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Notes to the Group financial statements
Note 10 Goodwill and other intangible assets continued
Impairment of goodwill
Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are indications
that goodwill may be impaired. Goodwill acquired in a business combination is allocated to groups of cash-generating units according to the level at
which management monitor that goodwill.
Recoverable amounts for cash-generating units are based on the higher of value in use and fair value less costs to sell. Value in use is calculated
from cash flow projections for generally five years using data from the Group’s latest internal forecasts, the results of which are reviewed by the Board.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management
estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the
cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market.
Giventhe current economic climate, a sensitivity analysis has been performed in assessing the recoverable amounts of goodwill.
The pre-tax discount rates used to calculate value in use range from 6% to 17% (2011: 8% to 14%). On a post-tax basis, the discount rates ranged from
5% to 13% (2011: 6% to 12%). These discount rates are derived from the Group’s post-tax weighted average cost of capital, as adjusted for the specific
risks relating to each geographical region.
The forecasts are extrapolated beyond five years based on estimated long-term average growth rates of 1% to 5% (2011: 2% to 5%).
In February 2012 and 2011 impairment reviews were performed by comparing the carrying value of goodwill with the recoverable amount of the
cash-generating units to which goodwill has been allocated.
The components of goodwill are as follows:
2012
£m
2011
£m
China 622 582
Czech Republic 73 34
Malaysia 86 83
Poland 388 401
South Korea 479 468
Tesco Bank 802 802
Thailand 165 161
Turkey 46 50
UK 681 645
US 102 78
Other 512
3,449 3,316
112 Tesco PLC Annual Report and Financial Statements 2012