KB prezent. angl - Komerční banka

(b) Basis of consolidation
Subsidiary undertakings, which are those companies in which the Bank, directly or indirectly, has an interest of more than one half of
the voting rights or otherwise has power to exercise control over the operations, have been fully consolidated. Subsidiaries are
consolidated from the date on which effective control is transferred to the Bank and are no longer consolidated from the date of
disposal. All intercompany transactions have been eliminated.
Investments in unconsolidated subsidiaries are recognised in the consolidated balance sheet at cost less any provisions.
Investments in associated undertakings are accounted for using the equity method of accounting. These are undertakings in which
the Group has between 20 percent and 50 percent of the voting rights, and over which the Group exercises significant influence, but
which it does not control. Equity accounting involves recognising in the profit and loss statement the Group’s share of the associates‘
profit or loss for the period. The Group interest in the associate is carried in the balance sheet at an amount that reflects its share of
net assets of the associate and includes goodwill on acquisition.
(c) Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into CZK and reported in the financial statements at the
exchange rate declared by the Czech National Bank (“CNB”) prevailing as of the balance sheet date. Income and expenses
denominated in foreign currencies are recorded in Czech Crowns in the underlying accounting system of the Group and are therefore
reported in the financial statements at the official exchange rate prevailing as of the date of the transaction. Gains and losses arising
from movements in exchange rates after the date of the transaction are recognised in Net profit/(loss) on financial operations. Net
gains on the revaluation of fixed asset investments are recorded as a component of equity in Revaluation reserve.
(d) Originated loans and provisions for loan impairment
Loans originated by the Group by providing money directly to a borrower are categorised as loans originated by the Group and are
carried at amortised cost. All loans and advances are recognised when cash is advanced to borrowers.
Loans and advances to customers and financial institutions are stated net of provisions for loan losses. Further details about
provisioning are set out in Note 38 to these financial statements.
The Group charges penalty interest to borrowers when a portion of the loan falls overdue. Pursuant to the Group’s policies, penalty
interest is not covered by the collateral set aside against the loan of the borrower. Penalty interest is accounted for on a cash basis in
Interest income.
The Group maintains a general provision for losses arising from on and off balance sheet loan exposures. A portion of the general
provision relating to on balance sheet assets is established to cover losses that are judged by the management of the Group to be
present in the loan portfolio as of the balance sheet date, but which have not been allocated to specific or individual exposures.
The Group writes off loss loans when clients are unable to fulfil their obligations to the Bank in respect of these loans. The loan is
written off against the related provision for loan impairment. Subsequent recoveries are credited to the profit and loss statement in
Provision for loan losses if previously written off.
(e) Securities
Securities held by the Group are categorised into portfolios in accordance with the Group’s intent on the acquisition of the securities and
pursuant to the Group’s security investment strategy. The Group has allocated securities to the Held for trading portfolio, the Available
for sale portfolio and the Held to maturity portfolio. With effect from 2002, the Group has also carried securities in the category Acquired
under initial offerings not designated for trading which are reported together with loans. The principal difference among the portfolios
relates to the measurement approach of securities and the recognition of their fair values in the financial statements.
All securities held by the Group are recognised using settlement date accounting and are measured at cost which, for coupon bonds,
includes amortised cost, accrued coupon and an element of direct transaction costs associated with the acquisition of securities. All
purchases and sales of securities that do not meet the “regular way” settlement criterion (that is, within the time frame established
generally by regulation or convention in the market place concerned) are treated as financial derivatives and are recognised on the
face of the balance sheet upon settlement at fair value. The cost of debt securities is increased to reflect the accrued interest income
using the effective interest rate method. Interest income includes the accrued coupon and the accrued difference between the
nominal value of the security and its cost.