b'Notes to the consolidated financial statements continuedFor the year ended 31 March 20202. Critical accounting judgements and key sources of estimation uncertainty continuedThe uncertainty surrounding the ultimate impact of the COVID-19 pandemic has resulted in significant judgement in respect of the future cash flows and hence enterprise values for some of the Groups direct investments. This includes estimation in relation to liquidity and delays to debtor payments; forecast revenue, supply chain, employee and slower growth effects; and the offsetting impact of the Governments and the Bank of Englands mitigation measures. The discounts applied to those direct investments which have had fair value decreases in the period reflect increased uncertainty around the duration of stay-at-home and social distancing policies, the speed of recovery from those policies, future inflation, power and oil prices, as well as company-specific factors. These uncertainties have also been reflected in the volatility seen in public markets since March 2020. The direct investment portfolio is diversified by sector and underlying risk exposures. Consideration was also given to the impact of stay-at-home and social distancing policies on the customers of the Groups investee companies, including on their viability and access to liquidity. Almost all of the Groups investee companies have continued to operate since the start of the COVID-19 pandemic.As described above, the macroeconomic uncertainty has created uncertainty in the fair value of the direct investment portfolio. The Directors believe that they have reflected this uncertainty in a balanced way through the assumptions used in the valuations of each investee company.The Directors have assessed the estimates made in relation to each individual valuation and do not believe that a reasonable possible change in estimate would result in a material change in the value of each investment.Accounting for the acquisition of the VCT fund management business of NVM Private Equity LLPOn 23 December 2019 Mercia completed the acquisition of the venture capital trust (VCT) fund management business of NVM Private Equity LLP (NVM), which comprised the acquisition of three fund management contracts (the Northern VCT contracts) and the transfer of NVMs VCT investment team. Further details are included in note 13 to these consolidated financial statements. The fund management contracts acquired in the transaction have been fair valued at acquisition with reference to the forecast cash revenues from each contract, less the forecast costs associated with servicing those contracts, over an expected useful life of 10 years for each of the three fund management contracts, discounted at the rate of 15%. The discount applied is reflective of, inter alia, the risk profile of the contracts acquired and is considered a significant assumption. Should the discount rate be increased by 1%, the value of the fund management contracts would reduce by 800,000 with goodwill increasing by a corresponding amount. The expected useful life is considered a significant assumption. Should it be increased by one year, the value of the fund management contracts would increase by 1,300,000 with goodwill decreasing by a corresponding amount. Should the cash revenues from each contract less the costs associated with servicing those contracts increase by 1%, the value of the fund management contracts would increase by 200,000 with goodwill decreasing by a corresponding amount. Goodwill has been recognised as the difference between the fair value of consideration paid and the fair value of the fund management contracts acquired. Further details are included in note 14 to these consolidated financial statements. Valuation of deferred considerationThe fair value of the deferred consideration payable to NVM in respect of the acquisition of its VCT fund management business, contingent upon certain conditions being met, has been estimated with reference to the contractual obligations as at 31 March 2020. The conditions upon which payment of the deferred consideration is contingent are outlined below and included in note 23 to these consolidated financial statements. The first condition is that no termination notice is served by any of the three Northern VCT boards before the first, second and third anniversaries of completion. There are no indications to date that notice will be given, so this has been assumed to be true and the value payable discounted by10%.The second condition is that the Group receives at least 16,000,000 of fees in respect of the VCT fund management contracts during the three years post completion. The third condition is that, during the same three-year period, the Northern VCTs collectively raise at least 60,000,000 in new capital. The fair value of the deferred consideration in respect of these two conditions has been based on a weighted probability of outcomes over the three-year period and discounted by 10%.The discount applied is reflective of the risk profile of the conditions being met and is considered a significant assumption. Should the discount rate be increased by 1%, the value of the deferred consideration would reduce by 200,000 with goodwill decreasing by a corresponding amount.3. Segmental reportingFor the year ended 31 March 2020, the Groups revenue and loss were derived from its principal activity within the United Kingdom.IFRS 8 Operating Segments defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only oneoperating segment, being proactive specialist asset management, because the results of the Group are monitored on a Group-wide basis.The Board of Directors assesses the performance of the operating segment using financial information which is measured and presented in a consistent manner.86 Mercia Asset Management PLCAnnual Report and Accounts 2020'