Tiscali 2008 Annual Report Download - page 70

Other intangible assets
Computer software – Development costs
Acquired computer software licenses are capitalised and included
among intangible assets at purchase cost and are amortised on
a straight-line basis over their estimated useful lives.
Internally-generated intangible assets arising from costs incurred
for the development of applications software under Group
control and directly associated with the production of services,
in particular with regard to ‘technological platforms’ for access
and management of the Tiscali network, are recognised if the
following conditions are met:
•the following general conditions indicated by IAS 38 are
observed for the capitalization of the intangible assets: (a)
the asset created can be identified; (b) it is likely that the
asset created will generate future economic benefits; (c) the
development cost of the asset can be reliably gauged;
•the Group can demonstrate the technical possibility of
completing the intangible asset so as to make it available
for use or for sale, its intention to complete said asset so
as to use or sell it, the ways in which it will generate
probable future economic benefits, the availability of
technical, financial or other resources for completing its
development and its ability to reliably assess the cost
attributable to the asset during its development
During the development period, the asset is reviewed annually
for the purpose of revealing any impairment losses. Subsequent
to initial statement, the development costs are valued at the
decreased cost of the amortisation and any other accumulated
loss. Amortisation of the asset commences when the development
has been completed and the asset is available for use. The cost
is amortised with reference to the period when it is envisaged
that the related project will generate revenues for the Group.
Costs associated with the development and the ordinary
maintenance of software not meeting the above mentioned
requirements, and research costs, are charged in full to the
income statement in the period in which they are incurred.
Long-term rights of use (IRU – ‘Indefeasible Right of Use’)
The IRU are classified in the category “concessions and similar
rights” and comprise costs sustained for the purchase of long-
term rights of use for the fibre optics network, i.e. the
‘transmission capacity’ and related charges. Amortisation is
calculated using the straight-line method, either over the
duration of the concession agreed contractually or the estimated
utilisation period of the right, whichever is the shorter. The
amortisation period varies on average between 12 and 15 years.
Broadband service activation costs
These assets refer to investments incurred for the activation of
broadband (ADSL) services, such as contributions for connection
to the Tiscali network made to ‘networks operators’ in the various
geographic areas and relevant user equipment. These capitalised
costs are amortised on a straight-line basis in relation to the
minimum legal duration of the customer contract, currently 12
months, after which the contract is tacitly renewed, though the
customer has the option to withdraw without penalty. For
amortisation purposes, the reference period is significantly shorter
than the expected duration of the customer contract, usually 36
months on average, taking into account company statistics and
market conditions. The standard adopted complies with IAS 38
– Intangible assets, considering that the customer has the right
‘not to renew’ the contract beyond the minimum period.
Properties, plant and machinery
Properties, plant and machinery are stated at purchase or
production cost, including accessory charges, less accumulated
depreciation and any writedowns for impairment. No revaluations
have been provided for such tangible assets.
Depreciation is calculated using the straight-line method on the
cost of each asset less the related residual value, if any, over its
estimated useful life. Land, including that pertaining to buildings,
is not depreciated.
The depreciation rates are reviewed annually and are amended
if the current estimated useful life differs from that estimated
previously. The effects of these changes are reflected in the
income statement on a forecast basis.
The depreciation rates adopted for IP and Ethernet network
equipment (such as routers and L3/L2 switches), representing
the most significant plant category, were calculated on the basis
of a report drawn up by an independent consultant.
The minimum and maximum depreciation rates applied during
2007 and 2008 are those indicated below:
Buildings 3%
Plant 12%-20%
Equipment 12%-25%
Routine maintenance expenses are charged to the income
statement in full, in the financial year in which the costs were
incurred, while maintenance expenses of an incremental nature
are allocated to relevant assets and are depreciated over the
residual useful life.
Leasehold maintenance costs are capitalised, posted under
the relevant line of tangible assets and are amortised over either
the estimated useful life of the asset or the remaining term of
the lease, whichever is shorter.
Gains and losses arising on disposals or sales of assets are
calculated as the difference between sales revenue and net book
value and are booked to the income statement for the year.
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CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES