2012 Registration document and annual financial report - BNP Paribas

CONSOLIDATED FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2012Notes to the financial statements4Investment property comprises property assets held to generate rentalincome and capital gains.Property, plant and equipment and intangible assets are initiallyrecognised at purchase price plus directly attributable costs, togetherwith borrowing costs where a long period of construction or adaptationis required before the asset can be brought into service.Software developed internally by the BNP Paribas Group that fulfilsthe criteria for capitalisation is capitalised at direct development cost,which includes external costs and the labour costs of employees directlyattributable to the project.Subsequent to initial recognition, property, plant and equipment andintangible assets are measured at cost less accumulated depreciation oramortisation and any impairment losses. The only exceptions are sharesin civil property companies (SCIs) held in unit-linked insurance contractportfolios, which are measured at fair value on the balance sheet date,with changes in fair value taken to profit or loss.The depreciable amount of property, plant and equipment and intangibleassets is calculated after deducting the residual value of the asset. Onlyassets leased by the Group as the lessor under operating leases arepresumed to have a residual value, as the useful life of property, plantand equipment and intangible assets used in operations is generally thesame as their economic life.Property, plant and equipment and intangible assets are depreciatedor amortised using the straight-line method over the useful life of theasset. Depreciation and amortisation expense is recognised in the profitand loss account under “Depreciation, amortisation and impairment ofproperty, plant and equipment and intangible assets”.Where an asset consists of a number of components which mayrequire replacement at regular intervals, or which have different usesor generate economic benefits at different rates, each component isrecognised separately and depreciated using a method appropriate to thatcomponent. The BNP Paribas Group has adopted the component-basedapproach for property used in operations and for investment property.The depreciation periods used for office property are as follows: 80 yearsor 60 years for the shell (for prime and other property respectively); 30years for facades; 20 years for general and technical installations; and10 years for fixtures and fittings.Software is amortised, depending on its type, over periods of no morethan 8 years in the case of infrastructure developments and 3 years or5 years in the case of software developed primarily for the purpose ofproviding services to customers.Software maintenance costs are expensed as incurred. However,expenditure that is regarded as upgrading the software or extending itsuseful life is included in the initial acquisition or production cost.Depreciable property, plant and equipment and intangible assets aretested for impairment if there is an indication of potential impairment atthe balance sheet date. Non-depreciable assets are tested for impairmentat least annually, using the same method as for goodwill allocated tocash-generating units.If there is an indication of impairment, the new recoverable amountof the asset is compared with the carrying amount. If the asset isfound to be impaired, an impairment loss is recognised in the profitand loss account. This loss is reversed in the event of a change in theestimated recoverable amount or if there is no longer an indication ofimpairment. Impairment losses are taken to the profit and loss accountin “Depreciation, amortisation and impairment of property, plant andequipment and intangible assets”.Gains and losses on disposals of property, plant and equipment andintangible assets used in operations are recognised in the profit and lossaccount in “Net gain on non-current assets”.Gains and losses on disposals of investment property are recognised inthe profit and loss account in “Income from other activities” or “Expenseson other activities”.1.f LEASESGroup companies may either be the lessee or the lessor in a leaseagreement.1.f.1Lessor accountingLeases contracted by the Group as lessor are categorised as either financeleases or operating leases.Finance leasesIn a finance lease, the lessor transfers substantially all the risks andrewards of ownership of an asset to the lessee. It is treated as a loanmade to the lessee to finance the purchase of the asset.The present value of the lease payments, plus any residual value, isrecognised as a receivable. The net income earned from the lease by thelessor is equal to the amount of interest on the loan, and is taken to theprofit and loss account under “Interest income”. The lease payments arespread over the lease term, and are allocated to reduction of the principaland to interest such that the net income reflects a constant rate of returnon the net investment outstanding in the lease. The rate of interest usedis the rate implicit in the lease.Individual and portfolio impairments of lease receivables are determinedusing the same principles as applied to other loans and receivables.Operating leasesAn operating lease is a lease under which substantially all the risksand rewards of ownership of an asset are not transferred to the lessee.The asset is recognised under property, plant and equipment in thelessor’s balance sheet and depreciated on a straight-line basis over thelease term. The depreciable amount excludes the residual value of theasset. The lease payments are taken to the profit and loss account infull on a straight-line basis over the lease term. Lease payments anddepreciation expenses are taken to the profit and loss account under“Income from other activities” and “Expenses on other activities”.42012 Registration document and annual financial report - BNP PARIBAS 121