Canon 2015 Annual Report Download - page 81

CANON ANNUAL REPORT 2015 79
STRATEGY BUSINESS SEGMENT CORPORATE STRUCTURE FINANCIAL SECTION CORPORATE DATA
20. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants at the measure-
ment date. A three-level fair value hierarchy that prioritizes the
inputs used to measure fair value is as follows:
Level 1— Inputs are quoted prices in active markets for identi-
cal assets or liabilities.
Level 2— Inputs are quoted prices for similar assets or liabil-
ities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are
observable, and inputs that are derived principally
from or corroborated by observable market data by
correlation or other means.
Level 3— Inputs are derived from valuation techniques in
which one or more significant inputs or value drivers
are unobservable, which reflect the reporting entity’s
own assumptions about the assumptions that mar-
ket participants would use in establishing a price.
The following methods and assumptions are used to esti-
mate the fair value in the above table.
Long-term debt
Canon’s long-term debt instruments are classified as Level 2
instruments and valued based on the present value of future
cash flows associated with each instrument discounted using
current market borrowing rates for similar debt instruments
of comparable maturity. The levels are more fully described in
Note 20.
Limitations of fair value estimates
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instruments. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Concentrations of credit risk
At December 31, 2015 and 2014, one customer accounted
for approximately 15% and 16% of consolidated trade receiv-
ables, respectively. Although Canon does not expect that the
customer will fail to meet its obligations, Canon is potentially
exposed to concentrations of credit risk if the customer failed
to perform according to the terms of the contracts.
Assets and liabilities measured at fair value on a recurring basis
The following tables present Canon’s assets and liabilities that are measured at fair value on a recurring basis consistent with the
fair value hierarchy at December 31, 2015 and 2014.
December 31
Millions of yen Level 1 Level 2 Level 3 Total
2015: Assets:
Cash and cash equivalents ¥ — ¥ 80,870 ¥ — ¥ 80,870
Available-for-sale (noncurrent):
Government bonds 287 — — 287
Corporate bonds — 201 — 201
Fund trusts 12 52 — 64
Equity securities 42,849 — — 42,849
Derivatives — 1,485 — 1,485
Total assets ¥ 43,148 ¥ 82,608 ¥ — ¥ 125,756
Liabilities:
Derivatives ¥ — ¥ 624 ¥ — ¥ 624
Total liabilities ¥ — ¥ 624 ¥ — ¥ 624