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Goodwill
Goodwill is measured at cost less accumulated impairment losses and is not amortised but
tested for impairment annually.
As the functional currencies of MTN South Sudan Company Limited and MTN Syria (JSC)
are currencies of hyperinflationary economies, goodwill relating to these subsidiaries is
restated by applying the change in the general price indices from the date of acquisition to
the current reporting date.
Goodwill arising on the acquisition of subsidiaries is included in intangible assets. Goodwill
arising on the acquisition of an associate or joint venture is included in ‘Investment in
associates and joint ventures’, and is tested for impairment as part of the overall balance.
Gains or losses on the disposal of an entity include the carrying amount of goodwill allocated
to the entity sold.
The group annually reviews the carrying amounts of intangible assets with indefinite useful
lives for impairments. The recoverable amounts of the assets are estimated in order to
determine the extent, if any, of the impairment loss.
Intangible assets with finite useful lives
The group’s intangible assets with finite useful lives are as follows:
- Licences;
- Customer relationships;
- Computer software; and
- Other intangible assets.
Intangible assets with finite useful lives are measured at historical cost less accumulated
amortisation and impairment losses. Intangible assets acquired through business
combinations are initially shown at fair value and are subsequently carried at the initially
determined fair value less accumulated amortisation and impairment losses. The initial cost
incurred in respect of licences is capitalised. Contingent licence fees are expensed as they
are incurred.
As the functional currencies of MTN South Sudan Company Limited and MTN Syria (JSC)
are currencies of hyperinflationary economies, intangible assets relating to these subsidiaries
are restated by applying the change in the general price indices from the date of acquisition
to the current reporting date.
Amortisation is calculated on a straight-line basis to write off the cost of intangible assets
over their estimated useful lives. Amortisation relating to MTN South Sudan Company
Limited and MTN Syria (JSC) is based on the restated amounts, which have been adjusted
for the effects of hyperinflation.
Useful lives are reviewed on an annual basis with the effects of any changes in estimate
accounted for on a prospective basis. The residual values of intangible assets are assumed
to be zero.
The bases for determining the useful lives for the various categories of intangible assets is
as follows:
Licences
The useful lives are determined primarily with reference to the unexpired licence period.
Customer relationships
The useful life principally reflects management’s view of the average economic life of the
customer base and is assessed by reference to factors such as customer churn rates. An
increase in churn rates may lead to a reduction in the estimated useful life.
Software
The useful life is determined with reference to the licence term of the computer software.
For unique software products controlled by the group, the useful life is based on historical
experience with similar assets as well as anticipation of future events such as technological
changes, which may impact the useful life.
Other intangible assets
Useful lives are based on management’s estimates and take into account historical
experience as well as future events which may impact the useful lives.
The estimated useful lives of intangible assets with finite useful lives are as follows:
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2017
Years |
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2016
Years |
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| Licences |
3 – 20 |
|
3 – 20 |
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| Customer relationships |
5 – 10 |
|
5 – 10 |
|
| Software |
3 – 6 |
|
3 – 6 |
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| Other intangible assets |
3 – 10 |
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3 – 10 |
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The gain or loss arising on the disposal or retirement of an intangible asset is included in
profit or loss.
Development costs that are directly attributable to the design and testing of identifiable and
unique software products controlled by the group are recognised as intangible assets when
the following criteria are met:
- it is technically feasible to complete the software so that it will be available for use;
- management intends to complete the software and use or sell it;
- there is an ability to use or sell the software;
- it can be demonstrated how the software will generate probable future economic benefits;
- adequate technical, financial and other resources to complete the development and to use or sell the software are available; and
- the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee
costs and an appropriate portion of relevant overheads. Capitalised development costs are
recorded as intangible assets and amortised from the point at which the asset is ready for
use.
Costs associated with maintaining software programs are recognised as an expense as
incurred. Research and development expenditure that does not meet the criteria above is
recognised as an expense as incurred. Development costs previously recognised as an
expense are not recognised as an asset in a subsequent period.
Expenditure that enhances or extends the performance of intangible assets beyond their
original specifications is recognised as a capital improvement and capitalised to the original
cost of the assets. Expenditure on research activities is recognised as an expense in the
period in which it is incurred.
Determination of fair values
The fair value of customer relationships acquired in a business combination is determined
using the multi-period excess earnings method, whereby the subject asset is valued after
deducting a fair return on all other assets that are part of creating the related cash flows.
The fair value of patents and trademarks acquired in a business combination is based on
the discounted estimated royalty payments that have been avoided as a result of the patent
or trademark being owned.
The fair values of all other intangible assets acquired in a business combination applicable
to the group are based on the discounted cash flows expected to be derived from the use
and eventual sale of the assets.
Impairment
An impairment loss is recognised in profit or loss if the carrying amount of an asset or a CGU
exceeds its estimated recoverable amount. For the purpose of impairment testing, assets
are grouped together into CGUs. The recoverable amount of an asset or CGU is the higher
of its value in use and its fair value less costs of disposal. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks
specific to the asset.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the units and then to reduce the carrying amounts of
the other assets in the unit (group of units) on a pro rata basis.
An impairment loss is subsequently reversed only to the extent that the asset or CGU’s
carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised. A reversal of an impairment loss is recognised
immediately in profit or loss.
An impairment loss in respect of goodwill is not reversed.
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