Barclays 2009 Annual Report Download - page 202

200 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Consolidated accounts Barclays PLC
Accounting policies
continued
14. Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries and associates 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 other valuation methodologies including discounted cash flow
techniques, 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 required.
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, 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
fair value less costs to sell and its value in use. Fair value less costs to sell is
calculated by reference to the amount at which the asset could be disposed
of in a binding sale agreement in an arm’s 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.
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 Group’s
liabilities under such guarantees are measured at the higher of the initial
measurement, less amortisation calculated to recognise in the income
statement any fee income earned over the period, and any financial obligation
arising as a result of the guarantees at the balance sheet date, in accordance
with policy 23.
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 Group. 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 7. 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.
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.