Toshiba 2005 Annual Report Download - page 63

130th Anniversary Toshiba Corporation 21
> NET INCOME PER SHARE Basic net income per share (“EPS”) is computed based on the weighted-average number
of shares of common stock outstanding during each period. Diluted EPS assumes the dilution that could occur if stock
acquisition rights were exercised to issue common stock, unless their inclusion would have an antidilutive effect.
> REVENUE RECOGNITION Revenue of mass-produced standard products is recognized when there is persuasive
evidence of an arrangement, the product has been delivered, the sales price is fixed or determinable, and collectibility is
reasonably assured. Mass-produced standard products are considered delivered to customers once they have been
shipped, and the title and risk of loss have transferred.
Revenue from services is recognized as the services are provided.
Revenue from the development of custom software products is recognized when the software product has been
delivered and accepted by the customer.
Revenue related to equipment that requires installation is recognized upon the completion of the installation of the equipment.
Revenue under long-term contracts is recorded under the percentage of completion method. To measure the extent
of progress toward completion, the Company generally compares the costs incurred to date to estimated total costs to
complete based upon the most recent available information. A provision for contract losses is recorded in its entirety
when the loss first becomes evident.
Revenue from the sales of equipment under sales-type leases is recognized at the inception of the lease. Interest on
sales-type leases and direct financing leases is recognized to produce a constant periodic rate of return on the net
investment in the lease. Leases not qualifying as sales-type lease or direct financing lease are accounted for as operating
leases and related revenues are recognized over the lease term.
Revenue from arrangements with multiple elements, which may include any combination of products, equipment,
installment and maintenance, is allocated to each element based on its relative fair value if such element meets the criteria
for treatment as a separate unit of accounting as prescribed in the Emerging Issues Task Force Issue 00-21, Revenue
Arrangements with Multiple Deliverables. Otherwise, revenue is deferred until the undelivered elements are fulfilled as
a single unit of accounting.
> SHIPPING AND HANDLING COSTS The Company includes shipping and handling costs which totaled ¥84,136
million ($786,318 thousand) and ¥83,329 million for the years ended March 31, 2005 and 2004, respectively in selling,
general and administrative expenses.
> DERIVATIVE FINANCIAL INSTRUMENTS The Company uses a variety of derivative financial instruments, which
include forward exchange contracts, interest rate swap agreements, currency swap agreements, and currency options
for the purpose of currency exchange rate and interest rate risk management. Refer to Note 20 for descriptions of
these financial instruments.
The Company recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap
agreements, currency swap agreements, and currency options in the consolidated financial statements at fair value
regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or in shareholders’ equity as a component of other
comprehensive income (loss) depending on whether the derivative financial instruments qualify for hedge accounting,
and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in fair value of derivative financial
instruments accounted for as fair value hedges are recorded in income along with the portion of the change in the fair
value of the hedged item that relates to the hedged risk. Changes in fair value of derivative financial instruments
accounted for as cash flow hedges, to the extent they are effective as a hedge, are recorded in other comprehensive
income (loss), net of tax. Changes in the fair value of derivative financial instruments not qualifying as a hedge are
reported in income.
> SALES OF RECEIVABLES The Company enters into transactions to sell certain trade accounts receivable, trade
notes receivable and finance receivables. The Company may retain certain interests in these transactions. Gain or loss
on the sale of receivables is computed based on the allocated carrying amount of the receivables sold. Retained interests
are recorded at the allocated carrying amount of the assets based on their relative fair values at the date of sale. The
Company estimates fair value based on the present value of future expected cash flows less credit losses.
> GUARANTEES The Company recognizes, at the inception of a guarantee, a liability for the fair value of the obligation
it has undertaken in issuing guarantees for guarantees issued or modified after December 31, 2002 in accordance with
the FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees.
> RECENT PRONOUNCEMENTS In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment
of ARB No. 43, Chapter 4 (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the