HSBC 2001 Annual Report Download - page 264

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
262
(h) Taxation
The components of the net deferred tax position calculated under SFAS 109 ‘Accounting for Income Taxes’ , are
as follows:
2001 2000
US$m US$m
Deferred tax liabilities:
Leasing transactions............................................................................................ 1,041 995
Capital allowances .............................................................................................. 79 38
Provision for additional UK tax on overseas dividends...................................... 24 120
Reconciling items ............................................................................................... 844 430
Other ................................................................................................................... 448 471
Total deferred tax liabilities ................................................................................ 2,436 2,054
Deferred tax assets:
Provisions for bad and doubtful debts................................................................. 743 902
Tax losses ........................................................................................................... 1,014 578
Reconciling items ............................................................................................... 901 577
Other ................................................................................................................... 892 652
Total deferred tax assets before valuation allowance.......................................... 3,550 2,709
Less: valuation allowance................................................................................... (920) (682)
Deferred tax assets less valuation allowance ...................................................... 2,630 2,027
Net deferred tax (asset)/liability under SFAS No. 109 ....................................... (194) 27
Included within ‘other assets’ under US GAAP ................................................. (1,509) (678)
Included within ‘deferred tax liabilities’ under US GAAP................................. 1,315 705
The valuation allowance against deferred tax assets principally relates to trading and capital losses carried
forward which have not been recognised due to uncertainty as to when and if they will be utilised.
(i) Loans and advances
SFAS 114 ‘Accounting by Creditors for Impairment of a Loan’ as amended by SFAS 118 ‘Accounting by
Creditors for Impairment of a Loan – Income Recognition and Disclosures’ is effective for accounting periods
beginning after 15 December 1994. SFAS 114 addresses accounting by creditors for impairment of a loan by
specifying how allowances for credit losses for certain loans should be determined. A loan is impaired when it is
probable that the creditor will be unable to collect all amounts in accordance with the contractual terms of the
loan agreement. Impairment is measured based on the present value of expected future cash flows discounted at
the loan’ s effective rate or, as an expedient, at the fair value of the loan’ s collateral. Leases, smaller-balance
homogeneous loans and debt securities are excluded from the scope of SFAS 114.
At 31 December 2001, HSBC estimated that the difference between the carrying value of its loan portfolio on
the basis of SFAS 114 and its value in HSBC’ s UK GAAP financial statements was such that no adjustment to
net income or shareholders’ equity was required.
Impaired loans are those reported by HSBC as non-performing; the value of such loans at 31 December 2001
amounted to US$9,658 million (2000: US$10,395 million). Of this total, loans which were included within the
scope of SFAS 114 and for which a provision has been established amounted to US$8,085 million (2000:
US$9,180 million). The impairment reserve in respect of these loans estimated in accordance with the
provisions of SFAS 114 was US$4,441 million (2000: US$5,108 million). During the year ended 31 December
2001, impaired loans, including those excluded from SFAS 114, averaged US$9,617 million (2000: US$9,099
million) and interest income recognised on these loans was US$261 million (2000: US$324 million; 1999:
US$328 million).