Brother International 2011 Annual Report Download - page 30

Brother Industries, Ltd. and Consolidated Subsidiaries
For the Years ended March 31, 2011 and 2010
28 Brother Annual Report 2011
ownership of the leased property to the lessee should be recognized as lease receivables, and all finance leases that deem not to transfer owner-
ship of the leased property to the lessee should be recognized as investments in lease.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted for leases which existed at the
transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions.
All other leases are accounted for as operating leases.
(19) Construction Contracts
In December 2007, the ASBJ issued ASBJ Statement No.15, “Accounting Standard for Construction Contracts” and ASBJ Guidance No.18, “Guidance
on Accounting Standard for Construction Contracts.”
Under the previous Japanese GAAP, either the completed-contract method or the percentage-of-completion method is permitted to account
for construction contracts. Under this new accounting standard, the construction revenue and construction costs should be recognized by the
percentage-of-completion method, if the outcome of a construction contract can be estimated reliably. When total construction revenue, total
construction costs and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction
contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method shall
be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should
be immediately recognized by providing for loss on construction contracts. The Group adopted the new accounting standard for construction for
the year ended March 31, 2010. This standard is applicable to construction contracts and software development contracts, and effective for fiscal
years beginning on or after April 1, 2009. Certain subsidiaries of the Company applied the new accounting standard effective April 1, 2009.
(20) Income Taxes
The provision for current income taxes is computed based on the pretax income included in the consolidated statements of income. The asset
and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to
the temporary differences.
(21) Foreign Currency Transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the
exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the statements of income to
the extent that they are not hedged by forward exchange contracts.
(22) Foreign Currency Financial Statements
The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the bal-
ance sheet date except for equity, which is translated at the historical rate.
Differences arising from such translation are shown as “Foreign currency translation adjustments” in a separate component of the equity and
included in minority interests.
Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese yen at the average exchange rate during
the year.
(23) Derivative and Hedging Activities
The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange
forward contracts, interest rate swaps and currency option contracts are utilized by the Group to reduce foreign currency exchange and interest
rate risks. The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized
as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated state-
ments of income and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and
effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged
transactions.
Foreign currency contracts and currency option contracts employed to hedge foreign exchange exposures are measured at fair value and
unrealized gains (losses) are recognized in income. Foreign currency forward contracts and currency option contracts applied for forecasted (or
committed) transactions are also measured at fair value, but the unrealized gains (losses) are deferred until the underlying hedged transactions are
completed.
The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the
differential paid or received under the swap agreements are recognized and included in interest expense or income.
Notes to Consolidated Financial Statements