Trading house Itochu Corp. said Friday it will book a 125 billion yen charge to write down the value of fixed assets for fiscal 2003, joining a growing list of companies that have front-loaded an accounting rule change scheduled for fiscal 2005.
As a result of the write-down, Itochu said it is likely to report 32 billion yen in net losses for fiscal 2003, from a profit of 45 billion yen projected earlier.
But the company stressed the move is a positive one, showing it is financially strong enough to adopt the measure in advance of the accounting rule change.
The new rule will force businesses to book valuation losses on their office buildings, production facilities and all other fixed assets when their real value has fallen significantly from their book value.
The real value is calculated from the projected cash flows generated by the properties. Businesses that own manufacturing plants that are running far below their capacity and buildings with low occupancy rates will be forced to book large write-down losses.
Itochu slashed the book value of its buildings to 45 billion yen from 73 billion yen after calculating their real value. It also cut the total value of its seven golf courses to 15 billion yen from 40 billion yen.
Similar steps already have been announced by other firms.
Nippon Oil Corp. said it will book a 170 billion yen charge to write down valuation losses on its fixed assets, with 72 billion yen stemming from its gas stations, for its fiscal 2003 earnings results.
Nippon Steel Corp. cut its profit forecast by half early in March after it decided to incur 60 billion yen in losses to reflect the declining value of its fixed assets.
The fact that an increasing number of firms are introducing the new accounting rule earlier than required might be another indicator of the nation’s improving business condition.
The Bank of Japan’s “tankan” business sentiment survey released Thursday is another example.
Many companies have forecast strong earnings for the year that ended in March, thanks to brisk export-led demand and enhanced efficiency brought about by painful restructuring.
With the stock markets finishing higher for the fiscal year, many firms will likely avoid a repeat of last year, when their profits were scuttled by stock investment losses.