Canon 2009 Annual Report Download - page 71

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(k) 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 1 year 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
2 years to 5 years.
(l) Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefi nite useful lives
are not amortized, but are instead tested for impairment annu-
ally in the fourth quarter of each year, or more frequently if indi-
cators of potential impairment exist. Canon performs its
impairment test of goodwill at the reporting unit level, which is
one level below the operating segment level. All goodwill is
assigned to the reporting unit or units that benefi t from the syn-
ergies arising from each business combination. Intangible assets
with fi nite 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 inter-
nal use software are capitalized. These costs consist primarily 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.
(m) Environmental Liabilities
Liabilities for environmental remediation and other environmen-
tal costs are accrued when environmental assessments or reme-
dial 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.
(n) Income Taxes
Deferred tax assets and liabilities are recognized for the estimat-
ed future tax consequences attributable to differences between
the fi nancial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Canon
records a valuation allowance to reduce the deferred tax assets
to the amount that is more likely than not realizable.
Canon recognizes the fi nancial statement effects of tax posi-
tions when it is more likely than not, based on the technical
merits, that the tax positions will be sustained upon examination
by the tax authorities. Benefi ts from tax positions that meet the
more-likely-than-not recognition threshold are measured at the
largest amount of benefi t that is greater than 50% likely of
being realized upon settlement. Interest and penalties accrued
related to unrecognized tax benefi ts are included in income
taxes in the consolidated statements of income.
(o) Stock-Based Compensation
Canon measures stock-based compensation cost at the grant
date, based on the fair value of the award, and recognizes the
cost on a straight-line basis over the requisite service period,
which is the vesting period.
(p) Net Income Attributable to Canon Inc. Stockholders
per Share
Basic net income attributable to Canon Inc. stockholders per
share is computed by dividing net income attributable to Canon
Inc. by the weighted-average number of common shares out-
standing during each year. Diluted net income attributable to
Canon Inc. stockholders per share includes the effect from
potential issuances of common stock based on the assumptions
that all convertible debentures were converted into common
stock and all stock options were exercised.
(q) Revenue Recognition
Canon generates revenue principally through the sale of offi ce
and consumer products, equipment, supplies, and related servic-
es under separate contractual arrangements. Canon recognizes
revenue when persuasive evidence of an arrangement exists,
delivery has occurred and title and risk of loss have been trans-
ferred to the customer or services have been rendered, the sales
price is fi xed or determinable, and collectibility is probable.
Revenue from sales of offi ce products, such as offi ce net-
work digital MFDs and laser printers, and consumer products,
such as digital cameras and inkjet multifunction peripherals, is
recognized upon shipment or delivery, depending upon when
title and risk of loss transfer to the customer.
Revenue from sales of optical equipment, such as steppers
and aligners that are sold with customer acceptance provisions
related to their functionality, is recognized when the equipment
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