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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Acquisitions
and disposals
(continued)
Intangibles acquired in the business combination
Following the purchase price allocation of RBS, the following intangible assets
were recognised:
As at 15 October 2010
Customer relationship
29,773
This intangible asset comprises of core deposits of the RBS and represents the
funding benefit that would be available to the Group on account of availability
of funding through deposit customers rather than from the wholesale or
inter-bank markets. This benefit also considers the fact that the economic
lifetime of these deposits is longer than their contractual life. Based on this
assumption, this intangible asset has been valued using certain valuation
techniques and is being amortised keeping in view the life expectancy of the
core deposits.
The fair value of this identifiable intangible asset has been determined using an
income approach, by an independent valuer. The income approach begins with
an estimation of the annual cash flows, which a market participant acquirer
would expect the asset to generate over a discrete projection period. The
estimated cash flows for each of the years in the discrete projection period
are then converted to their present value equivalent using a rate of return
appropriate for the risk of achieving the asset’s projected cash flows. The
present value of the estimated cash flows are then added to the present value
equivalent of the residual value of the asset (if any) at the end of the discrete
projection period to arrive at an estimate of the fair value of the specific asset.
In applying the income approach, the Group used the Multiple-period Excess
Earnings Method ("MEEM") to determine the value of the above intangibles.
Under this method the value of a specific intangible asset is estimated from
the residual earnings after fair returns on all other assets employed (including
other intangible assets) have been deducted from the asset’s after-tax operating
earnings.
The valuations are based on information at the time of acquisition and the
expectations and assumptions that have been deemed reasonable by the
Group’s management. It has been assumed that the underlying assumptions or
events associated with such assets will occur as projected.
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Dar Al-Maal Al-Islami Trust
Annual Report 2011