AFRICAN DAWN ANNUAL REPORT 2018 Notes to the Financial Statements continued Annual Financial Statements For the year ended 28 February 2018 55 Goodwill impairment Impairment test for goodwill 2018 SME Snapshot was acquired during the year for 15% share of equity in YueDiligence in return for the underlying asset and liabilities which were included at fair value, which gave rise to goodwill as below. The recoverable amount was based on fair value less cost to sell, represented by the unwinding of the transaction as referred to in the events after reporting period Note 39, which resulted in an impairment. Grindstone was impaired at interm as the Group lost control of 50% in terms of the Knife Capital Disposal .The fair value less cost to sell is a level 3 fair value, and it is based on the estimated proceeds on disposal. The movements are indicated below: 2018 R’ 000 Opening Additions Note11 Disposals Impairment Closing Knife Capital 3,736 - (3,736) - - Grindstone 943 - (458) (485) - SME Snapshot - 211 - (211) - 4,679 211 (4,194) (696) - 2017 R’ 000 Opening Additions Disposals Impairment Closing Knife Capital 7,133 - - (3,397) 3,736 Grindstone 943 - - - 943 8,076 - - (3,397) 4,679 Impairment test for goodwill 2017 The recoverable amount of the CGUs has been determined based on value-in-use calculation These calculations use pre- tax cash flow projections based on financial budgets approved by management covering a five- forecast period cycle. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below: The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The key assumptions, long term growth rates and discount rates used in the value-in-use calculations are as follows: Assumptions Knife Capital Grindstone Compounded annual revenue increase % 6% 6% Compounded annual total operating costs increase % 6% 6% Pre-taxation discount rate 32% 25% Notes With regard to Knife Capital • The recoverable amount calculated was based on value in use and did not exceed the carrying amount and was impaired by an amount of R3,397million. This was mostly as a result of reduced management revenue forecast period, as the business model change away from consulting revenues to asset management fee revenues after the third party fund was established. With regard to Grindstone • The recoverable amount was calculated based on value in use and exceeded the carrying amount so no impairment.
AFRICAN DAWN 2018 Annual Report
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