Shareholders' Letter

3.8 Business combinations and goodwill
Business combinations are accounted for using the purchase method. As of the date of acquisition,
acquisition costs are recognised at fair value. The purchase consideration includes the amount of
cash paid as well as the fair value of the assets ceded, liabilities incurred or assumed as well as
own equity instruments ceded. Liabilities depending on future events based upon contractual
agreements are recognised at fair value. Directly attributable transaction costs are reported as
other operating expenses. At the time of acquisition, all identifiable assets and liabilities that satisfy
the recognition criteria are recorded at their fair values. The difference between the cost of
acquisition and the fair value of the identifiable assets and liabilities acquired is accounted for as
goodwill after taking account of any minority interests. Any negative difference, after further
review, is expensed directly. Goodwill acquired in connection with a business combination is
recorded under intangible assets. The goodwill is not amortised but reviewed for impairment at
least annually. When an entity is disposed of, the carrying amount of the goodwill is derecognised
and recorded as a component of the gain or loss on disposal.
3.9 Other intangible assets
Research and development costs
Research costs are not capitalised but expensed as incurred. Development costs are capitalised
under intangible assets only if they can be identified as an intangible asset which will generate
future economic benefits and the costs of this asset can be determined reliably. Costs of further
development are only capitalised if the original level of performance is increased. Development
costs which do not satisfy the requirements for capitalisation are expensed as incurred. Capitalised
development costs are amortised using the straight-line method over the estimated useful lives
of the related assets.
Other intangible assets
Mobile phone licenses, self-developed software as well as other intangible assets are recorded at
purchase or manufacturing cost less accumulated amortisation. Intangible assets resulting from
business combinations, such as brands and customer relationships, are recorded at fair value less
accumulated amortisation. Systematic amortisation of mobile phone licenses is based on the term
of the contract and begins as soon as the related network is operational, unless other information
is at hand which would suggest the need to modify the useful life.
Useful lives of other intangible assets
Systematic amortisation is computed using the straight-line method based on the following estimated
useful lives:
Category Years
Software internally generated and purchased 3 to 7
Customer relationships 7 to 11
Brands 5 to 10
Other intangible assets 3 to 12
The estimated useful lives are reviewed at least once annually as of the balance sheet date and,
where necessary, adjusted.
3.10 Non-current assets held for sale and discontinued operations
A discontinued operation is a component of an entity that has been sold or is classified as being
held for sale and represents a separate major line of business or geographical area of operations
or a subsidiary acquired exclusively with the intention of resale. The classification as a discontinued
operation is made upon disposal or at an earlier date if the operation satisfies the criteria for classification
as being held for sale. A non-current asset or a disposal group is classified as being held
for sale if its carrying amount will be recovered mainly as a result of a sales transaction and not
through continued use. Non-current assets or disposal groups that are held for sale are reported
Consolidated financial statements 144 | 145
Notes to the consolidated financial statements