Tiscali 2008 Annual Report Download - page 74

value for tax purposes used to calculate the taxable amounts,
as well as on those items which, despite not being allocated
in the balance sheet, lead to potential future tax credits, such
as for example the losses for the years which can be used for
tax purposes in the future, and are calculated according to the
balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable
timing differences relating to the Group companies and to
equity investments in associated companies, except where the
Group is able to control reversal of these timing differences
and it is unlikely that the timing difference will reverse in the
foreseeable future.
Deferred tax assets, arising from timing differences and/or prior
tax losses, are recognised to the extent that it is probable that
taxable profits will be available in the future against which
deductible timing differences and/or prior tax losses can be
utilised. The forecasts are based on taxable income likely to be
generated in light of the approved business plans. Such assets
and liabilities are not recognised if the timing differences derive
from goodwill or from the initial recognition (other than in business
combination transaction) of other assets and liabilities in
transactions that affect neither the accounting result nor taxable
income. The book value of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
likely that sufficient taxable income will be available to allow all
or part of these assets to be recovered.
Deferred tax is calculated at the tax rates expected to apply in
the period when the liability is settled or the asset realised. Deferred
tax is charged or credited to the income statement, except when
it relates to items charged or credited directly to equity, in which
case the related deferred tax is also dealt with under equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax
liabilities and when they relate to taxes levied by the same taxation
authority, and the Group intends to settle its current tax assets
and liabilities on a net basis.
Earnings per share
The basic result per ordinary share is calculated by dividing the
portion of the Group’s economic result attributable to ordinary
shares by the weighted average of the ordinary shares in circulation
during the financial year, excluding treasury shares.
For the purpose of calculating the diluted result per ordinary
share, the weighted average of shares in circulation is changed
by assuming the subscription of all potential shares deriving, for
instance, from the conversion of bonds and from exercising rights
on shares with diluting effects, and the potential diluting effect
due to the allocation of shares to the beneficiaries of stock option
plans which have already matured.
Critical decisions in applying accounting standards
and in the use of estimates
In the process of applying the accounting standards disclosed in
the previous section, Tiscali’s directors made some significant
decisions in view of the recognition of amounts in the consolidated
financial statements. The directors’ decisions are based on
historical experience as well as on expectations associated with
the realisation of future events, considered reasonable under
the circumstances.
Assumptions for the application of accounting standards
Revenue recognition criteria
Revenues related to the activation of broadband services (ADSL)
are deferred as the underlying benefits affect the entire duration of
the customer contracts. The Directors have deemed it appropriate
to differ the recognition of these revenues (consistently with the
corresponding activation costs that have been capitalised among
intangible assets) for a period of twelve months notwithstanding a
significantly longer expected duration of the customer contract. The
assumption adopted when applying IAS 18
Revenue recognition
reflects a cautious interpretation of this standard considering, under
the circumstances, that the customer may not renew his contract
once the minimum period of twelve months has elapsed.
Accounting estimates and relevant assumptions
Losses in value on assets (Impairment)
Goodwill is tested for impairment annually or more frequently
during the financial year, as disclosed in the preceding section,
‘Business combinations and goodwill’. The ability of each ‘unit’,
identifiable in this case with the subsidiary, to generate cash flows
such as to recover the goodwill allocated to the unit, is determined
on the basis of the forecast economic and financial data
concerning the unit to which the goodwill refers. The processing
of such forecast data, as well as the determination of an
appropriate discount rate, requires a significant use of estimates.
Note that also the ability to achieve the new 2009/2013 Business
Plan and, therefore the forecasts and cash flows on the basis of
which the impairment test has been proposed, is subordinate to
the occurrence of the conditions described in the section
Assessment of the business as a going-concern and business
outlook and prospects
on page 39.
Income taxes
The determination of income tax, in particular with reference
to deferred taxes, involves the use of estimates and the adoption
of assumptions to a significant extent. Deferred tax assets,
arising from timing differences and/or prior tax losses, are
recognised to the extent that it is probable that taxable profits
will be available in the future against which deductible timing
differences and/or prior tax losses can be utilised. The forecasts
73
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES