RBS 2011 Annual Report Download - page 318

316 RBS Group 2011
6. Intangible assets and goodwill
Intangible assets acquired by the Group are stated at cost less
accumulated amortisation and impairment losses. Amortisation is
charged to profit or loss over the assets' estimated economic lives using
methods that best reflect the pattern of economic benefits and included in
Depreciation and amortisation. The estimated useful economic lives are
as follows:
Core deposit intangibles 6 to 10 years
Other acquired intangibles 5 to 10 years
Computer software 3 to 5 years
Expenditure on internally generated goodwill and brands is written-off as
incurred. Direct costs relating to the development of internal-use
computer software are capitalised once technical feasibility and economic
viability have been established. These costs include payroll, the costs of
materials and services, and directly attributable overheads. Capitalisation
of costs ceases when the software is capable of operating as intended.
During and after development, accumulated costs are reviewed for
impairment against the benefits that the software is expected to generate.
Costs incurred prior to the establishment of technical feasibility and
economic viability are expensed as incurred as are all training costs and
general overheads. The costs of licences to use computer software that
are expected to generate economic benefits beyond one year are also
capitalised.
Intangible assets include goodwill arising on the acquisition of
subsidiaries and joint ventures. Goodwill on the acquisition of a
subsidiary is the excess of the fair value of the consideration transferred,
the fair value of any existing interest in the subsidiary and the amount of
any non-controlling interest measured either at fair value or at its share of
the subsidiary’s net assets over the Group's interest in the net fair value
of the subsidiary’s identifiable assets, liabilities and contingent liabilities.
Goodwill arises on the acquisition of a joint venture when the cost of
investment exceeds the Group’s share of the net fair value of the joint
venture’s identifiable assets and liabilities. Goodwill is measured at initial
cost less any subsequent impairment losses. Goodwill arising on the
acquisition of associates is included 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 (except investment property - see
Accounting policy 9) are stated at cost less accumulated depreciation and
impairment losses. Where an item of property, plant and equipment
comprises major components having different useful lives, they are
accounted for separately.
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) 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
The residual value and useful life of property, plant and equipment are
reviewed at each balance sheet date and updated for any changes to
previous estimates.
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, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. A
cash-generating unit is the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. For the purposes of impairment
testing, goodwill acquired in a business combination is allocated to each
of the Group’s cash-generating units or groups of cash-generating units
expected to benefit from the combination. The recoverable amount of an
asset or cash-generating unit is the higher of its fair value less cost 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 taken into account in estimating 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 is not greater than it would
have been had no impairment loss been recognised. Impairment losses
on goodwill are not reversed.
9. Investment property
Investment property comprises freehold and leasehold properties that are
held to earn rentals or for capital appreciation or both. Investment
property is not depreciated but is stated at fair value based on valuations
by independent registered valuers. Fair value is based on current prices
for similar properties in the same location and condition. Any gain or loss
arising from a change in fair value is recognised in profit or loss. Rental
income from investment property is recognised on a straight-line basis
over the term of the lease in Other operating income. Lease incentives
granted are recognised as an integral part of the total rental income.
Accounting policies continued