Barclays 2008 Annual Report Download - page 202

Reinsurance
Short- and long-term insurance business is ceded to reinsurers under
contracts to transfer part or all of one or more of the following risks:
mortality, investment and expenses. All such contracts are dealt with as
insurance contracts. The benefits to which the Group is entitled under its
reinsurance contracts are recognised as reinsurance assets. The Group
assesses reinsurance assets at each balance sheet date. If there
is objective evidence of impairment, the carrying amount of the
reinsurance asset is reduced accordingly resulting in a charge to the
income statement.
20. Leases
Lessor
Assets leased to customers under agreements, which transfer
substantially all the risks and rewards of ownership, with or without
ultimate legal title, are classified as finance leases. When assets are
held subject to a finance lease, the present value of the lease payments,
discounted at the rate of interest implicit in the lease, is recognised
as a receivable. The difference between the total payments receivable
under the lease and the present value of the receivable is recognised as
unearned finance income, which is allocated to accounting periods
under the pre-tax net investment method to reflect a constant periodic
rate of return.
Assets leased to customers under agreements which do not transfer
substantially all the risks and rewards of ownership are classified as
operating leases. The leased assets are included within property, plant
and equipment on the Group’s balance sheet and depreciation is provided
on the depreciable amount of these assets on a systematic basis over
their estimated useful lives. Lease income is recognised on a straight-line
basis over the period of the lease unless another systematic basis is
more appropriate.
Lessee
The leases entered into by the Group are primarily operating leases.
Operating lease rentals payable are recognised as an expense in the
income statement on a straight-line basis over the lease term unless
another systematic basis is more appropriate.
21. Employee benefits
The Group provides employees worldwide with post-retirement benefits
mainly in the form of pensions. The Group operates a number of pension
schemes which may be funded or unfunded and of a defined contribution
or defined benefit nature. In addition, the Group contributes, according to
local law in the various countries in which it operates, to Governmental and
other plans which have the characteristics of defined contribution plans.
For defined benefit schemes, actuarial valuation of each of the
scheme’s obligations using the projected unit credit method and the fair
valuation of each of the scheme’s assets are performed annually, using the
assumptions set out in Note 30. The difference between the fair value of
the plan assets and the present value of the defined benefit obligation at
the balance sheet date, adjusted for any historic unrecognised actuarial
gains or losses and past service cost, is recognised as a liability in the
balance sheet. An asset, arising for example, as a result of past over
funding or the performance of the plan investments, is recognised to the
extent that it does not exceed the present value of future contribution
holidays or refunds of contributions.
Cumulative actuarial gains and losses in excess of the greater of 10%
of the assets or 10% of the obligations of the plan are recognised in the
income statement over the remaining average service lives of the
employees of the related plan, on a straight-line basis.
For defined contribution schemes, the Group recognises
contributions due in respect of the accounting period in the income
statement. Any contributions unpaid at the balance sheet date are
included as a liability.
The Group also provides health care to certain retired employees,
which are accrued as a liability in the financial statements over the period
of employment, using a methodology similar to that for defined benefit
pensions plans.
Short-term employee benefits, such as salaries, paid absences, and
other benefits, are accounted for on an accruals basis over the period
which employees have provided services in the year. Bonuses are
recognised to the extent that the Group has a present obligation to its
employees that can be measured reliably.
All expenses related to employee benefits are recognised in the
income statement in staff costs, which is included within operating
expenses.
22. Share-based payments to employees
The Group engages in equity settled share-based payment transactions
in respect of services received from certain of its employees. The fair value
of the services received is measured by reference to the fair value of the
shares or share options granted on the date of the grant. The cost of the
employee services received in respect of the shares or share options
granted is recognised in the income statement over the period that the
services are received, which is the vesting period. The fair value of the
options granted is determined using option pricing models, which take
into account the exercise price of the option, the current share price, the
risk free interest rate, the expected volatility of the share price over the life
of the option and other relevant factors. Except for those which include
terms related to market conditions, vesting conditions included in the
terms of the grant are not taken into account in estimating fair value.
Non-market vesting conditions are taken into account by adjusting the
number of shares or share options included in the measurement of the
cost of employee services so that ultimately, the amount recognised in
the income statement reflects the number of vested shares or share
options. Where vesting conditions are related to market conditions, the
charges for the services received are recognised regardless of whether
or not the market related vesting condition is met, provided that the
non-market vesting conditions are met.
23. Provisions
Provisions are recognised for present obligations arising as consequences
of past events where it is more likely than not 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 or
a demonstrable commitment has been made to cease to use a property
where the costs exceed the benefits of the property, provision is made,
where the unavoidable costs of the future obligations relating to the lease
are expected to exceed anticipated rental income and other benefits.
The net costs are discounted using market rates of interest to reflect the
long-term nature of the cash flows.
Provision is made for the anticipated cost of restructuring, including
redundancy costs when an obligation exists. An obligation exists 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. The provision
raised is normally utilised within nine months.
Provision is made for undrawn loan commitments and similar facilities
if it is probable that the facility will be drawn and result in the recognition of
an asset at an amount less than the amount advanced.
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.
Consolidated accounts Barclays PLC
Accounting policies
200 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08