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22. Business Combination Transaction under common control (1) Outline of business combination 1. Names of companies involved and description of business activities Name of combining company: Toagosei Co., Ltd. Description of business: manufacture and sale of commodity chemicals, acrylic products, and specialty chemicals Name of company subject to combination: Tsurumi Soda Co., Ltd. Description of business: manufacture of inorganic chemical products Name of company subject to combination: Nihon Junyaku Co., Ltd. Description of business: manufacture of acrylic products 2. Date of business combination January 1, 2013 3. Legal form of business combination Absorption-type merger with Toagosei Co., Ltd. as the surviving company and Tsurumi Soda Co., Ltd. and Nihon Junyaku Co., Ltd. as the companies to be absorbed and merged. 4. Name of company after business combination Toagosei Co., Ltd. 5. Reason for business combination Toagosei Co., Ltd. absorbed and merged with its wholly owned subsidiaries Tsurumi Soda Co., Ltd. and Nihon Junyaku Co., Ltd. The purpose of this business combination is to further consolidate management resources within the Group and to accelerate the pace of decision-making. (2) Overview of accounting treatment The business combination was undertaken and recorded for accounting purposes as a transaction under common control based on the “Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement No. 21, issued on December 26, 2008) and the “Guidance for Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10, issued on December 26, 2008). 23. Investment and Rental Property Disclosures about the fair values of investment and rental property have not been presented as the total amount of the property is immaterial. 24. Capital Surplus and Retained Earnings The Corporation Law of Japan provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve or the legal reserve until the sum of the capital reserve and the legal reserve equals 25% of the capital 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. The legal reserve amounted to \3,990 million (U.S.$37,859 thousand) and \3,990 million as of December 31, 2013 and 2012, respectively. 25. Research and Development Costs Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended December 31, 2013 and 2012 were \3,767 million (U.S.$35,752 thousand) and \4,360 million, respectively. 26. Leases The following amounts represent the acquisition cost, accumulated depreciation and net book value of finance lease transactions entered into on or before December 31, 2008, except for the lease agreements which stipulate the transfer of ownership of the leased assets to the lessee, as of December 31, 2013 and 2012: Millions of yen Thousands of U.S. dollars 2013 2012 2013 Acquisition cost: Tools, furniture and fixtures............. \12 \172 $117 \12 \172 $117 Accumulated depreciation: Tools, furniture and fixtures............. \ 9 \165 $ 90 \ 9 \165 $ 90 Net book value: Tools, furniture and fixtures............. \ 2 \ 6 $ 26 \ 2 \ 6 $ 26 Lease payments relating to finance lease transactions accounted for as operating leases amounted to \3 million (U.S.$35 thousand) and \19 million, respectively, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the respective lease terms, for the years ended December 31, 2013 and 2012. Future minimum lease payments (including the interest portion thereon) subsequent to December 31, 2013 for non-cancelable operating leases and finance leases accounted for as operating leases were summarized as follows: Millions of yen Thousands of U.S. dollars Years ending December 31, Operating leases Finance leases Operating leases Finance leases 2014............................................ \32 \1 $305 $15 2015 and thereafter.......... 14 1 133 11 Total............................................ \46 \2 $439 $26 27. Treasury Stock Number of shares of treasury stock for the years ended December 31, 2013 and 2012 were as follows: Thousands of shares Year ended December 31, 2013 January 1, 2013 Increase during the year Decrease during the year December 31, 2013 Treasury stock: Common stock................. 368 149 15 501 Total............................................... 368 149 15 501 Thousands of shares Year ended December 31, 2012 January 1, 2012 Increase during the year Decrease during the year December 31, 2012 Treasury stock: Common stock................. 317 67 16 368 Total............................................... 317 67 16 368 Toagosei Co., Ltd. 45