Cemex 1997 Annual Report Download - page 64

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G) INVENTORIES AND COST OF SALES ( NOTE 4 )
Inventories are stated at the lower of replacement cost or market. Replacement cost is based upon the latest
purchase price or production cost. The cost of sales also reflects replacement cost at the time of sale, expressed in
constant pesos as of the date of the latest balance sheet.
H) INVESTMENTS IN SUBSIDIARIES AND AFFILIATED COMPANIES ( NOTE 6 )
In the Parent company-only financial statements, investments in common stock representing between 10% and
100% of the issuer's common stock are accounted for by the equity method. In the consolidated financial
statements, investments in common stock in which the Company holds between 10% and 50% of the issuer's
capital stock are accounted for by the equity method. Under the equity method, the investments are stated at cost,
adjusted for the Company's equity in the investee's earnings after acquisition and the effects of inflation on the
investee's equity.
I) PROPERTY, MACHINERY AND EQUIPMENT
During 1997, the Company adopted the provisions of the fifth amendment to Bulletin B-10 (see note 2B). The
beginning balances for the 1997 inflation adjustment for property, machinery and equipment were the ending
balances at December 31, 1996, which were based on appraisals made by independent expert appraisers.
Net comprehensive financing cost incurred during the construction or installation period of fixed asset additions is
capitalized.
Depreciation of property, machinery and equipment is provided on the straight-line method over the estimated
remaining useful lives of the assets less salvage value. The useful lives of the assets are as follows:
Years
Administrative buildings 50
Industrial buildings, machinery and equipment 10 to 35
J) DEFERRED CHARGES AND AMORTIZATION ( NOTE 7 )
Deferred charges are adjusted to reflect current values. Amortization of deferred charges is determined using the
straight-line method based on the current value of the assets.
Amortization of cost over book value of subsidiaries acquired (goodwill) is determined under the present worth or
sinking fund method, resulting in a better matching of the amortization of goodwill with the revenues generated
from the related acquired companies. The amortization periods are as follows:
Years
Goodwill from years before 1992 40
Goodwill generated since 1992 20
Deferred financing costs are adjusted to reflect current values, and represent expenses originated from the
Company’s financing operations. Amortization of deferred financing cost is determined under the straight-line
method over the term of the related debt based on the current value of deferred financing cost.
K) PENSION AND SENIORITY PREMIUM PLANS ( NOTE 11 )
Accumulated seniority premium rights to which employees are entitled are recognized in the results of operations
on the basis of the present value of the benefit determined under actuarial estimations.
Some subsidiaries have established plans for eligible employees to cover retirement pensions and seniority
premiums supplementary to the benefits provided by law. The obligations under these plans are based on actuarial
calculations and certain irrevocable trust funds have been established for these plans.
Other benefits to which employees may be entitled are recognized as an expense in the year in which they are paid.