Casio 2011 Annual Report Download - page 27

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Annual Report 2011
Derivatives and hedge accounting
The accounting standard for financial instruments requires companies to state derivative financial instruments at fair value and to
recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Group defers recognition of gains
or losses resulting from changes in the fair value of derivative financial instruments until the related losses or gains on the hedged
items are recognized.
Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or
received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the
swap contract was executed.
The Group uses forward foreign currency contracts and interest rate swaps as derivative financial instruments only for the
purpose of mitigating future risks of fluctuations of foreign currency exchange rates with respect to foreign currency assets and
liabilities and of interest rate increases with respect to cash management.
Forward foreign currency and interest rate swap contracts are subject to risks of foreign exchange rate changes and interest
rate changes, respectively.
The derivative transactions are executed and managed by the Company’s Finance Department in accordance with the
established policies and within the specified limits on the amounts of derivative transactions allowed.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount sufficient to cover probable losses on the collection of receivables.
For the Group, the amount of the allowance is determined based on past write-off experience and an estimated amount of
probable bad debt based on a review of the collectibility of individual receivables.
Inventories
The Company and its consolidated subsidiaries in Japan state inventories at the lower of cost (first-in, first-out) or net realizable
values at year-end.
Consolidated overseas subsidiaries state inventories at the lower of market or cost.
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is principally determined by the declining-balance method at rates
based on estimated useful lives except for the following buildings. The building of the head office of the Company and buildings,
excluding building fixtures, acquired after March 31, 1998, are depreciated using the straight-line method. The depreciation period
ranges from 2 years to 60 years for buildings and structures and 1 year to 20 years for machinery and equipment.
Software costs
Software is categorized by the following purposes and amortized using the following two methods.
Software for market sales: The production costs for the master product are capitalized and amortized over no more than
3 years on a projected revenue basis.
Software for internal use: The acquisition costs of software for internal use are amortized over 5 years using the straight-line
method.
The amount of software costs capitalized is included in other assets in the consolidated balance sheets.
Lease assets
(Finance leases which do not transfer ownership of the leased property to the lessee)
Lease assets are divided into the two principal categories of property, plant and equipment and intangible assets. The former
consists primarily of facilities (machinery and equipment, tools, furniture and fixtures) while the latter consists of software. The
assets are depreciated on a straight-line basis on the assumption that the lease term is the useful life and the residual value is zero.