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Annual Report & Accounts 2016 - Notes
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77 1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED 1.6 Intangible assets 1.6.1 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill has been allocated to each of the Group's Cash-Generating Units ("CGU") that is expected to benefit from the synergies of the combination. A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 1.6.2 Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see 1.6.4) and impairment losses (see accounting policy 1.7). The cost of intangible assets acquired in a business combination is the fair value at acquisition date. The valuation methodology used for each type of identifiable asset category is detailed below: Asset category Valuation methodology Consulting and magazine Income (cost saving) Software licence Income (incremental value plus loss of profits) Trademarks Relief from royalty Trade name Relief from royalty Non-contractual customer relationships Excess earnings Where, in the opinion of the Directors, the Group's expenditure in relation to development of internet activities results in future economic benefits, these costs are capitalised within software licences and amortised over the useful economic life of the asset. Development costs are capitalised only when it is probable that future economic benefit will result from the project and the following criteria are met: • The technical feasibility of the product has been ascertained; • Adequate technical, financial and other resources are available to complete and sell or use the intangible asset; • The Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible asset can be demonstrated; • It is the intention of management to complete the intangible asset and use it or sell it; and • The development costs can be measured reliably. 1.6.3 Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. This includes legal and similar expenditure incurred in registering brands and trade names, which is capitalised, all other expenditure is expensed as incurred. 1.6.4 Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and trademarks with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Software licence agreements 2-15 years Capitalised development expenditure 3-5 years Trademarks and trade names 12-15 years, or indefinite life Non-contractual customer relationships 4 years 1.7 Impairment At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset. If the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash-generating unit to which the asset belongs is determined. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation. For goodwill and trademarks that have an indefinite useful life, the recoverable amount is estimated at each reporting date. 1.8 Dividends paid to holders of share capital Dividend distributions payable to equity shareholders are recognised through equity reserves on the date the dividend is paid. 1.9 Employee benefits 1.9.1 Pension costs In some jurisdictions in which the Group has employees, there are government or private schemes into which the employing company or branch must make payments on a defined contribution basis, the contributions are shown in the profit or loss account in the year. 1.9.2 Share-based payments The Group has share-based payment schemes which allow certain employees and contractors to acquire shares of the Company. The Group has accounted for these under IFRS 2 Share-Based Payments. Share option schemes The fair value of options granted under the LTIP and MIP schemes will be recognised as a share-based payment expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted are measured using either a binomial or Monte Carlo valuation model. This valuation method takes into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest and market conditions if applicable.