Consolidated Financial Statements and Consolidated Management ...

4.8. Inventories
The criteria followed to value the different elements that comprise inventories are as follows:
Real estate operations (through Sotogrande, S.A.)
All costs incurred are identified by area and product in order to determine the cost of each element at the moment it is sold. This method assigns to
the cost of the sale a proportional part of the total value of the land and of the development costs based on the percentage the square metres sold
represents of the total square metres available for sale in each area.
All land and plots held for sale are classified under current assets though their construction and sale period may exceed one year.
i) Undeveloped land: Undeveloped land is valued at original cost, which includes any legal expenses for deeds of sale, registration and any taxes not
directly recoverable from the Inland Revenue.
ii) Developed land: Developed land is valued at cost or market value, whichever is lower. The cost mentioned above includes the cost of land,
development costs and the cost of technical projects. Taking into consideration the peculiar characteristics the Company’s business (development
and sale of a property measuring approximately 16 million square metres over a period of approximately 50 years), the value of developed land
includes the personnel expenses and overheads incurred by the technical department in connection with the development and design of the
different projects. The personnel expenses and overheads directly attributable to such projects amounted to approximately 29,000 euros in 2011
(21,000 euros in 2010).
iii) Buildings constructed and under construction: These are valued at cost price, which includes the proportional part of the cost of land and
infrastructures and any costs directly incurred in connection with the different promotions (projects, building licences, certifications of works,
declaration of new works, registration at registry, etc.). The Group takes into account the market value and the term for realising the sales of its
finished products, making the necessary value adjustments whenever needed.
Hotel operations
Catering edible products are valued at original cost or at realisation value, whichever is lower.
4.9. Transactions and balances in foreign currency
The Group’s functional currency is the euro. Consequently, any transactions in currencies other than the euro are considered as “foreign currency” and are
booked according to the prevailing exchange rate on the date the transactions are performed.
Cash assets and liabilities denominated in foreign currencies are converted into the functional currency at the prevailing exchange rate on the date of
each consolidated balance sheet. Any gains or losses thus revealed are directly attributed to the consolidated comprehensive profit and loss statement.
4.10. Classification of financial assets and debts into current and non-current
In the consolidated balance sheet attached, financial assets and debts are classified on the basis of their maturity; that is to say, those whose maturity date
is equivalent to or less than twelve months are classified as current and those whose maturity date exceeds such period as non-current.
In this regard, mortgage loans connected with real estate inventories whose initial maturity date schedule includes dates at more than 12 months totalling
7,468,000 euros, are classified as current liabilities (see Note 16).
4.11. Income and expenses
Income and expenses are booked on an accrual basis, i.e., when the real flow of goods and services they represent occurs irrespective of the moment when
the monetary or financial flows arising from them arise.
More specifically, income is calculated at the fair value of the consideration to be received and represents the amounts to be charged for the goods and
services delivered within the ordinary framework of operations, subtracting any discounts and taxes.
Income and expenses arising from interest are accrued on the basis of a financial timing criterion depending on the outstanding principal to be charged
for or paid and the effective interest rate that applies.
In accordance with IAS 18, the Group follows the criterion of booking sales of real estate under construction and, consequently, any profits from the same at
the moment the significant risks and benefits of such real property are transferred to the buyer and the buyer has taken effective control over the property.
As a general rule and following the principle of correlation between income and expenses, any commission fees for sales staff and others of a general
nature (sales representatives, advertising, etc.) not specifically attributable to real estate developments, though solely connected to the same, incurred
from the moment the developments are initiated up to the moment the sales are booked are entered into the books under the “Other current assets” item
of the assets side of the consolidated balance sheet, so that they may be attributed to expenses at the moment the sales are booked, provided the margin
from the sale agreements entered into pending entry into the books exceeds the amount of such costs at the end of each year.
4.12. Official subsidies
Group companies follow the criteria set out below to book official subsidies:
- Non-reimbursable capital subsidies (connected with assets) are valued at the amount granted, booked as deferred income and attributed to results in
proportion to the depreciation of the assets financed by such subsidies during the financial year.
- Operating subsidies are booked as income at the moment of their accrual.
4.13. Tax on profits
The cost of the year’s tax on profits is calculated through the sum of the current tax resulting from applying the tax rate on the year’s taxable base and then
applying any admissible tax write-offs plus any changes in deferred tax assets and liabilities.
Deferred tax assets and liabilities include any temporary differences, being any amounts expected to be payable or recoverable due to differences
between the book values of the assets and liabilities and their tax value, as well as any negative tax bases pending offsetting and any credits resulting from
unapplied tax write-offs. Said amounts are booked by applying to the relevant temporary difference or credit the tax rate at which they are expected to
be recovered or settled.
In some countries, the tax rate varies depending on whether a transfer of assets is made. In these cases, the Group’s policy consists of applying the
effective tax rate at which they are expected to be recovered or settled. In the opinion of the Directors of the Group, the deferred tax thus calculated covers
the amount which may eventually be settled, if any, in the foregoing case.
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REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS