Barclays 2004 Annual Report Download - page 129

Barclays PLC Annual Report 2004
127
ownership remain with the Group. Similarly, securities purchased
subject to a commitment to resell are treated as collateralised lending
transactions where the Group does not acquire the risks and rewards
of ownership.
(n) Pensions and Other Post-retirement Benefits
The Group provides pension plans for employees in most parts of the
world. Arrangements for staff retirement benefits in overseas locations
vary from country to country and are made in accordance with local
regulations and customs. For defined contribution schemes, the
pension cost recognised in the profit and loss account represents the
contributions payable to the scheme. The majority of UK staff are
members of The Barclays Bank UK Retirement Fund (the UKRF) which
comprises five sections. These are a defined benefit scheme (the 1964
Pension Scheme) and a defined contribution scheme (the Retirement
Investment Scheme), which are both now closed to new members,
a hybrid scheme, afterwork, and a defined contribution scheme, the
Pension Investment Plan. Details are set out in Note 4. Other UK staff
are covered by broadly comparable schemes which are accounted for
on a comparable basis. The assets of the UKRF are held separately
from the assets of the Group and are administered by a trustee. The
pension cost for the defined benefit scheme is assessed in accordance
with the advice of a qualified actuary, using the projected unit method.
Variations from the regular cost are allocated over the expected
average service lives of current employees. Provisions for pensions
arise when the profit and loss account charge exceeds the contribution
to the scheme as a result of actuarial valuations. These provisions will
be eliminated over the estimated service lives of the employees. The
basis of estimation is set out in Note 4 on page 140. The Group also
provides post-retirement health care to certain staff and pensioners
in the UK and US. Where appropriate, provisions for post-retirement
benefits are raised on a basis similar to that detailed for defined
benefit pension schemes. Where an actuarial basis is not appropriate,
provisions are recognised in accordance with the policy on non-credit
risk provisions (see (q) below).
(o) Finance Leases
Assets leased to customers under agreements which transfer
substantially all the risks and rewards of ownership, other than legal
title, are classified as finance leases. Finance lease receivables are
included in loans and advances to customers. Gross earnings under
finance leases are allocated to accounting periods in such a way as
to give a constant periodic rate of return on the net cash investment.
Finance lease receivables are stated at the cost of the equipment,
including gross earnings to date, less rentals received to date.
(p) Deferred Tax
Deferred tax is provided in full in respect of timing differences that
have originated but not reversed at the balance sheet date. Timing
differences are differences between the Group’s taxable profits and its
results as stated in the accounts that arise from the inclusion of gains
and losses in tax assessments in periods different from those in which
they are recognised in the financial statements. Deferred tax is not
provided on permanent differences. Deferred tax assets are recognised
to the extent that it is regarded as more likely than not that they
will be recoverable. Deferred tax is not provided on the unremitted
earnings of subsidiary undertakings, joint ventures and associated
undertakings except to the extent that dividends have been accrued or
a binding agreement to distribute past earnings in the future has been
entered into.
Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the timing differences are expected
to reverse, based on tax rates and laws that have been enacted or
substantially enacted by the balance sheet date. Deferred tax is not
discounted.
(q) Non-credit Risk Provisions
Provisions are recognised for present obligations arising as
consequences of past events where it is probable that a transfer of
economic benefit will be necessary to settle the obligation and it can
be reliably estimated.
When a leasehold property ceases to be used in the business, provision
is made where the unavoidable costs of the future obligations relating
to the lease are expected to exceed anticipated income. The provision
is discounted using market rates to reflect the long-term nature of the
cash flows.
When the Group has a detailed formal plan for restructuring
a business and has raised valid expectations in those affected by
the restructuring by starting to implement the plan or announcing
its main features, provision is made for the anticipated cost of
the restructuring, including redundancy costs. The provision raised
is normally utilised within 12 months.
Contingent liabilities are possible obligations whose existence will
be confirmed only by uncertain future events or present obligations
where the transfer of economic benefit is uncertain or cannot be
reliably measured. Contingent liabilities are not recognised but are
disclosed unless they are remote.
(r) Derivatives
Derivatives are used to hedge interest, exchange rate, commodity and
equity exposures related to non-trading positions. Instruments used
for hedging purposes include swaps, equity derivatives, forward rate
agreements, futures, options and combinations of these instruments.
In addition, the use of derivatives and their sale to customers as risk
management products is an integral part of the Group’s trading
activities. Derivatives entered into for trading purposes include
swaps, equity derivatives, credit derivatives, commodity derivatives,
forward rate agreements, futures, options and combinations of
these instruments.
Derivatives used for asset and liability management purposes
Derivatives used for hedging purposes are measured on an accruals
basis consistent with the assets, liabilities, positions or future cash
flows being hedged. The gains and losses on these instruments (arising
from changes in fair value) are not recognised in the profit and loss
account immediately as they arise. Such gains are either not
recognised in the balance sheet or are recognised and carried forward.
When the hedged transaction occurs, the gain or loss is recognised in
the profit and loss account at the same time as the hedged item.