Toshiba 1997 Annual Report Download - page 38

36.
1. Company operations:
Toshiba Corporation and its subsidiaries are engaged in research and development, manufacture and sales of electronic and energy
high-technology products, which span information/communication systems and electronic devices, heavy electrical apparatus, and
consumer products and others with over 50 percent of sales in information/communication systems and electronic devices. The
products are manufactured and marketed throughout the world with approximately 60% of sales in Japan and the remainder in
North America, Europe, Asia and elsewhere.
2. Summary of significant accounting policies:
Preparation of financial statements –
The company and its domestic subsidiaries maintain their records and prepare their financial statements in accordance with account-
ing principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile.
Certain adjustments and reclassifications, including those relating to the tax effects of temporary differences and the accrual of
certain expenses, have been incorporated in the accompanying consolidated financial statements to conform with accounting
principles generally accepted in the United States of America. These adjustments were not recorded in the statutory books.
Basis of consolidation and investments in affiliated companies –
The consolidated financial statements include the accounts of the company and those of its subsidiaries. All significant inter-
company transactions and accounts are eliminated in consolidation.
Investments in affiliated companies (20 to 50 percent-owned companies) in which the ability to exercise significant influence
exists are stated at cost plus equity in undistributed earnings (losses). Net consolidated income includes the company’s equity in
the current net earnings (losses) of such companies, after elimination of unrealized intercompany profits.
Goodwill recognized at the time of investments in subsidiaries and affiliated companies is amortized on a straight-line basis
over the estimated period of benefit.
Use of estimates –
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Consolidated statement of cash flows –
For purposes of the statement of cash flows, the company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Foreign currency translation –
The assets and liabilities of foreign subsidiaries that operate in a local currency environment are translated into Japanese yen at
applicable current exchange rates at year end. Income and expense items are translated at average exchange rates prevailing
during the year. The effects of these translation adjustments are reported in the cumulative translation adjustment component of
shareholders’ equity. Exchange gains and losses resulting from foreign currency transactions and translation of assets and liabilities
denominated in foreign currencies are included in the consolidated statement of operations.
Revenue recognition –
Sales of finished products, other than under long-term contracts, are recorded in the accounts as shipments are made, except for
sales of certain products which are recorded in the accounts upon customer acceptance.
Sales under long-term contracts are generally recorded in the accounts upon final deliveries of equipment and the completion
and acceptance of related installation work for each contract stage.
Marketable securities and other investments –
Marketable equity securities included in marketable securities (current) and other investments (non-current) are stated at the
lower of cost or market in the aggregate. Other marketable securities included in marketable securities (current) are stated at the
lower of cost or market in the aggregate and investments other than marketable equity securities in other investments (non-
current) are stated at cost less any significant decline in fair value assessed to be other than temporary.
Realized gains and losses on the sale of securities are based on the average cost of all the units of a particular security held at
the time of sale.
Inventories –
Raw materials and finished products are stated at the lower of cost or market, cost being determined principally by the average
and first-in, first-out methods, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Toshiba Corporation and its subsidiaries