Mitsubishi 2003 Annual Report Download - page 54

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52
ANNUAL REPORT 2003 POWER TO CHANGE
(b) Lease subvention income and expenses related to the North American subsidiaries
One of the North American subsidiaries enters into lease agreements through its captive finance subsidiary (a consolidated subsidiary
of this North American subsidiary), which may be on terms below market. Accordingly, the North American subsidiary pays subven-
tion to its finance subsidiary to the extent that these terms are below market. The finance company records this subvention income
as deferred revenue which is amortized over the lease term. Previously, this subvention was eliminated on the consolidation of the
North American group as an intergroup transaction. As a result of this elimination, there was no recognition of the subvention
expense and income in each period of the lease term, over the entire lease term the expense and income are matched.
Effective January 1, 2003, the North American subsidiary changed to recognize all the subvention expense when it enters into
lease agreements, since the subvention expenses are considered as a kind of marketing expense for sales promotion. As a result, the
Company no longer eliminates unamortized deferred revenue against marketing expenses, allowing for this expense to be recog-
nized immediately and to be subsequently reversed as the deferred revenue is recognized over the lease term.
This change was made to recognize the income and expenses from these lease transactions on a more normalized basis.
As a result of this change, operating profit for the year decreased by ¥237 million ($1,972 thousand), and gain before income
taxes and minority interests decreased by ¥11,389 million ($94,750 thousand). In addition, total assets and total liabilities increased
by ¥4,195 million ($34,900 thousand) and ¥11,041 million ($91,855 thousand), respectively. The effect of this change on segment
information is given in Note 14.
(c) Accounting for forward foreign exchange contracts
In the year ended March 31, 2002, MMC changed its accounting for sales in foreign currencies and related forward foreign
exchange contracts qualified as hedges. In the year ended March 31, 2001, sales and related receivables hedged by qualified forward
foreign exchange contracts were translated at the corresponding foreign exchange contract rates. From the year ended March 31, 2002,
sales are translated into Japanese yen at the exchange rates in effect at the dates they are transacted, and related receivables are trans-
lated at the exchange rates in effect at the balance sheet date, while forward foreign exchange contracts qualified as hedges on those
sales transactions are recognized at their fair value at the balance sheet date and changes in fair values are charged to earnings. This
change was made as MMC developed its internal systems to meet the requirements of the new accounting method that is defined as
standard accounting treatment. As a result of this change, operating profit increased by ¥12,299 million, and loss before income taxes
and minority interests decreased by ¥159 million. The effect of this change on segment information is given in Note 14.
3. NEW ACCOUNTING STANDARDS
(a) Accounting for earnings per share
The Company and its domestic consolidated subsidiaries have adopted Accounting Standard No. 2, “Accounting Standard for Earnings
per Share”, and Financial Accounting Standards Implementation Guidance No. 4, “Implementation Guidance for Accounting Standard
for Earnings per Share” which were issued by the Financial Accounting Standards Foundation from the year ended 31 March, 2003.
(b) Accounting for sales incentives
In May 2000, the Emerging Issues Task Force reached a final consensus on EITF 00-14, “Accounting for Certain Sales Incentives.” EITF
00-14 requires that the cost of incentives be recognized at the date of sale and classifies as a reduction of revenue. Certain consoli-
dated subsidiaries in North America record sales incentives that are in substance sales discounts as a reduction of revenue since the
year ended March 31, 2002. In prior years, those sales incentives had been included in selling, general and administrative expenses.
As a result of the adoption of EITF 00-14, gross profit decreased by ¥49,751 million with no effect on operating profit. The effect of this
change on segment information is given in Note 14.