Annual report 2010 - Imperial Tobacco Group

Property, Plant and Equipment and Intangible AssetsIntangible assets (other than goodwill, the Davidoff cigarette trademark and certain premium cigar trademarks) and property,plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management’s estimatesof the period over which the assets will generate revenue, and are periodically reviewed for continued appropriateness.Due to the long lives of certain assets, changes to the estimates used can result in significant variations in the carrying value.The Group assesses the impairment of property, plant and equipment and intangible assets subject to amortisation ordepreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable.Factors considered important that could trigger an impairment review include the following:––significant underperformance relative to historical or projected future operating results;––significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and––significant negative industry or economic trends.Additionally, goodwill arising on acquisitions and indefinite lived assets are subject to impairment review. The Group’smanagement undertakes an impairment review annually or more frequently if events or changes in circumstances indicatethat the carrying value may not be recoverable. When it is determined that there is an indicator that the carrying value maynot be recoverable, impairment is measured based on estimates of the recoverable amount of the underlying assets of thecash-generating unit.The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in theapplication of the Group’s accounting estimates in relation to property, plant and equipment and intangible assets affectthe amounts reported in the financial statements, especially the estimates of the expected useful economic lives andthe carrying values of those assets. If business conditions were different, or if different assumptions were used in theapplication of this and other accounting estimates, it is likely that materially different amounts could be reported in theGroup’s financial statements.See notes 9 and 10 to these financial statements.Retirement BenefitsThe costs, assets and liabilities of the defined benefit retirement schemes operating within the Group are determined usingmethods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 18. The Grouptakes advice from independent actuaries relating to the appropriateness of the assumptions. It is important to note, however,that comparatively small changes in the assumptions used may have a significant effect on the Group’s financial statements.We estimate that a 0.5 per cent increase/(decrease) in the discount rate would increase/(decrease) the IAS 19 pensionexpense by approximately £1 million. We estimate that a 0.5 per cent decrease/(increase) in the expected return on planassets would increase/(decrease) the IAS 19 pension expense by approximately £14 million.Income TaxesThe Group is subject to income tax in numerous jurisdictions and significant judgement is required in determining theprovision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain.The Group recognises provisions for tax based on estimates of the taxes that are likely to become due. Where the finaltax outcome is different from the amounts that were initially recorded, such differences will impact the current income taxand deferred tax provisions in the period in which such determination is made.111