Sony 2005 Annual Report Download - page 89

86 Sony Corporation
■ Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affili-
ates are translated into Japanese yen at appropriate year-end
current rates and all income and expense accounts are trans-
lated at rates that approximate those rates prevailing at the time
of the transactions. The resulting translation adjustments are
accumulated as a component of accumulated other compre-
hensive income.
Foreign currency receivables and payables are translated at
appropriate year-end current rates and the resulting translation
gains or losses are taken into income.
■ 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 debt and equity securities
Debt and equity securities designated as available-for-sale, whose
fair values are readily determinable, are carried at fair value with
unrealized gains or losses included as a component of accumu-
lated other comprehensive income, 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.
■ Equity securities in non-public companies
Equity securities in non-public companies are carried at cost as
fair value is not readily determinable. If the value of a non-public
equity investment is estimated to have declined and such decline
is judged to be other than temporary, Sony recognizes the
impairment of the investment and the carrying value is reduced
to its fair value. Determination of impairment is based on the
consideration of such factors as operating results, business
plans and estimated future cash flows. Fair value is determined
through the use of such methodologies as discounted cash
flows, valuation of recent financings and comparable valuations
of similar companies.
■ Inventories
Inventories in electronics, game and music as well as non-film
inventories for pictures 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 in electronics which is determined on the
“first-in, first-out” basis.
■ Film costs
Film costs related to theatrical and television product (which
includes direct production costs, production overhead and
acquisition costs) are stated at the lower of unamortized cost or
estimated fair value and classified as non-current assets. Film
costs are amortized, and the estimated liabilities for residuals
and participations are accrued, for an individual product based
on the proportion that current period actual revenues bear to the
estimated remaining total lifetime revenues. These estimates are
reviewed on a periodic basis.
■ Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost. Depreciation
of property, plant and equipment is primarily computed on the
declining-balance method for Sony Corporation and its Japa-
nese subsidiaries, except for certain semiconductor manufactur-
ing facilities whose depreciation is computed on the straight-line
method, and on the straight-line method for its foreign subsidiar-
ies at rates based on estimated useful lives of the assets, princi-
pally, ranging from 15 years up to 50 years for buildings and
from 2 years up to 10 years for machinery and equipment.
Significant renewals and additions are capitalized at cost. Main-
tenance and repairs, and minor renewals and betterments are
charged to income as incurred.
■ Goodwill and other intangible assets
Goodwill and certain other intangible assets that are determined
to have an indefinite life are not amortized and are tested for
impairment on an annual basis and between annual tests if an
event occurs or circumstances change that would more likely
than not reduce the fair value below its carrying amount. Fair
value for those assets is generally determined using a discounted
cash flow analysis.
Intangible assets that are determined not to have an indefinite
life mainly consist of artist contracts, music catalogs, acquired
patent rights and software to be sold, leased or otherwise
marketed. Artist contracts and music catalogs are amortized on
a straight-line basis over a period of up to 40 years. Acquired
patent rights and software to be sold, leased or otherwise mar-
keted are amortized on a straight-line basis over 3 to 10 years.
■ Accounting for computer software to be sold
Sony accounts for software development costs in accordance
with FAS No. 86, “Accounting for the Costs of Computer Soft-
ware to Be Sold, Leased, or Otherwise Marketed”.
In the Electronics segment, costs related to establishing the
technological feasibility of a software product are expensed as
incurred as a part of research and development in cost of sales.
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