Toyota 2015 Annual Report Download - page 152

TOYOTA MOTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue recognition -
Revenues from sales of vehicles and parts are generally recognized 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 determined in the
related incentive program.
Revenues from the sales of vehicles under which Toyota conditionally guarantees the minimum resale value
are recognized on a pro rata basis from the date of sale to the first exercise date of the guarantee in a manner
similar to operating lease accounting. The underlying vehicles of these transactions are recorded as assets and are
depreciated in accordance with Toyota’s depreciation 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.
The sale of certain vehicles includes a determinable amount for the contract, which entitles customers to
free vehicle maintenance. Such revenues from free maintenance contracts are deferred and recognized as revenue
over the period of the contract, which approximates the pattern of the related costs.
Other costs -
Advertising and sales promotion costs are expensed as incurred. Advertising costs were ¥419,409 million,
¥435,150 million and ¥489,036 million for the years ended March 31, 2014, 2015 and 2016, respectively.
Toyota generally warrants its products against certain manufacturing 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 records a provision for
estimated product warranty costs at the time the related sale is recognized based on estimates that Toyota will
incur to repair or replace product parts that fail while under warranty. The amount of accrued estimated warranty
costs is primarily based on historical experience as to product failures as well as current information on repair
costs. The amount of warranty costs accrued also contains an estimate of warranty claim recoveries to be
received from suppliers.
In addition to product warranties above, Toyota accrues for costs of recalls and other safety measures based
on management’s estimates when it is probable a liability has been incurred and the amount of loss can be
reasonably estimated. Toyota employs an estimation model, to accrue at the time of vehicle sale, an amount that
represents management’s best estimate of expenses related to future recalls and other safety measures. The
estimation model for recalls and other safety measures takes into account Toyota’s historical experience of
recalls and other safety measures.
Litigation liabilities are established to cover probable losses on various lawsuits based on the information
currently available. Attorneys’ fees are expensed as incurred.
Research and development costs are expensed as incurred. Research and development costs were
¥910,517 million, ¥1,004,547 million and ¥1,055,672 million for the years ended March 31, 2014, 2015 and
2016, respectively.
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