Annual Report 2010 - CMVM

Notes to the Consolidated Financial Statements as at 31 December 20102.15 - Operating profit or lossOperating profit or loss includes all the costs and revenues of operating activities, both recurring and non-recurring, including restructuring costs and the costs and revenuesassociated with operating assets (tangible fixed assets and other intangible assets). It also includes the capital gains or losses calculated on the sale of companies included inthe consolidation using the full or proportional consolidation method. In this way, net financing costs, the net income of associates, other financial investments and incometax are excluded from net operating income.2.16 - Financial instrumentsFinancial assets and financial liabilities are recognised when the Group becomes a party in the respective contractual relationship.a) Cash and cash equivalentsThe amounts included in Cash and cash equivalents heading correspond to cash, bank deposits, term deposits and other cash investments with a maturity of less than threemonths and which are immediately repayable on demand with no significant risk of change in value.b) Accounts receivableAccounts receivable are measured, when recognised initially, at fair value and subsequently at amortised cost in accordance with the effective interest rate method. Whenthere is evidence that they are impaired, the corresponding adjustment is recorded through profit or loss under the heading "Other Operating Costs". The recognised adjustmentis measured by the difference between the value at which the receivables are recognised and the present value of the cash flows discounted at the effective interest ratedetermined at the initial recognition.c) InvestmentsInvestments are recognised on the date when the inherent risks and rewards are transferred substantially. They are initially recorded at their acquisition value, which is thefair value of the price paid, including transaction costs.Investments are classified as follows:Financial assets available for saleFinancial assets available for sale are financial investments which are available for sale and are classified as non-current assets.After their initial recognition, the financial assets available for sale are measured through reference to their market value on the balance sheet date, without any deductionfor transaction costs that may be incurred until their sale. Gains or losses due to changes in the fair value are recorded in equity, under the heading ‘‘Fair value reserve’’ untilthe investment is sold, received or disposed in any other way, or when impairment losses are believed to exist, in which case the accumulated gain or loss is recorded in theincome statement.Other investmentsFinancial assets available for sale in equity instruments that do not have a market price listed in an active market and whose fair value cannot be measured reliably aremeasured at their acquisition cost minus any accumulated impairment losses and are recorded under the heading "Other investments".Furthermore, assets measured at fair value through profit or loss are revalued at their fair value with reference to their market value on the balance sheet date, without anydeduction for transaction costs that may be incurred until their sale. These assets are recognised in the heading "Other investments" and any variation in their fair value isrecorded under the heading "Earnings relative to investment activities".d) Financial liabilities and equity instrumentsFinancial liabilities and equity instruments are classified according to the nature of the contract regardless of their legal form. Equity instruments are contracts that have aresidual interest in the Group's assets after deducting its liabilities.Equity instruments issued by the Group are recorded at the amount received net of the costs incurred to issue them.158