Barclays 2012 Annual Report Download - page 278

24 Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
2012
£m
2011
£m
UKRBB 3,144 3,145
Europe RBB 62 64
Africa RBBa863 947
Barclaycard 514 505
Investment Bank 93 102
Corporate Bankinga139 151
Wealth and Investment Management 391 391
Total net book value of goodwill 5,206 5,305
Critical accounting estimates and judgements
Goodwill
Testing goodwill for impairment involves a significant amount of estimation. This includes the identification of independent cash generating
units and the allocation of goodwill to these units based on which units are expected to benefit from the acquisition. The allocation is reviewed
following business reorganisation. Cash flow projections necessarily take into account changes in the market in which a business operates
including the level of growth, competitive activity and the impacts of regulatory change. Determining both the expected pre-tax cash flows and
the risk adjusted interest rate appropriate to the operating unit require the exercise of judgement. The estimation of pre-tax cash flows is sensitive
to the periods for which detailed forecasts are available and to assumptions regarding the long term sustainable cash flows.
Other intangible assets
Determining the estimated useful lives of intangible assets (such as those arising from contractual relationships) requires an analysis of
circumstances and judgement. The assessment of whether an asset is exhibiting indicators of impairment as well as the calculation of
impairment, which requires the estimation of future cash flows and fair values less costs to sell, also requires the preparation of cash flow
forecasts and fair values for assets that may not be regularly bought and sold. The most significant amounts of intangible assets relate to
Absa and Lehman Brothers North American businesses.
Impairment testing of goodwill
Total impairment charges of £nil have been recognised during the year. Impairment charges of £597m recognised in 2011 related to the goodwill
held in FirstPlus and Spain which was not supportable based on value in use calculations.
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £1,247m
(2011: £1,264m) was allocated to multiple cash generating units which are not considered individually significant.
UKRBB
At 31 December 2012, goodwill relating to Woolwich was £3,130m (2011: £3,130m) of the total UKRBB balance. The carrying value of the cash
generating unit (CGU) is determined using an allocation of total Group shareholder funds excluding goodwill based on the CGU’s share of risk
weighted assets before goodwill balances are added back. The recoverable amount of the CGU has been determined using cash flow predictions
based on financial budgets approved by management and covering a five-year period, with a terminal growth rate of 2% (2011: 3%) applied
thereafter. The forecast cash flows have been discounted at a pre-tax rate of 12% (2011: 13%). Based on these assumptions, the recoverable
amount exceeded the carrying amount including goodwill by £9,334m (2011: £8,683m). A one percentage point change in the discount rate
or the terminal growth rate would increase or decrease the recoverable amount by £1,637m (2011: £1,399m) and £1,115m (2011: £939m)
respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £1,767m (2011: £1,538m).
Africa RBB
At 31 December 2012, goodwill relating to Absa RBB was £829m (2011: £911m) of the total Africa RBB balance. The carrying value of the CGU
has been determined by using net asset value. The recoverable amount of the Absa Group has been determined using cash flow predictions based
on financial budgets approved by management and covering a five year period, with a terminal growth rate of 6% (2011: 6%) applied thereafter.
The forecast cash flows have been discounted at a pre-tax rate of 13% (2011: 14%). The recoverable amount calculated based on value in use
exceeded the carrying amount including goodwill by £3,133m (2011: £4,746m). A one percentage point change in the discount rate or the
terminal growth rate would increase or decrease the recoverable amount by £813m (2011: £948m) and £623m (2011: £702m) respectively.
A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £643m (2011: £842m).
Note
a Certain corporate banking activities in Africa previously reported under Africa RBB are now included within Corporate Banking to align Africa to the reporting
approach for UK and Europe. 2011 balances have been restated.
barclays.com/annualreport276 I Barclays PLC Annual Report 2012
Notes to the financial statements
For the year ended 31 December 2012 continued