2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTSAn item of bank premises, furniture, fixtures and equipment is derecognized upon disposal orwhen no future economic benefits are expected to arise from the continued use of the asset.Any gain or loss arising on derecognition of the asset (calculated as the difference betweenthe net disposal proceeds and the carrying amount of the item) is included in the statement ofincome in the year the item is derecognized.2.05 Provisions and ContingenciesProvisions are recognized when present obligations will probably lead to an outflow ofeconomic resources and they can be estimated reliably even if the timing or amount of theoutflow may still be uncertain. A present obligation arises from the presence of a legal orconstructive commitment that has resulted from past events.Provisions are measured at the estimated expenditure required to settle the present obligation,based on the most reliable evidence available at the end of the reporting period, including therisks and uncertainties associated with the present obligation. Where there are a number ofsimilar obligations, the likelihood that an outflow will be required in settlement is determinedby considering the class of obligations as a whole. When time value of money is material,long-term provisions are discounted to their present values using a pretax rate that reflectsmarket assessments and the risks specific to the obligation. The increase in the provision dueto passage of time is recognized as interest expense. Provisions are reviewed at the end ofeach reporting period and adjusted to reflect the current best estimate.In those cases where the possible outflow of economic resource as a result of presentobligations is considered improbable or remote, or the amount to be provided for cannotbe measured reliably, no liability is recognized in the financial statements. Similarly, possibleinflows of economic benefits to the Bank that do not yet meet the recognition criteria of anasset are considered contingent assets, hence, are not recognized in the financial statements.On the other hand, any reimbursement that the Bank can be virtually certain to collect froma third party with respect to the obligation is recognized as a separate asset not exceeding theamount of the related provision.2.06 Related Party TransactionsRelated party transactions consist of transfer of resources, services or obligations between theBank and its related parties, regardless whether a price is charged.Parties are considered to be related if one party has the ability to control the other party orexercise significant influence over the other party in making financial and operating decisions.Related parties include: (a) individuals owning, directly or indirectly through one or moreintermediaries, control or are controlled by, or under common control with the Bank; (b)associates; and, (c) individuals owning, directly or indirectly, an interest in the voting power ofthe Bank that gives them significant influence over the Bank and close members of the familyof any such individual.