Annual Report 2011 - T-Hrvatski Telekom

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substance of the tax), the Group presented the tax
net of revenue (similar to a sales tax) rather than as an
operating expense. Due to the significant magnitude
of this tax, a change in the Group’s assumptions
could have a material impact on total revenues, but
would not have an impact on results of operations.
2.4 Summary of accounting policies
a) Operating profit
Operating profit is defined as the result before
income taxes and finance items. Finance items
comprise interest revenue on cash balances in
the bank, deposits, treasury bills, interest bearing
available for sale financial assets, dividend income
from associate and joint venture, interest expense on
borrowings, gains and losses on the sale of available
for sale financial assets and foreign exchange gains
and losses on all monetary assets and liabilities
denominated in foreign currency.
2) Business Combinations and Goodwill
Subsidiaries are all entities over which the Group has
the power to govern the financial and operating policies
generally accompanying a shareholding of more than
one half of the voting rights. The existence and effect
of potential voting rights are currently exercisable or
convertible are considered when assessing whether the
Group controls another entity.
The Group applies the acquisition method to account for
business combinations. The consideration transferred
for the acquisition of a subsidiary is the fair values of the
assets transferred, the liabilities incurred to the former
owners of the acquiree and the equity interests issued
by the Group. The consideration transferred includes
the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable
assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured
initially at their fair values at the acquisition date. The
Group recognizes any non-controlling interest in the
acquiree on an acquisition-by-acquisition basis, either at
fair value or at the non-controlling interest’s proportionate
share of the recognized amounts of acquiree’s
identifiable net assets. Acquisition-related costs are
expensed as incurred.
If the business combination is achieved in stages, the
acquisition date fair value of the acquirer’s previously
held equity interest in the acquiree is remeasured
to fair value as at the acquisition date through the
statement of comprehensive income.
Any contingent consideration to be transferred by the
Group is recognized at fair value at the acquisition
date. Subsequent changes to the fair value of the
contingent consideration that is deemed to be an
asset or liability is recognized in accordance with
IAS 39 either in statement of comprehensive income
or as a change to other comprehensive income.
Contingent consideration that is classified as equity
is not remeasured, and its subsequent settlement is
accounted for within equity.
Goodwill is initially measured as the excess of the
aggregate of the consideration transferred and the
fair value of non-controlling interest over the net
identifiable assets acquired and liabilities assumed.
If this consideration is lower than the fair value of the
net assets of the subsidiary acquired, the difference is
recognized in the statement of comprehensive income.
Following initial recognition, goodwill is measured at
cost less any accumulated impairment losses.
Inter-company transactions, balances, income and
expenses on transactions between group companies
are eliminated. Profits and losses resulting from intercompany
transactions that are recognized in assets
are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure
consistency with the policies adopted by the Group.
c) Investment in associate
In the Group’s financial statements, investment in
associated company (generally a shareholding of
between 20% and 50% of voting rights) where
significant influence is exercised by the Group are
accounted for using the equity method less any
impairment in value. Under the equity method, the
investment is initially recognized at cost, and the carrying
amount is increased or decreased to recognize the
investor’s share of the profit or loss of the investee after
the date of acquisition. An assessment of investment
in associate is performed when there is an indication
that the asset has been impaired or that the impairment
losses recognized in previous years no longer exist.
Consolidated financial statements