Sustained Innovation and Creativity - Toyota Industries Corporation

(15) Hedge accounting(a) Method of hedge accountingMainly the deferral method of hedge accounting isapplied. In the case of foreign currency forward contractsand foreign currency option contracts, the hedged itemsare translated at contracted forward rates if certainconditions are met.(b) Hedging instruments and hedged itemsHedging instruments: Derivatives instruments (interest rateswaps, foreign currency forwardsand foreign currency optioncontracts)Hedged items: Risk of change in interest rate onborrowings and risk of changein forward exchange rate ontransactions denominated in foreigncurrencies (assets and liabilities, andforecasted transactions)(c) Hedging policyHedging transactions are executed and controlled basedon Toyota Industries’ internal policy, and Toyota Industriesis hedging interest rate risks and foreign currency risks.Toyota Industries’ hedging activities are reportedperiodically to a director responsible for accounting.(d) Method used to measure hedge effectivenessHedge effectiveness is measured by comparingaccumulated changes in market prices of hedged itemsand hedging instruments or accumulated changes inestimated cash fl ows from the inception of the hedgeto the date of measurements performed. Currently it isconsidered that there are high correlations betweenthem.(e) OthersDue to the fact that counterparties to Toyota Industriesrepresent major fi nancial institutions which have highcreditworthiness, Toyota Industries believes that the overallcredit risk related to its fi nancial instruments is insignifi cant.(16) Appropriation of retained earningsIn the accompanying consolidated statements ofshareholders’ equity, the approved amount during therelevant fi scal year is refl ected for the appropriation ofretained earnings of consolidated subsidiaries. In Japan,the payment of bonuses to directors and corporateauditors is made out of retained earnings through anappropriation, instead of being charged to income forthe year.(17) Income taxesThe provision for income taxes is computed basedon the pretax income included in the consolidatedstatements of income. The asset and liability approachis used to recognize deferred tax liabilities and assets forthe expected future tax consequences of temporarydifferences between the carrying amounts and the taxbases of assets and liabilities.Valuation allowances are recorded to reduce deferredtax assets when it is more likely than not that a tax benefi twill not be realized.(18) Net income per shareThe computation of basic net income per share is basedon the weighted-average number of outstanding sharesof common stock. The calculation of diluted net incomeper share is similar to the calculation of basic net incomeper share, except that the weighted-average number ofshares outstanding includes the additional dilution frompotential common stock equivalents such as convertiblebonds. Cash dividends per share shown in the statementsof income are the amounts applicable to the respectiveyears.3. Change in accounting policy and adoption of new accounting standardsFor the year ended March 31, 2005Impairment of fi xed assetsToyota Industries has applied Accounting Standards forImpairment of Fixed Assets (Opinions ConcerningEstablishment of Accounting Standards for Impairmentof Fixed Assets) issued on August 9, 2002 by the BusinessAccounting Council in Japan, and the applicationguideline for Accounting Standards for Impairmentof Fixed Assets (the Financial Accounting StandardImplementation Guideline No. 6 issued on October 31,2003), to the consolidated fi nancial statements for fi scal2005, as early adoption of such standards and guidelines,which are effective for fi scal years beginning on andafter April 1, 2005, was permitted for the consolidatedaccounting for the fi scal year ended March 31, 2005.Toyota Industries Corporation Annual Report 200681