as at December 31, 2003 - EFG Bank Group

Notes to the Consolidated Financial Statements (continued)
(q) Leases
Accounting for leases as lessee
Leases of property, plant and equipment where
the Group has substantially all the risks and
rewards of ownership are classified as finance
leases. Finance leases are capitalised at the
inception of the lease at the lower of the fair value
of the leased property or the present value of the
minimum lease payments. Each lease payment is
allocated between the liability and finance
charges so as to achieve a constant rate on the
finance balance outstanding. The corresponding
rental obligations, net of finance charges, are
included in other liabilities. The interest element
of the finance cost is charged to the statement of
income over the lease period. The property, plant
and equipment acquired under finance leases is
depreciated over the shorter of the useful life of
the asset or the lease term.
Leases where a significant portion of the risks
and rewards of ownership are retained by the
lessor are classified as operating leases. Payments
made under operating leases (net of any
incentives received from the lessor) are charged to
the statement of income on a straight-line basis
over the period of the lease.
Accounting for leases as lessor
i) Finance leases
When assets are leased out under a finance lease,
the present value of the lease payments is
recognised as a receivable. The difference
between the gross receivable and the present
value of the receivable is recognised as unearned
finance income. Lease income is recognised over
the term of the lease using the net investment
method, which reflects a constant periodic rate of
return.
ii) Operating leases
Assets leased out under operating leases are
included in property, plant and equipment in the
balance sheet. They are depreciated over their
expected useful lives on a basis consistent with
similar owned property, plant and equipment.
Rental income (net of any incentives given to
lessees) is recognised on a straight-line basis over
the lease term.
Annual Report 2003
(r) Income tax
Deferred income tax is provided, using the
liability method, on all temporary differences
arising between the tax bases of assets and
liabilities and their carrying values for financial
reporting purposes. The expected effective tax
rates are used to determine deferred income tax.
The principal temporary differences arise from
loan provisions, depreciation of fixed assets and
revaluation of certain financial assets.
Deferred tax assets are only recognised to the
extent that it is probable that they will crystallise
in the future. Deferred tax related to changes to
fair values of available-for-sale investments and
cash flow hedges, which are taken directly to
equity, is also charged or credited directly to
equity and is subsequently recognised in the
statement of income, together with the deferred
gain or loss.
Income tax payable on profits, based on the
applicable tax law in each jurisdiction is
recognised as an expense in the period in which
profits arise. The tax effects of income tax losses
available for carry forward are recognised as an
asset when it is probable that future taxable
profits will be available against which these losses
can be utilised.
(s) Staff retirement indemnities
In accordance with local labour legislation at
some of the Group’s subsidiaries, if employees
remain in their employment until normal
retirement age, they are entitled to a lump sum
payment based on the number of years’ service
and the level of remuneration at the date of
retirement. Provision has been made for the
actuarial value of the lump sum payable on
retirement using the projected unit credit method.
Under this method, the cost of providing
retirement indemnities is charged to the statement
of income so as to spread the cost over the period
of service of the employees, in accordance with
actuarial valuations that are performed every
year. The pension obligation is measured at the
present value of the estimated future cash flows
using interest rates of government securities that
have terms to maturity approximating the terms
of the related liability.
Group
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