Barclays 2015 Annual Report Download - page 301

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24 Goodwill and intangible assets continued
Goodwill
Goodwill is allocated to business segments as follows:
2015
£m
2014
£m
Personal and Corporate Banking 3,472 3,471
Africa Banking 725 915
Barclaycard 408 427
Barclays Non-Core – 74
Total net book value of goodwill 4,605 4,887
Goodwill
Testing goodwill for impairment involves a significant amount of judgement. This includes the identification of independent CGUs 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. 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.
Impairment testing of goodwill
During 2015, the Group recognised an impairment charge of £102m (2014: nil) primarily attributable to Non-Core and the withdrawal of the Bespoke
product in Barclaycard. This is as a result of the carrying amount of the goodwill relating to these businesses not being supported based on the 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 £881m (2014: £1,031m)
was allocated to multiple CGUs which are not considered individually significant.
Personal and Corporate Banking (PCB)
Goodwill relating to Woolwich was £3,225m (2014: £3,225m) of the total PCB balance. The carrying value of the 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 three-year period, with a terminal growth rate of 2.4% (2014: 2.4%) applied thereafter. The forecast cash flows have been discounted
at a pre-tax rate of 11.4% (2014: 11.0%). Based on these assumptions, the recoverable amount exceeded the carrying amount including goodwill by
£24,811m (2014: £17,260m). A one percentage point change in the discount rate or terminal growth rate would increase or decrease the recoverable
amount by £4,860m (2014: £2,888m) and £3,422m (2014: £2,070m) respectively. A reduction in the forecast cash flows of 10% per annum would
reduce the recoverable amount by £4,835m (2014: £2,697m).
Africa
Goodwill relating to the Absa Retail Bank CGU was £499m (2014: £631m) of the total Africa Banking 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 three year period, with a terminal growth rate of 6% (2014: 6%) applied thereafter. The
forecast cash flows have been discounted at a pre-tax rate of 18.5% (2014: 18.7%). The recoverable amount calculated based on value in use
exceeded the carrying amount including goodwill by £2,946m (2014: £1,623m). A one percentage point change in the discount rate or the terminal
growth rate would increase or decrease the recoverable amount by £349m (2014: £329m) and £221m (2014: £206m) respectively. A reduction in
the forecast cash flows of 10% per annum would reduce the recoverable amount by £469m (2014: £440m).
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