RBS 2005 Annual Report Download - page 213

section
03
Financial
statements
211
Notes on the accounts
Annual Report and Accounts 2005
UK GAAP
(g) Associates and joint ventures
An associate is an entity in which the reporting entity holds a
participating interest and over whose operating and financial
policies it exercises a significant influence in practice. A joint
venture is an entity in which the reporting entity in practice
shares control with other investors. Associates are accounted
for using the equity method and joint ventures using the gross
equity method.
(h) Property, plant and equipment
The Group’s freehold and long leasehold property occupied for
its own use is recorded at valuation on the basis of existing
use value.
(i) Investment property
Investment property is revalued annually to open market value
and changes in market value reflected in the Statement of total
recognised gains and losses.
(j) Share-based payments
No expense is recognised for options over The Royal Bank of
Scotland Group plc shares granted to employees.
(k) Pensions
Pension scheme assets are measured at fair value using
mid-market prices.
(l) Income tax
Deferred tax is not accounted for in relation to revaluations of fixed
assets where there is no commitment to dispose of the asset or in
relation to taxable gains or losses on sales of fixed assets that are
rolled over into the tax cost of replacement fixed assets.
(m) Cash flow statements
Cash comprises cash and balances with central banks and loans
and advances to banks repayable on demand.
Under UK GAAP, cash flows are classified under the following
headings:
• operating activities
• dividends from joint ventures and associates
• returns on investments and servicing of finance
• taxation
• capital expenditure and financial investment
• acquisitions and disposals
• ordinary equity dividends paid
• financing
IFRS
The definitions of associate and joint venture are similar to
those in UK GAAP. However, significant influence is defined as
the power to participate in the financial and operating policies
of the associate. A joint venture is an entity where the strategic
financial and operating decisions require the unanimous
consent of the parties sharing control. Associates are
accounted for using the equity method. The Group
proportionately consolidates its joint ventures.
The Group’s freehold and long leasehold property occupied for
its own use is recorded at cost less depreciation.
The Group has elected to use the UK GAAP valuation as at
31 December 2003 as deemed cost for freehold and long
leasehold property occupied for its own use in its opening
IFRS balance sheet (1 January 2004).
Investment property is stated at fair value. Any gain or loss
arising from a change in fair value is recognised in profit or loss.
The Group has applied IFRS 2 ‘Share-based Payment’ to
grants of options over shares after 7 November 2002 that had
not vested on 1 January 2005. The expense for these
transactions is measured based on the fair value on the date
the options are granted. The fair value is expensed on a
straight-line basis over the vesting period.
Pension scheme assets are measured at fair value using bid
prices.
Deferred tax is provided on fixed asset revaluations and on
taxable gains and losses on fixed asset sales rolled over into
the tax cost of replacement assets.
Cash and cash equivalents comprise cash on hand and
demand deposits with banks together with short-term highly
liquid investments that are readily convertible to known
amounts of cash and subject to insignificant risk of changes in
value.
Under IFRS cash flows are classified into operating, investing
and financing activities.