Brother International 2011 Annual Report Download - page 27

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Brother Annual Report 2011
(2) Investments in Unconsolidated Subsidiaries and Associated Companies
Investments in 2 unconsolidated subsidiaries (2 in 2010) and 6 associated companies (6 in 2010) are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If these companies had been consoli-
dated or accounted for by the equity method, the effect on the consolidated financial statements would not have been material.
Accordingly, income from the unconsolidated subsidiaries and associated companies is recognized when the Group receives dividends. Unre-
alized inter-company profits, if any, have not been eliminated in the consolidated financial statements.
(3) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements
On May 17, 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (PITF) No.18, “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” The new task force prescribes:
(1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar
circumstances should in principle be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by
foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the
United States tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation
process so that net income is accounted for in accordance with Japanese GAAP unless they are not material: 1) amortization of goodwill; 2) sched-
uled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; 3) expensing capitalized development costs of
R&D; 4) cancellation of the fair value model of accounting for property, plant, and equipment and investment properties and incorporation of the
cost model of accounting; 5) recording the prior years’ effects of changes in accounting policies in the income statement where retrospective
adjustments to financial statements have been incorporated; and 6) exclusion of minority interests from net income, if included.
(4) Unification of Accounting Policies Applied to Associated Companies for the Equity Method
In March 2008, the ASBJ issued ASBJ Statement No.16, “Accounting Standard for Equity Method of Accounting for Investments” and ASBJ Practical
Issues Task Force (PITF) No.24, “Practical Solution on Unification of Accounting Policies Applied to Associated Companies for the Equity Method.”
The new standard requires adjustments to be made to conform the associate’s accounting policies for similar transactions and events under similar
circumstances to those of the parent company when the associate’s financial statements are used in applying the equity method unless it is
impracticable to determine adjustments. The new task force prescribes financial statements prepared by foreign associated companies in accor-
dance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may
be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP
unless they are not material: 1) amortization of goodwill; 2) scheduled amortization of actuarial gain or loss of pensions that has been directly
recorded in the equity; 3) expensing capitalized development costs of R&D; 4) cancellation of the fair value model accounting for property, plant,
and equipment and investment properties and incorporation of the cost model accounting; 5) recording the prior years’ effects of changes in
accounting policies in the income statement where retrospective adjustments to the financial statements have been incorporated; and 6) exclu-
sion of minority interests from net income, if contained. The Group applied these accounting standard and task force effective April 1, 2010.
The effect of this change was immaterial.
(5) Business Combination
In October 2003, the Business Accounting Council (the “BAC”) issued a Statement of Opinion, “Accounting for Business Combinations,” and in
December 2005, the ASBJ issued ASBJ Statement No.7, “Accounting Standard for Business Divestitures” and ASBJ Guidance No.10, “Guidance for
Accounting Standard for Business Combinations and Business Divestitures.” The accounting standard for business combinations allows companies
to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essen-
tially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is
considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combina-
tions of entities under common control and for joint ventures.
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No.21, “Accounting Standard for
Business Combinations.” Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires
accounting for business combinations only by the purchase method. As a result, the pooling of interests method of accounting is no longer
allowed. (2) The previous accounting standard accounts for the research and development costs to be charged to income as incurred. Under the
revised standard, in-process research and development (IPR&D) acquired in the business combination is capitalized as an intangible asset. (3) The
previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceed-
ing 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date
after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the proce-
dures used in the purchase allocation. This standard was applicable to business combinations undertaken on or after April 1, 2010. The Group
applied this accounting standard effective April 1, 2010.