DuPont 2007 Annual Report Download - page 65

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E. I. du Pont de Nemours and Company
Notes to the Consolidated Financial Statements
(Dollars in millions, except per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DuPont follows generally accepted accounting principles in the United States of America (GAAP). The significant
accounting policies described below, together with the other notes that follow, are an integral part of the
Consolidated Financial Statements.
Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Changes
Effective January 1, 2007, the company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the application of SFAS 109,
“Accounting for Income Taxes,” (SFAS 109) by defining criteria that an individual income tax position must meet for
any part of the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance
on measurement, derecognition, classification, accounting for interest and penalties, accounting in interim periods,
disclosure, and transition. Upon adoption, the company recorded a $116 reduction in the previously accrued
liabilities and a corresponding $116 increase in Reinvested earnings at January 1, 2007 (see Note 6).
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the company, subsidiaries in which a controlling
interest is maintained and variable interest entities (VIE) for which DuPont is the primary beneficiary. For those
consolidated subsidiaries in which the company’s ownership is less than 100 percent, the outside stockholders’
interests are shown as Minority interests. Investments in affiliates over which the company has significant influence
but not a controlling interest are carried on the equity basis. This includes majority-owned entities for which the
company does not consolidate because a minority investor holds substantive participating rights. Investments in
affiliates over which the company does not have significant influence are accounted for by the cost method. Gains or
losses arising from issuances by an affiliate or a subsidiary of its own stock are recorded as nonoperating items.
Revenue Recognition
The company recognizes revenue when the earnings process is complete. The company’s revenues are from the
sale of a wide range of products to a diversified base of customers around the world. Revenue for product sales is
recognized upon delivery, when title and risk of loss have been transferred, collectibility is reasonably assured and
pricing is fixed or determinable. Substantially all product sales are sold FOB (free on board) shipping point or, with
respect to non-U.S. customers, an equivalent basis. Accruals are made for sales returns and other allowances
based on the company’s experience. The company accounts for cash sales incentives as a reduction in sales and
noncash sales incentives as a charge to cost of goods sold or selling expense, depending on the nature of the
incentive. Amounts billed to customers for shipping and handling fees are included in Net sales and costs incurred by
the company for the delivery of goods are classified as Cost of goods sold and other operating charges in the
Consolidated Income Statements. Taxes on revenue-producing transactions are excluded from Net sales.
The company periodically enters into prepayment contracts with customers in the Agriculture & Nutrition segment
and receives advance payments for product to be delivered in future periods. These advance payments are recorded
as deferred revenue and are included in Other accrued liabilities on the Consolidated Balance Sheets. Revenue
associated with advance payments is recognized as shipments are made and title, ownership and risk of loss pass to
the customer.
Licensing and royalty income is recognized in accordance with agreed upon terms, when performance obligations
are satisfied, the amount is fixed or determinable and collectibility is reasonably assured.
F-8