Ársskýrsla Landsbankans - Landsbankinn

Notes to the Consolidated Financial Statements
3. Significant accounting policies (continued)
Interest income and expense
The interest income and expense presented in the income statement include:
• Interest on financial assets and liabilities measured at amortised cost, calculated on an effective interest rate basis;
• Interest on unpaid capital contribution, calculated on an accrual basis;
• Interest on provisional liabilities, calculated on an accrual basis.
Interest income and expense on financial assets and liabilities measured at amortised cost are recognised in the income statement using the effective
interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected
life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When
calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument and it does
not consider any future credit losses. The calculation of the effective interest rate includes all fees and points paid or received that are an integral
part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial
asset or liability.
Net impairment loss on loans and advances
Impairment charges relating to loans and advances to financial institutions and customers are presented in the consolidated income statement under
the item "Net impairment loss on loans and advances". After impairment has been recognised, interest income is recognised at the rate of interest
used for discounting future cash flows when measuring impairment losses.
Fee and commission income and expense
Fees and commissions are generally recognised on an accrual basis as the related services are performed. Arrangement fees are generally deferred
together with related direct costs and recognised as an adjustment to the effective interest rate on the loan. Commissions and fees for participation
in negotiating a transaction for a third party – such as arrangement of transactions with equities or other securities or the purchase or sale of
businesses – are recognised upon completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised
based on the applicable service contracts, usually on a time-apportioned basis. Asset management fees related to investment funds are recognised
rateably over the period when the service is provided. The same principle for reporting income is applied to other custody services that are
continuously provided over an extended period of time.
Net gain on financial assets designated as at fair value through profit or loss
The net gain on financial assets designated as at fair value through profit or loss relates to financial assets designated by the Group as at fair value
through profit or loss and includes:
• All realised and unrealised changes in fair value;
• Interest income on an accrual basis; and
• Dividend income, which is recognised when the Group’s right to receive payment is established.
Net gain on financial assets and liabilities held for trading
The net gain on financial assets and liabilities held for trading relates to financial assets and liabilities classified by the Group as held for trading and
includes:
• All realised and unrealised changes in fair value;
• Interest income on an accrual basis;
• Dividend income, which is recognised when the Group’s right to receive payment is established; and
• Foreign exchange gains and losses arising from derivative financial assets and liabilities, except for changes in fair value of derivative currency
forwards and net foreign exchange differences arising from OTC currency options, which are included in the line item "Net foreign exchange gain
(loss)" in the income statement.
Net foreign exchange gain (loss)
Net foreign exchange gain (loss) includes all gains and losses arising from settlement of transactions in foreign currencies and translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies, including non-derivative financial assets and liabilities classified
as held for trading and financial assets designated as at fair value through profit or loss. Foreign exchange gains and losses arising from derivative
financial assets and liabilities are included in the line item "Net gain on financial assets and liabilities held for trading", except for fair value changes
of derivative currency forwards and net foreign exchange differences arising from OTC currency options, which are included in the line item "Net
foreign exchange gain (loss)" in the income statement.
Other income and expenses
Other income and expenses include revenue arising from recharging agreements and gains and losses on repossessed collateral and property and
equipment.
NBI hf. Consolidated Financial Statements 2010 20
All amounts are in ISK million
120 Ársreikningur 2010 Allar upphæðir eru í milljónum króna