Barclays 2007 Annual Report Download - page 197

3
Financial statements
Barclays PLC Annual Report 2007 195
21 Goodwill
2007 2006
£m £m
Net book value
At beginning of year 6,092 6,022
Acquisitions 879 390
Disposals (17) (14)
Exchange and other adjustments 60 (306)
At end of year 7,014 6,092
Goodwill is allocated to business operations according to business segments identified by the Group under IAS 14, as follows:
2007 2006
£m £m
UK Banking 3,131 3,132
Barclaycard 400 403
International Retail and Commercial Banking 1,682 1,481
Barclays Capital 147 86
Barclays Global Investors 1,261 673
Barclays Wealth 393 317
Goodwill 7,014 6,092
The Barclays Financial Planning business previously managed and reported within Barclays Wealth, is now managed and reported within UK Banking.
Goodwill of £312m relating to this business has been transferred to UK Banking and the comparative figures restated.
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred by comparing the
carrying value to its recoverable amount.
Impairment testing of goodwill
The recoverable amount of each operation’s goodwill is based on value-in-use calculations. The calculation is based upon discounting expected pre-tax
cash flows at a risk adjusted interest rate appropriate to the cash generating unit, the determination of both of which requires the exercise of judgement.
The estimation of pre-tax cash flows is sensitive to the periods for which forecasts are available and to assumptions regarding the long-term sustainable
cash flows. While forecasts are compared with actual performance and external economic data, expected cash flows naturally reflect management’s view
of future performance.
At 31st December 2007, the goodwill allocated to UK Banking of £3,131m (2006: £3,132m) included £3,130m (2006: £3,130m) relating to Woolwich,
and the amount allocated to International Retail and Commercial Banking of £1,682m (2006: £1,481m) included £1,054m (2006: £953m) relating to Absa.
The remaining aggregate goodwill of £2,830m (2006: £2,009m) comprised of balances not considered individually significant.
Key assumptions used in value in use calculations for significant goodwill
The values assigned to key assumptions reflect past experience and management judgement. The recoverable amount calculations performed for the
significant amounts of goodwill are sensitive to changes in the following key assumptions:
Term of cash flow forecasts and growth rates
Cash flows are based on internal management information for a period of up to three years, after which a growth factor suitable for the business is
applied. Growth rates are based on the projected local inflation rates over the term of estimated cash flows.
The business operation containing Woolwich has applied a growth factor of 2% (proxy for inflation) to cash flows for the period 2011 to 2016. Absa has
applied a growth rate of 8% to cash flows for the three years 2011 to 2013, and a rate of 4% for the years 2014 to 2021. The use of longer cash flow
projections is justified by the long-term nature of these businesses within the Barclays Group.
Discount rates
The business operation containing Woolwich has applied a discount factor of 15%, and Absa has applied 13.62% to forecast cash flows used in the
impairment testing.
Management believes that reasonable changes in key assumptions used to determine the recoverable amounts of Absa and Woolwich goodwill will not
result in impairment.
No impairment was identified in 2007 or 2006.