BT 2006 Annual Report Download - page 69

can be demonstrated. When the recognition criteria are met,
intangible assets are capitalised and amortised on a straight line
basis over their estimated useful lives from the time the assets
are available for use.
(IX) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is included in the balance sheet
at historic cost, less accumulated depreciation and any
provisions for impairment.
Cost
Included within the cost for network assets are direct labour,
contractors’ charges, materials, payments on account and
directly attributable overheads.
Depreciation
Depreciation is provided on property, plant and equipment on a
straight line basis from the time the assets are available for use,
so as to write off their costs over their estimated useful lives
taking into account any expected residual values. No
depreciation is provided on freehold land.
The lives assigned to principal categories of assets are as
follows:
Freehold buildings 40 years
Leasehold land and buildings Unexpired portion of
lease or 40 years,
whichever is the shorter
Transmission equipment:
Duct 25 years
Cable 3 to 25 years
Radio and repeater equipment 2 to 25 years
Exchange equipment 2 to 13 years
Computers and office equipment 3 to 6 years
Payphones, other network equipment,
motor vehicles and cableships 2 to 20 years
Assets held under finance leases are depreciated over the
shorter of the lease term or their useful economic life. Residual
values and useful lives are re-assessed annually and if necessary
changes are recognised prospectively.
(X) ASSET IMPAIRMENT (NON-FINANCIAL ASSETS)
Intangible assets with finite useful lives and property, plant and
equipment are tested for impairment if events or changes in
circumstances (assessed at each reporting date) indicate that
the carrying amount may not be recoverable. When an
impairment test is conducted, the recoverable amount is
assessed by reference to the higher of the net present value of
expected future cash flows (value in use) of the relevant cash
generating unit and the fair value less cost to sell.
Goodwill and other intangible fixed assets with an indefinite
useful life are tested for impairment at least annually.
If a cash generating unit is impaired, provision is made to
reduce the carrying amount of the related assets to their
estimated recoverable amount. Impairment losses are allocated
firstly against goodwill, and secondly on a pro rata basis against
intangible and other assets.
Where an impairment loss is recognised against an asset it
may be reversed in future periods where there has been a
change in the estimates used to determine the recoverable
amount since the last impairment loss was recognised, except
in respect of impairment of goodwill which may not be reversed
in any circumstances.
(XI) INVENTORY
Inventory mainly comprises items of equipment, held for sale or
rental, and consumable items.
Equipment held and consumable items are stated at the
lower of cost and estimated net realisable value, after provisions
for obsolescence. Cost is calculated on a first-in-first-out basis.
(XII) TERMINATION BENEFITS
Termination benefits are payable when employment is
terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these
benefits. The group recognises termination benefits when it is
demonstrably committed to the employees leaving the group.
(XIII) POST RETIREMENT BENEFITS
The group operates a funded defined benefit pension scheme,
which is administered by an independent trustee, for the
majority of its employees.
The group’s net obligation in respect of defined benefit
pension schemes is calculated separately for each scheme by
estimating the amount of future benefit that employees have
earned in return for their service to date. That benefitis
discounted to determine its present value, and the fair value of
any plan assets is deducted. The discount rate used is the yield
at the balance sheet date on AA credit rated bonds that have
maturity dates approximating the terms of the group’s
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. The net obligation
recognised in the balance sheet is the present value of the
defined benefit obligation less the fair value of the scheme
assets.
The income statement charge is split between an operating
charge and a net finance charge. The operating charge reflects
the service costs which are spread systematically over the
working lives of the employees. The net finance charge relates
to the unwinding of the discount applied to the liabilities of the
scheme offset by the expected return on the assets of the
scheme, based on conditions prevailing at the start of the year.
Actuarial gains and losses are recognised in full in the period
in which they occur and are presented in the statement of
recognised income and expense.
Actuarial valuations of the main defined benefit scheme are
carried out by an independent actuary as determined by the
trustees at intervals of not more than three years, to determine
the rates of contribution payable. The pension cost is
determined on the advice of the group’s actuary, having regard
to the results of these valuations. In any intervening years, the
actuaries review the continuing appropriateness of the
contribution rates.
The group also operates defined contribution pension
schemes and the income statement is charged with the
contributions payable.
(XIV) SHARE BASED PAYMENTS
The group has a number of employee share schemes and share
option plans under which it makes equity settled share based
payments to certain employees. The fair value of options
granted is recognised as an employee expense after taking into
account the company’s best estimate of the number of awards
expected to vest allowing for non market and service conditions.
Fair value is measured at the date of grant and is spread over
the vesting period of the award. The fair value of options
granted is measured using either the Binomial or Monte Carlo
model, whichever is most appropriate to the award. Any
proceeds received are credited to share capital and share
Accounting policies BT Group plc Annual Report and Form 20-F 2006 67