SolvedCFM90960 | Debt cap: financial services groups: income statement of a financial services group: example
From HM Revenue & Customs · Corporate Finance Manual
This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.
Part of an income statement of a fictitious financial services group
The following is an extract from an income statement from the consolidated financial statements of a fictitious financial services group and shows the make up of the worldwide trading income and which amounts are in respect of qualifying activities.
The example is very straightforward, in that the income from qualifying activities can be identified just from the figures reported in the income statement.
Intra-group transactions should not be included in these figures because the accounts show the consolidated position for the group.
In practice groups will very likely have to breakdown the headline figures reported in the income statement to establish whether particular amounts of income arise from qualifying activities.
| Consolidated income statement for the year ended 31 December (in million of £) | 2012 | 2011 |
|---|---|---|
| Continuing operations | - | - |
| Interest income (see note below) | 90,000 | 70,000 |
| Interest expense | - 75,000 | - 56,000 |
| Net interest income | 15,000 | 14,000 |
| Fee and commission income (see note below) | 10,000 | 8,000 |
| Fee and commission expenses | - 2,000 | - 1,000 |
| Net fee and commission income | 8,000 | 7,000 |
| Gross insurance premiums written (see note below) | 20,000 | 15,000 |
| Insurance premiums ceded to reinsurers | - 1,000 | - 1,000 |
| Premiums written net of re-insurance | 19,000 | 14,000 |
| Net change in provision of unearned premiums | 500 | - 500 |
| Net written insurance premiums | 19,500 | 13,500 |
| Net trading income (see note below) | 4,000 | 1,500 |
| Net investment income (see note below) | 3,000 | 2,500 |
| Other income (see note below) | 2,000 | 1,000 |
| Total income | 51,500 | 39,500 |
| Insurance claims | - 16,000 | - 12,000 |
| Total income net of insurance claims | 35,500 | 27,500 |
| Impairment charges | - 10,000 | - 8,000 |
| Net income | 25,500 | 19,500 |
| Staff costs | - 5,000 | - 4,000 |
| General and administrative expenses | - 4,000 | -3,000 |
| Depreciation of property, plant and equipment | - 1,000 | - 1,000 |
| Amortisation of intangible assets | - 1,000 | - 1,000 |
| Operating expenses | - 11,000 | - 9,000 |
| Share of profits in associates and joint ventures | 2,000 | 1,000 |
| Profit on disposal of subsidiaries, associates and JVs | - | 500 |
| Gains on acquisition | 500 | - |
| Profit before tax | 17,000 | 12,000 |
Note: entries showing ‘(see note below)’ show the amounts that are included in the calculation of the worldwide trading income.
For 2011 the group had worldwide trading income of £98m, of which, assuming that the net trading income is from qualifying activities, at least £94.5m is likely to be derived from qualifying activities. The £94.5m is the total of the gross interest income, gross fee and commission income, gross insurance premiums written and net trading income.
For 2012 the group had worldwide trading income of £129m, of which, again assuming that the net trading income is from qualifying activities, at least £124m is likely to be derived from qualifying activities. The £124m is the total of the gross interest income, gross fee and commission income, gross insurance premiums written and net trading income.
In both years it is likely that the group will be a qualifying financial services group.