Telkom AR front.qxp

Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 Company 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 Company 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
Company’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. In order to account for multiple-element revenue
arrangements in developing its accounting policies, the
Company 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 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
Telkom Annual Report 2009 255
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, equipment and
intangible assets. Due to the rapid technological advancement
in the telecommunications industry as well as the Company’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
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
9 and 10. 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 Company 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
cash flows and fair value less costs to sell. Management
judgement is also required when assessing whether a previously
recognised impairment loss should be reversed.