Page 78 - BKT Annual Report 2023 EN

9 BANKA KOMBËTARE TREGTARE
Notes to the Consolidated Financial Statements for the year ended 31 December 2023
(amounts in USD, unless otherwise stated)

(iii) Translation of financial statements from functional currency to presentation currency
Translation of financial statements from functional currency to presentation currency is done as follows:
• assets and liabilities for reporting date (including comparatives) are translated at the closing rate at the date of that reporting date,
which is Bank of Albania’s rate at 1 USD = 93.94 Lek (2022: 107.05).
• income and expenses (including comparatives) are translated at exchange rates at the dates of the transactions.
• equity items other than the net profit for the period and share capital, are translated at exchange rates at the dates of the transactions.
• share capital has been translated as described in paragraph 3.(b).(i) above; and
• all resulting exchange differences are recognised through other comprehensive income as a separate component of equity in the
“Translation reserve” account.

(iv) Spot foreign exchange transactions
The Bank during the normal course of business enters into spot foreign exchange transactions with settlement dates 1 or 2 days after
the trade date. These transactions are recorded in the financial statements on the settlement date. Foreign currency differences are
recognised in profit or loss on the settlement date.

(c) Interest
Interest income and expense are recognised in the profit or loss using the effective interest method. The effective interest rate is the
rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability
(or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest
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.
Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

(d) Fees and commission
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.
Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

(e) Lease payments made
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

(f) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the profit or loss except to the extent
that it relates to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years.

The Bank determines taxation at the end of the year in accordance with the Albanian tax legislation. In 2023, tax on profit is equal to
15% of the taxable income. Taxable income is calculated by adjusting the statutory profit before taxes for certain income and expenditure
items as required under the Albanian law. The statutory profit is based on the financial records kept by the Bank for regulatory purposes
and may differ from the International Financial Reporting Standards reported financial result. However, current income tax payable for
the 2023 financial year is equal according to both standards.
Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition
of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they probably will not