Ricoh 2007 Annual Report Download - page 38

consists primarily of interest income 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 Currency Translation
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 accumulated
other comprehensive income (loss) in shareholders’ investment.
All foreign currency transaction gains and losses are included in other
income and expenses in the period incurred.
(e) Cash Equivalents
Cash and cash equivalents include highly liquid investments with
maturities of three months or less at the date of purchase such as time
deposits and short-term investment securities which are available-for
sale at any time, 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 management funds and free
financial funds.
(f) Derivative Financial Instruments and Hedging Activities
As discussed further in Note 16, Ricoh manages its exposure to certain
market risks, primarily foreign currency and interest rate risks, through
the use of derivative instruments. As a matter of policy, Ricoh does not
enter into derivative contracts for trading or speculative purposes.
In accordance with Statement of Financial Accounting Standards
(“SFAS”) No.133, “Accounting for Derivative Instruments and Hedging
Activities” as amended, Ricoh recognizes all derivative instruments as
either assets or liabilities in the consolidated balance sheets and
measures those instruments at fair value. When Ricoh enters into a
derivative contract, it makes a determination 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
commitment (“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 documents all relationships between hedging instruments and
hedged items, as well as its risk-management 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
instrument is marked-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 immediately 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 Trade 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
determined from write-off history adjusted to reflect current economic
conditions and specific allowances for receivables including
nonperforming leases, impaired loans or other accounts for which
Ricoh has concluded it will be unable to collect all amounts due
according to original terms 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) Securities
Ricoh applies SFAS No.115, “Accounting for Certain Investments in
Debt and Equity Securities” which requires all investments in debt and
marketable equity securities to be classified as either held-to-maturity,
trading, or available-for-sale securities. As of March 31, 2006 and 2007,
all of Ricoh’s investments in debt and marketable 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 comprehensive 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
temporary declines in value. Factors considered in assessing whether
an indication of other than temporary impairment exists with respect to
available-for-sale securities include: length of time and extent of
decline, financial condition and near term prospects of issuer and
intent and ability of Ricoh to retain its investments for a period of time
sufficient to allow for any anticipated recovery in market value.
The cost of the securities sold is computed based on the average cost of
each security held at the time of sale.
Non-marketable equity securities owned by Ricoh primarily relate to
less than 20% owned companies and are stated at cost.
(i) Inventories
Inventories are mainly stated at the lower of average cost or net
realizable values. Inventory costs include raw materials, labor and
manufacturing overheads.
(j) Property, Plant and Equipment
For the Company and its domestic subsidiaries, depreciation of property,
plant and equipment is computed principally by using the declining-
37 ANNUAL REPORT 2007