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

- 38 -(iv) Loans and Other ReceivablesLoans and other receivables are net of provisions for impairment. Theestimated fair value of loans and receivables represents the discounted amountof estimated future cash flows expected to be received. Expected cash flows arediscounted at current market rates to determine fair value.(v) Deposits and BorrowingsThe estimated fair value of demand deposits with no stated maturity, whichincludes non-interest-bearing deposits, is the amount repayable on demand.The estimated fair value of long-term fixed interest-bearing deposits and otherborrowings without quoted market price is based on discounted cash flowsusing interest rates for new debts with similar remaining maturity.(c) Fair Value of DerivativesThe fair value of derivative financial instruments that are not quoted in an activemarket is determined through valuation techniques using the net present valuecomputation.Valuation techniques are used to determine fair values which are validated andperiodically reviewed. To the extent practicable, models use observable data,however, areas such as counterparty credit risk, volatilities and correlations requiremanagement to make estimates. Changes in assumptions could affect the reportedfair value of financial instruments. BDO Unibank Group uses judgment to select avariety of methods and make assumptions that are mainly based on marketconditions existing at the end of each reporting period.(d) Financial Instruments Measured at Fair ValueFinancial assets and liabilities measured at fair value are categorized in accordancewith the fair value hierarchy. This hierarchy groups financial assets and liabilities intothree levels based on the significance of inputs used in measuring the fair value ofthe financial assets and liabilities. The fair value hierarchy has the following levels:• Level 1: quoted prices (unadjusted) in active markets for identical assetsor liabilities;• Level 2: inputs other than quoted prices included within Level 1 that areobservable for the asset or liability, either directly (i.e., as prices) or indirectly(i.e., derived from prices); and,• Level 3: inputs for the asset or liability that are not based on observablemarket data (unobservable inputs).The level within which the financial asset or liability is classified is determined basedon the lowest level of significant input to the fair value measurement.