JVC 2005 Annual Report Download - page 47

Victor Company of Japan, Limited 45
1BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the
Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan (“Japan GAAP”), which are different in certain
respects as to application and disclosure requirements of
International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their
accounting records maintained in conformity with generally accept-
ed accounting principles prevailing in the respective countries of
domicile. The accompanying consolidated financial statements have
been restructured and translated into English (with some expanded
descriptions and the inclusion of consolidated statements of stock-
holders’ equity) from the consolidated financial statements of Victor
Company of Japan, Limited (“the Company”) prepared in accor-
dance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the
Securities and Exchange Law. Some supplementary information
included in the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is not presented in
the accompanying consolidated financial statements.
In the year ended March 31, 2005, the Company did not adopt
early the new accounting standard for impairment of fixed assets
(“Opinion Concerning Establishment of Accounting Standard for
Impairment of Fixed Assets” issued by the Business Accounting
Deliberation Council on August 9, 2002) and the implementation
guidance for accounting standard for impairment of fixed assets (the
Financial Accounting Standard Implementation Guidance No. 6
issued by the Accounting Standards Board of Japan on October 31,
2003). The new accounting standard is required to be adopted
effective April 1, 2005.
The translation of the Japanese yen amounts into U.S. dollars are
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2005, which was ¥107 to
U.S.$1.00. The convenience translations should not be construed
as representations that the Japanese yen amounts have been,
could have been, or could in the future be, converted into U.S. dol-
lars at this or any other rate of exchange.
2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
● Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its significant subsidiaries. All significant inter-compa-
ny transactions, account balances and unrealized profits have been
eliminated.
Investments in certain non-consolidated subsidiaries and affiliated
companies (20% to 50% owned and certain others 15% to 20%
owned) are, with minor exceptions, stated at their underlying net
equity value after elimination of unrealized inter-company profits.
The Company’s investments in its remaining subsidiaries and affiliat-
ed companies are immaterial in the aggregate, and are stated at
cost or less.
The differences between acquisition cost and underlying net equi-
ty at the time of acquisition are generally being amortized on the
straight-line method over five years.
Notes to Consolidated Financial Statements
Victor Company of Japan, Limited and its consolidated subsidiaries
Years ended March 31, 2005, 2004 and 2003
● Foreign currency translation
Assets and liabilities denominated in foreign currencies are translat-
ed into Japanese yen at exchange rates prevailing at the balance
sheet dates except for those hedged by foreign currency forward
contracts, which are recorded at contract rates.
Balance sheets of consolidated overseas subsidiaries are trans-
lated into Japanese yen at the year-end rate except for stockhold-
ers’ equity accounts, which are translated at the historical rates.
Statements of operations of consolidated overseas subsidiaries
are translated at average rates except for transactions with the
Company, which are translated at the rates used by the Company.
The Company reports foreign currency translation adjustments in
the stockholders’ equity and minority interests.
● Cash and cash equivalents
In preparing the consolidated statements of cash flows for the years
ended March 31, 2005, 2004 and 2003, cash on hand, readily avail-
able deposits and short-term highly liquid investments with maturi-
ties not exceeding three months at the time of purchase are
considered to be cash and cash equivalents.
● Inventories
Inventories are stated at cost, which is determined primarily by the
average-cost method.
● Securities
Securities are classified as (a) securities held for trading purposes
(hereafter, “trading securities”), (b) debt securities intended to be
held to maturity (hereafter, “held-to-maturity debt securities”), (c)
equity securities issued by subsidiaries and affiliated companies,
and (d) for all other securities that are not classified in any of the
above categories (hereafter, “available-for-sale securities”).
The Company and its consolidated subsidiaries (“the
Companies”) had no trading securities or held-to-maturity debt
securities. Equity securities issued by subsidiaries and affiliated
companies which are not consolidated or accounted for by the
equity method, are stated at moving-average cost. Available-for-sale
securities with available fair market values are stated at fair market
value. Unrealized gains and losses on these securities are reported,
net of applicable income taxes, as a separate component of stock-
holders’ equity. Realized gains and losses on sale of such securities
are computed using moving-average cost. Other securities with no
available fair market value are stated at moving-average cost.
If the market value of equity securities issued by non-consolidated
subsidiaries and affiliated companies, and available-for-sale securi-
ties, declines significantly, such securities are stated at fair market
value and the difference between fair market value and the carrying
amount is recognized as a loss in the period of the decline. If the fair
market value of equity securities issued by non-consolidated sub-
sidiaries and affiliated companies not accounted for by the equity
method is not readily available, such securities should be written
down to net asset value with a corresponding charge in the income
statement in the event when net asset value declines significantly.
● Derivatives and hedge accounting
The Companies state derivative financial instruments at fair value
and 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 Companies defer recognition of gains or
losses resulting from changes in fair value of derivative financial
instruments until the related losses or gains on the hedged items are
recognized.