BT 2006 Annual Report Download - page 118

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35. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
(g) Impairment of property, plant and equipment
Certain network assets previously impaired did not meet the US GAAP criteria for impairment under SFAS No. 144 ‘Accounting for
the Impairment or Disposal of Long-Lived Assets’.
US GAAP requires that an entity assess whether impairment has occurred based on the undiscounted future cash flows. An
impairment exists if the sum of these cash flows is less than the carrying amount of the asset. The impairment loss recognised in
the income statement is based on the asset’s fair value, being either market value or the sum of discounted future cash flows. The
assets that were not impaired under US GAAP are continuing to be depreciated over their remaining useful lives.
(h) Revenue
Under IFRS, long-term contracts to design, build and operate software solutions are accounted for under IAS 18 ‘Revenue’ under
which revenue is recognised as earned over the contract period.
Under US GAAP these contracts are accounted for as multiple element arrangements under EITF 00-21 and SOP 97-2,
‘Software Revenue Recognition’. As vendor specific objective evidence to support the fair value of the separate elements to be
delivered is unavailable, revenue of £109 million under certain contracts is deferred in the 2006 financial year (2005: £162 million).
There was no impact on net income due to the deferral of costs on these contracts. Total deferred revenue and costs recorded
under US GAAP at 31 March 2006 was £348 million (2005: £239 million).
(i) Share-Based Payments
Under IFRS 2 ‘Share Based Payment’, share options are fair valued at their grant date and the cost is charged to the income
statement over the relevant vesting periods.
BT early adopted SFAS No. 123 (R) ‘Share-Based Payment’ on 1 April 2005 using the modified prospective transition method.
Previously the company adopted the disclosure-only provisions in SFAS No. 123 ‘Accounting for Stock Based Compensation’ and
accounted for share options in accordance with APB Opinion No. 25 ‘Accounting for Stock Issued to Employees’.
Under the transition method, compensation cost recognised during the year ended 31 March 2006 includes (a) compensation
cost for all share based payments granted prior to but not yet vested at 1 April 2005 based on the grant date fair value estimated
in accordance with the original provisions of SFAS 123 and (b) compensation cost for all share based payments granted subsequent
to 1 April 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 (R).
Results for prior periods have not been restated.
As required by SFAS 123(R) the following table illustrates the effects on income from continuing operations, income before tax,
net income and basic and diluted earnings per share in respect of the 2005 financial year, when share-based payment
arrangements were accounted for under Accounting Principles Board Opinion No.25. There were no impacts from adoption on the
cash flows of the Group.
2005
£m
Net income as reported 1,297
Share-based employee compensation cost included in net income 26
Share-based employee compensation cost that would have been included in net income if the
fair-value-based method had been applied to all awards (37)
Deferred tax 3
Pro forma net income as if the fair-value-based method had been applied to all awards 1,289
Basic and diluted earnings per share as reported were 15.2p and 15.1p respectively. Pro forma basic and diluted earnings per
share as if the fair-value-based method had been applied to all awards were 15.1p and 15.0p respectively.
(j) Goodwill
The group wrote off goodwill arising from the purchase of subsidiary undertakings, associates and joint ventures on acquisition
prior to 1 April 1998, against retained earnings. Goodwill arising on acquisitions completed after 1 April 1998 was capitalised and
amortised on a straight line basis over its useful economic life. Following transition to IFRS, goodwill is no longer amortised but
tested annually for impairment and the amount of goodwill previously recorded at the transition date was carried forward under
IFRS.
BT Group plc Annual Report and Form 20-F 2006 Notes to the consolidated financial statements116