Equity instruments issued by the Group that are held by the investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties. 

## B. JOINTLY CONTROLLED ENTITIES Joint ventures are contractual agreements whereby the Group 

undertakes with other parties an economic activity that is subject to joint control. 

Interests in joint ventures are recognized using proportionate consolidation, combining items on a line by line basis from the date the jointly controlled interest commences. Gains and losses on transactions between the Group and the joint venture are recognized to the extent that they are attributable to the interests of other ventures, with the exception of losses that are evidence of impairment and that are recognized immediately. The use of proportionate consolidation is discontinued from the date on which the Group ceases to have joint control. 

The acquisition of an interest in a joint venture may result in goodwill, which is accounted for consistently with the goodwill recognized on the purchase of a subsidiary. 

## NOTE 2.4 FOREIGN EXCHANGE TRANSLATION 

## A. TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS 

The Group’s consolidated financial statements are prepared in euros which is also the Company’s functional currency. That is the currency of the primary economic environment in which the Company operates. Each company in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. 

At the balance sheet date monetary assets and monetary liabilities in foreign currencies are retranslated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined. 

Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in equity or the income statement, consistently with other gains and losses on these items. 

## B. TRANSLATION OF FOREIGN CURRENCY OPERATIONS 

On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the balance sheet date. Income, expenses and capital transactions (such as dividends) are translated at average exchange rates or at the prevailing rates on the transaction date, if more appropriate. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are translated at the closing rates on the balance sheet date. 

 The resulting exchange differences are recognized in the ‘foreign currency translation reserve’, which is part of shareholders’ equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement. 

On transition to IFRS on January 1, 2004, the foreign currency translation reserve was reset to nil. 

## NOTE 2.5 SEGMENT REPORTING 

Starting January 1, 2010, AEGON introduced a new reporting format for segment reporting that aligns with changes implemented in the way AEGON manages its business. AEGON’s operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the ’chief operating decision maker’. The operating segments are: 

■ AEGON Americas: Covers business units in the United States, Canada, Mexico and Brazil, including any of the units’ activities located outside these countries. 

■ AEGON The Netherlands: Covers businesses operating in the Netherlands. 

■ AEGON UK: Covers businesses operating in the United Kingdom. 

■ New Markets: Covers businesses operating in Central & Eastern Europe, Asia, Spain and France as well as AEGON’s variable annuity activities in Europe and AEGON Asset Management. 

■ Holding and other activities: Includes fi nancing, employee and other administrative expenses of Holding companies. 

In addition, AEGON made the following other changes: 

■ The use of ’operating earnings’ is discontinued to further simplify AEGON’s reporting and to focus on the key performance indicator ’underlying earnings’. 

■ The line item ’Run-off businesses’ is introduced which includes earnings of certain business units where management has decided to exit the market and to run-off the existing block of business. Currently, this line item includes the earnings of the institutional spread-based business and structured settlements (payout annuities) 

