Toyota 2008 Annual Report Download - page 99

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•Annual Report 2008 • TOYOTA
Performance Messages from the Management &
•Overview •Management •Special Feature •Business Overview •Corporate Information •Financial Section •Investor Information •
Notes to Consolidated Financial Statements
Toyota Motor Corporation
Toyota is primarily engaged in the design, manufacture, and
sale of sedans, minivans, compact cars, sport-utility vehicles,
trucks and related parts and accessories throughout the world.
In addition, Toyota provides financing, vehicle and equipment
leasing and certain other financial services primarily to its deal-
ers and their customers to support the sales of vehicles and
other products manufactured by Toyota.
The parent company and its subsidiaries in Japan maintain their
records and prepare their financial statements in accordance
with accounting principles generally accepted in Japan, and its
foreign subsidiaries in conformity with those of their countries
of domicile. Certain adjustments and reclassifications have
been incorporated in the accompanying consolidated financial
statements to conform to accounting principles generally
accepted in the United States of America.
Significant accounting policies after reflecting adjustments
for the above are as follows:
Basis of consolidation and accounting for investments
in affiliated companies
The consolidated financial statements include the accounts of
the parent company and those of its majority-owned subsidiary
companies. All significant intercompany transactions and
accounts have been eliminated. Investments in affiliated com-
panies in which Toyota exercises significant influence, but which
it does not control, are stated at cost plus equity in undistrib-
uted earnings. Consolidated net income includes Toyota’s
equity in current earnings of such companies, after elimination
of unrealized intercompany profits. Investments in non-public
companies in which Toyota does not exercise significant influ-
ence (generally less than a 20% ownership interest) are stated at
cost. The accounts of variable interest entities as defined by the
Financial Accounting Standard Board Interpretation No. 46(R),
Consolidation of Variable Interest Entities (revised December
2003)—an interpretation of ARB No. 51
(“FIN 46(R)”), are includ-
ed in the consolidated financial statements, if applicable.
Estimates
The preparation of Toyota’s 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 amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates. The more sig-
nificant estimates include: product warranties, allowance for
doubtful accounts and credit losses, residual values for leased
assets, impairment of long-lived assets, pension costs and
obligations, fair value of derivative financial instruments and
other-than-temporary losses on marketable securities.
Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affili-
ates are translated into Japanese yen at appropriate year-end
current exchange rates and all income and expense accounts of
those subsidiaries are translated at the average exchange rates
for each period. The foreign currency translation adjustments
are included as a component of accumulated other comprehen-
sive income.
Foreign currency receivables and payables are translated at
appropriate year-end current exchange rates and the resulting
transaction gains or losses are recorded in operations currently.
Revenue recognition
Revenues from sales of vehicles and parts are generally recog-
nized upon delivery which is considered to have occurred when
the dealer has taken title to the product and the risk and reward
of ownership have been substantively transferred, except as
described below.
Toyota’s sales incentive programs principally consist of cash
payments to dealers calculated based on vehicle volume or a
model sold by a dealer during a certain period of time. Toyota
accrues these incentives as revenue reductions upon the sale of
a vehicle corresponding to the program by the amount deter-
mined in the related incentive program.
Revenues from the sales of vehicles under which Toyota con-
ditionally guarantees the minimum resale value is recognized
on a pro rata basis from the date of sale to the first exercise
date of the guarantee in a manner similar to lease accounting.
The underlying vehicles of these transactions are recorded as
assets and are depreciated in accordance with Toyota’s depre-
ciation policy.
Revenues from retail financing contracts and finance leases
are recognized using the effective yield method. Revenues from
operating leases are recognized on a straight-line basis over the
lease term.
Toyota on occasion sells finance receivables in transactions
subject to limited recourse provisions. These sales are to trusts
and Toyota retains the servicing rights and is paid a servicing
fee. Gains or losses from the sales of the finance receivables are
recognized in the fiscal year in which such sales occur.
Other costs
Advertising and sales promotion costs are expensed as
incurred. Advertising costs were ¥397,599 million, ¥451,182 mil-
lion and ¥484,508 million ($4,836 million) for the years ended
March 31, 2006, 2007 and 2008, respectively.
Toyota generally warrants its products against certain manu-
facturing and other defects. Provisions for product warranties
are provided for specific periods of time and/or usage of the
product and vary depending upon the nature of the product,
the geographic location of the sale and other factors. Toyota
Nature of operations: 1.
Summary of significant accounting policies: 2.