4.2 Intangible assets
 

(a) Distribution agreements and customer relationships

Distribution agreements and customer relationships acquired through business combinations are initially shown at fair value as determined in accordance with IFRS 3 Ė Business Combinations, and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses.

Amortisation is calculated using the straight-line method to allocate the value of these assets over their estimated useful lives (three to 20 years).

Distribution agreements purchased are initially shown at cost, and are subsequently carried at the initial cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the value of these assets over their estimated useful lives (20 years).

(b) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Computer software has a finite useful life and is subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the computer software over its estimated useful life (three to 10 years).

Costs associated with the maintenance of existing computer software programs are expensed as incurred.

(c) Internally generated software development

Costs incurred on development projects are recognised as intangible assets when the following criteria are fulfilled:

  • it is technically feasible to complete the intangible asset and that it will be available for use or sale;
  • management intends to complete the intangible asset and use or sell it;
  • there is an ability to use or sell the intangible asset;
  • it can be demonstrated how the intangible asset will generate probable future economic benefits;
  • adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and
  • the expenditure attributable to the intangible asset during its development can be reliably measured.

Research expenditure is recognised as an expense as incurred. Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised internally generated software development costs are recorded as intangible assets and amortised from the point at which the asset is available for use (i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management) on a straight-line basis over its useful life (five to 10 years). Direct costs include the product development employee costs and an appropriate portion of relevant overheads. Costs associated with the maintenance of existing products are expensed as incurred.

(d) Purchased starter pack bases and postpaid

Starter packs capitalised represent customer relationships that the Group has contractually acquired. The purchased starter pack base asset is identifiable as it arises from a contract. The contract provides the Group with control over the customer base. The customer base does not have physical substance and is therefore intangible. This asset provides the Group with the ability to generate future economic benefits if the Group provides connection, upgrade and sales services to the customer base. Therefore, the asset is non-monetary.

Purchased starter pack bases are initially recognised at the cost to the Group. Starter pack bases have a finite life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over their estimated useful lives (10 years).

Purchased postpaid bases represent the right to earn revenue from the cellular network in respect of contracts forming part of the acquired base. Postpaid bases have a finite life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over their estimated useful lives (10 years).

Critical accounting estimates and assumptions

Purchased starter pack bases and postpaid starter pack bases

The relative size of the Groupís purchased starter pack bases and postpaid starter pack bases makes the judgements surrounding the estimated useful lives and residual values critical to the Groupís financial position and performance. 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 these assets are assumed to be zero. The current useful life of these bases is estimated to be 10 years, based on managementís estimates and taking into account historical experience as well as future events which may impact the useful lives.

Distribution 
agreement 
R'000
 
Customer 
relation- 
ships 
R'000
 
Computer 
software 
R'000
 
Internally 
generated 
software 
development 
R'000
 
Purchased   
starter pack   
bases and   
postpaid   
bases   
R'000  
 
Total 
R'000
 
  
Year ended 31 May 2020 
Opening carrying amount  622 085  211 919  67 198  55 630  126 496    1 083 328    
Additions  —  —  17 572  9 767  —    27 339    
Reclassification between categories  —  (22 873) —  —  22 873    —    
Acquisition of subsidiaries  —  —  —  —  —    —    
Disposals  —  (13 515) (228) (110) (7 926)   (21 779)   
Amortisation charge – continuing operations  (48 967) (6 410) (24 434) (14 633) (32 920)* (127 364)   
Amortisation charge – discontinued operations  (9 830) (9 161) (3 007) (2 319) —    (24 317)   
Disposal of subsidiaries  (213 394) (149 255) (24 611) (18 882) —    (406 142)   
Translation difference  —  3 350  (339) (223) —    2 788    
Closing carrying amount  349 894  14 055  32 151  29 230  108 523    533 853    
At 31 May 2020 
Cost  569 337  124 347  153 738  102 586  543 534    1 493 542    
Accumulated amortisation  (219 443) (110 292) (121 587) (73 356) (435 011)   (959 689)   
Accumulated impairments  —  —  —  —  —    —    
Carrying amount  349 894  14 055  32 151  29 230  108 523    533 853    
Year ended 31 May 2019 
Opening carrying amount  702 603  93 035  74 376  52 134  154 721    1 076 869    
Additions  —  17 773  27 706  28 075  2 377    75 931    
Acquisition of subsidiaries  —  128 107  2 316  —  —    130 423    
Disposals  —  —  109  —  (110)   (1)   
Amortisation charge – continuing operations  (51 027) (11 417) (30 030) (14 549) (30 492)* (137 515)   
Amortisation charge – discontinued operations  (29 491) (24 176) (7 329) (4 919) —    (65 915)   
Impairments – continuing operations**  —  —  —  (5 111) —    (5 111)   
Translation difference  —  8 597  50  —  —    8 647    
Closing carrying amount  622 085  211 919  67 198  55 630  126 496    1 083 328    
At 31 May 2019                      
Cost  858 698  421 012  180 648  125 398  581 831    2 167 587    
Accumulated amortisation  (234 735) (208 478) (112 753) (55 179) (455 335)   (1 066 480)   
Accumulated impairments  (1 878) (615) (697) (14 589) —    (17 779)   
Carrying amount  622 085  211 919  67 198  55 630  126 496    1 083 328    
* Included in the amortisation charge is an amount of R32.9 million (2019: R30.5 million) in respect of the purchased starter pack bases and postpaid bases, which is charged to the changes in inventories of finished goods line in the income statement.
** in depreciation and amortisation on the Group income statement.