2018 Registration document and annual fi nancial report - BNP PARIBAS 161

4CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

4

Notes to the fi nancial statements

Realised gains and losses on investments in consolidated undertakings are recognised in the profi t and loss account under Net gain on non- current assets .

The consolidated financial statements are prepared using uniform accounting policies for similar transactions and other events occurring in similar circumstances.

1.b.3 Consolidation rules

Elimination of intragroup balances and transactions Intragroup balances arising from transactions between consolidated enterprises, and the transactions themselves (including income, expenses and dividends), are eliminated. Profi ts and losses arising from intragroup sales of assets are eliminated, except where there is an indication that the asset sold is impaired. Unrealised gains and losses included in the value of fi nancial instruments at fair value through equity and available- for-sale assets are maintained in the consolidated fi nancial statements.

Translation of accounts expressed in foreign currencies The consolidated fi nancial statements of BNP Paribas are prepared in euros.

The fi nancial statements of enterprises whose functional currency is not the euro are translated using the closing rate method. Under this method, all assets and liabilities, both monetary and non-monetary, are translated using the spot exchange rate at the balance sheet date. Income and expense items are translated at the average rate for the period.

The same method is applied to the fi nancial statements of enterprises located in hyperinfl ationary economies, after adjusting for the effects of infl ation by applying a general price index.

Differences arising from the translation of balance sheet items and profi t and loss items are recorded in shareholders equity under Exchange differences , and in Minority interests for the portion attributable to outside investors. Under the optional treatment permitted by IFRS 1, the Group has reset to zero all exchange differences, by booking all cumulative exchange differences attributable to shareholders and to minority interests in the opening balance sheet at 1 January 2004 to retained earnings.

On liquidation or disposal of some or all of an interest held in a foreign enterprise located outside the euro zone, leading to a change in the nature of the investment (loss of control, loss of signifi cant infl uence or loss of joint control without keeping a signifi cant infl uence), the cumulative exchange difference at the date of liquidation or sale, determined according to the step method, is recognised in the profi t and loss account.

Should the percentage of interest change without leading to a modifi cation in the nature of the investment, the exchange difference is reallocated between the portion attributable to shareholders and that attributable to minority interests if the entity is fully consolidated; if the entity is consolidated under the equity method, it is recorded in profi t or loss for the portion related to the interest sold.

1.b.4 Business combination and measurement of goodwill

Business combinations Business combinations are accounted for using the purchase method.

Under this method, the acquiree s identifi able assets and liabilities assumed are measured at fair value at the acquisition date except for non-current assets classifi ed as assets held for sale which are accounted for at fair value less costs to sell.

The acquiree s contingent liabilities are not recognised in the consolidated balance sheet unless they represent a present obligation on the acquisition date and their fair value can be measured reliably.

The cost of a business combination is the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued to obtain control of the acquiree. Costs directly attributable to the business combination are treated as a separate transaction and recognised through profi t or loss.

Any contingent consideration is included in the cost, as soon as control is obtained, at fair value on the date when control was acquired. Subsequent changes in the value of any contingent consideration recognised as a fi nancial liability are recognised through profi t or loss.

The Group may recognise any adjustments to the provisional accounting within 12 months of the acquisition date.

Goodwill represents the difference between the cost of the combination and the acquirer s interest in the net fair value of the identifi able assets and liabilities of the acquiree at the acquisition date. Positive goodwill is recognised in the acquirer s balance sheet, while negative goodwill is recognised immediately in profi t or loss, on the acquisition date. Minority interests are measured at their share of the fair value of the acquiree s identifi able assets and liabilities. However, for each business combination, the Group can elect to measure minority interests at fair value, in which case a proportion of goodwill is allocated to them. To date, the Group has never used this latter option.

Goodwill is recognised in the functional currency of the acquiree and translated at the closing exchange rate.

On the acquisition date, any previously held equity interest in the acquiree is remeasured at its fair value through profi t or loss. In the case of a step acquisition, the goodwill is therefore determined by reference to the acquisition-date fair value.

Since the revised IFRS 3 has been applied prospectively, business combinations completed prior to 1 January 2010 were not restated for the effects of changes to IFRS 3.

As permitted under IFRS 1, business combinations that took place before 1 January 2004 and were recorded in accordance with the previously applicable accounting standards (French GAAP), had not been restated in accordance with the principles of IFRS 3.