BT 2014 Annual Report Download - page 134

131
Financial statements
Financial statements
Property, plant and equipment
Property, plant and equipment are included at historical cost, net of
accumulated depreciation, government grants and any impairment
charges. An item of property, plant and equipment is derecognised on
disposal or when no future economic benets are expected to arise from
the continued use of the asset. The dierence between the sale proceeds
and the net book value at the date of disposal is recognised in operating
costs in the income statement.
Included within the cost for network infrastructure and equipment
are direct and indirect labour costs, materials and directly attributable
overheads. Depreciation is provided on property, plant and equipment
on a straight line basis from the time the asset is available for use, to
write o the asset’s cost over the estimated useful life taking into
account any expected residual value. Freehold land is not depreciated.
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
Transmission equipment
– Duct 40 years
– Cable 3 to 25 years
– Fibre 5 to 20 years
Exchange equipment 2 to 13 years
Other network equipment 2 to 20 years
Other assets
– Motor vehicles 2 to 9 years
– Computers and oce equipment 3 to 6 years
Assets held under nance 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.
Intangible assets
Identiable intangible assets are recognised when the group controls
the asset, it is probable that future economic benets attributable to
the asset will ow to the group and the cost of the asset can be reliably
measured. All intangible assets, other than goodwill, are amortised
over their useful economic life. The method of amortisation reects 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 identiable net assets (including
intangible assets) of the acquired business.
For the purpose of impairment testing, goodwill acquired in a business
combination is allocated to each of the CGUs that is expected to benet
from the business combination. Each CGU to which goodwill is allocated
represents the lowest level within the group at which the goodwill is
monitored for internal management purposes.
Computer software
Computer software comprises computer software licences purchased
from third parties, and also the cost of internally developed software.
Computer software licences purchased from third parties are initially
recorded at cost. Costs directly associated with the production of
internally developed software are capitalised only where it is probable
that the software will generate future economic benets.
Telecommunications licences
Licence fees paid to governments, which permit telecommunications
activities to be operated for dened periods, are initially recorded at cost
and amortised from the time the network is available for use to the end
of the licence period.
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 prots to be generated by
the acquired businesses.
Estimated useful economic lives
The estimated useful economic lives assigned to the principal categories
of intangible assets are as follows
–Computer software 2 to 10 years
– Telecommunications licences 2 to 20 years
– Customer relationships and brands 5 to 15 years
Programme rights
Programme rights are recognised on the balance sheet from the point at
which the legally enforceable licence period begins. Rights for which the
licence period has not started are disclosed as contractual commitments
in note 15. Payments made to receive commissioned or acquired
programming in advance of the legal right to broadcast the programmes
are classied as prepayments.
Programme rights are initially recognised at cost and are amortised from
the point at which they are available for use, on a straight line basis over
the programming period, or the remaining licence term, as appropriate.
The amortisation charge is recorded within operating costs in the income
statement.
Programmes produced internally are recognised within current assets at
production cost, which includes labour costs and an appropriate portion
of relevant overheads, and charged to the income statement over the
period of the related broadcast.
Programme rights are tested for impairment in accordance with
the group’s policy for impairment of non-nancial assets set out on
page132. Related cash outows are classied as operating cash ows
in the cash ow statement.
Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that
an outow of resources will be required to settle the obligation and
the amount can be reliably estimated. Provisions are determined by
discounting the expected future cash ows at a pre-tax rate that reects
current market assessments of the time value of money and the risks
specic to the liability. Financial liabilities within provisions are initially
recognised at fair value and subsequently carried at amortised cost using
the eective interest method. Onerous lease provisions are measured at
the lower of the cost to full or to exit the contract.
3. SigniƬcant accounting policies continued