Daiwa Securities Group Annual Report 2012 Statements of cash flows— The Company defines cash equivalents  as highly liquid investments with original maturities of three months  or less. Trading assets and trading liabilities— Trading assets and liabilities  including securities and financial derivatives for trading purposes held  by securities companies are stated on a trade date basis at fair value in  the consolidated balance sheets. Gains and losses, including unreal- ized gains and losses, related to transactions for trading purposes are  reported as “Net gain on trading” in the accompanying consolidated  statements of income. Fair value is determined based on market  prices, quoted prices, internal pricing models (utilizing indicators of  general market conditions or other economic measurements), or   management’s estimates of amounts to be realized on settlement,  assuming current market conditions and an orderly disposition over a  reasonable period of time. Securities owned for non-trading purposes,  shown in the accompanying consolidated balance sheets as “Cash  and cash equivalents,” “Securities,” “Private equity and other invest- ments” and “Investment securities,” are discussed below. Securities other than trading assets and trading liabilities— Daiwa  examines the intent of holding investments and classifies those invest- ments as (a) securities intended to be held for trading purposes by  non-securities companies which are carried at fair value with recog- nized unrealized gain or loss included in the consolidated statements  of income, (b) debt securities intended to be held to maturity (“Held- to-maturity debt securities”) which are carried at amortized cost, and  (c) all other securities not classified in any of the above categories  (“Available-for-sale securities”). Marketable available-for-sale securities  are stated at their fair values based on quoted market closing prices  with unrealized gain or loss reported in a separate component within  the net assets on a net-of-tax basis, or other non-marketable invest- ments (non-marketable “Available-for-sale securities”) are carried at  cost. Investment business partnerships which are regarded as equiva- lent to securities by Article 2 (2) of the Financial Instruments and  Exchange Act are reported as “Private equity and other investments”  and “Investment securities” in the accompanying consolidated bal- ance sheets. The share of net income of investment business partner- ships has been reflected in the consolidated statements of income  and the share of net unrealized gains and losses held by investment  business partnerships is directly reported in a separate component  within the net assets on a net-of-tax basis in proportion to the  Company and its subsidiaries’ share of the investment business  partnership. The cost of those investments is determined by the  moving average method. Daiwa holds, as a common practice in Japan, non-marketable  equity securities generally for the purpose of maintaining good   relationships with the investee companies and promoting Daiwa’s  securities businesses. Impairment is assessed for investments (including private equity  holdings). For marketable securities, if the year-end market value  declines 30% or more but less than 50% from the carrying value for  individual securities, an impairment loss is recognized if there is no  chance of recoverability in value. Recoverability is assessed by   determining whether the decline is temporary by considering the  Intangible fixed assets— Intangible fixed assets are generally amor- tized by the straight-line method. Daiwa computes the amortization  over estimated useful lives. The useful lives of software of in-house  use, which is the most significant intangible fixed asset, are generally  five years. Property and equipment— Property and equipment are stated at the  acquisition cost, net of accumulated depreciation. Daiwa computes  depreciation principally by the straight-line method over estimated  useful lives. Allowance for doubtful accounts— Allowance for doubtful accounts  is provided for probable losses on loans and receivables, based on the  actual historical default rate for general loans, and based on individually  assessed amounts for doubtful and default loans. Collateralized short-term financing agreements— Collateralized  short-term financing agreements consist of securities purchased  under agreements to resell (“Resell transactions”) or securities sold  under agreements to repurchase (“Repurchase transactions”), and  securities borrowed or loaned. Repurchase transactions and resell  transactions are carried at their contractual amounts. Securities bor- rowed or loaned are stated at the amount of cash collateral advanced  or received. Derivatives used for non-trading purpose— Daiwa records deriva- tive financial instruments at fair value except for certain cases as  described below, and recognizes changes in the fair value as gains or  losses unless the derivative financial instruments are used for hedging  purposes. Valuation gains or losses on hedging instruments are  deferred in a separate component within the net assets until the gains  or losses on the underlying hedged instruments are realized. Plain  vanilla hedging interest swap agreements satisfying the required  conditions under Japanese GAAP, are not required to be marked-to- market. Interests received or paid on such exempt interest rate swap  agreements for hedging purposes are accrued without being marked- to-market under special treatment. Also, certain forward foreign  exchange contracts are exempted from marked-to-market valuation.  The premium or discount on such exempt forward foreign exchange  contracts used for hedging purposes is allocated to each fiscal term  without being marked-to-market under special treatment. movements of the market price and the financial conditions of the  issuer. If the year-end market value declines 50% or more from the  carrying value, then an impairment loss is recognized immediately.  For non-marketable equity investments, Daiwa generally compares  the carrying amount and the net asset value of the issuing company  attributable to Daiwa’s holding share, and recognizes an impairment  loss if the net asset value attributable to Daiwa’s holding share is  significantly lower from the carrying value and such decline is con- sidered other than temporary. For non-marketable investments in  “Private equity and other investments” in the accompanying consoli- dated financial statements, Daiwa reviews the financial conditions of  the issuers and provides for allowance for possible investment losses,  if necessary. Corporate Summary Executive Messages Business Strategy Management Systems & CSR Financial Section Other Information 68