Telstra 2007 Annual Report Download - page 128

Telstra Corporation Limited and controlled entities
125
Notes to the Financial Statements (continued)
2.12 Intangible assets
Intangible assets are assets that have value, but do not have physical
substance. In order to be recognised, an intangible asset must be
either separable or arise from contractual or other legal rights.
(a) Goodwill
On the acquisition of investments in controlled entities, jointly
controlled and associated entities, when we pay an amount greater
than the fair value of the net ident ifiable assets of the entity, this
excess is recognised as goodwill in the Telstra Group balance sheet.
We calculate the amount of goodwill as at the date of purchasing our
ownership interest in the entit y.
When we purchase an entity that we will control, t he amount of
goodwill is recorded in intangible assets. When we acquire a jointly
cont rolled or associated entity, the goodwill amount is included as
part of the cost of the investment.
Goodwill is not amortised but is tested for impairment in accordance
with note 2.9 on an annual basis or when an indication of impairment
exists.
(b) Internally generated intangible assets
Research costs are recorded as an expense as incurred. Development
costs are capitalised if the project is technically and commercially
feasible and we have sufficient resources to complete t he
development .
Software assets
We record direct costs associated with the development of business
software for int ernal use as software assets if the development costs
satisfy the criteria for capitalisation described above.
Costs included in software assets developed for internal use are:
• external direct costs of materials and services consumed; and
• payroll and direct payroll-relat ed costs for employees (including
contractors) directly associated with the project.
Software assets developed for internal use have a finite life and are
amortised on a straight line basis over their useful lives to us.
Amortisation commences once the software is ready for use.
(c) Acquired intangible assets
We acquire other intangible assets either as part of a business
combination or through separate acquisition. Intangible assets
acquired in a business combination are recorded at their fair value at
the dat e of acquisition and recognised separately from goodwill. On
initial acquisit ion, we apply management judgement to determine
the appropriate allocation of purchase consideration to the assets
being acquired, including goodwill and identifiable intangible assets.
Intangible assets that are considered to have a finite life are amortised
on a straight line basis over the period of expected benefit. Int angible
assets that are considered to have an indefinite life are not amortised
but tested for impairment in accordance with note 2.9 on an annual
basis, or where an indication of impairment exists.
Our acquired intangible assets include mastheads, patents,
trademarks, licences, brandnames and customer bases.
(d) Deferred expenditure
Deferred expenditure mainly includes costs incurred for basic access
installation and connection fees for in place and new services, and
direct incremental costs of establishing a customer contract.
Significant items of expenditure are deferred to the extent that they
are recoverable from future revenue and will contribute to our future
earning capacity. Any costs in excess of future revenue are recognised
immediately in the income statement. Handset subsidies are
considered to be separate units of accounting and expensed as
incurred.
We amortise deferred expenditure over the average period in which
the related benefits are expected to be realised.
(e) Amortisation
The average amortisation periods of our identifiable intangible assets
are as follows:
The service lives of our identifiable intangible assets are reviewed
each year. Any reassessment of service lives in a particular year will
affect the amortisation expense (either increasing or decreasing)
through t o the end of the reassessed useful life for both that current
year and future years. The net effect of the reassessment for fiscal
2007 was a decrease in our amortisation expense of $25 million (2006:
$160 million increase) for the Telstra Group and a decrease of $25
million (2006: $145 million increase) for the Telstra Entity.
2.Summary of accounting policies (continued)
Tel st ra Group
As at 30 June
2007 2006
Identifiable intangible assets
Expected
benefit
(years)
Expected
benefit
(years)
Software assets . . . . . . . . . . . . . . . 66
Patents and trademarks . . . . . . . . . . . 18 19
Licences . . . . . . . . . . . . . . . . . . . . 14 12
Brandnames . . . . . . . . . . . . . . . . . 18 19
Customer bases . . . . . . . . . . . . . . . 10 11
Deferred expenditure . . . . . . . . . . . . 44