Mitsubishi 2007 Annual Report Download - page 59

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57
Notes to Consolidated Financial Statements
2. Significant Accounting Policies
(a) Basis of preparation
MMC and its domestic consolidated subsidiaries maintain their books of account in conformity with the financial
accounting standards of Japan. Foreign subsidiaries maintain their books of account in conformity with standards in
their countries of domicile.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in Japan which are different in certain respects as to the application and disclosure require-
ments of International Financial Reporting Standards. These financial statements have been compiled from the con-
solidated financial statements filed to the Financial Services Agency as required by the Securities and Exchange Law
of Japan.
In addition, the notes to the consolidated financial statements include information, which is not required under
generally accepted accounting principles in Japan but is presented herein as additional information.
Certain reclassifications have been made to the prior year’s financial statements to conform to the current
year’s presentation.
As permitted, amounts of less than ¥1 million have been omitted. Consequently, the totals shown in the accompanying
financial statements (both in yen and U.S. dollars) do not necessarily agree with the sum of the individual amounts.
(b) Principles of consolidation
All significant companies over which MMC has effective control are consolidated. Significant companies over which
MMC has the ability to exercise significant influence have been accounted for by the equity method.
All significant inter-company transactions have been eliminated in consolidation.
Any differences at the date of acquisition between acquisition cost and the fair value of the net assets acquired are
expensed when incurred or are amortized over periods between 3 to 7 years.
(c) Cash and cash equivalents
All highly liquid and low risk investments with maturities of three months or less when purchased are considered to be
cash equivalents.
(d) Inventories
Inventories of MMC and its domestic consolidated subsidiaries are principally stated at cost determined by the first in
first out or specific identification method. Inventories of the foreign consolidated subsidiaries are principally stated at
the lower of cost or market value. Cost is determined by the specific identification method.
(e) Investments in securities
Investments in securities are classified either as held-to-maturity, investments in unconsolidated subsidiaries and
affiliated companies, or other securities. Investments in securities that are expected to be held to maturity are stated
at their amortized cost. Investments in securities that are expected to be held-to-maturity were not held during FY
2006. Other securities with a readily determinable market value are stated at fair value and the cost of other securities
sold is computed based on the moving average method. The difference between the acquisition cost and the carrying
value of other securities, including unrealized gains and losses, is recognized in “Unrealized holding gain on securi-
ties” in the accompanying consolidated balance sheets. Other securities without a readily determinable market value
are stated at cost determined by the moving average method.