Alto Palermo S.A. (APSA)

esulted in an increase impairment as of June 30, 2007 equal to Ps. 0.03 million.
We used the “open market method” for the valuation of land reserved and non-current inventories. We
estimated the value of each site by taking into consideration the value of the property according to its surface
area and location, as well as the availability of inventory. Our land reserve constitutes an added value as a
unique portfolio for shopping centers development in CBD (Central Business Districts). Caballito and Neuquén
are the largest locations in our portfolio. The performance of a sensitivity analysis, which reduced prices by
5%, resulted in an increased impairment as of June 30, 2007 equal to Ps.0.03 million.
The above mentioned potential impairment losses totaled Ps.0.06 million and would affect the balance
sheet lines “Non Current Inventories, net”, and “Fixed Assets, net”, reducing the value of our total assets by
approximately 0.003%. These impairment losses would have reduced our net income for the year ended June
30, 2007 by 0.091%.
Deferred income tax
We recognize income tax using the liability method. Accordingly, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recorded or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. Technical Resolution No. 17
requires companies to record a valuation allowance for that component of net deferred tax assets which is not
recoverable.
We believe that the accounting estimate related to deferred income tax is a “critical accounting
estimate” because:
• it is highly susceptible to change from period to period because it requires company management
to make assumptions, such as future revenues and expenses, exchange rates and inflation among
others; and
• the impact that calculating income tax using this method would have on assets or liabilities
reported on our consolidated balance sheet as well as on the income tax result reported in our
consolidated statement of income could be material.
Minimum presumed income tax
We calculate the minimum presumed income tax provision by applying the current 1% rate on
computable assets at the end of the year. This tax complements the income tax. Our tax obligation each year
will coincide with the highest amount due under either of these two taxes. However, if the minimum presumed
income tax provision exceeds income tax in a given year, the amount in excess of income tax can be offset
against income tax arising in any of the following ten years.
We have recognized the minimum presumed income tax provision paid in previous years as a credit as
we estimate that it will offset future years’ income tax.
We believe that the accounting policy relating to the minimum presumed income tax provision is a
“critical accounting policy” because it requires management to make estimates and assumptions with respect to
our future results that are highly susceptible to change from period to period, and as such the impact on our
financial position and results of operations could be material.
Extension of our Convertible Notes’ maturity date
On August 20, 2002, we issued an aggregate amount of US$50.0 million of uncollateralized convertible
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