Notes to the Consolidated Financial Statements - Seylan Bank

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284 North Bound > Seylan Bank Annual Report 2011 Notes to the Consolidated Financial Statements 3.4.6.6 Commitments and Contingencies All discernible risks are accounted for in determining the amount of all known liabilities. The Bank’s share of any contingencies and capital commitments of a subsidiary for which the Bank is also liable severally or otherwise are also included with appropriate disclosures. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognised in the Balance Sheet, but are disclosed, unless they are remote. 3.4.6.7 Events after the Balance Sheet Date All material and important events which occur after the Balance Sheet date have been considered and disclosed in Note 44 or adjusted as applicable. 3.5 Income Statement 3.5.1 Revenue Recognition Interest Income: Interest receivable is recognised on an accrual basis. Interest ceases to be taken into revenue when the recovery of interest or principal is in arrears for 90 days. Thereafter, interest on advances is accounted for on a cash basis. Interest on non-performing debts is credited to the ‘Interest in Suspense' account which is netted in the Balance Sheet against the relevant balance. 3.5.2 Interest Income Interest receivable is recognised on an accrual basis. Interest from loans and advances ceases to be accrued when they are classified as non-performing as explained in Note 21.5. Interest on non-performing loans and advances is accounted for on a cash basis. Interest on non-performing loans and advances is credited to the ‘Interest in Suspense Account’ which is netted in the Balance Sheet against the relevant loans and advances. Interest income from investments is recognised on an accrual basis. 3.5.3 Dividend Income Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. 3.5.4 Accounting for Finance Lease Income Assets leased to customers who transfer substantially all the risks and rewards associated with ownership other than the legal title are classified as finance leases. Amounts receivable under finance leases are included under ‘Lease Rental Receivable’. Leasing balances are stated in the Balance Sheet after deduction of initial rentals received. The excess of aggregate rentals receivable over the cost of the leased assets constitutes the total unearned income. The unearned income is taken into revenue over the term of the lease, commencing from the month in which the lease is executed in proportion to the remaining receivable balance of the lease.
North Bound > Seylan Bank Annual Report 2011 285 3.5.5 Income Tax Expense Income tax expense comprises of current and deferred tax. Income tax expense is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. 3.5.5.1 Current Taxation Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted on the Balance Sheet date, and any adjustment to tax payable in respect of previous years. Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006, and the amendments thereto at the rates specified in Note 13. 3.5.5.2 Deferred Taxation Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: - temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; - temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and - Temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 3.5.6 Economic Service Charge (ESC) ESC is payable on the liable turnover at specified rates. As per the provision of the Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is deductible from the income tax liability. Any unclaimed payment can be carried forward and set off against the income tax payable as per the relevant provision in the Act. 3.5.7 Withholding Tax on Dividends Dividend distributed out of taxable profit of the subsidiaries attracts a 10% deduction at source and is not available for set off against the tax liability of the Bank. Thus, the withholding tax deducted at source is added to the tax in the Consolidated Financial Statements as a consolidation adjustment. Withholding taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised.
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Notes to the Consolidated Financial Statements - Seylan Bank

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