73 AGL Energy Limited Annual Report 2012 Intangible assets acquired separately or in a business combination  are initially measured at cost. The cost of an intangible asset  acquired in a business combination is its fair value at the date  of acquisition. Following initial recognition, intangible assets  are carried at cost less any accumulated amortisation and any  accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite  or indefinite. Intangible assets with finite lives are amortised over  their estimated useful life and tested for impairment whenever  there is an indication that the intangible asset may be impaired.  The estimated useful life and amortisation method are reviewed  at the end of each annual reporting period. An intangible asset is derecognised on disposal, or when no future  economic benefits are expected from use or disposal. Gains or  losses arising from derecognition of an intangible asset, measured  as the difference between the net disposal proceeds and the  carrying amount of the asset are recognised in profit or loss  when the asset is derecognised. Goodwill arising on an acquisition of a business is carried at cost  as established at the date of the acquisition of the business  (refer Note 1(f) above) less accumulated impairment losses, if any. Subsequent costs are included in the asset’s carrying amount  or recognised as a separate asset, as appropriate, only when it is  probable that future economic benefits associated with the item  will flow to the consolidated entity and the cost of the item can be  measured reliably. All other repairs and maintenance are recognised  in profit or loss as incurred. The gain or loss arising on disposal or retirement of an item of  property, plant and equipment is determined as the difference  between the sales proceeds and the carrying amount of the asset  and is recognised in profit or loss. Depreciation is provided on property, plant and equipment,  including freehold buildings but excluding land. Depreciation is  calculated on a straight-line basis so as to write off the cost of each  asset over its expected useful life to its estimated residual value.  Leasehold improvements are amortised over the period of the  relevant lease or estimated useful life, whichever is the shorter. The estimated useful lives, residual values and depreciation method  are reviewed, and adjusted if appropriate at the end of each annual  reporting period.  The following estimated useful lives are used in the calculation of  depreciation: For the purpose of impairment testing, goodwill is allocated to each  of the consolidated entity’s cash-generating units expected to  benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is  tested for impairment annually, or more frequently when there is  indication that the unit may be impaired. If the recoverable amount  of the cash-generating unit is less than its carrying amount, the  impairment loss is allocated first to reduce the carrying amount of  any goodwill allocated to the unit and then to the other assets of  the unit pro rata based on the carrying amount of each asset in the  unit. Any impairment loss for goodwill is recognised directly in profit  or loss in the consolidated income statement. An impairment loss  recognised for goodwill is not reversed in subsequent periods. Leases are classified as finance leases whenever the terms of the  lease transfer substantially all the risks and rewards of ownership  of the leased asset to the lessee. All other leases are classified as  operating leases. Assets held under finance leases are initially recognised as assets  of the consolidated entity at their fair value at the inception of  the lease or, if lower, at the present value of the minimum lease  payments. The corresponding liability to the lessor is included in  the statement of financial position as a finance lease liability. Lease payments are apportioned between finance charges and  reduction of the lease liability so as to achieve a constant rate of  interest on the remaining balance of the liability. Finance charges  are recognised as an expense in the income statement. Assets held under finance leases are depreciated over their  expected useful lives on the same basis as owned assets or,  where shorter, the term of the relevant lease. Operating lease payments are recognised as an expense on a  straight-line basis over the lease term, except where another  systematic basis is more representative of the time pattern in  which economic benefits from the leased asset are consumed.  Contingent rentals arising under operating leases are recognised  as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into  operating leases, such incentives are recognised as a liability. The  aggregate benefit of incentives is recognised as a reduction of  rental expense on a straight-line basis, except where another  systematic basis is more representative of the time pattern in  which economic benefits from the leased asset are consumed. Customer relationships and contracts acquired in a business  combination are carried at cost less accumulated amortisation and  any accumulated impairment losses. Amortisation is recognised as  an expense on a straight-line basis over the period during which  economic benefits are expected to be received. The direct costs of establishing customer contracts are recognised  as an asset when they relate to a specific customer acquisition  campaign. The direct costs are amortised over the minimum  contract term. Direct costs include customer acquisition fees  paid to channel partners and upfront account purchase payments.  All other customer acquisition costs are expensed as incurred. Licences are carried at cost less any accumulated impairment  losses. Licences are considered to have indefinite useful lives, as  they were either granted in perpetuity, or there is evidence that  the licences will be renewed beyond the initial term and the cost  of renewal is not significant. Licences with indefinite useful lives  are not amortised, but are tested for impairment annually, or more  frequently if events or changes in circumstances indicate that they  might be impaired. Any impairment loss is recognised immediately  in profit or loss.  On disposal of the relevant cash-generating unit, the attributable  amount of goodwill is included in the determination of the profit  or loss on disposal. Licences Customer relationships and contracts (s) Leased assets Goodwill (t) Intangible assets Freehold buildings  50 years Leasehold improvements lesser of lease period or 20 years Plant and equipment 3 to 25 years or relevant units of use