SMFG Notes to Consolidated Financial Statements Transactions for trading purposes (seeking gains arising from  short-term changes in interest rates, currency exchange rates,  or market prices of securities and other market related indices  or from variation among markets) are included in “Trading  assets” or “Trading liabilities” on the consolidated balance  sheet on a trade date basis. Income and losses on trading- purpose transactions are recognized on a trade date basis and  recorded as “Trading income” and “Trading losses.” Securities and monetary claims purchased for trading  purposes are stated at the fiscal year-end fair value, and  financial derivatives such as swaps, futures and options are  stated at amounts that would be settled if the transactions  were terminated on the consolidated balance sheet date. “Trading income” and “Trading losses” include related  interest received or paid during the fiscal year. The year-on- year valuation differences of securities and monetary claims  are also recorded in the above-mentioned accounts. As for the  derivatives, assuming that the settlement will be made in  cash, the year-on-year valuation differences are also recorded in  the above-mentioned accounts. Derivative transactions, other than those classified as trading  derivatives, are carried at fair value, with revaluation gain or  loss included in the income or loss, unless they are designated  as effective hedging instruments. Buildings owned by SMFG and SMBC are depreciated  using the straight-line method over the estimated useful  Branches and credit supervision departments assess all  claims in accordance with the internal rules for self-assessment  of assets, and the Credit Review Department, independent  For claims originated in specific overseas countries, an addi- tional reserve is provided for in the amount deemed necessary  based on the assessment of political and economic conditions. For other claims, a reserve is provided for based on the  historical loan-loss ratio. The discounted cash flows (“DCF”) method is used for  claims on borrowers whose cash flows from collection of  principal and interest can be rationally estimated, and SMBC  applies it to claims on large potentially bankrupt borrowers  and claims on large borrowers requiring close monitoring that  have been classified as “Past due loans (3 months or more)” or  “Restructured loans,” whose total loans from SMBC exceed  a certain amount. SMBC establishes a reserve for possible  loan losses using the DCF method for such claims in the  amount of the difference between the present value of the  future collection from principal and interest (calculated using  the rationally estimated cash flows discounted at the initial  contractual interest rate) and the book value. For claims on borrowers that are not currently bankrupt but  are perceived to have a high risk of falling into bankruptcy  (“potentially bankrupt borrowers”), a reserve is provided for  in the amount deemed necessary based on an overall solvency  assessment of the claims, net of the expected amount of  recoveries from collateral and guarantees. For claims on borrowers that have entered into bankruptcy,  special liquidation proceedings or similar legal proceedings  (“bankrupt borrowers”) or borrowers that are not legally or  formally insolvent but are regarded as substantially in the  same situation (“effectively bankrupt borrowers”), a reserve is  provided for based on the amount of claims, after the write-off  stated below, net of the expected amount of recoveries from  collateral and guarantees. lives of the respective assets. Others are depreciated using  the declining-balance method. The estimated useful lives  of major items are as follows: Buildings: 7 to 50 years Others: 2 to 20 years Other consolidated subsidiaries depreciate their tangible  fixed assets primarily using the straight-line method over  the estimated useful lives of the respective assets. (b) Intangible fixed assets Intangible fixed assets are depreciated using the straight- line method. Capitalized software for internal use owned  by SMFG and its consolidated domestic subsidiaries is  depreciated over its estimated useful life (basically 5 years). (c) Lease assets Lease assets with respect to non-transfer ownership finance  leases, which are recorded in “Tangible fixed assets,” are  depreciated using the straight-line method, assuming that  lease term is its expected lifetime and salvage value is 0. (6) Reserve for possible loan losses The reserve for possible loan losses of major consolidated  subsidiaries is provided for as described below in accordance  with the internal standards for write-offs and provisions. SMFG  2011 79 (a) Tangible fixed assets (5) Depreciation (4)Derivative  transactions (b) Securities included in money held in trust are carried using  the same method used for securities mentioned above. Securities other than trading purpose securities, held- to-maturity securities and investments in unconsolidated  subsidiaries and affiliates are classified as “other securities”  (available-for-sale securities). Stocks (including foreign  stocks) in other securities that have market prices are car- ried at their average market prices during the final month  of the fiscal year, and bonds and others that have market  prices are carried at their fiscal year-end market prices (cost  of securities sold is calculated using primarily the moving- average method). Other securities, for which it is extremely  difficult to determine fair value with no available market  prices, are carried at cost using the moving-average  method. Net unrealized gains (losses) on other securities,  net of income taxes, are included in “Net assets,” after  deducting the amount that is reflected in the fiscal year’s  earnings by applying fair value hedge accounting. Investments in unconsolidated subsidiaries and affiliates  that are not accounted for by the equity method are carried  at cost using the moving-average method. (a) Other than securities classified for trading purposes, debt  securities that consolidated subsidiaries have the positive  intent and ability to hold to maturity are classified as held- to-maturity securities and are carried at amortized cost  (straight-line method) using the moving-average method. (3) Securities (2) Trading assets/liabilities and trading income/losses