Notes to the Financial Statements - Efacec

1.7 Asset impairment
Assets that do not have a defi ned useful life are not subject to amortisation, but are the object of annual impairment tests. Assets
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the value at which
they were booked may not be recoverable. An impairment loss is recognised by the amount by which the booked value of the
asset exceeds its recoverable value. The recoverable value is the higher of the fair value of the asset, less expenses required for
sale, and its use value. To carry out impairment tests, assets are grouped together at the lowest level at which cash fl ows can be
identifi ed separately (cash fl ow generation units, Note 1.6).
1.8 Investments
Investments in group companies excluded from consolidation (Chapter G) and other shareholdings are shown at acquisition
cost.
Investments in associated companies are valued using the equity method, as described in Note 1.2 (b).
The Group checks at each balance sheer date whether objective evidence exists of the impairment of any investment. If such
evidence exists, the accumulated loss, calculated as the difference between the balance sheet value and the current fair value, is
recognised in the profi t and loss account of the period in which the impairment occurred (Note 1.7).
1.9 Stocks
Stocks are valued at the lower of cost and realisable value. The cost is calculated using the standard cost (which does not vary
signifi cantly from actual production cost).
The cost of fi nished products and manufacturing work in progress includes raw material costs, direct labour, other direct costs and
manufacturing overheads (based on normal production capacity). The costs of loans obtained are excluded.
Net realisable value is equal to the estimated selling price under normal business conditions, less variable selling costs. The cost
of stocks includes the transfer from shareholders’ funds of any loss or gain classifi ed as cash fl ow cover related to the purchase
of raw materials.
1.10 Recognition of Income and Costs Relating to Contracts over Several Years
Profi t on contracts which continue for more than one year are accounted for in accordance with the percentage of work completed
by reference to partial delivery, detailed costing or other means which allow reliable estimation of costs to completion or the
invoices to be sent to the customer. When it is not possible to estimate profi ts and the costs with reasonable reliability, then they
are recognised only when the product is delivered to the customer, applying the work completed criteria. In this case, the costs
incurred are recorded in stocks – Products and work in progress.
Costs of contracts include raw materials and direct materials, direct labour and also allocated indirect costs, distributed as
specifi ed in the contract. Selling and administration expenses are charged as costs as they occur. Provisions are set up for any
foreseen losses on completing a contract in the period in which they are determined, and are immediately refl ected in the results.
Changes to contracts or estimates and forecast costs and/or profi ts and margins, arising from renegotiations of the conditions
with customers or from internal productivity, are recognised in the results from the period in which they occur and taking into
account the stage of completion.
When there are materials which have not yet been used on the job or the installation, there will be a balance on the account
“Products and work in progress”. If this relates to receivables from customers not yet invoiced, the resulting margin is not
recognised. When the opposite situation occurs and the amount invoiced to the customer is greater than the level of work
completed, a deferred liability is set up representing a liability to a customer for the work still to be completed.
1.11 Trade debtors and other debtors
Trade debtors and other debtors are initially recognised at their nominal or fair value, when different, less any impairment loss.
The provision for debtor impairment is set up when there is objective evidence that the Group will not receive the entire amount
outstanding, as per the original conditions established for the debt. The amount of the provision is the difference between the
amount presented and the estimated present value of future cash fl ows, discounted at the effective interest rate. The amount of
the provision is recognised in the profi t and loss account.
13
2007 Consolidated and
Individual Financial Statments