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62 MITSUBISHI MOTORS CORPORATION ANNUAL REPORT 2006
(b) Principles of consolidation
All significant companies over which MMC has effective control are consolidated. Significant companies over which
MMC has the ability to exercise significant influence have been accounted for by the equity method.
All significant inter-company transactions have been eliminated in consolidation.
Any differences at the date of acquisition between acquisition cost and the fair value of the net assets acquired
are expensed when incurred or are amortized over periods that do not exceed 3 years.
(c) Cash and cash equivalents
All highly liquid and low risk investments with maturities of three months or less when purchased are considered to
be cash equivalents.
(d) Inventories
Inventories of MMC and its domestic consolidated subsidiaries are principally stated at cost determined by the first
in first out or specific identification method. Inventories of the foreign consolidated subsidiaries are principally stated
at the lower of cost or market value. Cost is determined by the specific identification method.
(e) Investments in securities
Investments in securities that are expected to be held-to-maturity were not held during FY2005. Other securities
with a readily determinable market value are stated at fair value. The difference between the acquisition cost and the
carrying value of other securities, including unrealized gains and losses, is recognized in “Unrealized holding gain on
securities” in the accompanying consolidated balance sheets. The cost of other securities sold is computed based
on the moving average method.
Other securities without a readily determinable market value are stated at cost determined by the moving
average method.
(f) Depreciation and Amortization
Depreciation of property, plant and equipment is principally calculated by the declining balance method or the straight
line method over the estimated useful life of the respective assets. The estimated useful life of the assets at MMC
and its domestic consolidated subsidiaries are as provided for in the corporate tax law.
Intangible fixed assets, including software intended for use by MMC and its consolidated subsidiaries, are amor-
tized by the straight line method over the estimated useful life.
(g) Allowance for doubtful accounts
The allowance for doubtful accounts has been provided based on MMC and its consolidated subsidiaries’ historical
experience with respect to write-offs and an estimate of the amount of specific uncollectible accounts.
(h) Allowance for product warranties
The allowance for product warranty claims has been calculated based on MMC and its consolidated subsidiaries’
historical experience and estimations with respect to future costs relating to claims.