Mitsubishi 2014 Annual Report Download - page 45

consolidated subsidiaries. Software intended for use by MMC and
its domestic consolidated subsidiaries is amortized using the straight
line method over a period of 5 years.
Leased assets:
Assets recognized under finance leases that do not involve transfer
of ownership to the lessee are depreciated using the straight line
method based on the contract term of the lease agreement. If a
guaranteed residual value is determined in the lease agreement,
the said guaranteed residual value is deemed as the residual value
of such leased assets. If the residual value is not determined, it is
deemed to be zero.
(g) Allowance for doubtful accounts
The allowance for doubtful accounts has been provided based on
MMC and its consolidated subsidiaries’ historical experience with
respect to write-offs and an estimate of the amount of specific
uncollectible accounts.
(h) Allowance for product warranties
The allowance for product warranty claims has been calculated
based on MMC and its consolidated subsidiaries’ historical experi-
ence and estimations with respect to future costs relating to claims.
(i) Retirement benefits
The retirement benefit obligation for employees is attributed to
each period by the straight-line method over the estimated years of
service of the eligible employees.
Prior service costs are amortized as incurred by the straight line
method over periods (mainly 10 years), which are shorter than the
estimated average remaining service years of the employees.
Actuarial gains or losses are amortized in the year following the
year in which such gains or losses are recognized by the straight line
method over the periods (mainly 10 years), which are shorter than
the estimated average remaining service years of the employees.
(j) Accrual for retirement benefits for directors and corporate
auditors
Before the termination of the retirement benefits plan for directors
and corporate auditors in the year ended March 2007, certain direc-
tors and corporate auditors of MMC and its domestic consolidated
subsidiaries had been customarily entitled to lump-sum payments
under their respective unfunded severance benefit plans, subject to
shareholders’ approval. Due to the termination of the plan and par-
tial deduction of the provision, further provision is no longer needed
and the outstanding balance of the provision at March 31, 2014 and
2013 represents benefits reserved before the plan’s termination.
(k) Translation of foreign currency accounts
Receivables and payables denominated in foreign currencies are
translated into Yen at the rates of exchange in effect at the balance
sheet date, and differences arising from the translation are included
in the statements of income.
The accounts of the consolidated foreign subsidiaries are trans-
lated into Yen as follows:
a. Asset and liability items are translated at the rate of exchange in
effect on March 31;
b. Components of shareholders’ 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”.
(l) 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 com-
mon 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.
(m) 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. MMC and its consolidated subsidiaries
do not utilize derivatives for speculation or trading purposes.
Derivative financial instruments are recorded at fair value, exclud-
ing certain instruments described below which are recorded in accor-
dance with the special hedge provisions of the accounting standard.
MITSUBISHI MOTORS CORPORATION
Annual Report 2014 43