RITUALES MORTUORIOS

Convertible bonds comprise of the liability and equity components. The liability component, representing the obligation to make fi xed payments of principal and interest, is classifi ed as liability and initially recognised at the fair value, calculated using the market interest rate of a similar liability that does not have an equity conversion option, and subsequently measured at amortised cost using the effective interest method. The equity component, representing an embedded option to convert the liability into common shares, is initially recognised in “Capital reserve” as the difference between the proceeds received from the convertible bonds as a whole and the amount of the liability component.

Any directly attributable transaction costs are allocated to the liability and equity components in proportion to the allocation of proceeds.

On conversion of the bonds into shares, the amount transferred to Share capital is calculated as the par value of the shares multiplied by the number of shares converted. The difference between the carrying value of the related component of the converted bonds and the amount transferred to Share capital is recognised in capital surplus under “Capital reserve”.

4.10 Offsetting fi nancial instruments

Financial assets and liabilities are offset and the net amount is reported in the statement of fi nancial position when there is a current legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

5 Precious metals and precious metals swaps

Precious metals comprise gold, silver and other precious metals. The Group retains all risks and rewards of ownership related to precious metals deposited with the Group as precious metals deposits, including the right to freely pledge or transfer, and it records the precious metals received as an asset. A liability to return the amount of precious metals deposited is also recognised. Precious metals that are not related to the Group’s precious metals market making and trading activities are initially measured at acquisition cost and subsequently measured at lower of cost and net realisable value. Precious metals that are related to the Group’s market making and trading activities are initially recognised at fair value and subsequent changes in fair value included in “Net trading gains” are recognised in the income statement.

Consistent with the substance of the transaction, if the precious metals swaps are for fi nancing purpose, they are accounted for as precious metals subject to collateral agreements. Precious metals collateralised are not de-recognised and the related counterparty liability is recorded in “Placements from banks and other fi nancial institutions”. If precious metal swaps are for trading purpose, they are accounted for as derivatives transactions.

II SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

6 Repurchase agreements, agreements to re-sell and securities lending

Securities and bills sold subject to repurchase agreements (“Repos”) continue to be recognised, and are recorded as “Investment securities”. The counterparty liability is included in “Placements from banks and other fi nancial institutions” and “Due to central banks”. Securities and bills purchased under agreements to re-sell (“Reverse repos”) are not recognised. The receivables are recorded as “Placements with and loans to banks and other fi nancial institutions” or “Balances with central banks”, as appropriate.

The difference between purchase and sale price is recognised as “Interest expense” or “Interest income” in the income statement over the life of the agreements using the effective interest method.

Securities lending transactions are generally secured, with collateral taking the form of securities or cash.

Securities lent to counterparties by the Group are recorded in the consolidated fi nancial statements. Securities borrowed from counterparties by the Group are not recognised in the consolidated fi nancial statements of the Group. Cash collateral received or advanced is recognised as a liability or an asset in the consolidated fi nancial statements.

7 Property and equipment

The Group’s fi xed assets mainly comprise buildings, equipment and motor vehicles, aircraft and construction in progress. When the costs attributable to the land use rights cannot be reliably measured and separated from that of the building at inception, the costs are included in the cost of properties and buildings and recorded in “Property and equipment”.

The assets purchased or constructed are initially measured at acquisition cost or deemed cost, as appropriate.

Such initial cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent costs are included in an asset’s carrying amount, only when it is probable that future economic benefi ts associated with the item will fl ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the fi nancial period in which they are incurred.

Depreciation is calculated on the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each fi nancial reporting date.

Property and equipment are reviewed for impairment at each fi nancial reporting date. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by the difference between proceeds and carrying amount, after deduction of relevant taxes and expenses. These are included in the income statement.

II SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

7 Property and equipment

Buildings comprise primarily branch and offi ce premises. The estimated useful lives, depreciation rate and estimated residual value rate of buildings, equipment and motor vehicles are as follows:

Type of assets

Estimated useful lives

Estimated residual value rate

Annual depreciation rate

Buildings 15–50 years 3% 1.9%–6.5%

Equipment 3–15 years 3% 6.4%–32.4%

Motor vehicles 4–6 years 3% 16.1%–24.3%

7.2 Aircraft

Aircraft are used in the Group’s aircraft operating leasing business.

Aircraft are depreciated using the straight-line method over the expected useful life of 25 years, less the years in service at the time of purchase to an estimated residual value rate varying from 0% to 15%.

7.3 Construction in progress

Construction in progress consists of assets under construction or being installed and is stated at cost.

Cost includes equipment cost, cost of construction, installation and other direct costs. Items classifi ed as construction in progress are transferred to property and equipment when such assets are ready for their intended use and the depreciation charge commences after such assets are transferred to property and equipment.

8 Leases

8.1 Lease classifi cation

Leases of assets where substantially all the risks and rewards of ownership have been transferred are classifi ed as fi nance leases. Title may or may not eventually be transferred. All leases other than fi nance leases are classifi ed as operating leases.

8.2 Finance leases

When the Group is a lessee under fi nance leases, the leased assets are capitalised initially at the fair value of the asset or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in “Other liabilities”. Finance charges are charged over the term of the lease using an interest rate which refl ects a constant rate of return.

II SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

8 Leases

8.2 Finance leases (Continued)

The Group adopts the same depreciation policy for the fi nance leased assets as those for which it has title rights. If the Group can reasonably determine that a lease will transfer ownership of the asset to the Group by the end of the lease term, related assets are depreciated over their useful life. If there is no reasonable certainty that the Group can determine that a lease will transfer ownership of the asset to the Group by the end of the lease term, related assets are depreciated over the shorter of the lease term and useful life.

When the Group is a lessor under fi nance leases, the present value of the aggregation of the minimum lease payment receivable from the lessee, unguaranteed residual value and initial direct costs is recognised as a receivable. The difference between the receivable and the present value of the receivable is recognised as unearned fi nance income. Lease income is recognised over the term of the lease using an interest rate which refl ects a constant rate of return.

8.3 Operating leases

When the Group is the lessee under an operating lease, rental expenses are charged to “Operating expenses” in the income statement on a straight-line basis over the period of the lease.

When the Group is the lessor under operating leases, the assets subject to the operating lease are accounted for as the Group’s assets. Rental income is recognised as “Other operating income” in the income statement on a straight-line basis over the lease term net of any incentives given to lessees.