Canon 2015 Annual Report Download - page 57

CANON ANNUAL REPORT 2015 55
STRATEGY BUSINESS SEGMENT CORPORATE STRUCTURE FINANCIAL SECTION CORPORATE DATA
(g) Investments
Investments consist primarily of time deposits with original matur-
ities 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 dis-
counted cash flows or other valuation techniques as appropriate.
Unrealized holding gains and losses, net of the related tax effect,
are reported as a separate component of accumulated other
comprehensive income (loss) until realized. Held-to-maturity secu-
rities 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 carry-
ing 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 mar-
ket value. For debt securities for which the declines are deemed
to be other-than-temporary and there is no intent to sell, impair-
ments are separated into the amount related to credit loss, which
is recognized in earnings, and the amount related to all other fac-
tors, 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, impair-
ments in their entirety are recognized in earnings. Canon recog-
nizes 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 con-
trolling 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 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 histor-
ical experience. An additional reserve for individual accounts is
recorded when Canon becomes aware of a customer’s inability to
meet its financial obligations, such as in the case of bankruptcy
filings. 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 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 intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recov-
erable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the asset and the esti-
mated undiscounted future cash flows expected to be generated
by the asset. If the carrying amount of the asset exceeds its esti-
mated 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, generally
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 frequently 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 operating segment level. All good-
will is assigned to the reporting 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
impairment charge in the amount by which the carrying amount of
a reporting unit’s goodwill exceeds its implied fair value.
Intangible assets with finite useful lives consist primarily
of software, trademarks, patents and developed technology,
license fees and customer relationships, which are amortized
using the straight-line method. The estimated useful lives of
software are from 3 years to 5 years, trademarks are 15 years,
patents and developed technology are from 7 years to 16
years, license fees are 7 years, and customer relationships are
from 8 years to 15 years, respectively. Certain costs incurred