Barclays 2005 Annual Report Download - page 144

described in the section on derivatives used for trading purposes
below, prior to being transferred to the trading portfolio. The profit
or loss arising from the fair value measurement prior to the transfer
to the trading portfolio is included in the category of income or
expense relating to the previously hedged transaction.
16. Property, plant and equipment
Property and equipment is stated at cost less accumulated depreciation
and provisions for impairment, if any. Additions and subsequent
expenditures are capitalised only to the extent that they enhance
the future economic benefits expected to be derived from the assets.
Depreciation is provided on the depreciable amount of items of
property and equipment on a straight-line basis over their estimated
useful lives. The depreciable amount is the gross carrying amount, less
the estimated residual value at the end of its economic life.
The Group uses the following annual rates in calculating depreciation:
Freehold buildings and long-leasehold property
(more than 50 years to run) 2-3.3%
Leasehold property Over the remaining
(less than 50 years to run) life of the lease
Costs of adaptation of freehold and
leasehold property(a) 7-10%
Equipment installed in freehold and
leasehold property(a) 7-10%
Computers and similar equipment 20-33%
Fixtures and fittings and other equipment 10-20%
Note
(a) Where leasehold property has a remaining useful life of less than ten or
15 years, costs of adaptation and installed equipment are depreciated over
the remaining life of the lease.
Depreciation rates, methods and the residual values underlying the
calculation of depreciation of items of property, plant and equipment
are kept under review to take account of any change in circumstances.
When deciding on depreciation rates and methods, the principal
factors the Group takes into account are the expected rate of
technological developments and expected market requirements for,
and the expected pattern of usage of, the assets. When reviewing
residual values, the Group estimates the amount that it would currently
obtain for the disposal of the asset after deducting the estimated cost
of disposal if the asset were already of the age and condition expected
at the end of its useful life.
No depreciation is provided on freehold land, although, in common
with all long-lived assets, it is subject to impairment testing, if deemed
appropriate.
17. Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiary and associated entities
and joint ventures, and represents the excess of the fair value of the
purchase consideration and direct costs of making the acquisition,
over the fair value of the Group’s share of the assets acquired, and the
liabilities and contingent liabilities assumed on the date of the acquisition.
For the purpose of calculating goodwill, fair values of acquired assets,
liabilities and contingent liabilities are determined by reference to
market values or by discounting expected future cash flows to present
value. This discounting is either performed using market rates or by
using risk-free rates and risk-adjusted expected future cash flows.
Goodwill is capitalised and reviewed annually for impairment, or more
frequently when there are indications that impairment may have
occurred. Goodwill is allocated to cash-generating units for the
purpose of impairment testing. Goodwill on acquisitions of associates
and joint ventures is included in the amount of the investment. Gains
and losses on the disposal of an entity include the carrying amount of
the goodwill relating to the entity sold.
Computer software
Computer software is stated at cost, less amortisation and provisions
for impairment, if any.
The identifiable and directly associated external and internal costs of
acquiring and developing software are capitalised where the software
is controlled by the Group, and where it is probable that future
economic benefits that exceed its cost will flow from its use over
more than one year. Costs associated with maintaining software are
recognised as an expense when incurred.
Capitalised computer software is amortised over three to five years.
Other intangible assets
Other intangible assets consist of brands, customer lists, licences and
other contracts, core deposit intangibles and customer relationships.
Other intangible assets are initially recognised when they are separable
or arise from contractual or other legal rights, the cost can be
measured reliably and, in the case of intangible assets not acquired
in a business combination, where it is probable that future economic
benefits attributable to the assets will flow from their use. The value
of intangible assets which are acquired in a business combination is
generally determined using income approach methodologies such as
the discounted cash flow method and the relief from royalty method
that estimate net cash flows attributable to an asset over its economic
life and discount to present value using an appropriate rate of return
based on the cost of equity adjusted for risk.
Other intangible assets are stated at cost less amortisation and
provisions for impairment, if any, and are amortised over their useful
lives in a manner that reflects the pattern to which they contribute to
future cash flows, generally over 4-25 years.
18. Impairment of property, plant and equipment and intangible assets
At each balance sheet date, or more frequently where events or
changes in circumstances dictate, property, plant and equipment
and intangible assets, are assessed for indications of impairment.
If indications are present, these assets are subject to an impairment
review. Goodwill is subject to an impairment review as at the balance
sheet date each year. The impairment review comprises a comparison
of the carrying amount of the asset with its recoverable amount: the
higher of the asset’s or the cash-generating unit’s net selling price
and its value in use. Net selling price is calculated by reference to the
amount at which the asset could be disposed of in a binding sale
agreement in an arms-length transaction evidenced by an active
market or recent transactions for similar assets. Value in use is
calculated by discounting the expected future cash flows obtainable as
a result of the asset’s continued use, including those resulting from its
ultimate disposal, at a market-based discount rate on a pre-tax basis.
The carrying values of fixed assets and goodwill are written down
by the amount of any impairment and this loss is recognised in the
income statement in the period in which it occurs. A previously
recognised impairment loss relating to a fixed asset may be reversed
in part or in full when a change in circumstances leads to a change in
the estimates used to determine the fixed asset’s recoverable amount.
Consolidated accounts Barclays PLC
Accounting policies
142 Barclays PLC
Annual Report 2005