TOKYO CENTURY CORPORATION FINANCIAL
STATEMENTS 2023
For the year ended March 31, 2023
Tokyo Century Corporation
CONTENTS
Independent Auditor's Report | 1 |
Consolidated Balance Sheet | 7 |
Consolidated Statement of Income | 9 |
Consolidated Statement of Comprehensive Income | 10 |
Consolidated Statement of Changes in Equity | 11 |
Consolidated Statement of Cash Flows | 13 |
Notes to Consolidated Financial Statements | 15 |
TOKYO CENTURY CORPORATION |Financial Statements 2023 | 1 |
TOKYO CENTURY CORPORATION |Financial Statements 2023 | 2 |
Impairment of leased assets related to operating leases for aircraft held by Aviation Capital Group LLC | |
Key Audit Matter Description | How the Key Audit Matter Was |
Addressed in the Audit | |
On the consolidated balance sheet as of March 31, 2023, the Group | Our audit procedures performed in relation to the |
recorded ¥2,229,830 million of leased assets as tangible fixed assets, | key audit matter included the following, among |
which included ¥1,552,275 million of leased assets related to | others: |
operating leases for aircraft. | |
We instructed our Subsidiary's audit team to | |
The prolongation of the COVID 19 pandemic, Russian invasion of | perform the audit of the Subsidiary and we |
Ukraine and the economic sanctions imposed on Russia by the | performed the following procedures, among |
United States, the European Union and other countries have had an | others: |
impact on the aircraft leasing business. | |
• We tested the design and operating | |
The accounting estimates for the impairment of the leased assets are | effectiveness of the Subsidiary's internal |
stated in the Notes to the consolidated financial statements, | controls over management's estimates of the |
"Significant Accounting Estimates: (1) Impairment of leased assets." | probability of securing potential secondary |
The amount of impairment losses on leased assets for aircraft for the | leasing contracts and projection of future cash |
year ended March 31, 2023, was ¥4,740 million in costs and ¥45,839 | flows related to aircraft held for leasing |
million in Russian related losses. | purposes that were returned due to the |
cancellations of lease contracts. | |
Most of the leased assets related to operating leases for aircraft are | |
held by Aviation Capital Group LLC (the "Subsidiary"), a consolidated | • We made inquiries of management regarding |
subsidiary of Tokyo Century Corporation (the "Company"). The | their estimates over the possibility of |
Subsidiary assesses the leased assets for impairment in accordance | secondary leasing, lease income, disposal |
with accounting principles generally accepted in the United States of | value, etc., taking into consideration of future |
America, identifying individual aircraft as a cash generating unit. If an | market conditions which have been |
indication of impairment is identified, the Subsidiary determines | incorporated as assumptions for estimating |
whether an impairment loss should be recognized. The indications of | the future cash flows. |
impairment include cancellations of lease contracts due to credit | |
instability of the lessees and other factors. | • We evaluated the accuracy of management's |
estimates, relating to the probability of securing | |
When determining whether or not to recognize impairment losses on | potential secondary leasing and projection of |
aircraft held for leasing purposes that have been returned due to the | future leasing cash flows from aircraft held for |
cancellations of lease contracts, etc. and will not be reclassified as | leasing purposes that were returned due to the |
held for sale, the Subsidiary utilizes undiscounted future cash flows | cancellations of lease contracts, by comparing |
assuming that the aircraft will be secondarily leased in the future. In | estimates made by management with actual |
order to maintain the reasonableness of the estimates of future cash | results in the past fiscal years. |
flows, the Subsidiary establishes and operates internal controls over | |
the review and approval of estimates. Furthermore, as stated in | • We tested the reasonableness of the estimates |
"Significant Accounting Estimates (1) Impairment of leased assets" in | of the probability of securing potential |
the Notes to the consolidated financial statements, the future cash | secondary leasing and projection of future cash |
flows are estimated based on the possibility of secondary leasing, | flows from aircraft held for leasing purposes |
lease income, disposal value, etc. taking into consideration of future | that were returned due to the cancellations of |
market conditions. | lease contracts, by inquiry of management and |
testing the reasonableness by comparing these | |
If leased assets are determined to be impaired, impairment losses are | estimates with available external data. |
measured based on the estimated sales price or the discounted | |
future cash flows. | |
TOKYO CENTURY CORPORATION |Financial Statements 2023 | 3 |
The Subsidiary has estimated future cash flows from aircraft held for leasing purposes that have been returned due to the cancellations of lease contracts, etc., based on the possibility of secondary leasing, lease income, disposal value, etc. taking into consideration of future market conditions as described above. These estimates of future cash flows include significant judgment by management, as they include the probability of securing secondary leasing contracts and the projection of future leasing cash flows from the leasing of returned aircraft.
In consideration of the above, in connection with leased assets related to the leasing of aircraft held by the Subsidiary, we determined the reasonableness of the estimates of future cash flows used to determine whether impairment losses should be recognized and measure impairment losses on aircraft held for leasing purposes that were returned due to the cancellations of lease contracts as well as the reasonableness of certain assumptions used to determine whether impairment losses should be recognized as a key audit matter.
Reasonableness of the classification of loans between (1) general loans and (2) claims provable in bankruptcy or
rehabilitation in the assessment of provable losses from bad debts
Key Audit Matter Description
The Group engages in leasing, installment sales and loan transactions, among others. There is a risk of an increase in bad debt expenses should there be an increase in the number of non performing loans due to future economic trends or the deterioration of the credit status of debtors.
The Group records provable losses from bad debts as an allowance for doubtful accounts or write offs such provable losses directly from the amount of loans in preparation for losses of loans to be incurred due to the situations described above. As of March 31, 2023, the Group recorded ¥14,396 million of allowances for doubtful accounts. The loans uncollectible of ¥476 million were directly written off from claims provable in bankruptcy or rehabilitation. The amount of allowance for doubtful accounts held by the Company was ¥8,535 million (before elimination of intra group transactions), and the amounts of loans uncollectible of ¥476 million were directly written off from claims provable in bankruptcy or rehabilitation (before elimination of intra group transactions).
As stated in the Notes to the consolidated financial statements, "Significant Accounting Estimates: (3) Allowances for doubtful accounts," the Group classifies loans into the following categories based on credit information, such as the counterparty's business condition and payment status, in accordance with its internal management rules:
- General loans, and
- Claims provable in bankruptcy or rehabilitation.
How the Key Audit Matter Was
Addressed in the Audit
Our audit procedures performed in relation to the key audit matter included the following, among others:
- We evaluated whether the internal management rules that the Group applies to determine the classification of loans as general loans or claims provable in bankruptcy or rehabilitation, comply with accounting principles generally accepted in Japan.
- In accordance with internal management rules, we evaluated the design and operating effectiveness of the internal controls over the review and approval within the Company regarding loan classification based on credit information, such as payment delinquency information, including Information Technology automated controls over the accuracy and completeness of such payment delinquency information.
- We tested the reasonableness of the loan classification made by the Group through inquiries of management, inspection of credit information, such as payment delinquency information used in determining loan classification.
TOKYO CENTURY CORPORATION |Financial Statements 2023 | 4 |
To estimate provable losses from bad debts, the Group uses the loan loss ratio for general loans and assesses collectability on an individual loan basis for claims provable in bankruptcy or rehabilitation.
The Group establishes internal management rules to determine the classification of loans, and designs and implements internal controls over the review and approval of loan classification.
The Group classifies loans into the categories of (1) general loans and (2) claims provable in bankruptcy or rehabilitation, based on credit information, such as the counterparty's business condition and payment status, in accordance with its internal management rules. The reasonableness of the classification of loans between (1) general loans and (2) claims provable in bankruptcy or rehabilitation in the assessment of provable losses from bad debts held by the Company is significant to the consolidated balance sheet. This is due to the following reasons: (1) There is a large difference in the allowance rates used for general loans and for claims provable in bankruptcy or rehabilitation; (2) The amount of loans held by the Company is quantitatively material.
In consideration of the above, we determined the reasonableness of the classification of loans between (1) general loans and (2) claims provable in bankruptcy or rehabilitation in the assessment of provable losses from bad debts for claims held by the Company as a key audit matter.
Other Information
Other information comprises the information included in the Group's disclosure documents accompanying the audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.
We determined that no such information existed and therefore, we did not perform any work thereon.
Responsibilities of Management and Audit & Supervisory Board Members and the Audit & Supervisory Board for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally accepted in Japan and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the Directors' execution of duties relating to the design and operating effectiveness of the controls over the Group's financial reporting process.
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Tokyo Century Corporation published this content on 06 September 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 September 2023 02:19:06 UTC.
