PROPERTY, PLANT AND EQUIPMENT

ACCOUNTING POLICY

Recognition and measurement, including depreciation

We measure property, plant and equipment upon initial recognition at cost and begin recognizing depreciation when the asset is ready for its intended use. Subsequently, property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures (capital expenditures) that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes:


•	the cost of materials and direct labour;


•	costs directly associated with bringing the assets to a working condition for their intended use;


•	expected costs of decommissioning the items and restoring the sites on which they are located (see note 19); and


•	borrowing costs on qualifying assets.

We depreciate property, plant and equipment over its estimated useful life by charging depreciation expense to net income as follows:



Asset	Basis	Estimated useful life
Buildings	Diminishing balance	5 to 40 years
Cable and wireless network	Straight-line	3 to 40 years
Computer equipment and software	Straight-line	4 to 10 years
Customer premise equipment	Straight-line	3 to 6 years
Leasehold improvements	Straight-line	Over shorter of estimated useful life or lease term
Equipment and vehicles	Diminishing balance	3 to 20 years

We calculate gains and losses on the disposal of property, plant and equipment by comparing the proceeds from the disposal with the item's carrying amount and recognize the gain or loss in net income.

We capitalize development expenditures if they meet the criteria for recognition as an asset and amortize them over their expected useful lives once the assets to which they relate are available for use. We expense research expenditures, maintenance costs, and training costs as incurred.

Impairment testing

We test non-financial assets with finite useful lives for impairment whenever an event or change in circumstances indicates that their carrying amounts may not be recoverable. The asset is impaired if the recoverable amount is less than the carrying amount. If we cannot estimate the recoverable amount of an individual asset because it does not generate independent cash inflows, we test the entire cash generating unit (CGU) for impairment.

A CGU is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets.

Recognition and measurement of an impairment charge

An item of property, plant and equipment, an intangible asset, or goodwill is impaired if the recoverable amount is less than the carrying amount. The recoverable amount of a CGU or asset is the higher of its:


•	fair value less costs to sell; and


•	value in use.

If our estimate of the asset's or CGU's recoverable amount is less than its carrying amount, we reduce its carrying amount to the recoverable amount and recognize the loss in net income immediately.

We reverse a previously recognized impairment loss if our estimate of the recoverable amount of a previously impaired asset or CGU has increased such that the impairment recognized in a previous year has reversed. The reversal is recognized by increasing the asset's or CGU's carrying amount to our new estimate of its recoverable amount. The carrying amount of the asset or CGU subsequent to the reversal cannot be greater than its carrying amount if we had not recognized an impairment loss in previous years.

USE OF ESTIMATES AND JUDGMENTS

ESTIMATES

Components of an item of property, plant and equipment may have different useful lives. We make significant estimates when determining depreciation rates and asset useful lives, which require taking into account company-specific factors, such as our past experience and expected use, and industry trends, such as technological advancements. We monitor and review residual values, depreciation rates, and asset useful lives at least once a year and change them if they are different from our previous estimates. We recognize the effect of changes in estimates in net income prospectively.

In 2018, we reviewed the depreciation rates for all of our property, plant and equipment. The review resulted in an increase in the estimated useful lives of certain of our customer premise equipment assets. These changes have been applied prospectively. They did not have a material effect on our financial statements in 2018 and they will not have a material effect on depreciation in future periods.

We use estimates to determine certain costs that are directly attributable to self-constructed assets. These estimates primarily include certain internal and external direct labour, overhead, and interest costs associated with the acquisition, construction, development, or betterment of our networks.

Furthermore, we use estimates in determining the recoverable amount of property, plant and equipment. The determination of the recoverable amount for the purpose of impairment testing requires the use of significant estimates, such as:


•	future cash flows;


•	terminal growth rates; and


•	discount rates.

We estimate value in use for impairment tests by discounting estimated future cash flows to their present value. We estimate the discounted future cash flows for periods of up to five years, depending on the CGU, and a terminal value. The future cash flows are based on our estimates and expected future operating results of the CGU after considering economic conditions and a general outlook for the CGU's industry. Our discount rates consider market rates of return, debt to equity ratios, and certain risk premiums, among other things. The terminal value is the value attributed to the CGU's operations beyond the projected time period of the cash flows using a perpetuity rate based on expected economic conditions and a general outlook for the industry.

We determine fair value less costs to sell in one of the following two ways:

•

Analyzing discounted cash flows - we estimate the discounted future cash flows for five-year periods and a terminal value, similar to the value in use methodology described above, while applying assumptions consistent with those a market participant would make. Future cash flows are based on our estimates of expected future operating results of the CGU. Our estimates of future cash flows, terminal values, and discount rates consider similar factors to those described above for value in use estimates; or


•	Using a market approach - we estimate the recoverable amount of the CGU using multiples of operating performance of comparable entities and precedent transactions in that industry.

We make certain assumptions when deriving expected future cash flows, which may include assumptions pertaining to discount and terminal growth rates. These assumptions may differ or change quickly depending on economic conditions or other events. It is therefore possible that future changes in assumptions may negatively affect future valuations of CGUs and goodwill, which could result in impairment losses.

JUDGMENTS

We make significant judgments in choosing methods for depreciating our property, plant and equipment that we believe most accurately represent the consumption of benefits derived from those assets and are most representative of the economic substance of the intended use of the underlying assets.

EXPLANATORY INFORMATION



(In millions of dollars)	December 31, 2018				December 31, 2017				December 31, 2016
	Cost	Accumulated depreciation		Net carrying amount	Cost	Accumulated depreciation		Net carrying amount	Cost	Accumulated depreciation		Net carrying amount

Land and buildings	1,125	(428	)	697	1,090	(397	)	693	1,062	(375	)	687
Cable and wireless networks	21,024	(13,550	)	7,474	20,252	(13,206	)	7,046	20,108	(13,035	)	7,073
Computer equipment and software	5,514	(3,305	)	2,209	4,996	(2,807	)	2,189	4,296	(2,424	)	1,872
Customer premise equipment	1,908	(1,279	)	629	1,565	(1,090	)	475	1,560	(1,156	)	404
Leasehold improvements	539	(250	)	289	496	(220	)	276	457	(193	)	264
Equipment and vehicles	1,292	(810	)	482	1,246	(782	)	464	1,169	(720	)	449

Total property, plant and equipment	31,402	(19,622	)	11,780	29,645	(18,502	)	11,143	28,652	(17,903	)	10,749

The tables below summarize the changes in the net carrying amounts of property, plant and equipment during 2018 and 2017.



(In millions of dollars)	December 31, 2017		December 31, 2018
	Net carrying amount	Additions ¹	Depreciation		Other ²		Net carrying amount

Land and buildings	693	40	(32	)	(4	)	697
Cable and wireless networks	7,046	1,556	(1,128	)	—		7,474
Computer equipment and software	2,189	653	(633	)	—		2,209
Customer premise equipment	475	423	(269	)	—		629
Leasehold improvements	276	44	(31	)	—		289
Equipment and vehicles	464	99	(81	)	—		482

Total property, plant and equipment	11,143	2,815	(2,174	)	(4	)	11,780


¹	Excludes proceeds on disposition of $25 million (see note 28).


²	Includes disposals, reclassifications, and other adjustments.



(In millions of dollars)	December 31, 2016		December 31, 2017
	Net carrying amount	Additions ¹	Depreciation		Other ²		Net carrying amount

Land and buildings	687	61	(30	)	(25	)	693
Cable and wireless networks	7,073	1,125	(1,150	)	(2	)	7,046
Computer equipment and software	1,872	867	(549	)	(1	)	2,189
Customer premise equipment	404	315	(244	)	—		475
Leasehold improvements	264	40	(28	)	—		276
Equipment and vehicles	449	102	(86	)	(1	)	464

Total property, plant and equipment	10,749	2,510	(2,087	)	(29	)	11,143


¹	Excludes proceeds on disposition of $74 million (see note 28).


²	Includes disposals, reclassifications, and other adjustments.

Property, plant and equipment not yet in service and therefore not subject to depreciation as at December 31, 2018 was $1,339 million (2017 - $1,076 million). During 2018, capitalized interest pertaining to property, plant and equipment was recognized at a weighted average rate of approximately 3.9% (2017 - 4.0%).

In 2018, we disposed of certain assets with a net carrying amount of $9 million (2017 - $25 million). We received total proceeds of $25 million (2017 - $74 million) for these assets, thereby recognizing a $16 million (2017 - $49 million) gain on disposition.

Annually, we perform an analysis to identify fully depreciated assets that have been disposed of. In 2018, this resulted in an adjustment to cost and accumulated depreciation of $943 million (2017 - $1,136 million). The disposals had nil impact on the Consolidated Statements of Income.