RBS 2012 Annual Report Download - page 364

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Accounting policies continued
7. Property, plant and equipment
Items of property, plant and equipment (except investment property - see
Accounting policy 9) are stated at cost less accumulated depreciation and
impairment losses. Where an item of property, plant and equipment
comprises major components having different useful lives, they are
accounted for separately.
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) over their estimated
useful lives. The depreciable amount is the cost of an asset less its
residual value. Land is not depreciated. The estimated useful lives of the
Group’s property, plant and equipment are:
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
The residual value and useful life of property, plant and equipment are
reviewed at each balance sheet date and updated for any changes to
previous estimates.
8. 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, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. A
cash-generating unit is the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. For the purposes of impairment
testing, goodwill acquired in a business combination is allocated to each
of the Group’s cash-generating units or groups of cash-generating units
expected to benefit from the combination. The recoverable amount of an
asset or cash-generating unit 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 taken into account in estimating 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 is not greater than it would
have been had no impairment loss been recognised. Impairment losses
on goodwill are not reversed.
9. Investment property
Investment property comprises freehold and leasehold properties that are
held to earn rentals or for capital appreciation or both. Investment
property is not depreciated but is stated at fair value based on valuations
by independent registered valuers. Fair value is based on current prices
for similar properties in the same location and condition. Any gain or loss
arising from a change in fair value is recognised in profit or loss. Rental
income from investment property is recognised on a straight-line basis
over the term of the lease in Other operating income. Lease incentives
granted are recognised as an integral part of the total rental income.
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 their functional
currency - the currency of the primary economic environment in which
they operate - 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.