Tiscali 2007 Annual Report Download - page 71

All significant intra-company transactions within the Group and
the relevant balances are eliminated on consolidation, as are
unrealised gains and losses on intra-group operations.
Minority interests and net profit attributable to minority share-
holders are classified separately from the Group’s equity and
results, on the basis of the percentage of net Group assets they
possess.
Consolidation area
Changes in the consolidation area during 2007, when com-
pared with the consolidated financial statements at 31 Decem-
ber 2006, are illustrated as follows:
During the month of February 2007, the disposals of the Ger-
man assets (BTC and BTB) and of the Spanish affiliated com-
pany Tiscali Telecomunicaciones were completed.
During June 2007, the disposed of the Dutch assets to KPN
Telecom was finalized. This was achieved thanks to the
approval of the sale by the Dutch anti-trust authority.
In July 2007, disposal of the assets in the Czech Republic
took place.
On 13 September 2007, the acquisition of Pipex’s broadband
and voice division was finalized; for greater details, please
refer to note 39 below.
Greater details on the disposals are contained in the Report
on operations.
In these financial statements, the overall economic result of
the Dutch, German, Spanish and Czech subsidiaries is stat-
ed in the item Result from assets disposed of and/or destined
to be disposed of (discontinuing operations), while the remain-
ing, non-disposed of accounting balances have been reclas-
sified under on-going activities.
The residual balance sheet values of these activities are not
significant.
2.3 Business combinations and Goodwill
The acquisition of subsidiaries is accounted for using the pur-
chase method, in accordance with IFRS 3 –
Business combi-
nations
. The cost of the acquisition is measured as the aggre-
gate of the fair values, at the date of the exchange, of assets,
liabilities incurred or undertaken concerning the acquired com-
pany, and the financial instruments possibly issued by the
Group in exchange for control of the acquiree, plus any costs
directly attributable to the business combination.
The acquiree’s identifiable assets, liabilities and contingent lia-
bilities that meet the conditions for recognition under IFRS 3
are recognised at their fair values at the acquisition date.
The excess of the cost of the business combination over the
Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised represents the
goodwill arising on acquisition that is stated as an asset and
initially valued at cost. If, after reassessment, the Group’s inter-
est in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities, exceeds the cost of the busi-
ness combination, the excess is booked immediately to the
income statement.
The interest of minority shareholders in the acquiree is initial-
ly stated at the minority’s proportion of the net fair values of
the assets, liabilities and contingent liabilities stated.
Following initial statement, goodwill is recorded at cost less
any accumulated impairment losses. In compliance with IFRS
3, goodwill is not amortised, but subject to impairment tests
in order to identify any reductions in value.
Impairment testing on goodwill is compulsorily repeated once
a year or more frequently if events or changes in circumstances
indicate a possible impairment, i.e. a loss of value.
The impairment, if any, is identified by means of assessments
referring to the ability of each ‘unit’, identifiable in this case
with the subsidiary, to generate cash flows sufficient to recov-
er the goodwill allocated to the unit. The recoverable amount
is the higher between the ‘fair value’ less sales costs and its
utilisation value. The expected future cash flows are discount-
ed at a rate that reflects the current market estimate of the
cost of money, the cost of capital and the risks specific to the
unit. If the estimated recoverable amount of the unit concerned
is lower than the relevant carrying value, it is decreased to the
lower recoverable value. Impairment losses are booked to the
income statement under writedown costs and are not subse-
quently reinstated.
On first time adoption of the IFRS and in accordance with the
exemption envisaged by IFRS 1, it was not considered neces-
sary to avail of the option of ‘reconsidering’ the acquisition
transactions carried out prior to 1 January 2004. Consequent-
ly, the goodwill deriving from the business acquisitions which
took place prior to this date, has been stated at the value
recorded for this purpose in the last set of financial statements
drawn up on the basis of the previous accounting standards
(1° January 2004, date of changeover to the IFRS), subject to
checking and statement of any impairment losses which arose
as of the date this document was drawn up.
On disposal of a subsidiary, the net book value of the goodwill
is calculated as the expected capital gain or loss on disposal.
2.4 Equity investments in associated companies
Associated companies are those over which the Group has sig-
nificant influence, i.e. the power to participate in the financial
and operating policy decisions of the investee, but without con-
trol or joint control over those policies.
Equity investments in associated companies are entered on
the balance sheet as Non-current Assets and assessed using
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES AT 31 DECEMBER 2007
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