Ársskýrsla Landsbankans - Landsbankinn

Notes to the Consolidated Financial Statements
3. Significant accounting policies (continued)
Deferred income tax
Deferred tax assets are recognised when it is probable that future taxable profit will be available against which deductible temporary differences can
be utilised.
Deferred income tax is recognised in full as a liability, based on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, deferred income tax is not recognised if it arises from the initial recognition of
an asset or liability in a transaction other than a business combination, which at the time of the transaction affects neither the Group's accounting
nor its taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the
reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
The principal temporary differences arise from fair value changes in various financial assets and liabilities and the difference between the fair values
of acquired assets and their tax base.
Assets and liabilities classified as held for sale
The Group classifies non-current assets (or groups of assets together with related liabilities) as held for sale when their carrying amount will be
recovered principally through a sale transaction. This is usually the case with collateral foreclosed by the Group which it holds as security for loans
and advances, including assets and liabilities of subsidiaries over which the Group obtains control through foreclosure of collateral and/or financial
restructuring.
A non-current asset (or group of assets together with related liabilities) is considered to be recovered principally through a sale transaction when the
asset's sale is highly probable and it is available for immediate sale in its present condition, subject to ordinary and customary terms on the sale of
such assets. Management must be committed to the sale and must actively market the asset for sale at a price that is reasonable in relation to its
current fair value. A further condition is that the sale is expected to qualify for recognition as completed within one year from the date of
classification.
Assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and their fair value less costs to sell.
Additional net assets that become part of a disposal group, for example due to profits generated by the disposal group, increase the carrying amount
of the disposal group but not in excess of the fair value less costs to sell of the disposal group as determined at each reporting date.
In the case of single assets classified by the Group as held for sale the Group determines their fair value less costs to sell by reference to the current
market price at each reporting date. In the case of subsidiaries classified as held for sale, the Group determines the fair value of disposal groups
based on discounted cash flows methodologies. Costs to sell are deemed to be only the costs which are incremental and directly attributable to the
disposal of the disposal groups, excluding finance costs and income tax expense.
Deposits and secured bonds
The Group’s sources of debt funding consist of deposits, loans from financial institutions and debt securities.
When the Group sells a financial asset and simultaneously enters into an agreement to repurchase the asset or a similar asset at a fixed price on a
future date ("repo"), this arrangement is accounted for as an amount due to financial institutions or the Central Bank, and the underlying asset
continues to be recognised in the Group‘s financial statements.
The Group classifies financial instruments as financial liabilities or equity instruments in accordance with the substance of the contractual
arrangement and the definitions of a financial liability, a financial asset or an equity instrument.
Deposits and borrowings are initially measured at fair value plus any directly attributable transaction costs. Subsequently, they are measured at their
amortised cost using the effective interest method. The fair value of a financial liability with a demand feature such as a demand deposit, is not less
than the amount payable on demand, discounted from the first date that the amount could be required to be paid.
Contingent bond
The contingent bond is a contingent obligation of the Bank to issue a bond to Landsbanki Íslands hf. on 31 March 2013 as an additional
consideration for the assets and liabilities transferred from Landsbanki Íslands hf. on 9 October 2008. The issue of the bond and its nominal amount
are contingent on the excess of the value of certain pools of assets, to be determined as at 31 December 2012, over the future value of the
acquisition price of those assets as at 9 October 2008, subject to specified adjustments.
The contingent obligation of the Bank is classified as a financial liability and measured initially at fair value. Subsequently, it is measured at fair
value, with any resulting gain or loss recognised in the line item "Fair value change of contingent bond" in the income statement.
NBI hf. Consolidated Financial Statements 2010 18
All amounts are in ISK million
118 Ársreikningur 2010 Allar upphæðir eru í milljónum króna