Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

take account of anticipated collection times, the presumed value of receivablesupon disposal of any collateral, and costs likely to be incurred in order to recoverthe exposure. Cash flows from loans expected to be recovered in the short termare not discounted.The original effective interest rate for each loan remains unchanged insubsequent years, even if new terms are negotiated leading to a reduction tobelow market rates, including non-interest-bearing loans. The relevant valueadjustment is taken through the profit and loss account.If the reasons which brought about the loss of value cease to apply, theoriginal value of the loan is recovered in the profit and loss account in subsequentaccounting periods up to the value of amortized cost.Accounts for which there is objective evidence of impairment, includingthose involving counterparties in countries deemed to be at risk, are subject tocollective tests. Loans are grouped on the basis of similar credit riskcharacteristics, and the related loss percentages are estimated at the impairmentdate on the basis of historical series of internal and external data. Collectivevalue adjustments are credited or charged to the profit and loss account, asappropriate. At each annual and interim reporting date, any writedowns orwritebacks are remeasured on a differentiated basis with respect to the entireportfolio of loans deemed to be performing at that date.LeasingIAS 17 defines finance leases as transactions whereby risks and benefitsinvolved in owning the asset concerned are transferred to the lessee, andstipulates the criteria for identifying whether or not a lease is a finance oroperating lease. All leases entered into by the Bank qualify as finance leasesunder the terms of IAS 17. Accordingly, a receivable is booked at an amountequal to the net outlay involved in the finance lease transaction, plus any costsdirectly incurred in respect of negotiating and/or performing the contract.HedgesThere are two types of hedge:– fair value hedges, which are intended to offset the exposure of recognizedassets and liabilities to changes in their fair value;– 295