35. Intangible assets, property, plant and equipment, and property, plant and equipment leased out under operating lease

Software – Acquired computer software licences are recognized in the amount of costs incurred on the purchase and preparation of the software for use, taking into consideration accumulated amortization and impairment allowances.

Goodwill – Goodwill arising on acquisition of subsidiaries is recognized under “Intangible assets” and goodwill arising on acquisition of associates and joint ventures is recognized under “Investments in associates and joint ventures”. The test for impairment of goodwill is conducted at least at the end of each year.

Customer relations and value in force – As a result of a settlement of the transaction, two components of intangible assets that are recognized separately from goodwill, i.e. customer relations and value in force, representing the present value of future profits from concluded insurance contracts, were identified. These components of intangible assets are amortized using the reducing balance method based on the rate of consumption of economic benefits arising from their use.

Other intangible assets – Other intangible assets acquired by the Group are recognized at the cost of purchase or manufacture, less accumulated amortization and impairment allowances.

Development costs – The costs of completed development projects are classified as intangible assets in connection with the expected economic benefits to be obtained and meeting specific terms and conditions, i.e. if there is a possibility and intention to complete and use the internally generated intangible asset, there are appropriate technical and financial resources to complete the development and to use the asset and it is possible to reliably measure the expenditure incurred during its development which can be directly attributed to generating the intangible asset.

Property, plant and equipment – are measured at the cost of purchase or manufacture, less accumulated depreciation and impairment allowances.

Investment properties – are measured according to the accounting policies applied to property, plant and equipment.

Capital expenditure – The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use.

Right-of-use assets are presented in the same items in which the underlying assets would be presented, if owned by the Group.

Depreciation of property, plant and equipment and amortization of intangible assets and investment properties begins on the first day of the month following the month in which the asset has been commissioned, with the exception of right-of-use assets, for which depreciation begins in the same month in which they were commissioned, and ends no later than at the time when:

• the amount of depreciation or amortization charges becomes equal to the initial cost of the asset, or
• the lease period ends; or
• the asset is designated for scrapping; or
• the asset is sold; or
• the asset is found to be missing; or
• it is found – as a result of verification – that the expected residual value of the asset exceeds its (net) carrying amount, taking into account the expected residual value of the asset upon scrapping, i.e. the net amount that the Group expects to obtain at the end of the useful life of the asset, net of its expected costs to sell.

Depreciation write-offs are made using the straight-line method, consisting in a systematic, even distribution of the initial value of a fixed asset, the right to use and an intangible asset over the specified depreciation period, regardless of the possibility of their unauthorized periods.

For non-financial non-current assets it is assumed that the residual value is nil, unless there is a third party obligation to buy back the asset, or if there is an active market which will continue to exist at the end of the asset’s period of use and when it is possible to determine the value of the asset on this market.

Costs relating to the acquisition or construction of buildings are allocated to significant parts of the building (components), when such components have different useful lives or when each of the components generates benefits for the Group in a different manner. Each component of the building is depreciated separately. Intangible assets with indefinite useful lives, which are subject to an annual impairment test, are not amortized.

Impairment allowances in respect of cash generating units first and foremost reduce the goodwill relating to those cash generating units (groups of units), and then they reduce proportionally the carrying amount of other assets in the unit (group of units).

An impairment allowance in respect of goodwill cannot be reversed. The impairment allowance may be reversed if there was a change in the estimates used to determine the recoverable amount. An impairment allowance may be reversed only to the level at which the carrying amount of an asset does not exceed the carrying amount – less depreciation/amortization – which would be determined had the impairment allowance not been recorded.

If there are indications of impairment of common assets, i.e. assets which do not generate cash flows independently from other assets or groups of assets, and the recoverable amount of a single asset included in common assets cannot be determined, the Group determines the recoverable amount at the level of the cash-generating unit to which the asset belongs.

In estimating useful lives of particular types of property, plant and equipment, including assets leased out under operating lease, intangible assets and investment properties, the following factors are taken into account:

• expected physical wear and tear, estimated based on the average useful lives recorded to date, reflecting the normal physical wear and tear rate, intensity of use etc.,
• technical or market obsolescence;
• legal and other limitations on the use of the asset;
• expected use of the asset;
• other factors affecting useful lives of such assets.

When the useful life of a given asset results from the contract term, the useful life of such an asset corresponds to the period defined in the contract. If the estimated useful life is shorter than the period defined in the contract, the estimated useful life is applied. The adopted depreciation/amortization method and useful lives are reviewed at least on an annual basis.

Depreciation /amortization periods applied by PKO Bank Polski S.A. Group

At each balance sheet date, the Group makes an assessment of whether there is objective evidence of impairment of any non-financial non-current assets, right-of-use assets (or cash-generating units). If any such evidence is identified, and annually in the case of intangible assets which are not amortized and goodwill, the Group estimates the recoverable amount being the higher of the fair value less costs to sell or the value in use of a non-current asset (or a cash-generating unit), and if the carrying amount of an asset exceeds its recoverable amount, the Group recognizes an impairment allowance in the income statement. The estimation for the above-mentioned values requires making assumptions, among other things about future expected cash flows that the Group may receive from the continued use or disposal of the non-current asset (or a cash-generating unit). The adoption of different assumptions with reference to the valuation of future cash flows could affect the carrying amount of certain non-current assets.