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)(c)Assets carried at cost. BDO Unibank Group assesses at the end of each reporting period whether there isobjective evidence that any of the unquoted equity securities and derivative assets linked to and requiredto be settled in such unquoted equity instruments, which are carried at cost, may be impaired. Theamount of impairment loss is the difference between the carrying amount of the equity security andthe present value of the estimated future cash flows discounted at the current market rate of return of asimilar asset. Impairment losses on assets carried at cost cannot be reversed.Where possible, BDO Unibank Group seeks to restructure loans rather than to take possession of collateral.This may involve extending the payment arrangements and the agreement of new loan conditions. Oncethe terms have been renegotiated, the loan is no longer considered past due. Management continuouslyreviews restructured loans to ensure that all criteria are met and that future payments are likely to occur.The loans continue to be subject to an individual or collective impairment assessment, calculated usingthe loans’ original effective interest rate. The difference between the recorded sale of the original loanand the present value of the restructured cash flows, discounted at the original effective interest rate, isrecognized as part of Impairment Losses account in profit or loss.BDO ANNUAL REPORT 2009382.22 Impairment of Non-financial AssetsBDO Unibank Group’s equity investments, intangible assets (recorded as part of Other Resources), premises,furniture, fixtures and equipment and investment properties are subject to impairment testing. Intangible assetswith an indefinite useful life, such as goodwill are tested for impairment at least annually. All other individualassets or cash-generating units are tested for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable.For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separatelyidentifiable cash flows (cash-generating units).An impairment loss is recognized for the amount by which the asset or cash-generating unit’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditionsless costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment loss ischarged pro-rata to the other assets in the cash generating unit.All assets are subsequently reassessed for indications that an impairment loss previously recognized may nolonger exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversalof the impairment loss.2.23 Functional Currency and Foreign Currency Transactions(a)Functional and Presentation CurrencyItems included in the financial statements of BDO Unibank Group are measured using the currency ofthe primary economic environment in which the entity operates (the functional currency). The financialstatements are presented in Philippine peso, which is also the functional and presentation currency ofBDO Unibank Group. The financial statements of the foreign currency deposit units (FCDUs) ofBDO Unibank Group and foreign subsidiaries are translated at the prevailing current exchange rates (forstatement of financial position accounts) and average exchange rate during the period (for statement ofincome accounts) for consolidation purposes.