building a STRONGER foundation - Cemex

CEMEX, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements – (Continued)
As of December 31, 2010, 2009 and 2008
(Millions of Mexican pesos)
G) OTHER INVESTMENTS AND NON-CURRENT RECEIVABLES (note 9B)
Other investments and non-current accounts receivable include CEMEX’s collection rights with respect to investments with maturities of
more than twelve months as of the balance sheet date. Non-current assets resulting from the valuation of derivative financial instruments, as
well as investments in private funds and other investments which are recognized at their estimated fair value as of the balance sheet date, and
their changes in valuation are included in the statements of operations as part of the Comprehensive Financing Result.
Beginning on January 1, 2010, in accordance with MFRS C-3 "Accounts Receivable," long-term accounts receivable are initially recognized at
fair value. Subsequent changes in valuation are recognized in the Comprehensive Financing Result. The adoption of MFRS C-3, as of January
1, 2010, generated a reduction of approximately Ps146 in long-term accounts receivable, an increase in deferred tax assets of approximately
Ps41 and a reduction in retained earnings of approximately Ps105.
H) PROPERTY, MACHINERY AND EQUIPMENT (note 10)
Property, machinery and equipment are recognized at their acquisition or construction cost, as applicable. When inflationary accounting is
applied during high-inflation periods, such assets should be restated using the factors derived from the general price index of the countries
where the assets are held.
Depreciation of fixed assets is recognized within “Cost of sales” and “Administrative and selling expenses,” depending on the utilization of
the respective assets, and is calculated using the straight-line method over the estimated useful lives of the assets, except for mineral reserves,
which are depleted using the units-of-production method. The maximum average useful lives by category of assets are as follows:
Years
Administrative buildings .................................................................................................................................................... 35
Industrial buildings............................................................................................................................................................. 34
Machinery and equipment in plant ..................................................................................................................................... 21
Ready-mix trucks and motor vehicles ................................................................................................................................ 8
Office equipment and other assets...................................................................................................................................... 9
During 2010, 2009 and 2008, CEMEX capitalized, as part of the historical cost of fixed assets, the Comprehensive Financing Result, which
includes interest expense, and, when inflationary accounting is applied during periods of high inflation, the monetary position result, arising
from existing debt during the construction or installation period of significant fixed assets, considering CEMEX’s corporate average interest
rate and the average balance of investments in process for the period.
Costs incurred in respect of operating fixed assets that result in future economic benefits, such as an extension in their useful lives, an increase
in their production capacity or in safety, as well as those costs incurred to mitigate or prevent environmental damage, are capitalized as part of
the carrying amount of the related assets. The capitalized costs are depreciated over the remaining useful lives of such fixed assets. Other costs,
including periodic maintenance on fixed assets, are expensed as incurred.
I) BUSINESS COMBINATIONS, GOODWILL, OTHER INTANGIBLE ASSETS AND DEFERRED CHARGES (note 11)
In accordance with MFRS B-7, “Business Combinations,” CEMEX applies the purchase method as the sole recognition alternative through the
allocation of the purchase price to all assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date.
Intangible assets acquired are identified and recognized at fair value. Any unallocated portion of the purchase price is recognized as goodwill,
which is not amortized and is subject to periodic impairment tests (note 2J). If applicable, goodwill is subsequently adjusted for any correction to
the preliminary assessment given to the assets acquired and/or liabilities assumed, within the twelve-month period after purchase.
CEMEX capitalizes intangible assets acquired, as well as costs incurred in the development of intangible assets, when future economic
benefits associated with the assets are identified and there is evidence of control over such benefits. Intangible assets are presented at their
acquisition or development cost, and are restated during high inflation periods to comply with MFRS B-10. Such assets are classified as
having a definite or indefinite life; the latter are not amortized since the period cannot be accurately established in which the benefits
associated with such intangibles will terminate. Amortization of intangible assets of definite life is calculated under the straight-line method.
Direct costs incurred in debt issuances or borrowings are capitalized and amortized as part of the effective interest rate of each transaction
over its maturity. These costs include commissions and professional fees. Direct costs incurred in the development stage of computer software
for internal use are capitalized and amortized through the operating results over the useful life of the software, which on average is
approximately 5 years.
Startup costs are recognized in the income statement as they are incurred. Costs associated with research and development activities
(“R&D”), performed by CEMEX to create new products and services, as well as to develop processes, equipment and methods to optimize
operational efficiency and reduce costs, are recognized in the operating results as incurred. The Technology and Energy departments in
CEMEX undertake all significant R&D activities as part of their daily activities. In 2010, 2009 and 2008, total combined expenses of these
departments were approximately Ps519 (US$41), Ps408 (US$30) and Ps348 (US$31), respectively.
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