b'Strategic report Governance Financial statementsThe Group primarily seeks to generate capital gains from its holdings in direct investments over the longer term but has, since its IPO in December 2014, made annual net operating losses (excluding fair value movements) from its operations from a UK tax perspective. Capital gains arising from the disposal of direct investments would ordinarily be taxed upon realisation of such investments. However, since the Groups activities are substantially trading in nature, the Directors continue to believe that it qualifies for the Substantial Shareholdings Exemption (SSE). This exemption provides that gains arising on the disposal of qualifying investments are not chargeable to UK corporation tax and, as such, the Group has continued not to recognise a provision for deferred taxation in respect of fair value gains in those investments that meet the qualifying criteria. Gains arising on the disposal of non-qualifying investments would ordinarily give rise to taxable profits for the Group, to the extent that these exceed the Groups operating losses from time to time.Intangible assetsIdentifiable intangible assets are recognised when the Group controls the assets, it is probable that future economic benefits attributable to the assets will flow to the Group and the fair value of the assets can be measured reliably.Intangible assets represent contractual arrangements in respect of third-party limited partners and other similar investors funds under management acquired through the acquisition of Enterprise Ventures Group Limited (Enterprise Ventures) and in respect of funds under management acquired through the acquisition of the venture capital trust (VCT) fund management business of NVM Private Equity LLP (NVM). At the date of acquisition the fair values of these contracts were calculated and subsequently the assets are held at amortised cost. The fair value of the intangible assets arising from the acquisition of Enterprise Ventures is being amortised on a straight-line basis over the expected average duration of the remaining fund management contracts of five years, so as to write off the fair value of the contracts less their estimated residual values. The fair value of the intangible assets arising from the acquisition of the VCT fund management business of NVM is being amortised on a straight-line basis over the expected useful life of the fund management contracts.GoodwillGoodwill arising on the acquisition of a subsidiary represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill is not amortised but is reviewed annually for impairment in accordance with IAS 36, Impairment ofAssets.Property, plant and equipmentTangible assets are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their expected useful lives, using the straight-line method, on the following basis:Furniture, fixtures and office equipment33%Leasehold improvementsover the remaining life of the leaseThe estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.Financial instrumentsFinancial assets and financial liabilities are recognised in the Groups balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.Financial assetsAll financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose termsrequire delivery of the financial asset within the time frame established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss (FVTPL), which are initially measured at fair value.Financial assets are classified into the following specified categories: FVTPL and amortised cost. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.Amortised costFinancial assets that were part of the category of loans and receivables under IAS 39 Financial Instruments: Recognition and Measurement are now are measured at amortised cost using the effective interest method, less any expected losses and categorised as financial assets held at amortised cost.The Groups financial assets held at amortised cost comprise trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (trade receivables).Financial assets that meet the following conditions are measured subsequently at amortised cost:the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Mercia Asset Management PLC 83Annual Report and Accounts 2020'