Toyota 2011 Annual Report Download - page 78

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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
Vehicles and equipment on operating leases
to third parties are originated by dealers and
acquired by certain consolidated subsidiaries.
Such subsidiaries are also the lessors of certain
property that they acquire directly. Vehicles and
equipment on operating leases are depreciated
primarily on a straight-line method over the lease
term, generally from 2 to 5 years, to the estimated
residual value. Incremental direct costs incurred
in connection with the acquisition of operating
lease contracts are capitalized and amortized on
a straight-line method over the lease term.
Toyota reviews its long-lived assets for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset
group may not be recoverable. An impairment
loss would be recognized when the carrying
amount of an asset group exceeds the estimated
undiscounted cash flows expected to result from
the use of the asset and its eventual disposition.
The amount of the impairment loss to be recorded
is calculated by the excess of the carrying value
of the asset group over its fair value. Fair value is
determined mainly using a discounted cash flow
valuation method.
Goodwill is not material to Toyota’s consolidated
balance sheets.
Intangible assets consist mainly of software.
Intangible assets with a definite life are amortized
on a straight-line basis with estimated useful lives
mainly of 5 years. Intangible assets with an
indefinite life are tested for impairment whenever
events or circumstances indicate that a carrying
amount of an asset (asset group) may not be
recoverable.
The allowance for residual value losses is
maintained in amounts considered by Toyota to
be appropriate in relation to the estimated losses
on its owned portfolio. Upon disposal of the
assets, the allowance for residual losses is
adjusted for the difference between the net book
value and the proceeds from sale.
Inventories 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 which is
determined on the “specific identification” basis
or “last-in, first-out” (“LIFO”) basis. Inventories
valued on the LIFO basis totaled ¥199,275 million
and ¥151,183 million ($1,818 million) at March 31,
2010 and 2011, respectively. Had the “first-in,
first-out” basis been used for those companies
using the LIFO basis, inventories would have been
¥64,099 million and ¥57,943 million ($697 million)
higher than reported at March 31, 2010 and 2011,
respectively.
Property, plant and equipment are stated at cost.
Major renewals and improvements are capitalized;
minor replacements, maintenance and repairs
are charged to current operations. Depreciation
of property, plant and equipment is mainly
computed on the declining-balance method for
the parent company and Japanese subsidiaries
and on the straight-line method for foreign
subsidiary companies at rates based on estimated
useful lives of the respective assets according to
general class, type of construction and use. The
estimated useful lives range from 2 to 65 years for
buildings and from 2 to 20 years for machinery
and equipment.
An impairment loss would be recognized
when the carrying amount of an asset exceeds
the estimated undiscounted cash flows used in
determining the fair value of the asset. The amount
of the impairment loss to be recorded is generally
determined by the difference between the fair
value of the asset using a discounted cash flow
valuation method and the current book value.
Toyota has both defined benefit and defined
contribution plans for employees’ retirement
benefits. Retirement benefit obligations are
measured by actuarial calculations in accordance
with U.S.GAAP. The funded status of the defined
benefit postretirement plans is recognized on the
consolidated balance sheets as prepaid pension
and severance costs or accrued pension and
severance costs, and the funded status change
is recognized in the year in which it occurs through
other comprehensive income.
Environmental expenditures relating to current
operations are expensed or capitalized as
appropriate. Expenditures relating to existing
conditions caused by past operations, which do
not contribute to current or future revenues, are
expensed. Liabilities for remediation costs are
recorded when they are probable and reasonably
estimable, generally no later than the completion
of feasibility studies or Toyota’s commitment to a
plan of action. The cost of each environmental
liability is estimated by using current technology
available and various engineering, financial and
legal specialists within Toyota based on current
law. Such liabilities do not reflect any offset for
possible recoveries from insurance companies
and are not discounted. There were no material
changes in these liabilities for all periods presented.
Property, plant and equipment
Long-lived assets
Goodwill and intangible assets
The provision for income taxes is computed based
on the pretax income included in the consolidated
statement of income. The asset and liability
approach is used to recognize deferred tax assets
and liabilities for the expected future tax
consequences of temporary differences between
the carrying amounts and the tax bases of assets
and liabilities. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.
Toyota employs derivative financial instruments,
including forward foreign currency exchange
contracts, foreign currency options, interest rate
swaps, interest rate currency swap agreements
and interest rate options to manage its exposure
to fluctuations in interest rates and foreign
currency exchange rates. Toyota does not use
derivatives for speculation or trading purposes.
Changes in the fair value of derivatives are
recorded each period in current earnings or
through other comprehensive income, depending
on whether a derivative is designated as part of a
hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges
is recognized currently in operations.
Basic net income attributable to Toyota Motor
Corporation per common share is calculated by
dividing net income attributable to Toyota Motor
Corporation by the weighted-average number of
shares outstanding during the reported period.
The calculation of diluted net income attributable
to Toyota Motor Corporation per common share is
similar to the calculation of basic net income
attributable to Toyota Motor Corporation per
Employee benefit obligations
Environmental matters
Income taxes
Net income attributable to Toyota Motor
Corporation per share
Derivative financial instruments
Inventories
78TOYOTA ANNUAL REPORT 2011