| 2012
£m | 2011
£m |
|---|
| Cost | | |
| At 1 January | 175.5 | 178.1 |
| Exchange differences | (2.1) | (2.6) |
| Recognised on acquisition of businesses (see note 24) | 29.5 | – |
| At 31 December | 202.9 | 175.5 |
| Accumulated impairment | | |
| At 1 January | 72.9 | 70.4 |
| Exchange differences | (1.8) | (1.2) |
| Impairment losses for the year | – | 3.7 |
| At 31 December | 71.1 | 72.9 |
| Carrying amount | 131.8 | 102.6 |
Goodwill acquired in a business combination is allocated, at acquisition, to the business units that are expected to benefit from that business combination. After recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:
| 2012
£m | 2011
£m |
|---|
| ADE: | | |
| Western Europe | 26.7 | 26.7 |
| North America | 44.9 | 37.1 |
| AGI: | | |
| Western Europe | 17.4 | 17.6 |
| North America | 36.6 | 15.2 |
| Emerging Markets | 6.2 | 6.0 |
| 131.8 | 102.6 |
The Group tests goodwill at least annually for impairment, or more frequently if there are indications that goodwill might be impaired.
The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for those calculations are the discount rates, growth rates and expected changes to selling prices and direct costs in respect of future cash flows. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating units. The rate used to discount the forecast cash flows for cash generating units is 11.3% (2011: 9.5%). This rate is risk adjusted, for specific countries, where the Group perceives a risk premium is appropriate. The recoverable amount is the sum of the discounted cash flows over a fifteen year period, being management's expectation of the useful life of the existing asset base.
The Group prepares cash flow forecasts based on management estimates for the next five years. The expected sales reflect management's expectation of how sales will develop at this point in the economic cycle. The expected profit margin reflects management's experience of each cash generating unit's profitability at the forecast level of sales. Cash flows after five years are based on an estimated growth rate of 3.2% (2011: 3.2%), being the historical weighted average growth in GDP in the markets that the Group operates in. This rate does not exceed the average long-term growth rate for the relevant markets.
The Group has conducted a sensitivity analysis on the key assumptions applied to the value in use calculations for each cash generating unit. A decline in sales of 26.2% per annum would result in the recoverable amount of goodwill for the Group being reduced to its carrying value.
The Board has concluded that no impairment charge is required in 2012. The charge for impairment of goodwill and acquired intangible fixed assets in 2011 related to the Group's South American operations, where trading activity has previously lagged expectations, which together with an increase in the perceived risk adjusted discount rate, led to an impairment of goodwill and acquired intangible fixed assets. No goodwill nor intangible fixed assets remain on the Group's balance sheet in respect of the South American businesses.