Nissan 2005 Annual Report Download - page 80

(k) Research and development costs
Research and development costs are charged to income when
incurred.
(l) Revenue recognition
Revenue is generally recognized on sales of products at the time of
shipment.
(m) Derivative financial instruments
The Company and certain consolidated subsidiaries have entered into
various derivative transactions in order to manage certain risks arising
from adverse fluctuations in foreign currency exchange rates, interest
rates, and stock and commodity prices. Derivative financial
instruments are carried at fair value with changes in unrealized gain
or loss charged or credited to operations, except for those which
meet the criteria for deferral hedge accounting under which
unrealized gain or loss is deferred as an asset or a liability.
Receivables and payables hedged by qualified forward foreign
exchange contracts are translated at the corresponding foreign
exchange contract rates.
(n) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained
earnings with respect to a given financial year is made by resolution
of the shareholders at a general meeting held subsequent to the
close of such financial year. The accounts for that year do not,
therefore, reflect such appropriations. See Note 22.
(o) New Accounting Standards
A new Japanese accounting standard “Impairment of Fixed Assets”
was issued in August 2002 that is effective for fiscal years beginning
on or after April 1, 2005. The new standard requires that tangible and
intangible fixed assets be carried at cost less depreciation, and be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Companies would be required to recognize an
impairment loss in their income statement if certain indicators of
asset impairment exist and the book value of an asset exceeds the
undiscounted sum of future cash flows of the asset. The Company is
currently assessing the impact of this new accounting standard on its
financial position and operating results.
FINANCIAL SECTION
Nissan Annual Report 2004
78
2. ACCOUNTING CHANGES
(a) Until the year ended March 31, 2003, finished goods, work in
process and purchased parts included in raw materials were stated at
the lower of average cost or market, and raw materials except for
purchased parts and supplies were stated at the lower of cost or
market, cost being determined by the last-in, first-out method.
Effective April 1, 2003, the Company and certain consolidated
subsidiaries began to value all inventories at the lower of cost or
market, cost being determined by the first-in, first-out method. This
change was made in order to establish a sound financial position by
reflecting the changes in the purchase prices in the valuation of
inventories considering the fact that there has been progress in
achieving a reduction in purchasing costs and that this trend is
anticipated to continue. This change is also intended to achieve a
better matching of revenue and expenses and more appropriate cost
management by applying an inventory valuation method which
reflects the actual inventory movements. The effect of this change
was immaterial for the year ended March 31, 2004.
(b) Effective April 1, 2003, Nissan Motor Manufacturing (UK) Ltd., a
consolidated subsidiary, implemented early adoption a new
accounting standard for retirement benefits in the United Kingdom.
The effect of this change was to increase retirement benefit
expenses by ¥2,178 million and to decrease operating income and
income before income taxes and minority interests by ¥1,686 million
and ¥2,178 million respectively, for the year ended March 31, 2004
as compared with the corresponding amounts which would have
been recorded if the previous method had been followed. Retained
earnings also decreased by ¥18,132 million since the net retirement
benefit obligation at transition and actuarial loss was charged directly
to retained earnings for the year ended March 31, 2004. The effect
of this change on segment information is explained in Note 21.
(c) Until the year ended March 31, 2003, noncancelable lease
transactions of the Company and its domestic consolidated
subsidiaries were accounted for as operating leases (whether such
leases were classified as operating or finance leases) except that
lease agreements which stipulated the transfer of ownership of the
leased assets to the lessee were accounted for as finance leases.
Effective April 1, 2003, the Company and its domestic consolidated
subsidiaries changed their method of accounting for noncancelable
lease transactions which transfer substantially all risks and rewards
associated with the ownership of assets, from accounting for them as
operating leases, to finance leases. This change was made in order to
achieve a better matching of revenue and expenses by calculating
manufacturing costs more accurately and to establish a better
presentation of the Company’s and its domestic consolidated
subsidiaries’ financial position by reflecting lease transactions more
appropriately in its consolidated financial statements, considering the
increasing materiality of these lease transactions as well as from an
international point of view. The effect of this change in method of
accounting was to decrease sales, cost of sales and selling, general
and administrative expenses by ¥17,943 million, ¥38,910 million and
¥624 million, respectively, and to increase operating income and
income before income taxes and minority interests by ¥21,591
million and ¥17,659 million respectively, for the year ended March
31, 2004 as compared with the corresponding amounts which would
have been recorded if the previous method had been followed. In
addition, trade and sales finance receivables, tangible fixed assets
and lease obligation increased by ¥70,670 million, ¥66,514 million
and ¥120,061 million respectively, at March 31, 2004 over the
corresponding amounts which would have been recorded if the
previous method had been followed. The effect of this change on
segment information is explained in Note 21.
(d) Until the year ended March 31, 2004, freight and shipping costs
of the Company and certain consolidated subsidiaries were included
in selling, general and administrative expenses. Effective April 1,
2004, the Company and those consolidated subsidiaries began to
account for the freight and shipping costs as cost of sales. This
change was made in order to present gross profit more accurately by
including the freight and shipping costs in cost of sales and matching
them directly with sales as well as to unify the accounting policy
among the Nissan group considering the fact that shipping costs for
export parts to be used for manufacture in overseas countries have
increased due to the expansion of manufacturing activities outside
Japan.