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

- 28 -Future cash flows in a group of financial assets that are collectively evaluated forimpairment are estimated on the basis of the contractual cash flows of the assetsand historical loss experience for assets with credit risk characteristics similar tothose in the group. Historical loss experience is adjusted on the basis of currentobservable data to reflect the effects of current conditions that did not affect theperiod on which the historical loss experience is based and to remove the effects ofconditions in the historical period that do not exist currently.Estimates of changes in future cash flows for groups of assets should reflect and beconsistent with changes in related observable data from period to period. Themethodologies and assumptions used for estimating future cash flows are reviewedregularly by BDO Unibank Group to reduce any differences between loss estimatesand actual loss experience.When a loan is uncollectible, it is written off against the related allowance for loanimpairment. Such loans are written off after all the necessary procedures, includingapproval from the management and the BOD, have been completed and theamount of the loss has been determined. Subsequent recoveries of amountspreviously written off decrease the amount of the impairment loss in profit or loss.If in a subsequent period the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairment wasrecognized (such as an improvement in the debtor’s credit rating), the previouslyrecognized impairment loss is reversed by adjusting the allowance account. Theamount of the reversal is recognized in profit or loss.(b) Assets carried at fair value with changes recognized in other comprehensive income. In the caseof investments classified as AFS securities, a significant or prolonged decline in thefair value of the security below its cost is considered in determining whether theassets are impaired. If any such evidence exists for AFS securities, the cumulativeloss – measured as the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previously recognized in profitor loss – is reclassified from other comprehensive income to profit or loss as areclassification adjustment. Impairment losses recognized in profit or loss on equityinstruments are not reversed through profit or loss. If, in a subsequent period, thefair value of a debt instrument classified as AFS increases and the increase can beobjectively related to an event occurring after the impairment loss was recognized inprofit or loss, the impairment loss is reversed through profit or loss.(c) Assets carried at cost. BDO Unibank Group assesses at the end of each reportingperiod whether there is objective evidence that any of the unquoted equity securitiesand derivative assets linked to and required to be settled in such unquoted equityinstruments, which are carried at cost, may be impaired. The amount of impairmentloss is the difference between the carrying amount of the equity security and thepresent value of the estimated future cash flows discounted at the current marketrate of return of a similar asset. Impairment losses on assets carried at cost cannotbe reversed.