RBS 2012 Annual Report Download - page 365

RBS GROUP 2012
363
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. General insurance
Premiums earned - insurance and reinsurance premiums receivable for
the whole period of cover provided by contracts incepted during the year
are adjusted by an unearned premium provision, which represents the
proportion of the premiums that relate to periods of insurance after the
balance sheet date. Unearned premiums are calculated over the period
of exposure under the policy, on a daily basis, 24ths basis or allowing for
the estimated incidence of exposure under policies.
Insurance claims - insurance claims are recognised in the accounting
period in which the loss occurs. Provision is made for the full cost of
settling outstanding claims at the balance sheet date, including claims
incurred but not yet reported at that date. Outstanding claims provisions
are not discounted for the time value of money except for claims to be
settled by periodical payments. Claims handling expenses are also
included.
Deferred acquisition costs - acquisition costs relating to new and
renewing insurance policies are matched with the earning of the
premiums to which they relate. A proportion of acquisition costs incurred
during the year are deferred to the subsequent accounting period to
match the extent to which premiums written during the year are unearned
at the balance sheet date. The principal acquisition costs deferred are
direct advertising expenditure, third party administration fees, commission
paid and costs associated with telesales and underwriting staff.
Reinsurance - 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. A reinsurance bad debt provision is
assessed in respect of reinsurance debtors.
13. Provisions
The Group recognises a provision for a present obligation resulting from
a past 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 Group’s contractual
obligations 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
Income tax expense or income, comprising current tax and deferred tax,
is recorded in the income statement except income tax on items
recognised outside profit or loss which is credited or charged to other
comprehensive income or to equity as appropriate.
Current tax is income tax payable or recoverable in respect of the taxable
profit or loss for the year arising in profit or loss, other comprehensive
income or equity. Provision is made for current tax at rates enacted or
substantively enacted at the balance sheet date.