Notes to Consolidated Financial Statements 1. Significant Accounting Policies (a) Basis of presenting consolidated financial statements  The accompanying consolidated financial statements of Fujitsu Limited (the “Company”) and its consolidated subsidiaries (together, the “Group”) have been prepared in accordance with accounting principles and practices generally accepted in Japan and the regulations under the Securities and Exchange Law of Japan. The accounting principles and practices adopted by the consolidated subsidiaries outside Japan in their respective countries basically conform to those adopted by the Company. In presenting the accompanying consolidated financial statements, certain items have been reclassified for the convenience of readers outside Japan. The differences between the accounting principles and practices adopted by the Group and those prescribed by International Accounting Standards (“IAS”) are set forth in Note 2. The consolidated financial statements include the accounts of the Company and, with minor exceptions, those of  its majority-owned subsidiaries. Acquisitions of companies are accounted for by the purchase method. Goodwill represents the excess of the acquisition cost over the fair value of the net assets of the acquired companies, and is being amortized on a straight- line basis over periods not exceeding 20 years. Investments in affiliates, with minor exceptions, are accounted for by the equity method. For the purpose of the statement of cash flows, the Group considers all short-term, highly liquid instruments with  a maturity of three months or less to be cash equivalents. Current receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates in effect at the respective balance sheet dates. Noncurrent monetary items denominated in foreign currencies are translated into Japanese yen at their historical exchange rates.  The asset and liability accounts of the consolidated subsidiaries outside Japan are translated into Japanese yen at  the applicable fiscal year-end rates. Income and expense accounts are translated at the average rate during the year. The resulting translation adjustments are recorded in assets as cumulative translation adjustments in conformity with accounting principles generally accepted in Japan. Revenues from sales of communications products and computer systems are generally recognized upon acceptance by the customers, while revenues from sales of personal computers, peripherals, other equipment and electronic devices are recognized when the products are shipped. Marketable securities included in short-term investments, and investments and long-term loans are stated at the lower of cost or market, cost being determined by the moving average method.  The allowance for doubtful accounts is provided at an amount deemed sufficient to cover estimated future losses. Finished goods are mainly stated at cost determined by the moving average method. Work in process is mainly stated at cost determined by the specific identification method and the average cost method. Raw materials are mainly stated at cost determined by the moving average method and the most recent purchase price method. h) Inventories  (g) Allowance for doubtful accounts  (f) Marketable securities  (e) Revenue recognition  (d) Translation of foreign currency accounts  (c) Cash equivalents (b) Principles of consolidation  29