2004 - Asianbanks.net

eduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly against income.Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or therespective lease terms.Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified asoperating leases. Operating lease payments are recognized as an expense in the statements of income on astraight-line basis over the lease term.Derivative InstrumentsThe Parent Company and some of its subsidiaries are counterparties to derivative contracts entered into as a serviceto customers and as a means of reducing or managing their respective foreign exchange and interest rateexposures.For foreign exchange forward contracts that are designated and qualify as hedges, the difference between thecontracted forward rate and the spot rate at contract date is deferred and recognized as income or expense over thelife of the hedged instrument while gain or loss in the revaluation of the forward contract is recognized currently in thestatements of income. For forward contracts not designated as hedges, the changes in mark to market values arerecognized currently in the statements of income.The differentials paid or received under interest rate swap agreements are accrued and recognized over the life ofthe agreements as swap cost or income. In the case of an early termination of an interest rate swap, gains or lossesresulting from the early termination are deferred and amortized as an adjustment of the yield of the related debtinstrument over the remaining period originally covered by the terminated swap.Earnings Per ShareBasic earnings per share is computed by dividing net income for the year by the weighted average number of sharesoutstanding during the year after giving retroactive effect to stock dividends declared during the year, if any.Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents include cash and other cash items, amounts duefrom BSP and other banks and interbank loans receivable and securities purchased under resale agreements (Note27) with maturities of three months or less from dates of placements and that are subject to insignificant risk ofchanges in value.Fiduciary ActivitiesAssets and income arising thereon together with related undertakings to return such assets to customers areexcluded from these financial statements where the Bank acts in a fiduciary capacity such as nominee, trustee oragent.Subsequent EventsAny post year-end event that provides additional information about the Group’s position at the statement of conditiondate (adjusting event) is reflected in the financial statements. Post year-end events that are not adjusting events, ifany, are disclosed when material to the financial statements.3. Trading and Investment SecuritiesTAS includes net unrealized gain amounting to P=20.8 million and P=12.8 million for the Group, of which net unrealizedgains of P=17.9 million and P=4.6 million pertain to the Parent Company in 2004 and 2003, respectively.ASS is net of accumulated unrealized loss of P=54.5 million in 2004 and P=64.4 million in 2003 for the Group, and P=6.0million in 2004 and P=1.0 million in 2003 for the Parent Company.- 53-