2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTSThere are no financial instruments valued using non-observable market inputs under level 3in 2011 and 2010.(c) Fair Value of DerivativesThe fair values of derivative financial instruments that are not quoted in an active market aredetermined through valuation techniques using the net present value computation.Valuation techniques are used to determine fair values which are validated and periodicallyreviewed. To the extent practicable, models use observable data, however, areas such ascredit risk (both own and counterparty), volatilities and correlations require managementto make estimates. Changes in assumptions could affect the reported fair value of financialinstruments. The Bank uses judgment to select a variety of methods and make assumptionsthat are mainly based on market conditions existing at the end of each reporting period.(d) Useful Lives of Bank Premises, Furniture, Fixtures and EquipmentThe Bank estimates the useful lives of bank premises, furniture, fixtures and equipmentbased on the period over which the assets are expected to be available for use. Theestimated useful lives of bank premises, furniture, fixtures and equipment are reviewedperiodically and are updated if expectations differ from previous estimates due to physicalwear and tear, technical or commercial obsolescence and legal or other limits on the useof the assets. The carrying amounts of bank premises, furniture, fixtures and equipmentare presented in Note 9. Actual results, however, may vary due to changes in estimatesbrought about by changes in factors mentioned above. There is no change in estimateduseful lives of bank premises, furniture, fixtures and equipment during the year.(e) Realizable Amount of Deferred Tax AssetsThe Bank reviews its deferred tax assets at the end of each reporting period and reducesthe carrying amount to the extent that it is no longer probable that sufficient taxable profitwill be available to allow all or part of the deferred tax asset to be utilized.The carrying value of deferred tax assets, which management assessed to be fully utilized,as of December 31, 2011 and 2010 is disclosed in Notes 10 and 21.(f) Impairment of Non-financial AssetsExcept for intangible assets with indefinite useful lives, FRSP for banks requires that animpairment review be performed when certain impairment indicators are present. TheBank’s policy on estimating the impairment of non-financial assets is discussed in detail inNote 2.11. Though management believes that the assumptions used in the estimation offair values reflected in the financial statements are appropriate and reasonable, significantchanges in these assumptions may materially affect the assessment of recoverable values