Page 65 - BKT Annual Report 2024 EN

Notes to the Consolidated Financial Statements for the year ended 31 December 2024 Notes to the Consolidated Financial Statements for the year ended 31 December 2024
(amounts in USD, unless otherwise stated) (amounts in USD, unless otherwise stated)

(iii) Translation of financial statements from functional currency to presentation currency accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they probably will not
Translation of financial statements from functional currency to presentation currency is done as follows: reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences
• assets and liabilities for reporting date (including comparatives) are translated at the closing rate at the date of that reporting date, when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
which is Bank of Albania’s rate at 1 USD = 94.26 Lek (2023: 93.94). In determining the amount of current and deferred tax the Bank takes into account the impact of uncertain tax positions and whether
• income and expenses (including comparatives) are translated at exchange rates at the dates of the transactions. additional taxes and interest may be due. The Bank believes that its accruals for tax liabilities are adequate for all open tax years based
• equity items other than the net profit for the period and share capital, are translated at exchange rates at the dates of the transactions. on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and
• share capital has been translated as described in paragraph 3.(b).(i) above; and assumptions and may involve a series of judgments about future events. New information may become available that causes the Bank
• all resulting exchange differences are recognised through other comprehensive income as a separate component of equity in the to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the
“Translation reserve” account.
period that such a determination is made.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
(iv) Spot foreign exchange transactions
can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
The Bank during the normal course of business enters into spot foreign exchange transactions with settlement dates 1 or 2 days after
the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends by the Bank are recognised
the trade date. These transactions are recorded in the financial statements on the settlement date. Foreign currency differences are
at the same time as the liability to pay the related dividend is recognised.
recognised in profit or loss on the settlement date.

(c) Interest
Tax applications for foreign subsidiaries of the Bank:
Interest income and expense are recognised in the profit or loss using the effective interest method. The effective interest rate is the
Republic of Kosovo
rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability
The applicable corporate tax rate in Republic of Kosovo is 10%. Under Kosovo tax legislation system, tax losses can be carried forward
(or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest
to be offset against future taxable income for up to seven years.
rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument but not future credit losses.
The calculation of the effective interest rate includes all fees paid or received that are an integral part of the effective interest rate.
(g) Financial assets and liabilities
Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.
(i) Recognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial
(d) Fees and commission
instrument.
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in
the measurement of the effective interest rate. Other fees and commission income are recognised as the related services are performed.
The Bank initially recognises loans, deposits, debt securities issued and subordinated liabilities on the date at which they are originated.
Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell
the asset, with the exception of spot foreign exchange transactions which are recognized on settlement date (see note 3(b) (iv)). All
(e) Lease payments made
other financial assets and liabilities are initially recognised on the trade date at which the Bank becomes a party to the contractual
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease
provisions of the instrument.
incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
(f) Income tax expense
or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the profit or loss except to the extent
added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction
that it relates to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable on the
costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised
taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
immediately in profit or loss.
in respect of previous years.
(ii) Derecognition
The Bank determines taxation at the end of the year in accordance with the Albanian tax legislation. In 2024, tax on profit is equal to
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial
15% of the taxable income. Taxable income is calculated by adjusting the statutory profit before taxes for certain income and expenditure
asset and substantially all the risks and rewards are transferred.
items as required under the Albanian law. The statutory profit is based on the financial records kept by the Bank for regulatory purposes
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
and may differ from the International Financial Reporting Standards reported financial result. However, current income tax payable for
The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the
the 2024 financial year is equal according to both standards.
financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Bank neither transfers nor
retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognises its
Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks
and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition
and rewards of ownership of a transferred financial asset, the Bank continues to recognise the financial asset and also recognises
of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
a collateralised borrowing for the proceeds received. The Bank derecognises financial liabilities when, and only when, the Bank’s

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