Barclays 2010 Annual Report Download - page 198

Notes to the financial statements
For the year ended 31st December 2010 continued
1 Significant accounting policies continued
Commitment fees, together with related direct costs, for loan facilities where draw down is probable are deferred and recognised as an adjustment to the effective
interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not probable are recognised over the term of the commitment.
Insurance premiums
Insurance premiums are recognised in the period earned.
Net trading income
Income arises from both the sale and purchase of trading positions, 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 classifications of financial assets, and the accounting policies applicable to each classification, are as follows:
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, from 1st July 2008, of non-derivative
financial assets held for trading which may be transferred out of this category after initial classification where:
a) in rare circumstances, they are no longer held for the purpose of selling or repurchasing in the near term, or
b) they are no longer held for the purpose of trading, and they would have met the definition of loans and receivables on initial classification and the
Group has the intention and ability to hold them 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.
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.
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.
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).
196 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10