Tiscali 2003 Annual Report Download - page 64

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In light of these circumstances, the business risk connected to the Group’s activities may be considered to be substantially
lower than in previous years, which means that the estimated residual life of the consolidation difference can be extended.
In respect of the extension of the amortisation period, an impairment test was carried out to update the valuation of the con-
solidation difference, based on an analysis of the value of the Group companies to which this item refers, using a discoun-
ted cash flow calculation based on the business plan for all business units in each country in which Tiscali operates. This
analysis showed that the net book value of goodwill pertaining to different countries was much lower than the corresponding
value derived from the methodology described above. In addition, the board of directors commissioned a report by an inde-
pendent consultant, who confirmed that there was a significant difference between the value of goodwill estimated on the
basis of the business plans for each business unit, and the book value of goodwill recorded for each business unit. The con-
sultant also suggested that an amortisation period of between 10 and 15 years was sustainable for the Group.
Furthermore, from 2005 (but for comparative purposes, from the 2004 accounts), IAS/IFRS accounting principles will be
applied, under which (according with the current version, in the draft format) goodwill is no longer amortised. Instead, it is
valued each year according to impairment test criteria, for the purposes of checking the book value and ascertaining whether
any write-downs should be recorded. In this context, where there is a significant difference between the value of goodwill
determined by the impairment test and its book value, it is considered appropriate to increase the goodwill amortisation
period, as other sector companies have done.
g) Tangible assets
Tangible assets are recorded at purchase or production cost, including any additional charges.
Depreciation is calculated on a straight-line basis depending on cost and the estimated residual useful life of the asset.
Routine maintenance expenses are charged to the profit and loss account in full. Maintenance expenses of an incremental natu-
re are attributed to the asset to which they refer and depreciated over the estimated residual life of the asset.
Depreciation rates are the same as those for the parent Company:
For the purpose of preparing the 2003 accounts, the Group commissioned an independent consultant to assess the estimated
residual life of key equipment, specifically IP and Ethernet network equipment (commercially known as routers and L3/L2 swit-
ches), with particular reference to its roll out at the data centres—from where the Group supplies its Internet services—of Tiscali
S.p.A. and its subsidiaries. This report put the useful life of these assets (with the same technical specifications and used for the
same purposes) at five years, and has allowed Tiscali to harmonise depreciation rates for this equipment at 20% (the rate pre-
viously applied by the parent Company) across the various Group companies.
This has led to a change in the estimated residual life of specific equipment belonging to certain Group companies, thereby redu-
cing amortisation charges by around EUR 12.1 million in 2003, and increasing net result and consolidated shareholders’ equity
by the same amount.
DEPRECIATION
Buildings 3 %
Specific plant 20 %
General plant 20 %
Other equipment 12 %
Other tangible assets 20 %