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Ambrian Capital plcAnnual Report & Accounts 2009OverviewBusiness reviewGovernanceFinancial statements 23Shareholder information2 Accounting policies (continued)2.7 Foreign currenciesTransactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate(the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities aretranslated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilitiesare similarly recognised immediately in the consolidated statement of comprehensive income.When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shallbe recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, anyexchange component of that gain or loss shall be recognised in profit or loss.On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactionstook place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translatedat the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results ofoverseas operations at actual rate are recognised directly in equity (the “exchange reserve”).Exchange differences recognised in the consolidated statement of comprehensive income of Group entities’ separate financial statements onthe translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are recognised inthe exchange reserve.2.8 TaxationTax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensiveincome except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date,and any adjustment to tax payable in respect of previous years.Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financialposition differs to its tax base, except for differences arising on:• the initial recognition of goodwill;• the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affectsneither accounting or taxable profit; and• investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it isprobable that the difference will not reverse in the foreseeable future.Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which thedifference can be utilised.The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and areexpected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax balances are not discounted.Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and thedeferred tax assets and liabilities relate to taxes levied by the same tax authority on either:• the same taxable Group Company; or• different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle theliabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled orrecovered.2.9 GoodwillGoodwill arising on consolidation represents the excess of the cost of a business combination over the interest in the fair value of identifiableassets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instrumentsissued, plus any direct costs of acquisition.Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement ofcomprehensive income. Under IFRS, goodwill is not amortised but is tested annually for impairment. Where the fair value of identifiable assets,liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement ofcomprehensive income on the acquisition date.2.10 Externally acquired intangible assetsAmortisation is provided against intangible assets representing customer relationships arising on business combinations. The initial carryingamount of such assets is calculated on the basis of a discounted cash flow model based on the income expected to be derived from thosecustomer relationships at the acquisition date, which is amortised over its useful economic life.The customer relationships asset arising on the acquisition of Nabarro Wells and Co Limited is being amortised over a period of five years.