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

AFS assets are initially recognized at fair value, which includes transactioncosts and income directly attributable to them. Thereafter they continue to bemeasured at fair value. Changes are recognized in a separate net equity reserve,which is then eliminated against the corresponding item in the profit and lossaccount as and when an asset is disposed of or impairment is recognized. Fairvalue is measured on the same principles as described for trading instruments.Equities for which it is not possible to reliably determine fair value are stated atcost. For debt securities included in this category the value of amortized cost isalso recognized against the corresponding item in the profit and loss account.Assets are subjected to impairment tests at annual and interim reportingdates. If there is evidence of a long-term reduction in the value of the assetconcerned, this is recognized in the profit and loss account on the basis of marketprices in the case of listed instruments, and of estimated future cash flowsdiscounted according to the original effective interest rate in the case of unlistedsecurities. For shares, in particular, the criteria used to determine impairment area reduction in fair value of over one half or for longer than twenty-four months, 1compared to the initial recognition value. If the reasons for which the loss wasrecorded subsequently cease to apply, the impairment is written back to the profitand loss account for debt securities to and net equity for shares.Financial assets held to maturityThese comprise debt securities with fixed or otherwise determinablepayments and fixed maturities which the Group’s management has the positiveintention and ability to hold to maturity.Such assets are initially recognized at fair value, which is calculated as atthe settlement date and includes any transaction costs or income directlyattributable to them. Following their initial recognition they are measured atamortized cost using the effective interest method. Differences between the initialrecognition value and the amount receivable at maturity are booked to the profitand loss account pro-rata.1The quantitative limit has been established at twenty-four months (rather than eighteen) in view of the Bank’investment profile and given the market benchmark; this change has generated no impact on the currentyear’s accounts.– 77