Sony 1998 Annual Report Download - page 57

Annual Report 1998 Sony Corporation [55]
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or
less, that are readily convertible to known amounts of cash and are so near maturity that they present insignificant
risk of changes in value because of changes in interest rates.
Marketable securities
Marketable securities consist of debt and equity securities. Debt securities and equity securities designated as avail-
able-for-sale, whose fair values are readily determinable, are carried at fair value with unrealized gains or losses in-
cluded as a component of stockholders’ equity, net of applicable taxes. Debt and equity securities classified as
trading securities are carried at fair value with unrealized gains or losses included in income. Debt securities that are
expected to be held-to-maturity are carried at amortized cost. Individual securities classified as either available-for-
sale or held-to-maturity are reduced to net realizable value by a charge to income for other than temporary declines
in fair value. Realized gains and losses are determined on the average cost method and are reflected in income.
Inventories
Inventories in electronics, game and music are valued at cost, not in excess of market, cost being determined on the
“average cost” basis except for the cost of finished products carried by certain subsidiary companies which is deter-
mined on the “first-in, first-out” basis.
Film costs include production, print, certain advertising costs and allocated overhead. Film costs are amortized in
the proportion that revenue for a period relates to management’s estimate of ultimate revenues.
Unamortized film costs are compared with estimated net realizable value on an individual film basis and write-
downs are recorded when indicated. Film costs for motion pictures and television programs that are expected to be
amortized against revenues from primary markets are classified as current assets. Primary markets for motion pic-
tures include theatrical, home videocassette and pay television. Primary markets for television programs include net-
work and first-run syndication. All other film costs are classified as noncurrent.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment is computed on the
declining-balance method for the parent company and Japanese subsidiaries and on the straight-line method for
foreign subsidiary companies at rates based on estimated useful lives of the assets according to general class, type
of construction and use. Significant renewals and additions are capitalized at cost. Maintenance and repairs, and
minor renewals and betterments are charged to income as incurred.
Intangibles and goodwill
Intangibles, which mainly consist of artist contracts and music catalogs, are being amortized on a straight-line basis
principally over 16 years and 21 years, respectively.
Goodwill recognized in acquisitions accounted for as purchases is being amortized on a straight-line basis princi-
pally over a 40-year period.
Deferred insurance acquisition costs
Costs that vary with and are primarily related to acquiring new insurance policies are deferred and are being amor-
tized mainly over the premium-paying period of the related insurance policies using assumptions consistent with
those used in computing policy reserves.
Future insurance policy benefits
Future insurance policy benefits are computed based on actuarial assumptions.
Accounting for the impairment of long-lived assets
The company’s long-lived assets, including goodwill and identifiable intangibles, held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. When the sum of expected future cash flows (undiscounted and without interest charges) is less than
the carrying amount of the asset, an impairment loss is recognized, based on the fair value of the asset. The fair
value of goodwill is determined using a discounted cash flows analysis.
Income taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of
income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.