HSBC 2010 Annual Report Download - page 266

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
2 – Summary of significant accounting policies
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interest in the acquiree exceed the amounts of the identifiable assets and liabilities acquired. If they do
not exceed the amounts of the identifiable assets and liabilities of an acquired business, the difference is
recognised immediately in the income statement. Goodwill arises on the acquisition of interests in joint
ventures and associates when the cost of investment exceeds HSBC’s share of the net fair value of the
associate’s or joint venture’s identifiable assets and liabilities.
Intangible assets are recognised separately from goodwill when they are separable or arise from contractual
or other legal rights, and their fair value can be measured reliably.
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken
at the lowest level at which goodwill is monitored for internal management purposes. Impairment testing
is performed at least annually, and whenever there is an indication that the cash-generating unit may be
impaired, by comparing the recoverable amount from a cash-generating unit with the carrying amount of its
net assets, including attributable goodwill. The recoverable amount of an asset is the higher of its fair value
less cost to sell, and its value in use. Value in use is the present value of the expected future cash flows from
a cash-generating unit. If the recoverable amount is less than the carrying value, an impairment loss is
charged to the income statement. Goodwill is stated at cost less accumulated impairment losses.
Goodwill on acquisitions of interests in joint ventures and associates is included in ‘Interests in associates
and joint ventures’ and is not tested separately for impairment.
At the date of disposal of a business, attributable goodwill is included in HSBC’s share of net assets in the
calculation of the gain or loss on disposal.
(ii) Intangible assets include the present value of in-force long-term insurance business, computer software,
trade names, mortgage servicing rights, customer lists, core deposit relationships, credit card customer
relationships and merchant or other loan relationships. Computer software includes both purchased and
internally generated software. The cost of internally generated software comprises all directly attributable
costs necessary to create, produce and prepare the software to be capable of operating in the manner
intended by management. Costs incurred in the ongoing maintenance of software are expensed immediately
as incurred.
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. Where:
– intangible assets have an indefinite useful life, or are not yet ready for use, they are tested for
impairment annually. This impairment test may be performed at any time during the year, provided it is
performed at the same time every year. An intangible asset recognised during the current period is
tested before the end of the current year; and
– intangible assets have a finite useful life, except for the present value of in-force long-term insurance
business, they are stated at cost less amortisation and accumulated impairment losses and are amortised
over their estimated useful lives. Estimated useful life is the lower of legal duration and expected useful
life. The amortisation of mortgage servicing rights is included within ‘Net fee income’.
For the accounting policy governing the present value of in-force long-term insurance business (see
Note 2y).
(iii) Intangible assets with finite useful lives are amortised, generally on a straight-line basis, over their useful
lives as follows:
Trade names ........................................................................................................................... 10 years
Mortgage servicing rights ...................................................................................................... generally between 5 and 12 years
Internally generated software ................................................................................................. between 3 and 5 years
Purchased software ................................................................................................................. between 3 and 5 years
Customer/merchant relationships ........................................................................................... between 3 and 10 years
Other ....................................................................................................................................... generally 10 years