Sony 1997 Annual Report Download - page 46

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Notes to Consolidated Financial Statements
Sony Corporation and Consolidated Subsidiaries
The company is engaged in the development, manufacture and sale of various kinds of electronic equipment,
instruments and devices. The company’s principal manufacturing facilities are located in Japan, the United
States, Europe, and Asia, and its products are marketed by sales subsidiaries and unaffiliated local distributors
throughout the world. The company is also engaged worldwide in the development, production, manufacture
and distribution of recorded music, in all commercial formats and musical genres, and image-based software,
including film, video, television and new entertainment technologies. Further, the company is engaged in
insurance and financing activities. These activities are carried on principally through a Japanese stock life
insurance subsidiary and also a Japanese financing subsidiary.
The parent company and its subsidiaries in Japan maintain their records and prepare their financial statements
in accordance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain
their records and prepare their financial statements in conformity with accounting principles generally
accepted in the countries of their domicile. Certain adjustments and reclassifications, including those relating
to the tax effects of temporary differences, capitalization of stock purchase warrants, deferral of insurance
acquisition costs, the accrual of certain expenses and the accounting for foreign currency translation, have
been incorporated in the accompanying consolidated financial statements to conform with accounting prin-
ciples generally accepted in the United States of America (U.S. GAAP). These adjustments were not recorded
in the statutory books of account.
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contin-
gent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Basis of consolidation and accounting for investments in affiliated companies
The consolidated financial statements include the accounts of the parent company and those of its majority-
owned subsidiary companies. All significant intercompany transactions and accounts are eliminated. Invest-
ments in 20% to 50% owned companies are stated at cost plus equity in undistributed earnings; consolidated
net income (loss) includes the company’s equity in current earnings (loss) of such companies, after elimi-
nation of unrealized intercompany profits.
On occasion, a subsidiary or affiliated company accounted for by the equity method may issue its shares to
third parties as either a public offering or upon conversion of convertible debt to common stock at amounts
per share in excess of or less than the company’s average per share carrying value. With respect to such trans-
actions, the resulting gains or losses arising from change in interest are recorded in income for the year the
change in interest transaction occurs.
The excess of the cost over the underlying net equity of investments in subsidiaries and affiliated companies
accounted for on an equity basis is allocated to identifiable assets based on fair values at the date of acquisition.
The unassigned residual value of the excess of the cost over the underlying net equity is recognized as goodwill.
During the year ended March 31, 1995, the company changed its method of accounting for assessing the
carrying value of its investments in acquired businesses including goodwill (see Note 4).
Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at appro-
priate year-end current rates and all income and expense accounts are translated at rates that approximate
those rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated as
a component of stockholders’ equity.
Foreign currency receivables and payables are translated at appropriate year-end current rates and the
resulting translation gains or losses are taken into income currently.
Revenue recognition
Revenues from electronics sales and music are recognized when products are shipped to customers.
Motion picture revenue is recognized beginning on the date of theatrical exhibition. Revenue from televi-
sion licensing agreements is recognized when the motion picture or television series first becomes available
for telecast. Revenue from home videocassette sales is generally recognized on the date of shipment.
Insurance premiums are reported as revenue when due from policyholders. Benefits and expenses are
associated with earned insurance premiums so as to result in the recognition of profits over the life of the
1. Nature of
operations
2. Summary of
significant
accounting
policies