Proctor and Gamble 2013 Annual Report Download - page 56

54 The Procter & Gamble Company
Amounts in millions of dollars except per share amounts or as otherwise specified.
Currency Translation
Financial statements of operating subsidiaries outside the
U.S. generally are measured using the local currency as the
functional currency. Adjustments to translate those
statements into U.S. dollars are recorded in other
comprehensive income (OCI). Currency translation
adjustments in accumulated OCI were a gain of $353 at
June 30, 2013 and a loss of $357 at June 30, 2012. For
subsidiaries operating in highly inflationary economies, the
U.S. dollar is the functional currency. Re-measurement
adjustments for financial statements in highly inflationary
economies and other transactional exchange gains and losses
are reflected in earnings.
Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared
using the indirect method, which reconciles net earnings to
cash flow from operating activities. The reconciliation
adjustments include the removal of timing differences
between the occurrence of operating receipts and payments
and their recognition in net earnings. The adjustments also
remove cash flows arising from investing and financing
activities, which are presented separately from operating
activities. Cash flows from foreign currency transactions
and operations are translated at an average exchange rate for
the period. Cash flows from hedging activities are included
in the same category as the items being hedged. Cash flows
from derivative instruments designated as net investment
hedges are classified as financing activities. Realized gains
and losses from non-qualifying derivative instruments used
to hedge currency exposures resulting from intercompany
financing transactions are also classified as financing
activities. Cash flows from other derivative instruments
used to manage interest, commodity or other currency
exposures are classified as operating activities. Cash
payments related to income taxes are classified as operating
activities. Cash flows from the Company's discontinued
operations are included in the Consolidated Statements of
Cash Flows.
Cash Equivalents
Highly liquid investments with remaining stated maturities
of three months or less when purchased are considered cash
equivalents and recorded at cost.
Investments
Investment securities consist of readily marketable debt and
equity securities. Unrealized gains or losses for investments
classified as trading are charged to earnings. Unrealized
gains or losses on securities classified as available-for-sale
are generally recorded in OCI. If an available-for-sale
security is other than temporarily impaired, the loss is
charged to either earnings or OCI depending on our intent
and ability to retain the security until we recover the full cost
basis and the extent of the loss attributable to the
creditworthiness of the issuer. Investment securities are
included as other current assets or other noncurrent assets in
the Consolidated Balance Sheets.
Investments in certain companies over which we exert
significant influence, but do not control the financial and
operating decisions, are accounted for as equity method
investments. Other investments that are not controlled, and
over which we do not have the ability to exercise significant
influence, are accounted for under the cost method. Both
equity and cost method investments are included as other
noncurrent assets in the Consolidated Balance Sheets.
Inventory Valuation
Inventories are valued at the lower of cost or market value.
Product-related inventories are primarily maintained on the
first-in, first-out method. Minor amounts of product
inventories, including certain cosmetics and commodities,
are maintained on the last-in, first-out method. The cost of
spare part inventories is maintained using the average-cost
method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by
accumulated depreciation. Depreciation expense is
recognized over the assets' estimated useful lives using the
straight-line method. Machinery and equipment includes
office furniture and fixtures (15-year life), computer
equipment and capitalized software (3- to 5-year lives) and
manufacturing equipment (3- to 20-year lives). Buildings
are depreciated over an estimated useful life of 40 years.
Estimated useful lives are periodically reviewed and, when
appropriate, changes are made prospectively. When certain
events or changes in operating conditions occur, asset lives
may be adjusted and an impairment assessment may be
performed on the recoverability of the carrying amounts.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not
amortized, but are evaluated for impairment annually or
more often if indicators of a potential impairment are
present. Our annual impairment testing of goodwill is
performed separately from our impairment testing of
indefinite-lived intangible assets. The annual evaluation for
impairment of goodwill and indefinite-lived intangible assets
is based on valuation models that incorporate assumptions
and internal projections of expected future cash flows and
operating plans. We believe such assumptions are also
comparable to those that would be used by other
marketplace participants.
We have acquired brands that have been determined to have
indefinite lives. We evaluate a number of factors to
determine whether an indefinite life is appropriate, including
the competitive environment, market share, brand history,
product life cycles, operating plans and the macroeconomic
environment of the countries in which the brands are sold.
When certain events or changes in operating conditions
occur, an impairment assessment is performed and