Epson 2006 Annual Report Download - page 56

Seiko Epson Annual Report 2006
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(3) Cash and cash equivalents –
Cash and cash equivalents included in the consolidated financial statements are composed of cash on hand, bank
deposits that may be withdrawn on demand and highly liquid investments purchased with initial maturities of three
months or less and which present low risk of fluctuation in value.
(4) Financial instruments –
Investments in debt and equity securities:
Investments in debt and equity securities are classified into three categories: 1) trading securities, 2) held-to-maturity
debt securities, and 3) other securities. These categories are treated differently for purposes of measuring and
accounting for changes in fair value.
Trading securities held for the purpose of generating profits from changes in market value are recognized at their
fair value in the consolidated balance sheets. Unrealized gains and losses are included in current income. Held-to-
maturity debt securities are expected to be held to maturity and are recognized at amortized cost computed based
on the straight-line method in the consolidated balance sheets. Other securities for which market quotations are
available are recognized at fair value in the consolidated balance sheets. Unrealized gains and losses for these other
securities are reported as a separate component of shareholders’ equity, net of tax. Other securities for which
market quotations are unavailable are stated at cost, primarily based on the moving average cost method. Other
than temporary declines in the value of other securities are reflected in current income.
Derivative financial instruments:
Derivative instruments (i.e., forward exchange contracts, interest rate swaps and currency options) are recognized
as either assets or liabilities at their respective fair values at the date of contract, and gains and losses arising from
changes in fair value are recognized in earnings in the corresponding fiscal period. If certain hedging criteria are met,
such gains and losses are deferred and accounted for as assets or liabilities.
For interest rate swaps, if certain hedging criteria are met, interest rate swaps are not recognized at their fair
values as an alternative method under Japanese accounting standards. The amounts received or paid for such
interest rate swap arrangements are charged or credited to income as incurred.
Allowance for doubtful accounts:
Allowance for doubtful accounts is calculated based on the aggregate amount of estimated credit losses for doubtful
receivables plus an amount for receivables other than doubtful receivables calculated using historical write-off
experience from certain prior periods.
(5) Inventories –
Inventories are stated at the lower of cost or market value, where cost is primarily determined using the weighted
average cost method.
(6) Property, plant and equipment –
Property, plant and equipment, including significant renewals and improvements, are carried at cost less accumu-
lated depreciation. Maintenance and repairs, including minor renewals and improvements, are charged to income
as incurred. Depreciation of property, plant and equipment is mainly computed based on the declining-balance
method for the Company and its Japanese subsidiaries and on the straight-line method for foreign subsidiaries at
rates based on the estimated useful lives. For buildings acquired by the Company and its Japanese subsidiaries on
or after April 1, 1998, depreciation is computed based on the straight-line method, which is prescribed by Japanese
income tax laws.
The estimated useful lives of depreciable assets principally range from eight to fifty years for buildings and
structures and principally range from two to eleven years for machinery and equipment.
(7) Intangible assets –
Amortization of intangible assets is computed using the straight-line method. Amortization of software for internal
use is computed using the straight-line method over its estimated useful life, ranging from three to five years.