32 The Procter & Gamble Company and Subsidiaries Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Basis of Presentation: The consolidated financial statements include The  Procter & Gamble Company and its controlled subsidiaries (the Compa- ny). Intercompany transactions are eliminated in consolidation. Invest- ments in companies over which the Company exerts significant  influence, but does not control the financial and operating decisions, are  accounted for using the equity method. These investments are managed  as integral parts of the Company’s business units, and segment report- ing reflects such investments as consolidated subsidiaries with applica- ble adjustments to comply with U.S. GAAP in the corporate segment.  Use of Estimates: Preparation of financial statements in conformity with  accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that  affect the amounts reported in the consolidated financial statements  and accompanying disclosures. These estimates are based on manage- ment’s best knowledge of current events and actions the Company may  undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will  materially affect the financial statements in any individual year.  New Pronouncements: On July 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, “Business  Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 applies to all business combinations with a closing date  after June 30, 2001. This Statement eliminates the pooling-of-interests  method of accounting and further clarifies the criteria for recognition of  intangible assets separately from goodwill. In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset  Retirement Obligations,” which addresses the financial accounting and  reporting for obligations associated with the retirement of tangible  long-lived assets and the associated asset retirement costs. In August  2001, the FASB issued SFAS No. 144, “Accounting for the Impairment  or Disposal of Long-Lived Assets,” which addresses the financial accounting and reporting for the impairment or disposal of long-lived  assets. The Company will adopt both SFAS No. 143 and SFAS No.144  on July 1, 2002, and does not expect these Statements to materially  impact the Company’s financial statements. In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs  Associated with Exit or Disposal Activities.” This pronouncement is  effective for exit or disposal activities that are initiated after December  31, 2002, and requires these costs to be recognized when the liability  is incurred and not at project initiation. The Company is reviewing the  provisions of this Statement, but does not expect it to have a material  impact on the Company‘s financial statements. Revenue Recognition: Sales are recognized when revenue is realized or  realizable and has been earned. Most revenue transactions represent  sales of inventory. In general, revenue is recognized when risk and title  to the product transfers to the customer. A provision for discounts and  other allowances is taken as a reduction in sales within the same period  the revenue is recognized. Currency Translation: Financial statements of subsidiaries outside the  U.S. generally are measured using the local currency as the functional  currency. Adjustments to translate those statements into U.S. dollars at  the balance sheet date are recorded in other comprehensive income. For  subsidiaries operating in highly inflationary economies, the U.S. dollar is  the functional currency. Remeasurement adjustments for highly infla- tionary economies and other transactional exchange gains and losses  are reflected in earnings. Cash Equivalents: Highly liquid investments with maturities of three  months or less when purchased are considered cash equivalents and recorded at cost, which approximates fair value. Inventory Valuation: Inventories are valued at cost, which is not in excess of current market prices. Cost is primarily determined by either  the average cost or the first-in, first-out method, with minor amounts  maintained on the last-in, first-out method. The replacement cost of  last-in, first-out inventories exceeded carrying value by approximately  $27 and $55 at June 30, 2002 and 2001, respectively.  Goodwill and Other Intangible Assets: The cost of intangible assets with  determinable useful lives is amortized to reflect the pattern of economic  benefits consumed, principally on a straight-line basis, over the estimated periods benefited, ranging from 5 to 40 years. Goodwill and  Millions of dollars except per share amounts SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets and initiates an annual review for impairment. Identifiable intangible assets with determinable useful lives  will continue to be amortized. Beginning July 1, 2001, the Company  ceased amortizing goodwill and indefinite-lived intangible assets. At  that time, management performed an impairment test of existing  goodwill and concluded there was no goodwill impairment.  Investment Securities: Investment securities consist of short-term readily  marketable instruments that mature within one year. These securities  are reported at fair value and classified as available for sale, with unrealized gains or losses recorded net of tax in other comprehensive  income.