Sony 2003 Annual Report Download - page 164

Consolidated Financial Information 2003
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completed when products were shipped and recognized revenues at that time. In accordance with SAB No.
101, Sony has recorded a one-time non-cash charge of ¥2,821 million, including ¥491 million income tax
expense, which represents the net impact of sales that were previously recognized in the year ended
March 31, 2000. These sales were subsequently recognized in the year ended March 31, 2001 due to the
adoption of SAB No. 101. The charge has been reflected as a cumulative effect of an accounting change in
the accompanying consolidated statements of income. The accounting change did not have a material
effect on Sony’s consolidated statements of income for the year ended March 31, 2001.
(2) Significant accounting policies:
Basis of consolidation and accounting for investments in affiliated companies -
The consolidated financial statements include the accounts of Sony Corporation and those of its
majority-owned subsidiary companies. All intercompany transactions and accounts are eliminated.
Investments in which Sony has significant influence or ownership of 20% or more but less than or equal to
50% are accounted for under the equity method. In addition, all investments in limited partnerships and
general partnerships are also accounted for under the equity method. Under the equity method,
investments are stated at cost plus/minus Sony’s equity in undistributed earnings or losses. Consolidated
net income includes Sony’s equity in current earnings or losses of such companies, after elimination of
unrealized intercompany profits. If the value of an investment has declined and is judged to be other than
temporary, the investment is written down to its fair value.
On occasion, a consolidated subsidiary or affiliated company accounted for by the equity method may
issue its shares to third parties as either a public or private offering or upon conversion of convertible debt to
common stock at amounts per share in excess of or less than Sony’s average per share carrying value.
With respect to such transactions, where the sale of such shares is not part of a broader corporate
reorganization and the reacquisition of such shares is not contemplated at the time of issuance, the
resulting gains or losses arising from the change in interest are recorded in income for the year the change
in interest transaction occurs. If the sale of such shares is part of a broader corporate reorganization, the
reacquisition of such shares is contemplated at the time of issuance or realization of such gain is not
reasonably assured (i.e., the entity is newly formed, non-operating, a research and development or
start-up/development stage entity, or where the entity's ability to continue in existence is in question), the
transaction is accounted for as a capital transaction.
The excess of the cost over the underlying net equity of investments in consolidated subsidiaries and
affiliated companies accounted for on an equity basis is allocated to identifiable assets and liabilities 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.
Use of estimates -
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires