Annual Report 2010 (PDF) - USB Bank

Summary of Significant Accounting Policies
at 31 December 2010
10. Financial instruments (continued)
(v) Investments (continued)
Available for sale investments
Available-for-sale investments are those which are designated as such or do not qualify to be classified as
‘Investments held-to-maturity’ or ‘Loans and receivables’. These investments can be sold in response to
changes in market risks or liquidity requirements and include equity securities and debt securities.
After initial recognition, available-for-sale investments are measured at fair value. Unrealised gains and
losses from changes in fair value are recognised directly in equity in the ‘Revaluation reserve of available-forsale
investments’. When the investment is disposed of, the cumulative gain or loss previously recognised
in equity is recognised in the income statement in ‘Net gains on available for sale investments’. Where
the Bank holds more than one investment in the same security, they are deemed to be disposed of
on a weighted average cost basis. Interest income from available-for-sale debt securities is recorded as
‘Interest income’ using the effective interest rate method. Dividend income from available-for-sale equity
securities is recognised in the consolidated income statement in ‘Other income’ when the right to receive
payment has been established. Impairment losses on available-for-sale investments are recognised in the
income statement in ‘Losses on sale, revaluation and impairment of financial instruments’.
Available for sale investments are measured at fair value, based on market prices for listed securities.
Impairment of available for sale investments
For investments available for sale, the Bank assess at each reporting date whether there is objective
evidence that they have suffered an impairment loss.
For shares classified as available for sale, objective evidence include a significant or prolonged decline
in fair value below cost. Where there is objective evidence that an impairment loss exists, the amount
of total loss - measured as the difference between the acquisition cost and current fair value less the
impairment loss of investment, previously recognized in profit or loss - is removed from the ‘investment
revaluation reserve’ and recognized in the ‘Income from available for sale investments’ in the income
statement. Impairment losses on equity investments are not reversed through profit or loss. Increases in
fair value after impairment, are recognized in the ‘investment revaluation reserve’ in equity.
For bonds classified as available for sale, the assessment for impairment is based on the same criteria as
those applicable to investments held-to maturity carried at amortized cost. If at a later period, the amount
of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the recognition of impairment, the impairment loss previously recognized is reversed in ‘Loss from
revaluation, sale and impairment of financial instruments’ through the income statement.
(vi) Deposits and subordinate loan stock
Deposits and subordinate loan stock are initially measured at the fair value of the consideration received,
net of any issue costs. They are subsequently measured at amortised cost using the effective yield
method.
subordinated loan stock and convertible bonds are classified as financial liabilities when the Bank is
obliged to pay its contractual obligations with cash or other assets other than the exchange of a fixed
amount of cash to a specific number of treasure shares. Subordinated loan stock and convertible bonds
are measured at fair value of consideration received, net of issuance costs. Subsequently, they are
measured at amortised cost using the effective interest method. The value of embedded derivative
financial instruments is included in the amount of the liabilities in the statement of financial position.
Interest on deposits, loan capital and convertible bonds is included in ‘Interest Income’.
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