Annual report 2010 - Dexia.com

Notes to the consolidated financial statementsManagement reportConsolidatedfinancial statementsAdditional information Annual financial statements• Dexia has the decision-making powers or delegated thesepowers to obtain the majority of the benefits of the activitiesof the SPE;• Dexia has the right to obtain the majority of the benefits ofthe SPE and may be exposed to its risks; or• Dexia retains the majority of the residual or ownership risksrelated to the SPE or its assets in order to obtain benefitsfrom its activities.1.4. OFFSETTING FINANCIAL ASSETS ANDFINANCIAL LIABILITIESFinancial assets and financial liabilities are offset (andconsequently, the net amount only is reported) when Dexiahas a legally enforceable right to offset and intends eitherto settle on a net basis, or to realise the asset and settle theliability simultaneously.1.5. FOREIGN CURRENCY TRANSLATION ANDTRANSACTIONS1.5.1. Foreign currency translationOn consolidation, the statements of income and cash flowstatements of foreign entities that have a functional currencydifferent from Dexia's presentation currency are translated intoDexia's presentation currency (EUR) at the average exchangerates for the year (annual reporting) or the period (interimreporting) and their assets and liabilities are translated at therespective year-end or quarter-end exchange rates.Exchange differences arising from the translation of the netinvestment in foreign subsidiaries, associates, joint venturesand of borrowings and other currency instruments designatedas hedges of such investments, are recorded as a cumulativetranslation adjustment within shareholders' equity. On disposalof a foreign entity, such exchange differences are recognisedin the statement of income as part of the gain or loss ondisposal.Goodwill and fair value adjustments arising from the acquisitionof a foreign entity are treated as assets and liabilities of theforeign entity and are translated at the closing rate.1.5.2. Foreign currency transactionsFor individual Dexia entities, foreign currency transactions areaccounted for using the approximate exchange rate at thedate of the transaction. Outstanding balances denominatedin foreign currencies at period- or year-end are translated atperiod or year-end exchange rates for monetary items andnon-monetary items carried at fair value. Historical rates areused for non-monetary items carried at cost. The resultingexchange differences from monetary items are recordedin the consolidated statement of income; except for theforeign exchange impact related to fair value adjustmentson available-for-sale bonds, which is recorded under “Othercomprehensive income“. For non-monetary items carried atfair value, the exchange differences are governed by the sameaccounting treatment as for fair value adjustments.1.6. FINANCIAL ASSETS AND LIABILITIESManagement determines the appropriate classification of itsinvestments at initial recognition. However, under certainconditions, financial assets could subsequently be reclassified.1.6.1. Recognition and derecognition of financialinstrumentsDexia recognises and derecognises financial assets heldfor trading on trade date. For these financial assets, Dexiarecognises in the statement of income and as at the tradedate, any unrealised gains or losses arising from revaluing thecontract to fair value at the reporting date. Dexia recognisesthese unrealised gains and losses under “Net income fromfinancial instruments at fair value through profit or loss“.All other “regular way“ purchases and sales of financialassets are recognised and derecognised on the settlementdate, which is the date of delivery to or by Dexia.Dexia recognises the financial liabilities on its balance sheetwhen it becomes party to the contractual provisions of theinstrument. Dexia derecognises financial liabilities only when,it is extinguished, i.e. when the obligation specified in thecontract is discharged or cancelled or expires.1.6.2. Loans and advances due from banks andcustomersDexia classifies non-derivative financial assets with fixed ordeterminable payments that are not quoted on an activemarket into this category (labelled by IAS 39 as Loans andReceivables – L&R) except for:• those that Dexia intends to sell immediately or in the nearterm, which are classified as held for trading, and those thatDexia, upon initial recognition, designates as being at fairvalue through profit or loss;• those that Dexia, upon initial recognition, designates asavailable-for-sale; or• those for which Dexia might not substantially recoverall of its initial investment, other than because of creditdeterioration, such L&R then being classified as available-forsale.Dexia recognises interest-bearing loans and advances initiallyat fair value plus transaction costs and subsequently atamortised cost, less any allowance for impairment. Interestis calculated using the effective interest-rate method andrecorded under “Net interest income“.The effective interest-rate is the rate that exactly discountsestimated future cash payments or receipts through theexpected life of the financial instrument or, when appropriate,a shorter period to the net carrying amount of the financialasset.1.6.3. Financial instruments measured at fair valuethrough profit or loss1.6.3.1. Loans and securities held for tradingDexia reports loans held for trading purposes in the line“Financial assets held for trading“ at their fair value, withunrealised gains and losses recorded in the statement ofincome under “Net income from financial instruments at fair130 Dexia Annual report 2010