IAS 38 paras 94-96, intangibles assigned useful life longer than contractual period as expected to be renewable without significant cost

Britvic plc – Annual report – 1 October 2017

Industry: food and drink

  1. Intangible assets (extract)

Franchise rights

Franchise rights represent franchise agreements acquired as part of the Britvic Ireland business combination which provides long term rights to distribute certain soft drinks. These agreements were allocated a 35 year useful economic life at the time of acquisition based on a third party assessment. As at 1 October 2017 these intangible assets have a remaining useful life of 25 years. The franchise agreement itself has a remaining contract life of 8 years which is less than the useful economic life. The useful economic life has been determined on the basis that the renewal of the franchise agreements, without significant cost, is highly probable.

Evidence to support this conclusion is:

  • Significant emphasis on maintaining a strong relationship with Pepsi, strengthened through the addition of Pepsico products to Britvic’s portfolio in recent years;
  • Lack of alternative suppliers; and
  • High barriers of entry to the Irish soft drinks bottling market.

In the unlikely event that it was deemed that the contract might not be renewed then the useful economic life would need to be reduced to its remaining contractual life. As at 1 October 2017 this would increase the annual amortisation for franchise rights by £1.6m to £2.3m.

 

 

Advertisements