Tiscali 2008 Annual Report Download - page 69

the merger by absorption of Tiscali Services S.p.A. within Tiscali
Italia S.p.A. as from 1 January 2008
Business combinations and Goodwill
The acquisition of controlling interests in companies is accounted
for using the purchase method, in accordance with IFRS 3 –
Business combinations . The cost of the acquisition is measured
as the aggregate of the fair values, at the date of the exchange,
of assets, liabilities incurred or undertaken concerning the acquired
company, and the financial instruments possibly issued by the
Group in exchange for control of the acquiree, plus any costs
directly attributable to the business combination.
The acquiree’s recognisable and acquired assets, liabilities and
contingent liabilities (including the respective shares of the minority
shareholders), that meet the conditions for recognition under
IFRS 3, are recognised at their fair values at the acquisition date.
The excess of the purchase cost of the business combination
over the Group’s interest in the net fair values of the identifiable
assets, liabilities and contingent liabilities recognised represents
the goodwill arising on acquisition that is stated as an asset
and initially valued at cost. If, after reassessment, the Group’s
interest in the net fair values of the acquiree’s identifiable
assets, liabilities and contingent liabilities, exceeds the cost of
the business combination, the excess is booked immediately
to the income statement.
The interest of minority shareholders in the acquiree is initially
stated at the minority’s proportion of the net fair values of the
assets, liabilities and contingent liabilities stated.
Following initial statement, goodwill is recorded at cost less any
accumulated impairment losses. In compliance with IFRS 3,
goodwill is not amortised, but subject to impairment tests in order
to identify any reductions in value.
Impairment testing on goodwill is compulsorily repeated once a
year or more frequently if events or changes in circumstances
indicate a possible impairment, i.e. a loss of value.
The impairment, if any, is identified by means of assessments
referring to the ability of each ‘unit’, identifiable in this case with
the subsidiary, to generate cash flows sufficient to recover the
goodwill allocated to the unit. The recoverable amount is the higher
between the ‘fair value’ less sales costs and its utilisation value.
The utilisation value is determined starting off from the expected
future cash flows, which are discounted back at a rate that reflects
the current market estimate of the cost of money, the cost of capital
and the risks specific to the unit. If the estimated recoverable
amount of the unit concerned is lower than the related book value,
it is decreased to the lower recoverable value. Impairments relating
to goodwill are booked to the income statement under writedown
costs and are not subsequently reversible.
On first time adoption of the IFRS and in accordance with the
exemptions envisaged by IFRS 1, it was not considered
necessary to avail of the option of ‘reconsidering’ the acquisition
transactions carried out prior to 1 January 2004. Consequently,
the goodwill deriving from the business acquisitions which took
place prior to this date, has been stated at the value recorded
for this purpose in the last set of financial statements drawn
up on the basis of the previous accounting standards (1°
January 2004, date of changeover to the IFRS), subject to
checking and statement of any impairment losses which arose
as of the date this document was drawn up.
On disposal of a subsidiary, the net book value of the goodwill is
calculated as the expected capital gain or loss on disposal.
Foreign currency transactions
The financial statements of foreign subsidiaries are presented
in the currency of the primary economic environment in which
they operate (operating currency). When preparing the financial
statements of the individual companies, transactions in
currencies other than Euro are initially recognised at the
exchange rates prevailing at the time. At the reference date,
the monetary assets and liabilities expressed in the above-
mentioned currencies are retranslated at the rates prevailing
at that date. Non-monetary items recognised at fair value and
expressed in foreign currency are retranslated at the rates
prevailing on the date of the fair value calculation.
Exchange differences arising from settlement of monetary items
and retranslation of monetary items using current exchange rates
at year end, are booked to the income statement for that period.
For the purpose of presenting the consolidated financial
statements, the assets and liabilities of foreign subsidiaries with
operating currencies other than Euro, are translated into Euro at
the rates prevailing at the financial year end date. Revenues and
costs are translated at the average exchange rates for the period.
The exchange differences arising from the application of this
method are classified as equity under the Translation reserve.
This reserve is booked to the income statement as income or
expense in the period in which disposal of the foreign subsidiary
is completed.
The exchange differences arising from intra-group receivable/
payable relationships of a financial nature are recorded as
equity in the special translation Reserve.
The main exchange rates used for the translation of the 2008
and 2007 financial statements of the foreign companies into
Euro were:
31.12.2008 31.12.2007
Average Final Average Final
GB pound 0.90448 0.95250 0.6994 0.7334
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CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES