Tiscali 2008 Annual Report Download - page 71

Assets held under finance lease
Lease agreements are classified as finance leases if all the risks
and benefits of ownership are transferred to the lessee. All other
leases are considered operating leases.
Assets held under finance leases are recognised as Group assets at
their fair value at the time of stipulation of the lease or, if lower, at
the present value of the minimum lease payments. The corresponding
liability to the lessor is included in the balance sheet in the item
payables for finance leases, under financial payables. Lease payments
are divided into their capital and interest elements. Financial charges
are directly booked to the income statement for the year.
Assets held under finance leases are depreciated using the
straight-line method based on their estimated useful life, in
the same manner as owned assets, or over the lease term if
shorter and only if there is no reasonable certainty of redeeming
the asset considering the lease expiry terms.
Moreover, as for asset disposal and backdating operations on
the basis of financial lease contracts, the realized capital gains
are deferred for the duration of the contracts or the residual
life of the asset (if lower).
Operating lease payments are booked to the income statement
as costs on an accruals basis.
Impairment of assets
Goodwill, intangible assets with an unspecified useful life and assets
in process of formation are subject to an impairment test each year
or more frequently if there is indication of impairment. The book
value of intangible assets with an unspecified useful life and of
property, plant and machinery, is checked each time there is
indication that the asset has suffered impairment. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the writedown. Where it is not
possible to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash Generating
Unit (CGU) to which the asset belongs. The recoverable amount
is the higher between the fair value less sales costs and its utilisation
value. When assessing the utilisation value, the estimated future
cash flows are discounted back to their present value using a pre-
tax discount rate that reflects current market assessments on the
value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash generating unit)
is estimated to be less than its book value, the latter is written
down to its recoverable amount. The relevant impairment is
booked to the income statement under write-downs. If the reasons
for the writedown made in previous years are considered to no
longer apply, the book value of the asset (or cash-generating unit)
is increased to the revised estimate of its recoverable amount,
but not beyond the net book value that the assets would have
had if the writedown for impairment had not been made. An
impairment writeback is booked to the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Considering the circumstances and characteristics of
the Group’s assets, the cost refers to direct materials. The cost
is calculated by using the average cost method. The net
realisable value is the selling price less the costs considered
necessary for achieving the sale.
Financial instruments
Loans and receivables
Group receivables are stated in the items “other non-current
financial assets”, “receivables from customers”, “other
receivables and other current assets” and “other current
financial assets”, and include guarantee deposits, trade
receivables, and receivables from third parties generated as
part of core business activities.
If they have a fixed maturity, they are stated at amortised cost,
using the effective interest rate method. When financial assets
have no fixed maturity, they are stated at acquisition cost.
Receivables maturing beyond one year, interest-free receivables,
and receivables accruing interest at lower rates with respect to
the market, are discounted back by using market rates.
Appraisals are regularly carried out with the aim of checking
whether there is objective evidence that a financial asset or a
group of assets have been subject impairment. If there is
objective evidence, the impairment must be recorded as cost
in the income statement on the period.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, on-demand
and short-term deposits, in the latter case with an original
maturity envisaged of no more than three months.
Payables and financial liabilities
The Group’s payables and financial liabilities are stated in the
items”, “payables to banks and other lenders”, “payables for
finance leases”, “other non-current liabilities”, “payables to
suppliers”, and include trade payables, payables to third parties,
financial payables, inclusive of payables for loans received for
advances on the factoring of receivables and for finance lease
transactions.
Trade and other payables are stated at face value. Financial
payables are initially stated at cost, equating to the fair value
of the amount received, net of related charges. Subsequently,
these payables are stated at amortised cost using the effective
interest rate method, calculated considering the issue costs
and any other premium or discount envisaged on settlement.
Convertible bonds
Convertible bonds are financial instruments made up of a
70
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES