Page 79 - EVRY Annual Report 2012

Annual Accounts Group 79
Income recognition
Where operating services are provided through volume-based contracts, revenue is recognised on the basis of the actual
use of services by the customer. If there is no reconciliation/account of actual use at the end of the accounting period,
revenue for the period is estimated on the basis of historic figures, adjusted for any known events/information that have
influenced usage during the period.
Where services are recognised to revenue on the basis of the degree of completion, revenue is estimated on the basis
of the number of hours delivered as a proportion of the total estimated number of hours that will be required for the
delivery
Depreciation of tangible assets and intangible assets
Depreciation is based onmanagement’s estimate of useful life. Such estimates may change as a result of technological
developments, competition, changes inmarket conditions and other matters. This may cause changes in the estimated
useful life and accordingly in depreciation.
Provision for losses on receivables
Provision for losses on receivables is made only if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset (a ‘loss event’). The amount of the impairment loss is
measured as the difference between the carrying amount of the receivable and the present value of estimated future cash
flows discounted.
Onerous contracts
Provisions made in respect of onerous contracts are determined on the basis of management’s best estimate of the
expenditure that would be required to settle the present obligation at the balance sheet date. This represents the amount
that the group would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party. A
provision in respect of an onerous contract is recognised in full in the period in which the contract is recognised as being
onerous.
Purchase price analysis
When acquiring new businesses and companies, the cost price is allocated between identifiable assets and liabilities
based on estimated fair value. In the case of major acquisitions, EVRY hires independent valuation experts to assist with
the production of purchase price analyses. The determination of fair value is based onmanagement’s estimates and
assumptions.
Customer contracts are identified as intangible assets when businesses are acquired. The fair value of customer contracts
is based on the discounted present value of future cash flows. The calculation of present value is based onmanagement’s
estimates and assumptions in respect of matters such as margins, time horizon and yield requirement.
Goodwill
The group tests goodwill for impairment annually. The book value of goodwill in the group’s cash-generating units
is measured against the value in use of goodwill in these units. The recoverable amount from cash generating units is
determined through calculations of value in use. These calculations are based on discounted cash flows that involve
uncertainty and require the use of estimates. A change in the yield requirement used for discounting future cash flows
will affect the book value of goodwill. An increase in the yield requirement will, in isolation, cause a lower value in use
which in turn will cause a fall in the value of goodwill. Note 11 to the consolidated accounts provides sensitivity analysis
in respect of the calculation of value in use.
Pension liabilities
Pension costs and pension liabilities are calculated on the basis of a number of estimates and assumptions. Changes in
estimates and assumptions and deviations between actual experience and estimates or assumptions (experience adjust-
ments) will affect the fair value of net pension liabilities. Experience adjustments are not recognised to profit and loss
until the accumulated adjustment exceeds 10%of the higher of pension liability and pension assets at the start of the
accounting year.
Capitalisation of development projects
When capitalising development costs that relate to the use of internal resources, costs are estimated using an hourly rate
based on the direct costs per employee. In the event of any indication of the need for a write-down in respect of an indi-
vidual development project, the recoverable amount is tested against the book value. The recoverable amount assigned
to the development project is determined on the basis of calculations of value in use. These calculations are based on
discounting future cash flows that involve uncertainty and require the use of estimates. A change in the forecast revenue
or margin used when estimating future cash flows will affect the estimated value of the development project in question.