TomTom 2008 Annual Report Download - page 55

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
OF TOMTOM NV
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation (continued)
Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against
which the deferred tax assets can be utilised. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Current and deferred taxes are recognised as an expense or income in the profit and loss account, except when
they relate to items credited or debited directly to equity. In which case, the tax is also recognised directly in
equity, or where it arises from the initial accounting for a business combination.
Intangible assets
Internally generated intangible assets
Expenditure on research activities, such as engineering costs and software costs relating to non-core technology,
are recognised as expenses in the period in which they incur. Internal software development costs relating to core
technology are recognised as an intangible asset if, and only if, all of the following have been demonstrated:
• the technical feasibility to complete the project;
• the intention to complete the intangible asset, and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
• the availability of adequate resources to complete the project; and
• the cost of developing the asset can be measured reliably.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial
recognition, internal software development costs are carried at cost less accumulated amortisation and
accumulated impairment losses. The useful life of the Group’s core software is estimated at four years.
Internal software costs not relating to the Group’s core software technology are expensed as research and
development costs, as incurred on the basis that on average these costs have a useful economic life of less than
one year.
Internally-generated databases are capitalised until a level of completion is reached and activities focus on
upgrading and maintaining, at this point capitalisation is discontinued.
Engineering costs relating to the detailed manufacturing design of new products are recorded in the income
statement as research and development expenses as incurred.
The Group is required to use estimates, assumptions and judgements to determine the expected useful economic
lives and future economic benefits of these costs. Such estimates are made on a regular basis, or as appropriate
throughout the year, as they can be significantly affected by changes in technology and other factors.
Intangible assets acquired separately
Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to
use the specific software. The software is amortised on a straight-line basis over its estimated useful life of two
to five years. Costs associated with maintaining computer software programmes are recognised as an expense as
incurred.
Acquired technology
Acquired technology is capitalised on the basis of the costs incurred to acquire and bring to use that technology.
The technology is amortised on a straight line basis over its estimated useful life of four to five years.
Intangible assets acquired in a business combination
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary/associate at the date of acquisition.
Goodwill on acquisitions is tested annually for impairment and carried at cost less accumulated impairment
losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is
made to those cash-generating units or Group’s of cash-generating units that are expected to benefit from the
business combination in which the goodwill arose.