10.1.1.2 Goodwill of the Refining & Marketing segment
Accounting policies
The acquirer recognises the acquiree’s goodwill as at the acquisition date, in the amount equal to the excess of the difference between the amount of consideration transferred, measured at its acquisition-date fair value, including the value of any non-controlling interests in the acquiree, the acquisition- date fair value of the acquirer’s previously held equity interest in the acquiree (in the case of a business combination achieved in stages), and the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured at fair values as at the transaction date.
In the case of a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition- date fair value and recognises the resulting gain or loss in the statement of comprehensive income. Following initial recognition, goodwill is carried at cost less cumulative impairment losses. Goodwill is tested for impairment once a year. Once written off goodwill is not reversed. It is not amortised.
As at the acquisition date, the acquired goodwill is allocated to each of the identified cash-generating units that may benefit from the synergies of the business combination, provided that goodwill may not be allocated to a cash-generating unit higher than an operating segment. The Group calculates impairment of value by estimating the recoverable amount of a cash-generating unit (“CGU”) to which goodwill has been allocated. If the recoverable amount of the CGU is lower than its carrying amount, an impairment loss is recognised. The impairment loss is not reversible. If goodwill is a part of a CGU and the Group sells a part of the CGU’s business, the goodwill pertaining to the sold business is included in the carrying amount of the sold business for the purpose of calculating gain or loss on disposal of the part of business. In such a case, goodwill pertaining to the sold business should be measured using the relative value of the sold business, pro-rata to the interest in the retained part of the CGU.
Goodwill is allocated to the cash-generating units presented in the table below:
| Dec 31 2021 | Dec 31 2020 | |
|---|---|---|
| Goodwill arising on the acquisition of an organised part of business by LOTOS Paliwa Sp.z.o.o. : | ||
| – whole sale of LPG | 10 | 10 |
| – service stations networks (ESSO, Slovnaft Polska) | 33.7 | 33.7 |
| Total | 43.7 | 43.7 |
| Goodwill arising on acquisition of other entities | 1.9 | 1.9 |
| Total goodwill | 45.6 | 45.6 |
As at December 31st 2021 and as at December 31st 2020, impairment tests of individual cash-generating units to which goodwill was allocated did not reveal any impairment indicators.
The Group determines the recoverable amount of cash-generating units based on their respective values in use, calculated on the basis of a five- year cash flow projection. The residual value for the discounted cash flows was calculated using the growing perpetuity formula. The discount rate used for the calculation reflects the weighted average cost of capital (WACC) of 6.96% (2020: 5.65%). It was assumed that the cash flow rate will remain constant after the forecast period, at 2.5%.
The most material factors affecting the estimated values in use of cash-generating units were gross margin, discount rate, volumes forecast, projected market shares in the budget period and estimated growth rate beyond the forecast period.
The Group believes that no reasonably probable change in the key parameters identified above would result in goodwill impairment.