Mitsubishi 2004 Annual Report Download - page 40

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38
severance benefits for those directors and corporate auditors have been made at the estimated amount which would be paid if all
directors and corporate auditors resigned as of the balance sheet dates.
(k) Revenue recognition
Revenue is generally recognized on sales of products at the time of shipment.
Certain domestic and foreign subsidiaries recognize revenues by the installment sales method whereby gross profit on such
sales is deferred and credited to income in proportion to the amount of the installment receivables which become due.
(l) Translation of foreign currency accounts
The accounts of the consolidated foreign subsidiaries are translated into yen as follows:
a. Asset and liability items are translated at the rate of exchange in effect on March 31;
b. Components of stockholders’ equity are translated at their historical rates at acquisition or upon occurrence; and
c. Revenues, expenses and cash flow items are translated at the average rate for the financial period. Translation adjustments are
included in “Stockholders’ equity.”
(m) Amounts per share
The computation of basic net (loss) income per share is based on the weighted average number of shares outstanding during
each year. Diluted net income per share is computed based on the weighted average number of shares of common stock
outstanding each year after giving effect to the dilutive potential of common stock to be issued upon the exercise of warrants
and the conversion of convertible bonds.
(n) Appropriations (dispositions) of retained earnings (accumulated deficit)
Cash dividends, bonuses to directors and corporate auditors and other appropriations or dispositions of retained earnings (accu-
mulated deficit) are recorded in the financial year in which the appropriations (dispositions) are approved at a general meeting
of the stockholders.
(o) Leases
Non-cancelable lease transactions at MMC and its domestic consolidated subsidiaries are accounted for as operating leases
regardless of whether such leases are classified as operating or financial leases, except that lease agreements which stipulate the
transfer of ownership of the leased property to the lessee are accounted for as finance leases.
Non-cancelable lease transactions at the foreign subsidiaries except for operating leases are capitalized.
(p) Derivative financial instruments
MMC and its consolidated subsidiaries are exposed to risks arising from fluctuations in foreign currency exchange rates and
interest rates. In order to manage those risks, MMC and its consolidated subsidiaries enter into various derivative agreements
including forward foreign exchange contracts and interest rate swaps. Forward foreign exchange contracts are utilized to manage
risks arising from forecasted export of finished goods and related foreign currency receivables. Interest rate swaps are utilized to
manage interest rate risk for debts. MMC and its consolidated subsidiaries do not utilize derivatives for speculation or trading
purposes.
Derivative financial instruments are recorded at fair value, excluding certain instruments described below which are recorded
in accordance with the special hedge provisions of the accounting standard.
Forward foreign exchange contracts related to forecasted export of finished goods are accounted for using deferral hedge
accounting. Deferral hedge accounting requires unrealized gains or losses to be deferred as liabilities or assets.
MMC and its consolidated subsidiaries have also developed a hedging policy to control various aspects of the derivative
transactions including authorization levels and transaction volumes. Based on this policy, MMC and its consolidated
subsidiaries hedge, within certain limits, the risks arising from the changes in foreign currency exchange rates and interest rates.
Forward foreign exchange contracts are designated to hedge the exposure to variability in expected future cash flows.
Hedge effectiveness on interest rate swaps are evaluated by reviewing the gross changes in cash flows of hedging instruments