Holiday Inn 2007 Annual Report Download - page 55

GROUP FINANCIAL STATEMENTS
Corporate information and accounting policies 53
GROUP FINANCIAL STATEMENTS
Property, plant and equipment are reviewed for impairment
when events or changes in circumstances indicate that the
carrying value may not be recoverable. Assets that do not
generate independent cash flows are combined into cash-
generating units. If carrying values exceed estimated recoverable
amount, the assets or cash-generating units are written down
to their recoverable amount. Recoverable amount is the greater
of fair value less cost to sell and value in use. Value in use is
assessed based on estimated future cash flows discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and
the risks specific to the asset.
On adoption of IFRS, the Group retained previous revaluations
of property, plant and equipment at deemed cost as permitted
by IFRS 1 ‘First-time Adoption of International Financial
Reporting Standards’.
Goodwill
Goodwill arises on consolidation and is recorded at cost, being
the excess of the cost of acquisition over the fair value at the date
of acquisition of the Group’s share of identifiable assets, liabilities
and contingent liabilities. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment at least annually by comparing
carrying values of cash-generating units with their recoverable
amounts.
Intangible assets
Software
Acquired software licences and software developed in-house are
capitalised on the basis of the costs incurred to acquire and bring
to use the specific software. Costs are amortised over estimated
useful lives of three to five years on a straight-line basis.
Management contracts
When assets are sold and a purchaser enters into a management
or franchise contract with the Group, the Group capitalises as part
of the gain or loss on disposal an estimate of the fair value of the
contract entered into. The value of management contracts is
amortised over the life of the contract which ranges from six to
50 years on a straight-line basis.
Other intangible assets
Amounts paid to hotel owners to secure management contracts
and franchise agreements are capitalised and amortised over
the shorter of the contracted period and 10 years on a straight-
line basis.
Internally generated development costs are expensed unless
forecast revenues exceed attributable forecast development costs,
at which time they are capitalised and amortised over the life of
the asset.
Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may
not be recoverable.
Associates
An associate is an entity over which the Group has the ability to
exercise significant influence, but not control, through participation
in the financial and operating policy decisions of the entity.
Associates are accounted for using the equity method unless the
associate is classified as held for sale. Under the equity method,
the Group’s investment is recorded at cost adjusted by the Group’s
share of post acquisition profits and losses. When the Group’s
share of losses exceeds its interest in an associate, the Group’s
carrying amount is reduced to £nil and recognition of further
losses is discontinued except to the extent that the Group has
incurred legal or constructive obligations or made payments
on behalf of an associate.
Financial assets
The Group classifies its financial assets into one of the two
following categories: loans and receivables or available-for-sale
financial assets. Management determines the classification on
initial recognition and they are subsequently held at amortised
cost (loans and receivables) or fair value (available-for-sale
financial assets). Interest on loans and receivables is calculated
using the effective interest rate method and is recognised in the
income statement as interest income. Changes in fair values of
available-for-sale financial assets are recorded directly in equity
within the unrealised gains and losses reserve. On disposal, the
accumulated fair value adjustments recognised in equity are
recycled to the income statement. Dividends from available-for-
sale financial assets are recognised in the income statement as
other operating income and expenses.
Financial assets are tested for impairment at each balance sheet
date. If an available-for-sale financial asset is impaired, the
difference between original cost and fair value is transferred from
equity to the income statement to the extent of any cumulative
loss recorded in equity, with any excess charged directly to the
income statement.
Financial liabilities
Financial liabilities are measured at amortised cost using the
effective interest rate method. A financial liability is derecognised
when the obligation under the liability expires, is discharged
or cancelled.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Trade receivables
Trade receivables are recorded at their original amount less
provision for impairment. It is the Group’s policy to provide for
100% of the previous month’s aged receivables balances which
are more than 180 days past due. Adjustments to the policy may
be made due to specific or exceptional circumstances when
collection is no longer considered probable. The carrying amount
of the receivable is reduced through the use of a provision account
and movements in the provision are recognised in the income
statement within cost of sales. When a previously provided trade
receivable is uncollectable, it is written off against the provision.