RBS 2005 Annual Report Download - page 140

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Accounting policies
economic lives and is included in Depreciation and amortisation.
The estimated useful economic lives are as follows:
Core deposit intangibles 7 years
Other acquired intangibles 5-10 years
Computer software 3-5 years
Expenditure on internally generated goodwill and brands is
written-off as incurred. Acquired goodwill being the excess of
the cost of an acquisition over the Group’s interest in the net
fair value of the identifiable assets, liabilities and contingent
liabilities of the subsidiary, associate or joint venture acquired
is initially recognised at cost and subsequently at cost less any
accumulated impairment losses. Goodwill arising on the
acquisition of subsidiaries and joint ventures is included in the
balance sheet caption ‘Intangible fixed assets’ and that on
associates within their carrying amounts. The gain or loss on
the disposal of a subsidiary, associate or joint venture includes
the carrying value of any related goodwill.
7. Property, plant and equipment
Items of property, plant and equipment are stated at cost less
accumulated depreciation (see below) and impairment losses.
Where an item of property, plant and equipment comprises
major components having different useful lives, they are
accounted for separately. Property that is being constructed or
developed for future use as investment property is classified as
property, plant and equipment and stated at cost until
construction or development is complete, at which time it is
reclassified as investment property.
Depreciation is charged to profit or loss on a straight-line basis
so as to write-off the depreciable amount of property, plant
and equipment (including assets owned and let on operating
leases (except investment property – see note 20 below)) over
their estimated useful lives. The depreciable amount is the cost
of an asset less its residual value. Land is not depreciated.
Estimated useful lives are as follows:
Freehold and long leasehold buildings 50 years
Short leaseholds unexpired period
of the lease
Property adaptation costs 10 to 15 years
Computer equipment up to 5 years
Other equipment 4 to 15 years
8. Impairment of intangible assets and property,
plant and equipment
At each reporting date, the Group assesses whether there is any
indication that its intangible assets, or property, plant and
equipment are impaired. If any such indication exists, the Group
estimates the recoverable amount of the asset and the impairment
loss if any. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that it
might be impaired. If an asset does not generate cash flows that
are independent from those of other assets or groups of assets,
recoverable amount is determined for the cash-generating unit to
which the asset belongs. The recoverable amount of an asset is
the higher of its fair value less costs to sell and its value in use.
Value in use is the present value of future cash flows from the
asset or cash-generating unit discounted at a rate that reflects
market interest rates adjusted for risks specific to the asset or
cash generating unit that have not been reflected in the estimation
of future cash flows. If the recoverable amount of an intangible or
tangible asset is less than its carrying value, an impairment loss is
recognised immediately in profit or loss and the carrying value of
the asset reduced by the amount of the loss. A reversal of an
impairment loss on intangible assets (excluding goodwill) or
property, plant and equipment is recognised as it arises provided
the increased carrying value does not exceed that which it would
have been had no impairment loss been recognised. Impairment
losses on goodwill are not reversed.
9. Foreign currencies
The Group’s consolidated financial statements are presented in
sterling which is the functional currency of the company.
Transactions in foreign currencies are translated into sterling at
the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the rates of exchange
ruling at the balance sheet date. Foreign exchange differences
arising on translation are recognised in profit or loss except for
differences arising on cash flow hedges and hedges of net
investments in foreign operations. Non-monetary items
denominated in foreign currencies that are stated at fair value
are translated into sterling at foreign exchange rates ruling at
the dates the values were determined. Translation differences
arising on non-monetary items measured at fair value are
recognised in profit or loss except for differences arising on
available-for-sale non-monetary financial assets, for example
equity shares, which are included in the available-for-sale
reserve in equity unless the asset is the hedged item in a fair
value hedge.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on acquisition, are
translated into sterling at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign
operations are translated into sterling at average exchange
rates unless these do not approximate to the foreign exchange
rates ruling at the dates of the transactions. Foreign exchange
differences arising on the translation of foreign operations are
recognised directly in equity.
10. Leases
Contracts to lease assets are classified as finance leases if
they transfer substantially all the risks and rewards of
ownership of the asset to the customer. Other contracts to
lease assets are classified as operating leases.
Finance lease receivables are stated in the balance sheet at
the amount of the net investment in the lease being the
minimum lease payments and any unguaranteed residual value
discounted at the interest rate implicit in the lease. Finance
lease income is allocated to accounting periods so as to give a
constant periodic rate of return before tax on the net investment.
Unguaranteed residual values are subject to regular review to
identify potential impairment. If there has been a reduction in
the estimated unguaranteed residual value, the income
allocation is revised and any reduction in respect of amounts
accrued is recognised immediately.
Accounting policies continued