Setting new standards - Friends Life

FINANCIAL STATEMENTS
IFRS FINANCIAL STATEMENTS
EEV SUPPLEMENTARY INFORMATION
Notes to the consolidated accounts continued
1. Accounting policies continued
contracts are finite and are amortised as the revenue on those
contracts is earned, which equates to a straight-line basis over the
estimated average contract term, depending on the nature of the
contract, with amortisation being charged to the income statement.
The amortisation period is reviewed at each financial year-end.
The estimated useful lives have been assessed as follows:
2006 2005
Investment trusts 10 years 20 years
Insurance 10 years 10 years
Institutional 6 years 10 years
Retail 10 years 10 years
The useful lives of Investment trust and Institutional management
contracts were reduced during the year, as set out in note 2(h).
(c) Present value of acquired in-force business (PVIF)
On acquisition of a portfolio of insurance contracts or investment
contracts, either directly or through the acquisition of a subsidiary
undertaking, the net present value of the Group’s interest in the
expected pre-tax cash flows of the in-force business is capitalised in
the balance sheet as an intangible asset. This is amortised over the
anticipated lives of the related contracts which typically varies
between 5 and 50 years.
(d) Other intangible assets
Distribution lists, brands and licences acquired are capitalised at
cost, being the fair value of the consideration paid. Software is
capitalised on the basis of the costs incurred to acquire and to bring
into use. Direct costs of internally generated software are capitalised
as intangible assets.
Other intangible assets have finite useful lives and are carried at cost
less accumulated amortisation and impairment. Amortisation is
calculated using the straight-line method to allocate the cost over
the estimated useful lives of the intangible asset as follows:
Distribution lists
Brands
Licences
Software
10–15 years
10 years
3–5 years
3 years
Subsequent expenditure on other intangible assets is capitalised only
when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure is expensed as incurred.
1.3.9 Property and equipment
(a) Owned assets
Land and buildings are initially recognised at cost and subsequently
measured at fair value. Revaluations are performed annually by
independent valuers, who hold a recognised and relevant professional
qualification and have recent experience in the location and category of
properties being valued. Valuations are performed with sufficient regularity
such that the carrying amount does not differ materially from that which
would be determined using fair values at the balance sheet date. The fair
78 Friends Provident Annual Report & Accounts 2006
value is the amount for which a property could be exchanged between
knowledgeable and willing parties in an arm’s length transaction.
Properties occupied by the Group are held at fair value on the basis
of open market value at the date of revaluation. Revaluation
surpluses are credited to the revaluation surplus in shareholders’
equity. Decreases that offset previous increases of the same asset
are charged against the revaluation surplus directly to equity; all
other decreases are charged to the income statement.
Equipment is recognised at cost less accumulated depreciation and
impairment losses.
(b) Depreciation
Depreciation is charged so as to write off the cost of an asset net of
the estimated residual value, using the straight-line method, over the
estimated useful life of each part of an item of property and
equipment, as follows:
Motor vehicles
Computer hardware and related software
Fixtures, fittings and office equipment
3–4 years
1–4 years
3–10 years
Residual values and useful lives are reviewed at each reporting date
and adjusted if appropriate.
(c) Disposal and derecognition
An item of property and equipment is derecognised upon disposal or
when no further future economic benefits are expected from its use.
Any gain or loss arising on derecognition of the asset is included in
the income statement in the year the asset is derecognised. Any
revaluation reserve relating to the particular asset being disposed of
or no longer in use is transferred to retained earnings.
1.3.10 Investment properties
Investment properties comprise land and/or buildings that are not
occupied by the Group and are held either to earn rental income or
for capital appreciation, or for both.
Investment property is initially included in the balance sheet at cost
and subsequently measured at its fair value, which is supported by
market evidence, based on annual valuations by independent valuers
who hold a recognised and relevant professional qualification and have
recent experience in the location and category of investment property
being valued. Movements in the fair value of investment properties
are taken to the income statement in the period in which they arise.
1.3.11 Fair values of financial instruments
Fair values of listed financial instruments are based on market bid
price for assets and offer price for liabilities at the close of business on
the balance sheet date. For unlisted financial instruments broker or
dealer price quotations are obtained. If prices are not readily available,
the fair value is based on valuation techniques. Certain financial
instruments, including financial derivative instruments, are valued
using pricing models that consider, among other factors, contractual
and market prices, correlation, time value of money, credit risk, yield
curve volatility factors and/or prepayment rates of the underlying
positions. The use of different pricing models and assumptions could
produce materially different estimates of fair values.