HSBC 2013 Annual Report Download - page 77

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2 Summary of significant accounting policies (continued)
o Intangible assets
The bank’s intangible assets include both purchased and internally generated software. The cost of internally
generated software comprises all directly attributable costs necessary to create, produce and prepare the software
to be capable of operating in the manner intended by management. Costs incurred in the ongoing maintenance of
software are expensed immediately as incurred.
Intangible assets are subject to impairment review if there are events or changes in circumstances that indicate that
the carrying amount may not be recoverable. Intangible assets that have a finite useful life are stated at cost less
amortization and accumulated impairment losses and are amortized over their estimated useful lives. Intangible
assets with finite useful lives are amortized, generally on a straight-line basis, over their useful lives as follows:
– internally generated software between 3 and 5 years
– purchased software between 3 and 5 years.
p Property, plant and equipment
Land and buildings are stated at historical cost or fair value at the Parent’s date of transition to IFRS (‘deemed
cost’), less any impairment losses and depreciation calculated to write off the assets over their estimated useful
lives as follows:
– land is not depreciated;
– buildings are depreciated over their estimated useful lives (between 20 and 40 years); and
– leasehold improvements are depreciated over the shorter of their lease term or over their estimated remaining
useful lives.
Equipment, fixtures and fittings (including equipment on operating leases where the bank is the lessor) are stated
at cost less any impairment losses and depreciation, is calculated on a straight-line basis to write off the assets over
their useful lives, which are generally between 3 and 5 years.
Property, plant and equipment is subject to an impairment review if there are events or changes in circumstances
which indicate that the carrying amount may not be recoverable.
Gains and losses on disposal are recorded in ‘Other operating income’ in the year of disposal.
Investment properties are included in the statement of financial position at fair value with changes therein recognized
in the income statement in the period of change. Fair values are determined by independent professional valuators
who apply recognized valuation techniques.
q 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 the bank 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 recognized 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.
All other leases are classified as operating leases. When acting as lessor, the bank includes the assets subject to
operating leases in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are
recognized to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby
impaired. When the bank is the lessee, leased assets are not recognized on the statement of financial position. 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.