Barclays 2009 Annual Report Download - page 197

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 195
Insurance premiums
Insurance premiums are recognised in the period earned.
Net trading income
Income arises from the margins which are achieved through market-making
and customer business and from changes in fair value caused by movements
in interest and exchange rates, equity prices and other market variables.
Trading positions are held at fair value and the resulting gains and losses are
included in the income statement, together with interest and dividends arising
from long and short positions and funding costs relating to trading activities.
Dividends
Dividends are recognised when the right to receive payment is established.
In the individual financial statements of Barclays PLC, this is when the
dividends are received or when the dividends are appropriately authorised
by the subsidiary.
7. Financial assets and liabilities
Financial assets
The Group classifies its financial assets in the following categories: financial
instruments at fair value through profit or loss; loans and receivables; held to
maturity investments and available for sale financial assets. Management
determines the classification of financial assets and liabilities at initial
recognition.
Financial instruments at fair value through profit or loss
Financial instruments are classified in this category if they are held for
trading, or if they are designated by management under the fair value
option. Instruments are classified as held for trading if they are:
a) acquired principally for the purposes of selling or repurchasing in the
near term;
b) part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent actual pattern of
short-term profit taking; or
c) a derivative, except for a derivative that is a financial guarantee contract
or a designated and effective hedging instrument.
It is not possible to transfer a financial instrument out of this category whilst
it is held or issued with the exception of non-derivative financial assets held
for trading which may be transferred out of this category from 1st July 2008
after initial classification where:
a) in rare circumstances, it is no longer held for the purpose of selling or
repurchasing in the near term, or
b) it is no longer held for the purpose of trading, it would have met the
definition of a loan and receivable on initial classification and the Group
has the intention and ability to hold it for the foreseeable future or until
maturity.
Financial instruments included in this category are recognised initially at fair
value and transaction costs are taken directly to the income statement.
Gains and losses arising from changes in fair value are included directly in
the income statement.
Regular way purchases and sales of financial instruments held for
trading or designated under the fair value option are recognised on trade
date, being the date on which the Group commits to purchase or sell the
asset. The fair value option is used in the following circumstances:
a) financial assets backing insurance contracts and financial assets backing
investment contracts are designated at fair value through profit or loss
because the related liabilities have cash flows that are contractually based
on the performance of the assets or the related liabilities are insurance
contracts whose measurement incorporates current information. Fair
valuing the assets through profit and loss significantly reduces the
recognition inconsistencies that would arise if the financial assets were
classified as available for sale;
b) financial assets, loans to customers, financial liabilities, financial
guarantees and structured notes may be designated at fair value through
profit or loss if they contain substantive embedded derivatives;
c) financial assets, loans to customers, financial liabilities, financial
guarantees and structured notes may be designated at fair value through
profit or loss where doing so significantly reduces measurement
inconsistencies that would arise if the related derivatives were treated as
held for trading and the underlying financial instruments were carried at
amortised cost; and
d) certain private equity and other investments that are managed, and
evaluated on a fair value basis in accordance with a documented risk
management or investment strategy and reported to key management
personnel on that basis.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market and which
are not classified as available for sale. Loans and receivables are initially
recognised at fair value, including direct and incremental transaction costs.
They are subsequently valued at amortised cost, using the effective interest
method (see accounting policy 6).
Regular way purchases and sales of loans and receivables are
recognised on contractual settlement.
Held to maturity
Held to maturity investments are non-derivative financial assets with fixed or
determinable payments that the Group’s management has the intention and
ability to hold to maturity. They are initially recognised at fair value including
direct and incremental transaction costs. They are subsequently valued at
amortised cost, using the effective interest method (see accounting policy 6).