Sony 2015 Annual Report Download - page 152

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
determined on the “average cost” basis except for the cost of finished products carried by certain subsidiary
companies which is determined on the “first-in, first-out” basis. The market value of inventory is determined as
the net realizable value – i.e., estimated selling price in the ordinary course of business less predictable costs of
completion and disposal. Sony does not consider a normal profit margin when calculating the net realizable
value.
Other receivables -
Other receivables include receivables which relate to arrangements with certain component manufacturers
whereby Sony procures goods, including product components, for these component manufacturers and is
reimbursed for the related purchases. No revenue or profit is recognized on these transfers. Sony will repurchase
the inventory at a later date from the component manufacturers as either finished goods inventory or as partially
assembled product.
Film costs -
Film costs include direct production costs, production overhead and acquisition costs for both motion
picture and television productions and are stated at the lower of unamortized cost or estimated fair value and
classified as noncurrent assets. Film costs are amortized and the estimated liabilities for residuals and
participations are accrued using an individual-film-forecast method based on the ratio of current period actual
revenues to the estimated remaining total revenues. Film costs also include broadcasting rights, which are
recognized when the license period begins and the program is available for use, and consist of acquired
programming to be aired on Sony’s worldwide channel network. Broadcasting rights are stated at the lower of
unamortized cost or net realizable value, classified as either current or noncurrent assets based on timing of
expected use, and amortized based on estimated usage or on a straight-line basis over the useful life, as
appropriate. Estimates used in calculating the fair value of the film costs and the net realizable value of the
broadcasting rights are based upon assumptions about future demand and market conditions and are reviewed on
a periodic basis.
Property, plant and equipment and depreciation -
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line
method. Useful lives for depreciation range from two to 50 years for buildings and from two to 10 years for
machinery and equipment. Significant renewals and additions are capitalized at cost. Maintenance and repairs,
and minor renewals and betterments are charged to income as incurred.
Goodwill and other intangible assets -
Goodwill and indefinite lived intangible assets are tested annually for impairment during the fourth quarter
of the fiscal year 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. Such an event or change in circumstances would
include unfavorable variances from established business plans, significant changes in forecasted results or
volatility inherent to external markets and industries, which are periodically reviewed by Sony’s management.
In the fiscal year ended March 31, 2016, Sony elected not to perform an optional qualitative assessment of
goodwill and instead proceeded directly to a two-step quantitative impairment process which involves a
comparison of the estimated fair value of a reporting unit to its carrying amount to identify potential impairment.
Reporting units are Sony’s operating segments or one level below the operating segments. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the
second step of the impairment test is not performed. If the carrying amount of a reporting unit exceeds its fair
value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if
any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s
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