Annual Report 2010 - ProCredit Bank

assets and liabilities denominated in foreign currencies that are
measured at fair value are retranslated to the functional currency
at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognised
in profit or loss, except for differences arising on the retranslation
of available-for-sale equity instruments.
The exchange rates of major foreign currencies were:
Currency 31 December 31 December Increase
2010 2009 %
Euro (EUR) 1: RON 4.2848 1: RON 4.2282 1.34 %
US Dollar (USD) 1: RON 3.2045 1: RON 2.9361 9.14%
ii. Translation from functional to presentation currency
All assets and liabilities for all balance sheets presented (including
comparatives) have been translated from the functional currency
to the presentation currency at the closing rate existing at the date
of each balance sheet presented. Income and expense for all periods
presented (including comparatives) have been translated using
an average rate for the period (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). Share capital, retaining
earnings and all other reserves are translated at closing rates.
All exchange differences resulting from translation have been recognised
directly as a separate component in equity as translation
reserve.
The restatement and presentation procedures used according with
IAS 21 - The Effects of Changes in Foreign Exchange Rates, could
result in distortion of the figures presented in EUR compared with
real values.
b) Interest
Interest income and expense are recognised in the income statement
using the effective interest method. The effective interest rate
is the rate that exactly discounts the estimated future cash payments
and receipts through the expected life of the financial asset
or liability (or, where appropriate, a shorter period) to the carrying
amount of the financial asset or liability. The effective interest rate
is established on initial recognition of the financial asset and liability
and is not revised subsequently.
The calculation of the effective interest rate includes all fees and
points paid or received transaction costs, and discounts or premiums
that are an integral part of the effective interest rate. Transaction
costs are incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial asset or liability.
Interest income and expense presented in the income statement
include interest on financial assets and liabilities at amortised cost
on an effective interest rate basis and interest on available-for-sale
investment securities calculated on effective interest basis.
c) Fees and commission
Fees and commission income and expenses that are integral to the
effective interest rate on a financial asset or liability are included in
the measurement of the effective interest rate.
Other fees and commission income, including account servicing
fees, foreign currency transactions fees, fees for guarantees given
and opening of letter of credit fees are recognised as the related
services are performed on an accrual basis.
Other fees and commission expense relates mainly to transaction
and service fees, which are expensed as the services are received.
d) Net trading income
Net trading income comprises gains less loss related to foreign exchange
operations.
e) Dividends
Dividend income is recognised when the right to receive income
is established. Usually this is the ex-dividend date for equity securities.
Dividends are reflected as a component of other operating
income based on the underlying classification of the equity
instrument.
Dividends are treated as an appropriation of profit in the period
they are declared and approved by the General Assembly of Shareholders.
The only profit available for distribution is the profit for
the year recorded in the Romanian statutory accounts, which differs
from the profit in these financial statements, prepared in accordance
with IFRS, due to the differences between the applicable
Romanian Accounting Regulations and IFRS.
f) Lease payments made
Payments made under operating leases are recognised in profit or
loss on a straight-line basis over the term of the lease. Lease incentives
received are recognised as an integral part of the total lease
expense, over the term of the lease.
g) Income tax
Financial Statements 53
Income tax comprises current and deferred tax. Income tax is recognised
in the income statement except to the extent that it relates
to items recognised directly in equity, in which case it is recognised
in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect
of previous years. For the year ended 31 December 2010 the current
profit tax rate was 16% (31 December 2009: 16%).
Deferred tax is provided using the balance sheet method, providing
for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognised for the
following temporary differences: the initial recognition of goodwill,
the initial recognition of assets or liabilities in a transaction that
is not a business combination and that affects neither accounting
nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they probably will not reverse in the
foreseeable future. Deferred tax is measured at the tax rates that
are expected to be applied to the temporary differences when they
reverse, based on the laws that have been enacted or substantively
enacted by the reporting date. The tax rate used to calculate the
deferred tax position for the Bank at 31 December 2010 is 16% (31
December 2009: 16%).
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the
asset can be utilised. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends
are recognised at the same time as the liability to pay the
related dividend is recognised.