Canon 2011 Annual Report Download - page 64

62 F I N A N C I A L S E C T I O N >N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
ties of three months or less are considered to be cash equiva-
lents. Certain debt securities with original maturities of less
than three months classified as available-for-sale securities of
¥204,307 million ($2,619,321 thousand) and ¥249,907 million
at December 31, 2011 and 2010, respectively, are included in
cash and cash equivalents in the consolidated balance sheets.
Additionally, certain debt securities with original maturities
of less than three months classified as held-to-maturity securi-
ties of ¥1,000 million at December 31, 2010 were also
included in cash and cash equivalents. Fair value for these
securities approximates their costs.
(g) Investments
Investments consist primarily of time deposits with original
maturities of more than three months, debt and marketable
equity securities, investments in affiliated companies and
non-marketable equity securities. Canon reports invest-
ments with maturities of less than one year as short-term
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. Fair
value is determined based on quoted market prices, projected
discounted cash flows 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
securities are recorded at amortized cost, adjusted for amorti-
zation of premiums and accretion of discounts.
Available-for-sale and held-to-maturity securities are regu-
larly 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 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. 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 comprehensive
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 earn-
ings. 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 reflected in earnings.
Investments in affiliated companies over which Canon
has the ability to exercise significant influence, but does not
hold a controlling financial interest, are accounted for by
the equity method.
Non-marketable equity securities in companies over which
Canon does not have the ability to exercise significant influ-
ence 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 and his-
torical experience. An additional reserve for individual
accounts is recorded when Canon becomes aware of a cus-
tomer’s inability to meet its financial obligations, such as in
the case of bankruptcy filings. If circumstances related to cus-
tomers 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 first-in, first-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
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 and the 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 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 carrying 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 lease term, gener-
ally from 2 years to 5 years.
(l) Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite useful