58 | ELTEL Annual Report 2021
Notes to the consolidated nancial statements
Major part of Group’s revenue comes from the following revenue types:
project delivery services, upgrade services and maintenance services. The
Group’s contracts are either stand-alone agreements or contracts within
frame agreements. Only agreements that are committing both of the con-
tracting parties are dened as a contract under IFRS 15.
A contract includes promises to transfer good(s) or service(s) to a cus-
tomer. If those goods or services are distinct, the promises are performance
obligations that are each accounted for separately in revenue recognition.
The Group has analysed the different revenue types and concluded that in
the project delivery and upgrade services revenue is typically recognised
over time as customer controls the asset Eltel creates or enhances. In main-
tenance services customer typically receives benets as Eltel performs
and revenue is and continues to be recognised based on the services per-
formed. When revenue from contracts with customers is recognised over
time, revenue for the period is recognised to the extent of satisfying the
performance obligation(s) to the customer. The Group typically uses the
input method based on the costs incurred to measure the progress of satis-
fying the performance obligation(s) over time. The progress is measured
based on costs incurred relative to the total estimated costs and revenue
is recognised based on this percentage of completion. An expected loss
on a customer contract is recognised as an expense immediately. IFRS
15 does not include any guidance on how to account for loss contracts.
Accordingly, such contracts are accounted for using the guidance in IAS 37
‘Provisions, Contingent Liabilities and Contingent Assets’.
Whenever the Group’s customer contracts contain a variable consider-
ation the amount shall be withhold so that the Group does not recognise
any amount relating to variable consideration until it is highly probable
that a signicant revenue reversal will not incur. The assessment of the
likelihood of revenue reversal is based on historical evidence from earlier
similar type of contracts. Also the materiality is estimated. A typical variable
price element in Eltel’s contracts is delay penalties.
In some contracts the timing of customer payments may differ signi-
cantly from the timing of the transfer of goods or services to the customer
(for example the consideration is prepaid or is paid after the services are
provided). When the difference is more than a year the Group assesses at
the beginning of the contract whether the contact contains a signicant
nancing component. If the contract contains a signicant nancing
component the promised amount of consideration is adjusted and Eltel
recognises revenue at an amount that reects the cash selling price of the
promised goods or services.
Contract assets and contract liabilities
IFRS 15 distinguished between contract assets and contract receivables.
Contract receivable is a right to consideration that is unconditional and only
passage of time is required before the payment is due, i.e. trade receivable.
Contract asset is a right to consideration in exchange for goods or services
the Group has transferred to customer, i.e. revenue recognised but not yet
invoiced. The contract receivables and contract assets are included in the
balance sheet in the trade and other receivables.
A contract liability is an obligation to transfer goods or services to a cus-
tomer for which the Group has received consideration from the customer.
Advances received in the balance sheet represent the Group’s contract
liabilities.
Segment reporting (IFRS 8)
Eltel changed its segment structure from 1 January 2021. In line with the
Nordic strategy, Eltel’s main operations are presented by four country
segments: Finland, Sweden, Norway and Denmark. All communication
and power business in these four Nordic countries are presented under
the country segments. Other business includes operations in High Voltage,
which conducts most of its business in Poland, Smart Grids Germany,
Lithuania as well as Power Transmission International and Rail businesses
that are under ramp down. Other business represents less than 15% of the
operations and each of the operations have a size of less than 10% of sales,
operative EBITA and total segment assets.
Operating segments are business activities that may earn revenues or
incur expenses, whose operating results are regularly reviewed by the chief
operating decision maker, the CEO, and for which nancial information is
available. Operating segments constitute the operational structure for
governance, monitoring and reporting. Revenues, costs, operative assets
and liabilities are allocated to segments on consistent basis. Income
statement items below operative EBITA are not allocated to the segments.
Goodwill and other intangible assets (IAS 38)
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the net assets of the acquired company on the date of acquisition.
Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is not amortised, but tested annually for any impairment and
always, if there are indications of impairment. For the purpose of testing
goodwill for any impairment, goodwill is allocated to cash-generating units.
Goodwill is stated at cost less impairments.
Other intangible assets
Intangible assets are recognised only if the cost of the asset can be
measured reliably and it is probable that the future economic benets
attributable to the asset will ow to the Group. Intangible assets in the
Group include acquired computer software, brand, order backlog and cus-
tomer relationships. The valuation of intangible assets acquired in a busi-
ness combination is based on fair value. Other intangible assets (except
for brands) subsequent to initial recognition, are recognised at cost less
depreciations and impairments, if any. On initial recognition they are rec-
ognised at fair value at the acquisition date which is regarded as their cost.
Acquired computer software licences are capitalised on the basis of
the costs incurred to acquire and bring to use the specic software. These
costs are amortised using the straight-line method over their expected
useful lives (3–7 years).
Costs associated with developing or maintaining computer software
programmes are recognised as an expense as incurred. Costs that are
directly associated with the development of identiable and unique soft-
ware products controlled by the Group, and that will probably generate
economic benets exceeding costs beyond one year, are recognised as
intangible assets. Costs include the software development employee costs
and an appropriate portion of relevant overheads and external consultancy
fees. Computer software development costs recognised as assets are
amortised over their expected useful lives (7 years).
Brand, order backlog and customer relationships have been acquired
in business combinations. The brand relates to the Eltel brand as a result
of the acquisition of Eltel Group Corporation. Fair value of the brand is
determined based on the relief-from-royalty method. Brand is not amor-
tised, but tested annually for impairment. The fair value of order backlog
is determined based on the future cash ows expected to arise from the
existing contracts with customers. Order backlog is amortised using the
straight-line method over the period until delivery (2–4 years).
The fair value of customer relationships is determined based on the
future cash ows expected to arise from contracts with the existing cus-
tomers. Customer relationship is amortised using the straight-line method
over their expected useful lives (5–10 years).
The amortisation period for an intangible asset is reviewed at least at
each nancial year-end. If the expected useful life of the asset is different
from previous estimates, the amortisation period is changed accordingly.
Cloud-based Software-as-a-Service (SaaS)
General rule is that cloud-based software and related conguration and
customisation costs are recognised as an expense according to underlying
service agreement. In specic cases when the software product is
controlled by the Group, Intangible asset guidance (IAS 38) is applied and
the costs are capitalised accordingly.
Impairments
Assets that have an indenite useful life, for example goodwill, are not
subject to amortisation but are tested annually for impairment. In addition,
other assets are assessed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Should any indication of an impaired asset exist, the asset’s recoverable
amount will be estimated.
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identiable cash ows
and which are mainly independent (cash-generating units or groups of
cash-generating units). The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. The value-in-use is determined
by reference to discounted future net cash ow expected to be generated
by the asset.