Annual Report and Accounts 2006 - Optos

Notes to the Consolidated Financial Statements
continued
d) Property, plant and equipment
Property, plant and equipment is stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and accumulated impairment in value.
Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual values based on prices prevailing at the
balance sheet date of each asset evenly over its expected useful, life as follows:
Leasehold improvements
P200 equipment
Other plant & equipment
10 years
5 years
3 to 10 years
P200 equipment refers to retinal examination equipment located at healthcare professional sites and being used on a pay-per-examination basis, and significant
component parts and major spares. P200 equipment is depreciated upon activation at the relevant healthcare professional site.
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be
recoverable.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income
statement in the year the asset is derecognised.
The assets’ residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.
e) Leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the
lease at the fair value or, if lower, at the present value of the minimum lease payments or, in respect of P200 equipment, at the cost of manufacture. Lease payments
are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group
will obtain ownership by the end of the lease term.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Upon placement of P200 equipment at a healthcare professional site, the Group enters into a financing agreement with third-party providers of vendor finance
involving the sale of P200 equipment, with legal title being transferred back at the end of the period. As the significant risks and rewards of ownership are retained by
the Group, the proceeds received from the third-party providers of vendor finance are recorded as fixed-rate obligations which are repayable by instalments and are
secured over the related P200 assets.
f) Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment loss. Internally generated intangible assets, excluding capitalised
development costs, are not capitalised, and expenditure is charged against profits in the year in which the expenditure is incurred.
Research and development costs
Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably
be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied, requiring the asset to be carried at cost less any
accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future revenues from the
related project.
The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indication of impairment
arises during the reporting year.
Computer software
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Amortisation is provided on a
straight-line basis so as to charge the cost of the software to the income statement over its expected useful life, which is in the range three to five years.
g) Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication of impairment exists, or when annual
impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s,
or cash-generating unit’s, fair value less costs to sell, and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that
are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. 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 of continuing operations are
recognised in the income statement in those expense categories consistent with the function of the impaired asset.
Optos plc Annual Report & Accounts 2006 41