Tesco 2007 Annual Report Download - page 68

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Notes to the financial statements continued
Note 10 Goodwill and other intangible assets continued
Impairment of goodwill
Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis or more frequently
if there are indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of cash-
generating units according to the level at which management monitor that goodwill.
Recoverable amounts for cash-generating units are based on value in use, which is calculated from cash flow projections for five
years using data from the Group’s latest internal forecasts, the results of which are reviewed by the Board. The key assumptions
for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management
estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks
specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations
of future changes in the market.
The forecasts are extrapolated beyond five years based on estimated long-term average growth rates (generally 3%-4%).
The pre-tax discount rates used to calculate value in use range from 10%-17% (2006: 9%-11%). These discount rates are derived
from the Group’s post-tax weighted average cost of capital as adjusted for the specific risks relating to each geographical region.
In February 2007, 2006 and 2005 impairment reviews were performed by comparing the carrying value of goodwill with the
recoverable amount of the cash-generating units to which goodwill has been allocated. Management determined that there
has been no impairment.
The components of goodwill are as follows:
2007 2006 2005
£m £m £m
UK 501 466 463
Thailand 113 115 107
South Korea 29 32 10
Japan 115 133 135
China 346––
Malaysia 64––
Poland 322 331 323
Czech Republic 34––
Turke y 47 55 49
Other 15 5 7
1,586 1,137 1,094
66 Tesco PLC Annual report and financial statements 2007 Find out more at www.tesco.com/corporate