27. Intangible assets and property, plant and equipment
2019
Accounting policies
Acquired computer software licenses 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 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 goodwill impairment is carried out at least at the end of each year.
As a result of a settlement of a 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 declining balance method based on the rate of consumption of economic benefits arising from their use.
Other intangible assets acquired by the Group are recognized at purchase price or manufacturing cost, less accumulated amortization and impairment allowances.
Costs of completed development work are included in intangible assets in connection with future economic benefits 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 finish the development and to use the asset and it is possible to measure reliably the expenditure attributable to the intangible asset during its development which can be directly associated to the creation of the intangible asset.
Measured according to the purchase price or cost of production, less accumulated depreciation and impairment allowances.
Measured according to accounting principles applied to property, plant and equipment.
Carrying amount of property, plant and equipment and intangible assets is increased by additional expenditure incurred during their maintenance.
Right-of-use assets are presented in those items where the underlying assets would be presented, if owned by the Group.
Depreciation/amortization
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 brought into use, with the exception of right-of-use assets, for which depreciation begins in the same month in which they have been accepted, 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 end of the lease period; or
- the asset is designated for liquidation; 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.
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 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 on non-financial non-current assets and right-of-use assets
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 book value 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 should the impairment allowance not have been recorded.
If there are impairment triggers for a group of assets, which do not generate cash flows irrespective of other assets or asset groups, 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.
Estimates and judgements
Useful economic lives of property, plant and equipment, intangible assets and investment properties
In estimating useful economic lives of particular types of property, plant and equipment, intangible assets and investment properties, the following factors are considered:
- expected physical wear and tear, estimated based on the average period of use 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 period of use of a given asset results from a contract term, the useful economic 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 economic life is applied. The adopted depreciation / amortization method and useful life for property, plant and equipment, investment properties and intangible assets are reviewed on an annual basis.
Depreciation /amortization periods applied by PKO Bank Polski SA Group:
| Fixed assets | Economic useful lives |
|---|---|
| Buildings, premises, cooperative rights to premises (including investment properties) |
from 25 to 60 years |
| Leasehold improvements (buildings, premises) | from 1 to 11 years (or the period of the lease, if shorter) |
| Machinery and equipment | from 2 to 15 years |
| Computer hardware | from 2 to 10 years |
| Vehicles | from 3 to 5 years |
| Intangible assets | Economic useful lives |
| Software | from 1 to 20 years |
| Other intangible assets | from 2 to 20 years |
Impairment allowances
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 exists and annually in case of intangible assets which are not amortized, 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), if the carrying amount of an asset exceeds its recoverable amount, the Group recognizes an impairment loss in the income statement. The estimation for the above-mentioned values requires making assumptions, i.a. about future expected cash flows that the Group may receive from the continued use or disposal of the non-current asset (or a cashgenerating 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.
Financial information
Intangible assets
| INTANGIBLE ASSETS 31.12.2019 |
Software | Goodwill | Future profit on concluded insurance contracts |
Customer relationships |
Other, including capital expenditure |
Total | |
| of which: software |
|||||||
| Carrying amount, gross, as at 1 January 2019 | 5 206 | 1 438 | 141 | 150 | 410 | 283 | 7 345 |
| Purchase | 31 | – | – | – | 370 | 370 | 401 |
| Transfers from capital expenditure | 305 | – | – | – | (305) | (305) | – |
| Scrapping and sale | (6) | – | – | – | (1) | (1) | (7) |
| Foreign exchange differences on translation of foreign branches | 7 | – | – | – | – | – | 7 |
| Other, including loss of control over a subsidiary | 9 | – | – | 7 | 5 | – | 21 |
| Carrying amount, gross, as at 31 December 2019 | 5 552 | 1 438 | 141 | 157 | 479 | 347 | 7 767 |
| Accumulated amortization as at 1 January 2019 | (3 686) | – | (90) | (77) | (76) | – | (3 929) |
| Amortization charge for the period | (358) | – | (10) | (14) | (9) | – | (391) |
| Scrapping and sale | 5 | – | – | – | – | – | 5 |
| Skumulowana amortyzacja (umorzenie) na 31 grudnia 2019 roku | (4 039) | – | (100) | (91) | (85) | – | (4 315) |
| Impairment allowances as at 1 January 2019 | (18) | (187) | – | – | (16) | (10) | (221) |
| Recognized during the period | (1) | (51) | – | – | (1) | (1) | (53) |
| Reversed during the period | – | – | – | – | 2 | – | 2 |
| Other | – | – | – | – | (2) | (2) | |
| Odpisy aktualizujące na koniec na 31 grudnia 2019 roku | (19) | (238) | – | – | (17) | (11) | (274) |
| Net carrying amount as at 1 January 2019 | 1 502 | 1 251 | 51 | 73 | 318 | 273 | 3 195 |
| Net carrying amount as at 31 December 2019 | 1 494 | 1 200 | 41 | 66 | 377 | 336 | 3 178 |
| INTANGIBLE ASSETS 31.12.2018 |
Software | Goodwill | Future profit on concluded insurance contracts |
Customer relationships |
Other, including capital expenditure |
Total | |
| of which: software |
|||||||
| Carrying amount, gross, as at 1 January 2018 | 4 832 | 1 438 | 141 | 150 | 361 | 232 | 6 922 |
| Purchase | 23 | – | – | – | 384 | 384 | 407 |
| Transfers from capital expenditure | 332 | – | – | – | (332) | (332) | – |
| Scrapping and sale | (1) | – | – | – | (3) | (2) | (4) |
| Foreign exchange differences on translation of foreign branches | 3 | – | – | – | – | – | 3 |
| Other, including loss of control over a subsidiary | 17 | – | – | – | – | 1 | 17 |
| Carrying amount, gross, as at 31 December 2018 | 5 206 | 1 438 | 141 | 150 | 410 | 283 | 7 345 |
| Accumulated amortization as at 1 January 2018 | (3 272) | – | (75) | (62) | (72) | – | (3 481) |
| Amortization charge for the period | (415) | – | (15) | (13) | (8) | – | (451) |
| Scrapping and sale | 1 | – | – | – | 1 | – | 2 |
| Foreign exchange differences on translation of foreign branches | (1) | – | – | – | – | – | (1) |
| Other, including loss of control over a subsidiary | 1 | – | – | (2) | 3 | – | 2 |
| Accumulated amortization as at 31 December 2018 | (3 686) | – | (90) | (77) | (76) | – | (3 929) |
| Impairment allowances as at 1 January 2018 | (18) | (175) | – | – | (6) | – | (199) |
| Utworzenie w okresie | – | (12) | – | – | (10) | (10) | (22) |
| Recognized during the period | – | – | – | – | – | – | – |
| Impairment allowances as at 31 December 2018 | (18) | (187) | – | – | (16) | (10) | (221) |
| Net carrying amount as at 1 January 2018 | 1 542 | 1 263 | 66 | 88 | 283 | 232 | 3 242 |
| Net carrying amount as at 31 December 2018 | 1 502 | 1 251 | 51 | 73 | 318 | 273 | 3 195 |
With regard to the Bank, a significant item of intangible assets relates to expenditures on the Integrated Information System (IIS). The total capital expenditure incurred for the IIS system in the years 2003–2019 amounted to PLN 1 538 million. The net carrying amount of the Integrated Information System (IIS) amounted to PLN 590 million as at 31 December 2019 (PLN 581 million as at 31 December 2018). The expected useful life of the IIS system is 24 years. As at 31 December 2019, the remaining useful life is 11 years.
Goodwill
| Net goodwill | 31.12.2019 | 31.12.2018 |
|---|---|---|
| Nordea Bank Polska SA | 863 | 863 |
| PKO Życie Towarzystwo Ubezpieczeń SA | 91 | 91 |
| PKO Leasing Pro SA | 31 | 31 |
| Raiffeisen – Leasing Polska SA and its subsidiaries (PKO Leasing SA) | 57 | 57 |
| PKO Towarzystwo Funduszy Inwestycyjnych SA | 150 | 150 |
| PKO BP BANKOWY PTE SA | – | 51 |
| Assets taken over from CFP Sp. z o.o. | 8 | 8 |
| Total | 1 200 | 1 251 |
| GOODWILL | IMPAIRMENT TEST – METHOD |
|---|---|
| NORDEA BANK POLSKA SA | The impairment test is conducted by comparing the carrying amounts of Cash Generating Units (‘CGUs’) with their recoverable amount. Two CGUs were identified to which goodwill on acquisition of Nordea Bank Polska SA was allocated – the retail and corporate CGU. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the period of the forecast, using the growth rate adopted at a level of 2.6%. Cash flow projections are based on the assumptions included in the financial plan of the Bank for 2019. For the discounting of the future cash flows a discount rate of 8.7% was used, taking into account the risk-free rate and risk premium.
No impairment of goodwill was recognized. |
| PKO TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH SA | The impairment test was carried out on the basis of the two-year financial forecast prepared by the company, taking into account the residual volue.
No impairment of goodwill was recognized |
| PKO ŻYCIE TOWARZYSTWO UBEZPIECZEŃ SA |
The impairment test carried out was developed on the basis of the present value of expected future cash flows for the Bank, taking into account the residual value. Future cash flows were estimated on the basis prepared by the Company’s 10 year financial forecast.
No impairment of goodwill was recognized |
| PKO LEASING PRO SA | The goodwill arising on the acquisition of the company was allocated to the whole of
PKO Leasing SA as the immediate parent company, which acquired the assets of PKO Leasing Pro SA in the merger. The impairment test was prepared on the basis of the present value of the expected future cash flows generated by the company, estimated on the basis of the financial forecast prepared by the company for five years with the simultaneous fading out of activities thereafter. No impairment of goodwill was recognized. |
| RAIFFEISEN-LEASING POLSKA SA WRAZ Z JEJ SPÓŁKAMI ZALEŻNYMI (PKO LEASING SA) | The goodwill that arose on the acquisition of the company was allocated to the portion of the assets of the PKO Leasing SA Group that was separately recorded in the accounts as assets of the Raiffeisen-Leasing Polska SA Group that was acquired. The impairment test was carried out using the discounted dividend method on the basis of the eight-year financial forecast prepared by the company, taking into account the residual value.
No impairment of goodwill was recognized. |
| PKO BP BANKOWY PTE SA |
The impairment test was conducted using the embedded value method, according to which the value in use of the company’s shares was established.
The test took into account the governmental draft of the Act on the amendment of certain acts in connection with a transfer of funds from open pension funds to individual pension accounts. The said Act changes the operating model of open pension funds by enabling transfers of funds from open pension funds to individual pension accounts (IKE or ZUS) and introduces a pension system based on four pillars: Individual Pension Accounts (Indywidualne Konta Emerytalne), State Insurance Institution (ZUS), Employee Equity Plans (Pracownicze Plany Kapitałowe) and Individual Retirement Security Accounts (Induwidualne Konta Zabezpieczenia Emerytalnego) (on 24 January 2020, the Polish Parliament passed the said Act). As a results of conducting the said tests, an allowance covering the full amount of goodwill was set up. |
A discount rate of 7.84% which accounts for the risk-free rate on 10-year Treasury bond yields as at the date of the valuation and for market risk premium and risk ratio specified for PKO Bank Polski SA’s projects were used (with the exception of Nordea Bank Polska SA) for discounting future cash flows in the impairment tests described above. The measurement methods and forecast periods were adapted to the specificity of the assets or companies measured.
Property, plant and equipment
| PROPERTY, PLANT AND EQUIPMENT 31.12.2019 |
Land and buildings | Machinery and equipment | Assets under construction |
Other | Total | |||||||||||
| for own use | in operating leases |
Total | for own use | in operating leases |
Total | for own use | Total | for own us | in operating leases |
Total | for own use | in operating leases |
Total | of which: rightof-use assets | of which: writeoff of rights to perpetual usufruct of land |
|
| Carrying amount, gross, as at 31 December 2018 | 2 618 | 27 | 2 645 | 1 635 | 9 | 1 644 | 165 | 165 | 763 | 657 | 1 420 | 5 181 | 693 | 5 874 | ||
| Changes due to IFRS 16 implementation | 795 | – | 795 | – | – | – | – | – | 33 | – | 33 | 828 | – | 828 | 959 | (131) |
| Carrying amount, gross, as at 1 January 2019 | 3 413 | 27 | 3 440 | 1 635 | 9 | 1 644 | 165 | 165 | 796 | 657 | 1 453 | 6 009 | 693 | 6 702 | 959 | (131) |
| Purchase | 136 | – | 136 | 42 | – | 42 | 273 | 273 | 479 | – | 479 | 930 | – | 930 | 127 | – |
| Transfers from capital expenditure | 58 | – | 58 | 117 | – | 117 | (214) | (214) | 39 | – | 39 | – | – | – | – | – |
| Scrapping and sale | (55) | – | (55) | (144) | – | (144) | – | – | (514) | – | (514) | (713) | – | (713) | (9) | – |
| Taking up control over subsidiaries | 22 | – | 22 | 2 | – | 2 | – | – | 10 | 1 019 | 1 029 | 34 | 1 019 | 1 053 | 18 | – |
| Other, including loss of control over a subsidiary | (13) | (8) | (21) | 4 | – | 4 | (3) | (3) | (7) | (25) | (32) | (19) | (33) | (52) | (1) | – |
| Carrying amount as at the end of the period, gross | 3 561 | 19 | 3 580 | 1 656 | 9 | 1 665 | 221 | 221 | 803 | 1 651 | 2 454 | 6 241 | 1 679 | 7 920 | 1 094 | (131) |
| Accumulated depreciation as at 31 December 2018 | (1 067) | (2) | (1 069) | (1 222) | (5) | (1 227) | – | – | (471) | (126) | (597) | (2 760) | (133) | (2 893) | ||
| Changes due to IFRS 16 implementation | 19 | 19 | – | – | – | – | – | – | – | – | 19 | – | 19 | – | 19 | |
| Accumulated depreciation as at 1 January 2019 | (1 048) | (2) | (1 050) | (1 222) | (5) | (1 227) | – | – | (471) | (126) | (597) | (2 741) | (133) | (2 874) | – | 19 |
| Depreciation charge for the period | (296) | – | (296) | (170) | (2) | (172) | (1) | – | (53) | (135) | (188) | (520) | (136) | (656) | (206) | – |
| Scrapping and sale | 34 | – | 34 | 142 | – | 142 | – | – | 197 | – | 197 | 373 | – | 373 | – | – |
| Taking up control over subsidiaries | (4) | – | (4) | (2) | – | (2) | – | – | (3) | (258) | (261) | (9) | (258) | (267) | (1) | – |
| Other, including loss of control over a subsidiary | 14 | – | 14 | (6) | – | (6) | – | – | (158) | 155 | (3) | (150) | 155 | 5 | – | – |
| Accumulated depreciation as at the end of the period | (1 300) | (2) | (1 302) | (1 258) | (7) | (1 265) | (1) | (488) | (364) | (852) | (3 047) | (372) | (3 419) | (207) | 19 | |
| Impairment allowances as at 31 December 2018 | (37) | (2) | (39) | (1) | – | (1) | (3) | (3) | (3) | (4) | (7) | (44) | (6) | (50) | ||
| Changes due to IFRS 16 implementation | 1 | – | 1 | – | – | – | – | – | – | – | – | 1 | – | 1 | – | 1 |
| Impairment allowances as at 1 January 2019 | (36) | (2) | (38) | (1) | – | (1) | (3) | (3) | (3) | (4) | (7) | (43) | (6) | (49) | – | 1 |
| Recognized during the period | (14) | – | (14) | – | – | – | – | – | (1) | – | (1) | (15) | – | (15) | (1) | – |
| Reversed during the period | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – | – |
| Other | 4 | – | 4 | – | – | – | (1) | (1) | 3 | (1) | 2 | 6 | (1) | 5 | – | – |
| Impairment allowances as at the end of the period | (46) | (2) | (48) | (1) | – | (1) | (4) | (4) | (1) | (5) | (6) | (52) | (7) | (59) | (1) | 1 |
| Net carrying amount as at 1 January 2019 | 2 329 | 23 | 2 352 | 412 | 4 | 416 | 162 | 162 | 322 | 527 | 849 | 3 225 | 554 | 3 779 | 959 | – |
| Net carrying amount as at 31 December 2019 | 2 215 | 15 | 2 230 | 397 | 2 | 399 | 216 | 217 | 314 | 1 282 | 1 596 | 3 142 | 1 300 | 4 442 | 886 | (111) |
| PROPERTY, PLANT AND EQUIPMENT 31.12.2018 |
Land and buildings | Machinery and equipment | Assets under | Other | Total | ||||||||
| for own use | Total | for own use | in operating leases |
Total | for own use | Total | for own use |
in operating leases |
Total | for own use | in operating leases |
Total | |
| Carrying amount, gross, as at 1 January 2018 | 2 696 | 2 696 | 1,621 | 9 | 1 630 | 126 | 126 | 825 | 470 | 1 295 | 5 268 | 479 | 5 747 |
| Purchase | 8 | 8 | 24 | – | 24 | 231 | 231 | 343 | – | 343 | 606 | – | 606 |
| Transfers from capital expenditure | 31 | 31 | 118 | – | 118 | (189) | (189) | 40 | – | 40 | – | – | – |
| Scrapping and sale | (54) | (54) | (117) | – | (117) | – | – | (201) | – | (201) | (372) | – | (372) |
| Other, including loss of control over a subsidiary | (36) | (36) | (11) | – | (11) | (3) | (3) | (191) | 134 | (57) | (241) | 134 | (107) |
| Carrying amount, gross, as at 31 December 2018 | 2 645 | 2 645 | 1 635 | 9 | 1 644 | 165 | 165 | 816 | 604 | 1 420 | 5 261 | 613 | 5 874 |
| – | – | – | – | – | – | – | – | – | – | – | – | – | |
| Accumulated depreciation as at 1 January 2018 | (1 034) | (1 034) | (1 189) | (3) | (1 192) | – | – | (478) | (82) | (560) | (2 701) | (85) | (2 786) |
| Depreciation charge for the period | (89) | (89) | (163) | (2) | (165) | – | – | (58) | (58) | (116) | (310) | (60) | (370) |
| Scrapping and sale | 34 | 34 | 116 | – | 116 | – | – | 76 | – | 76 | 226 | – | 226 |
| Other, including loss of control over a subsidiary | 20 | 20 | 14 | – | 14 | – | – | (34) | 37 | 3 | – | 37 | 37 |
| Accumulated depreciation as at 31 December 2018 | (1 069) | (1 069) | (1 222) | (5) | (1 227) | – | – | (494) | (103) | (597) | (2 785) | (108) | (2 893) |
| – | – | – | – | – | – | – | – | – | – | – | – | – | |
| Impairment allowances as at 1 January 2018 | (33) | (33) | (1) | – | (1) | (3) | (3) | (4) | (5) | (9) | (41) | (5) | (46) |
| Recognized during the period | (9) | (9) | – | – | – | – | – | 2 | – | 2 | (7) | – | (7) |
| Reversed during the period | – | – | – | – | – | – | – | – | – | – | – | – | – |
| Other | 3 | 3 | – | – | – | – | – | – | – | – | 3 | – | 3 |
| Impairment allowances as at 31 December 2018 | (39) | (39) | (1) | – | (1) | (3) | (3) | (2) | (5) | (7) | (45) | (5) | (50) |
| – | – | – | – | – | – | – | – | – | – | – | – | – | |
| Net carrying amount as at 1 January 2018 | 1 629 | 1 629 | 431 | 6 | 437 | 123 | 123 | 343 | 383 | 726 | 2 526 | 389 | 2 915 |
| Net carrying amount as at 31 December 2018 | 1 537 | 1 537 | 412 | 4 | 416 | 162 | 162 | 320 | 496 | 816 | 2 431 | 500 | 2 931 |
Calculation of estimates
The impact of change in the economic useful life of assets being subject to depreciation and classified as land and buildings is presented in the table below:
| CHANGE IN THE ECONOMIC USEFUL LIFE OF DEPRECIABLE ASSETS CLASSIFIED AS LAND AND BUILDINGS | 31.12.2019 | 31.12.2018 | ||
|---|---|---|---|---|
| scenario +10 years | scenario -10 years | scenario +10 years | scenario -10 years | |
| Depreciation cost | (36) | 245 | (38) | 258 |