Our Accounts 99
Notes to the Financial Statements continued
31 December 2012
Fixed assets and investments
This section gives detail on the tangible, intangible and investment assets of the Society and Group that are used to generate profit for the
business.
26. Intangible assets
Accounting for goodwill and other intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary/associate at the acquisition date and is included in intangible assets. Goodwill is reviewed for impairment at the end of the first full
year of acquisition. Thereafter, it is tested at each Statement of Financial Position date for impairment against the recoverable amount (being the
higher of value in use or fair value less cost) of the relevant cash generating unit and carried in the Statement of Financial Position at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill arising on acquisitions prior to 1998 has been eliminated against the Unallocated divisible surplus. This goodwill would be recognised in
the Statement of Comprehensive Income should there be a subsequent disposal of the business to which it relates.
Other intangibles
Where an acquisition takes place that gives access to existing customers, distribution channels or the right to charge for investment or policy
administration services, the present value of these is recognised as an intangible asset.
The carrying value of the asset is amortised, on a straight line basis over its expected economic life, and is assessed annually for impairment.
The expected economic life of other intangibles carried by the Group is determined by reference to acquired business, considering factors such as
the remaining terms of agreements, the normal lives of related products and the competitive position, and lies within the range of 10 to 20 years.
Present value of acquired in-force business (PVIF)
Statements and Reviews
On acquisition of a portfolio of long-term insurance contracts, the net present value of the Group’s interest in the expected cash flows of the
in-force business is capitalised in the Statement of Financial Position as an asset and is amortised, in line with the original expected run-off
of 20 years, based on the anticipated lives of the related contracts.
The carrying value of the asset is assessed annually using current assumptions in order to determine whether any impairment has arisen,
compared to the amortised acquired value.
Any amortisation or impairment charge is recorded in the Statement of Comprehensive Income within other operating and administrative
expenses.
Our Businesses
Significant accounting estimates and judgements
The Group determines whether goodwill and other intangible assets are impaired at least on an annual basis. This requires an estimation of
the recoverable amount of the cash generating unit to which the goodwill is allocated. The Group has allocated the goodwill to two single cash
generating units based on the key operating segments of the Group.
Impairment testing of goodwill
Risk Management
Goodwill is reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing
the carrying value to its recoverable amount. The recoverable amount of the cash generating unit is based on value-in-use calculations. The
calculations are based upon discounting expected pre-tax cash flows at a risk-adjusted interest rate appropriate to the cash generating unit,
the determination of both of which requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for
which forecasts are available and to assumptions regarding the long-term sustainable cash flows. While forecasts are compared with actual
performance and external economic data, expected cash flows reflect management’s view of future performance.
Details of the key assumptions used in the estimation of the recoverable amounts and the carrying value at the reporting date are contained
Corporate Governance
at the end of this note.
Our Accounts