Annual report 2008 - Altarea Cogedim

CONSOLIDATED FINANCIAL STATEMENTS
7.15 Remeasurement of non-current
assets (other than financial assets
and investment properties)
Tangible assets and intangible assets subject to amortisation
are tested for impairment whenever any internal or external
evidence of impairment is observed.
Goodwill and other intangible assets with an indeterminate
life, such as brands, are systematically tested for impairment
annually or more frequently if internal or external events or
circumstances indicate that their value may have declined.
The carrying amount of such assets is compared with the
recoverable amount, defined as the higher of the selling
price net of costs to sell and value in use.
The value in use of a CGU is determined by the discounted
cash flow (DCF) method based on the following principles:
• the cash flows (before tax) are taken from five-year business
plans drawn up by group management;
• the discount rate is determined on the basis of a weighted
average cost of capital;
• terminal value is calculated as the sum to infinity of
the discounted cash flows, which are determined on the
basis of a normalised cash flow and a growth rate for
the activity concerned. The assumed growth rate must
be consistent with the growth potential of the markets
in which the activity is conducted, as well as with the
entity’s competitive position in those markets.
The recoverable amount of the cash-generating unit
determined by this procedure is then compared with the
consolidated carrying amount of its assets (including any
goodwill) and liabilities.
An impairment loss is recognised if the carrying amount
on the balance sheet is greater than the CGU’s recoverable
amount. The impairment loss is allocated first to goodwill
and then to other tangible and intangible assets in proportion
to their individual carrying amounts. The impairment thus
recognised is reversible, except for any portion charged to
goodwill.
7.16. Inventories
Within the ALTAREA group, inventories relate to the business
of:
• property development for third parties and the portion of
shopping centre development not intended to be held in
ALTAREA’s portfolio (hypermarket building shells, parking
facilities, etc.);
• transactions where the nature or specific administrative
situation of the project prompts a decision to classify
them as inventory (dealer’s stock) or where a final decision
to hold them in the portfolio has not been made.
Inventories and work in progress consist of design and
programme management fees, land valued at acquisition
cost, work in progress (grading and construction) and
finished goods valued at production cost.
Finance costs attributable to programmes are included in
inventories as optionally allowed under the revised IAS 23.
“New transactions” correspond to programmes not yet
developed. These programmes are stated at cost and
include the cost of pre-launch design studies (design and
management fees), as well as earnest and option deposits
put down to acquire land. These outlays are capitalised if the
probabilities of completing the transaction are high. If not,
these costs are expensed as incurred. At the balance sheet
date, a review is conducted of these “new transactions”
and if completion of the transaction is uncertain, the costs
incurred are expensed.
“Construction work in progress” transactions are carried
at production cost less the portion of cost retired on a
percentage-of-completion basis for off-plan sale (VEFA) or
property development contract transactions (see also Note
7.24). Production cost includes the acquisition cost of land,
the construction costs (inclusive of road and utilities works),
technical and programme management fees, programme
marketing fees and sales commissions, advertising expenses
directly related to programmes and other related expenses.
Management fees for services performed within the Group
are reduced by the amount of the profit margin, which is
eliminated on consolidation.
“Completed transactions” consist of lots remaining to be
sold once the declaration of completion has been filed. An
impairment loss is recognised whenever realisable value net
of marketing costs is less than the carrying amount.
Whenever the net realisable value of inventories and work in
progress is less than the production cost, impairment losses
are recognised.
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