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Annual Report and Accounts 2006 - Optos

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Notes to the Consolidated Financial Statements<br />

continued<br />

The resulting asset will be amortised over the number of production units expected to be obtained from the asset by the entity. The carrying value of development<br />

costs will be 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.<br />

Under IFRS, an intangible asset of $5,120,000 has been recognised at 30 September 2005 (2004: $2,485,000). Research <strong>and</strong> development costs expensed through the<br />

income statement in the year ended 30 September 2005 decreased by $2,635,000.<br />

Amortisation of the intangible asset will commence when the asset is available for use.<br />

Government grant<br />

Under UK accounting st<strong>and</strong>ards, when the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to<br />

the costs that it was intended to compensate. Where the grant related to an asset, the fair value was credited to a deferred income account <strong>and</strong> was released to the income<br />

statement over the expected useful life of the relevant asset by equal annual instalments. Under IAS 20 “Government Grants”, the $714,000 government grant associated with<br />

the development costs which was credited to the income statement in line with the expenditure in the 2005 <strong>and</strong> 2004 financial statements has been reversed.<br />

Share-based payments<br />

Under UK accounting st<strong>and</strong>ards, the cost of awards made under the Group’s employee share schemes was based on the intrinsic value of the awards.<br />

Under IFRS 2 “Share-based Payment”, the cost of employee share schemes is based on the fair value of the awards that must be assessed using an option pricing<br />

model. Generally, the fair value of the award is expensed on a straight-line basis over the vesting period. Adjustments are made to reflect expected <strong>and</strong> actual<br />

forfeitures during the vesting period due to failure to satisfy either service conditions or non-market performance conditions. As a result of these changes, the cost of<br />

employee share schemes recognised during the year ended 30 September 2005 increased by $1,170,000, including related social security costs. An employer’s National<br />

Insurance liability of $285,000 was recorded in respect of the options in the year ended 30 September 2005.<br />

Foreign currency translation differences<br />

Under UK accounting st<strong>and</strong>ards, cumulative foreign currency translation differences arising on the retranslation into sterling of the Group’s net investment in foreign<br />

operations were recognised within reserves. Under IAS 21 “The Effects of Changes in Foreign Exchange Rates”, cumulative foreign currency translation differences must<br />

be recognised as a separate component of equity <strong>and</strong> should be taken into account in calculating the gain or loss on the disposal of a foreign operation. As permitted<br />

under IFRS 1, <strong>Optos</strong> has elected to deem cumulative translation differences to be $nil on 1 October 2004.<br />

Property, plant <strong>and</strong> equipment – significant parts<br />

Under UK accounting st<strong>and</strong>ards, significant parts are classified within inventory. Under IAS 16, “Property, Plant <strong>and</strong> Equipment”, significant parts must be included<br />

within Property, Plant <strong>and</strong> Equipment. Parts are amortised from the point when the assets are available for use. It has been assessed that available for use is the point<br />

in time when the assets are installed at customer premises. The scan heads <strong>and</strong> component parts have been assessed as the significant parts. Significant parts with a<br />

carrying value of $4,584,000 (2004: $2,324,000) were reclassified from Inventory to Property, Plant <strong>and</strong> Equipment as at 30 September 2005.<br />

Holiday pay accrual<br />

As required by IAS 19, “Employee benefits”, an accrual of $152,000 has been included in the balance sheet at 30 September 2005, representing the holiday pay accrual as at<br />

that date <strong>and</strong> a charge of $23,000 included in the profit <strong>and</strong> loss for the year ended 30 September 2005. No such accrual was made under UK accounting st<strong>and</strong>ards.<br />

Taxation<br />

While the above changes may require an adjustment for the effect of taxation, these would impact the unrecognised deferred tax asset <strong>and</strong>, as such, have not been<br />

disclosed within this statement<br />

Financial instruments<br />

Upon adoption of IAS32/39, on 1 October 2005, the carrying value of the secured loan stock <strong>2006</strong> <strong>and</strong> unsecured loan stock 2007 was reduced by $1,439,000,<br />

of which $2,744,000 reflects the removal of the original value of the conversion options (which was taken to equity) <strong>and</strong> the balance of $1,305,000 represents the<br />

imputed interest calculated on an amortised costs basis from date of issue to 1 October 2005 (which was taken to retained earnings). Both the secured loan stock<br />

<strong>2006</strong> <strong>and</strong> unsecured loan stock 2007 were converted into ordinary shares upon flotation; the carrying value at date of conversion was $9,229,000.<br />

<strong>Optos</strong> plc <strong>Annual</strong> <strong>Report</strong> & <strong>Accounts</strong> <strong>2006</strong> 63

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