Telkom AR front.qxp

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Adoption of amendments to standards and new
interpretation (continued)
IFRIC14 The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
The interpretation, which is effective for annual periods
beginning on or after January 1, 2008, provides guidance on
assessing the limit in IAS19 on the amount of the surplus that can
be recognised as an asset. It also explains how the pension
asset or liability may be affected by a statutory or contractual
minimum funding requirement. The interpretation does not have
any impact on the consolidated annual financial statements, as
the Group is not subject to minimum funding requirements.
Significant accounting judgements, estimates and
assumptions
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods.
Although these estimates and assumptions are based on
management’s best knowledge of current events and actions that
the Group may undertake in the future, actual results may
ultimately differ from those estimates and assumptions.
The presentation of the results of operations, financial position
and cash flows in the financial statements of the Group is
dependent upon and sensitive to the accounting policies,
assumptions and estimates that are used as a basis for the
preparation of these financial statements. Management has
made certain judgements in the process of applying the Group’s
accounting policies. These, together with the key estimates and
assumptions concerning the future, and other key sources of
estimation uncertainty at the balance sheet date, are as follows:
Revenue recognition
To reflect the substance of each transaction, revenue recognition
criteria are applied to each separately identifiable component
of a transaction as disclosed in note 3. In order to account for
multiple-element revenue arrangements in developing its
accounting policies, the Group considered the guidance
contained in the United States Financial Accounting Standards
Board (’FASB’) Emerging Issues Task Force No 00-21 Revenue
Arrangements with Multiple Deliverables. Judgement is required
to separate those revenue arrangements that contain the delivery
of bundled products or services into individual units of
accounting, each with its own earnings process, when the
delivered item has stand-alone value and the undelivered item
has fair value. Further judgement is required to determine the
relative fair values of each separate unit of accounting to be
allocated to the total arrangement consideration. Changes in
Telkom Annual Report 2009 147
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
the relative fair values could affect the allocation of arrangement
consideration between the various revenue streams.
Judgement is also required to determine the expected customer
relationship period. Any changes in these assessments may
have a significant impact on revenue and deferred revenue.
Property, plant and equipment and intangible assets
The useful lives of assets are based on management’s
estimation. Management considers the impact of changes in
technology, customer service requirements, availability of
capital funding and required return on assets and equity to
determine the optimum useful life expectation for each of the
individual categories of property, plant and equipment and
intangible assets. Due to the rapid technological advancement
in the telecommunications industry as well as Telkom’s plan to
migrate to a next generation network over the next few years,
the estimation of useful lives could differ significantly on an
annual basis due to unexpected changes in the roll-out strategy.
The impact of the change in the expected useful life of property,
plant and equipment is described more fully in note 5.6.
The estimation of residual values of assets is also based on
management’s judgement whether the assets will be sold
or used to the end of their useful lives and what their condition
will be like at that time.
For intangible assets that incorporate both a tangible and an
intangible portion, management uses judgement to assess which
element is more significant to determine whether it should be
treated as property, plant and equipment or intangible assets.
Asset retirement obligations
Management judgement is exercised when determining whether
an asset retirement obligation exists, and in determining the
present value of expected future cash flows and discount rate
when the obligation to dismantle or restore the site arises, as
well as the estimated useful life of the related asset.
Impairments of property, plant and equipment and
intangible assets
Management is required to make judgements concerning
the cause, timing and amount of impairment as indicated on
notes 11 and 12. In the identification of impairment indicators,
management considers the impact of changes in current
competitive conditions, cost of capital, availability of funding,
technological obsolescence, discontinuance of services and
other circumstances that could indicate that an impairment
exists. The Group applies the impairment assessment to its
separate cash-generating units. This requires management to
make significant judgements concerning the existence of
impairment indicators, identification of separate cash-generating
units, remaining useful lives of assets and estimates of projected