Vodafone 2011 Annual Report Download - page 88

86 Vodafone Group Plc Annual Report 2011
Notes to the consolidated nancial statements continued
Depreciation is charged so as to write off the cost of assets, other than land
and properties under construction, using the straight-line method, over
their estimated useful lives, as follows:
■Freehold buildings 25 – 50 years
■Leasehold premises the term of the lease
Equipment, fixtures and fittings:
■Network infrastructure 3 – 25 years
■Other 3 – 10 years
Depreciation is not provided on freehold land.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the sale
proceeds and the carrying amount of the asset and is recognised in the
income statement.
Impairment of assets
Goodwill
Goodwill is not subject to amortisation but is tested for impairment annually
or whenever there is an indication that the asset may be impaired.
For the purpose of impairment testing, assets are grouped at the lowest
levels for which there are separately identifiable cash flows, known as cash-
generating units. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. Impairment losses recognised for goodwill
are not reversed in a subsequent period.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
The Group prepares and approves formal five year management plans for its
operations, which are used in the value in use calculations. In certain
developing markets the fifth year of the management plan is not indicative
of the long term future performance as operations may not have reached
maturity. For these operations, the Group extends the plan data for an
additional five year period.
Property, plant and equipment and finite lived intangible assets
At each reporting period date, the Group reviews the carrying amounts of its
property, plant and equipment and finite lived intangible assets to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent, if any, of the impairment
loss. Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs.
If the recoverable amount of an asset or cash-generating unit is estimated
to be less than its carrying amount, the carrying amount of the asset or cash-
generating unit is reduced to its recoverable amount. An impairment loss is
recognised immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of
the asset or cash-generating unit is increased to the revised estimate of its
recoverable amount, not to exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is
recognised immediately in the income statement.
2. Signicant accounting policies continued
as appropriate, and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives is recognised in
profit or loss in the expense category consistent with the function of the
intangible asset.
Licence and spectrum fees
Amortisation periods for licence and spectrum fees are determined
primarily by reference to the unexpired licence period, the conditions for
licence renewal and whether licences are dependent on specific
technologies. Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives from the commencement
of service of the network.
Computer software
Computer software comprises computer software purchased from third
parties as well as the cost of internally developed software. Computer
software licences are capitalised on the basis of the costs incurred to acquire
and bring into use the specific software. Costs that are directly associated
with the production of identifiable and unique software products controlled
by the Group, and are probable of producing future economic benefits are
recognised as intangible assets. Direct costs include software development
employee costs and directly attributable overheads.
Software integral to a related item of hardware equipment is accounted for
as property, plant and equipment.
Costs associated with maintaining computer software programs are
recognised as an expense when they are incurred.
Internally developed software is recognised only if all of the following
conditions are met:
■an asset is created that can be separately identified;
■it is probable that the asset created will generate future economic
benefits; and
■the development cost of the asset can be measured reliably.
Amortisation is charged to the income statement on a straight-line basis
over the estimated useful lives from the date the software is available
for use.
Other intangible assets
Other intangible assets, including brands and customer bases, are recorded
at fair value at the date of acquisition. Amortisation is charged to the income
statement on either a straight-line or sum of digits basis over the estimated
useful lives of intangible assets from the date they are available for use.
Estimated useful lives
The estimated useful lives of finite lived intangible assets are as follows:
■Licence and spectrum fees 3 – 25 years
■Computer software 3 – 5 years
■Brands 1 – 10 years
■Customer bases 2 – 7 years
Property, plant and equipment
Land and buildings held for use are stated in the statement of financial
position at their cost, less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.
Equipment, fixtures and fittings are stated at cost less accumulated
depreciation and any accumulated impairment losses.
Assets in the course of construction are carried at cost, less any recognised
impairment loss. Depreciation of these assets commences when the assets
are ready for their intended use.
The cost of property, plant and equipment includes directly attributable
incremental costs incurred in their acquisition and installation.