Nikon 2007 Annual Report Download - page 35

33NIKON ANNUAL REPORT 2007
(m) Bonuses to Directors and Corporate Auditors
Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate auditors were accounted for as a reduction of retained
earnings in the fiscal year following approval at the general shareholders meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF)
No.13, “Accounting Treatment for Bonuses to Directors and Corporate Auditors,” which encouraged companies to record bonuses to directors
and corporate auditors on the accrual basis with a related charge to income, but still permitted the direct reduction of such bonuses from
retained earnings after approval of the appropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard for bonuses to directors and corporate
auditors on November 29. 2005. Under the new accounting standard, bonuses to directors and corporate auditors must be expensed and are
no longer allowed to be directly charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May
1,2006. The companies must accrue bonuses to directors and corporate auditors at the year end to which such bonuses are attributable.
The Company adopted the new accounting standard for bonuses to directors and corporate auditors from the year ended March 31,
2007. The effect of adoption of this accounting standard was to decrease income before income taxes and minority interests for the year
ended March 31, 2007 by ¥90 million ($762 thousand).
(n) Income Taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and
liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws
to the temporary differences.
(o) Appropriations of Retained Earnings
Appropriations of retained earnings are reflected in the consolidated financial statements for the following year upon shareholders’ approval.
(p) Foreign Currency Transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the
exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the statement of income
to the extent that they are not hedged by forward exchange contracts.
(q) Foreign Currency Financial Statements
The balance sheet accounts and revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the
current exchange rate as of the balance sheet date except for equity, which is translated at the historical exchange rates. Differences arising
from such translation are shown as “Foreign currency translation adjustments” in a separate component of equity.
(r) Derivatives and Hedging Activities
The Group enters into derivative financial instruments (“derivatives”), including contracts of foreign exchange forward, currency option, foreign
currency swap and interest rate swap to hedge foreign exchange risk and interest rate exposures. The Group does not hold or issue derivatives
for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are recognized
principally as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the statements of
income and (b) for derivatives used for hedging purpose, if derivatives qualify for hedge accounting because of high correlation and effectiveness
between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
The foreign exchange forward contracts and currency option contracts employed to hedge foreign exchange exposures for export sales
and purchases are measured at fair value and the related unrealized gains or losses are recognized in income. Forward contracts entered into
for forecasted transactions are also measured at fair value, but the unrealized gains or losses on qualifying hedges are deferred until the
underlying transactions are completed. The foreign currency swaps used to hedge the foreign currency fluctuations of long-term debt denominated
in foreign currencies are measured at fair value and the unrealized gains or losses are included in the carrying amounts of the debt.The interest
rate swaps which qualify for hedge accounting are measured at market value at the balance sheet date, and the unrealized gains or losses
are deferred until maturity. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured
at market value but the differential paid or received under the swap agreements are recognized and included in interest expenses or income.