HSBC 2011 Annual Report Download - page 374

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
24 – Goodwill and intangible assets
372
Goodwill
Reconciliation of goodwill
Europe
Hong
Kong
Rest of
Asia-
Pacific MENA
North
America
Latin
America Total
US$m US$m US$m US$m US$m US$m US$m
Gross amount
At 1 January 2011 ................................. 14,885 124 1,115 65 12,465 4,316 32,970
Disposals ............................................... (3) – – – – (46) (49)
Exchange differences ............................ (449) – (35) (2) (1) (272) (759)
Reclassified to held for sale .................. – – – – (3,717) (231) (3,948)
Other changes ....................................... – – (17) – – (2) (19)
At 31 December 2011 ........................... 14,433 124 1,063 63 8,747 3,765 28,195
Accumulated impairment losses
At 1 January 2011 ................................. – – – – (10,564) – (10,564)
Reclassified to held for sale .................. – – – – 3,707 – 3,707
At 31 December 2011 ........................... – – – – (6,857) – (6,857)
Net carrying amount at
31 December 2011 ........................... 14,433 124 1,063 63 1,890 3,765 21,338
Gross amount
At 1 January 2010 ................................. 15,915 123 1,053 69 12,483 4,162 33,805
Additions .............................................. – – 16 – – – 16
Disposals ............................................... (3) – – – (17) – (20)
Exchange differences ............................ (1,004) 1 52 (4) (1) 154 (802)
Other changes ....................................... (23) – (6) – – – (29)
At 31 December 2010 ........................... 14,885 124 1,115 65 12,465 4,316 32,970
Accumulated impairment losses
At 1 January and 31 December 2010 ... – – – – (10,564) – (10,564)
Net carrying amount at
31 December 2010 ........................... 14,885 124 1,115 65 1,901 4,316 22,406
Impairment testing
Timing of impairment testing
HSBC’s impairment test in respect of goodwill allocated to each cash-generating unit (‘CGU’) is performed as at
1 July each year. In line with the accounting policy set out in Note 2(p), goodwill is also retested for impairment
whenever there is an indication that it may be impaired. For the purpose of impairment testing, the Group’s CGUs are
based on geographical regions subdivided by global business. The CGUs represent the lowest level at which goodwill
is monitored for internal management purposes. The Global Banking and Markets – Europe CGU experienced
significantly reduced profitability in the second half of 2011 and was retested for impairment as at 31 December
2011. For other CGUs there was no indication of impairment in the period to 31 December 2011 and therefore
goodwill has not been retested since 1 July 2011.
Basis of the recoverable amount – value in use or fair value less costs to sell
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (‘VIU’) at
each respective testing date for 2010 and 2011.
For each significant CGU, the VIU is calculated by discounting management’s cash flow projections for the CGU.
The discount rate used is based on the cost of capital HSBC allocates to investments in the countries within which the
CGU operates. The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term
perspective within the Group of the business units making up the CGUs. In 2011, for most CGUs, management’s
cash flow projections until the end of 2012 were used. However, due to the current economic conditions in Retail
Banking and Wealth Management – Europe, and Global Banking and Markets – Europe, cash flow projections until
the end of 2014 were used to more accurately estimate the cash flows for the period.