At its 82nd Annual General Meeting of Shareholders, Nintendo was asked about its significant increase in expenditure relating to raw materials and parts – a discovery that has sparked speculation about an unannounced Nintendo Switch model or successor entering production.
The company has somewhat unsurprisingly remained tight-lipped about its plans, explaining that the chance came in relation to both “a change in accounting treatment” and needing to stockpile its resources in response to the ongoing semiconductor shortages.
“There are two main reasons. Due to the strain in terms of supply and demand for semiconductor components, we need to prepare for production by securing inventory of raw materials and parts earlier than before. The first reason for the increase is that we are holding more inventory of raw materials than before because of this situation,” Nintendo president Shuntaro Furukawa explained in response.
“The second reason is that there was a change in accounting treatment due to the application of the new accounting standard for revenue recognition, the impact of which was an increase of 36.5 billion yen. In the process of manufacturing our hardware, Nintendo sells procured parts to assembly subcontractors for a fee, and re-purchases the product once assembly is complete. Under the new accounting standard for revenue recognition, when selling components to subcontractors for assembly, it is determined that there essentially is an obligation to re-purchase the completed end product. Therefore, we can no longer recognize a reduction of inventories (on the balance sheet) when the parts are consigned, and must instead recognize a debt related to the payment transaction
as an obligation to re-purchase the parts from the subcontractor. This change in accounting rules resulted in an increase in inventories on the balance sheet.”