295 Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these  non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the  coupon payments. The repayment of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual  obligation to settle the repayment in cash or another financial asset or through the exchange of financial assets and liabilities at  potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components.  The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and  subsequently carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is  recognized in the income statement. The liability component is derecognized when the Group’s obligation under the contract expires,  is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the  fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates. Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in  equity, net of tax. For compound instruments incremental external costs that are directly attributable to the issuing or buying back  of the compound instruments are recognized proportionate to the equity component and liability component, net of tax. Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for non- cumulative dividends payable is not recognized until the dividends have been declared and approved.  Revaluation account includes unrealized gains and losses on available-for-sales assets and the positive changes in value that have been  recognized in net income / (loss) relating to investments (including real estate) and which do not have a frequent market listing. Legal reserves in respect of group companies include net increases in net asset value of subsidiaries and associates since their first  inclusion, less any amounts that can be distributed without legal restrictions. Treasury shares are own equity instruments reacquired by the Group. They are deducted from shareholders’ equity, regardless of the  objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the  instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration  paid or received is recognized directly in shareholders’ equity. All treasury shares are eliminated in the calculation of earnings per share  and dividend per common share. A financial instrument issued by the company is classified as a liability if the contractual obligation must be settled in cash or another  financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the company.  Borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at  amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value  through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair  value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the company’s obligation  under the contract expires or is discharged or cancelled. Borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound  instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability  components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further  information on accounting policy of the non-cumulative subordinated notes refer to note 2.9. Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of  economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.  A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in  an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a  contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote. 2.11 Contingent assets and liabilities 2.10 Borrowings