Pentax 2006 Annual Report Download - page 54

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The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the
Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan, which are different in certain respects as to
application and disclosure requirements of International Financial
Reporting Standards.
The accounts of overseas subsidiaries are based on their
accounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English
(with some expanded descriptions and the inclusion of consoli-
dated statements of shareholders’ equity) from the consolidated
financial statements of the Company prepared in accordance
with Japanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Securities
and Exchange Law. Some supplementary information included in
the statutory Japanese language consolidated financial statements,
but not required for fair presentation, is not presented in the
accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars
are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2006, which was
¥117.47 to U.S. $1. The convenience translations should not be
construed as representations that the Japanese yen amounts have
been, could have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.
No. 1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
a. Principles of Consolidation—The consolidated financial state-
ments as of March 31, 2006 include the accounts of the Company
and its 62 (58 in 2005 and 55 in 2004) subsidiaries (together, the
“Group”).
Under the control or influence concept, those companies in
which the Company, directly or indirectly, is able to exercise con-
trol over operations are fully consolidated, and those companies
over which the Group has the ability to exercise significant
influence are accounted for by the equity method.
Investment in an associated company through the years is
accounted for by the equity method and remaining associated
companies are stated at cost due to immateriality.
The differences between the cost and underlying net equity of
investment in consolidated subsidiaries and associated companies
accounted for by the equity method are charged to income
when incurred.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profits included in
assets resulting from transactions within the Group are eliminated.
b. Cash Equivalents—Cash equivalents are short-term invest-
ments that are readily convertible into cash, and are exposed to
insignificant risk of changes in value. Cash equivalents mature or
become due within three months of the date of acquisition.
c. Inventories—Inventories are stated principally at cost using the
average method.
d. Investment Securities—All investment securities are classified
as available-for-sale securities. Marketable available-for-sale securi-
ties are reported at fair value, with unrealized gains and losses,
net of applicable taxes, reported in a separate component of
shareholders’ equity. The cost of securities sold is determined
based on the moving-average method.
Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method. For other than tem-
porary declines in fair value, investment securities are reduced to
net realizable value by a charge to income.
No. 2 SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Notes to Consolidated Financial Statements
Hoya Corporation and Subsidiaries