Mitsubishi 2007 Annual Report Download - page 61

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59
Notes to Consolidated Financial Statements
(k) Translation of foreign currency accounts
The accounts of the consolidated foreign subsidiaries are translated into Yen as follows:
a. Asset and liability items are translated at the rate of exchange in effect on March 31;
b. Components of stockholders’ equity are translated at their historical rates at acquisition or upon occurrence; and
c. Revenues, expenses and cash flow items are translated at the average rate for the financial period. Translation
adjustments are included in “Net assets”.
(l) Amounts per share of common stock
The computation of basic net income (loss) per share of common stock is based on the weighted average number of
shares of common stock outstanding during each year. Diluted net income per share of common stock is computed
based on the weighted average number of shares of common stock outstanding each year after giving effect to the
dilutive potential of common stock to be issued upon the conversion of preferred stock and stock options.
(m) Leases
Non-cancelable lease transactions at MMC and its domestic consolidated subsidiaries are accounted for as operating
leases regardless of whether such leases are classified as operating or finance leases, except that lease agreements, which
stipulate the transfer of ownership of the leased property to the lessee, are accounted for as finance leases.
Non-cancelable lease transactions at foreign subsidiaries, except for operating leases, are capitalized.
(n) Derivative financial instruments
MMC and its consolidated subsidiaries are exposed to risks arising from fluctuations in foreign currency exchange rates
and interest rates. In order to manage those risks, MMC and its consolidated subsidiaries enter into various derivative
agreements including forward foreign exchange contracts and interest rate swaps.
Forward foreign exchange contracts are utilized to manage risks arising from forecast exports of finished goods and
related foreign currency receivables. Interest rate swaps are utilized to manage interest rate risk for loans and bonds.
MMC and its consolidated subsidiaries do not utilize derivatives for speculation or trading purposes.
Derivative financial instruments are recorded at fair value, excluding certain instruments described below which
are recorded in accordance with the special hedge provisions of the accounting standard.
Forward foreign exchange contracts related to forecast exports of finished goods are accounted for using deferral
hedge accounting. Deferral hedge accounting requires unrealized gains or losses to be deferred as liabilities or assets.
MMC and its consolidated subsidiaries have also developed a hedging policy to control various aspects of the
derivative transactions including authorization levels and transaction volumes. Based on this policy, within certain
limits, MMC and its consolidated subsidiaries hedge the risks arising from the changes in foreign currency exchange
rates and interest rates. Forward foreign exchange contracts are designated to hedge the exposure to variability in
expected future cash flows.
For interest rate swaps accounted for as special hedges, instead of measuring hedge effectiveness, confirmation of
the conditions for special hedge accounting is carried out.