BT 2016 Annual Report Download - page 171

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Overview The Strategic Report Governance Financial statements Additional information
Acquired intangible assets – customer relationships and brands
Intangible assets such as customer relationships or brands acquired
through business combinations are recorded at fair value at
the date of acquisition and subsequently carried at amortised
cost. Assumptions are used in estimating the fair values of these
relationships or brands and include management’s estimates of
revenue and profits to be generated by them.
Telecommunications licences
Licence fees paid to governments, which permit
telecommunications 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.
Licences acquired through business combinations are recorded
at fair value at the date of acquisition and subsequently carried
at amortised cost. The fair value is based on management’s
assumption of future cash flows using market expectations at
acquisition date.
Computer software
Computer software comprises computer software licences
purchased from third parties, and also the cost of internally
developed software. Computer software licences purchased from
third parties are initially recorded at cost.
Costs directly associated with the production of internally
developed software, including direct and indirect labour costs of
development, are capitalised only where it is probable that the
software will generate future economic benefits, the cost of the
asset can be reliably measured and technical feasibility can be
demonstrated, in which case it is capitalised as an intangible asset
on the balance sheet. Costs which do not meet these criteria and
research costs are expensed as incurred.
The group’s development costs which give rise to internally
developed software include upgrading the network architecture
or functionality and developing service platforms aimed at
offering new services to the group’s customers. See Research and
Development on page 36.
Other
Other intangible assets include website development costs and
other licences. Items are capitalised at cost and amortised on a
straight line basis over their useful economic life or the term of the
contract.
Estimated useful economic lives
The estimated useful economic lives assigned to the principal
categories of intangible assets are as follows:
– Computer software 2 to 10 years
– Telecommunications licences 2 to 20 years
– Customer relationships and brands 1 to 15 years
Programme rights
Programme rights are recognised on the balance sheet from
the point at which the legally enforceable licence period begins.
Rights for which the licence period has not started are disclosed as
contractual commitments in note 30. Payments made to receive
commissioned or acquired programming in advance of the legal
right to broadcast the programmes are classified as prepayments.
Programme rights are initially recognised at cost and are amortised
from the point at which they are available for use, on a straight
line basis over the programming period, or the remaining licence
term, as appropriate. The amortisation charge is recorded within
operating costs in the income statement.
Programmes produced internally are recognised within current
assets at production cost, which includes labour costs and an
appropriate portion of relevant overheads, and charged to the
income statement over the period of the related broadcast.
Programme rights are tested for impairment in accordance with
the group’s policy for impairment of non-financial assets set out on
page178. Related cash outflows are classified as operating cash
flows in the cash flow statement.
Inventories
Network maintenance equipment and equipment to be sold to
customers are stated at the lower of cost or net realisable value,
taking into account expected revenues from the sale of packages
comprising a mobile handset and a subscription. Cost corresponds
to purchase or production cost determined by the first in first out
(FIFO) cost method.
Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and
the amount can be reliably estimated. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money
and the risks specific to the liability. Financial liabilities within
provisions are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Onerous lease provisions are measured at the lower of the cost to
fulfil or to exit the contract.
Current and deferred income tax
Current income tax is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date
in the countries where the group’s subsidiaries, associates and
joint ventures operate and generate taxable income. The group
periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to
interpretation, and the group establishes provisions where
appropriate on the basis of the amounts expected to be paid to
tax authorities.
Deferred tax is recognised, using the liability method, in respect of
temporary differences between the carrying amount of the group’s
assets and liabilities and their tax base. Deferred income tax assets
and liabilities are offset when there is a legally enforceable right
to offset current tax assets against current tax liabilities and when
the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the taxable entity
or different taxable entities where there is an intention to settle
the balances on a net basis. Any remaining deferred tax asset is
recognised only when, on the basis of all available evidence, it can
be regarded as probable that there will be suitable taxable profits,
within the same jurisdiction, in the foreseeable future against
which the deductible temporary difference can be utilised.
Deferred tax is determined using tax rates that are expected
to apply in the periods in which the asset is realised or liability
settled, based on tax rates and laws that have been enacted or
substantively enacted by the balance sheet date.
Basis of consolidation
The group financial statements consolidate the financial
statements of BT Group plc and its subsidiaries, and include its
share of the results of associates and joint ventures using the
equity method of accounting. The group recognises its direct rights
to (and its share of) jointly held assets, liabilities, revenues and
expenses of joint operations under the appropriate headings in the
consolidated financial statements.
3. Signicant accounting policies continued