Cemex 1999 Annual Report Download - page 54

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4) Additionally, on December 15, 1999, through a sale and purchase of shares within the Group, ETM became a
direct subsidiary of Cemex Mexico.
Through these mergers and the sale of ETM (see note 23), starting the year 2000, the cement and concrete operations
of the Company in Mexico are integrated in Cemex Mexico and subsidiaries.
E) FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Transactions denominated in foreign currencies are recorded at the exchange rates prevalent on the dates of their
execution or liquidation. Monetary assets and liabilities denominated in foreign currencies are adjusted into pesos at
the exchange rates prevailing at the balance sheet date. The resulting foreign exchange fluctuations are reflected in the
results of operations as part of the comprehensive financing income (cost) or as a charge directly to the stockholders’
equity when the indebtedness is directly related to the acquisition of a foreign subsidiary.
The financial statements of consolidated foreign subsidiaries are restated for inflation in their functional currency based
on the subsidiary country’s inflation rate and subsequently translated to Mexican pesos by using the foreign exchange
rate at the end of the corresponding reporting period for balance sheet and income statement accounts.
The exchange rate of the Mexican peso against the U.S. dollar used by the Company is based upon the weighted
average of free market rates available to settle its overall foreign currency transactions.
F) CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments include fixed-income marketable securities investments with original maturities of
three months or less. Investments in marketable securities are stated at market value. Gains or losses resulting from
changes in market values and the effects of inflation are included in the accompanying statements of income as part
of the comprehensive financing income or cost.
G) INVENTORIES AND COST OF SALES (note 5)
Inventories are stated at the lower of replacement cost or market value. Replacement cost is based upon the latest
purchase price or production cost. The cost of sales reflects replacement cost of inventories at the time of sale,
expressed in constant pesos as of the date of the latest balance sheet.
H) INVESTMENTS AND NON CURRENT RECEIVABLES (note 7)
In the consolidated financial statements, investments in affiliated companies 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.
Investments available for sale for which the Company has no intention to sell in the short-term are carried at market
value, and its valuation effects are recognized in the stockholders’ equity. The application of the accumulated effect to
the income statement will occur at the moment of sale.
I) PROPERTY, MACHINERY AND EQUIPMENT (note 8)
Property, machinery and equipment are restated for inflation in accordance with the fifth amendment to Bulletin B-10,
by using the inflation index of the country of origin of the assets and the change in the foreign exchange rate between
the country of origin and the functional currency.
Net comprehensive financing cost incurred during the construction or installation period of fixed asset additions is
capitalized, as part of the value of the assets.
Depreciation of property, machinery and equipment is provided on the straight-line method over the estimated 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
The Company continuously evaluates the physical state and performance of its machinery and equipment, as well as
the impact of its sales and production forecasts, in order to determine if there are judgement elements indicating that
the book value of these assets needs to be adjusted for impairment. An impairment loss would be recorded in the
income statement of the period if such determination is made (see note 8).
J) DEFERRED CHARGES AND AMORTIZATION (note 9)
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 the excess of cost over book value of subsidiaries acquired (goodwill) is determined under the present
worth or sinking fund method, which intends a better matching of the amortization of goodwill with the revenues
generated from the acquired affiliated companies. The amortization periods are as follows:
YEARS
Goodwill from years before 1992 40
Goodwill generated starting January 1, 1992 20