Annual Report - VÚB banka

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3. Summary of significant accounting policies (continued)
3.19 Leasing
The determination of whether an arrangement is a
finance lease is based on the substance of the arrangement
and requires an assessment of whether:
- the fulfillment of the arrangement is dependent
on the use of a specifi c asset or assets that could
only be used by the lessee without major modifi -
cations being made,
- the lease transfers ownership of the asset at the
end of the lease term,
- the VUB Group has the option to purchase the asset
at a price suffi ciently below fair value at exercise
date,
- it is reasonably certain the option will be exercised,
- the lease term is for a major part of the asset’s
economic life even if title is not transferred,
- the present value of minimum lease payments substantially
equals the asset’s fair value at inception.
VUB Group as a lessee
Finance leases, which transfer to the VUB Group substantially
all the risks and benefits incidental to ownership
of the leased item, are capitalized at the inception
of the lease at the fair value of the leased property
or, if lower, at the present value of the minimum lease
payments and included in ‘Property and equipment’
with the corresponding liability to the lessor included
in ‘Other liabilities’. Lease payments are apportioned
between the finance charges and reduction of the
lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance
charges are charged directly against income in ‘Interest
expense and similar charges’.
Capitalized leased assets are depreciated over the
shorter of the estimated useful life of the asset and
the lease term, if there is no reasonable certainty
that the VUB Group will obtain ownership by the end
of the lease term.
Operating lease payments are not recognized in the
balance sheet. Any rentals payable are accounted
for on a straight-line basis over the lease term and
included in ‘Other operating expenses’.
VUB Group as a lessor
Leases where the VUB Group transfers substantially
all the risk and benefits of ownership of the asset are
classified as finance leases. Leases are recognized
upon acceptance of the asset by the customer at an
amount equal to the net investment in the lease. The
sum of future minimum lease payments and initial
origination fees equate to the gross investment in the
lease. The difference between the gross and net investment
in the lease represents unearned finance income,
which is recognized as revenue in ‘Interest and
similar income’ over the lease term at a constant periodic
rate of return on the net investment in the lease.
3.20 Provisions
Provisions are recognized when the VUB Group has
a present obligation (legal or constructive) as a result
of a past event, and it is probable that an outfl ow of
resources embodying economic benefi ts will be required
to settle the obligation and a reliable estimate
can be made of the amount of the obligation.
3.21 Financial guarantees
Financial guarantees are contracts that require
the VUB Group to make specifi ed payments to reimburse
the holder for a loss it incurs because a
specifi ed debtor fails to make a payment when it
falls due in accordance with the terms of a debt instrument
consisting of letters of credit, guarantees
and acceptances.
Financial guarantee liabilities are initially recognized
at their fair value, and the initial fair value is amortized
over the life of the financial guarantee in the income
statement in ‘Fee and commission income’ on
a straight line basis. The guarantee liability is subsequently
carried at the higher of this amortized amount
and the present value of any expected payment (when
a payment under the guarantee has become probable).
Financial guarantees are included within ‘Other
liabilities’. Any increase in the liability relating to fi nancial
guarantees is recorded in the income statement
in ‘Impairment losses and provisions’.
Annual Report 2007