FRONTLINE COVER FA 070606 CR2.indd

frontline technologies corporation ltd
annual report 2006 57
> notes to the financial statement
for the year ended 31 march 2006
2. Significant accounting policies (cont’d)
(j) Intangible assets (cont’d)
(iii) Research and development costs
Research costs are expensed as incurred. Development expenditure incurred on an individual project is
recognised as an asset to the extent that it is expected that such asset will generate future economic benefits.
Following the initial recognition of the development expenditure, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure
recognised as an asset is amortised over the period of expected future sales from the related project.
(iv)
(v)
(vi)
Intellectual property
Intellectual property relates to the tools and methodologies and know-how purchased from business
acquisition. It is recognised at its fair value of the future net cash flows and amortised over the estimated
useful life of up to 15 years (2005:10 years). During the current financial year, the Group changed the
amortisation of its intellectual property from 10 years to 15 years to reflect a more accurate pattern of
consumption of the economic benefits of the intangible asset. The change in estimated useful life has no
material financial effect on the financial statements of the Group during the financial year.
Client contracts
Client contracts relate to existing contracts with third party customers, purchased from business acquisition, with
a fixed stream of revenues. It is recognised at its fair value representing net cash flows to be derived during the
existing contractual period and amortised over the remaining useful life of the contracts not exceeding 3 years.
Software under development
No amortisation is charged for software under development.
(k)
Impairment of non-financial assets
At each balance sheet date, the Group and Company reviews the carrying amounts of its non-financial 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 of the
impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, Group
estimates the recoverable amount of the cash-generating unit to which the asset belongs.
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.
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 (cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in the income statement, unless the relevant asset is carried at a revalued amount, in
which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in
the income statement unless the relevant asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.