Annual Report 2011 - Mandarin Oriental Hotel Group

8 Intangible assets
Annual Report 2011 53
Leasehold Computer Development
Goodwill land software costs Total
US$m US$m US$m US$m US$m
2011
Cost 23.9 6.5 7.8 38.9 77.1
Amortization and impairment – (1.3 ) (4.7 ) (3.7 ) (9.7 )
Net book value at 1st January 23.9 5.2 3.1 35.2 67.4
Exchange differences – – (0.1 ) 1.4 1.3
Additions – – 3.0 0.9 3.9
Amortization charge – (0.2 ) (2.1 ) (0.3 ) (2.6 )
Impairment charge – – – (0.9 ) (0.9 )
Reclassification to tangible assets – – – (29.0 ) (29.0 )
Net book value at 31st December 23.9 5.0 3.9 7.3 40.1
Cost 23.9 6.5 15.3 9.4 55.1
Amortization and impairment – (1.5 ) (11.4 ) (2.1 ) (15.0 )
23.9 5.0 3.9 7.3 40.1
2010
Cost 23.9 6.9 6.0 17.2 54.0
Amortization and impairment – (1.5 ) (2.8 ) (2.8 ) (7.1 )
Net book value at 1st January 23.9 5.4 3.2 14.4 46.9
Exchange differences – – 0.1 (0.3 ) (0.2 )
Additions – – 1.9 22.0 23.9
Amortization charge – (0.2 ) (2.1 ) (0.1 ) (2.4 )
Impairment charge – – – (0.8 ) (0.8 )
Net book value at 31st December 23.9 5.2 3.1 35.2 67.4
Cost 23.9 6.5 7.8 38.9 77.1
Amortization and impairment – (1.3 ) (4.7 ) (3.7 ) (9.7 )
23.9 5.2 3.1 35.2 67.4
Management has performed an impairment review of the carrying amount of goodwill at 31st December 2011.
For the purpose of impairment review, goodwill acquired has been allocated to the respective hotels and is reviewed
for impairment based on individual hotel forecast operating performance and cash flows. Cash flow projections for
the impairment reviews are based on individual hotel budgets prepared on the basis of assumptions reflective of the
prevailing market conditions, and are discounted appropriately. Key assumptions used for value-in-use calculations
include average growth rates of between 5% to 17% to extrapolate cash flows over a five year period after which the
growth rate is assumed at 8% in perpetuity, which may vary across the Group’s geographical locations, and are based
on management expectations of the market development; and pre-tax discount rates of around 10% applied to the cash
flow projections. The discount rates used reflect business specific risks relating to the business life-cycle and geographical
location. On the basis of these reviews, management concluded that no impairment is required.
The amortization charges are all recognized in arriving at operating profit and are included in cost of sales in profit and loss.
The remaining amortization periods for intangible assets are as follows:
Leasehold land 10 to 30 years
Computer software 3 to 5 years
Development costs 15 to 40 years