Toyota 2011 Annual Report Download - page 75

Nature of operations:
1
Summary of significant accounting policies:
2
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Financial Section and
Investor Information
Business and
Performance Review
Special FeatureMessage/Vision
Management and
Corporate Information
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,
The parent company and its subsidiaries in Japan
and its foreign subsidiaries maintain their records
and prepare their financial statements in
accordance with accounting principles generally
accepted in Japan and those of their countries of
domicile. Certain adjustments and reclassifica-
tions have been incorporated in the accompanying
consolidated financial statements to conform to
U.S.GAAP.
Significant accounting policies after reflecting
adjustments for the above are as follows:
The consolidated financial statements include the
accounts of the parent company and those of its
majority-owned subsidiary companies. All signifi-
cant 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 earnings of such companies, after
elimination of unrealized intercompany profits.
Investments in such companies are reduced to
net realizable value if a decline in market value is
determined other-than-temporary. Investments in
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.
Revenues from sales of vehicles and parts are
generally recognized 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 determined in the related
incentive program.
Revenues from the sales of vehicles under
which Toyota conditionally 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
vehicle and equipment leasing and certain other
financial services primarily to its dealers and their
customers to support the sales of vehicles and
other products manufactured by Toyota.
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 variable interest entities as defined
by U.S.GAAP are included in the consolidated
financial statements, if applicable.
The preparation of Toyota’s consolidated financial
statements in conformity with U.S.GAAP requires
management to make estimates and assumptions
that affect the amounts reported in the consoli-
dated financial statements and accompanying
notes. Actual results could differ from those
estimates. The more significant estimates include:
product warranties, liabilities accrued for recalls
and other safety measures, allowance for doubtful
accounts and credit losses, residual values for
leased assets, impairment of long-lived assets,
pension costs and obligations, fair value of deriva-
tive financial instruments, other-than-temporary
losses on marketable securities, litigation liabili-
ties and valuation allowance for deferred tax
assets.
All asset and liability accounts of foreign
subsidiaries and affiliates are translated into
are recognized on a straight-line basis over the
lease term.
The sale of certain vehicles includes a
determinable amount for the contract, which
entitles customers to free vehicle maintenance.
Such revenues from free maintenance contracts
are deferred and recognized as revenue over the
period of the contract, which approximates the
pattern of the related costs.
Advertising and sales promotion costs are
expensed as incurred. Advertising costs were
¥389,242 million, ¥304,375 million and ¥308,903
million ($3,715 million) for the years ended March
31, 2009, 2010 and 2011, respectively.
Toyota generally warrants its products against
certain manufacturing and other defects.
Provisions for product warranties are provided for
specific periods of time and/or usage of the
product and vary depending upon the nature of
the product, the geographic location of the sale
and other factors. Toyota records a provision for
estimated product warranty costs at the time the
related sale is recognized based on estimates
that Toyota will incur to repair or replace product
parts that fail while under warranty. The amount of
accrued estimated warranty costs is primarily
based on historical experience as to product
failures as well as current information on repair
costs. The amount of warranty costs accrued also
contains an estimate of warranty claim recoveries
to be received from suppliers.
In addition to product warranties above,
Toyota accrues for costs of recalls and other
safety measures based on management’s
estimates when it is probable a liability has been
incurred and the amount of loss can be reasonably
estimated. Prior to the fourth quarter of fiscal
2010, amounts were accrued based on individual
Estimates
Revenue recognition
Other costs
Translation of foreign currencies
Basis of consolidation and accounting for
investments in affiliated companies
75TOYOTA ANNUAL REPORT 2011