DuPont 2011 Annual Report Download - page 57

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Table of Contents
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
The company 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.
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 (VIEs) 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 noncontrolling interests. Investments in affiliates over which the company has significant influence but not a
controlling interest are carried on the equity basis. At December 31, 2011, the assets, liabilities and operations of VIEs for which DuPont is the primary
beneficiary were not material to the Consolidated Financial Statements of the company.
The company is also involved with certain joint ventures accounted for under the equity method of accounting that are VIEs. The company is not the primary
beneficiary, as the nature of the company's involvement with the VIEs does not provide it the power to direct the VIEs significant activities. Future events
may require these VIEs to be consolidated if the company becomes the primary beneficiary. At December 31, 2011, the maximum exposure to loss related to
the unconsolidated VIEs is not considered material to the Consolidated Financial Statements of the company.
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,
collectability 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 United States of America (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 segment and receives advance payments for product to be
delivered in future periods. These advance payments are recorded as deferred revenue (classified as other accrued liabilities) or debt, depending on the nature
of the program. 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 collectability is reasonably assured.
Cash and Cash Equivalents
Cash equivalents represent investments with maturities of three months or less from time of purchase. They are carried at cost plus accrued interest, which
approximates fair value because of the short-term maturity of these instruments.
Marketable Securities
Marketable securities represent investments in fixed and floating rate financial instruments with maturities greater than three months and up to twelve months
at time of purchase. They are classified as held-to-maturity and recorded at amortized cost. The carrying value approximates fair value due to the short-term
nature of the investments.
Fair Value Measurements
Under the accounting for fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
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