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2. Commitments and Contingent LiabilitiesThe Company and its consolidated subsidiaries had unused lines of credit for short-term financing aggregating ¥26,521 million (U.S. $249,636 thousand) and ¥23,194 million at March 31, 2018 and 2017, respectively.3. InventoriesMerchandise and finished goods, work in process, and raw materials and supplies as of March 31, 2018 and 2017 were as follows: Millions of yen Thousands ofU.S. dollars201820172018Merchandise and finished goods¥14,421 ¥13,031 $135,746Work in process12,57511,951118,367Raw materials and supplies11,5089,601108,330Total¥38,506¥34,584$362,4434. Reduction EntryReduction entry amounts and details deducted from the acquisition cost of property, plant and equipment as of March 31, 2018 and 2017 were as follows: Millions of yen Thousands ofU.S. dollars201820172018Buildings and structures¥19¥— $181Machinery, equipment and vehicles36—340Total¥55¥—$522(o) Cash and cash equivalentsCash and cash equivalents are composed of cash and time deposits having maturities within three months from acquisition, all of which are low-risk, short-term financial instruments readily convertible into cash.(p) Research and development costsResearch and development costs are charged to income when incurred.(q) Income taxesDeferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.(r) Shareholders’ equityThe Corporation Law of Japan provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions.(s) Hedge accounting(1)Hedge accounting methodThe exceptional accounting treatment (the “Tokurei-shori”) is applied with respect to interest rate swaps that meet the requirements to hedge the cash flow volatility of certain foreign currency-denominated loans. The Tokurei-shori and the designated hedge accounting (the “Furiate-shori”) are applied with respect to interest rate and currency swaps that meet the requirements to hedge the cash flow volatility caused by foreign exchange rate fluctuations on certain foreign currency-denominated loans.(2)Hedging instruments and hedged items1Hedging instruments......Interest rate swaps Hedging items.................Foreign currency-denominated loans2Hedging instruments......Interest rate and currency swaps Hedging items.................Foreign currency-denominated loans(3)Hedging policyIn accordance with the internal regulation, risk of fluctuations in interest rates and foreign exchange is hedged.(4)Method of evaluating the effectiveness of hedgesThe evaluation of effectiveness is omitted for interest rate swaps accounted for under the Tokurei-shori and for interest rate and currency swaps accounted for under the Tokurei-shori and Furiate-shori.(t) Accounting standards issued but not yet applied• Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, issued on March 30, 2018)• Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, issued on March 30, 2018)(1)OverviewThis is a comprehensive accounting standard for revenue recognition. Revenue is recognized using the following five steps.Step 1: Identify the contract with a customer.Step 2: Identify the separate performance obligations in the contract.Step 3: Determine the transaction price.Step 4: Allocate the transaction price to the separate performance obligations in the contract.Step 5: Recognize revenue when the entity satisfies a performance obligation.(2)Application scheduleThese accounting standards will be adopted from the beginning of the year ending March 31, 2022.(3)Effect of applicationThe amount of the impact was still being assessed when these consolidated financial statements were prepared.LINTEC ANNUAL REPORT 201862FINANCIAL SECTION
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