Nikon 2013 Annual Report Download - page 42

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(j) Stock Options
In December 2005, the ASBJ issued ASBJ Standard No. 8,
“Accounting Standard for Stock Options,” and related guid-
ance. The new standard and guidance are applicable to stock
options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensa-
tion expense for employee stock options based on the fair
value at the date of grant and over the vesting period as con-
sideration 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 payment transactions, but
does not cover cash-settled, share-based payment transac-
tions. In addition, the standard allows unlisted companies to
measure options at their intrinsic value if they cannot reliably
estimate fair value.
(k) Research and Development Costs
The Group is active in research and development, and such
costs are charged to income as incurred.
(l) Leases
In March 2007, the ASBJ issued ASBJ Statement No. 13,
“Accounting Standard for Lease Transactions,” which revised
the previous accounting standard for lease transactions
issued in June 1993. The revised accounting standard for lease
transactions was effective for fiscal years beginning on or
after April 1, 2008.
The revised accounting standard requires that finance lease
transactions should be 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 less interest expense at the transition date and
recorded as acquisition cost of lease assets.
All other leases are accounted for as operating leases.
(m) Income Taxes
The provision for income taxes is computed based on the
pretax income included in the consolidated statement 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 income tax
rules to the temporary differences.
The Company and some foreign subsidiaries file a tax return
under the consolidated corporate tax system, which allows the
companies to base tax payments on the combined profits or
losses of the companies and their wholly owned domestic
subsidiaries.
(n) Foreign Currency Transactions
All short-term and long-term monetary receivables and pay-
ables denominated in foreign currencies are translated into
foreign currencies at the exchange rates at the balance sheet
date. The foreign exchange gains and losses from translation
are recognized in the consolidated statement of income to the
extent that they are not hedged by forward exchange
contracts.
(o) Foreign Currency Financial Statements
The balance sheet 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 rate. Differences
arising from such translation are shown as “Foreign currency
translation adjustments” under accumulated other compre-
hensive income in a separate component of equity.
Revenue and expense accounts of consolidated foreign
subsidiaries are translated into yen at the average exchange
rate.
(p) Derivatives and Hedging Activities
The Group enters into derivative financial instruments
(“derivatives”), including foreign exchange forward contracts,
currency options, foreign currency swaps and interest rate
swaps, to hedge foreign exchange risk and interest rate expo-
sures. The Group does not use derivatives for trading or spec-
ulative purposes.
Derivatives are classified and accounted for as follows: (a)
all derivatives are recognized principally as either assets or
liabilities and remeasured at fair value, and gains or losses on
derivative transactions are recognized in the consolidated
statement 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 deriva-
tives are deferred until maturity of the hedged transactions.
Foreign exchange forward contracts and currency option
contracts employed to hedge foreign exchange exposures for
export sales and import purchases are measured at fair value
and the related unrealized gains or losses are recognized in
income. Forward contracts entered into for forecast transac-
tions are also measured at fair value, but the unrealized gains
or losses on qualifying hedges are deferred until the underly-
ing transactions have been completed. Foreign currency
swaps used to hedge the foreign currency fluctuations of
long-term debt denominated in foreign currencies are mea-
sured at fair value and the unrealized gains or losses are
included in the carrying amounts of the debt. Interest rate
swaps which qualify for hedge accounting are measured at