Olympus 2014 Annual Report Download - page 40

(i) Common Stock and Bonds Issuance Expenses
Common stock and bonds issuance expenses are charged to income as incurred.
(j) Provision for Warranty Costs
A provision for warranty costs is provided to cover the cost of all services anticipated to be incurred during the entire warranty period based
on the warranty contracts and past experience.
(k) Retirement Benefi ts
The Company and its consolidated subsidiaries provided an allowance for employees’ retirement benefi ts as of the balance sheet date
based on the amounts of projected benefi t obligation and the fair value of the plan assets at that date.
Actuarial gain or loss is amortized in the year following the year in which the gain or loss is recognized primarily by the straight-line
method over periods (mainly 5 years) which are shorter than the average remaining years of service of the employees.
Prior service cost is being amortized by the straight-line method over periods (mainly 5 years) which are shorter than the average
remaining years of service of the employees.
The retirement allowance for directors and corporate auditors was recorded at an amount to be paid in accordance with the internal rules
if all eligible directors and corporate auditors were to have resigned their offi ces as of the balance sheet date.
Provision for retirement benefi ts presented in the non-current liabilities of the consolidated balance sheets included retirement allowance
for directors and corporate auditors as of March 31, 2013 and 2014.
(l) Provision for Loss on Business Liquidation
Provision for loss on business liquidation is recorded for estimated losses arising from the business liquidations to be carried out by certain
consolidated subsidiaries of the Company.
(m) Provision for Loss on Litigation
Provision for loss on litigation is recorded for estimated losses on pending litigation.
(n) Research and Development
Expenses relating to research and development activities are charged to income as incurred.
(o) Lease Transactions
Noncancellable lease transactions that transfer substantially all risks and rewards associated with the ownership of assets are accounted
foras fi nance leases. All other lease transactions are accounted for as operating leases and relating payments are charged to income
asincurred.
Leased assets are depreciated over the term of the lease based on the straight-line method with no residual value.
The accounting treatment for fi nance lease contracts that do not transfer ownership to lessee which commenced on or before March 31,
2008 follows the same method as for operating lease transactions.
(p) Income Taxes
The Company recognizes tax effects of temporary differences between the fi nancial reporting and the tax bases of assets and liabilities by
using the enacted tax rates and laws which will be in effect when differences are expected to reverse.
The Company and certain consolidated subsidiaries adopted the consolidated taxation system, which allows companies to make tax
payments on the combined profi ts or losses of the parent company and its wholly owned domestic subsidiaries.
(q) Consumption Taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(r) Translation of Foreign Currency Financial Statements
In accordance with the accounting standards for foreign currency translations, the balance sheet accounts of the foreign consolidated
subsidiaries are translated at exchange rates as of the balance sheet date. Net assets excluding minority interests are translated at historical
exchange rates. Revenues and expenses are translated at average exchange rates for each corresponding fi scal year. Differences arising
from translation are presented as “Foreign currency translation adjustments” in a separate component of net assets.
Notes to the Consolidated Financial Statements
(b) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affi liates
The accompanying consolidated fi nancial statements include the accounts of the Company and its signifi cant subsidiaries. For the year
ended March 31, 2014, the accounts of 153 (167 in 2013) subsidiaries have been included in the consolidated fi nancial statements.
The Company consolidates all signifi cant investees which were controlled through substantial ownership of majority voting rights or
existence of certain conditions.
The fi nancial statements of some subsidiaries are consolidated by using their fi nancial statements as of or year ended March 31, which
are prepared solely for consolidation purposes. Some subsidiaries are consolidated using their fi nancial statements as of their respective
fi scal year end, which falls on December 31, and necessary adjustments are made to their fi nancial statements to refl ect any signifi cant
transactions from January 1 to March 31. All signifi cant intercompany balances and transactions have been eliminated in consolidation.
Investments in certain unconsolidated subsidiaries and affi liated companies in which the Company has signifi cant infl uence, but less than
a controlling interest, are accounted for by the equity method. For the year ended March 31, 2014, 4 (3 in 2013) affi liates were accounted for
by the equity method. Investments in subsidiaries and affi liates which are not consolidated or accounted for by the equity method are carried
at cost or less. Where there has been a signifi cant decline in the value of such investments, the Company has written down the investments.
The differences between acquisition cost and underlying net equity at the time of acquisition (goodwill) are amortized on the straight-line
method in the range of mainly 5 to 20 years.
(c) Cash and Cash Equivalents
In preparing the consolidated statements of cash fl ows, cash on hand, readily-available deposits and short-term highly liquid investments
with maturities not exceeding three months at the time of purchase and subject to insignifi cant risk of change in value are considered to be
cash and cash equivalents.
(d) Securities
In accordance with the accounting standard for fi nancial instruments, the Company and its consolidated subsidiaries classifi ed their securi-
ties into two categories.
Held-to-maturity debt securities are stated at amortized cost. Available-for-sale securities with fair values are stated at fair value and
those with no fair values at cost. Unrealized gains and losses on available-for-sale securities are reported, net of applicable income taxes,
asa separate component of net assets. Cost of securities sold is computed using the moving-average method.
(e) Derivative and Hedge Accounting
Accounting standards for fi nancial instruments require companies to state derivative fi nancial instruments at fair value and to recognize
changes in the fair value as gains and losses unless derivative fi nancial instruments meet the criteria for hedge accounting.
When derivative fi nancial instruments are used as hedges and meet hedging criteria, the Company and consolidated subsidiaries defer
recognition of gains and losses resulting from changes in fair value of derivative fi nancial instruments until the related losses and gains on the
hedged items are recognized.
(f) Inventories
Inventories are stated at the lower of cost (fi rst-in-fi rst-out) or net realizable value.
(g) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is mainly computed by the declining balance method at rates based on the
estimated useful lives of the relevant assets. The effective annual rates of depreciation for the years ended March 31, 2013 and 2014 were
as follows:
2013 2014
Buildings and structures ..................................................................................................................................................... 10.2% 9.3%
Machinery and equipment .................................................................................................................................................. 29.8% 29.2%
(h) Allowance for Doubtful Accounts
The Company and its consolidated subsidiaries provide an allowance for doubtful accounts at an amount suffi cient to cover probable losses
oncollection of receivables. It consists of the estimated uncollectible amount with respect to certain identifi ed doubtful receivables and an
amount calculated using the historical percentage of write-offs.
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OLYMPUS Annual Report 2014
76 OLYMPUS Annual Report 2014