Home' Slater and Gordon Annual Report : Slater and Gordon AR 2016 Contents Notes to the Financial Statements
For the Year Ended 30 June 2016
Slater and Gordon Limited
4.1.2 Impairment Testing of Goodwill and Indefinite Life Intangible Assets (continued)
Critical Accounting Estimates and Judgements
Determining whether goodwill is impaired requires an estimation of the value-in-use of the CGU’s to which goodwill has
been allocated. The value-in-use calculation requires management to estimate the future cash flows expected to arise
from the CGU and a post-tax discount rate that reflects the current market assessments of the time value of money and
the risks specific to the asset in order to calculate present value. Where the actual future cash flows are less than
expected, a material impairment loss may arise.
4.1.3 Impairment Losses Recognised
The Group considered the relationship between its market capitalisation and the book value of its equity, among other
factors, when reviewing for indicators of impairment. As at 31 December 2015, the market capitalisation of the Group
was below the book value of its equity, indicating a potential impairment of goodwill and other assets. In addition, the
performance of the UK business had not been in line with the Directors’ expectations and internal forecasts and there
was an indication that the business would be adversely impacted by changes in the UK regulatory environment in
relation to the proposals from the Autumn 2015 Chancellor’s statement. Furthermore, the Australian General Law (“GL”)
business and, in some states, the Australian Personal Injury Law (“PIL”) businesses had not met acquisition targets.
As a result, management performed an impairment test as at 31 December 2015 for all CGUs. The impairment test was
based on value-in-use methodology.
A further assessment was performed as to whether there were any indicators of impairment in relation to the CGUs in
accordance with AASB 136. The NSW Government announced proposals to change the circumstances in which a
person injured in a car accident may claim compensation. If the proposals succeed any impact is not likely to occur until
2019/2020. Notwithstanding the uncertainty of the impact of the proposals, management have impaired the remaining
NSW PI goodwill balance of $3.1m at 30 June 2016.
Given the level of impairment taken in the UK business as at 31 December 2015 and the continued potential impact from
regulatory change as a result of the Autumn 2015 Chancellor’s statement, and the added impact of the “Brexit” vote in
July 2016, management performed an impairment test as at 30 June 2016 for the UK CGUs. The impairment test was
based on value-in-use methodology. The result of that impairment testing was that no further impairment was identified
for the UK CGUs to that recognised at 31 December 2015.
The following CGUs were impaired during the year ended 30 June 2016:
Slater & Gordon Solutions (SGS)
Australia – PIL NSW, QLD and WA
Australia – GL
At 30 June 2015, goodwill for Australia was tested at the operating segment level, being GL and PIL. At 31 December
2015 and 30 June 2016 goodwill for PIL was tested for impairment at a more disaggregated state level.
4.1.4 Key Assumptions used in value-in-use calculations and sensitivity to changes in Assumptions
Discount rates used in the calculation of value-in-use at 30 June 2016
A post-tax discount rate of 9.25% (30 June 2015: 9.25%) was used for all Australian CGUs.
United Kingdom CGUs
A post-tax discount rate of 9.25% was used for each of the 3 UK CGUs (30 June 2015: 10.45% for SGS and 9.25% for
UK PIL and UK GL). The discount rate for SGS was assessed at a higher rate at 30 June 2015 due to the recent
acquisition of SGS by the Group at that date and the inherent risk that new acquisitions carry with them, as well as the
risk characteristics of the forecast cash flows. For the current year a risk adjustment and updated assumptions have
been included in the cash flow to reflect uncertainty in the UK legal market rather than adjusting the discount rate.
Slater and Gordon Limited 69
Annual Report 2016
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