Aviva 2006 Annual Report Download - page 117

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 113
(AA) Borrowings
Borrowings are recognised initially at their issue proceeds less
transaction costs incurred. Subsequently, most borrowings are
stated at amortised cost, and any difference between net proceeds
and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest rate
method. All borrowing costs are expensed as they are incurred.
Where loan notes have been issued in connection with securitised
lifetime mortgages, the Group has taken advantage of the revised
fair value option under IAS 39 to present the mortgages, associated
liabilities and derivative financial instruments at fair value, since they
are managed as a portfolio. This presentation provides more
relevant information and eliminates any accounting mismatch
which would otherwise arise from using different measurement
bases for these three items.
(AB) Share capital and treasury shares
Equity instruments
An equity instrument is a contract that evidences a residual interest
in the assets of an entity after deducting all its liabilities. Accordingly,
afinancial instrument is treated as equity if:
(i) there is no contractual obligation to deliver cash or other
financial assets or to exchange financial assets or liabilities on terms
that may be unfavourable; and
(ii) the instrument is a non-derivative that contains no contractual
obligation to deliver a variable number of shares or is a derivative
that will be settled only by the Group exchanging a fixed amount
of cash or other assets for a fixed number of the Group’s own
equity instruments.
Share issue costs
Incremental external costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from the
proceeds of the issue.
Dividends
Interim dividends on ordinary shares are recognised in equity in
the period in which they are paid. Final dividends on these shares
are recognised when they have been approved by shareholders.
Dividends on preference shares are recognised in the period in
which they are declared and appropriately approved.
Treasury shares
Where the Company or its subsidiaries purchase the Company’s
share capital or obtain rights to purchase its share capital, the
consideration paid (including any attributable transaction costs net
of income taxes) is shown as a deduction from total shareholders’
equity. Gains and losses on sales of own shares are charged or
credited to the treasury share account in equity.
(AC) Fiduciary activities
Assets and income arising from fiduciary activities, together with
related undertakings to return such assets to customers, are
excluded from these financial statements wherethe Group has no
contractual rights in the assets and acts in a fiduciary capacity such
as nominee, trustee or agent.
(AD) Earnings per share
Basic earnings per share is calculated by dividing net income
available to ordinary shareholders by the weighted average number
of ordinary shares in issue during the year, excluding the average
number of ordinary shares purchased by the Group and held as
treasury shares.
Earnings per share has also been calculated on the operating profit
before impairment of goodwill and other adjusting items, after tax,
attributable to ordinary shareholders, as the directors believe this
figure provides a better indication of operating performance.
Details are given in note 13.
For the diluted earnings per share, the weighted average number
of ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares, such as convertible debt and
share options granted to employees. Potential or contingent share
issuances are treated as dilutive when their conversion to shares
would decrease net earnings per share.
(AE) Operations held for sale
Assets and liabilities held for disposal as part of operations which
are held for sale are shown separately in the consolidated balance
sheet. The relevant assets are recorded at the lower of their carrying
amount and their fair value, less the estimated selling costs.