Barclays 2013 Annual Report Download - page 331

Note 25: Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
2013
£m
2012
£m
UK RBB 3,142 3,144
Europe RBB 63 62
Africa RBB 690 863
Barclaycard 482 514
Investment Bank 77 93
Corporate Banking 112 139
Wealth and Investment Management 312 391
Total net book value of goodwill 4,878 5,206
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 requires 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 estimate 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.
Impairment testing of goodwill
During 2013, the Group recognised an impairment charge of £79m (2012: nil) in respect of goodwill attributable to businesses acquired in a
previous period by Wealth and Investment Management. Following a streamlining of operations within Wealth and Investment Management,
the forecast future cashflows from these businesses have been revised and no longer support the carrying value of the goodwill. As a result the
attributable goodwill balances have been fully impaired.
Key assumptions
The key assumptions used for impairment testing are set out below for each significant goodwill balance. Other goodwill of £1,091m (2012:
£1,247m) was allocated to multiple cash-generating units which are not considered individually significant.
UK RBB
At 31 December 2013, goodwill relating to Woolwich was £3,130m (2012: £3,130m) of the total UK RBB 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 2.1% (2012: 2.4%) applied
thereafter. The forecast cash flows have been discounted at a pre-tax rate of 11.8% (2012: 12.4%). Based on these assumptions, the recoverable
amount exceeded the carrying amount including goodwill by £8,628m (2012: £9,334m). A one percentage point change in the discount rate or
the terminal growth rate would increase or decrease the recoverable amount by £1,757m (2012: £1,637m) and £1,210m (2012: £1,115m)
respectively. A reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £1,795m (2012: £1,767m).
Africa RBB
At 31 December 2013, goodwill relating to the Absa RBB CGU was £657m (2012: £829m) of the total Africa RBB balance. The carrying value of the
CGU has been determined by using net asset value. The recoverable amount of Absa RBB 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% (2012: 6%) applied thereafter.
The forecast cash flows have been discounted at a pre-tax rate of 13.5% (2012: 13%). The recoverable amount calculated based on value in use
exceeded the carrying amount including goodwill by £4,217m (2012: £3,133m). A one percentage point change in the discount rate or the
terminal growth rate would increase or decrease the recoverable amount by £800m (2012: £813m) and £603m (2012: £623m) respectively.
A reduction in the forecast cash flows of 10% p.a. would reduce the recoverable amount by £664m (2012: £643m).
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