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
4.1.4 Key Assumptions used in value-in-use calculations and sensitivity to changes in Assumptions
Cash Flow Forecasts used in the calculation of Value-in-Use
Value-in-use was calculated using approved forecasts covering a period of five years for each of the individual CGU’s.
The average growth rates used in the value-in-use calculation for the next five years range between -6 .5% and 4.6% .
The negative rates relate to the impact of the UK Autumn 2015 Chancellor’s statement (referred to below) in the Slater
and Gordon Solutions (SGS) CGU. Cash flows beyond five years were subject to a terminal growth rate of 2.5% for all
CGUs (30 June 2015: 3.0%).
Key assumptions underlying cash flow forecasts were:
For each of the CGUs, performance in the financial year ending 30 June 2017 was based upon the Board approved
Australia – GL
The cash flow forecasts used in the impairment test showed operating cash outflows in all periods covered by the five
year model. Accordingly, management fully impaired the goodwill of $13.9m in the Australian GL CGU.
Australia – PIL
Value-in-use was calculated separately for the PIL business in each state. The cash flow forecasts in New South Wales
(“NSW”) and Queensland reflect the impact of regulatory change to workers’ compensation. In other states the forecasts
assumed an average growth consistent with growth rates experienced over the last three years in the five year forecast
period. The value-in-use calculation resulted in impairment losses in Queensland, New South Wales and Western
Australia as at 31 December 2015 which were recorded in the 31 December 2015 financial report. As at 30 June 2016
the recoverable amounts for each of these CGUs, with the exception of NSW, exceeded the carrying amounts and there
are no reasonably possible changes that could cause the recoverable amounts to be less than the carrying amounts. An
impairment of $3.1m was recorded in relation to goodwill allocated to the NSW CGU at 30 June 2016.
The remaining aggregate carrying amount of goodwill in the Australian PIL CGUs after impairment is $5.6m.
United Kingdom Businesses
The proposals from the Autumn 2015 Chancellor’s statement announced in November 2015 are expected to affect
personal injury claims below £5,000. The cash flow forecasts for the UK businesses assume that the proposed reforms
will be implemented as announced and will affect forecast fees beginning from July 2018. The forecasts assume that
fees on claims below the £5,000 threshold will be significantly impacted, with a proportionate reduction in direct operating
costs. Management’s estimate of the impact is based on the current proportion of total fees that represent claims below
the threshold. Management expects that the UK businesses will be able to take advantage of other opportunities
following these proposed reforms, however given the inherent uncertainty regarding any such opportunities they have not
yet been reflected in the cash flow forecasts.
The cash flow forecasts assume a steady state for practice areas that are not affected by the proposed reforms in the
five year forecast period.
Increases in the discount rate in the impairment analysis of the SGL PI CGU from 9.25% to 13.5% or a reduction in the
cash flows of the CGU by 50% in the terminal year would result in the recoverable amount to be less than the carrying
Increases in the discount rate in the impairment analysis of the SGS CGU from 9.25% to 10.5%, or a reduction in the
cash flows of the CGU by 15% in the terminal year would result in the recoverable amount to be less than the carrying
4.2.1 Accounting Policies
Collectability of trade debtors is reviewed at each reporting period. Management considers whether further impairment of
debtors is required based on the aging profile and use calculated historical rates of recovery to determine the required
impairment. Debts that are known to be uncollectible are written off when identified.
Disbursements are only recognised when it is assessed that a reimbursement will be received from the client or on his or
her behalf. The disbursements are treated as a separate asset. The amount recognised for the expected reimbursement
does not exceed the relevant costs incurred. The amount of any expected reimbursement is reduced by an allowance for
non-recovery based on past experience.
70 Slater and Gordon Limited
Annual Report 2016
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