Erste Bank JPMorgan Merrill Lynch International

impairment losses. In the case of ownership interests in associated companies, goodwill is included in
the adjusted book value of the ownership interest. If goodwill due to reorganisations was recognised in
the consolidated financial statements of previous years, the book values of these goodwill items were
carried over into the IFRS accounting in accordance with IFRS 1.
Purchased insurance portfolios
Purchased insurance portfolios relate, in particular, to the values of contract holdings recognised
as a result of acquisitions subsequent to 1 January 2004, using purchase price allocation under the
election provided in IFRS 4.31. The values recognised correspond to the differences between fair
value and book value of the underwriting assets and liabilities acquired. Depending on the value of the
underwriting reserves, amortisation of these items is performed using the declining-balance or
straight-line method for a maximum of 10 years.
In addition, the value arising from the acquisition of an insurance portfolio before conversion of
the accounting to IFRS is also reported in this item. It was possible to carry the portfolio value over to
the IFRS financial statements without change. Straight-line amortisation is being performed over a
maximum of 10 years.
Other intangible assets
Purchased intangible assets are recognised in the balance sheet at the cost of acquisition less
accumulated scheduled amortisation and impairment losses.
No intangible assets were created by the consolidated companies themselves.
All intangible assets have a definite useful economic life. Scheduled amortisation of an intangible
asset is therefore performed over its period of use. The useful economic lives of significant intangible
assets are as follows:
Useful life in years
from to
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 15
Customer base (value of new business) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10
Software is amortised by using the straight-line method. Amortisation of the customer base
(“value of new business”) recognised as an intangible asset arising from corporate acquisitions is also
performed using the straight-line method.
Investments
General information on the capitalisation and valuation of investments
In accordance with associated IFRS requirements, some Group assets and liabilities are carried
at fair value in the accounts for the consolidated financial statements. This applies in particular to a
significant portion of investments. Fair value is determined according to the following hierarchy:
The determination of fair value for financial assets and liabilities is generally based on an
established market value or a price offered by brokers and dealers.
If non-listed financial investments are involved, or if a price cannot be immediately determined,
fair value is established either by the use of generally accepted valuation models based on the
discounted cash flow method or by an assessment by management as to what amounts could
be realised from an orderly sale at current market prices.
The fair value of certain financial instruments, particularly unlisted financial derivatives, is
determined using pricing models which take into account factors including contract and market
prices, their relation to one another, current value, counterparty credit-worthiness, yield curve
volatility, and early repayment of the underlying instrument.
The use of different pricing models and assumptions can lead to differing results for fair value.
Changes in the estimates and assumptions used to determine the fair value of assets in cases where
no market price quotations are available may necessitate a write-up or write-down of the book value
of the assets in question and recognition of the corresponding income or expense on the income
statement.
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