Annual Report 2010 - CMVM

Notes to the Consolidated Financial Statements as at 31 December 2010While their creation is optional, the contributions made by the Group are exclusively those provided for in applicable tax legislation.2.18 – Income taxIncome tax for the year is calculated based on taxable income of the companies included in consolidation and considers deferred taxation.The current income tax rate is calculated based on the taxable income (which differs from accounting income) of the companies included in the consolidation in accordancewith the tax rules in force at the head office of each company of the Group.Deferred taxes refer to temporary differences between the amounts of assets and liabilities for accounting purposes and their amounts for taxation purposes, as well as theresulting tax benefits obtained.Deferred tax assets and liabilities are calculated and periodically evaluated using tax rates that are expected to be in force at the date of reversal of the temporary differences,are not discounted and are recognised as non-current assets or liabilities.Deferred tax assets are only recorded when there are reasonable expectations of sufficient future tax profits to use them. On each balance sheet date, the temporary differencesunderlying deferred tax assets are reviewed to recognise or adjust them according to the current expectation of future recovery.2.19 - Contingent assets and liabilitiesA contingent asset is a possible asset derived from past events and whose existence will only be confirmed by the occurrence or not of uncertain future events.Contingent assets are not recognised in the consolidated financial statements but are disclosed when an inflow of future economic benefits is probable.A contingent liability is (i) a possible liability arising from past events and whose existence will be confirmed by the occurrence or not of uncertain future events or (ii)a present liability which arises from past events but is not recognised because the existence of an outflow of funds is unlikely or the guarantee of the liability cannot bemeasured reliably.Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes to the financial statements, unless the possibility of an outflowof funds affecting future economic benefits is remote, in which case they are not subject to disclosure.2.20 - Revenue and accrualsSalesRevenue arising from the sale of goods is recognised in the income statement when all the following conditions have been fulfilled:- The Group has transferred to the buyer the significant risks and rewards of the ownership of the assets;- The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the assets sold;- The amount of revenue can be measured reliably;- It is probable that the economic benefits associated with the transaction will flow to the Group; and- The costs incurred or to be incurred with respect to the transaction can be measured reliably.Sales are recognised net of taxes, discounts and other costs incurred to realise the fair value of the amount received or receivable.Services renderedRevenue arising from services rendered is recognised in the income statement with reference to the stage of completion of services on the balance sheet date.If the result of a construction contract can be estimated reasonably, the revenue and the related costs are recognised using the percentage of completion method as requiredby IAS 11 - Construction Contracts ("IAS 11"). According to this method, the income directly related to work in progress is recognised in the income statement according to itspercentage of completion, which is determined by the ratio of costs incurred and the total estimated costs of works (costs incurred plus costs to be incurred). The differencesbetween the income calculated through the application of this method and the turnover issued are recorded for under the headings "Other current assets" or "Other currentliabilities", according to the nature of the differences.160