Barclays 2006 Annual Report Download - page 162

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, mortgage servicing rights 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.
15. 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. The carrying amount
of the fixed asset will only be increased up to the amount that it would
have been had the original impairment not been recognised. Impairment
losses on goodwill are not reversed. For the purpose of conducting
impairment reviews, cash-generating units are the lowest level at which
management monitors the return on investment on assets.
16. Financial guarantees
Financial guarantee contracts are contracts that require the issuer to
make specified payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payments when due in
accordance with the terms of a debt instrument.
Such financial guarantees are given to banks, financial institutions and
other bodies on behalf of customers to secure loans, overdrafts and
other banking facilities (‘facility guarantees’), and to other parties in
connection with the performance of customers under obligations
related to contracts, advance payments made by other parties, tenders,
retentions and the payment of import duties.
Financial guarantees are initially recognised in the financial statements
at fair value on the date that the guarantee was given. Other than where
the fair value option is applied, subsequent to initial recognition, the
bank’s liabilities under such guarantees are measured at the higher of
the initial measurement, less amortisation calculated to recognise in the
income statement the fee income earned over the period, and the best
estimate of the expenditure required to settle any financial obligation
arising as a result of the guarantees at the balance sheet date.
Any increase in the liability relating to guarantees is taken to the income
statement in Provisions for undrawn contractually committed facilities
and guarantees provided. Any liability remaining is recognised in the
income statement when the guarantee is discharged, cancelled or
expires.
17. Issued debt and equity securities
Issued financial instruments or their components are classified as
liabilities where the contractual arrangement results in the Group
having a present obligation to either deliver cash or another financial
asset to the holder, to exchange financial instruments on terms that are
potentially unfavourable or to satisfy the obligation otherwise than by
the exchange of a fixed amount of cash or another financial asset for a
fixed number of equity shares. Issued financial instruments, or their
components, are classified as equity where they meet the definition of
equity and confer on the holder a residual interest in the assets of the
Company. The components of issued financial instruments that contain
both liability and equity elements are accounted for separately with the
equity component being assigned the residual amount after deducting
from the instrument as a whole the amount separately determined as
the fair value of the liability component.
Financial liabilities, other than trading liabilities and financial liabilities
designated at fair value, are carried at amortised cost using the effective
interest method as set out in policy 6. Derivatives embedded in financial
liabilities that are not designated at fair value are accounted for as set
out in policy 12. Equity instruments, including share capital, are initially
recognised at net proceeds, after deducting transaction costs and any
related income tax. Dividend and other payments to equity holders are
deducted from equity, net of any related tax.
Prior to 1st January 2005
Debt securities in issue and similar securities are stated at the net issue
proceeds adjusted for amortisation of premiums, discounts and
expenses related to their issue where the liability is a fixed amount.
Where the liability fluctuates, based on, for example, the performance of
an index then the debt security reflects the current value of the liability.
Loan capital in issue is stated at the net issue proceeds adjusted for
amortisation of premiums, discounts and expenses related to their
issue. Amortisation is calculated in order to achieve a constant yield
across the life of the instrument.
18. Share capital
Share issue costs
Incremental costs directly attributable to the issue of new shares or
options including those issued on the acquisition of a business are
shown in equity as a deduction, net of tax, from the proceeds.
Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period
in which they are paid or, if earlier, approved by the Barclays PLC (the
Company) shareholders.
Treasury shares
Where the Company or any member of the Group purchases the
Company’s share capital, the consideration paid is deducted from
shareholders’ equity as treasury shares until they are cancelled. Where
such shares are subsequently sold or reissued, any consideration
received is included in shareholders’ equity.
Consolidated accounts Barclays PLC
Accounting policies
Barclays PLC
Annual Report 2006
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