Annual report 2011 - VTB

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)39. Fair Values of Financial Instruments (continued)Sensitivity analysis to changes of key assumptions for financial instruments valued using Level 3 models(continued)If the Group had used other reasonably possible alternative assumptions at 31 December 2011, the fair value of theabove equity securities valued based on valuation models, would have been in the range from RUR 43.6 billion toRUR 58.3 billion.As at 31 December 2010, financial assets available-for-sale for the amount of RUR 22.8 billion were valued based onvaluation models by using the peer based valuations model and discounted cash flow method. The averageassumptions related to projections of discounted cash flows in the model up to 2013 were the following: WACC is 15.9%; Cost of debt is 10%;Net margin is 0.0001% less every next year; Liquidity discount applied to the valuation is 30%.If the Group had used other reasonably possible alternative assumptions at 31 December 2010, the fair value of theabove equity securities valued based on valuation models, would have been in the range from RUR 21.8 billion toRUR 23.4 billion.Transfers between levelsDuring the period ended 31 December 2011 the Group transferred financial assets designated as at fair valuethrough profit or loss and financial assets available-for-sale from Level 3 to Level 2 of the fair value hierarchy in thecarrying amount of RUR 2.3 billion. The remaining amount of RUR 0.3 billion was reclassified to investments inassociates. The Group transferred financial assets held for trading from Level 3 to Level 2 in the amount ofRUR 2.3 billion. The reason for the transfers from Level 3 to Level 2 is that inputs to the valuation models becameobservable. Prior to transfer, the fair value of the instruments was determined incorporating significant non marketobservableinputs.During the period ended 31 December 2011 the financial assets held for trading were transferred from Level 1 toLevel 2 in the amount of RUR 11.2 billion as they became estimated on the market internal model basis. Previouslytheir fair values were determined using market quotes.There have been no transfers from Level 2 to Level 1 during the period ended 31 December 2011.During 2010 the financial assets designated as at fair value through profit or loss for the total amount ofRUR 5.0 billion were transferred from Level 2 to Level 1 as they became actively traded during the year and fairvalues were consequently determined using market quotes.There have been no transfers between Level 1 and Level 2 in 2010.40. Related Party TransactionsParties are considered to be related if one party has the ability to control the other party or exercise significantinfluence over the other party in making financial or operational decisions as defined by IAS 24 Related PartyDisclosures. In considering each possible related party relationship, attention is directed to the substance of therelationship, not merely the legal form. A government-related entity is an entity that is controlled, jointly controlled orsignificantly influenced by a government.91