Yamaha 2006 Annual Report Download - page 60

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(f) Inventories
Inventories of the Company and its domestic consolidated subsidiaries are stated principally at the lower of cost or market, cost
being determined by the last-in, first-out method. Inventories of the Company’s overseas consolidated subsidiaries are stated princi-
pally at the lower of cost or market, cost being determined by the moving average method.
(g) Depreciation and amortization
Depreciation of property, plant and equipment is calculated principally by the declining-balance method (except that certain consoli-
dated subsidiaries employ the straight-line method) at rates based on the estimated useful lives of the respective assets.
Estimated useful lives:
Buildings: 31-50 years (Leasehold improvements: 15 years)
Structures: 10-30
Machinery and equipment: 4-11
Tools, furniture and fixtures: 5-6 (Molds: 2 years)
Effective April 1, 2004, the Company and its consolidated subsidiaries changed their method of depreciation of certain recre-
ation facilities from the straight-line method to the declining-balance method due to a deterioration in their economic value as a
result of recent unfavorable conditions in the recreation segment. With this change, depreciation expense increased by ¥1,274 mil-
lion and income before income taxes and minority interests decreased by ¥1,274 million for the year ended March 31, 2005.
The effect of this change on segment information is disclosed in Note 21 (3).
(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount sufficient to cover possible losses on the collection of receivables.
The level of the provision is based on the historical experience with write-offs plus an estimate of specific probable doubtful
accounts determined by on a review of the collectibility of individual receivables.
(i) Retirement benefits
Accrued employees’ retirement benefits: Accrued employees’ retirement benefits are provided based on the projected retirement
benefit obligation and the pension fund assets.
Prior service cost is amortized as incurred by the straight-line method over a period (10 years) which is shorter than the average
remaining years of service of the employees participating in the plans.
Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized, primarily by the
straight-line method, over a period (10 years) which is shorter than the average remaining years of service of the employees partici-
pating in the plans.
See Note 14 for the method of accounting for the separation of the substitutional portion from the corporate portion of the ben-
efit obligation under the Welfare Pension Fund Plan.
Directors’ and statutory auditors’ retirement benefits: The Company’s directors and statutory auditors are customarily entitled to
receive lump-sum retirement payments based on the Company’s internal bylaws. The Company provides a 100% allowance for
retirement benefits for its directors and statutory auditors based on its own internal regulations.
(j) Warranty reserve
A warranty reserve is provided to cover the cost of customers’ claims relating to after-sales service and repairs. The amount of this
reserve is estimated based on a percentage of the amount or volume of sales and after considering the historical experience with
repairs of products under warranty.
(k) Leases
Non-cancelable leases are accounted for as operating leases regardless of whether such leases are classified as operating or
finance leases, except that leases which stipulate the transfer of ownership of the leased assets to the lessee are accounted for as
finance leases.
(l) Income taxes
Deferred income taxes are recognized by the liability method. Under the liability method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured
using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.
(m) Derivative financial instruments
Derivative financial instruments are carried at fair value with any changes in unrealized gain or loss charged or credited to opera-
tions, except for those which meet the criteria for deferral hedge accounting under which the unrealized gain or loss is deferred as
an asset or a liability. Forward foreign exchange contracts which meet certain criteria are accounted for by the allocation method,
which is utilized to hedge against risk arising from fluctuation in foreign exchange rates.
The Yamaha Group does not conduct an assessment of the effectiveness of its hedging activities because the relationship
between the anticipated cash flows fixed by the hedging activities and the avoidance of market risk is so clear that there is no need
to evaluate the performance of each hedge against that of the underlying hedged item.