Notes to Consolidated Financial Statements JS Group Corporation and Consolidated Subsidiaries  Years Ended March 31, 2010 and 2009 1. Basis of Presenting Consolidated Financial Statements 2. Summary of Significant Accounting Policies The accompanying consolidated financial statements have been  prepared in accordance with the provisions set forth in the   Japanese Financial Instruments and Exchange Act and its related  accounting regulations and in conformity with accounting principles  generally accepted in Japan (“Japanese GAAP”), which are different  in certain respects as to application and disclosure requirements of  International Financial Reporting Standards. In preparing these consolidated financial statements, certain  reclassifications and rearrangements have been made to the con- solidated financial statements issued domestically in order to pres- ent them in a form which is more familiar to readers outside Japan.  In addition, certain reclassifications have been made in the 2009  financial statements to conform to the classifications used in 2010. The consolidated financial statements are stated in Japanese  yen, the currency of the country in which JS Group Corporation  (the “Company”) is incorporated and operates. The translations of  Japanese yen amounts into U.S. dollar amounts are included solely  for the convenience of readers outside Japan and have been made  at the rate of ¥93.04 to $1, the approximate rate of exchange at  March 31, 2010. Such translations should not be construed as  representations that the Japanese yen amounts could be converted  into U.S. dollars at that or any other rate. a. Consolidation —The consolidated financial statements as of  March 31, 2010 include the accounts of the Company, its 70 sig- nificant (45 in 2009) subsidiaries and a subsidiary to which the  equity method is applied (together, the “Group”). Under the control or influence concept, those companies in  which the Company, directly or indirectly, is able to exercise control  over their operations are fully consolidated, and those companies  over which the Group has the ability to exercise significant influence  are accounted for by the equity method. Investment in an associated company is accounted for by the  equity method. Investments in the remaining unconsolidated sub- sidiaries and associated companies are stated at cost. If the equity  method of accounting had been applied to the investments in these  companies, the effect on the accompanying consolidated financial  statements would not be material. The difference between the cost of an acquisition and the fair  value of the net assets of the acquired subsidiary at the date of  acquisition is being amortized over a period of 5 years. However,  when the excess of cost over net assets of subsidiaries acquired is  insignificant, the amount is charged to income when incurred. All significant intercompany balances and transactions have been  eliminated in consolidation. All material unrealized profit included in  assets resulting from transactions within the Group is eliminated. b. Unification of Accounting Policies Applied to Foreign Sub- sidiaries for the Consolidated Financial Statements —In May  2006, the Accounting Standards Board of Japan (the “ASBJ”)  issued ASBJ Practical Issues Task Force (“PITF”) No. 18, “Practical  Solution on Unification of Accounting Policies Applied to Foreign  Subsidiaries for the Consolidated Financial Statements.” PITF No.  18 prescribes (1) the accounting policies and procedures applied to  a parent company and its subsidiaries for similar transactions and  events under similar circumstances should in principle be unified for  the preparation of the consolidated financial statements, (2) finan- cial statements prepared by foreign subsidiaries in accordance with  either International Financial Reporting Standards or the generally  accepted accounting principles in the United States of America  tentatively may be used for the consolidation process, (3) however,  the following items should be adjusted in the consolidation process  so that net income is accounted for in accordance with Japanese  GAAP unless they are not material: (a) amortization of goodwill; (b)  scheduled amortization of actuarial gain or loss of pensions that  has been directly recorded in the equity; (c) expensing capitalized  development costs of R&D; (d) cancellation of the fair value model  of accounting for property, plant and equipment and investment  properties and incorporation of the cost model of accounting; (e)  recording the prior years’ effects of changes in accounting policies  in the income statement where retrospective adjustments to finan- cial statements have been incorporated; and (f) exclusion of minor- ity interests from net income, if included. PITF No. 18 was effective  for fiscal years beginning on or after April 1, 2008 with early adop- tion permitted. The Group applied this accounting standard effec- tive April 1, 2008. In addition, the Group adjusted the beginning  balance of retained earnings at April 1, 2008 as if this accounting  standard had been retrospectively applied. c. Business Combination —In October 2003, the Business  Accounting Council issued a Statement of Opinion, “Accounting for  Business Combinations,” and in December 2005, the ASBJ issued  ASBJ Statement No. 7, “Accounting Standard for Business Divesti- tures,” and ASBJ Guidance No. 10, “Guidance for Accounting  Standard for Business Combinations and Business Divestitures.”  The accounting standard for business combinations allows   companies to apply the pooling of interests method of accounting  only when certain specific criteria are met such that the business  combination is essentially regarded as a uniting-of-interests. For  business combinations that do not meet the uniting-of-interests  criteria, the business combination is considered to be an acquisi- tion and the purchase method of accounting is required. This stan- dard also prescribes the accounting for combinations of entities  under common control and for joint ventures. The Group acquired A-S CHINA PLUMBING PRODUCTS Ltd.  and 14 other companies in July 2009. The related goodwill and  negative goodwill are systematically amortized over 5 years. d. Cash Equivalents —Cash equivalents are short-term invest- ments that are readily convertible into cash and that are exposed to  insignificant risk of changes in value. e. Allowance for Doubtful Accounts —The allowance for doubtful  accounts is stated in amounts considered to be appropriate based  on the companies’ past credit loss experience and an evaluation of  potential losses in the receivables outstanding. f. Inventories —Inventories are stated at the lower of cost, deter- mined by the average cost method, or net selling value. g. Investment Securities —Investment securities are classified and  accounted for, depending on management’s intent, as follows: (i)  held-to-maturity debt securities, which are expected to be held to  maturity with the positive intent and ability to hold to maturity are  reported at amortized cost, and (ii) available-for-sale securities,  which are not classified as the aforementioned securities, are  reported at fair value, with unrealized gains and losses, net of  JS Group Corporation Annual Report 2010 63