RBS 2005 Annual Report Download - page 212

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Notes on the accounts
UK GAAP
(a) Goodwill
Goodwill arising on acquisitions after 1 October 1998 is
capitalised and amortised over its estimated useful economic
life. Goodwill arising on acquisitions before 1 October 1998
was deducted from equity. Goodwill is reviewed for impairment
at the end of the first full year following an acquisition and
subsequently if events or changes in circumstances indicated
that its carrying value might not be recoverable,
(b) Intangibles other than goodwill
Computer software development costs
Most computer software development costs are written off as
incurred.
Other intangibles
An intangible asset acquired in a business combination is
capitalised separately from goodwill only if it can be disposed
of separately from the revenue-earning activity to which it
contributes and its value can be measured reliably.
(c) Leasing
Finance lease income is recognised so as to give a level rate
of return on the net cash investment in the lease; tax cash
flows are taken into account in allocating income.
Assets held under operating leases are depreciated on a
straight-line or reverse-annuity basis.
(d) Dividends
Dividends payable on ordinary shares are recorded in the
period to which they relate.
(e) Consolidation
UK GAAP requires consolidation of entities controlled by the
reporting entity. Control is the ability to direct the financial and
operating policies of an entity.
(f) Life assurance
To reflect the distinct nature of long-term assurance assets and
liabilities attributable to policyholders, they are shown
separately on the consolidated balance sheet; the results of
life assurance business are presented as a single contribution
to profit before tax.
Changes in embedded value determined on a post-tax basis
are grossed up for inclusion in the income statement.
45 Transition to IFRS
(1) Significant differences between the Group’s UK GAAP accounting policies applied in its 2004 financial statements
and its IFRS accounting policies
IFRS
Goodwill is recorded at cost less any accumulated impairment
losses. Goodwill is tested annually for impairment or more
frequently if events or changes in circumstances indicate that it
might be impaired.
The carrying amount of goodwill in the Group’s opening IFRS
balance sheet (as at 1 January 2004) was £13,131 million, its
carrying value under UK GAAP as at 31 December 2003.
Computer software development costs are capitalised if they
create an identifiable intangible asset. They are amortised over
their estimated useful life of three years. Net computer
software development costs of £818 million were recognised
on transition to IFRS.
An intangible asset is recognised as an asset separately from
goodwill if it is separable or if it arises from contractual or
other legal rights regardless of whether these rights are
transferable or separable.
Core deposit intangibles of £268 million, mortgage servicing
rights of £81 million, customer relationships of £162 million
and other intangibles of £18 million were recognised in
business combinations that took place in 2004.
IFRS requires a level rate of return on the net investment in the
lease. Tax cash flows are not reflected in the pattern of income
recognition.
Assets held on operating leases are depreciated on a straight-
line basis.
Dividends are recorded in the period in which they are
declared.
All entities controlled by the Group are consolidated together
with special purpose entities (SPEs) where the substance of
the relationship between the reporting entity and the SPE
indicates that it is controlled by the reporting entity.
Assets, liabilities, income and expense of life assurance
business are consolidated on a line-by-line basis.
Movements in embedded value are not grossed up, instead
they are included net of tax in profit before tax.
Notes on the accounts continued