Annual report 2008 - Altarea Cogedim

CONSOLIDATED FINANCIAL STATEMENTS
with the exception of initial letting fees, which are included
in the cost of production of the assets, and net impairment
of doubtful receivables.
b) Net property income
Net property income is the difference between revenues
and cost of sales, selling expenses and net allowances for
impairment on doubtful receivables and inventories.
It corresponds primarily to the profit margin on property
development for third parties, plus the profit margin on
sales of assets related to the shopping centre development
business (hypermarket building shells, parking facilities,
etc.).
• For the property development activities, net property income
is recognised in ALTAREA’s financial statements using the
percentage-of-completion method.
This method is used for all off-plan sale (VEFA) and property
development contract transactions.
Losses on “new transactions” are included in net property
income.
For these programmes, revenues from sales effected via
notarial closing are recognised, in accordance with IAS 18,
“Revenue”, in proportion to the percentage of completion of
the programme, as measured by cumulative costs incurred
as a percentage of the total forecast budget (updated at each
balance sheet date) for costs directly related to construction
(not including the cost of land) and to the percentage of
sales realised, determined relative to budgeted total
sales. The event that generates revenue recognition is the
commencement of construction work combined with the
signature of valid deeds of sale.
In other words, net property income on property development
transactions is measured according to the percentage-ofcompletion
method based on the following criteria:
– project accepted by the other party to the contract,
– existence of documented projections reliable enough
to provide a sound estimate of the overall economics
of the transaction (selling price, stage of completion of
construction work, no risk of non-completion).
Application of interpretation IFRIC 15 “Agreements for the
Construction of Real Estate” should not lead to any material
impact on the Group’s consolidated financial statements.
It is worth noting that the uncertainties related to the
economic and financial crisis render selling price estimates
and the projected absorption rate for real estate programmes
less reliable.
• For property trading activities, net property income is
recognised upon delivery, that is, when sales have
closed.
c) Net overhead costs
The “Net overhead costs” line item includes income and
expense items that are inherent in the business activities of
the Group’s service companies.
• Income
For each operating segment, income includes payments
for services provided to third parties, such as delegated
project management fees related to development activities,
rental management fees (syndicate agent, coownership
management), and fees for marketing and other services
(additional work borne by acquirers).
• Expense
Expense includes staff costs, overhead costs (miscellaneous
fees, rent, etc.), as well as depreciation of operating
assets.
d) Other income and expense
Other income and expense relates to Group companies that
are not providers of services. It corresponds to overhead costs
and miscellaneous management fee income. Amortisation
of intangible assets and depreciation of tangible assets
other than portfolio assets in operation are also included in
this line item.
7.25. Leases
According to IAS 17, a lease is an agreement whereby the
lessor conveys to the lessee, in return for a payment or series
of payments, the right to use an asset for an agreed period
of time. IAS 17 distinguishes between finance leases, which
transfer substantially all the risks and rewards incidental to
ownership of the leased asset, and operating leases, which
do not.
n Leases in the financial statements with the Group as lessor
The Group’s rental revenues derive primarily from operating
leases and are accounted for on a straight-line basis over
the entire term of the lease. The Group therefore retains
substantially all the risks and rewards incidental to
ownership of its investment properties.
• Treatment of contingent rent
IAS 17 states that contingent rent amounts (stepped rents,
rent holidays and other benefits granted to lessees) must be
recognised on a straight-line basis over the firm lease term,
which is understood as the period during which the lessee
has no right to cancel. These amounts therefore increase or
reduce rental revenues for the period.
• Treatment of lump-sum upfront payments
Upfront payments received as a lump sum by the lessor
are analysed as additional rent. As such, IAS 17 requires
upfront lease payments to be spread linearly over the firm
lease term.
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