REA Group Ltd Annual Report 2021

Annual Report 2021 | REA Group Ltd 6. Intangible assets and impairment Accounting policies Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is not amortised, instead goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For impairment testing purposes the Group identifies its cash generating units (“CGUs”), which are the smallest identifiable groups of assets that generate cash inflows largely independent of cash inflows of other assets or other groups of assets. The Group monitors goodwill at a segment level and the carrying amount of goodwill acquired through business combinations has been assessed for impairment testing on that basis. IT development and software costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and services and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over three to five years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset. Other intangible assets such as customer contracts and brands acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of the intangible assets, ranging from three to 17 years for customers contracts, and 15 years for those brands that do not have an indefinite useful life (for which no amortisation charge is recognised). In April 2021, the IFRS Interpretations Committee (IFRIC) issued a final agenda decision, Configuration or customisation costs in a cloud computing arrangement . The decision clarifies how current accounting standards apply to Software-as-a-Service (SaaS), including whether configuration or customisation expenditure relating to cloud computing arrangements is able to be recognised as an intangible asset and if not, over what time period the expenditure is expensed. SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over a period of time. The IFRIC clarified that costs incurred to configure or customise, and the ongoing fees to obtain access to, the cloud provider’s application software, are recognised as operating expenses as incurred. However, costs incurred in relation to the development of bridging modules to existing on-premise systems or bespoke additional capability which the Company controls, are capitalised as intangible software assets, and amortised over the useful life of the software on a straight-line basis. The Group’s analysis indicates that the impact of this agenda decision is not material. Key estimate and judgement The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate, at each financial year end. The estimation of useful lives of assets has been based on historic experience and turnover policies. Any changes to useful lives may affect prospective amortisation rates and asset carrying values. In assessing whether a brand has a finite or indefinite useful life, the Group makes use of information on the long-term strategy of the brand, the level of growth or decline of the markets that the brand operates in, the history of the market and the brand’s position within that market. Assets other than goodwill and intangible assets that have an indefinite useful life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. Judgement is applied to identify the Group’s CGUs. The recoverable amount of an asset or CGU is the higher of its fair value less costs of disposal and its value in use. The determination of recoverable amount requires the estimation and discounting of future cash flows. These estimates include establishing forecasts of future financial performance, discount rates and terminal growth rates. Each of these is based on a ‘best estimate’ at the time of performing the valuation, and by definition, the estimate will seldom equal the related actual results. Year in review Directors’ Report Financial Statements Remuneration Report Sustainability Our Leaders 77