2011 Annual Report Financial Supplements - BDO

NOTES TOFINANCIAL STATEMENTSDECEMBER 31, 2011, 2010 AND 2009(Amounts in Millions of Philippine Pesos, Except Per Share Data or As Indicated)2.14 Intangible AssetsGoodwill represents the excess of the cost of acquisition over the fair value of the net assetsacquired and branch licenses at the date of acquisition. Goodwill is classified as intangibleasset with indefinite useful life, and thus, not subject to amortization but to an annual test forimpairment (see Note 2.24). Goodwill is subsequently carried at cost less any accumulatedimpairment losses.Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each ofthose cash generating units is represented by each primary reporting segment.Acquired computer software licenses are capitalized on the basis of the costs incurred toacquire and install the specific software. These costs are amortized on straight-line basis overthe expected useful life of five years. Costs associated with maintaining computer softwareare expensed as incurred.2.15 Financial LiabilitiesFinancial liabilities include deposit liabilities, bills payable, derivative liabilities, subordinatednotes payable and other liabilities.Financial liabilities are recognized when the BDO Unibank Group becomes a party to thecontractual terms of the instrument.Deposit liabilities and other liabilities are recognized initially at fair value and subsequentlymeasured at amortized cost less settlement payments.Bills payable and subordinated notes payable, except for government financial assistance arerecognized initially at fair value, which is the issue proceeds (fair value of considerationreceived), net of direct issue costs. Bills payable and subordinated notes payable aresubsequently measured at amortized cost; any difference between proceeds, net of transactioncosts, and the redemption value is recognized in profit or loss over the period of theborrowings using the effective interest method.Preferred shares, which carry a mandatory coupon or are redeemable on a specific date or atthe option of the shareholder are classified as financial liabilities and are presented as part ofBills Payable in the statement of financial position. The dividends on these preferred sharesare recognized in profit or loss as interest expense on an amortized cost basis using theeffective interest method.The fair value of the liability portion of a convertible bond is determined using a marketinterest rate for an equivalent non-convertible bond. This amount is recorded as a liability onan amortized cost basis until extinguished on conversion or maturity of the bond. Theremainder of the proceeds is allocated to the conversion option. This is recognized andincluded in equity, net of income tax effects.Derivative liabilities are recognized initially and subsequently measured at fair value withchanges in fair value recognized in profit or loss.Dividend distributions to shareholders are recognized as financial liabilities when thedividends are declared by BDO Unibank Group and are subject for approval by the BSP.