BT 2003 Annual Report Download - page 78

Accounting policies
VllI Tangible fixed assets
Tangible fixed assets are stated at historical cost
less depreciation.
(a) Cost
Cost in the case of network services includes
contractors’ charges and payments on account,
materials, direct labour and directly
attributable overheads.
(b) Depreciation
Depreciation is provided on tangible fixed assets on
a straight line basis from the time they are available for
use, so as to write off their costs over their estimated
useful lives taking into account any expected residual
values. No depreciation is provided on freehold land.
The lives assigned to other significant tangible fixed
assets are:
Freehold buildings – 40 years
Leasehold land and buildings – Unexpired portion
of lease or 40 years,
whichever is
the shorter
Transmission equipment:
duct – 25 years
cable – 3 to 25 years
radio and repeater equipment – 2 to 25 years
Exchange equipment – 2 to 13 years
Computers and office equipment – 2 to 6 years
Payphones, other network equipment,
motor vehicles and cableships – 2 to 20 years
Software – 2 to 5 years
IX Fixed asset investments
Investments in subsidiary undertakings, associates
and joint ventures are stated in the balance sheet
of the company at cost less amounts written off.
Amounts denominated in foreign currency are
translated into sterling at year end exchange rates.
Investments in associates and joint ventures are
stated in the group balance sheet at the group’s share
of their net assets, together with any attributable
unamortised goodwill on acquisitions arising on or after
1 April 1998.
The group’s share of profits less losses of associates
and joint ventures is included in the group profit and
loss account.
Investments in other participating interests and
other investments are stated at cost less amounts
written off.
X Asset impairment
Intangible and tangible fixed assets are tested for
impairment when an event that might affect asset
values has occurred. Goodwill is also reviewed for
impairment at the end of the first financial year
after acquisition.
An impairment loss is recognised to the extent
that the carrying amount cannot be recovered either
by selling the asset or by the discounted future cash
flows from operating the assets.
XI Stocks
Stocks mainly comprise items of equipment, held for
sale or rental, consumable items and work in progress
on long-term contracts.
Equipment held and consumable items are stated
at the lower of cost and estimated net realisable value,
after provisions for obsolescence.
Work in progress on long-term contracts is stated
at cost, after deducting payments on account,
less provisions for any foreseeable losses.
XII Debtors
Debtors are stated in the balance sheet at estimated
net realisable value. Net realisable value is the invoiced
amount less provisions for bad and doubtful debtors.
Provisions are made specifically against debtors where
there is evidence of a dispute or an inability to pay.
An additional provision is made based on an analysis
of balances by age, previous losses experienced
and general economic conditions.
XIII Redundancy costs
Redundancy or leaver costs arising from periodic
reviews of staff levels are charged against profit in
the year in which the group is demonstrably committed
to the employees leaving the group.
If the estimated cost of providing incremental
pension benefits in respect of employees leaving
the group exceeds the total accounting surplus based
on the latest actuarial valuation of the group’s pension
scheme and the amount of the provision for pension
liabilities on the balance sheet, then the excess
estimated costs are charged against profit in the year
in which the employees agree to leave the group,
within redundancy or leaver costs.
XIV Pension schemes
The group operates a funded defined benefit pension
scheme, which is independent of the group’s finances,
for the substantial majority of its employees. Actuarial
valuations of the main scheme are carried out by an
independent actuary as determined by the trustees
at intervals of not more than three years, to determine
the rates of contribution payable. The pension cost is
determined on the advice of the company’s actuary,
having regard to the results of these valuations. In any
intervening years, the actuaries review the continuing
appropriateness of the contribution rates.
The cost of providing pensions is charged against
profits over employees’ working lives with the group
using the projected unit method. Variations from this
regular cost are allocated on a straight-line basis over
the average remaining service lives of current
employees to the extent that these variations do not
relate to the estimated cost of providing incremental
pension benefits in the circumstances described
in XIII above.
Interest is accounted for on the provision or
prepayment in the balance sheet which results from
differences between amounts recognised as pension
costs and amounts funded. The regular pension cost,
variations from the regular pension cost, described
above, and interest are all charged within staff costs.
BT Annual Report and Form 20-F 2003 77