Yamaha 2005 Annual Report Download - page 58

56 Yamaha Annual Report 2005
(g) Depreciation and amortization
Depreciation of property, plant and equipment is calculated principally by the declining-balance method (except that certain consoli-
dated subsidiaries employ the straight-line method) at rates based on the estimated useful lives of the respective assets.
Estimated useful lives:
Buildings: 31-50 years (Leasehold improvements: 15 years)
Structures: 10-30
Machinery and equipment: 4-11
Tools, furniture and fixtures:5-6 (Molds: 2 years)
Effective April 1, 2004, the Company and its consolidated subsidiaries changed their method of depreciation of certain facilities uti-
lized for the recreation business from the straight-line method to the declining-balance method due to the deterioration of their eco-
nomic value as a result of recent unfavorable conditions in the recreation segment. With this change, depreciation expense
increased by ¥1,274 million ($11,863 thousand) and income before income taxes and minority interests decreased by ¥1,274 million
($11,863 thousand).
The effect on segment information is disclosed in Note 21.
(h) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount sufficient to cover possible losses on the collection of receivables.
The level of the provision is determined based on the historical experience with write-offs plus an estimate of specific probable
doubtful accounts based on a review of the collectibility of individual receivables.
(i) Retirement benefits
Accrued employees’ retirement benefits: Accrued employees’ retirement benefits are provided based on the projected retirement
benefit obligation and the pension fund assets.
Prior service cost is being amortized as incurred by the straight-line method over a period (10 years) which is shorter than the
average remaining years of service of the employees participating in the plans.
Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized, primarily by the
straight-line method, over a period (10 years) which is shorter than the average remaining years of service of the employees partici-
pating in the plans.
See Note 14 for the method of accounting for the separation of the substitutional portion from the corporate portion of the ben-
efit obligation under the Welfare Pension Fund Plan.
Directors’ and statutory auditors’ retirement benefits: The Company’s directors and statutory auditors are customarily entitled to
receive lump-sum retirement payments based on the Company’s internal bylaws. The Company provides a 100% allowance for
retirement benefits for its directors and statutory auditors based on its own internal regulations.
(j) Warranty reserve
A warranty reserve is provided to cover the cost of customers’ claims relating to after-sales service and repairs. The amount of this
reserve is estimated based on a percentage of the amount or volume of sales and after considering the historical experience with
repairs of products under warranty.
(k) Leases
Non-cancelable leases are accounted for as operating leases regardless of whether such leases are classified as operating or
finance leases, except that leases which stipulate the transfer of ownership of the leased assets to the lessee are accounted for as
finance leases.
(l) Income taxes
Deferred income taxes are recognized by the liability method. Under the liability method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured
using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.
(m) Derivative financial instruments
Derivative financial instruments are carried at fair value with any changes in unrealized gain or loss charged or credited to opera-
tions, except for those which meet the criteria for deferral hedge accounting under which the unrealized gain or loss is deferred as
an asset or a liability. Forward foreign exchange contracts which meet certain criteria are accounted for by the allocation method,
which is utilized to hedge against risk arising from fluctuation in foreign exchange rates.
The Yamaha Group does not conduct an assessment of the effectiveness of its hedging activities because the relationship
between the anticipated cash flows fixed by the hedging activities and the avoidance of market risk is so clear that there is no need
to evaluate the effectiveness of each hedge against the respective hedged item.