Canon 2014 Annual Report Download - page 57

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and 2013, respectively, are included in cash and cash equiva-
lents 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 equi-
ty 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 accumulat-
ed 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 regu-
larly reviewed for other-than-temporary declines in the car-
rying 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 invest-
ment for a period of time sufficient to allow for any anticipat-
ed 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 earnings. For equity securities for which the
declines are deemed to be other-than-temporary, impairments
in their entirety are recognized in earnings. Canon recogniz-
es 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 equi-
ty 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 custom-
er’s inability to meet its financial obligations, such as in the
case of bankruptcy filings. If circumstances related to custom-
ers 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 val-
ue 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
lives are not amortized, but are instead tested for impairment
annually in the fourth quarter of each year, or more frequent-
ly if indicators 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 oper-
ating segment level. All goodwill is assigned to the report-
ing unit or units that benefit 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 performs the second step to measure an impair-
ment charge in the amount by which the carrying amount of