount to be borne by the Company and its subsidiaries is calculated
and provided on the basis of historical results. Therefore if lawsuits increase, this
reserve may need to be revised.
(e)Marketable securities, investment in securities
The Company and its subsidiaries hold securities of financial institutions and of
our suppliers. These are subject to the risk of price fluctuations and under certain
market conditions, we may have to conduct a review of their valuations and
downgrade our assessments accordingly, based on the reasonable accounting
standards. If the stock market falls, we may incur significant valuation losses of
marketable securities.
Securities have to be classified into four categories: trading securities; held-to-
maturity debt securities; investments of the Company in equity securities issued by
unconsolidated subsidiaries and affiliates; and other securities.
According to this classification, securities held by the Company and its
subsidiaries are other securities. Other securities for which market quotations are
available are stated at fair value by the closing date's market value method.
Unrealized gains or losses are included in a component of shareholders' equity at a
net-of-tax amount, and gains or losses from sales of securities are recognized on
cost determined by the moving average method.
Other securities for which market quotations are unavailable are stated at cost by
a moving average method.
(f)Hedge accounting
Gains or losses arising from changes in fair value of the derivatives designated as
"hedging instruments" are deferred as an asset or liability and included in net profit
or loss in the same period during which the gains and losses on the hedged items
or transactions are recognized.
The derivatives designated as hedging instruments by the Company and its
subsidiaries are principally interest swaps and forward exchange contracts. The
related hedged items are trade accounts receivable and investments in securities.
The Company and its subsidiaries have a policy to utilize the above hedging
instruments in order to reduce our exposure to the risk of interest rate and foreign
exchange fluctuation. Thus, our purchases of the hedging instruments are limited
to, at maximum, the amounts of the hedged items. The Company and its
subsidiaries evaluate effectiveness of its hedging activities by reference to the
accumulated gains or losses on the hedging instruments and the related hedged
items from the commencement of the hedges.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUZUKI MOTOR CORPORATION
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