BT 2005 Annual Report Download - page 74

(b) Other intangibles
Licence fees paid to governments, which permit
telecommunication activities to be operated for defined
periods, are amortised from the latter of the start of the
licence period or launch of service to the end of the
licence period on a straight-line basis.
viii 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 – 3 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.
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 any 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 cost is 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.
The group also operates defined contribution pension
schemes and the profit and loss account is charged with
the contributions payable.
Accounting policies BT Group plc Annual Report and Form 20-F 2005 73