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

Assets are tested for impairment at annual and interim reporting dates. Ifthere is evidence of a long-term reduction in the value of the asset concerned,this is recognized in the profit and loss account on the basis of market prices inthe case of listed instruments, and of estimated future cash flows discountedaccording to the original effective interest rate in the case of unlisted securities. Ifthe reasons which brought about the loss of value subsequently cease to apply,the impairment is written back to the profit and loss account up to the value ofamortized cost.Loans and receivablesThese comprise loans to customers and banks which provide for fixed orotherwise determinable payments that are not quoted in an active market andwhich cannot therefore be classified as available for sale. Repos and receivablesdue in respect of finance leasing transactions are also included, as are illiquidand/or unlisted fixed securities.Loans and receivables are booked on disbursement at a value equal to theamount drawn plus (less) any income (expenses) directly attributable toindividual transactions and determinable from the outset despite being payable ata later date. The item does not, however, include costs subject to separaterepayment by the borrower, or which may otherwise be accounted for as ordinaryinternal administrative costs. Repos and reverse repos are booked as funding orlending transactions for the spot amount received or paid. Non-performing loansacquired are booked at amortized cost on the basis of an internal rate of returncalculated using estimates of expected recoverable amounts.Loans and receivables are stated at amortized cost, i.e. initial valuesadjusted upwards or downwards to reflect: repayments of principal, amountswritten down/back, and the difference between amounts drawn at disbursementand repayable at maturity amortized on the basis of the effective interest rate. Thelatter is defined as the rate of interest which renders the discounted value offuture cash flows deriving from the loan or receivable by way of principal andinterest equal to the initial recognition value of the loan or receivable.Individual items are tested at annual and interim reporting dates to showwhether or not there is evidence of impairment. Items reflecting such evidenceare then subjected to analytical testing, and, if appropriate, adjusted to reflect thedifference between their carrying amount at the time of the impairment test(amortized cost), and the present value of estimated future cash flows discountedat the asset’s original effective interest rate. Future cash flows are estimated totake account of anticipated collection times, the presumed value of receivablesupon disposal of any collateral, and costs likely to be incurred in order to recover78 –