BT 2010 Annual Report Download - page 91

FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
89BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
In the event of the disposal of an undertaking with assets and
liabilities denominated in a foreign currency, the cumulative
translation difference associated with the undertaking in the
translation reserve is charged or credited to the gain or loss on disposal
recognised in the income statement.
(viii) Business combinations
The purchase method of accounting is used for the acquisition of
subsidiaries, in accordance with IFRS 3 ‘Business Combinations’. On
transition to IFRS, the group elected not to apply IFRS 3
retrospectively to acquisitions that occurred before 1 April 2004.
Goodwill arising on the acquisition of subsidiaries is therefore
treated as follows:
Goodwill which arose after 1 April 2004: included in the balance
sheet at original cost, less any provisions for impairment. This
goodwill is not amortised.
Goodwill which arose between 1 January 1998 and 1 April 2004:
included in the balance sheet at original cost, less accumulated
amortisation to the date of transition to IFRS and less any
provisions for impairment. This goodwill is not amortised after
the date of transition to IFRS.
Goodwill which arose before 1 January 1998: written off directly
to retained earnings.
On acquisition of a subsidiary, fair values are attributed to
the identifiable net tangible and intangible assets acquired. The
excess of the cost of the acquisition over the fair value of the
group’s share of the identifiable net assets acquired is recorded as
goodwill. If the cost of the acquisition is less than the fair value of
the group’s share of the identifiable net assets acquired, the
difference is recognised directly in the income statement. On
disposal of a subsidiary, the gain or loss on disposal includes the
carrying amount of goodwill relating to the subsidiary sold.
Goodwill previously written off to retained earnings is not recycled
to the income statement on disposal of the related subsidiary.
(ix) Intangible assets
Identifiable intangible assets are recognised when the group
controls the asset, it is probable that future economic benefits
attributable to the asset will flow to the group and the cost of the
asset can be reliably measured. All intangible assets, other than
goodwill and indefinite lived assets, are amortised over their useful
economic life. The method of amortisation reflects the pattern in
which the assets are expected to be consumed. If the pattern
cannot be determined reliably, the straight line method is used.
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the group’s share of the identifiable net assets
(including intangible assets) of the acquired subsidiary. Goodwill is
reviewed annually for impairment and carried at cost less
accumulated impairment losses.
Computer software
Computer software comprises computer software purchased from
third parties, and also the cost of internally developed software.
Computer software purchased from third parties and internally
developed software is initially recorded at cost.
Telecommunication licences
Licence fees paid to governments, which permit telecommunication
activities to be operated for defined periods, are initially recorded
at cost and amortised from the time the network is available for use
to the end of the licence period.
Brands, customer lists and customer relationships
Intangible assets acquired through business combinations are
recorded at fair value at the date of acquisition. Assumptions are
used in estimating the fair values of acquired intangible assets and
include management’s estimates of revenue and profits to be
generated by the acquired businesses.
Subscriber acquisition costs
Subscriber acquisition costs are expensed as incurred, unless they
meet the criteria for capitalisation, in which case they are
capitalised and amortised over the shorter of the expected
customer life or contractual period.
Estimated useful economic lives
The estimated useful economic lives assigned to the principal
categories of intangible assets are as follows:
Computer software 2 to 5 years
Telecommunication licences 1 to 5 years
Brands, customer lists and customer relationships 3 to 15 years
(x) Research and development
Research expenditure is recognised in the income statement in the
period in which it is incurred.
Development expenditure, including the cost of internally
developed software, is recognised in the income statement in the
period in which it is incurred unless it is probable that economic
benefits will flow to the group from the asset being developed, the
cost of the asset can be reliably measured and technical feasibility
can be demonstrated. Capitalisation ceases when the asset being
developed is ready for use.
Research and development costs include direct labour,
contractors’ charges, materials and directly attributable overheads.
(xi) Property, plant and equipment
Property, plant and equipment is included in the balance sheet at
historical cost, less accumulated depreciation and any impairment
losses. On disposal of property, plant and equipment, the
difference between the sale proceeds and the net book value at the
date of disposal is recorded in the income statement.
Cost
Included within the cost for network infrastructure and equipment
are direct labour, contractors’ charges, materials and directly
attributable overheads.
Depreciation
Depreciation is provided on property, plant and equipment on a
straight line basis from the time the asset is available for use, so as
to write off the asset’s cost over the estimated useful life taking into
account any expected residual value. Freehold land is not subject to
depreciation. The lives assigned to principal categories of assets are
as follows:
Land and buildings
Freehold buildings 40 years
Leasehold land and buildings Unexpired portion of
lease or 40 years,
whichever is the
shorter