Carphone Warehouse 2006 Annual Report Download - page 44

Notes to the Financial Statements continued
d) Revenue
Revenue is stated net of VAT and other sales related taxes. The following
accounting policies are applied to each business segment:
Distribution:
Distribution revenue comprises revenue generated from the sale of mobile
communication products and services, commission receivable on sales less
provision for promotional offers and network operator performance penalties,
ongoing revenue (share of customer airtime spend, and customer revenue
and retention bonuses) and insurance premiums.
•Commission receivable on sales is recognised when the sales to which
the commission relates are made.
•Volume bonuses are recognised when the conditions on which they are
earned have been met.
•Ongoing revenue is recognised as it is earned over the lives of the
relevant customers.
•Insurance premiums are typically paid quarterly in advance. Initial
administration fees, which are specified in the contract, are recognised
at the point of sale. Insurance premium income is recognised over the
lives of the relevant policies.
•All other revenue is recognised when the relevant goods or services
are provided.
Telecoms Services:
Telecoms Services revenue comprises revenue generated from facilities
management, revenue from mobile and fixed network services and ongoing
revenue. All such revenue is recognised as it is earned over the lives of the
relevant customers.
Dealer:
Dealer revenue comprises revenue generated from the sale of mobile
hardware and is recognised when sales are made.
e) Share-based payments
The Group issues equity settled share-based payments to certain employees.
Equity settled share-based payments are measured at fair value at the date of
grant, and expensed over the vesting period, based on the Group’s estimate
of the number of shares that will eventually vest.
Fair value is measured by use of a Binomial model for share-based payments
with internal performance criteria (such as Earnings Per Share targets) and
a Monte Carlo model for those with external performance criteria (such as
Total Shareholder Return targets).
For schemes with internal performance criteria, the number of options
expected to vest is recalculated at each balance sheet date, based on
expectations of performance against target and of leavers prior to vesting.
The movement in cumulative expense since the previous balance sheet is
recognised in the income statement, with a corresponding entry in reserves.
For schemes with external performance criteria, the number of options
expected to vest is adjusted only for expectations of leavers prior to vesting.
The movement in cumulative expense since the previous balance sheet is
recognised in the income statement, with a corresponding entry in reserves.
f) Pensions
Contributions to defined contribution schemes are charged to the income
statement as they become payable in accordance with the rules of the scheme.
g) Dividends
Dividend income is recognised when payment has been received. Final dividend
distributions are recognised as a liability in the financial statements in the
period in which they are approved by the Group’s shareholders. Interim
dividends are recognised in the period in which they are paid.
h) Leases
Rental payments under operating leases are charged to the income
statement on a straight-line basis over the period of the lease.
Lease incentives and rent-free periods are amortised through the income
statement over the period of the lease.
i) Taxation
Current tax, including UK corporation tax and overseas tax, is provided at
amounts expected to be paid or recovered using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full on temporary differences between the carrying
amount of an asset or liability in the balance sheet and its tax base.
Deferred tax liabilities represent tax payable in future periods in respect of
taxable temporary differences. Deferred tax assets represent tax recoverable
in future periods in respect of deductible temporary differences, the carry-
forward of unused tax losses and credits. Deferred tax is determined using
the tax rates that have been enacted or substantively enacted at the balance
sheet date and are expected to apply when the deferred tax asset is realised
or the deferred tax liability is settled.
Deferred tax is provided on the unremitted earnings of overseas subsidiaries,
except where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in
the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be utilised.
Current and deferred tax is recognised in the income statement except where
it relates to an item recognised directly in reserves, in which case it is
recognised directly in reserves.
Deferred tax assets and liabilities are offset where there is a legal right to do
so in the relevant jurisdictions.
j) Intangible assets
Goodwill:
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing the excess of the fair value of the consideration given over the fair
value of the identifiable assets and liabilities acquired, is recognised initially as
an asset at cost and is subsequently measured at cost less any accumulated
impairment losses. At the acquisition date, goodwill is allocated to each of the
cash-generating units (CGUs) expected to benefit from the combination and
held in the currency of the operations to which the goodwill relates. Goodwill
is reviewed at least annually for impairment, or more frequently where there
is an indication that goodwill may be impaired. Impairment is determined by
assessing the future cash flows of the CGUs to which the goodwill relates.
Where the future cash flows are less than the carrying value of goodwill, an
impairment charge is recognised in the income statement.
On disposal of a subsidiary undertaking, the relevant goodwill is included
in the calculation of the profit or loss on disposal.
Subscriber acquisition costs:
Subscriber acquisition costs, being the direct third-party costs of recruiting
and retaining new customers, net of incentives from network operators and
provision for in-contract churn, are capitalised as an intangible asset, to the
extent that they are supported by expected future cash inflows, and
amortised on a straight-line basis through operating expenses in the income
statement over the minimum subscription period. Subscriber acquisition
The Carphone Warehouse Group PLC Annual Report 2006
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