Square Enix 2004 Annual Report Download - page 40

38 SQUARE ENIX 2004
Product development costs 550
Non-deductible portion of amortization expense
of software 8
Offset to deferred tax liabilities (non-current) (15)
Total 632
Total deferred tax assets 1,573
Deferred tax liabilities
Non-current liabilities
Net unrealized gains on available-for-sale securities (15)
Offset to deferred tax assets (non-current) 15
Total deferred tax liabilities —
Net deferred tax assets (liabilities) 1,573
2. Reconciliation between statutory tax rate and effective tax rate
Statutory tax rate 42.05%
Retainage tax 1.77
Permanent differences (e.g., entertainment expenses) 0.19
Taxation on per capita basis for residents tax 0.23
Reduction in year-end deferred tax assets due to change
in tax rates 0.54
Other 0.27
Effective tax rate 45.05
3. According to the amendment of the local tax law on March 31, 2003, the
effective statutory tax rate was changed primarily from 42.05% to
40.50% for the calculation of deferred tax assets and liabilities for tem-
porary differences that are expected to reverse in the year beginning
April 1, 2004 and thereafter. As a result, deferred tax assets, net of
deferred tax liabilities, decreased by ¥25 million, deferred income taxes
increased by ¥26 million, and unrealized gain on revaluation of securities
increased by ¥0 million.
SQUARE
1. Significant components of deferred tax assets and liabilities are as fol-
lows:
Millions of Yen
Deferred tax assets (current)
Allowance for sales returns 641
Accrued bonuses, reserve for bonuses 989
Inventories 21
Tax effect on unrealized profit for inventories 28
Prepaid expenses 108
Allowance for relocation-related costs 451
Loss carried forward 699
Non-deductible portion of foreign tax 192
Other 145
Total 3,278
Deferred tax liabilities (current)
Tax effect on retained earnings of investments in affiliates (246)
Other (20)
Total (266)
Net deferred tax assets (current) 3,011
Deferred tax assets (non-current)
Investment securities 381
Inventories 252
Depreciation expenses 833
Retirement benefit expenses 122
R&D expenses 580
Allowance for doubtful accounts 1,070
Others 117
Valuation allowance (557)
Total 2,800
Deferred tax liabilities (non-current)
Net unrealized gains on available-for-sale securities (152)
Total (152)
Net Deferred tax assets (non-current) 2,648
2. Reconciliation between statutory tax rate and effective tax rate
Statutory tax rate (Adjustments) 42.05%
Permanent differences excluded from nontaxable expenses
(e.g., entertainment expenses) 0.32%
Permanent differences excluded from gross revenue
(e.g., dividends received etc.) (0.62%)
Increase/decrease in valuation allowance (103.94%)
Prior year adjustment of net unrealized gains
on available-for-sale securities (1.13%)
Taxation on per capita basis for residents tax 0.10%
Reduction in year-end deferred tax assets due
to change in tax rates (1.37%)
Minority interest in LLC and partnership (3.11%)
Adjustments in revenue recognition due to consolidation 1.35%
Adjustments in unrealized profits due to consolidation 5.16%
Difference in tax rate with the parent company (1.64%)
Other 0.04%
Effective tax rate (62.79%)
3. According to the amendment of the local tax law at March 31,2003, the
effective statutory tax rate was changed to 40.50% for the calculation of
deferred tax assets and liabilities for temporary differences that are
expected to reverse in the year beginning April 1, 2004 and thereafter.
As a result, deferred tax assets, net of deferred tax liabilities, decreased by
¥120 million, deferred income taxes increased by ¥125 million, and unre-
alized gain on revaluation of securities increased by ¥5 million.