RBS 2012 Annual Report Download - page 366

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Accounting policies continued
Deferred tax is the tax expected to be payable or recoverable in respect
of temporary differences between the carrying amount of an asset or
liability for accounting purposes and its carrying amount for tax purposes.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that they will be recovered. Deferred tax is not recognised on
temporary differences that arise from initial recognition of an asset or a
liability in a transaction (other than a business combination) that at the
time of the transaction affects neither accounting nor taxable profit or
loss. Deferred tax is calculated using tax rates expected to apply in the
periods when the assets will be realised or the liabilities settled, based on
tax rates and laws enacted, or substantively enacted, at the balance
sheet date.
Deferred tax assets and liabilities are offset where the Group has a
legally enforceable right to offset and where they relate to income taxes
levied by the same taxation authority either on an individual Group
company or on Group companies in the same tax group that intend, in
future periods, to settle current tax liabilities and assets on a net basis or
on a gross basis simultaneously.
15. Financial assets
On initial recognition, financial assets are classified into held-to-maturity
investments; held-for-trading; designated as at fair value through profit or
loss; loans and receivables; or available-for-sale financial assets. Regular
way purchases of financial assets classified as loans and receivables are
recognised on settlement date; all other regular way transactions in
financial assets are recognised on trade date.
Held-to-maturity investments - a financial asset may be classified as a
held-to-maturity investment only if it has fixed or determinable payments,
a fixed 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.
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.
Available-for-sale financial assets - financial assets that are not classified
as held-to-maturity; held-for-trading; designated as at fair value through
profit or loss; or loans and receivables are classified as available-for-sale.
Financial assets can be designated as available-for-sale on initial
recognition. Available-for-sale financial assets are initially recognised at
fair value plus directly related transaction costs. They are subsequently
measured at fair value. Unquoted equity investments whose fair value
cannot be measured reliably are carried at cost and classified as
available-for-sale financial assets. Impairment losses and exchange
differences resulting from retranslating the amortised cost of foreign
currency monetary available-for-sale financial assets are recognised in
profit or loss together with interest calculated using the effective interest
method (see Accounting policy 3) as are gains and losses attributable to
the hedged risk on available-for-sale financial assets that are hedged
items in fair value hedges (see Accounting policy 24). Other changes in
the fair value of available-for-sale financial assets and any related tax are
reported in other comprehensive income until disposal, when the
cumulative gain or loss is reclassified from equity to profit or loss.
Reclassifications - held-for-trading and available-for-sale financial assets
that meet the definition of loans and receivables (non-derivative financial
assets with fixed or determinable payments that are not quoted in an
active market) may be reclassified to loans and receivables if the Group
has the intention and ability to hold the financial asset for the foreseeable
future or until maturity. The Group typically regards the foreseeable future
as twelve months from the date of reclassification. Additionally, held-for-
trading financial assets that do not meet the definition of loans and
receivables may, in rare circumstances, be transferred to available-for-
sale financial assets or to held-to-maturity investments. Reclassifications
are made at fair value. This fair value becomes the asset's new cost or
amortised cost as appropriate. Gains and losses recognised up to the
date of reclassification are not reversed.
Fair value - fair value for a net open position in a financial asset that is
quoted in an active market is the current bid price times the number of
units of the instrument held. Fair values for financial assets not quoted in
an active market are determined using appropriate valuation techniques
including discounting future cash flows, option pricing models and other
methods that are consistent with accepted economic methodologies for
pricing financial assets (see Note 11 Financial instruments - valuation).