Square Enix 2006 Annual Report Download - page 32

S Q U A R E E N IX C O . , L T D .
Content production account:
Same as FY2004
Amusement equipment:
Stated at cost, determined by the identified cost method
Unfinished goods:
Stated at cost, determined by the monthly average method
Certain consolidated subsidiaries, however, determine
cost by the moving-average method
Supplies:
Same as FY2004
(2) Method for depreciation and amortization of major assets:
• FY2004 (April 1, 2004 to March 31, 2005)
A) Property and equipment
Property and equipment of the Company and its domestic
consolidated subsidiaries are depreciated using the declin-
ing-balance method. However, the straight-line method is
applied to buildings (excluding building fixtures) acquired
after April 1, 1998. The estimated useful lives of major
assets are as follows:
Buildings and structures 3–50 years
Tools and fixtures 3–15 years
B) Intangible assets
In-house software used by the Company and its domestic
consolidated subsidiaries is amortized using the straight-line
method based on an estimated useful life of five years. For
all other intangible fixed assets, trademarks are amortized
using the straight-line method based on an estimated useful
life of 10 years. Goodwill is amortized using the straight-line
method over a period of five years.
• FY2005 (April 1, 2005 to March 31, 2006)
A) Property and equipment
Property and equipment of the Company and its domestic
consolidated subsidiaries are depreciated using the declin-
ing-balance method. However, the straight-line method is
applied to buildings (excluding building fixtures) acquired
after April 1, 1998. The estimated useful lives of major
assets are as follows:
Buildings and structures 3–65 years
Tools and fixtures 3–15 years
Amusement equipment 3–8 years
B) Intangible assets
Same as FY2004
(3) Accounting for allowances and reserves:
• FY2004 (April 1, 2004 to March 31, 2005)
A) Allowance for doubtful accounts
An allowance for doubtful accounts provides for possible
losses arising from default on accounts receivable. The
allowance is made up of two components: the estimated
credit loss for doubtful receivables based on an individual
assessment of each account, and a general reserve calculated
based on historical default rates.
B) Reserve for bonuses
A reserve for bonuses provided for payments to employees
of the Company and its consolidated subsidiaries at the
amount expected to be paid in respect of the calculation
period ended on the balance sheet date.
C) Allowance for sales returns
An allowance is provided for losses due to the return of
published materials, at an amount calculated based on
historic experience, prior to this fiscal year. In addition, an
allowance is provided for losses due to the return of game
software, at an estimated amount of future losses assessed
by each game title.
D) Allowance for store closings
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E) Allowance for retirement benefits
An allowance for retirement benefits is provided at the
amount incurred during this fiscal year, which is based on
the estimated present value of the projected benefit obliga-
tion. Unrecognized actuarial differences are fully amortized
in the next year in which they arise. Unrecognized prior ser-
vice cost is amortized over a certain period (one year) within
the average remaining service period of the employees. In
addition, the Company and its domestic consolidated sub-
sidiaries provide a reserve for retirement benefits equal to
100% of such benefits the Company and its subsidiaries
would be required to pay under the lump-sum retirement
plan if all eligible employees were to voluntarily terminate
their employment at the balance sheet date.
F) Allowance for directors’ retirement benefits
An allowance for directors’ retirement benefits is provided
to adequately cover the costs of directors’ retirement
benefits, which are accounted for on an accrual basis in
accordance with internal policy.
• FY2005 (April 1, 2005 to March 31, 2006)
A) Allowance for doubtful accounts
Same as FY2004
B) Reserve for bonuses
Same as FY2004
C) Allowance for sales returns
An allowance is provided for losses due to the return of
published materials, at an amount calculated based on
historic experience, prior to this fiscal year. In addition, an