Contingent consideration in connection with the purchase of individual assets outside of business combinations is recognised as a financial liability only when a non-contingent obligation arises (i.e. when milestone is met). The determination of whether the payment should be capitalised or expensed is usually based on the substance of the contingent payment and whether it is expected to give rise to future economic benefits that will flow to the Group. If the milestones paid are for regulatory approval and a sales target, they are likely to meet the capitalisation criteria, and would be accumulated into the cost of the intangible. Changes in the fair value of contingent consideration liabilities in subsequent periods are recognised in research and development expenses for early-stage products and as cost of sales for currently marketed products. The effect of unwinding the discount over time for contingent consideration liabilities is recognised in finance costs. Software Costs incurred in developing or acquiring software licenses and information systems that contribute future financial benefits are capitalised. These include external direct costs of materials and service and payroll costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 10 years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility, where the Group has the intention and ability to use the asset. Amortisation of intangible assets The useful lives of intangible assets are assessed to be either finite or indefinite. The amortisation period and method is reviewed at each financial year end at a minimum. Intangible assets with indefinite useful lives are not amortised. The useful life of these intangibles is reviewed each reporting period. Impairment of intangible assets Assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets that have an indefinite useful life (including goodwill) or not yet ready for use are tested annually for impairment or more frequently if events or changes in circumstances indicate that they may be impaired. An impairment loss is recognised in the statement of comprehensive income for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units), other than goodwill that is monitored at the segment level. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units, and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. Key Judgements and Estimates The Group's impairment assessment requires significant judgement. Determining whether goodwill, indefinite lived intangibles and in development intangibles have been impaired requires estimation of the recoverable amount of cash generating units based on value-in-use calculations. The calculations use cash flow projections based on operating budgets and a ten-year strategic business plan, after which a terminal value, based on our view of the longer term growth profile of the business unit is applied. Cash flows have been discounted using an implied pre-tax discount rate of 9.8% (2023: 9.4%) which is calculated with reference to external analyst views, long-term government bond rates and long-term cost of debt. The determination of cash flows over the life of an asset requires judgement in assessing the future demand for the Group’s products, climate related impacts, any changes in the price and cost of those products and of other costs incurred by the Group. Factors considered in the exercise of our judgement include the progress of the research project, time to market and the anticipated competitive landscape. These factors require judgement and may change in future periods, the impairment analysis takes into account the latest available information. 123
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