Aviva 2007 Annual Report Download - page 127
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Please find page 127 of the 2007 Aviva annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Collateral pledged in the form of cash, which is legally
segregated from the Group, is derecognised from the
balance sheet with a corresponding receivable for its
return. Non-cash collateral pledged is not derecognised
from the balance sheet unless the Group defaults on its
obligations under the relevant agreement, and therefore
continues to be recognised on the balance sheet within
the appropriate asset classification.
(W) Deferred acquisition costs
and other assets
The costs directly attributable to the acquisition of new
business for insurance and participating investment
contracts (excluding those written in the UK) are deferred
to the extent that they are expected to be recoverable
out of future margins in revenues on these contracts. For
participating contracts written in the UK, acquisition costs
are generally not deferred as the liability for these
contracts are calculated in accordance with the FSA’s
realistic capital regime and FRS 27. For non-participating
investment and investment fund management contracts,
incremental acquisition costs and sales enhancements that
are directly attributable to securing an investment
management service are also deferred.
Where such business is reinsured, an appropriate
proportion of the deferred acquisition costs is attributed to
the reinsurer, and is treated as a separate liability.
Long-term business deferred acquisition costs are
amortised systematically over a period no longer than that
in which they are expected to be recoverable out of these
margins. Deferrable acquisition costs for non-participating
investment and investment fund management contracts
are amortised over the period in which the service is
provided. General insurance and health deferred
acquisition costs are amortised over the period in which
the related revenues are earned. The reinsurers’ share of
deferred acquisition costs is amortised in the same manner
as the underlying asset.
Deferred acquisition costs are reviewed by category of
business at the end of each reporting period and are
written-off where they are no longer considered to be
recoverable.
Other assets include vehicles which are subject to
repurchase agreements and inventories of vehicle parts.
The former are carried at the lower of their agreed
repurchase price or net realisable value, whilst the latter
are carried at the lower of cost and net realisable value,
where cost is arrived at on the weighted average cost
formula or “first in first out” (FIFO) basis. Provision is made
against inventories which are obsolete or surplus to
requirements.
(X) Cash flow statement
Cash and cash equivalents
Cash and cash equivalents consist of cash at banks and in
hand, deposits held at call with banks, treasury bills and
other short-term 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
certificates of deposit.
For the purposes of the cash flow statement, cash and
cash equivalents also include bank overdrafts, which are
included in payables and other financial liabilities on the
balance sheet.
Operating cash flows
Purchases and sales of investment property, loans and
financial investments are included within operating cash
flows as the purchases are funded from cash flows
associated with the origination of insurance and
investment contracts, net of payments of related benefits
and claims.
(Y) Leases
Leases, where a significant portion of the risks and
rewards of ownership is retained by the lessor, are
classified as operating leases. Assets held for use in such
leases are included in property and equipment, and are
depreciated to their residual values over their estimated
useful lives. Rentals from such leases are credited to the
income statement on a straight-line basis over the period
of the relevant leases. Payments made as lessees under
operating leases (net of any incentives received from the
lessor) are charged to the income statement on a straight-
line basis over the period of the relevant leases.
(Z) Provisions and contingent liabilities
Provisions are recognised when the Group has a present
legal or constructive obligation as a result of past events,
it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation,
and a reliable estimate of the amount of the obligation
can be made. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only
when the reimbursement is more probable than not.
The Group recognises a provision for onerous contracts
when the expected benefits to be derived from a contract
are less than the unavoidable costs of meeting the
obligations under the contract.
Contingent liabilities are disclosed if there is a possible
future obligation as a result of a past event, or if there is a
present obligation as a result of a past event but either a
payment is not probable or the amount cannot be reliably
estimated.
(AA) Employee benefits
Annual leave and long service leave
Employee entitlements to annual leave and long service
leave are recognised when they accrue to employees.
A provision is made for the estimated liability for annual
leave and long service leave as a result of services rendered
by employees up to the balance sheet date.
Pension obligations
The Group operates a large number of pension schemes
around the world, whose members receive benefits on
either a defined benefit basis (generally related to a
member’s final salary and length of service) or a defined
contribution basis (generally related to the amount
invested, investment return and annuity rates), the assets of
which are generally held in separate trustee-administered
funds. The pension plans are generally funded by payments
from employees and the relevant Group companies, taking
account of the recommendations of qualified actuaries.
Aviva plc
Annual Report and
Accounts 2007
123
Financial
statements