Annual Report and Accounts 2006 - DCC plc

62notes to the financial statements1. Summary of significant accounting policies - continuedFollowing initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill relating toacquisitions from 1 April 2004 and goodwill carried in the Balance Sheet at 1 April 2004 is not amortised. Goodwill isreviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying valuemay be impaired.The carrying amount of goodwill in respect of associates, net of any impairment, is included in investments in associatesunder the equity method in the Group Balance Sheet.Goodwill was tested for impairment as at 1 April 2004, the date of transition to IFRS, and no impairment resulted fromthis exercise.Goodwill acquired in a business combination is allocated, from the acquisition date, to the respective cash-generatingunits. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.Goodwill is subject to impairment testing on an annual basis and at any time during the year if an indicator of impairmentis considered to exist; the goodwill impairment tests are undertaken at a consistent time in each annual period.Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss isrecognised. Impairment losses arising in respect of goodwill are not reversed following recognition.Where goodwill forms part of a cash-generating unit and part of the operation within that unit are disposed of, thegoodwill associated with the operation disposed of is included in the carrying amount of the operation when determiningthe gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of therelative values of the operation disposed of and the proportion of the cash-generating unit retained.Intangible assets (other than goodwill)Intangible assets acquired separately are capitalised at cost. Intangible assets acquired in the course of a businesscombination are capitalised at fair value being their deemed cost as at the date of acquisition.Following initial recognition, intangible assets which have a finite life are carried at cost less any applicable accumulatedamortisation and any accumulated impairment losses. Where amortisation is charged on assets with finite lives thisexpense is taken to the Income Statement.The amortisation of intangible assets is calculated to write-off the book value of intangible assets over their useful lives ona straight-line basis on the assumption of zero residual value. In general, definite-lived intangible assets are amortised overperiods ranging from three to five years, depending on the nature of the intangible asset.LeasesProperty, plant and equipment, acquired under a lease which transfers substantially all of the risks and rewards ofownership to the Group, are capitalised as property, plant and equipment and are depreciated over their useful lives withany impairment being recognised in the Income Statement. Amounts payable under such leases (finance leases), net offinance charges, are shown as short, medium or long term lease obligations, as appropriate. Finance charges on financeleases are charged to the Income Statement over the term of the lease so as to produce a constant periodic rate ofinterest on the remaining balance of the liability.Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Theannual rentals under operating leases are charged to the Income Statement on a straight-line basis over the lease term.InventoriesInventories are valued at the lower of cost and net realisable value.Cost is determined on a first in first out basis and in the case of raw materials, bought-in goods and expense inventoriescomprises purchase price plus transport and handling costs less trade discounts and subsidies. Cost, in the case ofproducts manufactured by the Group, consists of direct material and labour costs together with the relevant productionoverheads based on normal levels of activity. Net realisable value represents the estimated selling price less costs tocompletion and appropriate selling and distribution costs.Provision is made, where necessary, for slow moving, obsolete and defective inventories.