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2 Significant accounting policies continued
2.3 Basis of consolidation continued
(c) Transactions eliminated
on consolidation
Intragroup balances, transactions and any
unrealised gains arising from intragroup
transactions are eliminated in preparing
the consolidated financial statements.
Unrealised losses are also eliminated
unless the transaction provides evidence
of an impairment of the asset transferred.
In accordance with IAS 21, foreign currency
gains and losses on intragroup monetary
assets and liabilities may not fully eliminate
on consolidation when the intragroup
monetary item concerned is transacted
between two Group entities that have
different functional currencies.
Unrealised gains arising from transactions
with associates are eliminated to the
extent of the Group’s interest in the entity.
Unrealised gains arising from transactions
with associates are eliminated against the
investment in the associate. Unrealised
losses are eliminated in the same way
as unrealised gains, but only to the extent
that there is no evidence of impairment.
2.4 Foreign currency translation
(a) Functional and presentational
currency
Items included in the financial statements
of each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates
(the ‘functional currency’). The functional
currency of all individual entities in the
Group is deemed to be Sterling with the
exception of the entities operating in
France, Germany, the Netherlands and
Belgium whose functional currency is Euros,
those subsidiary entities operating from the
US and Bermuda whose functional currency
is US Dollars, Hiscox Insurance Company
(Guernsey) Limited and Syndicate 3624
whose functional currency is also US Dollars.
(b) Transactions and balances
Foreign currency transactions are
translated into the functional currency
using the exchange rates prevailing
at the dates of the transactions. Foreign
exchange gains and losses resulting from
the settlement of such transactions and
from the retranslation at year end exchange
rates of monetary assets and liabilities
denominated in foreign currencies are
recognised in the income statement,
except when deferred in equity as IAS 39
effective net investment hedges or when
the underlying balance is deemed to form
part of the Group’s net investment in
a subsidiary operation and is unlikely
to be settled in the forseeable future.
Non-monetary items carried at historical
cost are translated in the balance sheet at
the exchange rate prevailing on the original
transaction date. Non-monetary items
measured at fair value are translated using
the exchange rate ruling when the fair
value was determined.
(c) Group companies
The results and financial position of all
the Group entities that have a functional
currency different from the presentation
currency are translated into the presentation
currency as follows:
(i) assets and liabilities for each
balance sheet presented are
translated at the closing rate
at the date of that balance sheet;
(ii) income and expenses for each
income statement are translated
at average exchange rates (unless
this average is not a reasonable
approximation of the cumulative
effect of the rates prevailing on the
transaction dates, in which case
income and expenses are translated
at the date of the transactions); and
(iii) all resulting exchange differences
are recognised as a separate
component of equity.
When a foreign operation is sold, such
exchange differences are recognised in
the income statement as part of the gain
or loss on sale.
Goodwill and fair value adjustments
arising on the acquisition of a foreign entity
are treated as the foreign entity’s assets
and liabilities and are translated at the
closing rate.
2.5 Property, plant and equipment
Property, plant and equipment are stated
at historical cost less depreciation and any
impairment loss. Historical cost includes
expenditure that is directly attributable
to the acquisition of the items.
Subsequent costs are included in the
asset’s carrying amount or recognised
as a separate asset, as appropriate, only
when it is probable that future economic
benefits associated with the item will flow
to the Group and the cost of the item
can be measured reliably. All other repairs
and maintenance items are charged to
the income statement during the financial
period in which they are incurred.
Land and artwork assets are not
depreciated as they are deemed to have
indefinite useful economic lives. The cost
of leasehold improvements is amortised
over the unexpired term of the underlying
lease or the estimated useful life of the
asset, whichever is shorter. Depreciation
on other assets is calculated using the
straight-line method to allocate their cost
or revalued amounts, less their residual
values, over their estimated useful lives.
The rates applied are as follows:
buildings 50 years
vehicles 3 years
leasehold improvements
including fixtures and
fittings 10–15 years
furniture, fittings
and equipment 3–15 years
The assets’ residual values and useful lives
are reviewed at each balance sheet date
and adjusted if appropriate.
An asset’s carrying amount is written down
immediately to its recoverable amount
if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are
determined by comparing proceeds with
carrying amount. These are included
in the income statement.
2.6 Intangible assets
(a) Goodwill
Goodwill represents amounts arising on
acquisition of subsidiaries and associates.
In respect of acquisitions that have
occurred since 1 January 2004, goodwill
represents the excess of the cost of an
acquisition over the fair value of the Group’s
share of the net identifiable assets and
contingent liabilities assured of the
acquired subsidiary or associate at
the acquisition date.
In respect of acquisitions prior to this date,
goodwill is included on the basis of its
deemed cost, which represents the
amount recorded under previous generally
accepted accounting principles.
Goodwill on acquisition of subsidiaries
is included in intangible assets. Goodwill
on acquisition of associates is included
in investments in associates. Goodwill
is not amortised but is tested annually
for impairment and carried at cost less
accumulated impairment losses. The
impairment review process examines
whether or not the carrying value of the
goodwill attributable to individual cash
generating units exceeds its implied
value. Any excess of goodwill over the
recoverable amount arising from the
review process indicates impairment.
Gains and losses on the disposal of an
entity include the carrying amount of
goodwill relating to the entity sold.
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2009
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