Aviva 2009 Annual Report Download - page 138

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Aviva plc Accounting policies continued
Annual Report and Accounts 2009
(N) 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 brands, certain of which have been assessed as having indefinite useful lives, and contractual
relationships such as access to distribution networks and customer lists. The economic lives of the latter 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 operating expenses”. For intangibles
with finite lives, a provision for impairment will be charged 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 16(b).
(O) Property and equipment
Owner-occupied properties are carried at their revalued amounts, which are supported by market evidence, 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.
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:
— Land No de
p
reciation
— Properties under construction No depreciation
— Owner-occupied properties, and related mechanical and electrical equipment 25 years
— Motor vehicles Three-years, or lease term 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.
Until 1 January 2009, borrowing costs directly attributable to the acquisition and construction of property and equipment were
expensed as incurred. With effect from 1 January 2009, such costs 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 excess of the most recently assessed standard of
performance of the existing asset will flow to the Group and the renovation replaces an identifiable part of the asset. Major
renovations are depreciated over the remaining useful life of the related asset.