Canon 2013 Annual Report Download - page 58

Strategy FINANCIAL SECTION
56 Corporate DataBusiness Segment Corporate Structure
for the year ended December 31, 2012 and a net loss of ¥3,287
million for the year ended December 31, 2011, respectively.
(f) Cash Equivalents
All highly liquid investments acquired with original maturi-
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
¥183,078 million ($1,743,600 thousand) and ¥141,729 million
at December 31, 2013 and 2012, respectively, are included in
cash and cash equivalents in the consolidated balance sheets.
(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 investments 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 accumu-
lated other comprehensive income (loss) until realized. Held-
to-maturity securities are recorded at amortized cost, adjusted
for amortization of premiums and accretion of discounts.
Available-for-sale and held-to-maturity securities are reg-
ularly 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 pros-
pects 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 securi-
ties 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 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 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 signifi-
cant influence 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
historical 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 inven-
tories and principally by the first-in, first-out method for over-
seas inventories.
(j) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment,
and acquired intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in cir-
cumstances 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 use-
ful lives are not amortized, but are instead tested for impair-
ment annually in the fourth quarter of each year, or more