Barclays 2014 Annual Report Download - page 303

barclays.com/annualreport Barclays PLC Annual Report 2014 I 301
24 Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to business operations according to business segments as follows:
2014
£m
2013
£m
Personal and Corporate Banking 3,471 3,471
Africa Banking 915 948
Barclaycard 427 381
Barclays Non-Core 74 78
Total net book value of goodwill 4,887 4,878
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 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 2014, the Group recognised an impairment charge of £nil (2013: £79m). The impairment charge of £79m recognised in 2013 related to
goodwill attributable to businesses acquired by Personal and Corporate Banking 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 £1,126m (2013:
£1,091m) was allocated to multiple cash-generating units which are not considered individually significant.
Personal and Corporate Banking (PCB)
Goodwill relating to Woolwich was £3,130m (2013: £3,130m) of the total PCB 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 2.4% (2013: 2.1%) applied thereafter. The
forecast cash flows have been discounted at a pre-tax rate of 11.0% (2013: 11.8%). Based on these assumptions, the recoverable amount
exceeded the carrying amount including goodwill by £17,260m (2013: £8,628m). A one percentage point change in the discount rate would
increase or decrease the recoverable amount by £2,888m (2013: £1,757m) whilst a one percentage point change in the terminal growth rate
would impact the recoverable amount by £2,070m (2013: £1,210m). A reduction in the forecast cash flows of 10% per annum would reduce the
recoverable amount by £2,697m (2013: £1,795m).
Africa
Goodwill relating to the Absa Retail Bank CGU was £631m (2013: £657m) of the total Africa balance. The carrying value of the CGU has been
determined by using net asset value. The recoverable amount of Absa Retail Bank 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% (2013: 6%) applied thereafter. The
forecast cash flows have been discounted at a pre-tax rate of 18.7% (2013: 18.8%a). The recoverable amount calculated based on value in use
exceeded the carrying amount including goodwill by £1,623m (2013: £1,424ma). A one percentage point change in the discount rate or the
terminal growth rate would increase or decrease the recoverable amount by £329m (2013: £291ma) and £206m (2013: £182ma) respectively. A
reduction in the forecast cash flows of 10% per annum would reduce the recoverable amount by £440m (2013: £385ma).
Note
a The 2013 comparatives have been restated to reflect the use of pre-tax cost of equity.
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