HSBC 2009 Annual Report Download - page 382

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Note 2
380
(r) Finance and operating leases
Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of
assets, but not necessarily legal title, are classified as finance leases. When HSBC is a lessor under finance leases
the amounts due under the leases, after deduction of unearned charges, are included in ‘Loans and advances to
banks’ or ‘Loans and advances to customers’ as appropriate. The finance income receivable is recognised in
‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net investment
in the leases.
When HSBC is a lessee under finance leases, the leased assets are capitalised and included in ‘Property, plant
and equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities’. A finance lease and
its corresponding liability are recognised initially at the fair value of the asset or, if lower, the present value of
the minimum lease payments. Finance charges payable are recognised in ‘Net interest income’ over the period of
the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining
balance of the liability.
All other leases are classified as operating leases. When acting as lessor, HSBC includes the assets subject to
operating leases in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are
recognised to the extent that residual values are not fully recoverable and the carrying value of the assets is
thereby impaired. When HSBC is the lessee, leased assets are not recognised on the balance sheet. Rentals
payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the
leases and are included in ‘General and administrative expenses’ and ‘Other operating income’, respectively.
(s) Income tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to
the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it
is recognised in the same statement in which the related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year, calculated using tax rates enacted
or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of previous
years. Current tax assets and liabilities are offset when HSBC intends to settle on a net basis and the legal right
to offset exists.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the
balance sheet and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that future taxable profits will be available against which deductible temporary differences can
be utilised.
Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised
or the liabilities settled, based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
Deferred tax assets and liabilities are offset when they arise in the same tax reporting group and relate to income
taxes levied by the same taxation authority, and when HSBC has a legal right to offset.
Deferred tax relating to actuarial gains and losses on post-employment benefits is recognised in other
comprehensive income. Deferred tax relating to share-based payment transactions is recognised directly in
equity to the extent that the amount of the estimated future tax deduction exceeds the amount of the related
cumulative remuneration expense. Deferred tax relating to fair value re-measurements of available-for-sale
investments and cash flow hedging instruments which are charged or credited directly to other comprehensive
income, is also charged or credited to other comprehensive income and is subsequently recognised in the income
statement when the deferred fair value gain or loss is recognised in the income statement.
(t) Pension and other post-employment benefits
HSBC operates a number of pension and other post-employment benefit plans throughout the world. These plans
include both defined benefit and defined contribution plans and various other post-employment benefits such as
post-employment healthcare.
Payments to defined contribution plans and state-managed retirement benefit plans, where HSBC’s obligations
under the plans are equivalent to a defined contribution plan, are charged as an expense as they fall due.