Notes to the consolidated financial statements - Swisscom

Principles of consolidation
The consolidated financial statements of Swisscom include the operations of Swisscom AG
and all its direct and indirect subsidiaries which Swisscom AG controls by more than 50%
of the votes.
Investments and joint ventures where Swisscom exercises significant influence but does
not have control are accounted for using the equity method. Under the equity method,
investments are disclosed as investments in affiliated companies and presented at their
fair value as of the date of acquisition adjusted for Swisscom’s share in earnings (losses)
resulting after the date of acquisition.
A schedule with all significant subsidiaries and investments in affiliated companies is presented
in Note 41.
Subsidiaries and investments acquired or disposed of during the year are included in the
consolidated financial statements from the date of acqui-sition and excluded from the
date of sale respectively.
All intercompany balances, transactions and intercompany profits are eliminated on consolidation.
Significant balances and transactions with investments and joint ventures accounted for
using the equity method are separately disclosed as items with affiliated companies.
Goodwill and other intangible assets
Goodwill
Differences between the purchase price of acquisitions and the fair value of net assets acquired
are classified as goodwill from acquisitions. Goodwill is amortized on a straightline
basis over their estimated useful life of 5 to10 years.
Research and development
Research and development expenditure is recognized as an expense as incurred.
Software development costs
Generally, costs associated with developing or maintaining computer software programs
are recognized as an expense as incurred. However, costs that are directly associated with
identifiable and unique software products controlled by Swisscom and have probable future
economic benefits are recognized as intangible assets and amortized using the
straight-line method over their estimated useful life of 3 years. Expenditure which enhances
or extends the performance of computer software programs beyond their original
specifications is recognized as a capital improvement and added to the original cost of the
software.
Other intangible assets
Other intangible assets, which comprise primarily mobile license fees are capitalized at
cost and amortized using the straight-line method over the life of the license, starting
when the network becomes operational. See Note 25.
Impairment of intangible assets
If there is an indication that the carrying value of an intangible asset, including goodwill,
may be impaired, Swisscom determines the estimated recoverable amount. If the recoverable
amount of the asset is less than its carrying amount, the carrying amount is reduced
to the recoverable amount, with the difference representing an impairment charge.
Foreign currency translation
Foreign currency transactions are accounted for at the exchange rates prevailing at the
date of the transactions; gains and losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities denominated in foreign
currencies, are recognised in the income statement, except when deferred in equity as
qualifying cash flow hedges.
Assets and liabilities of subsidiaries and affiliated companies accounted for using the equity
method reporting in currencies other than Swiss francs are translated at the rates of exchange
prevailing at balance sheet date. Goodwill and fair value adjustments arising on
the acquisition of foreign entities are treated as assets of the foreign entity and translated
at the rate prevailing at balance sheet date. Income, expenses and cash flows are translated
at the average exchange rates for the period. Translation gains and losses are
21 Swisscom Consolidated financial statements