Annual Report and Accounts 2006 - DCC plc

notes to the financial statements10547. Reconciliations from Irish GAAP to IFRS - continuedOther options availed of on transitionIn compliance with the transitional arrangements set out in IFRS 2 Share-based Payment, this standard was applied inrespect of share options granted after 7 November 2002 and not vested before 1 January 2005.On the introduction of FRS 17 Retirement Benefits in 2001, DCC together with the majority of publicly-listed entities,elected to continue to account for its pension obligations under SSAP 24 Accounting for Pension Costs and to disclosethe impact of FRS 17 in the notes to the financial statements. FRS 17 requires immediate recognition of actuarial gainsand losses on defined benefit pension schemes in the Statement of Total Recognised Gains and Losses. The Groupelected to avail of early application of the amendment to IAS 19 which enables the recognition of actuarial gains andlosses through retained income via the Statement of Changes in Shareholders' Equity.(2) Impact of transition to IFRSThe adoption of IFRS resulted in the following significant changes to the Group's accounting policies and the financialimpact of each as at the date of transition to IFRS is summarised below.(i) IFRS 2 share-based paymentIFRS 2 Share-based Payment requires the recognition of an expense in the Income Statement representing the fair valueat the date of grant of share-based payments (mainly share options in the case of DCC). This expense is recognised overthe vesting period of the options. In accordance with the transitional arrangements contained in the standard, only shareoptions granted after 7 November 2002 and not vested before 1 January 2005 are included in the calculations.The fair value of the share-based payments have been calculated using a binomial model for the DCC plc 1998 EmployeeShare Option Scheme and Black Scholes for the DCC Sharesave Scheme. The following are the main inputs used indetermining the fair value of share options:• The exercise price which is the market price at the grant date except in the case of the DCC Sharesave Scheme 2001share options which were issued at a 20% discount to the market price at the date of grant;• Future share price volatility is based on historical volatility over a period consistent with the expected term of the option;• The risk free interest rate used is the rate applicable to zero-coupon euro-denominated Government bonds with aremaining term equal to the expected term of the option;• Expected dividend payments.An expense of €1.0 million was recognised in the Group Income Statement in respect of the year ended 31 March 2005.(ii) IFRS 3 business combinations / IAS 38 Intangible assetsThe Group availed of the exemption under IFRS 1 enabling non-restatement of business combinations prior to the date oftransition to IFRS.Under IFRS 3, goodwill is no longer amortised but rather is subject to annual impairment testing. At 1 April 2004, the dateof transition, the Group had a net goodwill asset of €129.6 million which is carried forward and, together with goodwillarising on subsequent business combinations, is subject to annual impairment testing. Accordingly, the goodwillamortisation charge of €10.1 million for the year ended 31 March 2005 was not charged under IFRS.Under IAS 38 Intangible Assets, there is a requirement to separately identify intangible assets acquired, other thangoodwill. Intangible assets (mainly comprising customer relationships) are capitalised and subsequently amortised overtheir economic lives.The acquisition balance sheets for business combinations completed in the year ended 31 March 2005 have beenrestated to recognise intangible assets which resulted in a reduction in the goodwill figure in the acquisition balancesheets. The amortisation charge recognised in respect of intangible assets amounted to €1.3 million for the year ended31 March 2005. Net intangible assets at 31 March 2005 amounted to €11.3 million.(iii) IAS 19 Employee benefitsIAS 19 Employee Benefits requires the assets and liabilities of defined benefit pension schemes to be recognised on theface of the balance sheet. In accordance with the exemption available under IFRS 1, the Group elected to recognise allcumulative actuarial gains and losses attributable to its defined benefit pension schemes as at the transition date. Inaddition, in line with the amendment to IAS 19, actuarial gains and losses arising after the date of transition are dealt within the Statement of Changes in Shareholders' Equity.