Toshiba 2006 Annual Report Download - page 67

21
20
REVENUE RECOGNITION
Revenue of mass-produced standard products, such as digital products and electronic devices, is recognized when there is
persuasive evidence of an arrangement, the product has been delivered, the sales price is fixed or determinable, and collectibil-
ity is reasonably assured. Mass-produced standard products are considered delivered to customers once they have been
shipped, and the title and risk of loss have transferred.
Revenue from services, such as maintenance service for plant and other systems, that are priced and sold separately from
the equipment is recognized ratable over the contract term or as the services are provided.
Revenue from the development of custom software products is recognized when the software product has been delivered
and accepted by the customer.
Revenue related to equipment that requires installation is recognized upon the completion of the installation of the equipment.
Revenue under long-term contracts is recorded under the percentage of completion method. To measure the extent of progress
toward completion, the Company generally compares the costs incurred to date to estimated total costs to complete based upon the
most recent available information. A provision for contract losses is recorded in its entirety when the loss first becomes evident.
Revenue from the sales of equipment under sales-type leases is recognized at the inception of the lease. Interest on sales-type leases and
direct financing leases is recognized to produce a constant periodic rate of return on the net investment in the lease. Leases not qualifying
as sales-type lease or direct financing lease are accounted for as operating leases and related revenues are recognized over the lease term.
Revenue from arrangements with multiple elements, which may include any combination of products, equipment, installment
and maintenance, is allocated to each element based on its relative fair value if such element meets the criteria for treatment as a
separate unit of accounting as prescribed in the Emerging Issues Task Force Issue 00-21, Revenue Arrangements with Multiple
Deliverables. Otherwise, revenue is deferred until the undelivered elements are fulfilled as a single unit of accounting.
SHIPPING AND HANDLING COSTS
The Company includes shipping and handling costs which totaled ¥85,951 million ($734,624 thousand) and ¥84,136 million
for the years ended March 31, 2006 and 2005, respectively in selling, general and administrative expenses.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivative financial instruments, which include forward exchange contracts, interest rate swap
agreements, currency swap agreements, and currency options for the purpose of currency exchange rate and interest rate risk
management. Refer to Note 19 for descriptions of these financial instruments.
The Company recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap agreements, cur-
rency swap agreements, and currency options in the consolidated financial statements at fair value regardless of the purpose or intent for
holding the derivative financial instruments. Changes in the fair value of derivative financial instruments are either recognized periodi-
cally in income or in shareholders’ equity as a component of accumulated other comprehensive income (loss) depending on whether the
derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge.
Changes in fair value of derivative financial instruments accounted for as fair value hedges are recorded in income along with the portion
of the change in the fair value of the hedged item that relates to the hedged risk. Changes in fair value of derivative financial instruments
accounted for as cash flow hedges, to the extent they are effective as a hedge, are recorded in accumulated other comprehensive income
(loss), net of tax. Changes in the fair value of derivative financial instruments not qualifying as a hedge are reported in income.
SALES OF RECEIVABLES
The Company enters into transactions to sell certain trade notes receivable and trade accounts receivable. The Company
may retain certain interests in these transactions. Gain or loss on the sale of receivables is computed based on the allocated
carrying amount of the receivables sold. Retained interests are recorded at the allocated carrying amount of the assets based
on their relative fair values at the date of sale. The Company estimates fair value based on the present value of future expect-
ed cash flows less credit losses.
GUARANTEES
The Company recognizes, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in
issuing guarantees for guarantees issued or modified after December 31, 2002 in accordance with the FASB Interpretation
No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees.
RECENT PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). SFAS
151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facili-
ty expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of
whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effec-
tive for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the fiscal year beginning April 1,
2006. The adoption of SFAS 151 did not have a material impact on its results of operations and financial condition of the Company.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29