Aviva 2014 Annual Report Download - page 128

Aviva plc Annual report and accounts 2014
Accounting policies continued
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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
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.
(Q) Investment property
Investment property is held for long-term rental yields and is not
occupied by the Group. Completed investment property is
stated at its fair value, as assessed by qualified external valuers
or by local qualified staff of the Group. Changes in fair values
are recorded in the income statement in net investment income.
As described in accounting policy P above, investment
properties under construction are included within property and
equipment, and are stated at cost less any impairment in their
values until construction is completed or fair value becomes
reliably measurable.
(R) Impairment of non-financial assets
Property and equipment and other non-financial assets are
reviewed for impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised in the income
statement for the amount by which the carrying amount of the
asset exceeds its recoverable amount, which is the higher of an
asset’s fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the
lowest level for which there are separately identifiable cash
flows. Non-financial assets except goodwill which have suffered
an impairment are reviewed for possible reversal of the
impairment at each reporting date.
(S) Derecognition and offset of financial assets
and financial liabilities
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is derecognised
where:
• The rights to receive cash flows from the asset have expired.
• The Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full
without material delay to a third party under a ‘pass-through’
arrangement.
• The Group has transferred its rights to receive cash flows from
the asset and has either transferred substantially all the risks
and rewards of the asset, or has neither transferred nor
retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
Financial assets and liabilities are offset and the net amount
reported in the statement of financial position when there is a
currently enforceable legal right to set off the recognised
amounts and there is the ability and intention to settle on a net
basis, or realise the asset and settle the liability simultaneously.
(T) Financial investments
The Group classifies its investments as either financial assets at
fair value through profit or loss (FVTPL) or financial assets
available for sale (AFS). The classification depends on the
purpose for which the investments were acquired, and is
determined by local management at initial recognition. The
FVTPL category has two subcategories – those that meet the
definition as being held for trading and those the Group
chooses to designate as FVTPL (referred to in this accounting
policy as ‘other than trading’) upon initial recognition.
In general, the other than trading category is used as, in
most cases, the Group’s investment or risk management
strategy is to manage its financial investments on a fair value
basis. Debt securities and equity securities, which the Group
acquires with the intention to resell in the short term, are
classified as trading, as are non-hedge derivatives (see
accounting policy U below). The AFS category is used where the
relevant long-term business liability (including shareholders’
funds) is passively managed, as well as in certain fund
management and non-insurance operations.
Purchases and sales of investments are recognised on the
trade date, which is the date that the Group commits to
purchase or sell the assets, at their fair values. Debt securities
are initially recorded at their fair value, which is taken to be
amortised cost, with amortisation credited or charged to the
income statement. Investments classified as trading, other than
trading and AFS, are subsequently carried at fair value. Changes
in the fair value of trading and other than trading investments
are included in the income statement in the period in which
they arise. Changes in the fair value of securities classified as
AFS are recognised in other comprehensive income and
124 | Aviva plc Annual report and accounts 2014