2009 ANNUAL REPORT FINANCIAL SUPPLEMENTS - BDO

NOTES TO FINANCIAL STATEMENTSDecember 31, 2009, 2008 and 2007(Amounts in Millions of Philippine Pesos, Except Per Share Data or as Indicated)Leases, which do not transfer to the lessee substantially all the risks and benefits of ownership of the assetare classified as operating leases. Operating lease collections are recognized as income in profit or loss ona straight-line basis over the lease term.(b)BDO Unibank Group as LesseeLeases, which do not transfer to BDO Unibank Group substantially all the risks and benefits of ownershipof the asset are classified as operating leases. Operating lease payments are recognized as expense in profitor loss on a straight-line basis over the lease term.BDO Unibank Group determines whether an arrangement is, or contains a lease based on the substance of thearrangement. It makes an assessment of whether the fulfillment of the arrangement is dependent on the use ofa specific asset or assets and the arrangement conveys a right to use the asset.2.21 Impairment of Financial AssetsBDO ANNUAL REPORT 200936BDO Unibank Group assesses at the end of each reporting period whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impairedand impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one ormore events that occurred after the initial recognition of the asset (a loss event) and that loss event has an impacton the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to theattention of BDO Unibank Group about certain loss events, including, among others: (i) significant financialdifficulty of the issuer or debtor; (ii) a breach of contract, such as a default or delinquency in interest or principalpayments; (iii) the probability that the borrower will enter bankruptcy or other financial reorganization; (iv) thedisappearance of an active market for that financial asset because of financial difficulties; or, (v) observable dataindicating that there is a measurable decrease in the estimated future cash flows from a group of financial assetssince the initial recognition of those assets, although the decrease cannot yet be identified with the individualfinancial assets in the group.(a)Assets carried at amortized cost. BDO Unibank Group first assesses whether objective evidence ofimpairment exists individually for financial assets that are individually significant and individually orcollectively for financial assets that are not individually significant. If BDO Unibank Group determinesthat no objective evidence of impairment exists for an individually assessed financial asset, whethersignificant or not, BDO Unibank Group includes the asset in a group of financial assets with similarcredit risk characteristics and collectively assesses them for impairment. Assets that are individuallyassessed for impairment and for which an impairment loss is or continues to be recognized are notincluded in a collective assessment of impairment.If there is objective evidence that an impairment loss on loans and receivable or HTM investmentscarried at amortized cost has been incurred, the amount of the loss is measured as the difference betweenthe asset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate. Thecarrying amount of the asset is reduced through the use of an allowance account and the amount ofthe loss is recognized in profit or loss. If a loan or HTM investment has a variable interest rate, thediscount rate for measuring any impairment loss is the current effective interest rate determined underthe contract. When practicable, BDO Unibank Group may measure impairment on the basis of aninstrument’s fair value using an observable market price.