Carphone Warehouse 2008 Annual Report Download - page 59

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j) Intangible assets
Goodwill:
Goodwill arising on the acquisition of subsidiary undertakings and
businesses, representing the excess of the fair value of the consideration
given over the fair value of the identifiable assets and liabilities acquired,
is recognised initially as an asset at cost and is subsequently measured
at cost less any accumulated impairment losses and goodwill expense.
At the acquisition date, goodwill is allocated to each of the cash-
generating units (“CGUs”) expected to benefit from the combination
and held in the currency of the operations to which the goodwill relates.
Goodwill is reviewed at least annually for impairment, or more frequently
where there is an indication that goodwill may be impaired. Impairment
is determined by assessing the future cash flows of the CGUs to which
the goodwill relates. Where the future cash flows are less than the
carrying value of goodwill, an impairment charge is recognised in the
income statement.
On disposal of a subsidiary undertaking, the relevant goodwill is included
in the calculation of the profit or loss on disposal.
Subscriber acquisition costs:
Subscriber acquisition costs comprise the direct third-party costs of
recruiting and retaining new customers, net of incentives from network
operators and provision for in-contract churn. They are capitalised as an
intangible asset, to the extent that they are supported by expected future
cash inflows, and amortised on a straight-line basis through operating
expenses in the income statement over the minimum subscription period.
Subscriber acquisition costs for customers with no minimum subscription
commitment are reflected in operating expenses as incurred.
Software and licences:
Software and licences includes internal infrastructure and design costs
incurred in the development of software for internal use. Internally
generated software is recognised as an intangible asset only if it can be
separately identified, the asset is expected to generate future economic
benefits, and the development cost can be measured reliably. Where
these conditions are not met, development expenditure is recognised as
an expense in the period in which it is incurred. Software and licences are
amortised on a straight-line basis over their estimated useful economic
lives of up to eight years.
Key money:
Key money paid to enter a property is stated at cost, net of amortisation
and any provision for impairment. Amortisation is provided on key money
at rates calculated to write off the cost, less estimated residual value,
on a straight-line basis over ten years or the lease term if less.
Acquisition intangibles:
Acquired intangible assets (“acquisition intangibles”) such as customer
bases, customer revenue share agreements, brands and other intangible
assets acquired through a business combination are capitalised separately
from goodwill and amortised over their expected useful lives of up to six
years on a straight-line basis. The value attributed to such assets is based
on the future economic benefit that is expected to be derived from them,
calculated as the present value of future cash flows after a deduction for
contributory assets.
k) Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and
any provision for impairment. Depreciation is provided on all property,
plant and equipment at rates calculated to write off the cost, less
estimated residual value, of each asset on a straight-line basis over
its expected useful life from the date it is brought into use, as follows:
Freehold buildings 2-4% per annum
Short leasehold costs 10 years or the lease term if less
Network equipment and
computer hardware 12.5-50% per annum
Fixtures and fittings 20-25% per annum
Motor vehicles 25% per annum
l) Recoverable amount of non-current assets
At each reporting date, the Group assesses whether there is any
indication that an asset may be impaired. Where an indicator of
impairment exists, the Group makes a formal estimate of the asset’s
recoverable amount. Where the carrying amount of an asset exceeds
its recoverable amount, the asset is considered to be impaired and is
written down through an accelerated amortisation or depreciation charge
to its recoverable amount. The recoverable amount is the higher of an
asset’s or CGU’s fair value less costs to sell and its value in use, and is
determined for an individual asset, unless the asset does not generate
cash flows that are largely independent of those from other assets or
groups of assets.
m) Investments
All investments are initially recognised at cost, being the fair value
of the consideration given plus any transaction costs associated with
the acquisition.
The Group’s investments are categorised as available-for-sale and
are then recorded at fair value. Changes in fair value, together with
any related taxation, are taken directly to reserves, and recycled to
the income statement when the investment is sold or determined to
be impaired.
n) Interests in joint ventures and associates
Interests in joint ventures and associates are accounted for using the
equity method. The consolidated income statement includes the Group’s
share of the pre-tax profits or losses and attributable taxation of the
joint ventures and associates based on their financial statements for
the financial period. In the consolidated balance sheet, the Group’s
interests in joint ventures and associates are shown as a non-current
asset in the balance sheet, representing the Group’s gross investment
in the share capital of the joint ventures and associates, as well as any
loans advanced where required, plus or minus the Group’s share of
profits or losses arising.
o) Stock
Stock is stated at the lower of cost and net realisable value. Cost, net
of discounts and volume bonuses from product suppliers (see note 1d),
includes all direct costs incurred in bringing stock to its present location
and condition and represents finished goods and goods for resale. Net
realisable value is based on estimated selling price, less further costs
expected to be incurred prior to disposal. Provision is made for obsolete,
slow-moving or defective items where appropriate.
p) Cash and cash equivalents
Cash and cash equivalents represent cash on hand, demand deposits
and short-term, highly liquid investments that are readily convertible to
known amounts of cash.
Financial Statements