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

- 22 -Deposit liabilities and other liabilities are recognized initially at fair value andsubsequently measured at amortized cost less settlement payments.Bills payable and subordinated notes payable, except for government financial assistanceare recognized initially at fair value, which is the issue proceeds (fair value ofconsideration received), net of direct issue costs. Bills payable and subordinated notespayable are subsequently measured at amortized cost; any difference between proceeds,net of transaction costs, and the redemption value is recognized in profit or loss overthe period of the borrowings using the effective interest method.Preferred shares, which carry a mandatory coupon or are redeemable on a specific dateor at the option of the shareholder are classified as financial liabilities and are presentedas part of Bills Payable in the statement of financial position. The dividends on thesepreferred shares are recognized in profit or loss as interest expense on an amortizedcost basis using the effective interest method.The fair value of the liability portion of a convertible bond is determined using a marketinterest rate for an equivalent non-convertible bond. This amount is recorded as aliability on an amortized cost basis until extinguished on conversion or maturity of thebond. The remainder of the proceeds is allocated to the conversion option. This isrecognized and included in equity, net of income tax effects.Derivative liabilities are recognized initially and subsequently measured at fair value withchanges in fair value recognized in profit or loss.Dividend distributions to shareholders are recognized as financial liabilities when thedividends are declared by BDO Unibank Group and are subject for approval by theBSP.Financial assistance from the Philippine Deposit Insurance Corporation (PDIC), arisingfrom the acquisition of First e-Bank in 2002, is accounted for under PAS 20, Accountingfor Government Grants and Disclosure of Government Assistance, whereby the loan received isinitially recorded at the amount borrowed with no re-measurement to fair value orimputation of market interest.Financial liabilities are derecognized in the statement of financial position only when theobligations are extinguished either through discharge, cancellation or expiration.2.16 Offsetting Financial InstrumentsFinancial assets and liabilities are offset and the net amount is reported in the statementof financial position when there is a legally enforceable right to offset the recognizedamounts and there is an intention to settle on a net basis or realize the asset and settlethe liability simultaneously.2.17 Terminal Value of Leased Assets and Deposits on Finance LeaseThe residual value of leased assets, which approximates the amount of guaranty depositpaid by the lessee at the inception of the lease, is the estimated proceeds from thedisposal of the leased asset at the end of the lease term. At the end of the lease term,the residual value of the leased asset is generally applied against the guaranty deposit ofthe lessee. The residual value of leased assets is included as part of Other Liabilitiesaccount in the BDO Unibank Group statement of financial position.