Barclays 2009 Annual Report Download - page 196

194 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Consolidated accounts Barclays PLC
Accounting policies
continued
share of the post-acquisition profit (or loss), or other movements reflected
directly in the other comprehensive income of the associated or jointly
controlled entity. Goodwill arising on the acquisition of an associate or joint
venture is included in the carrying amount of the investment (net of any
accumulated impairment loss). When the Group’s share of losses or other
reductions in equity in an associate or joint venture equals or exceeds the
recorded interest, including any other unsecured receivables, the Group
does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the entity.
The Group’s share of the results of associates and joint ventures is based
on financial statements made up to a date not earlier than three months
before the balance sheet date, adjusted to conform with the accounting
polices of the Group. Unrealised gains on transactions are eliminated to the
extent of the Group’s interest in the investee. Unrealised losses are also
eliminated unless the transaction provides evidence of impairment in the
asset transferred.
In the individual financial statements, investments in associates and
joint ventures are stated at cost less impairment, if any.
5. Foreign currency translation
Items included in the financial statements of each of the Group’s entities are
measured using their functional currency, being the currency of the primary
economic environment in which the entity operates.
Foreign currency transactions are translated into the appropriate
functional currency using the exchange rates prevailing at the dates of the
transactions. Monetary items denominated in foreign currencies are
retranslated at the rate prevailing at the period end. Foreign exchange gains
and losses resulting from the retranslation and settlement of these items are
recognised in the income statement except for qualifying cash flow hedges or
hedges of net investments. See policy 12 for the policies on hedge accounting.
Non-monetary assets that are measured at fair value are translated
using the exchange rate at the date that the fair value was determined.
Exchange differences on equities and similar non-monetary items held at
fair value through profit or loss, are reported as part of the fair value gain or
loss. Translation differences on equities classified as available for sale
financial assets and similar non-monetary items are included directly in equity.
For the purposes of translation into the presentational currency, assets,
liabilities and equity of foreign operations are translated at the closing rate,
and items of income and expense are translated into Sterling at the rates
prevailing on the dates of the transactions, or average rates of exchange
where these approximate to actual rates.
The exchange differences arising on the translation of a foreign
operation are included in cumulative translation reserves within
shareholders’ equity and included in the profit or loss on disposal or partial
disposal of the operation.
Goodwill and fair value adjustments arising on the acquisition of foreign
subsidiaries are maintained in the functional currency of the foreign
operation, translated at the closing rate and are included in hedges of net
investments where appropriate.
6. Interest, fees and commissions
Interest
Interest is recognised in interest income and interest expense in the income
statement for all interest bearing financial instruments classified as held to
maturity, available for sale or other loans and receivables using the effective
interest method.
The effective interest method is a method of calculating the amortised
cost of a financial asset or liability (or group of assets and liabilities) and of
allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts the expected
future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period, to the net carrying
amount of the instrument. The application of the method has the effect of
recognising income (and expense) receivable (or payable) on the
instrument evenly in proportion to the amount outstanding over the period
to maturity or repayment.
In calculating effective interest, the Group estimates cash flows (using
projections based on its experience of customers’ behaviour) considering
all contractual terms of the financial instrument but excluding future credit
losses. Fees, including those for early redemption, are included in the
calculation to the extent that they can be measured and are considered to
be an integral part of the effective interest rate. Cash flows arising from the
direct and incremental costs of issuing financial instruments are also taken
into account in the calculation. Where it is not possible to otherwise estimate
reliably the cash flows or the expected life of a financial instrument, effective
interest is calculated by reference to the payments or receipts specified in
the contract, and the full contractual term.
Fees and commissions
Unless included in the effective interest calculation, fees and commissions
are recognised on an accruals basis as the service is provided. Fees and
commissions not integral to effective interest arising from negotiating, or
participating in the negotiation of a transaction from a third party, such as
the acquisition of loans, shares or other securities or the purchase or sale
of businesses, are recognised on completion of the underlying transaction.
Portfolio and other management advisory and service fees are recognised
based on the applicable service contracts. Asset management fees related
to investment funds are recognised over the period the service is provided.
The same principle is applied to the recognition of income from wealth
management, financial planning and custody services that are continuously
provided over an extended period of time.
Commitment fees, together with related direct costs, for loan facilities
where draw down is probable are deferred and recognised as an adjustment
to the effective interest on the loan once drawn. Commitment fees in
relation to facilities where draw down is not probable are recognised over
the term of the commitment.