COMMERZBANK AKTIENGESELLSCHAFT

Group Financial Statements
274
218 Commerzbank Annual Report 2011
These potential replacement costs must be factored in
when determining the fair value of trading positions.
Commerzbank establishes Counterparty Default
Adjustments (CDAs) for these positions, which reflect the
expected loss from any potential counterparty default.
Gains or losses on measurement or disposal are
recorded under net trading income in the income
statement. In addition to realised and unrealised gains
and losses, net trading income also includes the interest
and dividend income and funding costs related to trading
positions.
– Financial instruments designated at fair value through
profit or loss:
Under the fair value option it is permissible to voluntarily
measure any financial instrument at fair value and to
recognise the net result of this valuation in the income
statement. The decision as to whether or not to use the
fair value option must be made upon acquisition of the
financial instrument and is irrevocable. The fair value
option may be applied to a financial instrument provided
that:
– an accounting mismatch will be prevented or
significantly reduced; or
– a portfolio of financial instruments is managed, and its
performance measured, on a fair value basis; or
– the financial instrument has one or more embedded
derivatives that must be separated.
Financial instruments for which the fair value option is
employed are shown in the appropriate balance sheet item
for their respective category. Gains and losses on
remeasurement are recognised in profit or loss under net
trading income, while interest income and expenses are
reported in net interest income. Further details on how
and to what extent the fair value option is used in the
Commerzbank Group can be found in Note 82.
• Available-for-sale financial assets:
This category comprises all non-derivative financial assets
not assignable to one of the above categories or which have
been designated as available-for-sale. Primarily, these are
interest-bearing securities, equities and equity holdings.
They are measured at fair value. If the fair value cannot be
established on an active market, items are measured by
means of comparable prices, indicative prices of pricing
service providers or other banks (lead managers) or internal
valuation models (net present value or option pricing
models). If in exceptional cases the fair value of equity
instruments cannot be reliably determined, measurement is
at amortised cost less any impairments required. Gains and
losses on remeasurement are shown net of deferred taxes in
equity in a separate item within other reserves (revaluation
reserve). Premiums and discounts on debt instruments are
recognised in profit or loss under net interest income over
the life of the instrument. Interest income, dividends and
current profits and losses from equity holdings classified in
this category are also reported under net interest income. If
the financial asset is sold, the cumulative measurement gain
or loss previously recognised in the revaluation reserve is
reversed and taken to profit or loss.
In accordance with IAS 39.59 financial instruments in this
category must be monitored for any objective indications of a
loss (such as breach of contract, loss event, increased
likelihood of bankruptcy proceedings or insolvency) incurred
after the date of initial recognition that would lead to a
reduction in the cash flow arising from them. An impairment
exists when the net present value of the expected cash flows
is lower than the carrying value of the financial instrument
concerned. In the event of an impairment, the net change on
remeasurement is no longer recognised in the revaluation
reserve in equity but must be taken through the income
statement under net investment income as an impairment
charge.