Mitsubishi 2008 Annual Report Download - page 55

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53
annual report 2008 mitsubishi motors corporation
(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 “Net assets”.
(m) Amounts per share of common stock
The computation of basic net 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 conver-
sion of preferred stock and stock options.
(n) 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 foreign subsidiaries, except for operating leases, are capitalized.
(o) 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 forecast exports of finished goods and related foreign
currency receivables. Interest rate swaps are utilized to manage interest rate risk for loans and bonds. MMC and its consolidated subsidi-
aries 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 forecast exports 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, within certain limits, MMC and its consolidated subsidiaries
hedge 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.
For interest rate swaps accounted for as special hedges, instead of measuring hedge effectiveness, confirmation of the conditions for
special hedge accounting is carried out.