Konica Minolta 2005 Annual Report Download - page 46

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effective for the fiscal year beginning April 1, 2005, with an
earlier adoption for the fiscal year beginning April 1, 2004
being permitted. The Company is currently in the process
of assessing the impact on the consolidated financial
statements from the adoption of this standard.
(h) Income Taxes
Income taxes of the Company and its domestic subsidiaries
consist of corporate income taxes, local inhabitants’ taxes
and enterprise taxes. Deferred income taxes are provided
for based on temporary differences between the tax basis
of assets and liabilities and those as reported in the
consolidated financial statements.
(i) Research and Development Expenses
Expenses for research and development activities are
charged to income as incurred.
(j) Financial Instruments
Derivatives
All derivatives are stated at fair value, with changes in fair
value included in net profit or loss for the period in which
they arise, except for derivatives that are designated as
“hedging instruments” (see Hedge Accounting below).
Securities
Securities held by the Companies are classified into two
categories:
Investments by the Companies in equity securities
issued by unconsolidated subsidiaries and affiliates are
accounted for using the equity method; however,
investments in certain unconsolidated subsidiaries and
affiliates are stated at cost because the effect of application
of the equity method would be immaterial.
Other securities for which market quotations are
available are stated at fair value.
Net unrealized gains or losses on these securities are
reported net-of-tax as a separate component of
shareholders’ equity.
Other securities for which market quotations are
unavailable are stated at cost, except in cases where the
fair value of equity securities issued by unconsolidated
subsidiaries and affiliates, or other securities has declined
significantly and such impairment of the value is deemed
other than temporary. In these instances, securities are
written down to the fair value and the resulting losses are
charged to income during the period.
Hedge Accounting
Gains or losses arising from changes in fair value of
derivatives designated as “hedging instruments” are
deferred as an asset or a liability and charged or credited to
income in the same period that the gains and losses on the
hedged items or transactions are recognized.
Derivatives designated as hedging instruments by the
Companies are principally interest rate swaps, commodity
swaps and forward foreign currency exchange contracts.
The related hedged items are trade accounts receivable and
payable, raw materials, long-term bank loans and debt
securities issued by the Companies.
The Companies have a policy to utilize the above
hedging instruments in order to reduce the Companies’
exposure to the risk of interest rate, commodity price and
exchange rate fluctuations. As such, the Companies’
purchases of the hedging instruments are limited to, at
maximum, the amounts of the hedged items.
The Companies evaluate the effectiveness of their
hedging activities by reference to the accumulated gains or
losses on the hedging instruments and the related hedged
items from the commencement of the hedges.
(k) Leases
Finance leases, other than those which are deemed to
transfer the ownership of the leased assets to lessees, are
accounted for using a method similar to that used for
ordinary operating leases.
(l) Retirement Benefit Plans
Retirement Benefits for Employees
Pension and severance costs for employees are accrued
based on the actuarial valuation of projected benefit
obligations and the plan assets at the end of each fiscal
year. The actuarial difference is amortized over the average
remaining service period (mainly 10 years), using the
straight-line method from the year subsequent to that in
which the actuarial difference was incurred or determined.
On April 1, 2004, a portion of the Minolta lump-sum
payment plan was transferred to a defined contribution
pension plan. As a result, the Company recorded a loss of
¥180 million included in Loss on transition to defined
contribution plans from defined benefit plans for the year
ended March 31, 2004 as described in Note 12, Retirement
Benefit Plans.
Retirement Benefits for Directors and Corporate Auditors
The Companies provide for the accrued costs of retirement
benefits payable to directors and corporate auditors. The
amount accrued for such retirement benefits is calculated
as 100% of such benefits the Companies would be required
to pay on condition that all eligible directors and corporate
auditors had retired at the year-end date.
The Companies amended their internal rules on
retirement benefits of directors and corporate auditors as
a result of the business integration between former Konica,
Minolta and their subsidiaries, and adopted a new
corporate governance structure, including the Companies’
compensation, nomination and audit committee, during the
year ended March 31, 2004. Accordingly, the Companies
recorded ¥409 million in benefits expected to be paid as of
March 31, 2004 as an operating expense and ¥513 million
as the prior periods’ expenses of accrued retirement
benefits for directors and corporate auditors.
(m) Appropriation of Retained Earnings
Appropriation of retained earnings at the end of each fiscal
year are reflected in the financial statements for the
following year.