page 94 Bombardier Inc. Annual Report 2003-04 Advances received and progress billings on long-term contracts and aerospace programs are deducted from related costs in inventories. Advances and progress billings in excess of related costs are shown as liabilities. Development costs are capitalized when certain criteria are met for deferral and their recovery is reasonably assured. Development costs related to aerospace programs are included in aerospace program tooling. Research and development costs related to long-term contracts are recorded as inventory costs and charged to cost of sales under long-term contract accounting. Research and development expenses presented in the consolidated statements of income exclude those incurred under long-term contracts and aerospace programs. Goodwill represents the difference between the purchase price, including acquisition costs, of businesses acquired and the fair value of the identifiable net assets acquired. Goodwill is tested for impairment annually, or more frequently if events or circumstances indicate that the asset might be impaired. If the carrying value of a reporting unit, including the allocated goodwill, exceeds its fair value, goodwill impairment is measured as the excess of the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of the reporting unit. Warranty expense is recognized at the time of sale based on estimated amounts of warranty costs to be incurred. These estimates are based on a number of factors, including the historical warranty claims and cost experience, the type and duration of warranty coverage, the nature of products sold and counter-warranty coverage available from the Corporation’s suppliers. The Corporation periodically reviews  its recorded warranty liability and adjusts the amount recognized as necessary. Warranty expense is recorded as a component of cost of sales. In connection with the sale of new aircraft, the Corporation provides credit guarantees, residual value guarantees and trade-in options  to customers. The provisions for losses for credit and residual value guarantees are measured at the time of sale based on the expected net present value of net payments to be made under the guarantees. The provisions for losses for trade-in options are recorded at the amount of the anticipated losses. The Corporation determines expected future payments or losses under the guarantees or trade-in options using, when available, third-party appraisals of expected aircraft value, current credit ratings of guaranteed parties, current and future market conditions,  the age and condition of the aircraft and expected availability levels for the aircraft in the market. The provisions are reviewed quarterly and the effect of any revision is recognized in the period in which the revision takes place.  Sales incentives Product warranties Goodwill Research and development d) Advances and progress billings