HSBC 2005 Annual Report Download - page 259

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(y) Debt securities in issue and subordinated liabilities
Debt securities in issue are initially measured at fair value, which is normally the consideration received net of
directly attributable transaction costs incurred. Subsequent measurement is at amortised cost, using the effective
interest rate method to amortise the difference between proceeds net of directly attributable transaction costs and
the redemption amount over the expected life of the debt, unless the securities are designated at fair value
(Note 2h).
(z) Share capital
Shares are classified as equity when there is no contractual obligation to transfer cash or other financial assets.
Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from
the proceeds, net of tax.
HSBC Holdings plc shares held by HSBC are recognised in Total shareholders’ equity as a deduction from
retained earnings until they are cancelled. When such shares are subsequently sold, reissued or otherwise
disposed of, any consideration received is included in Total shareholders’ equity, net of any directly attributable
incremental transaction costs and related income tax effects.
(aa)Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents include highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.
Such investments are normally those with less than three months’ maturity from the date of acquisition, and
include cash and balances at central banks, treasury bills and other eligible bills, loans and advances to banks,
and certificates of deposit.
3 Net income from financial instruments designated at fair value
Net income from financial instruments designated at fair value includes:
• all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value,
including liabilities under investment contracts;
• all gains and losses from changes in the fair value of derivatives that are managed in conjunction with financial
assets and liabilities designated at fair value; and
• interest income, interest expense and dividend income in respect of:
– financial assets and liabilities designated at fair value;
– derivatives managed in conjunction with the above,
except for interest expense arising on HSBC’s debt securities in issue and subordinated liabilities, together with
the interest element of derivatives managed in conjunction with them, which are recognised in ‘Interest
expense’.