Cash and cash equivalents Financial assets

Foreign operations The results and financial position of the Group’s operations whose functional currency is not Singapore dollars are translated into Singapore dollars in the following manner: •฀ ฀Assets฀and฀liabilities฀are฀translated฀at฀the฀exchange฀rate฀ ruling at the balance sheet date; •฀ ฀Income฀and฀expenses฀in฀the฀income฀statement฀are฀ translated at an average exchange rate approximating the exchange rates at the dates of the transactions; and •฀ ฀All฀resulting฀exchange฀differences฀are฀recognised฀in฀other฀ comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the closing rate. For acquisitions prior to 1 January 2005, the foreign exchange rates at the dates of acquisition were used. Consolidation adjustments On consolidation, foreign exchange differences arising from the translation of net investments in foreign entities, as well as any borrowings and instruments designated as foreign currency hedges of such investments, are recognised in other comprehensive income and accumulated under capital reserves in equity. When a foreign operation is disposed of, such currency translation differences are recognised in the income statement as part of the gain or loss on disposal.

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to management responsible for allocating resources and assessing performance of the operating segments. Segment revenue, segment profits, segment assets and segment liabilities are also measured on a basis that is consistent with internal reporting. The Group’s financial businesses are organised into Consumer Private Banking, Institutional Banking, Treasury and Others. In total, the Group has four reportable segments.

2.5 Revenue recognition

Interest income and interest expense Interest income and interest expense are recognised on a time-proportionate basis using the effective interest method. The effective interest rate is the rate that discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period to its carrying amount. The calculation includes significant fees and transaction costs that are integral to the effective interest rate, as well as premiums or discounts. No interest expense is accrued on the Group’s structured investment deposits which are carried at fair value through profit or loss. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument. Interest earned on the recoverable amount is recognised as interest income in the income statement. Fee and commission income The Group earns fee and commission income from a diverse range of products and services provided to its customers. Fee and commission income is recognised on the completion of a transaction. For a service that is provided over a period of time, fee and commission income is recognised over the period during which the related service is provided or credit risk is undertaken. Dividend income Dividend income is recognised when the right to receive payment is established. Dividend income arising from held for trading financial assets is recognised in “Net trading income”, while that arising from available-for-sale financial assets is recognised in “Net income from financial investments”. Rental income Rental income from operating leases on properties is recognised on a straight-line basis over the lease term.

2.6 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and non-restricted balances with central banks which are readily convertible into cash.

2.7 Financial assets

Financial assets are classified according to the purpose for which the assets were acquired. Management determines the classification at initial recognition. The classification of financial assets is as follows: a Financial assets at fair value through profit or loss are either acquired for the purpose of short-term selling held for trading or designated by management on initial recognition designated under the fair value option. Derivatives are classified as held for trading unless they are designated as hedging instruments. The specific Group accounting policy on derivatives is detailed in Note 2.15. 85 DBS Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2011 Financial assets designated under the fair value option meet at least one of the following criteria upon designation: ฀ •฀ ฀it฀eliminates฀or฀signiicantly฀reduces฀measurement฀or฀ recognition inconsistencies that would otherwise arise from measuring financial assets, or recognising gains or losses on them, using different bases; or ฀ •฀ ฀the฀inancial฀asset฀contains฀an฀embedded฀derivative฀that฀ would otherwise need to be separately recorded. b Financial assets classified as loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: ฀ •฀ ฀those฀that฀the฀Group฀intends฀to฀sell฀immediately฀or฀in฀the฀ short term, which are classified as held for trading, or those that the entity upon initial recognition designates as at fair value through profit or loss; or ฀ •฀ ฀those฀that฀the฀Group฀upon฀initial฀recognition฀designates฀ as available-for-sale. c Financial assets classified as available-for-sale are non-derivatives that are either designated in this category or not classified in any other categories. These financial assets are intended to be held for an indefinite period of time, and may be sold in response to needs for liquidity or changes in interest rates, credit spreads, exchange rates or equity prices. Recognition and derecognition Purchases and sales of financial assets are recognised on the date that the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Reclassification of financial assets Non-derivative financial assets may be reclassified out of the fair value through profit or loss or available-for- sale categories in particular circumstances: •฀ ฀inancial฀assets฀that฀would฀meet฀the฀deinition฀of฀loans฀and฀ receivables may be reclassified out of the fair value through profit or loss and available-for-sale categories if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity; and •฀ ฀inancial฀assets฀except฀inancial฀assets฀that฀would฀have฀met฀ the definition of loans and receivables may be reclassified out of the fair value through profit or loss category in rare circumstances. Reclassifications are made at fair value as of the reclassification date. The fair value becomes the new cost or amortised cost as applicable. Any gain or loss already recognised in the income statement before the reclassification date is not reversed. Initial measurement Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, for which transaction costs are expensed off immediately. The fair value of a financial asset on initial recognition is usually the transaction price. Subsequent measurement Financial assets at fair value through profit or loss and available- for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unquoted equity investments classified as available-for-sale for which fair values cannot be reliably determined are carried at cost, less impairment. Realised or unrealised gains or losses on financial assets held for trading and financial assets designated under the fair value option, except interest income, are taken to “Net trading income” and “Net income from financial instruments designated at fair value” respectively in the income statement in the period they arise. Unrealised gains or losses arising from changes in fair value of financial assets classified as available- for-sale are recognised in other comprehensive income and accumulated in available-for-sale revaluation reserves. When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments in the available-for-sale revaluation reserves are reclassified to the income statement. Determination of fair value The fair values of financial instruments traded in active markets such as exchange-traded and over-the-counter securities and derivatives are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets held by the Group are the current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models. Where applicable, a valuation reserve or pricing adjustment is applied to arrive at the fair value. 86

2.8 Impairment of financial assets