Notes to the consolidated financial statements

2.6 Goodwill and intangible assets

Following is a summary of changes in the carrying amount of goodwill :

in Rupee Symbolcrore

As of March 31,

2011

2010

Carrying value at the beginning

829

692

Goodwill recognized on acquisition (refer note 2.3)

138

Translation differences pertaining to foreign subsidiary

(4)

(1)

Carrying value at the end

825

829

Goodwill has been allocated to the cash generating units (CGU), identified to be the operating segments as follows :

in Rupee Symbolcrore

Segment

As of March 31,

2011

2010

Financial services

400

403

Manufacturing

96

94

Telecom

14

15

Retail

226

228

Others

89

89

Total

825

829

The entire goodwill relating to Infosys BPO’s acquisition of McCamish has been allocated to the ‘Financial services’ segment.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to the CGU which are operating segments regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance.

The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value-in-use. The fair value of a CGU is determined based on the market capitalization. The value-in-use is determined based on specific calculations. These calculations use pre-tax cash flow projections over a period of five years, based on financial budgets approved by the Management and an average of the range of each assumption mentioned below.

As of March 31, 2011, the estimated recoverable amount of the CGU exceeded its carrying amount. The recoverable amount was computed based on the fair value being higher than value-in-use and the carrying amount of the CGU was computed by allocating the net assets to operating segments for the purpose of impairment testing. The key assumptions used for the calculations are as follows :

 

In %

Long-term growth rate

8 – 10

Operating margins

17 – 20

Discount rate

13

The above discount rate is based on the Weighted Average Cost of Capital (WACC) of the Company. These estimates are likely to differ from future actual results of operations and cash flows.

Following is a summary of changes in the carrying amount of acquired intangible assets :

in Rupee Symbolcrore

As of March 31,

2011

2010

Gross carrying value at the beginning

117

56

Customer contracts and relationships (refer note 2.3)

48

Computer software platform (refer note 2.3)

13

Gross carrying value at the end

117

117

Accumulated amortization at the beginning

61

21

Amortization expense

8

37

Translation differences

3

Accumulated amortization at the end

69

61

Net carrying value

48

56

The intangible customer contracts recognized at the time of acquisition of Philips BPO operations are being amortized over a period of seven years, being the Management’s estimate of its useful life, based on the life over which economic benefits are expected to be realized. However, during the year ended March 31, 2010 the amortization of this intangible asset has been accelerated based on the usage pattern of the asset. As of March 31, 2011, the customer contracts have a remaining amortization period of approximately four years.

The intangible customer contracts and relationships recognized at the time of McCamish acquisition are being amortized over a period of nine years, being management’s estimate of its useful life, based on the life over which economic benefits are expected to be realized. As of March 31, 2011, the customer contracts and relationships have a remaining amortization period of eight years.

The intangible computer software platform recognized at the time of McCamish acquisition having a useful life of four months, being management’s estimate of its useful life, based on the life over which economic benefits were expected to be realized, has been fully amortized.

The aggregate amortization expense included in cost of sales, for the years ended March 31, 2011 and March 31, 2010 was Rupee Symbol8 crore and Rupee Symbol37 crore respectively.

Research and development expense recognized in net profit in the statement of comprehensive income, for the years ended March 31, 2011 and March 31, 2010 was Rupee Symbol528 crore and Rupee Symbol435 crore respectively.