Barclays 2005 Annual Report Download - page 145

Barclays PLC
Annual Report 2005 143
3.5
Consolidated accounts Barclays PLC
Accounting policies
The carrying amount of the fixed asset will only be increased up to the
amount that it would have been had the original impairment not been
recognised. Impairment losses on goodwill are not reversed. For the
purpose of conducting impairment reviews, cash-generating units are
the lowest level at which management monitors the return on
investment on assets.
19. Financial guarantees
Financial guarantee contracts are contracts that require the issuer to
make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payments when due, in
accordance with the terms of a debt instrument.
Such financial guarantees are given to banks, financial institutions and
other bodies on behalf of customers to secure loans, overdrafts and
other banking facilities (‘facility guarantees’), and to other parties in
connection with the performance of customers under obligations
related to contracts, advance payments made by other parties, tenders,
retentions and the payment of import duties.
Financial guarantees are initially recognised in the financial statements
at fair value on the date that the guarantee was given. Other than where
the fair value option is applied, subsequent to initial recognition, the
bank’s liabilities under such guarantees are measured at the higher of
the initial measurement, less amortisation calculated to recognise in the
income statement the fee income earned over the period, and the best
estimate of the expenditure required to settle any financial obligation
arising as a result of the guarantees at the balance sheet date.
Any increase in the liability relating to guarantees is taken to the
income statement in Provisions for undrawn contractually committed
facilities and guarantees provided. Any liability remaining is recognised
in the income statement when the guarantee is discharged, cancelled
or expires.
This is in accordance with the amendments to IAS 39 and IFRS 4,
‘Financial Guarantee Contracts’. This policy has been applied from
1st January 2004 and has had an immaterial impact on the 2004
income statement and earnings per share, and has reduced retained
earnings by £34m as at 1st January 2004.
20. Issued debt and equity securities
From 1st January 2005
Issued financial instruments or their components are classified as
liabilities where the contractual arrangement results in the Group
having a present obligation to either deliver cash or another financial
asset to the holder, to exchange financial instruments on terms that
are potentially unfavourable, or to satisfy the obligation otherwise than
by the exchange of a fixed amount of cash or another financial asset
for a fixed number of equity shares. Issued financial instruments, or
their components, are classified as equity where they meet the
definition of equity and confer on the holder a residual interest in the
assets of the company. Financial instruments issued which contain
both liability and equity elements are accounted for separately with the
equity component being assigned the residual amount, after deducting
from the instrument as a whole the amount separately determined as
the fair value of the liability component.
Financial liabilities, other than trading liabilities and financial liabilities
designated at fair value, are carried at amortised cost using the
effective interest method as set out in policy 9. Derivatives embedded
in financial liabilities that are not designated at fair value are accounted
for as set out in accounting policy 15.
Equity instruments, including share capital, are initially recognised at
net proceeds, after deducting transaction costs and any related income
tax. Dividend and other payments to equity holders are deducted from
equity, net of any related tax.
Prior to 1st January 2005
Debt securities in issue and similar securities are stated at the net issue
proceeds adjusted for amortisation of premiums, discounts and
expenses related to their issue where the liability is a fixed amount.
Where the liability fluctuates, based on, for example, the performance of
an index, then the debt security reflects the current value of the liability.
Loan capital in issue is stated at the net issue proceeds adjusted for
amortisation of premiums, discounts and expenses related to their
issue. Amortisation is calculated in order to achieve a constant yield
across the life of the instrument.
21. Share capital
Share issue costs
Incremental costs directly attributable to the issue of new shares or
options or the acquisition of a business are shown in equity as a
deduction, net of tax, from the proceeds.
Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period
in which they are paid or, if earlier, approved by the Barclays PLC
shareholders.
Treasury shares
Where the Company or any member of the Group purchases the
Company’s share capital, the consideration paid is deducted from
shareholders’ equity as treasury shares until they are cancelled.
Where such shares are subsequently sold or reissued, any
consideration received is included in shareholders’ equity.
22. Insurance contracts and investment contracts
The Group offers wealth management, term assurance, annuity,
property and payment protection insurance products to customers
that take the form of long- and short-term insurance contracts.
From 1st January 2005
The Group has applied IFRS 4, ‘Insurance contracts’ to insurance
contracts and contracts with a discretionary participation feature from
1st January 2005. The Group classifies its wealth management and
other products as insurance contracts where these transfer significant
insurance risk, generally where the benefits payable on the occurrence
of an insured event are at least 5% more than the benefits that would
be payable if the insured event does not occur.
Wealth management contracts that do not contain significant
insurance risk or discretionary participation features are classified
as investment contracts. Financial assets and liabilities relating to
investment contracts, and assets backing insurance contracts are
classified and measured as appropriate under IAS 39, ‘Financial
Instruments: Recognition and Measurement’.
Long-term insurance contracts
These contracts, insure events associated with human life (for
example, death or survival) over a long duration. Premiums are
recognised as revenue when they become payable by the contract
holder. Claims and surrenders are accounted for when notified.
Maturities on the policy maturity date and regular withdrawals are
accounted for when due.