BT 2009 Annual Report Download - page 83

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
81BT GROUP PLC ANNUAL REPORT & FORM 20-F
FINANCIAL STATEMENTS
retained earnings is not recycled to the income statement on
disposal of the related subsidiary.
(viii) Intangible assets
Identifiable intangible assets are recognised when the group
controls the asset, it is probable that future economic benefits
attributable to the asset will flow to the group and the cost of the
asset can be reliably measured. All intangible assets, other than
goodwill and indefinite lived assets, are amortised over their useful
economic life. The method of amortisation reflects the pattern in
which the assets are expected to be consumed. If the pattern
cannot be determined reliably, the straight line method is used.
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the group’s share of the identifiable net assets
(including intangible assets) of the acquired subsidiary. Goodwill is
tested annually for impairment and carried at cost less accumulated
impairment losses.
Telecommunication licences
Licence fees paid to governments, which permit telecommunication
activities to be operated for defined periods, are initially recorded
at cost and amortised from the time the network is available for use
to the end of the licence period.
Brands, customer lists and customer relationships
Intangible assets acquired through business combinations are
recorded at fair value at the date of acquisition. Assumptions are
used in estimating the fair values of acquired intangible assets and
include management’s estimates of revenue and profits to be
generated by the acquired businesses.
Computer software
Computer software comprises computer software purchased from
third parties, and also the cost of internally developed software.
Computer software purchased from third parties is initially recorded
at cost.
Subscriber acquisition costs
Subscriber acquisition costs are expensed as incurred, unless they
meet the criteria for capitalisation, in which case they are
capitalised and amortised over the shorter of the customer life or
contractual period.
Estimated useful economic lives
The estimated useful economic lives assigned to the principal
categories of intangible assets are as follows:
Telecommunication licences 1 to 5 years
Brands, customer lists and customer relationships 3 to 15 years
Computer software 2 to 5 years
(ix) Research and development
Research expenditure is recognised in the income statement in the
period in which it is incurred.
Development expenditure, including the cost of internally
developed software, is recognised in the income statement in the
period in which it is incurred unless it is probable that economic
benefits will flow to the group from the asset being developed, the
cost of the asset can be reliably measured and technical feasibility
can be demonstrated. Capitalisation ceases when the asset being
developed is ready for use.
Research and development costs include direct labour, contractors’
charges, materials and directly attributable overheads.
(x) Property, plant and equipment
Property, plant and equipment is included in the balance sheet at
historical cost, less accumulated depreciation and any impairment
losses.
On disposal of property, plant and equipment, the difference
between the sale proceeds and the net book value at the date of
disposal is recorded in the income statement.
Cost
Included within the cost for network infrastructure and equipment
are direct labour, contractors’ charges, materials and directly
attributable overheads.
Depreciation
Depreciation is provided on property, plant and equipment on a
straight line basis from the time the asset is available for use, so as
to write off the asset’s cost over the estimated useful life taking into
account any expected residual value. Freehold land is not subject to
depreciation.
The lives assigned to principal categories of assets are as follows:
Land and buildings
Freehold buildings 40 years
Leasehold land and buildings Unexpired portion of
lease or 40 years,
whichever is the
shorter
Network infrastructure and equipment
Transmission equipment:
Duct 40 years
Cable 3 to 25 years
Radio and repeater equipment 2 to 25 years
Exchange equipment 2 to 13 years
Payphones and other network equipment 2 to 20 years
Other
Motor vehicles 2 to 9 years
Computers and office equipment 3 to 6 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 reassessed annually and, if necessary, changes are
recognised prospectively.
(xi) Borrowing costs
All borrowing costs are expensed in the income statement in the
period in which they are incurred.
(xii) 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 performed, the recoverable amount is assessed by reference to
the higher of the net present value of the expected future cash
flows (value in use) of the relevant cash generating unit and the fair
value less cost to sell.
Goodwill and intangible assets with indefinite useful lives are
tested for impairment at least annually.
Impairment losses are recognised in the income statement.