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49
Annual Report 2005
(m) Provision for loss on repurchase of computers
Certain computers manufactured by the Group are sold to Japan Electronic Computer Co., Ltd. (“JECC”) and other
leasing companies for leasing to ultimate users under contracts which require the Group to repurchase the computers if
they are returned by the users after a certain period. Based on past experience, an estimated amount for the loss arising
from such repurchases is provided at the point of sales and is charged to income.
(n) Income taxes
The Group has adopted the asset and liability method of tax effect accounting in order to recognize the effect of all
temporary differences in the recognition of assets and liabilities for tax and financial reporting purposes.
(o) Earnings per share
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding
during the respective years.
Diluted earnings per share is computed based on the weighted average number of shares after consideration of the dilutive
effect of the shares of common stocks issuable upon the exercise of warrants and the conversion of convertible bonds.
(p) Derivative financial instruments
The Group uses derivative financial instruments for the purpose of hedging against the risk of fluctuations in interest
rates and foreign exchange rates on receivables and payables denominated in foreign currencies.
All derivative financial instruments are stated at fair market value. The Group defers gain or loss on changes in the fair
market values of the derivative financial instruments on the balance sheet until gain or loss on the hedged items are recognized.
2. Differences with International Financial Reporting Standards
The Group is discussing the requirements for adoption of International Financial Reporting Standards. The Group
believes at present that there are certain differences between the accounting principles and practices adopted by the Group
and those prescribed by International Financial Reporting Standards at March 31, 2005, which are presented below.
This note is out of scope of the audit.
Software development contracts
Under IAS 11, revenue and costs associated with construction contracts should be recognized by the percentage of comple-
tion method when the outcome of the contracts can be estimated reliably. The Group generally recognizes revenue and costs
associated with software development contracts, which should be accounted for as construction contracts under IAS 11, at
the acceptance by the customers as indicated in section (e) of “Significant Accounting Policies.”
In addition, under IAS 11, the expected loss should be recognized immediately when it is probable that total contract
costs will exceed total contract revenue. The Group immediately recognized the expected loss on the software develop-
ment contracts which were proved to be unprofitable from the year ended March 31, 2004. The Group classified the
expected loss as “restructuring charges” for the year ended March 31, 2004.