RBS 2013 Annual Report Download - page 382
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Accounting policies
380
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. 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.
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.