Toyota 2013 Annual Report Download - page 78

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ANNUAL REPORT 2013
recorded as assets and are depreciated in accor-
dance with Toyota’s depreciation policy.
Revenues from retail fi nancing contracts and
fi nance leases are recognized using the effective yield
method. Revenues from operating leases are recog-
nized on a straight-line basis over the lease term.
The sale of certain vehicles includes a determin-
able amount for the contract, which entitles cus-
tomers 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.
Other costs
Advertising and sales promotion costs are
expensed as incurred. Advertising costs were
¥308,903 million, ¥304,713 million and ¥330,870
million ($3,518 million) for the years ended March
31, 2011, 2012 and 2013, respectively.
Toyota generally warrants its products against
certain manufacturing and other defects. Provisions
for product warranties are provided for specifi c peri-
ods of time and/or usage of the product and vary
depending upon the nature of the product, the geo-
graphic location of the sale and other factors.
Toyota records a provision for estimated product
warranty costs at the time the related sale is recog-
nized based on estimates that Toyota will incur to
repair or replace product parts that fail while under
warranty. The amount of accrued estimated warran-
ty costs is primarily based on historical experience
as to product failures as well as current information
on repair costs. The amount of warranty costs
Notes to Consolidated Financial Statements
Translation of foreign currencies
All asset and liability accounts of foreign subsidiaries
and affi liated companies are translated into Japanese
yen at appropriate year-end current exchange rates
and all income and expense accounts of those sub-
sidiaries are translated at the average exchange
rates for each period. The foreign currency transla-
tion 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 gen-
erally 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 con-
sist 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 incen-
tives as revenue reductions upon the sale of a vehi-
cle 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 fi rst exercise date of the guaran-
tee in a manner similar to operating lease accounting.
The underlying vehicles of these transactions are
Toyota is primarily engaged in the design, manufac-
ture, and sale of sedans, minivans, compact cars,
sport-utility vehicles, trucks and related parts and
accessories throughout the world. In addition, Toyota
provides fi nancing, vehicle and equipment leasing and
certain other fi nancial services primarily to its dealers
and their customers to support the sales of vehicles
and other products manufactured by Toyota.
1. Nature of operations
The parent company and its subsidiaries in Japan
and its foreign subsidiaries maintain their records
and prepare their fi nancial statements in accor-
dance with accounting principles generally accept-
ed in Japan and those of their countries of domicile.
Certain adjustments and reclassifi cations have been
incorporated in the accompanying consolidated
fi nancial statements to conform to U.S. GAAP.
Signifi cant accounting policies after refl ecting
adjustments for the above are as follows:
Basis of consolidation and accounting for
investments in affi liated companies
The consolidated fi nancial 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 affi liated companies in
which Toyota exercises signifi cant infl uence, 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 profi ts. 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 signifi cant infl uence
(generally less than a 20% ownership interest) are
stated at cost. The accounts of variable interest
entities as defi ned by U.S. GAAP are included in the
consolidated fi nancial statements, if applicable.
Estimates
The preparation of Toyota’s consolidated fi nancial
statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that
affect the amounts reported in the consolidated fi nan-
cial statements and accompanying notes. Actual
results could differ from those estimates. The more sig-
nifi cant estimates include: product warranties, liabilities
accrued for recalls and other safety measures, allow-
ance for doubtful accounts and credit losses, residual
values for leased assets, impairment of long-lived
assets, pension costs and obligations, fair value of
derivative fi nancial instruments, other-than-temporary
losses on marketable securities, litigation liabilities and
valuation allowance for deferred tax assets.
2. Summary of signifi cant accounting policies
Selected Financial Summary (U.S. GAAP) Consolidated Segment Information Consolidated Quarterly Financial Summary Management’s Discussion and Analysis of Financial Condition and Results of Operations Consolidated Financial Statements Notes to Consolidated Financial Statements [1 of 44]
Management’s Annual Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm