BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

2.2.7. BUSINESS COMBINATIONS
The result of a business combination is that the Group obtains control of one or more entities. It is accounted
for by the purchase method.
The purchase method records business combinations from the point of view of the acquirer, who has to
recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the
acquired entity had not recognized. The purchase method can be summed up as a measurement of the cost
of the business combination and its allocation to the assets, liabilities and contingent liabilities measured
according to their fair value, at the purchase date.
The positive differences between the cost of business combinations and the amount corresponding to the
acquired percentage of the net fair value of the assets (including possible intangible assets identified in the
acquisition), liabilities and contingent liabilities of the acquired entity are recognized under the heading
“Intangible assets - Goodwill” in the accompanying consolidated balance sheets. The negative differences
are credited to “Negative goodwill” in the accompanying consolidated income statements.
The purchase of non-controlling interests subsequent to the takeover of the entity is recognized as capital
transactions. In other words, the difference between the price paid and the carrying amount of the
percentage of non-controlling interests acquired is charged directly to equity.
2.2.8. INTANGIBLE ASSETS
Goodwill
Goodwill represents payment in advance by the acquiring entity for the future economic benefits from assets
that cannot be individually identified and separately recognized. It is only recognized as goodwill when the
business combinations are acquired at a price. Goodwill is never amortized. It is subject periodically to an
impairment analysis, and impaired goodwill is written off if appropriate.
For the purposes of the impairment analysis, goodwill is allocated to one or more cash-generating units
expected to benefit from the synergies arising from business combinations. The cash-generating units
represent the Group’s smallest identifiable asset groups that generate cash flows for the entity and that are
largely independent of the flows generated from other assets or groups of assets. Each unit or units to which
goodwill is allocated:
• Is the lowest level at which the entity manages goodwill internally.
• Is not larger than an operating segment.
The cash-generating units to which goodwill has been allocated are tested for impairment by including the
allocated goodwill in their carrying amount. This analysis is performed at least annually and always if there is
any indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been
allocated, the carrying amount of that unit, adjusted by the theoretical amount of the goodwill attributable to
the non-controlling interests, is compared with its recoverable amount.
The recoverable amount of a cash-generating unit is equivalent to its value in use. Value in use is calculated
as the discounted value of the cash flow projections that the division estimates and is based on the latest
budgets approved for the next three years. The principal hypotheses are a sustainable growth rate to
extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows is equal to the
cost of the capital assigned to each cash-generating unit, which is made up of the risk-free rate plus a risk
premium.
If the carrying amount of the cash-generating unit exceeds the related recoverable amount the entity
recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the
goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized,
the carrying amount of the rest of the assets. This is done by allocating the remaining loss in proportion to
the carrying amount of each of the assets in the unit. No impairment of goodwill attributable to the noncontrolling
interests may be recognized.
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