Berkshire Hathaway 2000 Annual Report Download - page 30

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(1) Significant accounting policies and practices (Continued)
(e) Inventories
Inventories are stated at the lower of cost or market. Cost with respect to manufactured goods includes raw
materials, direct and indirect labor and factory overhead. Approximately 54% of the total inventory cost
was determined using the first-in-first-out (FIFO) method with the remainder valued using the last-in-
first-out (LIFO) method. With respect to inventories carried at LIFO cost, the aggregate difference in
value between LIFO cost and cost determined under FIFO methods was not material as of December 31,
2000 and December 31, 1999.
(f) Property, plant and equipment
Property, plant and equipment is recorded at cost. Renewals and betterments are capitalized; maintenance
and repairs are charged to expense as incurred. Depreciation is provided principally on the straight-line
method over estimated useful lives as follows: aircraft, simulators, training equipment and spare parts, 4
to 20 years; buildings and improvements, 10 to 40 years; machinery, equipment, furniture and fixtures, 3
to 10 years. Leasehold improvements are amortized over the life of the lease or the life of the
improvement, whichever is shorter. Interest is capitalized as an integral component of cost during the
construction period of simulators and facilities and is amortized over the life of the related assets.
(g) Goodwill of acquired businesses
Goodwill of acquired businesses represents the difference between purchase cost and the fair value of the
net assets of acquired businesses and is being amortized on a straight line basis generally over 40 years.
The Company periodically reviews the recoverability of the carrying value of goodwill of acquired
businesses to ensure it is appropriately valued. In the event that a condition is identified which may
indicate an impairment issue exists, an assessment is performed using a variety of methodologies.
During the fourth quarter of 2000, Berkshire management concluded that an impairment of goodwill
existed with respect to the investment in Dexter Shoe. For the years ended December 31, 2000 and
1999, as a result of intense competition from importers, Dexter Shoe has incurred operating losses.
During 2000, certain manufacturing facilities were closed and certain other facilities are expected to
close in 2001. Goodwill amortization shown in the accompanying Consolidated Statements of Earnings
for 2000 includes a charge of $219 million related to the impairment.
(h) Revenue recognition
Insurance premiums for prospective property/casualty insurance and reinsurance and health reinsurance
policies are earned in proportion to the level of insurance protection provided. In most cases, premiums
are recognized as revenues ratably over their terms with unearned premiums computed on a monthly or
daily pro rata basis. Premium adjustments on contracts and audit premiums are based on estimates over
the contract period. Consideration received for retroactive reinsurance policies, including structured
settlements, is recognized as premiums earned at the inception of the contracts. Premiums for life
contracts are earned when due. Premiums earned are stated net of amounts ceded to reinsurers.
Revenues from product or merchandise sales are recognized upon passage of title to the customer, which
coincides with customer pickup, product shipment, delivery or acceptance, depending on terms of the
sales arrangement. Service revenues are generally recognized as the services are performed. Services
provided pursuant to a contract are either recognized over the contract period, or upon completion of the
elements specified in the contract, depending on the terms of the contract.
(i) Insurance premium acquisition costs
Certain costs of acquiring insurance premiums are deferred, subject to ultimate recoverability, and charged
to income as the premiums are earned. The recoverability of premium acquisition costs of direct
insurance businesses is determined without regard to investment income. The recoverability of premium
acquisition costs from reinsurance assumed businesses, generally, reflects anticipation of investment
income. The unamortized balances of deferred premium acquisition costs are included in other assets
and were $916 million and $791 million at December 31, 2000 and 1999, respectively.