Final Results -5-
September 02 2009 - 10:38AM
UK Regulatory
subsidiary undertakings are treated as if they had always been a member of the
Group. The results of such a subsidiary are included for the whole period in the
year it joins the group. The corresponding figures for the previous year include
its results for that period, the assets and liabilities at the previous balance
sheet date and the shares issued by the company as consideration as if they had
always been in issue. Any difference between the nominal value of the shares
acquired by the company and those issued by the company to acquire them is taken
to the merger reserve. Assets and liabilities are included at their merger date
book values.
Purchase accounting
In the Group financial statements, the results of acquired subsidiary
undertakings are taken from the date on which control is obtained. For
acquisitions qualifying as 'business combinations' any difference between the
fair value of separately identifiable assets, liabilities and contingent
liabilities acquired and the consideration paid is treated as goodwill in the
consolidated balance sheet.
Revenue recognition
Revenue comprises:
(a) sales of games to retailers and external distributors at invoiced and
accrued amounts less value added tax and provision against any subsequent
returns. Where advance payments against sales are received, in so far as the
Group's obligations have been fulfilled, such advances are recognised at the
point at which they become non-refundable and non-recoupable. The Group makes
provision against any subsequent returns or price protection.
(b) royalty payments received or accrued from external distributors under
licence of the right to distribute games in certain territories. Where advance
payments against royalties are received under licence, in so far as the Group's
obligations have been fulfilled, such advances are recognised at the point at
which they become non-returnable.Revenue from sales of games is recognised at
the point at which the product is delivered.
(c) SocialGO services less value added tax and provision against any subsequent
refunds. SocialGO subscription income is billed monthly in advance and is
recognised during the month of subscription.
Goodwill
Goodwill results from the acquisition of subsidiaries, associates and joint
entities and corresponds to the difference between the fair value of the
acquisition consideration and the fair value of the assets, liabilities and
contingent liabilities identified at the date of acquisition.
The Group has elected to take the exemption not to apply IFRS 3 retrospectively
to business combinations occurring prior to the date of transition to IFRS.
Under IFRS 3 Business Combinations and IAS 38 Intangible Assets goodwill is not
amortised, but it is subject to an annual impairment review. As the Group has
elected not to apply IFRS 3 retrospectively to business combinations prior to 1
April 2006 the original UK GAAP goodwill balance at 1 April 2006 (GBP832,000) is
no longer amortised, but continues to be subject to impairment reviews. The
goodwill amortisation charge previously calculated under UK GAAP has been
credited to the income statement account.
The recoverable value of goodwill is then estimated on the basis of the higher
of market value or value in use. Value in use is defined as the present value
relating to the cash flow generating units with which the goodwill is
associated. When the market value or value in use is less than the accounting
value, impairment is recorded and is irreversible.
Foreign currency
Transactions entered into by group entities in a currency other than the
currency of the primary economic environment in which they operate (their
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognised
immediately in the consolidated income statement.
On consolidation, the results of overseas operations are translated into
sterling at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations, including goodwill
arising on the acquisition of those operations, are translated at the rate
ruling at the balance sheet date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas operations at
actual rate are recognised directly in equity (the "foreign exchange reserve").
No material differences arise on translation.
Exchange differences recognised in the income statement of group entities'
separate financial statements
on the translation of long-term monetary items forming part of the group's net
investment in the overseas
operation concerned are reclassified to the foreign exchange reserve on
consolidation. On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to that
operation up to the date of disposal are transferred to the consolidated income
statement as part of the profit or loss on disposal.
At the date of transition to 1 April 2006, the Group used an exemption available
under IFRS 1, 'First time adoption of International Financial Reporting
Standards', which resulted in the cumulative translation differences for all
foreign operations being deemed to be zero at the date on transition to IFRS.
Any gain or loss on the subsequent disposal of those foreign operations would
exclude translation differences that arose before the date of transition to IFRS
and include only subsequent translation differences.
Financial assets
The Group classifies its financial assets into one of the following categories,
depending on the purpose for which the asset was acquired. The Group's
accounting policy for each category is as follows:
Loans and receivables: These assets are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They
arise principally through the provision of goods and services to customers
(trade debtors), but also incorporate other types of contractual monetary asset.
They are carried at amortised cost using effective rate method.
Cash and cash equivalents: Cash and cash equivalents includes cash in hand and
deposits held at call with banks.
Financial liabilities
The Group classifies its financial liabilities as other financial liabilities.
The Group has no value through profit and loss financial liabilities. The
Group's accounting policy is as follows:
Other financial liabilities: Other financial liabilities include the following
items: Trade payables and other short-term monetary liabilities, which are
recognised at fair value on initial recognition and subsequently carried at
amortised cost using the effective interest method.
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The Groups
ordinary shares are classified as equity instruments.
Share based payments
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the income statement on a straight line basis
over the vesting period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each balance
sheet date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually vest. Market
vesting conditions are factored into the fair value of the options granted. As
long as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and after
the modification, is also charged to the income statement over the remaining
vesting period.
Where equity instruments are granted to persons other than employees, the income
statement is charged with the fair value of goods and services received. If it
is not possible to identify the fair value of these goods or services provided,
the income statement is charged with the fair value of the options granted.
Fair value is calculated using the Black-Scholes model
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and
subsequently amortised on a straight-line basis over their useful economic
lives. The amortisation expense is included within the administrative expenses
line in the consolidated income statement.
Intangible assets are recognised on business combinations if they are separable
from the acquired entity or give rise to other contractual/legal rights. The
amounts ascribed to such intangibles are arrived at by using appropriate
valuation techniques (see note 2 related to critical estimates and judgements).
In accordance with IAS 38 "Intangible assets", only elements whose cost can be
determined reliably and for which it is probable that future benefits exist are
recorded as non current assets.
Where assets are acquired in transactions that do not meet the IFRS 3 definition
of a 'business combination', the assets are treated as acquired at cost, being
the fair value of consideration.
The significant intangibles recognised by the group, their useful economic lives
and the methods used to determine the cost of intangibles acquired in a business
combination are as follows:
+--------------------------------------+----------------------------+-------------------------+
| Intangible asset | Useful economic life | Valuation method |
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