RBS 2011 Annual Report Download - page 319

RBS Group 2011 317
10. Foreign currencies
The Group's consolidated financial statements are presented in sterling
which is the functional currency of the company.
Group entities record transactions in foreign currencies in the currency of
the primary economic environment in which they operate (their functional
currency) at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into the relevant functional currency at the
foreign exchange rates ruling at the balance sheet date. Foreign
exchange differences arising on the settlement of foreign currency
transactions and from the translation of monetary assets and liabilities
are reported in income from trading activities except for differences
arising on cash flow hedges and hedges of net investments in foreign
operations (see Accounting policy 24).
Non-monetary items denominated in foreign currencies that are stated at
fair value are translated into the relevant functional currency at the
foreign exchange rates ruling at the dates the values are 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 recognised in other comprehensive income unless the
asset is the hedged item in a fair value hedge.
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. Income 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 in other comprehensive income. The amount accumulated in
equity is reclassified from equity to profit or loss on disposal or partial
disposal of a foreign operation.
11. Leases
As lessor
Contracts with customers 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; all other contracts with customers to lease assets
are classified as operating leases.
Finance lease receivables are included in the balance sheet, within
Loans and advances to banks and Loans and advances to customers, 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 and included in Interest receivable. Unguaranteed
residual values are subject to regular review; if there is a reduction in
their value, income allocation is revised and any reduction in respect of
amounts accrued is recognised immediately.
Rental income from operating leases is recognised in income on a
straight-line basis over the lease term unless another systematic basis
better represents the time pattern of the asset’s use. Operating lease
assets are included within Property, plant and equipment and depreciated
over their useful lives (see Accounting policy 7). Operating lease rentals
receivable are included in Other operating income.
As lessee
The Group’s contracts to lease assets are principally operating leases.
Operating lease rental expense is included in Premises and equipment
costs and recognised as an expense on a straight-line basis over the
lease term unless another systematic basis better represents the benefit
to the Group.
12. Insurance
General insurance
General insurance comprises short-duration contracts where the Group
(the insurer) has accepted significant insurance risk from another party
(the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event (the insured event) adversely affects the
policyholder. Due to the nature of the products sold - predominantly
property and motor - the insurance protection is provided on an even
basis throughout the term of the policy. Consequently, written premiums
are recognised over the period of the policy.Insurance premiums exclude
insurance premium tax. Unearned premiums represent the proportion of
the net premiums that relate to periods of insurance after the balance
sheet date and are calculated over the period of exposure under the
policy, on a daily or 24th's basis, or allowing for the estimated incidence
of exposure under policies which are longer than twelve months.
Provision is made where necessary for the estimated amount of claims
over and above unearned premiums including that in respect of future
written business on discontinued lines under the run-off of delegated
underwriting authority arrangements. The provision is designed to meet
future claims and related expenses and is calculated across related
classes of business on the basis of a separate carry forward of deferred
acquisition expenses after making allowance for investment income.
Acquisition expenses relating to new and renewed business for all
classes of general insurance business are expensed over the period
during which the premiums are earned. The principal acquisition costs so
deferred are commissions payable, and costs associated with the
telesales and underwriting staff. Claims and the related reinsurance are
recognised in the accounting period in which the loss occurs. The Group
cedes insurance risk in the normal course of business. Reinsurance
assets represent balances due from reinsurance companies. Amounts
recoverable from reinsurers are estimated on a basis consistent with the
outstanding claims provision or settled claims associated with the
reinsurer's policies and are in accordance with the related reinsurance
contract. Reinsurance assets are reviewed for impairment at each
reporting date or more frequently when an indication of impairment arises
during the reporting year. Provision is made for the cost of settling
outstanding claims at the balance sheet date, including claims estimated
to have been incurred but not yet reported at that date, and claims
handling expenses. Provisions are only discounted where claims,
principally motor, either have been or are expected to be settled by
periodical payments. Related reinsurance receivables are recognised on
the same basis and at the same time.