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Rothschild & Co | Annual Report 2017
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1. Overview
4. Financial statements
3.
Management report
2. Business review
11 Classification of debt and shareholders’ equity
Under IFRS, the critical feature in differentiating a debt instrument from an equity instrument is the existence of a contractual obligation of the Group to
deliver cash (or another financial asset) to another entity. Where there is no such contractual obligation, the Group will classify the financial instrument as
equity; otherwise it will be classified as a liability and carried at amortised cost. The terms of the perpetual debt instruments issued by the Group permit
interest payments to be waived unless discretionary dividends have been paid in the previous six months. These instruments are, therefore, considered to
be equity. When they are classified as equity, securities issued by the Company are recorded within Capital and associated reserves. If they are issued by
Group subsidiaries and held by parties outside the Group, these securities are recognised as non-controlling interests.
12 Intangible assets
Intangible assets include software, intellectual property rights and assets acquired through business combinations such as brands, contracts to earn
management fees, and client relationships. These are carried at historical cost less amortisation, if any, and less any accumulated impairment losses.
For assets with a definite life, amortisation is charged over the useful economic life of the asset, which is determined case-by-case based on the asset or
contract. Contracts to earn management fees are amortised in line with income earned from the contracts; otherwise a straight-line amortisation method
is used. The intangible assets which have a definite useful life are reviewed at each reporting date to determine whether there is objective evidence of
impairment. If such evidence exists, an impairment test is performed.
The acquired brands have been considered to have an indefinite life and are not amortised; instead they are subject to an annual impairment test.
13 Tangible assets
Tangible assets comprise plant, property and equipment and are stated at cost or deemed cost less accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The deemed cost refers to the situation in which, on transition to IFRS,
the Group elected, as IFRS 1 First-time adoption of IFRS permits, to consider the fair value of a tangible asset at that time to be its deemed cost.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to write down the cost of assets to their residual values
over their estimated useful lives, as follows:
Computer equipment
2-10 years
Cars
3-5 years
Fixtures and fittings
3-10 years
Leasehold improvements
4-24 years
Buildings
10-60 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These gains and losses are recognised in the income
statement, in “net income/(expense) from other assets”.
14 Impairment of tangible assets
At each balance sheet date, or more frequently where events or changes in circumstances dictate, tangible assets are assessed for indications of
impairment. If such indications are present, these assets are subject to an impairment review. If impaired, the carrying values of assets are written down
by the amount of any impairment and the loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment
loss relating to a fixed asset may be reversed when a change in circumstances leads to a change in the estimates used to determine the fixed asset’s
recoverable amount. The carrying amount of the fixed asset is only increased up to the amount that it would have been had the original impairment not
been recognised.
15 Finance leases and operating leases
A finance lease is a lease that transfers substantially all of the risks and rewards incidental to ownership of an asset. An operating lease is a lease other
than a finance lease.
WHERE THE GROUP IS THE LESSOR
– Finance leases
When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross
receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised in interest income over the term
of the lease using the net investment method (before tax), which reflects a constant periodic rate of return.