MITSUBISHI ESTATE Annual Report 2014

l. Derivative financial instrumentsThe Company and certain of its consolidated subsidiaries utilize derivative financial instruments for the purpose of hedging their exposure to adverse fluctuations 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.Derivative financial instruments are carried at fair value with any changes in unrealized gain or loss charged or credited to operations, except for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as an asset or liability. m. Revenue recognitionThe consolidated statements of income reflect revenue from operations in the following manner:(a)Revenue from the leasing of office space is recognized as rent accrued over the leasing period.(b)Revenue from sales of condominiums, residential houses and land is recognized when the units are delivered and accepted by the customers. Revenue from consignment commissions for residential sales earned by the real estate service business segment is recognized at the time of contract conclusion for services provided up to the conclusion and at the time of ownership transfer for services provided up to the transfer.(c)Revenue from real estate brokerage is recognized when an underlying lease agreement goes into force or the underlying units are delivered.(d)Revenue of construction contracts, of which the percentage of completion can be reliably estimated, is recognized by the percent-age-of-completion method. The percentage-of-completion method is calculated at the cost incurred by the end of the consolidated fiscal year as a percentage of estimated total cost. The completed-contract method continues to be applied for other contracts for which the percentage of completion cannot be reliably estimated.(e)Other operating revenue is recognized on an accrual basis.n. Appropriation of retained earningsUnder the Companies Act of Japan, the appropriation of retained earnings with respect to a given financial year is made by resolution of the shareholders at a general meeting held subsequent to the close of such financial year. The accounts for that year do not, therefore, reflect such appropriations. See Note 9 for more information.o. Standards issued but not yet effective(“Accounting Standard for Business Combinations”)On September 13, 2013, the Accounting Standards Board of Japan (ASBJ) issued “Revised Accounting Standard for Business Combinations” (ASBJ Statement No. 21) and “Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22), “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7), “Revised Accounting Standard for Earnings Per Share” (ASBJ Statement No. 2), “Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10), and “Revised Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4).(1)Overview Under these revised accounting standards, the accounting treatment for any changes in a parent’s ownership interest in a subsidiary when the parent retains control over the subsidiary and the corresponding accounting for acquisition-related costs were revised. In addition, the presentation method of net income was amended, the reference to “minority interests” was changed to “non-controlling interests,” and transitional provisions for these accounting standards were also defined.(2)Scheduled date of adoption The scheduled date of adoption is to be determined.(3)Impact of adopting revised accounting standards and guidance The Company is currently evaluating the effect of adopting these revised standards on its consolidated financial statements. (“Accounting Standard for Retirement Benefits”)On May 17, 2012, the ASBJ issued “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25), which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000 and the other related practical guidance, being followed by partial amendments from time to time through 2009. (1)Overview The standard provides guidance for the accounting for unrecognized actuarial differences and unrecognized prior service costs, the calculation methods for retirement benefit obligation and service costs, and enhancement of disclosures taking into consideration improvements to financial reporting and international trends. (2)Scheduled date of adoption The revised accounting standard and guidance were adopted as of the end of the fiscal year ended March 31, 2014. However, revisions to the calculation methods for the retirement benefit obligation and service costs are scheduled to be adopted from the beginning of the fiscal year ending March 31, 2015.(3)Impact of adopting revised accounting standard and guidance The Company is currently evaluating the effect of adopting this revised standard on its consolidated financial statements.p. Additional informationTo implement a plan for management integration between Mitsubishi Estate Community Co., Ltd. (hereinafter, “Mitsubishi Estate Community”), a subsidiary of the Company, and Marubeni Community Co., Ltd. (hereinafter, “Marubeni Community”), a subsidiary of Marubeni Corporation (hereinafter, “Marubeni”), the Company and Marubeni resolved at each meeting of their Board of Directors held on March 27, 2014 that the Company and Marubeni shall establish a holding company that will wholly own both Mitsubishi Estate Community and Marubeni Community by way of a joint stock transfer, and they concluded a management integration agreement as of March 28, 2014.The outline of the joint stock transfer is as follows:(1)Purpose of joint stock transfer Through this management integration, the Company aims to provide even more satisfactory services to its customers through (i) improvement of the quality of property management services by the rationalization and effective use of the systems and expertise mutually held by Mitsubishi Estate Community and Marubeni Community; (ii) enhancement of the efficiency of business operations by taking advantage of benefits of scale arising from more than 300,000 units to be managed by the new holding com-pany; and (iii) development of alliances, etc. with each company representing the residential value chain of both groups.(2)Method of joint stock transfer The Company will implement a joint stock transfer whereby a newly established holding company will hold all shares issued by Mitsubishi Estate Community and Marubeni Community.(3)Effective date of joint stock transfer July 1, 2014ANNUAL REPORT 201457