**1. Outline on Revision of the Depreciation Method**

(1) With regard to depreciable assets acquired on or after April 1, 2007, the concept of residual value will be abolished such that after the useful life has expired, depreciable assets can be depreciated until their book value is JPY 1.

(2) An accelerated depreciation rule, the so called “250% declining balance method” is introduced (for details, please refer to 2.(2) below).

(3) With regard to depreciable assets acquired on or before March 31, 2007, the residual value of 5% can be depreciable using a straight line method over 5 years starting from the next fiscal year following the fiscal year in which the available limit for depreciation applied to the assets (being 95% of the acquisition cost) is depreciated (“5 Years Average Depreciation”).

(4) The valuation method is maintained with regard to depreciable assets for fixed asset tax purposes.

**2. Calculation Method and Example**

The calculation method of the depreciation limit for corporation tax purposes has been amended as described below by the 2007 tax reform. We set out the calculation method under the 2007 tax reform and also the depreciation limit and residual book value which have been computed under the straight line method prior to the tax reform (“Old Straight Line Method”), the declining balance method prior to tax reform (“Old Declining Balance Method”), the straight line method after the tax reform (“New Straight Line Method”) and the declining balance method after the tax reform (“New Declining Balance Method”).

**(1) Straight Line Method**

The Old Straight Line Method is calculated by taking the acquisition price of an asset less its residual value (10% of the acquisition price) and multiplied by the depreciation rate. The New Straight Line Method will be calculated by multiplying the acquisition price by the depreciation rate, now that the residual value has been abolished.

**(2) Declining Balance Method**

The Old Declining Balance Method is calculated by multiplying the book value as of the beginning of the fiscal year by a predetermined depreciation rate. The New Declining Balance Method will be calculated by multiplying the book value as of the beginning of the fiscal year by the depreciation rate, which is 2.5 times the depreciation rate under the straight line method. If the amount calculated using the New Declining Balance Method is less than the “amount calculated by dividing the book value as of the beginning of the fiscal year by the remaining years (useful life less the elapsed year)”, then the calculation method will be changed from the declining balance method to the straight line method when calculating the depreciation limit.

It is decided on a fiscal year basis whether the “amount calculated by multiplying the book value as of the beginning of the fiscal year by the depreciation rate which is 2.5 times the depreciation rate under the straight line method” is lower than the “amount calculated by dividing the book value as of the beginning of the fiscal year by the remaining years”. A change of method from the declining balance method to the straight line method in the middle of a fiscal year is not permitted.

**(3) Example on computation** of depreciation limit and residual book value (assuming the acquisition price is JPY 1,000 and useful life is 10 years）

**3. Timing of Application of 5 Years Average Depreciation on the Existing Assets**

For depreciable assets acquired on or before March 31, 2007, the residual value of 5% will be depreciable over 5 years starting from the fiscal year after the fiscal year in which the available limit for depreciation (95% of the acquisition cost) is depreciated. The decision whether the available limit has been depreciated will be made on a fiscal year basis. Therefore, 5 Years average depreciation will apply from the next fiscal year when the available limit is depreciated.

Mapping to above requirement changes, we developed the **Japanese 250% Declining Balance Depreciation Method** and **Japanese Straight Line Extension Depreciation Method** and their corresponding matched functions like what-if analysis etc. in Oracle E-Business Suite and will migrate to Fusion Application.