Annual Report 2013

(4) Standards for Recording Signifi cant Allowance/Provisions1) Allowance for Doubtful AccountsAn estimated amount of irrecoverable debts is set aside against any potential losses onthe failure to collect the accounts receivable.a. Ordinary accounts receivable: The amount of allowance calculated at the actual ratioof bad debts.b. Highly doubtful receivables and claims in bankruptcy and reorganization, etc.:The amount of allowance calculated based on the evaluation of fi nancial situationsof individual accounts involved.2) Provision for loss on disasterThe Company recorded a reasonably estimated amount, expected to be incurred as ofMarch 31, 2013, of costs for removal and restoration of its assets damaged by theGreat East Japan Earthquake in March 2011.3) Provision for special repairsA provision is set aside to cover expenses arising from the inspection and repairs of theoil tanks subject to the open regular inspection in compliance with the Fire Service Lawof Japan, and an amount equal to the estimated cost of periodically required repairswas added to the provision for FY2012.As for Cosmo Matsuyama Oil Co., Ltd., one of the subsidiaries of the Company, acertain amount of money to cover expenses arising from regular repairs of the machineryand equipment of its refi nery was recorded for FY2012 in addition to the above charge.4) Provision for retirement benefi tsA provision is put aside to cover retirement and severance benefi ts payable to employeesand a certain amount was recorded based on the estimated amount of projectedbenefi t obligation and the fair value of the pension assets as of March 31, 2013. Actualgains and losses are recognized in expenses at an amount prorated in the straight linemethod over a certain number of years (from 8 to 10 years), which is within the averageof the estimated remaining years of service to be performed by the employees at thetime of accrual, commencing with the fi scal year following the accrual time.Prior service cost obligation is recognized as an expense item at an amount proratedin the straight line method over a certain number of years (from 8 to 10 years) withinthe average of the remaining years of service to be performed by the employees at thetime of accrual.5) Provision for business structure improvementThe Company recorded the estimated amount of a provision to cover expenses andlosses that were expected to be incurred in the near future following the closure of therefi nery and the legal measures associated with the operations of the refi nery.6) Provision for environmental measuresThe Company recorded the estimated amount of a provision to cover expenses to treatcontaminated soil.It also recorded the estimated amount of a provision to cover expenses to treat thePCB waste in accordance with the Law Concerning Special Measures AgainstPolychlorinated Biphenyl Waste.(5) Important Standards for Revenue and Cost recognitionStandards for Recognition of Construction Revenue and CostAs for recognition of revenues from constructions undertaken by the Company, thepercentage of completion method (the percentage of construction is estimated based onthe method of the ratio of actual cost incurred to total estimated cost) is applied toconstruction contracts in process in which the outcome of the construction activity isdeemed certain by the end of FY2012, while the completed contract method is applied toother construction contracts.(6) Standards for Conversion of Signifi cant Foreign Currency-Denominated Assetsand Liabilities into Japanese YenReceivables and payables denominated in foreign currencies are translated into Japaneseyen at the fi scal year-end spot exchange rates with resulting gains or losses included in thecurrent statements of income.All the items of the fi nancial statements of subsidiaries which are stated in currenciesother than Japanese yen are translated into Japanese yen at the fi scal year-end spotexchange rate of each subsidiary. The resulting foreign currency translation adjustmentsare included among adjustments in net assets.(7) Signifi cant Hedge Accounting Methods1) Hedge Accounting MethodsThe deferred hedge accounting method is used to process hedging transactions,