İllİk hesabat annual RepoRt

OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK 

 

NOTES TO THE FINANCIAL STATEMENTS (Continued) 

FOR THE YEAR ENDED 31 DECEMBER 2008 

(in Azerbaijan Manats) 

12 

 

 

Derecognition of financial assets and liabilities 

 

Financial assets 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar 

financial assets) is derecognized where: 

 



  the rights to receive cash flows from the asset have expired; 



  the Bank has transferred its rights to receive cash flows from the asset, or retained the right to 

receive cash  flows  from the asset, but has assumed an obligation to pay them in full without 

material delay to a third party under a ‘pass-through’ arrangement; and 



  the Bank either (a) has transferred substantially all the risks and rewards of the asset, or (b) has 

neither  transferred  nor  retained  substantially  all  the  risks  and  rewards  of  the  asset,  but  has 

transferred control of the asset. 

 

A financial asset is derecognized when it has been transferred and the transfer qualifies for 

derecognition. A transfer requires that the Bank either: (a) transfers the contractual rights to receive 

the asset’s cash flows; or (b) retains the right to the asset’s cash flows but assumes a contractual 

obligation to pay those cash flows to a third party. After a transfer, the Bank reassesses the extent to 

which it has retained the risks and rewards of ownership of the transferred asset. If substantially all 

the risks and rewards have been retained, the asset remains on the balance sheet.  If substantially all 

of the risks and rewards have been transferred, the asset is derecognized. If substantially all the risks 

and rewards have been neither retained nor transferred, the Bank assesses whether or not is has 

retained control of the asset. If it has not retained control, the asset is derecognized. Where the Bank 

has retained control of the asset, it continues to recognize the asset to the extent of its continuing 

involvement. 

 

Financial liabilities  

A financial liability is derecognized when the obligation is discharged, cancelled, or expires. 

 

Where an existing financial liability is replaced by another from the same lender on substantially 

different terms, or the terms of an existing liability are substantially modified, such an exchange or 

modification is treated as a de-recognition of the original liability and the recognition of a new 

liability, and the difference in the respective carrying amounts is recognized in the consolidated 

income statement. 

 

Finance leases 

 

Finance leases are leases that transfer substantially all the risks and rewards incident to ownership of 

an asset. Title may or may not eventually be transferred. Whether a lease is a finance lease or  

an operating lease depends on the substance of the transaction rather than the form of the contract. 

The lease is classified as a finance lease if: 

 



  The lease transfers ownership of the asset to the lessee by the end of the lease term; 



  The lessee has the option to purchase the asset at a price which is expected to be sufficiently 

lower than the fair value at the date the option becomes exercisable such that, at the inception of 

the lease, it is reasonably certain that the option will be exercised; 



  The lease term is for the major part of the economic life of the asset even if title is not transferred; 

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OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK 

 

NOTES TO THE FINANCIAL STATEMENTS (Continued) 

FOR THE YEAR ENDED 31 DECEMBER 2008 

(in Azerbaijan Manats) 

13 

 

 



  At the inception of the lease the present value of the minimum lease payments amounts to at least 

substantially all of the fair value of the leased asset; and 



  The leased assets are of a specialized nature such that only the lessee can use them without major 

modifications being made. 

 

The Bank as a lessor presents finance leases as loans and initially measures them at an amount equal 

to the net investment in the lease. Subsequently, the recognition of finance income is allocated to 

accounting periods so as to reflect a constant periodic rate of return on the Bank’s net investment in 

the finance lease. 

 

Before commencement date property, plant and equipment purchased for future transfer to finance 

lease is recognized in the financial statements as property and equipment purchased to transfer to 

finance lease at cost. 

 

Investments available-for-sale  

 

Investments available-for-sale represents debt and equity investments that are intended to be held for 

an indefinite period of time. Investments available-for-sale are initially recorded at fair value and 

subsequently measured at fair value, with such re-measurement recognized directly in equity, except 

for impairment losses, foreign exchange gains or losses and interest income accrued using the 

effective interest method, which are recognized directly in the income statement. When sold, the 

gain/loss previously recorded in equity is recycled through the income statement. The Bank uses 

quoted market prices to determine the fair value for the Bank’s investments available-for-sale. If the 

market for investments is not active, the Bank establishes fair value by using valuation techniques. 

Valuation techniques include using recent arm’s length market transactions between knowledgeable, 

willing parties, reference to the current fair value of another instrument that is substantially the 

same, discounted cash flow analysis and option pricing models. If there is a valuation technique 

commonly used by market participants to price the instrument and that technique has been 

demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Bank 

uses that technique. 

 

Non-marketable equity securities are stated at cost less impairment losses, if any, unless fair value 

can be reliably measured. 

 

When there is objective evidence that such securities have been impaired, the cumulative loss 

previously recognized in equity is removed from equity and recognized in the income statement for 

the period. Reversals of such impairment losses on debt instruments, which are objectively related to 

events occurring after the impairment, are recognized in the income statement for the period. 

Reversals of such impairment losses on equity instruments are not recognized in the income 

statement. 

 

Property, equipment and intangible assets 

 

Property, equipment and intangible assets are carried at historical cost less accumulated depreciation 

and amortization and any recognized impairment loss.  

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