Annual Report: - Gorenjska banka

2.5. Sale and repurchase agreements
Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements
as pledged assets when the transferee has the right by contract or custom to sell or repledge the
collateral; the counterparty liability is included in amounts due to other banks, deposits from banks,
other deposits or deposits due to customers, as appropriate.
Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and
advances to other banks or customers, as appropriate. The difference between sale and repurchase
price is treated as interest and accrued over the life of the agreements using the effective interest
method.
2.6. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
2.7. Derivative financial instruments
Derivatives, including futures and forward contracts, swaps and options are initially recognized in
the statement of financial position at fair value. Fair values are obtained from quoted market prices,
discounted cash flow models or pricing models. All derivatives are carried as assets when fair value
is positive and as liabilities when fair value is negative.
The bank does not apply hedge accounting.
2.8. Interest income and expense
Interest income and expense for all interest-bearing financial instruments, are recognised within
'interest income' and 'interest expense' in the income statement using the effective interest method.
Interest income includes coupons earned on fixed income investment and on securities designated
at fair value through profit or loss and charged discount and premium on debt securities and other
discounted instruments.
The effective interest method is a method of calculating the amortised cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument. When calculating the effective interest
rate, the Bank estimates cash flows considering all contractual terms of the financial instrument but
does not consider future credit losses. The calculation includes all fees, transaction costs and all
other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss.
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Gorenjska banka, d. d., Kranj
Annual Report 2011
Financial Report