G4S Annual Report and Accounts 2011

Overview Strategic review Performance
Notes to the consolidated financial statements continued
3 Significant accounting policies continued
(e) Intangible assets continued
Acquisition-related intangible assets
Intangible assets on acquisitions that are either separable or arising from contractual rights are recognised at fair value at the date of acquisition. Such
acquisition-related intangible assets include trademarks, technology, customer contracts and customer relationships. The fair value of acquisition-related
intangible assets is determined by reference to market prices of similar assets, where such information is available, or by the use of appropriate valuation
techniques, including the royalty relief method and the excess earnings method.
Acquisition-related intangible assets are amortised by equal annual instalments over their expected economic life. The directors review acquisition-related
intangible assets on an ongoing basis and, where appropriate, provide for any impairment in value.
The estimated useful lives are as follows:
Trademarks
up to a maximum of five years
Customer contracts and customer relationships
up to a maximum of ten years
Technology
up to a maximum of five years
Other intangible assets – development expenditure
Development expenditure represents expenditure incurred in establishing new services and products of the group. Such expenditure is recognised as an
intangible asset only if the following can be demonstrated: the expenditure creates an identifiable asset, its cost can be measured reliably, it is probable that
it will generate future economic benefits, it is technically and commercially feasible and the group has sufficient resources to complete development. In all
other instances, the cost of such expenditure is taken directly to the income statement.
Capitalised development expenditure is amortised over the period during which the expenditure is expected to be revenue-producing, up to a
maximum of ten years. The directors review the capitalised development expenditure on an ongoing basis and, where appropriate, provide for any
impairment in value.
Research expenditure is written off in the year in which it is incurred.
Other intangible assets – software
Computer software is capitalised as an intangible asset if such expenditure (both internally generated and externally purchased) creates an identifiable
asset, if its cost can be measured reliably and if it is probable that it will generate future economic benefits. Capitalised computer software is stated at cost,
net of amortisation and any provision for impairment. Amortisation is charged on software so as to write off the cost of the assets to their estimated
residual values by equal annual instalments over their expected useful economic lives up to a maximum of five years.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and any provision for impairment. Depreciation is provided on all property,
plant and equipment other than freehold land. Depreciation is calculated so as to write off the cost of the assets to their estimated residual values by equal
annual instalments over their expected useful economic lives as follows:
Freehold and long leasehold buildings
up to 50 years
Short leasehold buildings (under 50 years)
over the life of the lease
Equipment and motor vehicles
2 to 10 years
Assets held under finance leases are depreciated over their expected useful economic lives on the same basis as owned assets or, where shorter, over the
term of the relevant lease.
Where significant, the residual values and the useful economic lives of property, plant and equipment are re-assessed annually. The directors review the
carrying value of property, plant and equipment on an ongoing basis and, where appropriate, provide for any impairment in value.
(g) Financial instruments
Financial assets and financial liabilities are recognised when the group becomes a party to the contractual provisions of the instruments.
Trade receivables
Trade receivables do not carry interest and are stated initially at their fair value. The carrying amount of trade receivables is reduced through the use of a
bad debt allowance account. The group provides for bad debts based upon an analysis of those that are past due in accordance with local conditions and
past default experience.
Service concession assets
Under the terms of a Private Finance Initiative (PFI) or similar project the risks and rewards of ownership of an asset remain largely with the purchaser of
the associated services. In such cases, the group’s interest in the asset is classified as a financial asset and included at its discounted value within trade and
other receivables, to the extent to which the group has an unconditional right to receive cash from the grantor of the concession for the construction of the
asset. To the extent that the group has the right to charge for the use of such an asset, conditional upon the extent of the use, the group recognises an
intangible asset.
Current asset investments
Current asset investments comprise investments in securities, which are classified as held-for-trading. They are initially recognised at cost, including
transaction costs, and subsequently measured at fair value. Gains and losses arising from changes in fair value are recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the group’s
cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.
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G4S plc
Annual Report and Accounts 2011