MITSUBISHI ESTATE Annual Report 2013

36a. Basis of preparationThe accompanying consolidated nancial statements of Mitsubishi Estate Co., Ltd. (the “Company”) and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated nancial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan. The notes to the consolidated nancial statements include information which may not be required under accounting principles generally accepted in Japan but is presented herein as additional information. As permitted by the Financial Instruments and Exchange Act of Japan, amounts of less than one million yen have been rounded off. As a result, the totals shown in the accompanying consolidated nancial statements (both in yen and U.S. dollars) do not necessarily agree with the sums of the individual amounts. Certain amounts in the prior year’s nancial statements have been reclassi ed to conform to the current year’s presentation.b. Principles of consolidationThe accompanying consolidated nancial statements include the accounts of the Company and its consolidated subsidiaries that it controls directly or indirectly. Companies over which the Company exercises signi cant in uence in terms of their operating and nancial policies have been included in the consolidated nancial statements on an equity basis. All signi cant intercompany balances and transactions have been eliminated in consolidation.c. Use of estimatesThe preparation of nancial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the nancial statements and accompanying notes. The actual results could differ from those estimates.d. Foreign currency translationCurrent and non-current monetary accounts denominated in foreign currencies are translated into yen at the current rates. The revenue and expense accounts of the foreign consolidated subsidiaries are translated using the average rate during the year. Except for shareholders’ equity, the balance sheet accounts are also translated into yen at the rates of exchange in effect at the balance sheet date. The components of shareholders’ equity are translated at their historical exchange rates.e. Cash equivalentsThe Company and its consolidated subsidiaries consider all highly liquid investments that are readily convertible into cash and have an original maturity of three months or less to be cash equivalents. Reconciliation between cash in the balance sheets and cash equivalents at March 31, 2013 and 2012 is presented in Note 16.f. Marketable securities and investment securitiesSecurities other than those of subsidiaries and af liates are classi ed into three categories: trading, held-to-maturity or other securities. Trading securities are carried at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classi ed as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in shareholders’ equity. Non-marketable securities classi ed as other securities are carried at cost. Cost of securities sold is determined by the moving average method.g. InventoriesInventories are mainly stated at cost, determined by the identi ed cost method. Net book value of inventories in the consolidated balance sheets is written down when their net realizable values decline.h. Property and equipment, depreciation and impairmentProperty and equipment, except for land as discussed below, is stated at cost less accumulated depreciation. Depreciation is calculated principally by the declining-balance method, except for buildings acquired in Japan subsequent to March 31, 1998 and property and equipment of foreign subsidiaries on which depreciation is calculated by the straight-line method at rates determined based on the estimated useful lives of the respective assets. The Company and its consolidated subsidiaries have capitalized the costs incurred for signi cant renewals and additions; however, costs for maintenance and repairs are charged to income. As of March 31, 2002, the Company revalued its land at fair value, pursuant to Article 2 of the “Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land” and its amendments. The related unrealized gain, net of applicable income taxes, has been recorded as “Land revaluation reserve” in net assets. The Company and its consolidated subsidiaries review their property and equipment (including land) for impairment whenever events or changes in its business circumstances indicate that the carrying amount of the assets may not be fully recoverable. They perform cash ow analyses to determine if impairment exits. If impairment is determined to exist, any related loss on impairment is calculated based on the cash ow analyses. The useful lives of property and equipment are summarized as follows:Buildings and structures 2 to 75 yearsi. Intangible and other assetsIntangible and other assets primarily consist of goodwill and land use rights. Goodwill is stated on the basis of cost and is being amortized over a period of 5 years or an estimated economical period on a straight-line basis. A loss is recognized if the fair value falls below the carrying amount. Land use rights are stated on a cost basis.j. Retirement bene tsThe Company and most consolidated subsidiaries have noncontributory funded and unfunded de ned bene t plans covering most of their employees. Employees of the Company and its consolidated subsidiaries are entitled under most employment termination circumstances to annuity payments or lump-sum payments, the amounts of which are determined principally by reference to their basic rates of pay, length of service, and the conditions under which the termination occurs. Accrued employees’ retirement bene ts are provided mainly at an amount calculated based on the retirement bene t obligation and the fair value of the pension plan assets as of the balance sheet date, as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement bene t obligation is attributed to each period by the straight-line method over the estimated years of service of the employees. Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized by the straight-line method over periods of 1 year to 15 years, which are shorter than the average remaining years of service of the employees. Prior service cost is being amortized as incurred by the straight-line method over periods of 1 year to 10 years, which are shorter than the average remaining years of service of the employees.k. Income taxesDeferred tax assets and liabilities are determined based on the nancial statements and the tax bases of assets and liabilities, using the enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Deferred tax assets are also recognized for the estimated future tax effects attributable to operating loss carry forwards. Valuation allowances are established to reduce deferred tax assets if it is more likely than not that the some portion or all of the deferred tax assets will not be realized. l. Derivative nancial instrumentsThe Company and certain of its consolidated subsidiaries utilize derivative nancial instruments for the purpose of hedging their exposure to adverse uctuations and changes in interest rates (interest rate swaps) and foreign exchange rates (currency swaps), but do not enter into such transactions for speculative or trading purposes.Notes to Consolidated Financial StatementsMitsubishi Estate Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2013 and 20121Signi cant Accounting Policies