BT 2010 Annual Report Download - page 92

FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
90 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Network infrastructure and equipment
Transmission equipment:
Duct 40 years
Cable 3 to 25 years
Fibre 5 to 20 years
Exchange equipment 2 to 13 years
Payphones and other network equipment 2 to 20 years
Other
Motor vehicles 2 to 9 years
Computers and office equipment 3 to 6 years
Assets held under finance leases are depreciated over the shorter
of the lease term or their useful economic life. Residual values and
useful lives are reassessed annually and, if necessary, changes are
recognised prospectively.
(xii) Borrowing costs
In respect of borrowing costs relating to qualifying assets for which
the commencement date for capitalisation is on or after 1 April 2009,
and which take more than 12 months to complete, the group
capitalises borrowing costs during the construction phase as part of
the cost of that asset. Previously, the group immediately recognised
all borrowing costs as an expense in the income statement. The
change in accounting policy was due to the adoption of IAS 23
‘Borrowing Costs (Revised)’.
(xiii) Asset impairment (non financial assets)
Intangible assets with finite useful lives and property, plant and
equipment are tested for impairment if events or changes in
circumstances (assessed at each reporting date) indicate that the
carrying amount may not be recoverable. When an impairment test
is performed, the recoverable amount is assessed by reference to
the higher of the net present value of the expected future cash
flows (value in use) of the relevant cash generating unit and the fair
value less cost to sell.
Goodwill and intangible assets with indefinite useful lives are
reviewed for impairment at least annually.
Impairment losses are recognised in the income statement.
If a cash generating unit is impaired, provision is made to reduce
the carrying amount of the related assets to their estimated
recoverable amount, normally as a specific item. Impairment losses
are allocated firstly against goodwill, and secondly on a pro rata
basis against intangible and other assets.
Where an impairment loss has been recognised against an asset,
it may be reversed in future periods where there has been a change
in the estimates used to determine the recoverable amount since
the last impairment loss was recognised, but only to the extent that
the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised. This does
not apply for goodwill, for which an impairment loss may not be
reversed in any circumstances.
(xiv) Inventory
Inventory mainly comprises items of equipment held for sale or
rental and consumable items.
Equipment held and consumable items are stated at the lower
of cost and estimated net realisable value, after provisions for
obsolescence. Cost is calculated on a first-in-first-out basis.
(xv) Termination benefits
Termination benefits (leaver costs) are payable when employment
is terminated before the normal retirement date, or when an
employee accepts voluntary redundancy in exchange for these
benefits. The group recognises termination benefits when it is
demonstrably committed to the affected employees leaving the
group.
(xvi) Post retirement benefits
The group operates a funded defined benefit pension plan, which
is administered by an independent Trustee, for the majority of its
employees.
The group’s obligation in respect of defined benefit pension
plans is calculated separately for each scheme by estimating the
amount of future benefit that employees have earned in return for
their service to date. That benefit is discounted to determine its
present value, and the fair value of any plan assets is deducted to
arrive at the net pension obligation or asset. The discount rate used
is the yield at the balance sheet date on AA credit rated bonds that
have maturity dates approximating the terms of the group’s
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. The net obligation or asset
recognised in the balance sheet is the present value of the defined
benefit obligation less the fair value of the plan assets.
The income statement charge is allocated between an operating
charge and net finance expense or income. The operating charge
reflects the service cost which is spread systematically over the
working lives of the employees. The net finance charge reflects the
unwinding of the discount applied to the liabilities of the plan,
offset by the expected return on the assets of the plan, based on
conditions prevailing at the start of the year.
Actuarial gains and losses are recognised in full in the period in
which they occur and are presented in the statement of
comprehensive income.
Actuarial valuations of the main defined benefit plan are carried
out by an independent actuary as determined by the Trustee 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 group’s actuary, having regard to the results of these Trustee
valuations. In any intervening years, the actuaries review the
continuing appropriateness of the contribution rates.
The group also operates defined contribution pension schemes
and the income statement is charged with the contributions
payable.
(xvii) Share-based payment
The group operates a number of equity settled share-based
payment arrangements, under which the group receives services
from employees as consideration for equity instruments (share
options and shares) of the group. Equity settled share-based
payments are measured at fair value (excluding the effect of non
market-based vesting conditions) at the date of grant, but including
any market-based performance criteria and the impact of non-
vesting conditions (for example the requirement for employees to
save). The fair value determined at the grant date is recognised on a
straight-line basis over the vesting period, based on the group’s
estimate of the options or shares that will eventually vest and
adjusted for the effect of non market-based vesting conditions.
Fair value is measured using either the Binomial pricing model or
the Monte Carlo model, whichever is most appropriate to the award.
The group adopted IFRS 2 ‘Share-based payment – vesting
conditions and cancellations’, with effect from 1 April 2009. The
amendment clarifies that only service and performance conditions
are vesting conditions. Any other conditions are non-vesting
conditions which have to be taken into account to determine the
fair value of equity instruments granted. In the case that an award
or option does not vest as a result of a failure to meet a non-vesting
condition that is within the control of either counterparty, this is
accounted for as a cancellation. Cancellations must be treated as