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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Critical accounting
3.
estimates and
3.
judgements in applying
3.
accounting policies
(continued)
equate to the Group’s share of the
value in use in Faisal Islamic Bank
of Egypt of $221.8 million. Had
the assumptions utilised in the
discounted cash flow model for
the underlying discounting factor
increased by 10.0% this would
equate to the Group’s share of the
value in use in Faisal Islamic Bank
of Egypt of $223.3 million. The
carrying value in the consolidated
statement of financial position as at
31 December 2011 for Faisal
Islamic Bank of Egypt was $210.2
million, which is lower than the
“value in use” amounts mentioned
above.
Estimated impairment
of goodwill
The Group tests annually whether
goodwill has suffered any
impairment, in accordance with
the accounting policy stated in note
2. The recoverable amounts of
cash-generating units have been
determined based on estimated
future cash flows and comparisons
with market multiples. These
calculations require the use of
estimates, which are subject to
judgement. Changes in the
underlying assumptions may
impact the reported numbers.
During 2011 the Group used a
sum-of-the-parts approach to arrive
at a business value of Ithmaar Bank
B.S.C. The valuation methodology
for the separately identified CGU at
Ithmaar Bank B.S.C. level based on
the operational activities is the
following:
• CGU Ex-Shamil Bank:
value in use based on
discounted cash flows
• CGU Faysal Bank Limited:
value in use based on
discounted cash flows
• CGU BBK:
average of residual income
and price to book value
multiple
• Ithmaar Bank residual assets:
investments measured at their
carrying value adjusted for
fair value changes.
In its assessment of Ithmaar Bank
B.S.C. the value based on the sum-
of-the parts approach exceeded its
carrying value and as such no
impairment charge was taken. The
key assumptions used in this sum-
of-the parts computation were the
following:
• CGU Ex-Shamil Bank:
long-term growth rate of 2%,
discount rate of 14.85%
• CGU Faysal Bank Limited:
long-term growth rate of 2%,
discount rate of 25.84%
• CGU BBK:
long-term growth rate of 4%,
cost of the equity of 11.5%,
control premium of 15%
• Ithmaar Bank residual assets:
investments measured at their
carrying value adjusted for
fair value changes
A shift in either the growth or
discount rates of 1% would also not
have resulted in any impairment.
On the basis that the Group used a
discounted cash flow model to
arrive at a value in use of Islamic
Investment Company of the Gulf
(Bahamas) Limited which ultimately
was higher than the carrying
amount no impairment charge was
recorded in the consolidated
financial statements (2010: $35
million). Management’s assessment
of the value in use of Islamic
Investment Company of the Gulf
(Bahamas) Limited exceeds its
carrying value, therefore any
significant changes to assumptions
used in management’s assessment
will not result in impairment.
Pension obligations
The assumptions the Group has
to make in connection with the
actuarial calculation of pension
obligations an pension expenses
affect the discount rate, the expected
annual rate of compensation
increase, the expected employee
turnover rate, the expected average
remaining working life, the expected
annual adjustments to pensions
and the expected annual return on
plan assets. These assumptions are
subject to review by the Group.
A change in any of these key
assumptions may have an impact
on the projected benefit obligations,
funding requirements and periodic
pension cost.
30
Dar Al-Maal Al-Islami Trust
Annual Report 2011