Sony 2006 Annual Report Download - page 101

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■ Free distribution of common stock
On occasion, Sony Corporation may make a free distribution of
common stock which is accounted for either by a transfer from
additional paid-in capital to the common stock account or with
no entry if free shares are distributed from the portion of previously
issued shares in the common stock account.
Under the Japanese Commercial Code, a stock dividend can
be effected by an appropriation of retained earnings to the
common stock account, followed by a free share distribution
with respect to the amount appropriated by resolution of the
Board of Directors’ meeting.
Free distribution of common stock is recorded in the consoli-
dated financial statements only when it becomes effective, except
for the calculation and presentation of per share amounts.
■ Stock issue costs
Stock issue costs are directly charged to retained earnings, net
of tax, in the accompanying consolidated financial statements as
the Japanese Commercial Code prohibits charging such stock
issue costs to capital accounts which is the prevailing practice in
the United States of America.
■ Revenue recognition
Revenues from electronics and game sales are recognized upon
delivery which is considered to have occurred when the customer
has taken title to the product and the risk and rewards of
ownership have been substantively transferred. If the sales
contract contains a customer acceptance provision, then sales
are recognized after customer acceptance occurs or the
acceptance provisions lapse.
Revenues from the theatrical exhibition of motion pictures are
recognized as the customer exhibits the film. Revenues from the
licensing of feature films and television programming are recorded
when the material is available for telecast by the licensee and
when any restrictions regarding the exhibition or exploitation of the
product lapse. Revenues from the sale of home videocassettes
and DVDs are recognized upon availability of sale to the public.
Traditional life insurance policies that the life insurance subsid-
iary writes, most of which are categorized as long-duration con-
tracts, mainly consist of whole life, term life and accident and
health insurance contracts. Premiums from these policies are
reported as revenue when due from policyholders.
Amounts received as payment for non-traditional contracts
such as interest sensitive whole life contracts, single payment
endowment contracts, single payment juvenile contracts and
other contracts without life contingencies are recognized as
deposits to policyholder account balances and included in future
insurance policy benefits and other. Revenues from these con-
tracts are comprised of fees earned for administrative and
contract-holder services, which are recognized over the period
of the contracts, and included in financial service revenue.
Property and casualty insurance policies that the non-life insur-
ance subsidiary writes are primarily automotive insurance con-
tracts which are categorized as short-duration contracts. Premi-
ums from these policies are reported as revenue over the period
of the contract in proportion to the amount of insurance
protection provided.
■ Accounting for consideration given to a customer or a reseller
In accordance with EITF Issue No. 01-9, “Accounting for Con-
sideration Given by a Vendor to a Customer or Reseller of the
Vendor’s Products”, cash consideration given to a customer or a
reseller including payments for buydowns, slotting fees and coop-
erative advertising programs, is accounted for as a reduction of
revenue unless Sony receives an identifiable benefit (goods or ser-
vices) in exchange for the consideration, can reasonably estimate
the fair value of this benefit and receives documentation from the
reseller to support the amounts spent. Any payments meeting
these criteria are treated as selling, general and administrative
expenses. For the fiscal years ended March 31, 2004, 2005
and 2006, consideration given to a reseller, primarily for free
promotional shipping and cooperative advertising programs
included in selling, general and administrative expense totaled
¥30,338 million, ¥27,946 million and ¥29,489 million ($252
million), respectively.
■ Cost of sales
Costs classified as cost of sales relate to the producing and
manufacturing of products and include such items as material
cost, subcontractor cost, depreciation of fixed assets, amortiza-
tion of intangible assets, personnel expenses, research and
development costs, and amortization of film cost related to
theatrical and television products.
■ Research and development costs
Research and development costs are expensed as incurred.
■ Selling, general and administrative
Costs classified as selling expense relate to the promoting and
selling of products and include such items as advertising,
promotion, shipping, and warranty expenses.
General and administrative expenses include operating items
such as officer’s salaries, personnel expenses, depreciation of
fixed assets, office rental for sales, marketing and administrative
divisions, a provision for doubtful accounts and amortization of
intangible assets.
Selling, general and administrative expenses are expensed
as incurred.
■ Financial service expenses
Financial service expenses include a provision for policy reserves
and amortization of deferred insurance acquisition cost, and all