Significant renovations are capitalised if they extend the life of the asset or increase its value. Maintenance, repairs and minor renewals are charged to income as incurred.

Property, plant & equipment that are disposed of are eliminated from the balance sheet, along with the corresponding accumulated depreciation. Any gain or loss resulting from such disposal is included in current income.

The basis of valuation used on the transfer of assets from SLT to SLTL is explained under the heading “Assets acquired on incorporation”.

Depreciation is calculated on a straight line method to write off the cost of each asset to their residual values over their estimated useful lives as follows:

Freehold buildings 50 years
Ducts and other outside plant 10 to 25 years
Undersea cables (included under ducts, cables and other outside plant) 8 to 10 years
Telephone exchanges and transmission equipment 12.5
years
Motor vehicles 5 years
Other fixed assets 5 to 10 years

Freehold land is not depreciated, as it is deemed to have an infinite life

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

The property, plant & equipment records maintained by SLTL are insufficient to allow an accurate assessment of the appropriate depreciation charge of individual assets, as much of the accounting information is aggregated and incapable of being allocated to individual assets, nor do these records enable a detailed assessment to be made for provision for permanent diminution in value, if any. Accordingly the accumulated depreciation and the depreciation charge for the year have been based on broad estimates, using the best information available.

Gains and losses on disposal of property, plant & equipment are determined by reference to their carrying amount and are taken into account in determining operating profit.

Interest costs on borrowings to finance the construction of property, plant & equipment are capitalised, during the period of time that is required to complete and prepare the property for its intended use, as part of the cost of the asset.

7. Assets acquired on Incorporation
As at 1 September 1991 the Department of Telecommunications (DOT) transferred its entire telecommunications business and related assets and liabilities to SLT. A valuation was performed by the Government of the assets and liabilities transferred to SLT. The net amount of those assets and liabilities represents SLT’s Contributed Capital on incorporation, and those values were used for the opening cost of fixed assets at 1 September 1991 in the first statutory accounts of SLT for the year ended 31 December 1991.

Further SLT was converted into a public limited company, Sri Lanka Telecom Limited (SLTL), on 25 September 1996 and on that date all of the business and the related assets and liabilities of SLT were transferred to SLTL as part of the privatisation process.

8. Inventories
Inventories are stated at the lower of cost and net realisable value. For this purpose, the value of stocks per standard costs used, is reduced by the corresponding price variance at the year end. As a result cost is calculated on a first in first out basis. Provision is made for slow-moving and obsolete inventories.

9. Trade Receivables
Receivables are carried at anticipated realisable value, after providing for bad and doubtful amounts. The available records do not provide sufficient information concerning domestic receivables to enable an accurate assessment to be made of the necessary provision. Accordingly, estimates have been made on the basis of the best information available.

10. Cash & Cash Equivalents
For the purpose of the cash flow statement, cash & cash equivalents comprise cash in hand, deposits held at call with banks, excluding those restricted at bank, and investments in money market instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current liabilities.

11. Deferred Expenditure
Insurance premium paid by the Company to secure foreign loans under the 150K Project Scheme has been deferred on the grounds that the benefit of this expenditure is not exhausted in the period in which it is incurred and will be written off to the income statement over twelve years.