Annual Report - AWB Limited

Notes to and forming part of the financial statements for the year ended 30 September 2008 AWB LIMITED11. Intangible Assets (continued)(b) Description of the Group’s intangible assetsSystem developmentSystem development costs are carried at cost less accumulatedamortisation and accumulated impairment losses. This intangible assethas been assessed as having a finite life and is amortised using thestraight line method over a period of 2.5 - 5 years. The amortisationhas been recognised in the income statement in the line item ‘otherexpenses’. If an impairment indication arises, the recoverable amountis estimated and an impairment loss is recognised to the extent thatthe recoverable amount is lower than the carrying amount.LicencesLicences are carried at cost less accumulated amortisation andaccumulated impairment losses. These intangible assets have beenassessed as having a finite life and are amortised using the straightline method over a period of 7-10 years. The amortisation has beenrecognised in the income statement in the line item ‘other expenses’.If an impairment indication arises, the recoverable amount isestimated and an impairment loss is recognised to the extent that therecoverable amount is lower than the carrying amount.OtherOther intangible assets relate to non-contractual customerrelationships or customer lists purchased as part of a businesscombination. Other intangibles assets are carried at cost lessaccumulated amortisation and accumulated impairment losses.These intangible assets have been assessed as having a finite lifeand are amortised using the straight line method over a period of 5-8years. The amortisation has been recognised in the income statementin the line item ‘other expenses’. If an impairment indication arises,the recoverable amount is estimated and an impairment loss isrecognised to the extent that the recoverable amount is lower thanthe carrying amount.GoodwillAfter initial recognition, goodwill acquired in a business combinationis measured at cost less any accumulated impairment losses. Goodwillis not amortised but is subject to impairment testing on anannual basis or whenever there is an indication of impairment.(c) Impairment tests for goodwillGoodwill acquired through business combinations has been allocatedto two individual cash-generating units, each of which is a reportablesegment, for impairment testing as follows:• Landmark Financial Services; and• Landmark Rural Services.Landmark Financial ServicesThe recoverable amount of the Landmark Financial Services unit hasbeen determined based on a value in use calculation using cash flowprojections based on financial budgets approved by managementcovering a three year period, with an appropriate terminal value atthe end of that period.The pre-tax, real discount rate (the real discount rate assumes noinflation in cash flows and hence adjusts the discount rate downwardsfor inflation, when compared to a nominal discount rate) applied tothe cash flow projections is 8.19% (2007: 9.58%) per annum and thecash flows beyond the three year period are extrapolated using a 5%real growth rate (2007: 6.78%), which is in line with the long-termaverage growth rate for the agribusiness financial sector.Landmark Rural ServicesThe recoverable amount of the Landmark Rural Services unit hasbeen determined based on a value in use calculation using cash flowprojections based on financial budgets approved by managementcovering a three year period, with an appropriate terminal value atthe end of that period.The pre-tax, real discount rate (the real discount rate assumes noinflation in cash flows and hence adjusts the discount rate downwardsfor inflation, when compared to a nominal discount rate) appliedto the cash flow projections is 8.54% (2007: 9.71%) per annum andthe cash flows beyond the three year period are extrapolated usinga 3.39% growth rate (2007: 2.37%) per annum, which is in line withthe long-term average growth rate for the agribusiness rural servicessector.(d) Key assumptions used in the value in use calculations forthe Landmark Financial Services and Landmark Rural ServicesCash-generating units for 30 September 2008 and 2007.The calculation of value in use for both Landmark Financial Servicesand Landmark Rural Services is most sensitive to the followingassumptions:• Gross and net interest margins;• Discount rates; and• Growth rates used to extrapolate cash flows beyond the budgetperiod.Sensitivity to changes in assumptionsWith regard to the assessment of the value in use for the LandmarkRural Services and Landmark Financial Services cash generating units(CGUs), management believes that no reasonably possible changein any one of the key assumptions would cause the carrying valueof either CGU to materially exceed its recoverable amount.www.awb.com.au 77