HSBC 2010 Annual Report Download - page 272

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
2 – Summary of significant accounting policies / 3 – Net income from financial instruments at fair value
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(z) Debt securities issued and deposits by customers and banks
Financial liabilities are recognised when HSBC enters into the contractual provisions of the arrangements with
counterparties, which is generally on trade date, and initially measured at fair value, which is normally the
consideration received, net of directly attributable transaction costs incurred. Subsequent measurement of
financial liabilities, other than those measured at fair value through profit or loss and financial guarantees, is
at amortised cost, using the effective interest method to amortise the difference between proceeds received, net
of directly attributable transaction costs incurred, and the redemption amount over the expected life of the
instrument.
(aa) Share capital
Shares are classified as equity when there is no contractual obligation to transfer cash or other financial assets.
Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from
the proceeds, net of tax.
HSBC Holdings plc shares held by HSBC are recognised in equity as a deduction from retained earnings until
they are cancelled. When such shares are subsequently sold, reissued or otherwise disposed of, any consideration
received is included in equity, net of any directly attributable incremental transaction costs and related income
tax effects.
(ab) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in
value. Such investments are normally those with less than three months’ maturity from the date of acquisition,
and include cash and balances at central banks, treasury bills and other eligible bills, loans and advances to
banks, items in the course of collection from or in transmission to other banks, and certificates of deposit.
(ac) Rights issues
Rights issues to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any
currency are equity instruments if the entity offers the rights issues pro rata to all of its existing owners of the
same class of its own non-derivative equity instruments. On initial recognition, these rights are recognised in
shareholders’ equity and are not subsequently re-measured during the offer period. Following the exercise of
the rights and the allotment of new shares, the cash proceeds of the rights issue are recognised in shareholders’
equity. Incremental costs directly attributable to the rights issue are shown as a deduction from the proceeds,
net of tax.