Mitsubishi 2005 Annual Report Download - page 59

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MITSUBISHI MOTORS CORPORATION
Annual Report 2005
Financial Section
(j) Accrual for retirement benefits for directors and corporate auditors
Certain directors and corporate auditors of MMC and its domestic consolidated subsidiaries are customarily entitled
to lump-sum payments under their respective unfunded severance benefit plans subject to the stockholders’
approval. Provision for severance benefits for those directors and corporate auditors has 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 of common stock
The computation of basic net (loss) income per share of common stock is based on the weighted average number of
shares of common stock outstanding during each year. Diluted net income per share of common stock 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 conversion of preferred stock and stock subscription rights.
(n) Appropriations (dispositions) of retained earnings (accumulated deficit)
Cash dividends, bonuses to directors and corporate auditors and other appropriations or dispositions of retained
earnings (accumulated 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 finance 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.