RBS 2006 Annual Report Download - page 216
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Please find page 216 of the 2006 RBS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.RBS Group • Annual Report and Accounts 2006 215
Financial statements
US GAAP
If a sale and leaseback transaction results in an operating lease,
the seller recognises any profit on the sale in proportion to the
related gross rental charged to expense over the lease term
unless:
(a) the seller relinquishes the right to substantially all the
remaining use of the property sold in which case the sale
and leaseback is accounted for as separate transactions;
or
(b) the seller retains more than a minor part but less than
substantially all of the use of the property through the
leaseback in which case the profit on sale in excess of the
present value of minimum lease payments is recognised at
the date of sale.
US GAAP also requires contracts to be classified either as
insurance or investment contracts; however US GAAP does not
permit embedded value reporting.
US GAAP requires deferred acquisition cost and income
accounting for all contracts. Where investment contract policy
charges benefit future periods, they are deferred and
amortised.
Trading securities and derivatives are carried at fair value.
Designation on initial recognition is not allowed. Securities held
by the Group’s private equity business are considered to be
held by investment companies and carried at fair value with
changes in fair value being reflected in net income.
Under US GAAP, these debt securities are classified as
available-for-sale securities with unrealised gains and losses
reported in a separate component of equity, except when the
unrealised loss is considered other than temporary in which
case the loss is included in net income.
Under US GAAP, debt and equity securities having a readily
determinable fair value are classified as available-for-sale.
Such securities are measured at fair value with unrealised
gains and losses reported in a separate component of equity.
Restricted stock are recorded at cost.
Collateralised loans arising from reverse repurchase and stock
borrowing agreements and cash collateral given are measured
at cost. Other held-for-trading loans are measured at the lower
of cost and fair value except those held by the Group’s broker-
dealer and its affiliates which are recorded at fair value.
IFRS
(g) Sale and leaseback transactions
If a sale and leaseback transaction results in an operating
lease and it is clear that the transaction is established at fair
value, the seller recognises any profit immediately.
(h) Long-term assurance business
IFRS requires contracts to be analysed between insurance and
investment contracts. Investment contracts are accounted for
as financial instruments. Insurance contracts are accounted for
using an embedded value methodology: the shareholders’
interest in the long-term assurance fund is valued as the
discounted value of the cash flows expected to be generated
from in-force policies together with net assets in excess of the
statutory liabilities.
(i) Financial instruments
Financial assets at fair value through profit or loss
Under IFRS, financial assets held for trading are measured at
fair value. A financial asset may be designated as at fair value
through profit or loss on initial recognition.
Debt securities classified as loans and receivables
Non-derivative financial assets with fixed or determinable
repayments that are not quoted in an active market are
classified as loans and receivables except those that are
classified as held-to-maturity, held-for-trading, available-for-sale
or designated as at fair value through profit or loss. Loans and
receivables are initially recognised at fair value plus directly
related transaction costs. They are subsequently measured at
adjusted cost using the effective interest method less any
impairment losses. The Group has classified some debt
securities as loans and receivables.
Available-for-sale financial assets
Under IAS 39 financial assets classified as available-for-sale
may take any legal form.
Equity shares, the sale of which is restricted by contractual
requirements (restricted stock) are carried at fair value.
Loans classified as held-for-trading
Under IAS 39, loans classified as held-for-trading are carried
at fair value.