Holiday Inn 2010 Annual Report Download - page 73

OVERVIEW BUSINESS REVIEW
THE BOARD,
SENIOR MANAGEMENT AND
THEIR RESPONSIBILITIES
GROUP FINANCIAL
STATEMENTS
PARENT COMPANY
FINANCIAL STATEMENTS USEFUL INFORMATION
Accounting policies 71
Basis of consolidation
The Group financial statements comprise the financial statements
of the parent company and entities controlled by the Company.
All intra-group balances and transactions have been eliminated.
The results of those businesses acquired or disposed of are
consolidated for the period during which they were under the
Group’s control.
Foreign currencies
Transactions in foreign currencies are translated to the functional
currency at the exchange rates ruling on the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated to the functional currency at
the relevant rates of exchange ruling on the last day of the period.
All foreign exchange differences arising on translation are
recognised in the income statement except on foreign currency
borrowings that provide a hedge against a net investment in a
foreign operation. These are taken directly to the currency
translation reserve until the disposal of the net investment, at
which time they are recycled against the gain or loss on disposal.
The assets and liabilities of foreign operations, including goodwill,
are translated into US dollars at the relevant rates of exchange
ruling on the last day of the period. The revenues and expenses of
foreign operations are translated into US dollars at average rates
of exchange for the period. The exchange differences arising on
the retranslation are taken directly to the currency translation
reserve. On disposal of a foreign operation, the cumulative amount
recognised in the currency translation reserve relating to that
particular foreign operation is recycled against the gain or loss
on disposal.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation
and any impairment.
Borrowing costs attributable to the acquisition or construction of an
asset that necessarily takes a substantial period of time to prepare
for its intended use or sale are capitalised as part of the asset cost.
All other borrowing costs are expensed as incurred. Borrowing
costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. However, all borrowing
costs relating to projects commencing before 1 January 2009
were expensed.
Repairs and maintenance costs are expensed as incurred.
Land is not depreciated. All other property, plant and equipment
are depreciated to a residual value over their estimated useful
lives, namely:
buildings – lesser of 50 years and unexpired term of lease; and
fixtures, fittings and equipment – three to 25 years.
All depreciation is charged on a straight-line basis. Residual value
is reassessed annually.
Property, plant and equipment are tested for impairment when
events or changes in circumstances indicate that the carrying value
may not be recoverable. Assets that do not generate independent
cash flows are combined into cash-generating units. If carrying
values exceed their estimated recoverable amount, the assets
or cash-generating units are written down to the recoverable
amount. Recoverable amount is the greater of fair value less costs
to sell and value in use. Value in use is assessed based on estimated
future cash flows discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Impairment
losses, and any subsequent reversals, are recognised in the
income statement.
On adoption of IFRS, the Group retained previous revaluations of
property, plant and equipment at deemed cost as permitted by IFRS 1
‘First-time Adoption of International Financial Reporting Standards’.
Goodwill
Goodwill arises on consolidation and is recorded at cost, being the
excess of the cost of acquisition over the fair value at the date of
acquisition of the Group’s share of identifiable assets, liabilities
and contingent liabilities. With effect from 1 January 2010,
transaction costs are expensed and therefore not included in
the cost of acquisition. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment at least annually by comparing
carrying values of cash-generating units with their recoverable
amounts. Impairment losses cannot be subsequently reversed.
Intangible assets
Software
Acquired software licences and software developed in-house are
capitalised on the basis of the costs incurred to acquire and bring
to use the specific software. Costs are amortised over estimated
useful lives of three to five years on a straight-line basis.
Internally generated development costs are expensed unless forecast
revenues exceed attributable forecast development costs, at which
time they are capitalised and amortised over the life of the asset.
Management contracts
When assets are sold and a purchaser enters into a franchise or
management contract with the Group, the Group capitalises as
part of the gain or loss on disposal an estimate of the fair value of
the contract entered into. The value of management contracts is
amortised over the life of the contract which ranges from six to
50 years on a straight-line basis.
Other intangible assets
Amounts paid to hotel owners to secure management contracts and
franchise agreements are capitalised and amortised over the shorter
of the contracted period and 10 years on a straight-line basis.
Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not
be recoverable.