RBS 2013 Annual Report Download - page 380
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Accounting policies
378
3. Revenue recognition
Interest income on financial assets that are classified as loans and
receivables, available-for-sale or held-to-maturity and interest expense on
financial liabilities other than those measured at fair value are determined
using the effective interest method. The effective interest method is a
method of calculating the amortised cost of a financial asset or financial
liability (or group of financial assets or liabilities) and of allocating the
interest income or interest expense over the expected life of the asset or
liability. The effective interest rate is the rate that exactly discounts
estimated future cash flows to the instrument's initial carrying amount.
Calculation of the effective interest rate takes into account fees payable
or receivable that are an integral part of the instrument's yield, premiums
or discounts on acquisition or issue, early redemption fees and
transaction costs. All contractual terms of a financial instrument are
considered when estimating future cash flows.
Financial assets and financial liabilities held for trading or designated as
at fair value through profit or loss are recorded at fair value. Changes in
fair value are recognised in profit or loss.
Commitment and utilisation fees are determined as a percentage of the
outstanding facility. If it is unlikely that a specific lending arrangement will
be entered into, such fees are taken to profit or loss over the life of the
facility otherwise they are deferred and included in the effective interest
rate on the advance.
Fees in respect of services are recognised as the right to consideration
accrues through the provision of the service to the customer. The
arrangements are generally contractual and the cost of providing the
service is incurred as the service is rendered. The price is usually fixed
and always determinable. The application of this policy to significant fee
types is outlined below.
Payment services - this comprises income received for payment services
including cheques cashed, direct debits, Clearing House Automated
Payments (the UK electronic settlement system) and BACS payments
(the automated clearing house that processes direct debits and direct
credits). These are generally charged on a per transaction basis. The
income is earned when the payment or transaction occurs. Charges for
payment services are usually debited to the customer's account monthly
or quarterly in arrears. Income is accrued at period end for services
provided but not yet charged.
Card related services - fees from credit card business include:
• Commission received from retailers for processing credit and debit
card transactions: income is accrued to the income statement as the
service is performed.
• Interchange received: as issuer, the Group receives a fee
(interchange) each time a cardholder purchases goods and
services. The Group also receives interchange fees from other card
issuers for providing cash advances through its branch and
automated teller machine networks. These fees are accrued once
the transaction has taken place.
• An annual fee payable by a credit card holder is deferred and taken
to profit or loss over the period of the service i.e. 12 months.
Investment management fees - fees charged for managing investments
are recognised as revenue as the services are provided. Incremental
costs that are directly attributable to securing an investment management
contract are deferred and charged as expense as the related revenue is
recognised.
Insurance premiums - see Accounting policy 12.
4. Assets held for sale and discontinued operations
A non-current asset (or disposal group) is classified as held for sale if the
Group will recover its carrying amount principally through a sale
transaction rather than through continuing use. A non-current asset (or
disposal group) classified as held for sale is measured at the lower of its
carrying amount and fair value less costs to sell. If the asset (or disposal
group) is acquired as part of a business combination it is initially
measured at fair value less costs to sell. Assets and liabilities of disposal
groups classified as held for sale and non-current assets classified as
held for sale are shown separately on the face of the balance sheet.
The results of discontinued operations - comprising the post-tax profit or
loss of discontinued operations and the post-tax gain or loss recognised
either on measurement to fair value less costs to sell or on disposal of the
discontinued operation - are shown as a single amount on the face of the
income statement; an analysis of this amount is presented in Note 20 on
the accounts. A discontinued operation is a cash generating unit or a
group of cash generating units that either has been disposed of, or is
classified as held for sale, and (a) represents a separate major line of
business or geographical area of operations, (b) is part of a single co-
ordinated plan to dispose of a separate major line of business or
geographical area of operations or (c) is a subsidiary acquired exclusively
with a view to resale.
5. Employee benefits
Short-term employee benefits, such as salaries, paid absences, and
other benefits are accounted for on an accruals basis over the period in
which the employees provide the related services. Employees may
receive variable compensation satisfied by cash, by debt instruments
issued by the Group or by RBSG shares. The treatment of share-based
compensation is set out in Accounting policy 26. Variable compensation
that is settled in cash or debt instruments is charged to profit or loss over
the period from the start of the year to which the variable compensation
relates to the expected settlement date taking account of forfeiture and
clawback criteria.
The Group provides post-retirement benefits in the form of pensions and
healthcare plans to eligible employees.
Contributions to defined contribution pension schemes are recognised in
profit or loss when payable.
For defined benefit schemes, the defined benefit obligation is measured
on an actuarial basis using the projected unit credit method and
discounted at a rate determined by reference to market yields at the end
of the reporting period on high quality corporate bonds of equivalent term
and currency to the scheme liabilities. Scheme assets are measured at
their fair value. The difference between scheme assets and scheme
liabilities – the net defined benefit asset or liability - is recognised in the
balance sheet. A defined benefit asset is limited to the present value of
any economic benefits available to the Group in the form of refunds from
the plan or reduced contributions to it.