GE 2013 Annual Report Download - page 83

GE 2013 ANNUAL REPORT 81
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entire amortized cost basis of the security, we consider the secu-
rity to be other-than-temporarily impaired, and we record the
difference between the security’s amortized cost basis and its
recoverable amount in earnings and the difference between the
security’s recoverable amount and fair value in other compre-
hensive income. If we intend to sell the security or it is more likely
than not we will be required to sell the security before recov-
ery of its amortized cost basis, the security is also considered
other-than-temporarily impaired and we recognize the entire dif-
ference between the security’s amortized cost basis and its fair
value in earnings. For equity securities, we consider the length
of time and magnitude of the amount that each security is in an
unrealized loss position. If we do not expect to recover the entire
amortized cost basis of the security, we consider the security to
be other-than-temporarily impaired, and we record the difference
between the security’s amortized cost basis and its fair value
in earnings.
Realized gains and losses are accounted for on the specifi c
identifi cation method. Unrealized gains and losses on investment
securities classifi ed as trading and certain retained interests are
included in earnings.
Inventories
All inventories are stated at the lower of cost or realizable values.
Cost for a signifi cant portion of GE U.S. inventories is determined
on a last-in, fi rst-out (LIFO) basis. Cost of other GE inventories is
determined on a fi rst-in, fi rst-out (FIFO) basis. LIFO was used for
39% and 37% of GE inventories at December 31, 2013 and 2012,
respectively. GECC inventories consist of fi nished products held
for sale; cost is determined on a FIFO basis.
Goodwill and Other Intangible Assets
We do not amortize goodwill, but test it at least annually for
impairment at the reporting unit level. A reporting unit is the
operating segment, or one level below that operating segment
(the component level) if discrete fi nancial information is prepared
and regularly reviewed by segment management. However,
components are aggregated as a single reporting unit if they
have similar economic characteristics. We recognize an impair-
ment charge if the carrying amount of a reporting unit exceeds
its fair value and the carrying amount of the reporting unit’s
goodwill exceeds the implied fair value of that goodwill. We use a
market approach, when available and appropriate, or the income
approach, or a combination of both to establish fair values. When
a portion of a reporting unit is disposed, goodwill is allocated to
the gain or loss on disposition based on the relative fair values
of the business or businesses disposed and the portion of the
reporting unit that will be retained.
We amortize the cost of other intangibles over their estimated
useful lives unless such lives are deemed indefi nite. The cost of
intangible assets is generally amortized on a straight-line basis
over the asset’s estimated economic life, except that individually
signifi cant customer-related intangible assets are amortized in
relation to total related sales. Amortizable intangible assets are
tested for impairment based on undiscounted cash fl ows and, if
impaired, written down to fair value based on either discounted
cash fl ows or appraised values. Intangible assets with indefi nite
lives are tested annually for impairment and written down to fair
value as required.
GECC Investment Contracts, Insurance Liabilities and
Insurance Annuity Benefits
Certain entities that we consolidate provide guaranteed
investment contracts, primarily to states, municipalities and
municipal authorities.
Our insurance activities include providing insurance and
reinsurance for life and health risks and providing certain
annuity products. Two primary product groups are provided:
traditional insurance contracts and investment contracts.
Insurance contracts are contracts with signifi cant mortality
and/or morbidity risks, while investment contracts are contracts
without such risks.
For short-duration insurance contracts, including accident
and health insurance, we report premiums as earned income
over the terms of the related agreements, generally on a pro-rata
basis. For traditional long-duration insurance contracts includ-
ing long-term care, term, whole life and annuities payable for
the life of the annuitant, we report premiums as earned income
when due.
Premiums received on investment contracts (including
annuities without signifi cant mortality risk) are not reported as
revenues but rather as deposit liabilities. We recognize revenues
for charges and assessments on these contracts, mostly for mor-
tality, contract initiation, administration and surrender. Amounts
credited to policyholder accounts are charged to expense.
Liabilities for traditional long-duration insurance contracts
represent the present value of such benefi ts less the present
value of future net premiums based on mortality, morbidity, inter-
est and other assumptions at the time the policies were issued or
acquired. Liabilities for investment contracts equal the account
value, that is, the amount that accrues to the benefi t of the con-
tract or policyholder including credited interest and assessments
through the fi nancial statement date. For guaranteed investment
contracts, the liability is also adjusted as a result of fair value
hedging activity.
Liabilities for unpaid claims and estimated claim settlement
expenses represent our best estimate of the ultimate obliga-
tions for reported and incurred-but-not-reported claims and
the related estimated claim settlement expenses. Liabilities for
unpaid claims and estimated claim settlement expenses are con-
tinually reviewed and adjusted through current operations.
Fair Value Measurements
For fi nancial assets and liabilities measured at fair value on
a recurring basis, fair value is the price we would receive to
sell an asset or pay to transfer a liability in an orderly transac-
tion with a market participant at the measurement date. In the
absence of active markets for the identical assets or liabilities,
such measurements involve developing assumptions based
on market observable data and, in the absence of such data,
internal information that is consistent with what market partici-
pants would use in a hypothetical transaction that occurs at the
measurement date.