BT 2011 Annual Report Download - page 95

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FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
of post acquisition reserves, less any impairment in the value of
individual assets. The income statement reflects the group’s share of
the results of operations after tax of the associate or joint venture.
When a group entity transacts with its associate or a joint venture,
profits and losses resulting from the transactions with the associate
or joint venture are recognised in the consolidated financial
statements only to the extent of interests in the associate that are
not related to the group.
(iii) Business combinations
Acquisitions of businesses are accounted for using the acquisition
method of accounting. The consideration transferred is measured at
fair value, which is the aggregate of the fair values of the assets
transferred, liabilities incurred or assumed and the equity
instruments issued in exchange for control of the acquiree.
Acquisition related costs are generally expensed as incurred. The
acquiree’s identifiable assets and liabilities are recognised at their
fair value at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and
measured at cost representing the excess of the aggregate of the
consideration, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity
interest in the acquiree (if any) over the net of the fair values of the
identifiable assets and liabilities at the date of acquisition.
Non-controlling interests that entitle their holders to a
proportionate share of the entity’s net assets in the event of
liquidation may be initially measured either at fair value or at the
non-controlling interests’ proportionate share of the recognised
amounts of the acquiree’s identifiable net assets. The choice of
measurement basis is made on a transaction by transaction basis.
When the consideration in a business combination includes
contingent consideration, it is measured at its acquisition date fair
value. Changes in the fair value of the contingent consideration
that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from
additional information obtained during the ‘measurement period’,
which cannot exceed one year from the acquisition date, about
facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as equity is
not remeasured and its subsequent settlement is accounted for
within equity. Contingent consideration that is classified as an asset
or a liability is remeasured with the corresponding gain or loss
being recognised in profit or loss.
When a business combination is achieved in stages, the group’s
previously held equity interest in the acquiree is remeasured to fair
value at the acquisition date and the resulting gain or loss, if any, is
recognised in profit or loss.
Business combinations that took place prior to 1 April 2010 were
accounted for in accordance with the previous version of IFRS 3.
(iv) Revenue
Revenue represents the fair value of the consideration received or
receivable for communication services and equipment sales, net of
discounts and sales taxes. Revenue from the rendering of services
and sale of equipment is recognised when it is probable that the
economic benefits associated with a transaction will flow to the
group and the amount of revenue and associated costs can be
measured reliably. Where the group acts as an agent in a
transaction, it recognises revenue net of directly attributable costs.
Services
Revenue arising from separable installation and connection services
is recognised when it is earned, upon activation. Revenue from the
rental of analogue and digital lines and private circuits is recognised
evenly over the period to which the charges relate. Revenue from
calls is recognised at the time the call is made over the group’s
network.
Subscription fees, consisting primarily of monthly charges for
access to broadband and other internet access or voice services,
are recognised as revenue as the service is provided. Revenue
arising from the interconnection of voice and data traffic between
other telecommunications operators is recognised at the time of
transit across the group’s network.
Equipment sales
Revenue from the sale of peripheral and other equipment is
recognised when all the significant risks and rewards of ownership
are transferred to the buyer, which is normally the date the
equipment is delivered and accepted by the customer.
Long-term contractual arrangements
Revenue from long-term contractual arrangements is recognised
based on the percentage of completion method. The stage of
completion is estimated using an appropriate measure according
to the nature of the contract. For long-term services contracts,
revenue is recognised on a straight line basis over the term of the
contract. However, if the performance pattern is other than straight
line, revenue is recognised as services are provided, usually on an
output or consumption basis. For fixed price contracts, including
contracts to design and build software solutions, revenue is
recognised by reference to the stage of completion, as determined
by the proportion of costs incurred relative to the estimated total
contract costs, or other measures of completion such as the
achievement of contract milestones and customer acceptance. In
the case of time and materials contracts, revenue is recognised as
the service is rendered.
Costs related to delivering services under long-term contractual
arrangements are expensed as incurred. An element of costs
incurred in the initial set up, transition or transformation phase of
the contract is deferred and recorded within non-current assets.
These costs are then recognised in the income statement on a
straight line basis over the remaining contractual term, unless
the pattern of service delivery indicates a different profile is
appropriate. These costs are directly attributable to specific
contracts, relate to future activity, will generate future economic
benefits and are assessed for recoverability on a regular basis.
The percentage of completion method relies on estimates of
total expected contract revenues and costs, as well as reliable
measurement of the progress made towards completion. Unless
the financial outcome of a contract can be estimated with
reasonable certainty, no attributable profit is recognised. In such
circumstances, revenue is recognised equal to the costs incurred to
date, to the extent that such revenue is expected to be recoverable.
Recognised revenue and profits are subject to revisions during the
contract if the assumptions regarding the overall contract outcome
are changed. The cumulative impact of a revision in estimates is
recorded in the period in which such revisions become likely and
can be estimated. Where the actual and estimated costs to
completion exceed the estimated revenue for a contract, the full
contract life loss is recognised immediately.
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