Barclays 2010 Annual Report Download - page 203

1 Significant accounting policies continued
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 economic 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.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.
Investment property is property held to earn rentals or for capital appreciation or for both rather than for sale or use in the business. The Group initially
recognises investment properties at cost, and subsequently at their fair value at each balance sheet date reflecting market conditions at the reporting
date. The fair value of investment property is determined by reference to current market prices for similar properties, adjusted as necessary for condition
and location, or by reference to recent transactions updated to reflect current economic conditions. Discounted cash flow techniques may be employed
to calculate fair value where there have been no recent transactions, using current external market inputs such as market rents and interest rates.
Valuations are carried out by management with the support of appropriately qualified independent valuers.
Movements in fair value subsequent to initial recognition are included in the income statement. No depreciation is provided in respect of
investment properties.
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
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 3-5 years.
Other intangible assets
Other intangible assets consist of brands, customer lists, licences and other contracts, core deposit intangibles and mortgage servicing rights. 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 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.
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