Canon 2008 Annual Report Download - page 72

70
In addition, Canon develo
p
s or obtains certain software to be
sold where related costs are capitalized after establishment of
technolo
g
ical
f
easibilit
y.
(m) Environmental Liabilitie
s
Li
ab
ili
t
i
es
f
o
r
e
nvir
o
nm
e
n
ta
l r
e
m
ed
i
at
i
o
n
a
n
d
ot
h
e
r
e
nvir
o
nm
e
n
ta
l
costs are accrued when environmental assessments or remedial
e
ff
orts are probable and the costs can be reasonabl
y
estimated.
Such liabilities are ad
j
usted as further information develops or
circumstances change. Costs of future obligations are not
discounted to their present values
.
(n) Income Taxe
s
Deferred tax assets and liabilities are recognized for the estimated
future tax conse
q
uences attributable to differences between the
fi
nancial statement carrying amounts o
f
existing assets and liabilities
and their respective tax bases and operatin
g
loss and tax credit
carr
y
forwards. Deferred tax assets and liabilities are measured
using enacte
d
tax rates expecte
d
to app
l
y to taxa
bl
e income in
the years in which those temporary differences are expected to
be recovered or settled. The e
ff
ect on de
f
erred tax assets and
liabilities o
f
a chan
g
e in tax rates is reco
g
nized in income in the
p
erio
d
t
h
at inc
l
u
d
es t
h
e enactment
d
ate. Canon recor
d
s a va
l
ua-
t
i
o
n
a
ll
o
w
a
n
ce
to
r
educe
t
h
e
de
f
e
rr
ed
ta
x
assets
to
t
h
e
a
m
ou
n
t
that is more likely than not realizable.
Canon reco
g
nizes the
fi
nancial statement e
ff
ects o
f
tax
positions w
h
en it is more
l
i
k
e
ly
t
h
an not,
b
ase
d
on t
h
e tec
h
nica
l
merits, t
h
at t
h
e tax
p
ositions wi
ll
b
e sustaine
d
u
p
on examination
by the tax authorities. Benefi ts from tax positions that meet the
more-likel
y
-than-not reco
g
nition threshold are measured at the
lar
g
est amount o
f
bene
fi
t that is
g
reater than 50 percent likel
y
of being realized upon settlement. Interest and penalties accrued
related to unrecognized tax benefi ts are included in income
taxes in the consolidated statements o
f
income
.
(o) Issuance of Stock by Subsidiaries and Equity Investee
s
The change in the Company’s proportionate share of a sub-
sidiary’s or equity investee’s equity resulting from the issuance
o
f
stock b
y
the subsidiar
y
or equit
y
investee is accounted
f
or as
an equit
y
transaction
.
(p)
Stock-Based Com
p
ensatio
n
Canon measures stock-based compensation cost at the grant
date, based on the
f
air value o
f
the award, and reco
g
nizes the
cost on a strai
gh
t-
l
ine
b
asis over t
h
e requisite service perio
d
,
w
h
ic
h
is t
h
e vesting perio
d.
(q) Net Income per Shar
e
Basic net income per s
h
are is compute
d
by
d
ivi
d
in
g
net income
b
y
the wei
g
hted-avera
g
e number of common shares outstandin
g
during each year. Diluted net income per share includes the
e
ff
ect
f
rom potential issuances o
f
common stock based on the
assumptions that all convertible debentures were converted into
common stoc
k
an
d
a
ll
stoc
k
o
p
tions were exercise
d
.
(
r
)
Revenue Recognitio
n
Canon generates revenue principally through the sale of consumer
products, equipment, supplies, and related services under separate
contractua
l
arran
g
ements. Canon reco
g
nizes revenue w
h
en per
-
suasive evidence of an arrangement exists, delivery has occurred
a
n
d
t
i
t
l
e
a
n
d
ri
s
k
o
f l
oss
h
a
v
e
bee
n
t
r
a
n
s
f
e
rr
ed
to
t
h
e
custo
m
e
r
or services have been rendered, the sales price is
fi
xed or
determinable, and collectibilit
y
is probable
.
Revenue from sales of consumer products includin
g
offi ce
imaging products, computer peripherals, business information
products and cameras is recognized upon shipment or delivery,
dependin
g
upon when title and risk o
f
loss trans
f
er to the
customer
.
Revenue from sales of o
p
tical e
q
ui
p
ment, such as ste
pp
ers
and aligners that are sold with customer acceptance provisions
related to their
f
unctionality, is recognized when the equipment
is installed at the customer site and the speci
fi
c criteria o
f
the
equipment functionalit
y
are successfull
y
tested and demonstrated
by Canon. Service revenue is derived primarily from separately
priced product maintenance contracts on equipment sold to
customers and is measured at the stated amount o
f
the contract
an
d
reco
g
nize
d
as services are provi
d
e
d
.
Canon also offers separately priced product maintenance
contracts for most offi ce imaging products, for which the
customer typically pays a stated base service
f
ee plus a variable
amount based on usa
g
e. Revenue
f
rom these service mainte
-
n
a
n
ce
co
n
t
r
acts
i
s
m
easu
r
ed
at
t
h
e
stated
a
m
ou
n
t
o
f
t
h
e
co
n
t
r
act
an
d
recognize
d
as services are provi
d
e
d
an
d
varia
bl
e amounts
are earned
.
Revenue
f
rom the sale o
f
equipment under sales-t
y
pe leases
is reco
g
nized at the inception o
f
the lease. Income on sales-t
y
pe
leases and direct-fi nancing leases is recognized over the life of
each respective lease using the interest method. Leases not qualify
-
ing as sales-type leases or direct-
fi
nancing leases are accounted
f
or as operatin
g
leases and related revenue is reco
g
nized ratabl
y
over t
h
e
l
ease term. W
h
en e
q
ui
p
ment
l
eases are
b
un
dl
e
d
wit
h
p
roduct maintenance contracts, revenue is fi rst allocated consid
-
ering the relative fair value of the lease and non-lease deliverables
based upon the estimated relative
f
air values o
f
each element.
Lease deliverables
g
enerall
y
include equipment,
fi
nancin
g
and
executor
y
costs, w
h
i
l
e non-
l
ease
d
e
l
ivera
bl
es
g
enera
lly
consist
of
p
roduct maintenance contracts and su
pp
lies
.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative
f
air value
if such element meets the criteria for treatment as a se
p
arate
unit of accounting as prescribed in the Emerging Issues Task
Force
(
“EITF”
)
Issue No. 00-21, “Revenue Arrangements with
Multiple Deliverables.” Otherwise, revenue is de
f
erred until the
undelivered elements are
f
ul
fi
lled and accounted
f
or as a sin
g
le
unit of accountin
g.
Ca
n
o
n r
eco
r
ds
est
im
ated
r
educt
i
o
n
s
to
sa
l
es
at
t
h
e
t
im
e
o
f
sale
f
or sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
re
d
uctions in sa
l
es are
b
ase
d
u
p
on
h
istorica
l
tren
d
s an
d
ot
h
er
known factors at the time of sale. In addition, Canon
p
rovides
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES