Ricoh 2005 Annual Report Download - page 32

not have a material effect on Ricoh’s financial position or results of
operations.
( d) For eign Curr ency Translation
For foreign operations with functional currencies other than the
Japanese yen, assets and liabilities are translated at the exchange rates
in effect at each fiscal year-end, and income and expenses are translated
at the average rates of exchange prevailing during each fiscal year. The
resulting translation adjustments are included as a part of accumulated
other comprehensive income ( loss) in shareholders’ investment.
All foreign currency transaction gains and losses are included in other
income and expenses in the period incurred.
( e) Cash Equivalents
Cash and cash equivalents include highly liquid investments with
maturities of three months or less at the date of purchase such as time
deposits and short-term investment securities which are available-for
sale at any time, present insignificant risk of changes in value due to
being readily convertible into cash and have an original maturity of
three months or less, such as money management funds and free
financial funds.
( f) Der ivative Financial Instr uments and Hedging Activities
As discussed further in Note 15, Ricoh manages its exposure to certain
market risks, primarily foreign currency and interest rate risks, through
the use of derivative instruments. As a matter of policy, Ricoh does not
enter into derivative contracts for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards
( “SFAS”) No.133, Ricoh, when it enters into a derivative contract,
makes a determination as to whether or not for accounting purposes
the derivative is part of a hedging relationship. In general, a derivative
may be designated as either ( 1) a hedge of the fair value of a recognized
asset or liability or an unrecognized firm commitment ( “fair value
hedge”), ( 2) a hedge of the variability of the expected cash flows
associated with an existing asset or liability or a forecasted transaction
( “cash flow hedge”), or ( 3) a foreign currency fair value or cash flow
hedge ( “foreign currency hedge”) . Ricoh formally documents all
relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all derivatives that are
designated as fair value, cash flow, or foreign currency hedges to specific
assets and liabilities on the consolidated balance sheet or to specific
firm commitments or forecasted transactions.
For derivative contracts that are designated and qualify as fair value
hedges including foreign currency fair value hedges, the derivative
instrument is marked-to-market with gains and losses recognized in
current period earnings to offset the respective losses and gains
recognized on the underlying exposure. For derivative contracts that are
designated and qualify as cash flow hedges including foreign currency
cash flow hedges, the effective portion of gains and losses on these
contracts is reported as a component of accumulated other
comprehensive income ( loss) and reclassified into earnings in the same
period the hedged item or transaction affects earnings. Any hedge
ineffectiveness on cash flow hedges is immediately recognized in
earnings. For all derivative instruments that are not designated as part
of a hedging relationship and for designated derivative instruments that
do not qualify for hedge accounting, the contracts are recorded at fair
value with the gain or loss recognized in current period earnings.
( g) Allowance for Doubtful Tr ade Receivables and Finance
Receivables
Ricoh records allowances for doubtful receivables that are based upon
historical experience and specific customer collection issues. The
estimated amount of probable credit losses in its existing receivables is
determined from write-off history adjusted to reflect current economic
conditions and specific allowances for receivables including
nonperforming leases, impaired loans or other accounts of which Ricoh
has concluded it will be unable to collect all amounts due according to
original terms of the lease or loan agreement. Account balances net of
expected recovery from available collateral are charged-off against the
allowances when collection is considered remote.
( h) Securities
Ricoh conforms with SFAS No.115, “Accounting for Certain Investments
in Debt and Equity Securities” which requires all investments in debt
and marketable equity securities to be classified as either held-to-
maturity, trading, or available-for-sale securities. As of March 31, 2004
and 2005, all of Ricoh’s investments in debt and marketable equity
securities are classified as available-for-sale securities. Those available-
for-sale securities are reported at fair value with unrealized gains and
losses, net of related taxes, excluded from earnings and reported in
accumulated other comprehensive income ( loss). Available-for-sale
securities, which mature or are expected to be sold in one year, are
classified as current assets.
Individual securities classified as available-for-sale securities are
reduced to fair market value by a charge to income for other than
temporary declines in value. Factors considered in assessing whether
an indication of other than temporary impairment exists with respect to
available-for-sale securities include: length of time and extent of
decline, financial condition and near term prospects of issuer and
intent and ability of the Company to retain its investments for a period
of time sufficient to allow for any anticipated recovery in market value.
The cost of the securities sold is computed based on the average cost of
each security held at the time of sale.
Non-marketable equity securities owned by Ricoh primarily relate to
less than 20% owned companies and are stated at cost.
As discussed further in Note 5, Ricoh changed its accounting policy with
respect to the recognition of unrealized gains and losses as realized in
the statements of income on transfers of marketable equity securities.
In relation to this change, Ricoh has recognized in its fiscal 2004
consolidated statement of income a cumulative effect of accounting
change, net of tax, of ¥7,373 million.
( i) Inventories
Inventories are mainly stated at the lower of average cost or net
realizable values. Inventory costs include raw materials, labor and
manufacturing overheads.
( j) Pr operty, Plant and Equipment
For the Company and its domestic subsidiaries, depreciation of property,
31 ANNUAL REPORT 2005