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4.3 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 “finite useful life”.
Intangible assets with an indefinite useful life are not amortised and are hence subjected to the “impairment test” at least once a year (see Note 4.4).
Intangible assets with a finite useful life are amortised 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 recognised under the “Intangible assets” heading:
i) Hotel Operating Rights: this item reflects, on the one hand, the right to operate Hotel NH Plaza de Armas in Seville, acquired in 1994,
amortisation of which is recognised in the consolidated comprehensive profit/loss over the 30-year term of the agreement at a rate which
increases by 4% each year. On the other hand, as a consequence of entering into the consolidation Hoteles Royal, S.A., operating rights of the
hotel portfolio for 35 years have been recognised within this concept.
ii) “Rental agreement premiums” reflect the amounts paid as a condition to obtain certain hotel lease agreements. They are amortised 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 of the building where the Casino de Madrid is located. The amortisation 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. Furthermore, this item includes the brands of the Grupo Royal with a useful life of 20 years.
iv) “Software applications” include various computer programs acquired by the different consolidated companies. These programs are measured
at acquisition cost and amortised at a rate of between 20%-25% per year on a straight-line basis.
4.4 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 carrying amounts of its tangible and
intangible assets. A loss is deemed to exist when the recoverable value is less than the carrying amount.
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.
The Group has defined each of the hotels it operates as cash-generating units, according to the real management of their operations.
In general, future estimates have been drawn up for a five-year period, plus a residual value, except in cases of leased hotels in what is considered
the duration of the contract, plus a residual value.
The discount rates used by the Group for these purposes range from 6.2% to 14%, depending on the different risks associated with each specific
asset.
If the recoverable amount of an asset is estimated to be lower than its carrying amount, the latter is reduced to the recoverable amount by
recognising the corresponding reduction through the consolidated comprehensive profit and loss statement.
If an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the limit of the original value at which such asset was
recognised 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.
4.5 Lease rentals
The Group generally classifies all leases as operating leases. Only those leases which substantially transfer to the lessee the risks and rewards
deriving from ownership 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 finance leases.
4.5.1 Operating leases
In operating lease transactions, ownership of the leased asset and substantially all the risks and rewards deriving from 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, the leasing costs are charged on a straight-line basis to its comprehensive consolidated income statement, the resulting asset or
liability being recognised under “other non-current liabilities” and “other non-current assets” or “other current liabilities” and “other current assets”.
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
