BGT Bright Things

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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