BT 2012 Annual Report Download - page 108

Financial statements
Notes to the consolidated financial statements
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.
Multiple element arrangements
Where a contractual arrangement consists of two or more separate
elements that have value to a customer on a standalone basis, revenue
is recognised for each element as if it were an individual contract. The
total contract consideration is allocated between the separate elements
on the basis of relative fair value and the appropriate revenue
recognition criteria are applied to each element as described above.
Retirement benefits
The group’s obligation in respect of defined benefit pension plans is
calculated separately for each plan 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 using a rate
which is the yield at the balance sheet date on AA credit rated
corporate bonds that have maturity dates approximating the term of
the group’s obligations. The calculation of the obligation 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 expense is allocated between an operating charge
and net finance expense or income. The operating charge reflects the
increase in the defined benefit obligation resulting from the pension
benefit earned by active employees in the current period. The net
finance expense 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 group statement of comprehensive income.
The group also operates defined contribution pension plans and the
income statement expense represents the contributions payable for
the year.
Property, plant and equipment
Property, plant and equipment are included in the financial statements
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 recognised in other operating income in the income statement.
Included within the cost for network infrastructure and equipment are
direct and indirect labour costs, materials and directly attributable
overheads. Depreciation is provided on property, plant and equipment
on a straight line basis from the time the asset is available for use, to
write off the asset’s cost over the estimated useful life taking into
account any expected residual value. Freehold land is not depreciated.
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
Network infrastructure and other 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.
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.
3. Significant accounting policies continued
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