Annual Report - Makita Corporation Global Site

CRITICAL ACCOUNTING POLICIES
As disclosed in Note 3 to the accompanying consolidated financial statements, the preparation of Makita’s consolidated
financial statements in accordance with U.S. generally accepted accounting principles requires management to make
certain estimates and assumptions. These estimates and assumptions were determined by management’s judgment based
on currently known facts, situations and plans for future activities, which may change in the future. Certain accounting
estimates are particularly sensitive because of their significance to the consolidated financial statements and accompanying
notes and due to the possibility that future events affecting the estimates may differ significantly from management’s
current judgments. Accordingly, any changes in the facts, situations, future plans or other factors on which management
bases its estimates may result in a significant difference between earlier estimates and the actual results achieved. Makita
believes that the following are the critical accounting policies and related judgments and estimates used in the preparation
of its consolidated financial statements and accompanying notes.
Revenue Recognition
Makita believes that revenue recognition is critical for its financial statements because net income is directly affected by
the estimation of sales incentives. In recognizing its sales incentives, Makita is required to make estimates based on
assumptions about matters that are highly uncertain at the time the estimate is made. Makita principally generates revenue
through the sale of power tools. Makita’s general revenue recognition policy follows the provisions of Staff Accounting
Bulletin No. 104, SAB 104, Revenue Recognition, and Emerging Issues Task Force Issue, EITF No. 01-9, Accounting for
consideration Given by a Customer (including a Reseller of the Vendor’s Products). In accordance with SAB 104 and as
disclosed in the consolidated financial statements, Makita recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services are rendered, the sales price is fixed and determinable and
collectibility is reasonably assured. Makita believes the foregoing conditions are satisfied upon the shipment or delivery of
Makita’s product.
With respect to “Revenue Recognition,” Makita offers sales incentives to qualifying customers through various incentive
programs. Sales incentives primarily involve volume-based rebates, cooperative advertising and cash discounts, and are
accounted for in accordance with the EITF No.01-9.
Volume-based rebates are provided to customers only if customers attain a pre-determined cumulative level of revenue
transactions within a specified period of a year or less. Liabilities for volume-based rebates are recognized with a
corresponding reduction to revenue for the expected sales incentive at the time the related revenue is recognized, and are
based on the estimation of sales volume reflecting the historical performance of individual customers.
If expected sales levels are not achieved or achieved in levels higher than anticipated resulting in a greater magnitude of
incentive, the result could have a material impact on Makita's financial statements.
Cooperative advertisings are provided to certain customers as a contribution to or as sponsored funds for advertisements.
Under cooperative advertising programs, Makita does not receive an identifiable benefit sufficiently separable from its
customers. Accordingly, cooperative advertisings are also recognized as a reduction of revenue at the time the related
revenue is recognized based on Makita’s ability to reliably estimate such future advertising to be taken.
Cash discounts are provided as a certain percentage of the invoice price as predetermined by spot contracts or based on
contractually agreed upon amounts with customers. Cash discounts are recognized as a reduction of revenue at the time
the related revenue is recognized based on Makita’s ability to reliably estimate such future discounts to be taken.
Estimates of expected cash discounts are evaluated and adjusted periodically based on actual sales transactions and
historical trends.
30