Tokyo Century : Financial Statements for the year ended March 31, 2021

FINANCIAL

STATEMENTS 2021

For the year ended March 31, 2021

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 2021	1

TOKYO CENTURY CORPORATION |Financial Statements 2021	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
In the consolidated balance sheet as of March 31, 2021, the	Our audit procedures performed in
Group recorded ¥1,879,266 million of leased assets as	relation to the key audit matter included
tangible fixed assets, which included ¥1,203,017 million of	the following, among others:
leased assets related to operating leases for aircrafts.	We instructed our Subsidiary's audit
The prolongation of the COVID-19 pandemic has had an
team to perform the audit of the
impact on the air transportation industry. This has caused	Subsidiary and we performed the
events such as requests for short-term deferral of payments	procedures included the following,
and cancellation of lease contracts from the lessees of	among others:
aircraft leases due to credit instability of the lessees and	• We tested the design and operating
other factors.
The accounting estimates for the impairment of the leased	effectiveness of the Subsidiary's
internal controls over management's
property are stated in Notes to the consolidated financial	estimates of the probability of
statements, "Significant accounting estimates: (1) Impairment	securing potential secondary-leasing
of leased assets." The amount of impairment losses on	contracts and projection of future
leased assets for aircraft leases for the year ended March 31,	cash flows related to aircraft held for
2021, was ¥9,940 million. Most of the leased assets related	leasing purposes that were returned
to operating leases for aircraft are held by Aviation Capital	due to the cancellation of lease
Group LLC (the "Subsidiary"), a consolidated subsidiary of	contracts.
Tokyo Century Corporation (the "Company"). The Subsidiary	• Regarding the reasonableness of
assesses the assets for impairment in accordance with
accounting principles generally accepted in the United States	certain assumptions on the impact of
of America, identifying individual aircraft as a cash generating	the spread of the COVID-19
unit. If an indication of impairment is identified, the Subsidiary	pandemic, we made inquiries of
determines whether an impairment loss should be	management regarding their
recognized. Indications of impairment include cancellations of	estimates concerning the pandemic's
lease contracts due to credit instability of the lessees and	impact and the timing of society's
other factors.	return to normal, as well as the
When determining whether or not to recognize impairment	outlook for the aviation market's
recovery, and tested the
losses on aircraft held for leasing purposes that have been	reasonableness of these estimates
returned due to the cancellation of lease contracts and will	by comparison with available external
not be reclassified as held for sale, the Subsidiary utilizes	data.
undiscounted future cash flows assuming that the aircraft will	• We evaluated the accuracy of
be secondarily-leased in the future. In order to maintain the
reasonableness of the estimates of future cash flows, the	management's estimates, relating to
Subsidiary establishes internal controls over the review and	the probability of securing potential
approval of estimates. Furthermore, as stated in "Additional	secondary-leasing and projection of
information" in Notes to the consolidated financial statements,	future leasing cash flows from aircraft
the future cash flows are estimated under the assumption	held for leasing purposes that were
that the impact of the spread of COVID-19 on the economic	returned due to the cancellation of
activity and consumption will gradually dissipate, although	lease contracts, by comparing
there will be regional differences depending on the progress	estimates made by management with
of vaccination programs.	actual results in the past fiscal years.
If a leased asset is determined to be impaired, impairment	• We tested the reasonableness of the
losses are measured based on the estimated sales price or	estimates of the probability of
the discounted future cash flows.	securing potential secondary-leasing
The Subsidiary has estimated future cash flows from aircraft	and projection of future cash flows
from aircraft held for leasing
held for leasing purposes that have been returned due to the	purposes that were returned due to
cancellation of lease contracts, based on certain assumptions	the cancellation of lease contracts, by
on the impact of the spread of COVID-19 as described	inquiry of management and testing
above. This estimates of future cash flows includes significant	the reasonableness by comparison
judgment by management, as it includes the probability of	these estimates with available
securing secondary-leasing contracts and the projection of	external data.
future leasing cash flow from the leasing of returned aircraft.

TOKYO CENTURY CORPORATION |Financial Statements 2021	3

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 in aircraft held for leasing purposes that were returned due to the cancellation 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, claims provable in rehabilitation and other in the assessment of provable losses from bad debts

Key Audit Matter Description	How the Key Audit Matter Was
Addressed in the Audit
The Group engages in leasing, installment sales and loans	Our audit procedures performed in
transactions. There is a risk of an increase in bad debt	relation to the key audit matter included
expenses should there be an increase in the number of	the following, among others:
non-performing loans due to future economic trends or the	• We evaluated whether the internal
deterioration of the credit status of debtors.
The COVID-19 pandemic has had a significant impact on the	management rules that the Group
applies to determine the classification
global economy as a whole and has been a factor behind	of loans as general loans or claims
increasing risks for the Group's business. There is a	provable in bankruptcy, claims
provability of an increase in new non-performing loans due to	provable in rehabilitation and other,
the deterioration of corporate credit status, particularly in	comply with accounting principles
certain industries affected by the prolongation of the	generally accepted in Japan.
COVID-19 pandemic, such as the transportation industry.	• In accordance with internal
The Group records provable losses from bad debts as an
management rules, we evaluated the
allowance for bad debts or write-offs such provable losses	design and operating effectiveness of
directly from the amount of loans in preparation for losses of	the internal controls over the review
loans to be incurred due to the situations described above.	and approval within the Company of
As of March 31, 2021, the Group recorded ¥12,105 million of	loan classification based on credit
allowances for bad debts. The loans uncollectible of	information, such as payment
¥8,231 million were directly written off from claims provable in	delinquency information, including
bankruptcy or rehabilitation. The amount of allowance for bad	Information Technology automated
debts held by the Company was ¥4,509 million (before	controls over the accuracy and
elimination of intra-group transactions), and the amounts of	completeness of such payment
loans uncollectible of ¥8,231 million were directly written off	delinquency information.
from claims provable in bankruptcy or rehabilitation (before	• We tested the reasonableness of the
elimination of intra-group transactions).
As stated in Notes to the consolidated financial statements,	loans classification made by the
Group through inquiries of
"Significant accounting estimates: (3) Allowances for bad	management, inspection of credit
debts," the Group classifies loans into the following	information, such as payment
categories based on credit information, such as the	delinquency information used in
counterparty's business condition and payment status, in	determining loans classification,
accordance with its internal management rules:	comparison with available external
1. General loans, and	data to assess the consistency.
2. Claims provable in bankruptcy, claims provable in
rehabilitation and other.

TOKYO CENTURY CORPORATION |Financial Statements 2021	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, claims provable in rehabilitation and other.

The Group establishes internal management rules to determine the classification of loans and designs and implements internal controls over the review and approval of loans classification. Furthermore, regarding the impact of the spread of COVID-19 pandemic, as stated in "Additional information" in Notes to the consolidated financial statements, estimates are made under the assumption that the impact of the spread of COVID-19 on the economic activity and consumption will gradually dissipate, although there will be regional differences depending on the progress of vaccination program.

The Group classifies loans into the categories of (1) general loans and (2) claims provable in bankruptcy, claims provable in rehabilitation and other, 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, claims provable in rehabilitation and other 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) For loans where counterparties have requested for payment deferrals or rescheduling due to the impact of the COVID-19 pandemic, the classification of these loans is determined based on certain assumptions related to the impact of the spread of pandemic; (2) There is a large difference in the allowance rate used for general loans and for claims provable in bankruptcy, claims provable in rehabilitation and other; (3) 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, claims provable in rehabilitation and other in the assessment of provable losses from bad debts for claims held by the Company as a key audit matter.

• Regarding the reasonableness of certain assumptions made to evaluate the impact of the COVID-19 pandemic, we inquired of management regarding their estimates concerning the pandemic's impact and the timing of society's return to normal and tested the reasonableness of these estimates by comparison with available external data.
• For loans that are quantitatively material and that were requested for payment deferrals or rescheduling due to the impact of the COVID-19 pandemic, we inquired of management regarding the debtors' most recent financial condition and cash flow status, such as delinquency or requests for payment deferrals. We also read information that was used to determine the loans classification, such as debtors' most recent financial information and credit information, such as payment delinquency and payment deferrals. We tested the reasonableness of this information by comparison with available external data.

Other Matter

The consolidated financial statements of the Group for the year ended March 31, 2020, were audited by another auditor who expressed an unmodified opinion on those statements on June 22, 2020.

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.