4.3
Consolidation goodwill
The goodwill generated on consolidation represents the excess of the cost of acquisition over theGroup’s share in themarket value of the identifiable assets and liabilities
of a subsidiary.
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 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
reversal.
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 7.03% 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 fromwhich 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”.
Intangible assets with an indefinite useful life are not depreciated and are hence subjected to the “impairment test” at least once a year (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: 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 deMadrid, S.A. for the refurbishment and remodelling works
of the building where the Casino deMadrid is located. The depreciation of such works is calculated on a straight-line basis by taking into account the termof 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 different computer programs acquired by different consolidated companies. These programmes are measured at acquisition
cost and amortised at a rate of between 20%-25% per year on a straight-line basis.
4.5
Impairment in the value of tangible and intangible assets excluding goodwill
The Group assesses 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 7.03% to 12%, depending on the different risks associated with each specific asset.
REPORT ONTHE CONSOLIDATED FINANCIAL STATEMENTS
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