A N N U A L R E P O R T A N D A C C O U N T S - CMVM

Notes to the Financial Statements as at 31 st December 2008
c) Financial investments
Financial investments in Group companies and associated companies are recorded using the equity method, whereby the shares are initially
recognised at their acquisition cost, reduced or increased by the difference between that acquisition cost and the amount proportional to the
interest held in the equity capital of those companies, on the date of acquisition or of the first application of the abovementioned equity
method. The differences between the acquisition cost of investments in those companies and the amount proportional to the Company’s
interest in their equity capital, on the date of acquisition or of the first application of the abovementioned method, were recorded under the
item "Adjustments to capital shares”, included in the equity capital.
According to the equity method, financial shares are adjusted by the amount corresponding to the share in the net profit of the Group
companies and associated companies, as counterpart of the financial gains or losses for the financial year, and by other variations in their
equity capital, as a counterpart of the item "Adjustments to capital shares”. Furthermore, the dividends received from these companies are
entered as a reduction in the amount of financial investments.
Financial investments in other investee companies, other financial instruments and the loans granted to investee companies are recorded
at their acquisition cost or nominal value, which is lower than their market or recovery value.
Income from financial investments in other investee companies and in securities and financial instruments (dividends) is recorded in the profit
and loss account for the financial year in which their distribution is decided and announced.
d) Inventory
Raw materials and consumables are valued at their acquisition cost, which is lower than their market value, using the weighted average cost
method. An adjustment is recorded for inventory depreciation in cases where the value of raw materials lower than the lowest average cost
of acquisition or of realisation.
Work in progress is valued at production cost, which includes the cost of materials consumed, direct labour and overhead expenses.
e) Recognition of earnings and costs associated with work in progress
For the recognition of earnings and costs associated with work in progress, the percentage-of-completion method was used. According to
this method, at the end of each financial year, the earnings and costs associated with work in progress are recognised in the profit and loss
account for the financial year in terms of the percentage of completion of works, which is ascertained by comparing and applying the lowest
ratio obtained between the costs so far incurred and the total estimated costs and the earnings so far achieved and the total estimated
earnings.
The earnings from the works are deferred in accordance with the applicable legislation, and are intended to cover any costs that may arise
during the waiting period of the works, as well as eventual losses estimated in work in progress.
f) Adjustments to accounts receivable
The adjustment to accounts receivable was calculated based on the evaluation of estimated losses for the non-collection of accounts
receivable from customers and other receivables (Notes 21 and 23).
g) Provisions
Provisions are intended to cover liabilities resulting from losses in investee companies with negative equity (Note 34).
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