Nikon 2009 Annual Report Download - page 37

Nikon Annual Report 2009 35
This standard requires companies to recognize compensation
expense for employee stock options based on the fair value at the
date of grant and over the vesting period as consideration for
receiving goods or services. The standard also requires companies
to account for stock options granted to non-employees based on
the fair value of either the stock option or the goods or services
received. In the balance sheet, the stock options are presented as
stock acquisition rights as a separate component of equity until
exercised. The standard covers equity-settled, share-based pay-
ment transactions, but does not cover cash-settled, share-based
payment transactions. In addition, the standard allows unlisted
companies to measure options at their intrinsic value if they can-
not reliably estimate fair value.
The Company applied the new accounting standard for stock
options to those granted on and after May 1, 2006.
(l) Research and Development Costs
The Group is active in research and development, and such costs
are charged to income as incurred.
(m) Leases
In March 2007, the ASBJ issued ASBJ Statement No.13, “Account-
ing Standard for Lease Transactions”, which revised the previous
accounting standard for lease transactions issued in June 1993.
The revised accounting standard for lease transactions is effective
for fiscal years beginning on or after April 1, 2008 with early adop-
tion permitted for fiscal years beginning on or after April 1, 2007.
Under the previous accounting standard, finance leases that
were deemed to transfer ownership of the leased property to the
lessee were capitalized. However, other finance leases were per-
mitted to be accounted for as operating lease transactions if cer-
tain “as if capitalized” information was disclosed in the notes to
the lessee’s financial statements. The revised accounting standard
requires that all finance lease transactions capitalized to recognize
lease assets and lease obligations in the balance sheet. In addition,
the revised accounting standard permits leases which existed at
the transition date and do not transfer ownership of the leased
property to the lessee to be measured at the obligations under
finance leases at the transition date and recorded as acquisition
cost of lease assets.
The Company and its domestic subsidiaries applied the revised
accounting standard effective April 1, 2008. In addition, the
Company and its domestic subsidiaries accounted for leases which
existed at the transition date and do not transfer ownership of the
leased property to the lessee as acquisition cost of lease assets
measured at the obligations under finance leases at the transition
date. There was no effect on profit or loss from this change.
All other leases are accounted for as operating leases.
(n) Bonuses to directors and corporate auditors
Bonuses to directors and corporate auditors are accrued at the
year end to which such bonuses are attributable.
(o) 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 tempo-
rary 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.
(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 for-
ward exchange contracts.
(q) Foreign Currency Financial Statements
The balance sheet accounts of the consolidated foreign subsidiar-
ies are translated into Japanese yen at the current exchange rate as
of balance sheet date except for equity, which is translated at the
historical exchange rate. Differences arising from such translation
are shown as “Foreign currency translation adjustments” in a
separate component of equity.
Revenue and expense accounts of consolidated foreign subsid-
iaries are translated into Japanese yen at the average exchange rate.
(r) Derivatives and Hedging Activities
The Group enters into derivative financial instruments (“deriva-
tives”), including foreign exchange forward contracts, currency
options, foreign currency swaps and interest rate swaps 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 transac-
tions are classified and accounted for as follows: (a) all derivatives
are recognized principally as either assets or liabilities and mea-
sured at fair value, and gains or losses on derivative transactions are
recognized in the statements of income and (b) for derivatives used
for hedging purposes, 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. For-
ward contracts entered into for forecasted transactions are also
measured at fair value, but the unrealized gains or losses on quali-
fying 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 inter-
est 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 expense or income.