Nikon 2005 Annual Report Download - page 33

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for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are
recognized principally as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized
in the statements of income and (b) for derivatives used for hedging purpose, if derivatives qualify for hedge accounting because of high
correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity
of the hedged transactions.
The foreign exchange forward contracts and currency option contracts employed to hedge foreign exchange exposures for export sales
and purchases are measured at fair value and the related unrealized gains or losses are recognized in income. Forward contracts entered into
for forecasted transactions are also measured at fair value, but the unrealized gains or losses on qualifying hedges are deferred until the under-
lying transactions are completed. The foreign currency swaps used to hedge the foreign currency fluctuations of long-term debt denominated
in foreign currencies are measured at fair value and the unrealized gains or losses are included in the carrying amounts of the debt. The
interest rate swaps which qualify for hedge accounting are measured at market value at the balance sheet date, and the unrealized gains or
losses are deferred until maturity as other liability or asset.
(p) Per Share Information
Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common
shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock.
Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the
year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective
years including dividends to be paid after the end of the year.
(q) New Accounting Pronouncements
In August 2002, the Business Accounting Council issued a Statement of Opinion, “Accounting for Impairment of Fixed Assets”, and in October
2003 the Accounting Standards Board of Japan (ASB) issued ASB Guidance No.6, “Guidance for Accounting Standard for Impairment of Fixed
Assets”.These new pronouncements are effective for fiscal years beginning on or after April 1, 2005 with early adoption permitted for fiscal
year ending on or after March 31, 2004.
The new accounting standard requires an entity to review its long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying
amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and
eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the
asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the
asset or the net selling price at disposition.
The Company expects to adopt these pronouncements as of April 1, 2005 and is currently in the process of assessing the effect of adop-
tion of these pronouncements.
3. ACCOUNTING CHANGES
(a) Inventory Valuation Method
Prior to April 1, 2004, inventories of foreign subsidiaries were stated at the lower of cost or market as determined principally using the first-in,
first-out method.
In the year ended March 31, 2005, foreign subsidiaries changed their method of inventory valuation method to principally the average
method. This change was made in order to minimize its effect to profit or loss from price changes as a result of re-considering the inventory
valuation method due to new inventory management and financial accounting system. Effect of this change to profit or loss is not material.
This change was made during the second half year as re-consideration of inventory valuation method was finalized during the second
half period.
Effect of this change to segment information is mentioned in the applicable note.
(b) Retirement Allowances for Directors, Corporate Auditors and Officers
Prior to April 1, 2004, retirement benefits for directors, corporate auditors and officers were charged to expenses when they were paid.
In the year ended March 31, 2005, the Company and certain consolidated subsidiaries changed its method of accounting for such
retirement to the method that retirement allowances were recorded to state the liability at the amount that would be required if all directors
and corporate auditors retired at each balance sheet date.