Annual Report 2002 [PDF/1.6MB]

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSKawasho Corporation and Consolidated Subsidiaries1. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTSKawasho Corporation (the “Company”) and its domestic subsidiaries maintain their books of account in conformity with thefinancial accounting standards of Japan, and its foreign subsidiaries maintain their books of account in conformity with thoseof their countries of domicile.The accompanying consolidated financial statements of the Company and its consolidated subsidiaries (together the“Companies”) have been prepared in accordance with accounting principles and practices generally accepted and applied inJapan, which may differ in certain material respects from accounting principles and practices generally accepted in countriesand jurisdictions other than Japan, and are compiled from the consolidated financial statements prepared by the Company asrequired by the Securities and Exchange Law of Japan.The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of the readers, using theapproximate exchange rate at March 31, 2002, which was ¥133.25 to U.S. $1.00. These translations of convenience shouldnot be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, convertedinto U.S. dollars at this or any other rate of exchange.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of companies over which substantial control is exerteddirectly or indirectly either through majority ownership of voting stock and/or by other means. All significant intercompanybalances and transactions have been eliminated in consolidation.Investments in affiliates (companies over which the Company has the ability to exercise significant influence) are stated at costplus equity in their undistributed earnings or losses. Consolidated net income or loss includes the Company’s equity in thecurrent net income or loss of such companies after the elimination of unrealized intercompany profits.All assets and liabilities of the consolidated subsidiaries are revaluated on acquisition, if applicable, and any excess of costover the underlying net assets at the dates of acquisition is amortized over a period of five years on a straight-line basis if theexcess is material, or charged to income as incurred, if immaterial.b. Foreign Currency TranslationEffective April 1, 2000, the Company and its domestic subsidiaries adopted a revised accounting standard for foreign currencytranslation. Under the revised standard, all monetary assets and liabilities denominated in foreign currencies are translated intoJapanese yen at the exchange rate in effect on the respective balance sheet dates. Financial statements of foreign subsidiariesare translated into Japanese yen at historical rates for shareholders’ equity, and at the year-end rates for other balance sheetaccounts, net income and revenue and expense accounts. This change in accounting principle resulted in a decrease in lossbefore income taxes and minority interests of ¥80 million for the year ended March 31, 2001.Due to a change effective the year ended March 31, 2001 in the regulations relating to the presentation of translation adjustments,the Company has presented translation adjustments as a component of shareholders’ equity and minority interests inthe consolidated subsidiaries (instead of as a component of assets or liabilities) in the accompanying consolidated financialstatements for the year ended March 31, 2001.Since the accounting standard for foreign currency translation specified for trading companies was abolished effective April 1,2001, the Company recorded foreign exchange gains and losses for the year ended March 31, 2002 arising from transactionsinvolving goods bought and sold as a component of “Other” in “Other income and expenses” rather than as a componentof gross profit. The effect of this change was to decrease gross profits and operating income for the year ended March 31,2002 by ¥374 million ($2,807 thousand).36