Fujitsu 2005 Annual Report Download - page 42

40 Fujitsu Limited
5. Consolidated Subsidiaries
At the end of fiscal 2004, the Company had 403 consolidated sub-
sidiaries, 123 in Japan and 280 overseas, representing a decrease of
52 from last year’s total of 455. The decrease included the transfer
of our PDP operations and the shift of our compound semicon-
ductor subsidiary to the equity method of accounting, as well as
reductions relating to global business restructuring and the realign-
ment of our systems engineering subsidiaries in Japan’s Chugoku
and Shikoku regions.
The number of affiliated companies accounted for by the equity
method as of the fiscal year-end totaled 34, a net increase of two.
This number included Eudyna Devices Inc., Eudyna Devices Europe
Ltd. and two other new equity method affiliates, while Advantest
Corporation and one other company are no longer treated as equity
method affiliates.
6. Critical Accounting Policies and Estimates
Accounting Principles and Practices
The accompanying consolidated financial statements of the Group
have been prepared in accordance with accounting principles and
practices generally accepted in Japan and the regulations under
the Securities and Exchange Law of Japan. The accounting prin-
ciples and practices adopted by the consolidated subsidiaries out-
side Japan conform to those of their respective countries.
The preparation of the consolidated financial statements
requires management to make estimates and assumptions that
affect the amount of the assets, liabilities, contingent assets and
contingent liabilities reported at the end of the fiscal year as well
as the amount of revenue and expenses recognized during that
term. Actual results may differ from these estimates.
The Group is discussing the requirements for the adoption
of International Financial Reporting Standards. When these stan-
dards are adopted, it is possible that differences may arise from
financial statements prepared under Japanese standards.
Revenue Recognition
Revenue from sales of IT systems and products, including soft-
ware development contracts, is recognized upon acceptance by the
customers, whereas revenue from sales of personal computers, other
equipment and electronic devices is recognized when the products
are shipped.
We stringently assess the potential revenue recoverable on
projects for which estimated costs have exceeded estimated revenue,
and recognize as losses the amounts assessed as non-recoverable. If
the estimated costs relating to such contracts increase further in the
future, additional losses may be recognized.
In fiscal 2005, we plan to introduce the percentage of comple-
tion method to recognize revenue and to improve the visibility of
project management for software development contracts.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation
is computed principally by the declining-balance method at rates
based on the estimated useful lives of the respective assets, which
vary according to their general classification, type of construction
and function. In the future, some equipment and facilities may
become obsolete as a result of technical innovation or other fac-
tors, and some equipment and facilities may no longer be required
as the result of withdrawal from certain businesses, in which case
their actual useful lives may become less than their originally esti-
mated useful lives. Losses may occur as a result.
We have not adopted in advance the impairment accounting
standard that will become mandatory in fiscal 2005 in Japan.
Accordingly, following application of the standard, impairment
losses may have to be recognized in cases in which there is a decline
in the anticipated amount of future cash flows as a result of dete-
rioration in the projected results of a business unit, or a decline in
the fair market value of property, plant and equipment, leading to
a corresponding decline in the amounts judged to be recoverable.
Intangible Assets
Computer software for sale is amortized based on projected unit
sales volume during the period for which the projections are made.
The projected unit sales volume is estimated based on a feasible sales
plan, but losses may occur if anticipated unit sales fall short of the
original sales plan.
Computer software for internal use is amortized by the
straight-line method over its estimated useful life. Losses may
occur if the actual useful life falls short of the initially estimated
useful life.