Sharp 2013 Annual Report Download - page 44

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42 SHARP CORPORATION
vide an allowance for severance and pension benefits based on
the estimated amounts of projected benefit obligation and the
fair value of plan assets at the balance sheet date. Projected ben-
efit obligation and expenses for severance and pension benefits
are determined based on the amounts actuarially calculated us-
ing certain assumptions.
Prior service costs are amortized using the straight-line meth-
od over the average of the estimated remaining service years
(16 years) commencing with the current period. Actuarial gains
and losses are primarily amortized using the straight-line method
over the average of the estimated remaining service years (16
years) commencing with the following period.
(l) Research and development expenses
Research and development expenses are charged to income as
incurred. The research and development expenses charged to
income amounted to ¥173,983 million, ¥154,798 million and
¥137,936 million ($1,483,183 thousand) for the years ended
March 31, 2011, 2012 and 2013 respectively.
(m) Derivative financial instruments
The Company and some of its consolidated subsidiaries use
derivative financial instruments, including foreign exchange
forward contracts in order to hedge the risk of fluctuations in
foreign currency exchange rates associated with assets and li-
abilities denominated in foreign currencies.
All derivative financial instruments are stated at fair value and
recorded on the balance sheets. The deferred method is used
for recognizing gains or losses on hedging instruments and the
hedged items. When foreign exchange forward contracts meet
certain conditions, the hedged items are stated at the forward
exchange contract rates.
Derivative financial instruments are used based on internal
policies and procedures on risk control. The risks of fluctuations
in foreign currency exchange rates have been assumed to be
completely hedged over the period of hedging contracts as the
major conditions of the hedging instruments and the hedged
items are consistent. Accordingly, an evaluation of the effective-
ness of the hedging contracts is not required.
The credit risk of such derivatives is assessed as being low be-
cause the counter-parties of these transactions have good credit
ratings with financial institutions.
(n) Method and Period for Amortization of Goodwill
Goodwill for which the effective term is possible to be estimated
is amortized evenly over the estimated terms, while the other is
amortized evenly over 5 years. However, if the amount is minor,
the entire amount is amortized during the period of occurrence.
(o) Changes in accounting policies that are difficult to
distinguish from changes in accounting estimates
In accordance with the amendment of the Corporation Tax Law,
effective from the year ended March 31, 2013, the Company
and its domestic consolidated subsidiaries have changed the de-
preciation method for plant and equipment acquired on or after
April 1, 2012.
This change had an immaterial impact on financial statements.
(p) Reclassifications
Certain account balances in the financial statements and ac-
companying footnotes for the years ended March 31, 2011 and
2012 have been reclassified to made to conform to the presen-
tation for the fiscal year ended March 31, 2013.
Financial Section