Annual Report 2010 - SBM Offshore

Financial Review / Financial Statements 2010
When significant parts of an item of property, plant and
equipment have different useful lives, those components
are accounted for as separate items of property,
plant and equipment.
The assets’ residual values are reviewed and adjusted,
if appropriate, at each balance sheet date. An asset’s
carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is
higher than its estimated recoverable amount.
Gains and losses on disposals are determined by
comparing proceeds (less attributable costs) with the
carrying amount. These are included in the income
statement.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Company’s share of the
net identifiable assets of the acquired subsidiary at
the date of the acquisition. All business combinations
are accounted for by applying the purchase method.
Goodwill on acquisition of subsidiaries is included in
‘intangible assets’. In respect of business acquisitions
occurring after 1 January 2004, goodwill represents
the difference between the cost of the acquisition and
the fair value of the net identifiable assets acquired. In
respect of acquisitions prior to this date, goodwill is
included on the basis of its deemed cost, which is the
amount recorded under Dutch GAAP.
Goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses.
Impairment losses on goodwill are not reversed. Gains
and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the
purpose of impairment testing. The allocation is made
to those cash-generating units or groups of cashgenerating
units that are expected to benefit from the
business combination in which the goodwill arose.
The cash-generating units are the 7 identified operating
units.
120 SBM Offshore – Annual Report 2010
Patents
Separately acquired patents are shown at historical
cost. Patents acquired in a business combination are
recognised at fair value at the acquisition date. Patents
have a finite useful life and are carried at cost less
accumulated amortisation. Amortisation is calculated
using the straight-line method to allocate the cost of
patents over their estimated useful lives of 15 years.
The patents are tested annually for impairment.
Research and development
Research expenditure is recognised as an expense
when incurred. Costs incurred on development projects
(relating to the design and testing of new or improved
products) are recognised as an intangible asset when
the following criteria are fulfilled:
• it is technically feasible to complete the intangible
asset so that it will be available for use or sale;
• management intends to complete the intangible
asset and use it or sell it;
• there is an ability to use or sell the intangible asset;
• it can be demonstrated how the intangible asset will
generate probable future economic benefits;
• adequate technical, financial and other resources
to complete the development and to use or sell the
intangible assets are available;
• the expenditure attributable to the intangible asset
during its development can be reliably measured.
Other development expenditures that do not meet
these criteria are recognised as an expense as
incurred. Development costs previously recognised as
an expense are not recognised as an asset in a subsequent
period. Capitalised development costs are
amortised from the point at which the asset is ready
for use on a straight-line basis over its useful life, not
exceeding 5 years.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example
goodwill, are not subject to amortisation and are
tested annually for impairment and whenever events
or changes in circumstances indicate that the carrying
amount may not be recoverable. Assets that are
subject to amortisation or depreciation are tested for
impairment whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the