Translation of foreign currency accounts Cash equivalents Revenue recognition Allowance for doubtful accounts Marketable securities and investment securities Derivative financial instruments and hedge accounting 32 FUJI HEAVY INDUSTRIES LTD. Financial Instrument Transaction, Assets and Liabilities Forward exchange contracts Future foreign exchange transactions Interest swaps Borrowings The risk exposures to movements in the foreign exchange rates and interest rates are hedged according to the Company’s and consolidated subsidiaries’ risk management policy. Evaluation of hedge Derivative financial instruments qualifying as a hedge, along with the related transactions, assets and liabilities, are summarized as follows: For interest rate swap contracts used as hedges and which meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed. For derivative financial instruments used as hedges and which meet certain hedging criteria, the Company and consolidated subsidiaries defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the related gains or losses on the hedged items are recognized. Japanese accounting standard for financial instruments requires the Company and consolidated sub- sidiaries to state derivative financial instruments at fair value and to recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes. Under Japanese accounting standards for financial instruments, securities for which fair value is available are stated at fair value as of the balance sheet date with unrealized holding gains and losses included as component of shareholders’ equity until realized, while securities for which fair value is not available are stated at cost as determined by the moving-average method. Held-to-maturity debt securities are stated using the amortized interest cost method. Securities not listed on stock exchanges were stated at cost, as determined by the moving-average method, after devaluation for any permanent impairment. The allowance for doubtful accounts is provided based on the amount calculated as the actual ratio of bad debt for ordinary receivables, and an amount required for uncollectible account for specific doubtful receivables. Revenue from sales of finished products is generally recognized when such products are shipped to dealers or customers. Provisions for sales allowances and incentives are recognized at the time of the sale. Revenue from operating leases is recognized on a straight-line basis over the lease term. Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less that are readily convertible to known amounts of cash and have negligible risk of changes in value due to their short maturities. Assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rates in effect at the balance sheet date of the foreign subsidiaries and affiliates, except for common stock and capital surplus, which are translated at historical rates. Revenue and expense accounts are translated at the average exchange rates during the current year. The resulting foreign cur- rency translation adjustments are included “Translation adjustments” in shareholders’ equity and minority interest in the consolidated balance sheet. Under Japanese accounting standard for foreign currency translation, monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at each balance sheet date with the resulting gain or loss included in the current statements of income.