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2. Significant accounting policies continued
Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been
retained at the previous UK GAAP amounts, subject to being tested for impairment
at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not
been reinstated and is not included in determining any subsequent profit or loss
on disposal.
Licence and spectrum fees
Licence and spectrum fees are stated at cost less accumulated amortisation.
The amortisation periods range from 3 to 25 years and are determined primarily
by reference to the unexpired licence period, the conditions for licence renewal
and whether licences are dependent on specific technologies. Amortisation is
charged to the income statement on a straight-line basis over the estimated
useful lives from the commencement of service of the network.
Computer software
Computer software licences are capitalised on the basis of the costs incurred
to acquire and bring into use the specific software. These costs are amortised
over their estimated useful lives, being 3 to 5 years.
Costs that are directly associated with the production of identifiable and unique
software products controlled by the Group, and that are expected to generate
economic benefits exceeding costs beyond one year, are recognised as intangible
assets. Direct costs include software development employee costs and directly
attributable overheads.
Software integral to a related item of hardware equipment is accounted for as
property, plant and equipment.
Costs associated with maintaining computer software programs are recognised
as an expense when they are incurred.
Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in
which it is incurred.
An internally-generated intangible asset arising from the Group’s development
activity is recognised only if all of the following conditions are met:
•
•
•
Vodafone – Financials
Notes to the Consolidated Financial Statements continued
an asset is created that can be separately identified;
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over
their estimated useful lives. Where no internally-generated intangible asset can
be recognised, development expenditure is charged to the income statement in
the period in which it is incurred.
Other intangible assets
Other intangible assets with finite lives are stated at cost less accumulated
amortisation and impairment losses. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful lives of intangible
assets from the date they are available for use. The estimated useful lives are
as follows:
Brands 1 – 10 years
Customer bases 2 – 5 years
Property, plant and equipment
Land and buildings held for use are stated in the balance sheet at their cost,
less any subsequent accumulated depreciation and subsequent accumulated
impairment losses.
Equipment, fixtures and fittings are stated at cost less accumulated depreciation
and any accumulated impairment losses.
Assets in the course of construction are carried at cost, less any recognised
impairment loss. Depreciation of these assets commences when the assets are
ready for their intended use.
92 Vodafone Group Plc Annual Report 2008
The cost of property, plant and equipment includes directly attributable
incremental costs incurred in their acquisition and installation.
Depreciation is charged so as to write off the cost or valuation of assets, other
than land and properties under construction, using the straight-line method,
over their estimated useful lives, as follows:
Freehold buildings 25 – 50 years
Leasehold premises the term of the lease
Equipment, fixtures and fittings:
•
•
Network infrastructure 3 – 25 years
Other 3 – 10 years
Depreciation is not provided on freehold land.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant
and equipment is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in the income statement.
Impairment of assets
Goodwill
Goodwill is not subject to amortisation but is tested for impairment annually
or whenever there is an indication that the asset may be impaired.
For the purpose of impairment testing, assets are grouped at the lowest levels
for which there are separately identifiable cash flows, known as cash-generating
units. If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce
the carrying amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of each asset
in the unit. Impairment losses recognised for goodwill are not reversed in a
subsequent period.
Recoverable amount is the higher of fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted.
The Group prepares and internally approves formal ten year management plans
for its businesses. The first five years of these plans are used for the value in use
calculations, except in markets which are forecast to grow ahead of the long term
growth rate. In such cases, the ten year plan is used until the forecast growth rate
trends towards the long term growth rate, up to a maximum of ten years. Long
range growth rates are used for cash flows into perpetuity beyond the relevant
five or ten year period.
Property, plant and equipment and finite lived intangible assets
At each balance sheet date, the Group reviews the carrying amounts of its property,
plant and equipment and finite lived intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to
determine the extent, if any, of the impairment loss. 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 to which the asset belongs.
If the recoverable amount of an asset or cash-generating unit is estimated to be
less than its carrying amount, the carrying amount of the asset or cash-generating
unit is reduced to its recoverable amount. An impairment loss is recognised
immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the
asset or cash-generating unit is increased to the revised estimate of its
recoverable amount, not to exceed the carrying amount that would have been