HSBC 2012 Annual Report Download - page 384

HSBC HOLDINGS PLC
Financial Statements (continued)
Footnotes // Notes on the Financial Statements > 1 – Basis of preparation
382
Footnotes to Financial Statements
1 The ‘Critical accounting policies’ on pages 54 to 57, the audited sections of ‘Risk’ on pages 123 to 280 and the audited sections of
‘Capital’ on pages 281 to 300 are also an integral part of these financial statements.
2 Fair value gains in available-for-sale investments for 2012 include US$737m relating to the investment in Ping An classified as assets
held for sale.
3 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line
basis, as details cannot be determined without unreasonable expense.
4 Share premium includes a nil deduction in respect of issuance costs incurred during the year (2011: US$2m; 2010: US$1m).
5 Cumulative goodwill amounting to US$5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to
1 January 1998, including US$3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance
of US$1,669m has been charged against retained earnings.
6 Retained earnings include 86,394,826 (US$874m) of own shares held within HSBC’s Insurance business, retirement funds for the
benefit of policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee
share schemes or bonus plans, and the market-making activities in Global Markets (2011: 98,498,019 (US$1,320m); 2010:
123,331,979 (US$1,799m)).
7 The movement in reserves relating to equity-settled share-based payment arrangement is recognised in ‘Retained earnings’ in the
‘Consolidated Statement of change in equity’ with effect from 1 January 2011. Previously it was disclosed separately in a ‘Share-based
payment reserve’ within ‘Other reserves’. Comparative data have been restated accordingly. The adjustment reduced ‘Other reserves’
and increased ‘Retained earnings’ by US$1,982m at 31 December 2012 (2011: US$2,274m; 2010: US$1,755m). There was no effect on
basic or diluted earnings per share following this change.
8 Amounts transferred to the income statement in respect of cash flow hedges include US$43m gain (2011: US$104m gain; 2010:
US$605m gain) taken to ‘Net interest income’ and US$380m gain (2011: US$893m loss; 2010: US$441m loss) taken to ‘Net trading
income’.
9 Statutory share premium relief under Section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of
HSBC Bank plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003 and the shares issued were recorded at their
nominal value only. In HSBC’s consolidated financial statements the fair value differences of US$8,290m in respect of HSBC France
and US$12,768m in respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the
acquisition of HSBC Finance Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’),
following a number of intra-group reorganisations. During 2009, pursuant to Section 131 of the Companies Act 1985, statutory share
premium relief was taken in respect of the rights issue and US$15,796m was recognised in the merger reserve. The merger reserve
includes the deduction of US$614m in respect of costs relating to the rights issue, of which US$149m was subsequently transferred to
the income statement. Of this US$149m, US$121m was a loss arising from accounting for the agreement with the underwriters as a
contingent forward contract. The merger reserve excludes the loss of US$344m on a forward foreign exchange contract associated with
hedging the proceeds of the rights issue.
10 Including distributions paid on preference shares and capital securities classified as equity.
11 During June 2010, HSBC Holdings issued US$3,800m of Perpetual Subordinated Capital Securities, Series 2 (‘capital securities’) on
which there were US$82m of external issuance costs and US$23m of intra-group issuance costs which are classified as equity under
IFRSs. The capital securities are exchangeable at HSBC Holdings’ option into non-cumulative US dollar preference shares on any
coupon payment date. Interest on the captial securities is paid quarterly and may be deferred at the discretion of HSBC Holdings. The
capital securities may only be redeemed at the option of HSBC Holdings.
12 Retained earnings include 3,903,901 (US$57m) of own shares held to fund employee share plans (2011: 33,557,764 (US$563m)).
13 Other paid-in capital arises from the exercise and lapse of share options granted to employees of HSBC Holdings subsidiaries.