Intangible assets with an indefinite useful life are not depreciated and are hence subjected to the “impairment test” at least once a year (see
Note 4.3).
Intangible assets with a definite useful life are depreciated according to the straight-line method on the basis of the estimated years of useful life
of the asset in question.
The following are the main items recorded under the “Intangible assets” heading:
i) Rights of use: This item reflects the right to operate Hotel NH Plaza de Armas in Seville, acquired in 1994, whose depreciation is attributed to
the consolidated comprehensive profit/loss over the 30-year term of the agreement at a growing rate of 4% per year.
ii) “Rental agreement premiums” reflect the amounts paid as a condition to obtain certain hotel lease agreements. They are depreciated on a
straight-line basis depending on the term of the lease.
iii) “Concessions, patents and trademarks” basically reflect the disbursements made by Gran Círculo de Madrid, S.A. for the refurbishment and
remodelling works of the building where the Casino de Madrid is located. The depreciation of such works is calculated on a straight-line
basis by taking into account the term of the concession for operating and managing the services provided in the building where the Casino
de Madrid is located, which finalises on 1 January 2037.
iv) “Software applications” include various computer programs acquired by different consolidated companies. These programs are valued at
their original cost price and depreciated at 25% per year on a straight-line basis.
4.5
Impairment in the value of tangible and intangible assets excluding goodwill
The Group evaluates the possible existence of a loss of value each year that would oblige it to reduce the book values of its tangible and
intangible assets. A loss is deemed to exist when the recoverable value is less than the book value.
The recoverable amount is either the net sale value or the value in use, whichever is higher. The value in use is calculated on the basis of estimated
future cash flows discounted at an after tax discount rate that reflects the current market valuation with respect to the cost of money and the
specific risks associated with the asset.
Future estimates have been drawn up over a period of five financial years, except in cases in which the remaining term of a lease agreement is
less, plus a residual value.
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.
If the recoverable amount of an asset is estimated to be lower than its book value, the latter is reduced to the recoverable amount by recognising
the corresponding reduction using the consolidated comprehensive profit and loss statement.
If an impairment loss is subsequently reversed, the book value of the asset is increased to the limit of the original value at which such asset was
booked before the loss of value was recognised.
Information on impairment losses detected in the financial year appears in Notes 7 and 8 of this Consolidated Annual Report.
4.6
Leases
The Group generally classifies all leases as operating leases. Only those leases which substantially transfer to the lessee the liabilities and
advantages arising from the property and under the terms of which the lessee holds an acquisition option on the asset at the end of the agreement
under conditions that could be clearly deemed as more advantageous than market conditions are classified as financial leases.
4.6.1
Operating leases
In operating lease transactions, ownership of the leased asset and substantially all the risks and advantages arising from the ownership of the
asset remain with the lessor.
When the Group acts as the lessor, it recognises the income from operating leases using the straight-line method according to the terms of the
agreements signed. These assets are depreciated in accordance with the policies adopted for similar own use tangible assets. When the Group
acts as the lessee, lease expenses are charged to the consolidated comprehensive profit and loss statement on a straight-line basis.
4.6.2
Financial leases
The Group recognises financial leases as assets and liabilities in the consolidated balance sheet at the start of lease term at the market value of the
leased asset or at the present value of the minimum lease instalments, should the latter be lower. The interest rate established in the agreement
is used to calculate the present value of the lease instalments.
The cost of assets acquired through financial leasing agreements is booked in the consolidated balance sheet according to the nature of the asset
described in the agreement.
The financial expenses are distributed over the period of the lease in accordance with a financial criterion.
4.7
Financial instruments
4.7.1
Financial assets
Financial assets are recognised in the consolidated balance sheet when they are acquired and initially booked at their fair value. The financial
assets held by Group companies are classified as follows:
-
Negotiable financial assets: these include any assets acquired by the companies with the aim of taking short-term advantage of any changes
their prices may undergo or any existing differences between their purchase and sale price. This item also includes any financial derivatives
that are not considered accounting hedges.
REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
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