BT 2012 Annual Report Download - page 107

104 Financial statements
Notes to the consolidated financial statements
implemented from 1 April 2011 had no significant impact in aggregate
on the results for the year ended 31 March 2012.
The carrying values of software, property, plant and equipment are
disclosed in notes 13 and 14. The useful lives applied to the principal
categories of assets are disclosed on pages 105 and 106.
Provisions and contingent liabilities
As disclosed in note 19, the group’s provisions principally relate to
obligations arising from property rationalisation programmes,
restructuring programmes, claims, litigation and regulatory risks.
Under our property rationalisation programmes we have identified a
number of surplus properties. Although efforts are being made to sub-
let this space, this is not always possible. Estimates have been made of
the cost of vacant possession and of any shortfall arising from any sub-
lease income being lower than the lease costs. Any such shortfall is
recognised as a provision.
In respect of claims, litigation and regulatory risks, the group provides
for anticipated costs where an outflow of resources is considered
probable and a reasonable estimate can be made of the likely outcome.
The prices at which regulated services are charged are often regulated
and may be subject to retrospective adjustment by regulators.
Estimates are used in assessing the likely value of the regulatory risk.
For all risks, the ultimate liability may vary from the amounts provided
and will be dependent upon the eventual outcome of any settlement.
The group exercises judgement in measuring the exposures to
contingent liabilities (see note 29) through assessing the likelihood
that a potential claim or liability will arise and in quantifying the
possible range of financial outcomes.
Current and deferred income tax
The actual tax we pay on our profits is determined according to
complex tax laws and regulations. Where the effect of these laws and
regulations is unclear, we use estimates in determining the liability for
the tax to be paid on our past profits which we recognise in our
financial statements. We believe the estimates, assumptions and
judgements are reasonable but this can involve complex issues which
may take a number of years to resolve. The final determination of prior
year tax liabilities could be different from the estimates reflected in the
financial statements and may result in the recognition of an additional
tax expense or tax credit in the income statement.
Deferred tax assets and liabilities require management judgement in
determining the amounts to be recognised. In particular, judgement is
used when assessing the extent to which deferred tax assets should be
recognised with consideration given to the timing and level of future
taxable income.
The value of the group’s income tax assets and liabilities are disclosed
on the balance sheet on page 100. The carrying value of the group’s
deferred tax assets and liabilities are disclosed in note 10.
Goodwill
The recoverable amount of cash generating units has been determined
based on value in use calculations. These calculations require the use of
estimates, including management’s expectations of future revenue
growth, operating costs, profit margins and operating cash flows for each
cash generating unit.
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in note 13.
Providing for doubtful debts
BT provides services to consumer and business customers, mainly on
credit terms. We know that certain debts due to us will not be paid
through the default of a small number of our customers. Estimates,
based on our historical experience, are used in determining the level of
debts that we believe will not be collected. These estimates include
such factors as the current state of the economy and particular
industry issues.
The value of the provision for doubtful debts is disclosed in note 17.
3. Significant accounting policies
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. 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
2. Critical accounting estimates and key judgements
continued
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