Aviva 2013 Annual Report Download - page 119

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
117
Accounting policies continued
classification of the reinsured business. The cost of reinsurance
related to long-duration contracts is accounted for over the life
of the underlying reinsured policies, using assumptions
consistent with those used to account for these policies.
Where general insurance liabilities are discounted, any
corresponding reinsurance assets are also discounted using
consistent assumptions.
Gains or losses on buying retroactive reinsurance are recognised
in the income statement immediately at the date of purchase and
are not amortised. Premiums ceded and claims reimbursed are
presented on a gross basis in the consolidated income statement
and statement of financial position as appropriate.
Reinsurance assets primarily include balances due from both
insurance and reinsurance companies for ceded insurance and
investment contract liabilities. This includes balances in respect
of investment contracts which are legally reinsurance contracts
but do not meet the definition of a reinsurance contract under
IFRS. Amounts recoverable from reinsurers are estimated in a
manner consistent with the underlying contract liabilities,
outstanding claims provisions or settled claims associated with
the reinsured policies and in accordance with the relevant
reinsurance contract.
Reinsurance of non-participating investment contracts and
reinsurance contracts that principally transfer financial risk are
accounted for directly through the statement of financial
position. A deposit asset or liability is recognised, based on the
consideration paid or received less any explicitly identified
premiums or fees to be retained by the reinsured. These deposit
assets or liabilities are shown within reinsurance assets in the
consolidated statement of financial position.
If a reinsurance asset is impaired, the Group reduces the
carrying amount accordingly and recognises that impairment
loss in the income statement. A reinsurance asset is impaired if
there is objective evidence, as a result of an event that occurred
after initial recognition of the reinsurance asset, that the Group
may not receive all amounts due to it under the terms of the
contract, and the event has a reliably measurable impact on the
amounts that the Group will receive from the reinsurer.
(O) Goodwill, AVIF and intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the Group’s share of the net assets of the
acquired subsidiary, associate or joint venture at the date of
acquisition. Goodwill on acquisitions prior to 1 January 2004
(the date of transition to IFRS) is carried at its book value
(original cost less cumulative amortisation) on that date, less any
impairment subsequently incurred. Goodwill arising before 1
January 1998 was eliminated against reserves and has not been
reinstated. Goodwill arising on the Group’s investments in
subsidiaries since that date is shown as a separate asset, whilst
that on associates and joint ventures is included within the
carrying value of those investments.
Acquired value of in-force business (AVIF)
The present value of future profits on a portfolio of long-term
insurance and investment contracts, acquired either directly or
through the purchase of a subsidiary, is recognised as an asset.
If the AVIF results from the acquisition of an investment in a
joint venture or an associate, it is held within the carrying
amount of that investment. In all cases, the AVIF is amortised
over the useful lifetime of the related contracts in the portfolio
on a systematic basis. The rate of amortisation is chosen by
considering the profile of the additional value of in-force
business acquired and the expected depletion in its value. The
value of the acquired in-force long-term business is reviewed
annually for any impairment in value and any reductions are
charged as expenses in the income statement.
Intangible assets
Intangibles consist primarily of contractual relationships such
as access to distribution networks and customer lists. The
economic lives of these are determined by considering relevant
factors such as usage of the asset, typical product life cycles,
potential obsolescence, maintenance costs, the stability of the
industry, competitive position and the period of control over
the assets. These intangibles are amortised over their useful
lives, which range from five to 30 years, using the straight-
line method.
The amortisation charge for the year is included in the
income statement under ‘Other expenses’. For intangibles with
finite lives, impairment charges will be recognised in the income
statement where evidence of such impairment is observed.
Intangibles with indefinite lives are subject to regular
impairment testing, as described below.
Impairment testing
For impairment testing, goodwill and intangibles with indefinite
useful lives have been allocated to cash-generating units. The
carrying amount of goodwill and intangible assets with
indefinite useful lives is reviewed at least annually or when
circumstances or events indicate there may be uncertainty over
this value. Goodwill and indefinite life intangibles are written
down for impairment where the recoverable amount is
insufficient to support its carrying value. Further details on
goodwill allocation and impairment testing are given in note 17.
(P) Property and equipment
Owner-occupied properties are carried at their revalued
amounts, and movements are recognised in other
comprehensive income and taken to a separate reserve within
equity. When such properties are sold, the accumulated
revaluation surpluses are transferred from this reserve to
retained earnings. These properties are depreciated down to
their estimated residual values over their useful lives. All other
items classed as property and equipment within the statement
of financial position are carried at historical cost less
accumulated depreciation.
Investment properties under construction are included
within property and equipment until completion, and are stated
at cost less any provision for impairment in their values until
construction is completed or fair value becomes reliably
measurable.
Depreciation is calculated on the straight-line method to
write-down the cost of other assets to their residual values over
their estimated useful lives as follows:
 Properties under construction No depreciation
 Owner-occupied properties,
and related mechanical and
electrical equipment
25 years
 Motor vehicles Three years, or lease term
(up to useful life) if longer
 Computer equipment Three to five years
 Other assets Three to five years
The assets’ residual values, useful lives and method of depreciation
are reviewed regularly, and at least at each financial year end, and
adjusted if appropriate. Where the carrying amount of an asset is
greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount. Gains and losses on disposal
of property and equipment are determined by reference to their
carrying amount.
Borrowing costs directly attributable to the acquisition and
construction of property and equipment are capitalised. All
repairs and maintenance costs are charged to the income
statement during the financial period in which they are incurred.
The cost of major renovations is included in the carrying amount
of the asset when it is probable that future economic benefits in