Mitsubishi 2002 Annual Report Download - page 50

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2. Change in Accounting Policy
(a) Accounting for forward foreign exchange contracts
In the year ended March 31, 2002, MMC changed its accounting for sales in foreign currencies and related forward foreign
exchange contracts qualifying as hedges. In the year ended March 31, 2001, sales and related receivables hedged by quali-
fied forward foreign exchange contracts were translated at the corresponding foreign exchange contract rates. From the year
ended March 31, 2002, sales are translated into Japanese yen at the exchange rates in effect at the dates they are transacted,
and related receivables are translated at the exchange rates in effect at the balance sheet date, while forward foreign exchange
contracts qualifying as hedges on those sales transactions are recognized at their fair value at the balance sheet date and
changes in fair values are charged to earnings. This change was made as MMC developed its internal systems to meet the
requirements of the new accounting method that is defined as standard accounting treatment. As a result of this change,
compared to the same method applied to the prior year’s consolidated financial statements, operating income increased by
¥12,299 million ($92,300 thousand), and loss before income taxes and minority interests decreased by ¥159 million ($1,193
thousand). The effects on the segment information are stated in the “Segment Information.”
3. New Accounting Standards
(a) Accounting for sales incentives
In May 2000, the Emerging Issues Task Force reached a final consensus on EITF 00-14, “Accounting for Certain Sales
Incentives.” EITF 00-14 requires that the cost of incentives be recognized at the date of sale and classified as a reduction
of revenue. Certain consolidated subsidiaries in North America record sales incentives that are in substance sales discounts
as a reduction of revenue since the year ended March 31, 2002. In prior years, those sales incentives had been included in
selling, general and administrative expenses. As a result of adoption of EITF 00-14, compared to the same method applied
to the prior year’s consolidated financial statements, gross profit decreased by ¥49,751 million ($373,366 thousand) with no
effect on operating income. Prior year’s consolidated financial statements have not been reclassified.
The effects on the segment information are stated in the “Segment Information.”
(b) Accounting standard for retirement benefits
Effective the year ended March 31, 2001, MMC and its consolidated subsidiaries adopted the new accounting standard for
retirement benefits. In accordance with this standard, the accrual for retirement benefits for employees is provided based
on the projected retirement benefit obligation and the pension assets. In prior years, the retirement benefits had been pro-
vided as 40% of the retirement benefits payable at the year-end for employees who terminate services voluntarily. As a
result of the adoption of this standard, retirement benefit costs increased by ¥116,984 million, and loss before income
taxes and minority interests increased by ¥117,569 million in the year ended March 31, 2001.
(c) Accounting standard for financial instruments
A new accounting standard for financial instruments, which became effective April 1, 2000, requires that securities be
classified into three categories: trading, held-to-maturity or other securities. Under the new standard, trading securities are
carried at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classified as other
securities are carried at fair value with changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in stockholders’ equity. Non-marketable securities classified as other securities are carried at cost.
Cost of securities sold is determined by the moving average method.