HSBC 2004 Annual Report Download - page 249

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(iii) Interests in associates are stated at HSBC’ s share of net assets, including attributable goodwill.
(iv) Other participating interests are investments in the shares of undertakings which are held on a long-term
basis for the purpose of securing a contribution to HSBC’ s business, other than subsidiary undertakings,
joint ventures or associates. Other participating interests are stated at cost less any permanent diminution in
value.
(f) Goodwill and intangible assets
(i) Goodwill arises on the acquisition of subsidiary undertakings, joint ventures or associates when the cost of
acquisition exceeds the fair value of HSBC’ s share of separable net assets acquired. Negative goodwill
arises on the acquisition of subsidiary undertakings, joint ventures and associates when the fair value of
HSBC’ s share of separable net assets acquired exceeds the cost of acquisition. For acquisitions made on or
after 1 January 1998, goodwill is included in the balance sheet in ‘Goodwill and intangible assets’ in respect
of subsidiary undertakings, in ‘Interests in joint ventures’ in respect of joint ventures and in ‘Interests in
associates’ in respect of associates. Capitalised goodwill is amortised over its estimated life on a straight-
line basis. Capitalised goodwill is tested for impairment when necessary by comparing the present value of
the expected future cash flows from an entity with the carrying value of its net assets, including attributable
goodwill. Negative goodwill is credited to the profit and loss account in the periods expected to be
benefited. For acquisitions prior to 1 January 1998, goodwill was charged against reserves in the year of
acquisition.
At the date of disposal of subsidiary undertakings, joint ventures or associates, any unamortised goodwill or
goodwill previously charged directly to reserves is included in HSBC’ s share of net assets of the
undertaking in the calculation of the gain or loss on disposal of the undertaking.
(ii) Intangible assets represent contracts with retailers and other organisations to originate and promote HSBC
products such as credit cards, store cards and retail loans. They are stated at their cost less amortisation to
write off the assets over the contract lives. Intangible assets are subject to impairment review if there are
events or changes in circumstances that indicate that the carrying amount may not be recoverable.
(g) Tangible fixed assets
(i) Land and buildings are stated at valuation or cost less depreciation calculated to write off the assets over
their estimated useful lives as follows:
– freehold land and land held on leases with more than 50 years to expiry are not depreciated;
– land held on leases with 50 years or less to expiry is depreciated over the unexpired terms of the leases;
and
– buildings and improvements thereto are depreciated on cost or valuation at the greater of 2 per cent per
annum on the straight-line basis or over the unexpired terms of the leases or over the remaining useful
lives.
(ii) Equipment, fixtures and fittings are stated at cost less depreciation calculated on the straight-line basis to
write off the assets over their estimated useful lives, which are generally between 5 years and 20 years.
(iii) HSBC holds certain properties as investments. No depreciation is provided in respect of such properties
other than leaseholds with 20 years or less to expiry. Investment properties are included in the balance sheet
at their open market value and the aggregate surplus or deficit, where material, is transferred to the
investment property revaluation reserve.
(h) Finance and operating leases
(i) Assets leased to customers under agreements which transfer substantially all the risks and rewards
associated with ownership, other than legal title, are classified as finance leases. Where HSBC is a lessor
under finance leases the amounts due under the leases, after deduction of unearned charges, are included in
‘Loans and advances to banks’ or ‘Loans and advances to customers’ . Finance charges receivable are
recognised over the periods of the leases so as to give a constant rate of return on the net cash investment in
the leases, taking into account tax payments and receipts associated with the leases.