Sharp 2007 Annual Report Download - page 51

Sharp Annual Report 2007 49
between fair market values and the carrying amount is recognized
as loss in the period of decline. If the net asset value of other secu-
rities, except for interest-bearing securities, with no available fair mar-
ket values declines significantly, such securities are written down to
the net asset value by charging to income. In these cases, such fair
market value or the net asset value is carried forward to the next year.
( f ) Leases
Finance leases, except those leases for which the ownership of the
leased assets is considered to be transferred to the lessee, are pri-
marily accounted for as operating leases.
(g) Inventories
Finished products are principally stated at the lower of moving aver-
age cost or market, however, finished products held by overseas
consolidated subsidiaries are principally valued at the lower of first-
in, first-out cost or market. Work in process and raw materials are
principally stated at the current production and purchase costs,
respectively, not in excess of estimated realizable value.
(h) Depreciation and amortization
Depreciation of plant and equipment is primarily computed
on the declining-balance method, except for machinery and equip-
ment in the Mie and Kameyama plants, which are depreciated on
the straight line method, over the estimated useful lives. Buildings
acquired by the Company and its domestic consolidated subsidiaries
on and after April 1, 1998 are depreciated on the straight-line method.
Properties at overseas consolidated subsidiaries are mainly depre-
ciated on the straight-line method.
Maintenance and repairs including minor renewals and better-
ments are charged to income as incurred.
( i ) Accrued bonuses
The Company and its domestic consolidated subsidiaries accrue
estimated amounts of employees’ bonuses based on estimated
amounts to be paid in the subsequent period.
( j ) Income taxes
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 of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
(k) Severance and pension benefits
The Company and its domestic consolidated subsidiaries have pri-
marily a trusteed noncontributory defined benefit pension plan for
their employees to supplement a governmental welfare pension plan.
Certain overseas consolidated subsidiaries primarily have
defined contribution pension plans and lump-sum retirement
benefit plans.
The Company and its domestic consolidated subsidiaries
provide the allowance for severance and pension benefits based on
the estimated amounts of projected benefit obligation and the fair
value of the plan assets at the balance sheet date. Projected ben-
efit obligation and expenses for severance and pension benefits are
determined based on the amounts actuarially calculated using cer-
tain assumptions.
The excess of the projected benefit obligation over the total of
the fair value of pension assets as of April 1, 2001 and the allowance
for severance and pension benefits recorded as of April 1, 2001 (the
“net transition obligation”) amounted to ¥69,090 million. The net tran-
sition obligation is being amortized in equal amounts over 7 years
commencing with the year ended March 31, 2002. Prior service costs
are amortized using the straight-line method over the average of the
estimated remaining service lives (16 years) commencing with the
current period. Actuarial gains and losses are primarily amortized using
the straight-line method over the average of the estimated remain-
ing service lives (16 years) commencing with the following period.
Effective for the year ended March 31, 2006, the Company and
its domestic consolidated subsidiaries adopted the new account-
ing standard “Partial Revision to Standards for Accounting for
Retirement Benefits” (Accounting Standards Board Statement
No.3 issued by the Accounting Standards Board of Japan on March
16, 2005), resulting in no impact on the financial statements for the
year ended March 31, 2006.
Effective for the year ended March 31, 2006, the consolidated
subsidiaries in the United Kingdom adopted a new accounting
standard for retirement benefits in the United Kingdom.
As a result, retained earnings decreased by ¥4,765 million since
the net transition obligation and actuarial losses were charged directly
to retained earnings with an immaterial impact on the net income
for the year ended March 31, 2006.
Effective for the year ended March 31, 2007, the consolidated
subsidiaries in the U.S.A. adopted the revised accounting standard
for retirement benefits in the U.S.A..
As a result, retained earnings decreased by ¥2,826 million ($24,154
thousand) since prior service costs and actuarial losses that had not
been recognized were charged directly to retained earnings with an
immaterial impact on the net income for the year ended March 31, 2007.
The effects of these changes on segment information are stated
in Note 10. Segment Information.
Directors and statutory auditors customarily receive lump-sum
payments upon their termination, subject to shareholders’
approval. Such payments are charged to income when paid.
( l ) Research and development expenses and software costs
Research and development expenses are charged to income
as incurred. The research and development expenses charged to
income amounted to ¥154,362 million and ¥189,852 million
($1,622,667 thousand) for the years ended March 31, 2006 and 2007,
respectively.
Software costs are recorded principally in prepaid expenses and
other. Software used by the Company are amortized by the