Part IVAValuation at Fair Value

Inclusion of financial instruments at fair value24A

1

Subject to sub-paragraphs (2) to (4), financial instruments, including derivative financial instruments, may be included at fair value.

2

Sub-paragraph (1) only applies to financial instruments which constitute liabilities if –

a

they are held as part of a trading portfolio; or

b

they are derivative financial instruments.

3

Sub-paragraph (1) does not apply to –

a

non-derivative financial instruments held to maturity;

b

loans or receivables originated by the society and not held for trading purposes;

c

interests in connected undertakings or joint ventures;

d

equity instruments issued by the society;

e

contracts for contingent consideration in a business combination; and

f

other financial instruments with such special characteristics that the instruments, according to generally accepted accounting principles or practice, should be accounted for differently from other financial instruments.

4

If the fair value of a financial instrument cannot be determined reliably in accordance with paragraph 24B, sub-paragraph (1) does not apply to that financial instrument.

5

In this paragraph “joint venture” means an undertaking, other than a connected undertaking, which a society manages jointly with one or more undertakings.

Methods for determining “fair value”24B

1

The fair value of a financial instrument is its value determined in accordance with this paragraph.

2

If a reliable market can readily be identified for the financial instrument, its fair value is to be determined by reference to its market value.

3

If a reliable market cannot readily be identified for the financial instrument but can be identified for its components or for a similar instrument, its fair value is to be determined by reference to the market value of its components or of the similar instrument.

4

If neither sub-paragraph (2) nor (3) applies, the fair value of the financial instrument is to be a value resulting from generally accepted valuation models and techniques.

5

Any valuation models and techniques used for the purposes of sub-paragraph (4) must ensure a reasonable approximation of the market value.

Hedged items24C

A society may include any assets or liabilities, or identified portions of such assets or liabilities, which qualify as hedged items under a fair value hedge accounting system, at the amount required under that system.

Other assets which may be included at fair value24D

1

This paragraph applies to–

a

investment property; and

b

living animals or plants,

that under international accounting standards may be included in accounts at fair value.

2

Such investment property and such living animals or plants may be included at fair value, provided that all such investment property, or as the case may be, all such living animals or plants are so included where their fair value can be reliably determined.

3

In this paragraph “fair value” means fair value determined in accordance with relevant accounting standards.

Accounting for changes in value of financial instruments24E

1

This paragraph applies where a financial instrument is valued in accordance with paragraph 24A or 24C.

2

Notwithstanding paragraph 4 of Part I of this Schedule, and subject to sub-paragraphs (3) and (4) below, a change in the value of the financial instrument shall be included in the income and expenditure account.

3

Where–

a

the financial instrument accounted for is a hedging instrument under a hedge accounting system that allows some or all of the change in value not to be shown in the income and expenditure account; or

b

the change in value relates to an exchange difference arising on a monetary item that forms part of a society’s net investment in a foreign entity,

the amount of change in value shall be credited to or (as the case may be) debited from a separate reserve (“the fair value reserve”).

4

Where the instrument accounted for–

a

is an available-for-sale financial asset; and

b

is not a derivative financial instrument,

the difference in value may be credited to or (as the case may be) debited from the fair value reserve.

The fair value reserve24F

1

The fair value reserve shall be adjusted to the extent that the amounts shown in it are no longer necessary for the purposes of paragraph 24E (3) or (4).

2

The treatment for taxation purposes of amounts credited to or debited from the fair value reserve shall be disclosed in a note to the accounts.