Carphone Warehouse 2007 Annual Report Download - page 42

Notes to the Financial Statements continued
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 schemes.
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.
Gains or losses from sale and leaseback transactions are deferred over the life
of the new lease to the extent that the rentals are considered to be above or
below market rentals. The remaining gain or loss is recognised within operating
expenses in the period in which the sale is completed.
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 comprise the direct third-party costs of recruiting
and retaining new customers, net of incentives from network operators and
provision for in-contract churn. They 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 costs
for customers with no minimum subscription commitment are reflected in
operating expenses as incurred.
Software and licenses:
Software and licenses includes internal infrastructure and design costs incurred
in the development of software for internal use. Internally generated software
is recognised as an intangible asset only if it can be separately identified,
it is probable that the asset will generate future economic benefits, and the
development cost can be measured reliably. Where these conditions are not
met, development expenditure is recognised as an expense in the period in
which it is incurred. Software and licenses are amortised on a straight-line
basis over their estimated useful economic lives of up to 8 years.
Key money:
Key money paid to enter a property is stated at cost, net of amortisation and
any provision for impairment. Amortisation is provided on key money at rates
calculated to write off the cost, less estimated residual value, on a straight-line
basis over 10 years or the lease term if less.
Acquisition intangibles:
Acquired intangible assets (“acquisition intangibles”) such as customer bases,
brands and other intangible assets acquired through a business combination
are capitalised separately from goodwill and amortised over their expected
useful lives of up to 6 years on a straight-line basis. The value attributed to
such assets is based on the future economic benefit that is expected to be
derived from them, calculated as the present value of future cash flows after
a deduction for contributory assets.
The Carphone Warehouse Group PLC Annual Report 2007
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