Canon 2010 Annual Report Download - page 72
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Please find page 72 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 201070
equity securities, investments in affi liated companies and non-
marketable equity securities. Canon reports investments with
maturities of less than one year as short-term investments.
Canon classifi es 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. Fair
value is determined based on quoted market prices, projected
discounted cash fl ows or other valuation techniques as appro-
priate. Unrealized holding gains and losses, net of the related
tax effect, are reported as a separate component of other com-
prehensive income (loss) until realized. Held-to-maturity securi-
ties are recorded at amortized cost, adjusted for amortization
of premiums and accretion of discounts.
Available-for-sale and held-to-maturity securities are regular-
ly reviewed for other-than-temporary declines in the carrying
amount based on criteria that include the length of time and
the extent to which the market value has been less than cost,
the fi nancial condition and near-term prospects of the issuer
and Canon’s intent and ability to retain the investment for a
period of time suffi cient to allow for any anticipated recovery in
market value. For debt securities for which the declines are
deemed to be other-than-temporary and there is no intent to
sell, impairments are separated into the amount related to
credit loss, which is recognized in earnings, and the amount
related to all other factors, which is recognized in other com-
prehensive income (loss). For debt securities for which the
declines are deemed to be other-than-temporary and there is
an intent to sell, impairments in their entirety are recognized in
earnings. For equity securities for which the declines are
deemed to be other-than-temporary, impairments in their
entirety are recognized in earnings. Canon recognizes an
impairment loss to the extent by which the cost basis of the
investment exceeds the fair value of the investment.
Realized gains and losses are determined by the average
cost method and refl ected in earnings.
Investments in affi liated companies over which Canon has
the ability to exercise signifi cant infl uence, but does not hold a
controlling fi nancial interest, are accounted for by the equity
method.
Non-marketable equity securities in companies over which
Canon does not have the ability to exercise signifi cant infl uence
are stated at cost and reviewed periodically for impairment.
(h) Allowance for Doubtful Receivables
Allowance for doubtful trade and fi nance receivables is main-
tained for all customers based on a combination of factors,
including aging analysis, macroeconomic conditions and histor-
ical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customer’s inability
to meet its fi nancial obligations, such as in the case of bank-
ruptcy fi lings. If circumstances related to customers change,
estimates of the recoverability of receivables would be further
adjusted. When all collection options are exhausted including
legal recourse, the accounts or portions thereof are deemed to
be uncollectable and charged against the allowance.
(i) Inventories
Inventories are stated at the lower of cost or market value. Cost
is determined by the average method for domestic inventories
and principally by the fi rst-in, fi rst-out method for overseas
inventories.
(j) 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. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the asset and the
estimated undiscounted future cash fl ows expected to be gen-
erated by the asset. If the carrying amount of the asset exceeds
its estimated undiscounted future cash fl ows, an impairment
charge is recognized 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 carry-
ing amount or fair value less costs to sell, and are no longer
depreciated.
(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 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. Certain costs
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES