Canon 2010 Annual Report Download - page 50
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Please find page 50 of the 2010 Canon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.CANON ANNUAL REPORT 201048
fi rst allocated considering the relative fair value of the lease
and non-lease deliverables based upon the estimated relative
fair values of each element. Lease deliverables generally
include equipment, fi nancing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulfi lled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other
known factors at the time of sale. In addition, Canon provides
price protection to certain resellers of its products, and records
reductions to sales for the estimated impact of price protection
obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general and
administrative expenses. Estimates for accrued product war-
ranty costs are based on historical experience, and are affected
by ongoing product failure rates, specifi c product class failures
outside of the baseline experience, material usage and service
delivery costs incurred in correcting a product failure.
Allowance for doubtful receivables
Allowance for doubtful receivables is determined using a com-
bination of factors to ensure that Canon’s trade and fi nancing
receivables are not overstated due to uncollectibility. These fac-
tors include the length of time receivables are past due, the
credit quality of customers, macroeconomic conditions and
historical experience. Also, Canon records specifi c reserves for
individual accounts when Canon becomes aware of a custom-
er’s inability to meet its fi nancial obligations to Canon, such as
in the case of bankruptcy fi lings or deterioration in the custom-
er’s operating results or fi nancial position. If circumstances
related to customers change, estimates of the recoverability of
receivables would be further adjusted.
Valuation of inventories
Inventories are stated at the lower of cost or market value. Cost
is determined by the average method for domestic inventories
and principally the fi rst-in, fi rst-out method for overseas inven-
tories. Market value is the estimated selling price in the ordi-
nary course of business less the estimated costs of completion
and the estimated costs necessary to make a sale. Canon rou-
tinely reviews its inventories for their salability and for indica-
tions of obsolescence to determine if inventories should be
written-down to market value. Judgments and estimates must
be made and used in connection with establishing such allow-
ances in any accounting period. In estimating the market value
of its inventories, Canon considers the age of the inventories
and the likelihood of spoilage or changes in market demand for
its inventories.
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 indi-
cate that the carrying amount of an asset may not be recover-
able. If the carrying amount of the asset exceeds its estimated
undiscounted future cash fl ows, an impairment charge is rec-
ognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. Determining the fair
value of the asset involves the use of estimates and assump-
tions. These estimates and assumptions include future market
conditions, net sales growth rate, gross margin and discount
rate. Though Canon believes that the estimates and assump-
tions are reasonable, actual future results may differ from these
estimates and assumptions.
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.
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 using the two-step approach at the
reporting unit level, which is one level below the operating seg-
ment level. All goodwill is assigned to the reporting unit or units
that benefi t from the synergies arising from each business
combination. If the carrying amount assigned to the reporting
unit exceeds the fair value of the reporting unit, Canon per-
forms the second step to measure an impairment charge in the
amount by which the carrying amount of a reporting unit’s
goodwill exceeds its implied fair value. Intangible assets with
fi nite useful lives consist primarily of software, license fees, pat-
ented technologies and customer relationships. 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. Patented
technologies are amortized using the straight-line method prin-
cipally over the estimated useful life of 3 years. Customer rela-
tionships are amortized principally using the declining- balance
method over the estimated useful life of 5 years.
Income taxes
Canon considers many factors when evaluating and estimating
income tax uncertainties. These factors include an evaluation of
the technical merits of the tax positions as well as the amounts
and probabilities of the outcomes that could be realized upon
settlement. The actual resolutions of those uncertainties will
inevitably differ from those estimates, and such differences
may be material to the fi nancial statements.