Toyota 2009 Annual Report Download - page 71

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Annual Report 2009 69
Notes to Consolidated Financial Statements
Toyota is primarily engaged in the design, manufacture, and
sale of sedans, minivans, compact cars, sport-utility vehicles,
trucks and related parts and accessories throughout the world.
In addition, Toyota provides financing, vehicle and equipment
leasing and certain other financial services primarily to its deal-
ers and their customers to support the sales of vehicles and
other products manufactured by Toyota.
The parent company and its subsidiaries in Japan maintain their
records and prepare their financial statements in accordance
with accounting principles generally accepted in Japan, and its
foreign subsidiaries in conformity with those of their countries of
domicile. Certain adjustments and reclassifications have been
incorporated in the accompanying consolidated financial state-
ments to conform to accounting principles generally accepted
in the United States of America.
Significant accounting policies after reflecting adjustments for
the above are as follows:
Basis of consolidation and accounting for investments
in affi liated companies
The consolidated financial statements include the accounts of the
parent company and those of its majority-owned subsidiary com-
panies. All significant intercompany transactions and accounts
have been eliminated. Investments in affiliated companies in
which Toyota exercises significant influence, but which it does not
control, are stated at cost plus equity in undistributed earnings.
Consolidated net income includes Toyota’s equity in current earn-
ings of such companies, after elimination of unrealized intercom-
pany profits. Investments in such companies are reduced to net
realizable value if a decline in market value is determind other-
than-temporary. Investments in non-public companies in which
Toyota does not exercise significant influence (generally less than
a 20% ownership interest) are stated at cost. The accounts of vari-
able interest entities as defined by the Financial Accounting
Standards Board Interpretation No. 46(R), Consolidation of
Variable Interest Entities (revised December 2003)—an interpreta-
tion of ARB No. 51, are included in the consolidated financial
statements, if applicable.
Estimates
The preparation of Toyota’s consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make esti-
mates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Actual results could differ from those estimates. The more sig-
nificant estimates include: product warranties, allowance for
doubtful accounts and credit losses, residual values for leased
assets, impairment of long-lived assets, pension costs and obli-
gations, fair value of derivative financial instruments, other-than-
temporary losses on marketable securities and valuation
allowance for deferred tax assets.
Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries and affiliates
are translated into Japanese yen at appropriate year-end current
exchange rates and all income and expense accounts of those
subsidiaries are translated at the average exchange rates for each
period. The foreign currency translation adjustments are included
as a component of accumulated other comprehensive income.
Foreign currency receivables and payables are translated at
appropriate year-end current exchange rates and the resulting
transaction gains or losses are recorded in operations currently.
Revenue recognition
Revenues from sales of vehicles and parts are generally recog-
nized upon delivery which is considered to have occurred when
the dealer has taken title to the product and the risk and reward
of ownership have been substantively transferred, except as
described below.
Toyota’s sales incentive programs principally consist of cash
payments to dealers calculated based on vehicle volume or a
model sold by a dealer during a certain period of time. Toyota
accrues these incentives as revenue reductions upon the sale of
a vehicle corresponding to the program by the amount deter-
mined in the related incentive program.
Revenues from the sales of vehicles under which Toyota con-
ditionally guarantees the minimum resale value are recognized
on a pro rata basis from the date of sale to the first exercise
date of the guarantee in a manner similar to operating lease
accounting. The underlying vehicles of these transactions are
recorded as assets and are depreciated in accordance with
Toyota’s depreciation policy.
Revenues from retail financing contracts and finance leases
are recognized using the effective yield method. Revenues from
operating leases are recognized on a straight-line basis over the
lease term.
Toyota on occasion sells finance receivables in transactions
subject to limited recourse provisions. These sales are to trusts
and Toyota retains the servicing rights and is paid a servicing
fee. Gains or losses from the sales of the finance receivables are
recognized in the fiscal year in which such sales occur.
Other costs
Advertising and sales promotion costs are expensed as incurred.
Advertising costs were ¥451,182 million, ¥484,508 million and
¥389,242 million ($3,963 million) for the years ended March 31,
2007, 2008 and 2009, respectively.
Toyota Motor Corporation
Nature of operations:
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Summary of significant accounting policies:
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