Via ODiSy March 22, 2012 PHILIPPINE STOCK EXCHANGE ... - BDO

- 18 -The value produced by a model or other valuation technique is adjusted to allow for anumber of factors as appropriate, because valuation techniques cannot appropriatelyreflect all factors market participants take into account when entering into a transaction.Valuation adjustments are recorded to allow for model risks, bid-ask spreads, liquidityrisks as well as other factors. Management believes that these valuation adjustments arenecessary and appropriate to fairly state financial instruments carried at fair value in thestatement of financial position.Certain derivatives embedded in other financial instruments are considered as separatederivatives when their economic characteristics and risks are not closely related to thoseof the host contract and the host contract is not carried at fair value through profit orloss. These embedded derivatives are bifurcated from the host contracts and aremeasured at fair value with changes in fair value recognized in profit or loss (except forthe embedded derivatives in CLNs linked to ROP bonds which were not bifurcated fromthe host contracts and were reclassified to loans as permitted for prudential reporting).Certain derivatives may be designated as either: (i) hedges of the fair value of recognizedassets or liabilities or firm commitments (fair value hedge); or, (ii) hedges of highlyprobable future cash flows attributable to a recognized asset or liability, or a forecastedtransaction (cash flow hedge). Changes in the fair value of derivatives are recognized inprofit or loss. The method of recognizing the resulting fair value gain or loss onderivatives that qualify as hedging instrument depends on the hedging relationshipdesignated by the BDO Unibank Group.2.08 Non-current Assets Held for SaleAssets held for sale include real and other properties acquired through repossession orforeclosure that BDO Unibank Group intends to sell within one year from the date ofclassification as held for sale.Assets classified as held for sale are measured at the lower of their carrying amountsimmediately prior to their classification as held for sale and their fair value less costs tosell. Assets classified as held for sale are not subject to depreciation or amortization.The profit or loss arising from the sale of held for sale assets is included as part ofIncome from Assets Acquired under Other Operating Income account in profit or loss.2.09 Investment PropertiesInvestment properties are stated at cost. The cost of an investment property comprisesits purchase price and directly attributable cost incurred. This also includes land andbuilding acquired by BDO Unibank Group from defaulting borrowers not held for salein the next 12 months. For these assets, the cost is recognized initially at fair value.Investment properties except land are depreciated on a straight-line basis over a periodof 10 years.BDO Unibank Group adopted the cost model in measuring its investment properties;hence, these are carried at cost less accumulated depreciation and any impairment invalue. Depreciation and impairment loss are recognized in the same manner as inpremises, furniture, fixtures and equipment.