HSBC 2009 Annual Report Download - page 380

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 2
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recognised in ‘Interest expense’. All other gains and losses on these derivatives are reported in ‘Net income from
financial instruments designated at fair value’.
(m) Derecognition of financial assets and liabilities
Financial assets are derecognised when the contractual right to receive cash flows from the assets has expired; or
when HSBC has transferred its contractual right to receive the cash flows of the financial assets, and either:
– substantially all the risks and rewards of ownership have been transferred; or
– HSBC has neither retained nor transferred substantially all the risks and rewards, but has not retained
control.
Financial liabilities are derecognised when they are extinguished, that is when the obligation is discharged, is
cancelled, or expires.
(n) Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is
a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
(o) Subsidiaries, associates and joint ventures
HSBC classifies investments in entities which it controls as subsidiaries. Where HSBC is a party to a contractual
arrangement whereby, together with one or more parties, it undertakes an economic activity that is subject to
joint control, HSBC classifies its interest in the venture as a joint venture. HSBC classifies investments in
entities over which it has significant influence, and that are neither subsidiaries nor joint ventures, as associates.
For the purpose of determining this classification, control is considered to be the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities.
HSBC Holdings’ investments in subsidiaries are stated at cost less any impairment losses. An impairment loss
recognised in prior periods shall be reversed through the income statement if, and only if, there has been a
change in the estimates used to determine the investment in subsidiary’s recoverable amount since the last
impairment loss was recognised.
Investments in associates and interests in joint ventures are recognised using the equity method. Under this
method, such investments are initially stated at cost, including attributable goodwill, and are adjusted thereafter
for the post-acquisition change in HSBC’s share of net assets.
Profits on transactions between HSBC and its associates and joint ventures are eliminated to the extent of
HSBC’s interest in the respective associates or joint ventures. Losses are also eliminated to the extent of HSBC’s
interest in the associates or joint ventures unless the transaction provides evidence of an impairment of the asset
transferred.
(p) Goodwill and intangible assets
(i) Goodwill arises on business combinations, including the acquisition of subsidiaries, and on the acquisition
of interests in joint ventures and associates, when the cost of acquisition exceeds the fair value of HSBC’s
share of the identifiable assets, liabilities and contingent liabilities acquired. If HSBC’s interest in the fair
value of the identifiable assets, liabilities and contingent liabilities of an acquired business is greater than the
cost of acquisition, the excess is recognised immediately in the income statement.
Intangible assets are recognised separately from goodwill when they are separable or arise from contractual
or other legal rights, and their fair value can be measured reliably.
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at
the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is
performed at least annually, and whenever there is an indication that the cash-generating unit may be
impaired, by comparing the recoverable amount from a cash-generating unit with the carrying amount of its
net assets, including attributable goodwill. The recoverable amount of an asset is the higher of its fair value
less cost to sell, and its value in use. Value in use is the present value of the expected future cash flows from