TDC Group Annual Report 2011(6,4MB) - TDC Annual Report 2011

Note 2 Critical accounting estimates and judgements
The preparation of TDC’s Annual Report requires
Management to make assumptions that affect the reported
amount of assets and liabilities at the balance sheet date
and the reported amounts of revenue and expenses during
the financial period. Estimates and judgements used in the
determination of reported results are continuously
evaluated, and are based on historical experience and on
various other factors that are believed to be reasonable in
the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The
following estimates and judgements are considered
important when portraying our financial position.
Useful lives
Useful lives for intangible assets and property, plant and
equipment as shown in notes 14 and 15, respectively, are
assigned based on periodic studies of customer churns or
actual useful lives and the intended use for those assets.
Such studies are completed or updated when new events
occur that have the potential to impact the determination of
the useful life of the asset, such as when events or
circumstances have occurred which indicate that the
carrying amount of the asset may not be recoverable and
should therefore be tested for impairment. Any change in
customer churn or the estimated useful lives of these
assets is recognised in the Financial Statements as soon as
any such change is determined.
Impairment test on intangible assets
Intangible assets comprise a significant portion of TDC's
total assets. Impairment tests on goodwill and other
intangible assets with indefinite lives are performed at least
annually and, if necessary, when events or changes in
circumstances indicate that their carrying amount may not
be recoverable. The measurement of intangibles is a
complex process that requires significant Management
judgement in determining various assumptions, such as
cash-flow projections, discount rate and terminal growth
rates. The sensitivity of the estimated measurement to
these assumptions, combined or individually, can be
significant. Furthermore, the use of different estimates or
assumptions when determining the fair value of such assets
may result in different values and could result in impairment
TDC Group Annual Report 2011
charges in future periods. The assumptions for significant
goodwill amounts are set out in note 14.
Defined benefit plans
Net periodic pension cost for defined benefit plans is
estimated based on certain actuarial assumptions, the
most significant of which relate to returns on plan assets,
discount rate, wage inflation and demography (mortality,
disability, etc.). As shown in note 27, the assumed discount
rate and the expected return on plan assets may fluctuate
significantly. We believe the actuarial assumptions illustrate
current market conditions and expectations for market
returns in the long term. With these changed assumptions,
TDC’s Pension costs from the Domestic defined benefit plan
is expected to amount to DKK 64m in 2012 compared with
an income of DKK 304m in 2011, assuming all other factors
remain unchanged. See also note 27 for the impact on the
defined benefit obligation of sensitivities to discount rate,
inflation and mortality.
Contingent assets and liabilities
The determination of the treatment of contingent assets
and liabilities in the Financial Statements, as shown in note
38, is based on the expected outcome of the applicable
contingency. Legal counsel and other experts are consulted
both within and outside the Company. An asset is
recognised if the likelihood of a positive outcome is virtually
certain. A liability is recognised if the likelihood of an
adverse outcome is probable and the amount is estimable.
If not, we disclose the matter. Resolution of such matters in
future periods may result in realised gains or losses
deviating from the amounts recognised.
Revenue recognition
Revenue, as shown in note 5, is recognised when realised or
realisable and earned. Revenues from non-refundable upfront
connection fees are deferred and recognised as
income over the expected term of the related customer
relationship. The term is estimated using historical
customer churn rates. Change of Management estimates
may have a significant impact on the amount and timing of
our revenues for any period.
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