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Inventories
Inventories include raw materials, supplies and spare parts, finished goods, work in process,
semifinished goods, merchandise, construction in progress, materials in transit - crude oil, and
merchandise in transit - fuel oil. Inventories are stated at the lower of cost or net realizable value.
Inventory write-downs are made by item, except where it may be appropriate to group similar or related
items. Net realizable value is the estimated selling price of inventories less all estimated costs of
completion and costs necessary to make the sale. Inventories are recorded at weighted-average cost
on the balance sheet date.
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Construction in Progress
When construction contracts are accounted for by the percentage-of-completion method, the stage
of completion of each contract is measured by the percentage of actual cumulative costs to the total
estimated costs. Construction revenues and costs for the current year are the actual cumulative
construction revenues and costs in excess of the cumulative construction revenues and costs
recognized in prior years. Any estimated loss on a construction contract is recognized currently.
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Financial Assets Carried at Cost
Investments in equity instruments with no quoted prices in an active market and with fair values that
cannot be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging
Stock Market, are measured at their original cost. The accounting treatment for dividends on financial
assets carried at cost is the same as that for dividends on available-for-sale financial assets. An
impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of
this impairment loss is disallowed.
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Impairment of Assets
If the recoverable amount of an asset (mainly properties, deferred assets, intangible assets, leased
assets, idle assets, and investments accounted for by the equity method) is estimated to be less
than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An
impairment loss is charged to earnings unless the asset is carried at a revalued amount, in which case
the impairment loss is first treated as a deduction from the unrealized revaluation increment, and any
remaining loss is charged to earnings.
If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly,
but the increased carrying amount may not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset in prior years. A reversal of an
impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which
case the reversal of the impairment loss is first recognized as gains to the extent that an impairment
loss on the same revalued asset was previously charged to earnings. Any excess amount is treated as
an increase in the unrealized revaluation increment.
For long term equity investments on which the Corporation has significant influence but over which it
has no control, the carrying amount (including goodwill) of each investment is compared with its own
recoverable amount for the purpose of impairment testing.
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Investments Accounted for by the Equity Method
Investments in which the Corporation holds 20 percent or more of the investee’s voting shares or
exercises significant influence over the investees’ operating and financial policy decisions are accounted
for by the equity method.
The acquisition cost is allocated to the assets acquired and liabilities assumed on the basis of their fair
values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable
net assets acquired is recognized as goodwill. Goodwill is not being amortized. The fair value of the
net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each
of the noncurrent assets acquired (except for financial assets other than investments accounted for
by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or
other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with
any excess recognized as an extraordinary gain.
Profits from downstream transactions with an equity-method investee are eliminated in proportion to
the Corporation’s percentage of ownership in the investee; however, if the Corporation has control over
