The Group depreciates its intangible fixed assets following the straight line method, distributing the cost of the assets over their estimated useful
lives, in accordance with the following table:
Estimated years of useful life
Buildings
33-50
Plant and machinery
10-30
Other fixtures, tools and furniture
5-10
Other fixed assets
4-5
4.2
Real-estate investments
These reflect the value of land, buildings and structures held either for rental or to obtain a capital gain on their sale.
Real estate investments are valued at their original cost. Buildings are valued according to the cost of the corresponding certifications of the works
executed plus any expenses associated with the project (works management, fees, architect’s fees, etc.) and depreciated on a straight-line basis
depending on their useful life, which is the same as that used in tangible fixed assets for similar elements.
Interest costs attributable to these investments are activated during the construction period up to the moment they are ready for sale and are
considered as an increased investment cost. Should financial income be obtained from temporary investment of surpluses, said income reduces
the cost of the investment.
Revenue and profits or losses arising from the sale of the assets to buyers and the execution of deeds of sale, being the time when the inherent
rights and obligations are transferred, are recognised. Rental income is attributed to the results on an accrual basis.
An accrual basis is used to recognise rental costs, charging all maintenance, management and depreciation costs of the rented assets to profit
and loss.
The Group periodically determines the fair value of real estate investment elements, using appraisals performed by independent experts as a
reference.
4.3
Consolidation goodwill
Consolidation goodwill reflects excess acquisition cost when compared to the Group’s interest in the market value of the identifiable assets and
liabilities of a subsidiary or jointly controlled entity on the date of acquisition.
Any positive difference between the cost of interests in the capital of consolidated and associated entities and the corresponding theoretical book
values acquired, adjusted on the date of the first consolidation, are recognised as follows:
1.
If they are assignable to specific equity elements of the companies acquired, by increasing the value of any assets whose market value is
above their net book value appearing in the balance statements.
2.
If they are assignable to specific intangible assets, by explicitly recognising them in the consolidated balance sheet, provided their market
value on the date of acquisition can be reliably determined.
3.
Any remaining differences are entered into the books as goodwill, which is assigned to one or more specific cash-generating units (in general
hotels) which are expected to make a profit.
Goodwill will only be booked when it has been acquired for valuable consideration.
Any goodwill generated through the acquisition of associated companies is booked as an increased value of the interest.
Any goodwill generated through acquisitions prior to the IFRS transitional date, 1 January 2004, is kept at its net value booked at 31 December
2003
in accordance with Spanish accounting standards.
Goodwill is not depreciated. In this regard, the Group estimates, using the so-called “Impairment Test”, the possible existence of permanent
losses of value that would reduce the recoverable value of goodwill to an amount less that the net cost booked at the end of each year and
provided evidence of a loss of value exists. Should this be the case, they are written down in the consolidated comprehensive profit and loss
statement. Any write-downs entered into the books cannot be subject to subsequent review.
All goodwill is assigned to one or more cash-generating units in order to conduct the impairment test. The recoverable value of each cash-
generating unit is determined either as the value in use or the net sale price that would be obtained for the assets assigned to the cash-generating
unit, whichever is higher. The value in use is calculated on the basis of estimated future cash flows discounted at an after tax rate that reflects the
current market valuation with respect to the cost of money and the specific risks associated with the asset.
The discount rates used by the Group for these purposes range from 7.42% to 12%, depending on the different risks associated with each specific
asset.
4.4
Intangible assets
Intangible assets are considered to be any specifically identifiable non-monetary assets which have been acquired from third parties or developed
by the Group. Only those whose cost can be estimated in an objective way and from which future economic profits are expected are recognised.
Any assets deemed to contribute indefinitely to the generation of profits are considered to have an indefinite useful life. The remaining intangible
assets are considered have a “specific useful life”.
72
REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
