Isuzu 2006 Annual Report Download - page 31

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Isuzu Motors Limited Annual Report 2006
Notes to Consolidated Financial Statements
1. Basis of Presenting the Financial Statements
The accompanying consolidated financial statements of Isuzu Motors
Limited (“the Company”) and consolidated subsidiaries are prepared
on the basis of accounting principles generally accepted in Japan,
which are different in certain respects as to application and disclo-
sure requirement of International Financial Reporting Standards, and
are compiled from the consolidated financial statements prepared
by the Company as required by the Securities and Exchange Law of
Japan. In addition, the notes to the consolidated financial statements
include information which is not required under accounting princi-
ples generally accepted in Japan but is presented herein as additional
information.
In order to facilitate the understanding of readers outside Japan,
certain reclassifications have been made to the consolidated financial
statements prepared for domestic purposes and relevant notes and
statements of stockholders’ equity has been added.
The yen amounts are rounded down in millions. Therefore, total
or subtotal amounts do not correspond with the aggregation of such
account balances.
U.S. dollar amounts have been translated from Japanese yen for
convenience only at the rate of ¥117.47 = US$1, the approximate ex-
change rate prevailing on the Tokyo Foreign Exchange Market on
March 31, 2006. The translations should not be construed as a repre-
sentation that Japanese yen have been or could be converted into U.S.
dollars at that rate. The U.S. dollar amounts are then rounded down
in thousands.
Certain reclassifications have been made in the 2005 and 2004
financial statements to conform to the presentation for 2006.
2. Summary of Significant Accounting Policies
a) Consolidation
The consolidated financial statements include the accounts of the
Company and significant subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
Investments in main unconsolidated subsidiary and significant affili-
ated companies (15% to 50% owned) are accounted for by the equity
method.
The differences at the time of acquisition between the cost and un-
derlying net equity of investments in consolidated subsidiaries and in
unconsolidated subsidiaries and affiliated companies accounted for
under the equity method are, as a rule, amortized over periods of five
years after appropriate adjustments.
b) Foreign Currency Translation
Receivables and payables denominated in foreign currencies are trans-
lated into yen at the exchange rate of the balance sheet date, and dif-
ferences arising from the translation are included in the statements
of income. The balance sheet accounts and revenue and expense
accounts of the foreign consolidated subsidiaries are translated into
yen at the exchange rate of the balance sheet date and translation ad-
justments are included in “minority interests” and “foreign currency
translation adjustments” accounts of shareholders’ equity. The com-
ponents of shareholders’ equity are translated at historical exchange
rates.
c) Investments
The accounting standard for financial instruments requires that securi-
ties be classified into three categories: marketable, held-to-maturity or
other securities.
Marketable securities classified as other securities are carried at fair
value with changes in unrealized holding gain or loss, net of the appli-
cable income taxes, included directly in stockholders’ equity. Non-mar-
ketable securities classified as other securities are carried at cost deter-
mined by the moving average method.
d) Inventories
Inventories of the Company are valued at cost using the weighted av-
erage method. Inventories of consolidated subsidiaries are principally
valued at cost using the specific identification method.
e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment of the Company and its consolidated
subsidiaries is calculated principally by the straight-line method based
on the estimated useful lives. Depreciation of property, plant and
equipment of few consolidated subsidiaries is calculated by declining
balance method.
f) Software
Software used by the Company and its consolidated subsidiaries is
depreciated using the straight-line method, based on the estimated
useful life as determined by the Company and its consolidated subsid-
iaries (generally 5 years).
g) Leases
Finance lease transactions, except for those which meet the condi-
tions that the ownership of the lease assets is substantially transferred
to the lessee, are accounted for on a basis similar to ordinary rental
transactions.
h) Employees’ Retirement Benefits
Employees’ retirement benefits covering all employees are provided
through an unfunded lump-sum benefit plan and a funded pension
plan. Under the plans, eligible employees are entitled, under most cir-
cumstances, to severance payments based on compensation at the
time of severance and years of service.
The Company has adopted the Financial Accounting Standard for
retirement benefits in Japan. In accordance with this standard, accrued
employees’ retirement benefits are provided mainly at an amount cal-
culated based on the retirement benefit obligation and the fair value
of the pension plan assets at the end of the current fiscal year. Prior
service cost is being amortized as incurred by straight-line method over
periods, which are shorter than the average remaining years of service
of the eligible employees. Actuarial gain or loss is amortized in the year
following the year in which the gain or loss is recognized primarily by