Barclays 2009 Annual Report Download - page 201

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 199
In certain circumstances, the Group may decide to cease hedge accounting
even though the hedge relationship continues to be highly effective by no
longer designating the financial instrument as a hedging instrument. To the
extent that the changes in the fair value of the hedging derivative differ from
changes in the fair value of the hedged risk in the hedged item; or the
cumulative change in the fair value of the hedging derivative differs from the
cumulative change in the fair value of expected future cash flows of the
hedged item, the hedge is deemed to include ineffectiveness. The amount
of ineffectiveness, provided it is not so great as to disqualify the entire hedge
for hedge accounting, is recorded in the income statement.
Fair value hedge accounting
Changes in fair value of derivatives that qualify and are designated as fair
value hedges are recorded in the income statement, together with changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk.
If the hedge relationship no longer meets the criteria for hedge
accounting, it is discontinued. For fair value hedges of interest rate risk, the
fair value adjustment to the hedged item is amortised to the income
statement over the period to maturity of the previously designated hedge
relationship using the effective interest method.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedges
For qualifying cash flow hedges, the fair value gain or loss associated with
the effective portion of the cash flow hedge is recognised initially in
shareholders’ equity, and recycled to the income statement in the periods
when the hedged item will affect profit or loss. Any ineffective portion of the
gain or loss on the hedging instrument is recognised in the income
statement immediately.
When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the
hedged item is ultimately recognised in the income statement. When a
forecast transaction is no longer expected to occur, the cumulative gain or
loss that was recognised in equity is immediately transferred to the income
statement.
Hedges of net investments
Hedges of net investments in foreign operations, including monetary items
that are accounted for as part of the net investment, are accounted for
similarly to cash flow hedges; the effective portion of the gain or loss on the
hedging instrument is recognised directly in equity and the ineffective
portion is recognised immediately in the income statement. The cumulative
gain or loss previously recognised in equity is recognised in the income
statement on the disposal or partial disposal of the foreign operation.
Hedges of net investments may include non-derivative liabilities as well
as derivative financial instruments although for a non-derivative liability only
the foreign exchange risk is designated as a hedge.
Derivatives that do not qualify for hedge accounting
Derivative contracts entered into as economic hedges that do not qualify
for hedge accounting are held at fair value through profit or loss.
Note
aWhere leasehold property has a remaining useful life of less than 15 years, costs of
adaptation and installed equipment are depreciated over the remaining life of the lease.
13. Property, plant and equipment
Property and equipment is stated at cost less accumulated depreciation
and provisions for impairment, if required. Additions and subsequent
expenditures are capitalised only to the extent that they enhance the future
economic benefits expected to be derived from the assets.
Depreciation is provided on the depreciable amount of items of property
and equipment on a straight-line basis over their estimated useful economic
lives. The depreciable amount is the gross carrying amount, less the
estimated residual value at the end of its useful economic life.
The Group uses the following annual rates in calculating depreciation:
Freehold buildings and long-leasehold property
(more than 50 years to run) 2-3.3%
Leasehold property Over the remaining
(less than 50 years to run) life of the lease
Costs of adaptation of freehold and
leasehold propertya7-10%
Equipment installed in freehold and
leasehold propertya7-10%
Computers and similar equipment 20-33%
Fixtures and fittings and other equipment 10-20%
Depreciation rates, methods and the residual values underlying the
calculation of depreciation of items of property, plant and equipment are
kept under review to take account of any change in circumstances.
When deciding on depreciation rates and methods, the principal factors
the Group takes into account are the expected rate of technological
developments and expected market requirements for, and the expected
pattern of usage of, the assets. When reviewing residual values, the Group
estimates the amount that it would currently obtain for the disposal of the
asset after deducting the estimated cost of disposal if the asset were already
of the age and condition expected at the end of its useful economic life.
No depreciation is provided on freehold land, although, in common
with all long-lived assets, it is subject to impairment testing, if deemed
appropriate.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised in the income
statement.
Investment property is property held to earn rentals or for capital
appreciation or for both rather than for sale or use in the business. The
Group initially recognises investment properties at cost, and subsequently
at their fair value at each balance sheet date reflecting market conditions
at the reporting date. The fair value of investment property is determined
by reference to current market prices for similar properties, adjusted as
necessary for condition and location, or by reference to recent transactions
updated to reflect current economic conditions. Discounted cash flow
techniques may be employed to calculate fair value where there have been
no recent transactions, using current external market inputs such as market
rents and interest rates. Valuations are carried out by management with the
support of appropriately qualified independent valuers.
Movements in fair value subsequent to initial recognition are included
in the income statement. No depreciation is provided in respect of
investment properties.