Telkom AR front.qxp

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Telkom Annual Report 2009
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 (continued)
Impairments of property, plant and equipment and
intangible assets (continued)
Where impairment indicators exist, the determination of the
recoverable amount of a cash-generating unit requires
management to make assumptions to determine the fair value
less costs to sell and value in use. Key assumptions on which
management has based its determination of fair value less costs
to sell include the existence of binding sale agreements, and for
the determination of value in use include the weighted average
cost of capital, projected revenues, gross margins, average
revenue per customer, capital expenditure, expected customer
bases and market share. The judgements, assumptions and
methodologies used can have a material impact on the fair
value and ultimately the amount of any impairment.
Impairment of other financial assets
At each balance sheet date management assesses whether
there are indicators of impairment of financial assets, including
equity investments. If such evidence exists, the estimated present
value of the future cash flows of that asset is determined.
Management judgement is required when determining the
expected future cash flows. To determine whether any decline in
fair value of available-for-sale investments is prolonged, reliance
is placed on an assessment by management regarding the
future prospects of the investee. In measuring impairments,
quoted market prices are used, if available, or projected
business plan information from the investee is used for those
financial assets not carried at fair value.
Impairment of receivables
An impairment is recognised on trade receivables that are
assessed to be impaired (refer to notes 12 and 17). The
impairment is based on an assessment of the extent to which
customers have defaulted on payments already due and an
assessment on their ability to make payments based on their
credit worthiness and historical write-offs experience. Should the
assumptions regarding the financial condition of the customer
change, actual write-offs could differ significantly from the
impaired amount.
Leases
The determination of whether an arrangement is, or contains a
lease is based on whether, at the date of inception, the fulfilment
of the arrangement is dependent on the use of a specific asset
or assets or the arrangement conveys a right to use the asset.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
A lease is classified as a finance lease if it transfers substantially
all the risks and rewards incidental to ownership.
Deferred taxation asset
Management judgement is exercised when determining the
probability of future taxable profits which will determine whether
deferred tax assets should be recognised or derecognised. The
realisation of deferred tax assets will depend on whether it is
possible to generate sufficient taxable income, taking into
account any legal restrictions on the length and nature of the
taxation asset. When deciding whether to recognise unutilised
taxation credits, management needs to determine the extent that
the future obligation is likely to be available for set-off. In the
event that the assessment of future payments and future utilisation
changes, the change in the recognised deferred tax asset must
be recognised in profit or loss.
Taxation
The taxation rules and regulations in South Africa within which
the Company operates are highly complex and subject to
interpretation. Additionally, for the foreseeable future,
management expects South African taxation laws to further
develop through changes in South Africa’s existing taxation
structure as well as clarification of the existing taxation laws
through published interpretations and the resolution of actual tax
cases (refer to notes 8 and 14).
Management has made a judgement that all outstanding
taxation credits relating to secondary taxation on companies
(STC) will be available for utilisation before the taxation regime
change, from STC to withholding taxation, is effective.
The Company is regularly subject to evaluation by the South
African taxation authorities of its historical income taxation filings
and in connection with such reviews disputes can arise with the
taxing authorities over the interpretation or application of certain
taxation rules to the business of the Company. These disputes
may not necessarily be resolved in a manner that is favourable
for the Company. Additionally the resolution of the disputes
could result in an obligation for the Company that exceeds
management’s estimate. The Company has historically filed,
and continues to file, all required income taxation returns.
Management believes that the principles applied in determining
the Company’s taxation obligations are consistent with the
principles and interpretations of the South African taxation laws.
Deferred taxation rate
Management makes judgements on the taxation rate applicable
based on the Company’s expectations at balance sheet date on
how the asset is expected to be recovered or the liability is
expected to be settled.