RBS 2006 Annual Report Download - page 219
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RBS Group • Annual Report and Accounts 2006
218
Notes on the accounts continued
IFRS or relevant UK GAAP
(b) Property revaluation and depreciation
Prior to the implementation of IFRS the Group revalued
annually freehold and leasehold properties occupied for its
own use. On transition to IFRS, as permitted by IFRS 1
valuation of these properties at 31 December 2003 was
deemed to be their cost.
Investment properties are carried at fair value; changes in fair
value are included in profit or loss.
(c) Leasehold property provisions
Provisions are raised on leasehold properties when there is a
commitment to vacate the property.
(d) Loan origination
Certain loan origination fees, together with related costs, are
recognised in the income statement as received or incurred.
(e) Pension costs
Pension scheme assets are measured at their fair value.
Scheme liabilities are measured on an actuarial basis using the
projected unit method and discounted at the current rate of
return on a high quality corporate bond of equivalent term and
currency. Any surplus or deficit of scheme assets compared
with liabilities is recognised in the balance sheet as an asset
(surplus) or liability (deficit). An asset is only recognised to the
extent that the surplus can be recovered through reduced
contributions in the future or through refunds from the scheme.
(f) Long-term assurance business
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.
(g) Extinguishment of liabilities
Recognition of a financial liability ceases once any transfer of
economic benefits to the creditor is no longer likely.
US GAAP
Under US GAAP, revaluations of property are not permitted.
Own-use and investment properties are depreciated and gains
and losses on disposal based on depreciated cost.
Provisions are recognised on leasehold properties at the time
the property is vacated.
Loan origination fees and certain direct costs are deferred and
recognised over the period of the related loan or facility.
US GAAP requires similar valuations but allows a certain
portion of actuarial gains and losses to be deferred and
allocated in equal amounts over the average remaining service
lives of current employees. An additional minimum liability
must be recognised if the accumulated benefit obligation (the
current value of accrued benefits without allowance for future
salary increases) exceeds the fair value of plan assets and the
Group has recorded a prepaid pension cost or has an accrued
liability that is less than the unfunded accumulated benefit
obligation. Movements in the additional minimum liability are
recognised in a separate component of equity.
US GAAP does not permit embedded value reporting. US
GAAP requires bancassurance contracts to be classified either
as insurance or investment contracts.
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.
A financial liability is derecognised only when the creditor is
paid or the debtor is legally released from being the primary
obligor under the liability, either judicially or by the creditor.
47 Significant differences between IFRS and US GAAP (continued)