Ricoh 2006 Annual Report Download - page 32

fulfilled as a single unit of accounting. EITF 00-21 was effective for
revenue arrangem ents entered into after June 30, 2003. EITF 00-21 did
not have a m aterial effect on Ricoh’s financial position or results of
operations.
Revenue from the sale of equipment under sales-type leases is
recognized as product sales at the inception of the lease. Other revenue
consists primarily of interest incom e on sales-type leases and direct-
financing leases, which are recognized as Other revenue over the life of
each respective lease using the interest method.
( d) Foreign Cur r ency Tr anslation
For foreign operations with functional currencies other than the
Japanese yen, assets and liabilities are translated at the exchange rates
in effect at each fiscal year-end, and income and expenses are translated
at the average rates of exchange prevailing during each fiscal year. The
resulting translation adjustments are included as a part of accum ulated
other com prehensive income ( loss) in shareholders’ investm ent.
All foreign currency transaction gains and losses are included in other
incom e and expenses in the period incurred.
( e) Cash Equivalents
Cash and cash equivalents include highly liquid investm ents with
maturities of three months or less at the date of purchase such as tim e
deposits and short-term investment securities which are available-for
sale at any tim e, present insignificant risk of changes in value due to
being readily convertible into cash and have an original maturity of
three months or less, such as money m anagement funds and free
financial funds.
( f) Der ivative Financial Instruments and Hedging Activities
As discussed further in Note 14, Ricoh m anages its exposure to certain
market risks, primarily foreign currency and interest rate risks, through
the use of derivative instrum ents. As a matter of policy, Ricoh does not
enter into derivative contracts for trading or speculative purposes.
In accordance with Statem ent of Financial Accounting Standards
( “SFAS”) No.133 as am ended, Ricoh recognized all derivative
instrum ents as either assets or liabilities in the Consolidated Balance
Sheets and m easures those instruments at fair value. When Ricoh enters
into a derivative contract, it makes a determ ination as to whether or not
for accounting purposes the derivative is part of a hedging relationship.
In general, a derivative may be designated as either ( 1) a hedge of the
fair value of a recognized asset or liability or an unrecognized firm
comm itment ( “fair value hedge”) , ( 2) a hedge of the variability of the
expected cash flows associated with an existing asset or liability or a
forecasted transaction ( “cash flow hedge”) , or ( 3) a foreign currency
fair value or cash flow hedge ( “foreign currency hedge”) . Ricoh
formally docum ents all relationships between hedging instrum ents and
hedged items, as well as its risk-m anagement objective and strategy for
undertaking various hedge transactions. This process includes linking
all derivatives that are designated as fair value, cash flow, or foreign
currency hedges to specific assets and liabilities on the consolidated
balance sheet or to specific firm commitments or forecasted
transactions.
For derivative contracts that are designated and qualify as fair value
hedges including foreign currency fair value hedges, the derivative
instrum ent is m arked-to-market with gains and losses recognized in
current period earnings to offset the respective losses and gains
recognized on the underlying exposure. For derivative contracts that are
designated and qualify as cash flow hedges including foreign currency
cash flow hedges, the effective portion of gains and losses on these
contracts is reported as a component of accumulated other
comprehensive income ( loss) and reclassified into earnings in the same
period the hedged item or transaction affects earnings. Any hedge
ineffectiveness on cash flow hedges is imm ediately recognized in
earnings. For all derivative instruments that are not designated as part
of a hedging relationship and for designated derivative instruments that
do not qualify for hedge accounting, the contracts are recorded at fair
value with the gain or loss recognized in current period earnings.
( g) Allowance for Doubtful Tr ade Receivables and Finance
Receivables
Ricoh records allowances for doubtful receivables that are based upon
historical experience and specific customer collection issues. The
estimated amount of probable credit losses in its existing receivables is
determ ined from write-off history adjusted to reflect current economic
conditions and specific allowances for receivables including
nonperforming leases, im paired loans or other accounts for which
Ricoh has concluded it will be unable to collect all am ounts due
according to original term s of the lease or loan agreement. Account
balances net of expected recovery from available collateral are charged-
off against the allowances when collection is considered remote.
( h) Secur ities
Ricoh applies SFAS No.115, “Accounting for Certain Investm ents in
Debt and Equity Securities” which requires all investm ents in debt and
marketable equity securities to be classified as either held-to-m aturity,
trading, or available-for-sale securities. As of March 31, 2005 and 2006,
all of Ricoh’s investments in debt and m arketable equity securities are
classified as available-for-sale securities. Those available-for-sale
securities are reported at fair value with unrealized gains and losses, net
of related taxes, excluded from earnings and reported in accumulated
other com prehensive income ( loss) . Available-for-sale securities, which
mature or are expected to be sold in one year, are classified as current
assets.
Individual securities classified as available-for-sale securities are
reduced to fair market value by a charge to income for other than
tem porary declines in value. Factors considered in assessing whether
an indication of other than temporary impairm ent exists with respect to
available-for-sale securities include: length of tim e and extent of
decline, financial condition and near term prospects of issuer and
intent and ability of the Company to retain its investm ents for a period
of tim e sufficient to allow for any anticipated recovery in m arket value.
The cost of the securities sold is computed based on the average cost of
each security held at the tim e of sale.
Non-m arketable equity securities owned by Ricoh primarily relate to
less than 20% owned com panies and are stated at cost.
As discussed further in Note 5, Ricoh changed its accounting policy with
respect to the recognition of unrealized gains and losses as realized in
the statem ents of income on transfers of m arketable equity securities.
In relation to this change, Ricoh has recognized in its fiscal 2004
31 ANNUAL REPORT 2006