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