Canon 2006 Annual Report Download - page 65

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(g) Marketable Securities and Investments
Canon classifies investments in debt and marketable equity
securities as available-for-sale, or held-to-maturity securities.
Canon does not hold any trading securities which are bought
and held primarily for the purpose of sale in the near term.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of the related tax effect, are
reported as a separate component of other comprehensive
income (loss) until realized. Held-to-maturity securities are
recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts.
Available-for-sale and held-to-maturity securities are regu-
larly reviewed for other-than-temporary declines in carrying
value based on criteria that include the length of time and the
extent to which the market value has been less than cost, the
financial condition and near-term prospects of the issuer and
Canon’s intent and ability to retain the investment for a period
of time sufficient to allow for any anticipated recovery in market
value. When such a decline exists, Canon recognizes an impair-
ment loss to the extent by which the cost basis of the investment
exceeds the fair value of the investment. Fair value is determined
based on quoted market prices, projected discounted cash
flows or other valuation techniques as appropriate.
Realized gains and losses are determined on the average
cost method and reflected in earnings.
Other securities are stated at cost and reviewed periodically
for impairment.
(h) Allowance for Doubtful Receivables
Allowance for doubtful trade and finance receivables is main-
tained for all customers based on a combination of factors,
including aging analysis, macroeconomic conditions, significant
one-time events, and historical experience. An additional
reserve for individual accounts is recorded when Canon
becomes aware of a customer’s inability to meet its financial
obligations, such as in the case of bankruptcy filings. If circum-
stances related to customers change, estimates of the recover-
ability of receivables would be further adjusted. When all
collection options are exhausted including legal recourse, the
accounts or portions thereof are deemed to be uncollectible
and charged against the allowance.
(i) Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined principally by the average method for
domestic inventories and the first-in, first-out method for
overseas inventories.
(j) Investments in Affiliated Companies
Investments in affiliated companies over which Canon has
the ability to exercise significant influence, but does not hold
acontrolling financial interest, are accounted for by the
equity method.
(k) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and
acquired intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of the asset exceeds its estimated
undiscounted future cash flows, an impairment charge is rec-
ognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Assets to be disposed
of by sale are reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated.
(l) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method, except
for certain assets which are depreciated by the straight-line
method over the estimated useful lives of the assets. The
depreciation period ranges from 3 years to 60 years for buildings
and 2 years to 20 years for machinery and equipment.
Assets leased to others under operating leases are stated at
cost and depreciated to the estimated residual value of the
assets by the straight-line method over the period ranging from
2years to 5 years.
(m) Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite useful
lives are not amortized, but are instead tested for impairment
annually in the fourth quarter of each year, or more frequently
if indicators of potential impairment exist. Intangible assets
with finite useful lives, consisting primarily of software and
license fees, are amortized using the straight-line method over
the estimated useful lives, which range from 3 years to 5 years
for software and 5 years to 10 years for license fees. Certain
costs incurred in connection with developing or obtaining
internal use software are capitalized. These costs consist of
payments made to third parties and the salaries of employees
working on such software development. Costs incurred in con-
nection with developing internal use software are capitalized at
the application development stage. In addition, Canon develops
or obtains certain software to be sold where related costs are
capitalized after establishment of technological feasibility.
(n) Environmental Liabilities
Liabilities for environmental remediation and other environ-
mental costs are accrued when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information
develops or circumstances change. Costs of future obligations
are not discounted to their present values.