RBS 2007 Annual Report Download - page 128

RBS Group • Annual Report and Accounts 2007
126
Accounting policies continued
Financial statements
Depreciation is charged to profit or loss on a straight-line basis
so as to write-off the depreciable amount of property, plant
and equipment (including assets owned and let on operating
leases (except investment property – see accounting policy 21
below)) over their estimated useful lives. The depreciable
amount is the cost of an asset less its residual value. Land is
not depreciated. Estimated useful lives are as follows:
Freehold and long leasehold buildings 50 years
Short leaseholds unexpired period
of the lease
Property adaptation costs 10 to 15 years
Computer equipment up to 5 years
Other equipment 4 to 15 years
Under previous GAAP, the Group’s freehold and long leasehold
property occupied for its own use was recorded at valuation on
the basis of existing use value. The Group elected to use this
valuation as at 31 December 2003 (£2,391 million) as deemed
cost for its opening IFRS balance sheet (1 January 2004).
7. Impairment of intangible assets and property,
plant and equipment
At each reporting date, the Group assesses whether there is
any indication that its intangible assets, or property, plant and
equipment are impaired. If any such indication exists, the
Group estimates the recoverable amount of the asset and the
impairment loss if any. Goodwill is tested for impairment
annually or more frequently if events or changes in
circumstances indicate that it might be impaired. If an asset
does not generate cash flows that are independent from those
of other assets or groups of assets, recoverable amount is
determined for the cash-generating unit to which the asset
belongs. The recoverable amount of an asset is the higher of
its fair value less cost to sell and its value in use. Value in use
is the present value of future cash flows from the asset or
cash-generating unit discounted at a rate that reflects market
interest rates adjusted for risks specific to the asset or cash
generating unit that have not been reflected in the estimation of
future cash flows. If the recoverable amount of an intangible or
tangible asset is less than its carrying value, an impairment
loss is recognised immediately in profit or loss and the
carrying value of the asset reduced by the amount of the loss.
A reversal of an impairment loss on intangible assets
(excluding goodwill) or property, plant and equipment is
recognised as it arises provided the increased carrying value
does not exceed that which it would have been had no
impairment loss been recognised. Impairment losses on
goodwill are not reversed.
8. Foreign currencies
The Group’s consolidated financial statements are presented in
sterling which is the functional currency of the company.
Transactions in foreign currencies are translated into sterling at
the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the rates of exchange
ruling at the balance sheet date. Foreign exchange differences
arising on translation are reported in income from trading
activities except for differences arising on cash flow hedges
and hedges of net investments in foreign operations. Non-
monetary items denominated in foreign currencies that are
stated at fair value are translated into sterling at foreign
exchange rates ruling at the dates the values were determined.
Translation differences arising on non-monetary items
measured at fair value are recognised in profit or loss except
for differences arising on available-for-sale non-monetary
financial assets, for example equity shares, which are included
in the available-for-sale reserve in equity unless the asset is the
hedged item in a fair value hedge.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
translated into sterling at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign
operations are translated into sterling at average exchange
rates unless these do not approximate to the foreign exchange
rates ruling at the dates of the transactions. Foreign exchange
differences arising on the translation of a foreign operation are
recognised directly in equity and included in profit or loss on
its disposal.
9. Leases
Contracts to lease assets are classified as finance leases if
they transfer substantially all the risks and rewards of
ownership of the asset to the customer. Other contracts to
lease assets are classified as operating leases.
Finance lease receivables are stated in the balance sheet at
the amount of the net investment in the lease being the
minimum lease payments and any unguaranteed residual value
discounted at the interest rate implicit in the lease. Finance
lease income is allocated to accounting periods so as to give a
constant periodic rate of return before tax on the net
investment. Unguaranteed residual values are subject to
regular review to identify potential impairment. If there has
been a reduction in the estimated unguaranteed residual value,
the income allocation is revised and any reduction in respect of
amounts accrued is recognised immediately.
Rental income from operating leases is credited to the income
statement on a receivable basis over the term of the lease.
Operating lease assets are included within Property, plant
and equipment and depreciated over their useful lives (see
accounting policy 6 above).