Red Bubble Annual Report 2022

12. Property, plant and equipment continued Leasehold improvements $’000 Furniture and equipment $’000 Computer equipment $’000 Total $’000 Cost Balance at 1 July 2021 3,899 797 3,281 7,977 Additions(1) 1,091 317 895 2,303 Disposals – – (56) (56) Exchange differences 39 51 156 246 Balance at 30 June 2022 5,029 1,165 4,276 10,470 Balance at 1 July 2020 3,925 786 2,851 7,562 Additions 166 135 560 861 Disposals – – (106) (106) Reclassification – (81) 81 – Exchange differences (192) (43) (105) (340) Balance at 30 June 2021 3,899 797 3,281 7,977 Accumulated depreciation Balance at 1 July 2021 (2,942) (568) (2,539) (6,049) Charge for the year (406) (147) (541) (1,094) Disposals – – 17 17 Exchange differences (144) (36) (95) (275) Balance at 30 June 2022 (3,492) (751) (3,158) (7,401) Balance at 1 July 2020 (2,584) (494) (2,255) (5,333) Charge for the year (464) (116) (415) (995) Disposals – – 71 71 Reclassification – 19 (19) – Exchange differences 106 23 79 208 Balance at 30 June 2021 (2,942) (568) (2,539) (6,049) Net book value As at 30 June 2022 1,537 414 1,118 3,069 As at 30 June 2021 957 229 742 1,928 (1) Leasehold improvements additions of $1m mainly relates to a five year lease agreement signed for the new Melbourne office premises. Critical accounting estimates and judgements At the end of each reporting period, the Group assesses whether there is any indication that any property, plant & equipment asset may be impaired. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to dispose, and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately as a loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. No items of property, plant and equipment have been impaired in the financial year ending 30 June 2022 (2021: $nil). Notes to the Consolidated Financial Statements continued For the Year Ended 30 June 2022 13. Intangible Assets Recognition and measurement Capitalised development costs Development expenditure is capitalised when future economic benefits are probable. The Group capitalises internal engineering time spent on development of the Redbubble and TeePublic marketplace websites. Expenditure during the research phase of a project is recognised as an expense when incurred. All costs for Software as a Service (SaaS) are expensed. Goodwill Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. All of the goodwill held by the Group is attributable to the TeePublic cash generating unit (CGU). Brand Name The brand name asset is measured at cost less accumulated impairment losses. The brand name asset is attributable to the TeePublic cash generating unit (CGU). Amortisation Amortisation is calculated to write off the cost of intangible assets using the straight-line method over their estimated useful lives and is recognised in profit or loss. Goodwill is not amortised. The estimated useful lives for current and comparative periods are as follows: Capitalised development costs: 2–3 years Goodwill (attributable to the TeePublic CGU) Indefinite Brand name asset (attributable to the TeePublic CGU): Indefinite The Brand name asset is considered to have an indefinite useful life as it is expected to contribute to future economic benefits as the Group continues to sell its products under the brand name indefinitely. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if deemed necessary. Critical accounting estimates and judgements Key assumptions used in value in use calculations and sensitivity to changes in assumptions The Group assesses the recoverability of its goodwill and brand name in the TeePublic CGU annually. Recoverable amounts have been determined based on a value in use calculation using cash flow projections over a 5 year period. Management have considered the potential impacts of trading volatility from COVID-19 in this assessment. The key assumptions in the calculation are as follows: (a) Growth rate The business growth rate in year 1 is based on the next financial year’s budget. Growth in years 2 to 5 is based upon Management’s experience with the historical growth of the business and expectations about future performance. Cash flows beyond the forecast period are projected using a growth rate of 3.3% (2021: 2.5%). (b) Gross margins Gross margins are based on historical values and expectations about future performance. These values are increased over the forecast period for anticipated efficiency improvements as the business scales. (c) Discount rates The pre-tax discount rate applied to cash flow projections is 10% (2021: 12.5%). Discount rates represent the consideration of the time value of money and the individual risks of the underlying assets. The discount rate calculation is based on the specific circumstances for the CGU and is derived from its weighted average cost of capital (WACC). Adjustments to the discount rate are made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. Impairment The Group performed an impairment test as at 30 June 2022. Using the above assumptions, it was concluded that the carrying value of the Group’s CGUs does not exceed its value in use and therefore no impairment charge has been recognised. Sensitivity analysis has been completed which considered a range of possible scenarios. There is no reasonably possible change in key assumptions used to determine the recoverable amount that would result in impairment. 75 Redbubble – Annual Report 2022 74 Redbubble – Annual Report 2022