2.17 Modifications
2.18 Goodwill and Other Intangible Assets
2.19 Property and Equipment
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
The contractual terms of a financial asset may be modified fora
commercial reason or due to a forbearance measure. A
commercial modification is a change to the previous terms and
conditions of a contract (financial asset) that alters the timing or
amount of the contractual cash flows of the financial asset.
Rabobank considers a modification as non-substantial if it does
not impact multiple aspects of the contract at the same time, for
example a change in the fixed interest period, repayment type
or obligors. Forbearance measures are considered to be non-
substantial modifications.
Substantial modifications lead to a derecognition of the financial
asset and non-substantial modifications lead to modification
accounting. In case of a modification Rabobank recalculates the
gross carrying amount based on the revised cash flows of the
financial asset and recognizes a modification gain or loss in profit
or loss. The new gross carrying amount is recalculated by
discounting the modified cash flows at the original effective
interest rate.
Goodwill
Goodwill is the amount by which the acquisition price paid for a
subsidiary exceeds the fair value on the date on which the share
of net assets and contingent liabilities of the entity was acquired.
With each acquisition, the other non-controlling interests are
recognized at fair value or at its share of the identifiable assets and
liabilities of the acquired entity. Tests are performed annually, or
more frequently if indications so dictate, to determine whether
there has been impairment.
Other intangible assets, including software development costs
Costs directly incurred in connection with identifiable and unique
software products over which Rabobank has control and that will
likely provide economic benefits exceeding the costs for longer
than one year are recognized as other intangible assets. Direct
costs include the personnel costs of the software development
team, financing costs and an appropriate portion of the relevant
overhead.
Expenditures that improve the performance of software as
compared with their original specifications are added to the
original cost of the software. Software development costs are
recognized as other intangible assets and amortized on a linear
basis over a period not exceeding five years. Costs related to the
maintenance of software are recognized as an expense at the time
they are incurred.
Other intangible assets also include those identified through
business combinations, and they are amortized over their
expected useful lives when the asset is available for use.
Impairment Losses on Goodwill
Goodwill is allocated to cash-generating units for the purpose of
impairment testing, which is undertaken at the lowest level of
assets that generate largely independent cash inflows. During the
fourth quarter of each financial year, or more frequently if there
are indications of impairment, goodwill is tested for impairment
and any excess of carrying amount over recoverable amount is
provided. The recoverable amount is the higher of the value in
use and the fair value less selling costs.
The value in use of a cash flow generating unit is determined as
the present value of the expected future pre-tax cash flows of the
cash flow generating unit in question.The key assumptions used
in the cash flow model depend on the input data and they reflect
various judgmental financial and economic variables, such as risk-
free interest rates and premiums reflecting the risk inherent in the
entity concerned. Impairments of goodwill are included under
'Impairment losses on goodwill' in the statement of income, if
applicable.
Impairment Losses on other Intangible Assets
At each reporting date, an assessment is made as to whether
there are indications of impairment of other intangible assets. If
there are such indications, impairment testing is carried out to
determine whether the carrying amount of the other intangible
assets is fully recoverable. The recoverable amount shall be
estimated for the individual asset. If it is not possible to estimate
the recoverable amount of the individual asset, the recoverable
amount of the cash generating unit to which the asset belongs
is determined. An impairment loss is recognized if the carrying
amount exceeds the recoverable amount. Impairment losses and
impairment reversals are included in 'Other administrative
expenses' in the statement of income.
Regardless of any indication of impairment, intangible assets not
yet available for use shall be tested for impairment annually by
comparing its carrying amount with its recoverable amount.
Property and equipment for own use
Property for own use consists mainly of office buildings and is
recognized at cost less accumulated depreciation and
impairment, as is equipment for own use. Assets are depreciated
to their residual values over the following estimated useful lives
on a straight-line basis:
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