Some accounting principles, measurements and policies

Accounting principles as “Going concern basis” or “Accrual basis” 

The balance sheet at 31 December 2012 shows an excess of current liabilities over total current assets. The directors considers that this is not an indication of the Group’s lack of financial capacity to settle its liabilities in the short term, since the Group has available credit lines not utilised and new sources of financing, as well as the renewal of existing financing.

Income and expenses are recognised on an accruals basis irrespective of when actual payment or collection occurs.

The remaining principles are also accomplished.

“Accounting measurements and estimations”

Regarding the impairment loss on goodwill, the Group tests goodwill for impairment annually.  Recoverable amounts of cash generating units are determined on the basis of value in use calculations.

Another issue we must talk about is the income tax provision. Due to the fact that the Group operates in many countries, there are many transactions and calculations for which the final calculation of the tax is uncertain. So, the Group recognises the liabilities for possible tax claims based on estimates if additional taxes will be necessary. If the final tax results differ from the amounts that were initially recognised, these differences will have an effect on income tax and the provisions for deferred tax in the year in which the calculation is made.

We also want to remark that the fair value of financial instruments that are not traded on an active market are determined using valuation techniques, as assumptions that are based mainly on market conditions. Normally, they are obtained from studies carried out by independent experts.

To measure the fair value of investment property, the Group has chosen to based on appraisals made by independent experts using discounting valuation techniques of the cash flows from these assets.

“Accounting policies”

Intangible assets

Concerning goodwill, it represents the difference between the acquisition price of the subsidiaries consolidated by the full consolidation method and the Group´s interest in the market value of the subsidiaries identifiable assets and liabilities.

Goodwill is not amortised. Instead, it is tested annually for impairment. Impairment losses are recognised if the recoverable value determined is less than the initially appointed. This will not reverse in future years.

Other intangible assets, investments made in trademarks are not amortised as their useful life is considered to be indefinite. The remaining items such as industrial

property, software or leaseholds are amortised on a straight-line basis over  five-year period, agreements or whatever defined.

 Tangible assets

Property, plant and equipment are stated at cost, plus the financial expenses directly attributable to the acquisition, construction and renovations, incurred until the asset is in conditions to be brought into use, less accumulated depreciation and any impairment losses. Repairs which do not represent an extension of the useful life, and maintenance expenses, are charged directly to profit and loss. Costs which extend or improve the asset’s useful life are capitalised as an increase in their value. Depreciation calculated on the straight-line method over the estimated useful lives.

In case we face an impairment, we focus on whether it is recoverable or not in order to deem the amount.