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35Hitachi, Ltd. Annual Report 2005
(g) Securitizations
The Company and certain subsidiaries have a number of securitization programs. Under those programs, certain financial
assets such as lease receivables, trade receivables and others are sold to Special Purpose Entities (SPEs) which are
funded through the issuance of asset-backed securities to investors. When a transfer of financial assets is eligible to be
accounted for as a sale under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” the carrying amount of the financial assets is allocated based on relative fair values to the
portions to be retained and sold. The Company and its subsidiaries recognize a gain or loss for the difference between
the net proceeds received and the allocated carrying amount of the assets sold when the transaction is consummated.
Fair values are based on the present value of estimated future cash flows which take into consideration various factors
such as expected credit loss and others.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method for job
order inventories and generally by the average cost method for raw materials and other inventories.
(i) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property, plant and equipment are principally depreciated by the declining-
balance method, except for some assets which are depreciated by the straight-line method, over the following estimated
useful lives:
Buildings
Buildings and building equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 50 years
Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 to 60 years
Machinery and equipment
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 13 years
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 7 years
Tools, furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 20 years
(j) Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually. The Company performs
its annual impairment test during the fourth quarter after the annual forecasting process is completed. Furthermore,
goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The fair value of a reporting unit is estimated using the expected present value of future cash flows.
Intangible assets with finite useful lives are amortized over their respective estimated useful lives.
(k) Capitalized Software Costs
Costs incurred for computer software developed or obtained for internal use are capitalized and amortized on a straight-
line basis over their estimated useful lives in accordance with Statement of Position (SOP) 98-1, “Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.” In addition, the Company and its subsidiaries
develop certain computer software to be sold where related costs are capitalized after establishment of technological
feasibility in accordance with SFAS No.86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed.” The annual amortization of such capitalized costs is the greater of the amount computed using
the ratio of each software’s expected future revenue to current year’s revenue or the straight-line method over the remaining
estimated economic life of each software.