Toyota 2012 Annual Report Download - page 82

TOYOTA ANNUAL REPORT 2012
Toyota Global Vision Changes for Making
Ever-Better Cars President
ʼ
s Message Medium- to Long-Term
Growth Initiatives Special Feature Management and Corporate Information Investor Information
Business and
Performance Review Financial Section
Notes to Consolidated Financial Statements
Nature of operations:1
Summary of significant accounting policies:2
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.
undistributed earnings. Consolidated net income
includes Toyota
ʼ
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 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
ʼ
s consolidated financial
statements in conformity with U.S.GAAP
requires management to make estimates and
assumptions that affect the amounts reported
in the consolidated financial statements and
accompanying notes. Actual results could differ
from those estimates. The more significant
Toyota
ʼ
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
ʼ
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.
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
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
reclassifications 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 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
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 derivative financial
instruments, other-than-temporary losses on
marketable securities, litigation liabilities and
valuation allowance for deferred tax assets.
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.
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.
■
Basis of consolidation and accounting for
investments in affiliated companies
■
Estimates
■
Translation of foreign currencies
■
Revenue recognition
■
Other costs
0820
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