Consolidated Financial Statements and Consolidated Management ...

4. VALUATION STANDARDS
The main principles, accounting policies and valuation standards applied by the Group to draw up these consolidated financial statements, which comply with
IFRS in force on the date of the relevant financial statements, are the following ones:
4.1. Tangible fixed assets
Tangible fixed assets are valued at their original cost. They are subsequently valued at their reduced cost resulting from cumulative depreciation and, as
appropriate, from any impairment losses they may have suffered.
Due to the transition to IFRS, the Group reappraised the value of some land to its market value on the basis of appraisals made by an independent expert
for a total amount of 217 million euros. The reappraised cost of such land was considered as a cost attributed to the transition to the IFRS. The Group
followed the criterion of not revaluing any of its tangible fixed assets at subsequent year-ends.
Enlargement, modernization and improvement costs entailing an increase in productivity, capacity or efficiency or a lengthening of the assets’ useful life are
booked as higher cost of such assets. Conservation and maintenance costs are charged against the consolidated comprehensive profit and loss statement
for the year in which they are incurred.
The Group depreciates its intangible fixed assets following the straight line method, distributing the cost of the assets over their estimated useful lives, in
accordance with the following table:
Estimated years of useful life
Buildings 33-50
Plant and machinery 10-30
Other fixtures, tools and furniture 5-10
Other fixed assets 4-5
4.2. Real estate investments
These reflect the land, buildings and real estate constructions held either for rental or to obtain a capital gain on their sale.
Real estate investments are valued at their original cost. Buildings are valued according to the cost of the corresponding certifications of the works
executed plus any expenses associated with the project (works management, fees, architect’s fees, etc.) and depreciated on a straight-line basis depending
on their useful life, which is the same as that used in tangible fixed assets for similar elements.
Interest costs attributable to these investments are activated during the construction period up to the moment they are ready for sale and are considered
as an increased investment cost. Should financial income be obtained from temporary investment of surpluses, said income reduces the cost of the
investment.
Revenue and gains or losses arising from the sale of the assets to buyers and the execution of deeds of sale, being the time at which the inherent rights
and obligations are transferred, are recognised. Rental income is attributed to the results on an accrual basis.
An accrual basis is used to recognise rental costs, charging all maintenance, management and depreciation costs of the rented assets to profit and loss.
The Group periodically determines the fair value of real estate investment elements, using appraisals performed by independent experts as a reference.
4.3. Consolidation goodwill
Consolidation goodwill reflects excess acquisition cost when compared to the Group’s interest in the market value of the identifiable assets and liabilities
of a subsidiary or jointly controlled entity on the date of acquisition.
Any positive difference between the cost of interests in the capital of consolidated and associated entities and the corresponding theoretical book values
acquired, adjusted on the date of the first consolidation, are recognised as follows:
1. If they are assignable to specific equity elements of the companies acquired, by increasing the value of any assets whose market value is above their net
book value appearing in the balance statements.
2. If they are assignable to specific intangible assets, by explicitly recognising them in the consolidated balance sheet, provided their market value on the
date of acquisition can be reliably determined.
3. Any remaining differences are entered into the books as goodwill, which is assigned to one or more specific cash-generating units (in general hotels)
which are expected to make a profit.
Goodwill will only be booked when it has been acquired for valuable consideration.
Any goodwill generated through the acquisition of associated companies is booked as an increased value of the interest.
Any goodwill generated through acquisitions prior to the IFRS transitional date, 1 January 2004, is kept at its net value booked at 31 December 2003 in
accordance with Spanish accounting standards.
Goodwill is not depreciated. In this regard, the Group estimates, using the so-called “Impairment Test”, the possible existence of permanent losses of
value that would reduce the recoverable value of goodwill to an amount less that the net cost booked at the end of each year and provided evidence of a
loss of value exists. Should this be the case, they are written down in the consolidated comprehensive profit and loss statement. Any write-downs entered
into the books cannot be subject to subsequent review.
All goodwill is assigned to one or more cash-generating units in order to conduct the impairment test. The recoverable value of each cash-generating
unit is determined either as the value in use or the net sale price that would be obtained for the assets assigned to the cash-generating unit, whichever is
higher. The value in use is calculated on the basis of estimated future cash flows discounted at an after tax rate that reflects the current market valuation
with respect to the cost of money and the specific risks associated with the asset.
The discount rates used by NH Hoteles Group for these purposes range between 8.2% and 12%, depending on the different risks associated with each
specific asset.
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS 71