HSBC 2002 Annual Report Download - page 202

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
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attributable goodwill. Negative goodwill is credited in the profit and loss account in the periods expected to
be benefited.
At the date of disposal of subsidiary undertakings, joint ventures or associates, any unamortised goodwill or
goodwill charged directly to reserves is included in HSBC’ s share of net assets of the undertaking in the
calculation of the gain or loss on disposal of the undertaking.
(e) Tangible fixed assets
(i) Land and buildings are stated at valuation or cost less depreciation calculated to write off the assets over
their estimated useful lives as follows:
– freehold land and land held on leases with more than 50 years to expiry are not depreciated;
– land held on leases with 50 years or less to expiry is depreciated over the unexpired terms of the leases;
and
– buildings and improvements thereto are depreciated on cost or valuation at the greater of 2% per
annum on the straight-line basis or over the unexpired terms of the leases or over the remaining useful
lives.
(ii) Equipment, fixtures and fittings are stated at cost less depreciation calculated on the straight-line basis to
write off the assets over their estimated useful lives, which are generally between 5 years and 20 years.
(iii) HSBC holds certain properties as investments. No depreciation is provided in respect of such properties
other than leaseholds with 20 years or less to expiry. Investment properties are included in the balance sheet
at their open market value and the aggregate surplus or deficit, where material, is transferred to the
investment property revaluation reserve.
(f) Finance and operating leases
(i) Assets leased to customers under agreements which transfer substantially all the risks and rewards
associated with ownership, other than legal title, are classified as finance leases. Where HSBC is a lessor
under finance leases the amounts due under the leases, after deduction of unearned charges, are included in
‘Loans and advances to banks’ or ‘Loans and advances to customers’ . Finance charges receivable are
recognised over the periods of the leases so as to give a constant rate of return on the net cash investment in
the leases, taking into account tax payments and receipts associated with the leases.
(ii) Where HSBC is a lessee under finance leases the leased assets are capitalised and included in ‘Equipment,
fixtures and fittings’ and the corresponding liability to the lessor is included in ‘Other liabilities’ . Finance
charges payable are recognised over the periods of the leases based on the interest rates implicit in the
leases.
(iii) All other leases are classified as operating leases and, where HSBC is the lessor, are included in ‘Tangible
fixed assets’ . The residual values of equipment on operating leases are regularly monitored. Provision is
made to the extent that the carrying value of equipment is impaired through residual values not being fully
recoverable. Rentals payable and receivable under operating leases are accounted for on the straight-line
basis over the periods of the leases and are included in ‘Administrative expenses’ and ‘Other operating
income’ respectively.
(g) Deferred taxation
Deferred tax is recognised in full on timing differences between the accounting and taxation treatment of
income and expenditure, subject to assessment of the recoverability of deferred tax assets. Deferred tax balances
are not discounted.
(h) Pension and other post-retirement benefits
HSBC operates a number of pension and other post-retirement benefit schemes throughout the world.