Macquarie Group Limited and its subsidiaries  2014 Annual Financial Report  macquarie.com.au  Note 1  Summary of significant accounting policies  continued  (v) Foreign currency translation (vi) Revenue and expense recognition 106  On consolidation, exchange differences arising from the  translation of any net investment in foreign operations and  of borrowings and other foreign currency instruments  designated as hedges of such investments, are taken to  the foreign currency translation reserve through OCI. When a  foreign operation is disposed of or any borrowings forming part  of the net investment are repaid, such exchange differences are  recognised in the income statement as part of the gain or loss  on disposal. Goodwill and fair value adjustments arising on the acquisition  of a foreign entity are treated as assets and liabilities of the  foreign entity and translated at the closing rate. Dividends and distributions are recognised as income when  the Consolidated Entity becomes entitled to the dividend or  distribution. Dividends from subsidiaries, associates and joint  ventures are recognised in the income statement when the  Company’s right to receive the dividend is established.  When accounting for a dividend or distribution, judgement is  required about whether it is recognised as income or a return  of capital. The range of factors that are considered include:  Net trading income comprises gains and losses related to  trading assets and liabilities and include all realised and  unrealised fair value changes, dividends and foreign  exchange differences. Dividends and distributions  Net trading income  Fees charged for performing a significant act in relation to funds  managed by the Consolidated Entity are recognised as revenue  when that act has been completed.  Other fee and commission income, including fees from fund  management, brokerage, account servicing, corporate advisory,  underwriting and securitisation arrangements is recognised as  the related services are performed. Where commissions and  fees are subject to clawback or meeting certain performance  hurdles, they are recognised as income at the point when  those conditions can no longer affect the outcome.  The results and financial position of all foreign operations that  have a functional currency other than Australian dollars are  translated into Australian dollars as follows:  Subsidiaries and other entities  Translation differences on non-monetary items (such as  equities) held at fair value through profit or loss, are reported as  part of the fair value gain or loss in the income statement.  Translation differences on non-monetary items classified as  available for sale financial assets are included in the available for  sale reserve in equity, unless they form part of fair value hedge  relationships in which case the translation differences  are recognised in the income statement (see note 1(xi)).  Fee and commission income and expenses that are integral  to the effective interest rate on a financial asset or liability  are capitalised and included in the effective interest rate and  recognised in the income statement over the expected life  of the instrument.  Fee and commission income  Transactions and balances  Foreign currency transactions are recorded in the functional  currency using the exchange rates prevailing at the dates of  the transactions. Foreign exchange gains and losses resulting  from the settlement of such transactions and from the  translation at year end exchange rates of monetary assets and  liabilities denominated in foreign currencies are recognised in  the income statement, except when deferred in OCI as a result  of meeting cash flow hedge or net investment hedge  accounting requirements (see note 1(xi)).  Interest income is brought to account using the effective  interest method. The effective interest method calculates  the amortised cost of a financial instrument and allocates the  interest income or interest expense over the relevant period.  The effective interest rate is the rate that discounts estimated  future cash receipts or payments through the expected life of  the financial instrument or, when appropriate, a shorter period,  to the net carrying amount of the financial asset or liability. Fees  and transaction costs associated with loans are capitalised and  included in the effective interest rate and recognised in the  income statement over the expected life of the instrument.  Interest income on finance leases is brought to account  progressively over the life of the lease consistent with the  outstanding investment balance. Revenue is measured at the fair value of the consideration  received or receivable. Revenue is recognised for each major  revenue stream as follows:  Net interest income Functional and presentation currency  Items included in the financial statements of foreign operations  are measured using the currency of the primary economic  environment in which the foreign operation operates (the  functional currency). The Company’s and Consolidated  Entity’s financial statements are presented in Australian  dollars (the presentation currency), which is also the  Company’s functional currency.  – whether the payment follows a legal process to reduce  either the number of outstanding shares or the amount  of share capital; – assets and liabilities for each statement of financial  position presented are translated at the closing exchange  rate at the date of that statement of financial position;  – income and expenses for each income statement are  translated at actual exchange rates at the dates of the  transactions; and  – all resulting exchange differences are recognised in OCI  within a separate component of equity – the foreign  currency translation reserve.  Notes to the financial statements  for the financial year ended 31 March 2014  continued 