RBS 2010 Annual Report Download - page 281

13. Provisions
The Group recognises a provision for a present obligation resulting from
apast event when it is more likely than not that it will be required to
transfer economic benefits to settle the obligation and the amount of the
obligation can be estimated reliably.
Provision is made for restructuring costs, including the costs of
redundancy, when the Group has a constructive obligation to restructure.
An obligation exists when the Group has a detailed formal plan for the
restructuring and has raised a valid expectation in those affected by
starting to implement the plan or announcing its main features.
If the Group has a contract that is onerous, it recognises the present
obligation under the contract as a provision. An onerous contract is one
where the unavoidable costs of meeting the obligations under it exceed
the expected economic benefits. When the Group vacates a leasehold
property, a provision is recognised for the costs under the lease less any
expected economic benefits (such as rental income).
Contingent liabilities are possible obligations arising from past events
whose existence will be confirmed only by uncertain future events or
present obligations arising from past events that are not recognised
because either an outflow of economic benefits is not probable or the
amount of the obligation cannot be reliably measured. Contingent
liabilities are not recognised but information about them is disclosed
unless the possibility of any outflow of economic benefits in settlement is
remote.
14. Tax
Provision is madefor tax at current enacted rates on taxable profits,
arising in income or in equity, taking into account relief for overseas tax
where appropriate. Deferred tax is accounted for in full for all temporary
differences between the carrying amount of an asset or liability for
accounting purposes and its carrying amount for tax purposes, except in
relation to overseas earnings where remittance is controlled by the Group,
and goodwill.
Deferred tax assets are only recognised to the extent that it is probable
that they will be recovered.
15. Financial assets
On initial recognition, financial assets are classified into held-to-maturity
investments; available-for-sale financial assets; held-for-trading;
designated as at fair value through profit or loss; or loans and receivables.
Held-to-maturity investments - a financial asset may be classified as a
held-to-maturity investment only if it has fixed or determinable payments,
afixed maturity and the Group has the positive intention and ability to
hold to maturity. Held-to-maturity investments are initially recognised at
fair value plus directly related transaction costs. They are subsequently
measured at amortised cost using the effective interest method (see
Accounting policy 3) less any impairment losses.
Held-for-trading - a financial asset is classified as held-for-trading if it is
acquired principally for sale in the near term, or forms part of a portfolio of
financial instruments that are managed together and for which there is
evidence of short-term profit taking, or it is a derivative (not in a qualifying
hedge relationship). Held-for-trading financial assets are recognised at
fair value with transaction costs being recognised in profit or loss.
Subsequently they are measured at fair value. Gains and losses on held-
for-trading financial assets are recognised in profit or loss as they arise.
Designated as at fair value through profit or loss - financial assets may be
designated as at fair value through profit or loss only if such designation
(a) eliminates or significantly reduces a measurement or recognition
inconsistency; or (b) applies to a group of financial assets, financial
liabilities or both, that the Group manages and evaluates on a fair value
basis; or (c) relates to an instrument that contains an embedded
derivative which is not evidently closely related to the host contract.
Financial assets that the Group designates on initial recognition as being
at fair value through profit or loss are recognised at fair value, with
transaction costs being recognised in profit or loss, and are subsequently
measured at fair value. Gains and losses on financial assets that are
designated as at fair value through profit or loss are recognised in profit
or loss as they arise.
In 2009 and 2008, financial assets designated as at fair value through
profit or loss included policyholders' assets underpinning insurance and
investment contracts issued by the Group's life assurance businesses.
Fair value designation significantly reduces the measurement
inconsistency that would arise if these assets were classified as
available-for-sale.
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
available-for-sale or as held-for-trading, 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 amortised cost using the effective interest method (see
Accounting policy 3) less any impairment losses.
279RBS Group 2010
Financial statements