annual report - Hypo Real Estate Holding AG

Risikoberichtbericht
Expenses incurred centrally, including expenses incurred by support, administrative and back-office functions are
charged to the business segments as far as they are reasonably attributable to the business segments’ activities
in accordance with their estimated proportionate share of overall activities.
Segment assets and liabilities are those assets and liabilities that are directly attributable to the operating activities
of the segment.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”).
The consolidated financial statements are presented in Euro, which is the functional and presentation currency of
the parent.
(b) Transactions and balances
Foreign currency transactions are translated into Euro using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred in equity as qualifying cash flow hedges.
Translation differences on equities held at fair value through the profit and loss account are reported as part of the
fair value gain or loss in the income statement. Translation differences on equities classified as available-for-sale are
included in the fair value reserve in equity.
(c) Group companies
The results and financial position of all the Group entities that have a functional currency other than Euro are translated
into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that
balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognised as a separate component of equity.
Interest income and expense
Interest income and expense are recognised in the income statement for all interest bearing financial instruments
using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial
liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
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