Cemex 2009 Annual Report Download - page 41

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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 38
Industrial buildings 33
Machinery and equipment in plant 21
Ready-mix trucks and motor vehicles 8
Office equipment and other assets 9
For the years ended December 31, 2009, 2008 and 2007, CEMEX capitalized, as part of the historical cost of fixed assets, the Comprehensive Financing
Result, which includes interest expense, and until December 31, 2007 or when inflationary accounting is applied during periods of high inflation, the
monetary position result, arising from existing debt incurred during the construction or installation period of significant fixed assets, considering CEMEX’s
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. These capitalized costs are depreciated over the remaining useful lives of the related 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 12)
In accordance with MFRS B-7, “Business Combinations,” CEMEX applies the following accounting principles following a business acquisition: a) the
purchase method is applied as the sole recognition alternative; b) the purchase price is allocated to all assets acquired and liabilities assumed based on
their estimated fair values as of the acquisition date; c) intangible assets acquired are identified and recognized at fair value; d) any unallocated portion of
the purchase price is recognized as goodwill; and e) goodwill is not amortized and is subject to periodic impairment tests (note 3J).
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.
Pre-operational expenses 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 2009, 2008 and 2007, total combined expenses of these departments were approximately $408 (US$30), $348
(US$31) and $437 (US$40), respectively.
J) Impairment of long lived assets (notes 11 and 12)
Property, machinery and equipment, intangible assets of definite life and other investments
According to MFRS C-15, “Impairment and disposal of long-lived assets” (“MFRS C-15”), property, machinery and equipment, intangible assets of definite
life and other investments are tested for impairment upon the occurrence of factors such as the occurrence of a significant adverse event, changes in
the operating environment in which CEMEX operates, changes in projected use or in technology, as well as expectations of lower operating results for
each cash generating unit, in order to determine whether their carrying amounts may not be recovered, in which case an impairment loss is recorded in
the income statement for the period when such determination is made within “Other expenses, net.” The impairment loss results from the excess of the
carrying amount over the net present value of estimated cash flows related to such assets.
Goodwill and intangible assets of indefinite life
Goodwill and other intangible assets of indefinite life are tested for impairment when needed and at least once a year, during the last quarter of the period,
by determining the value in use of the reporting units, which consists in the discounted amount of estimated future cash flows to be generated by the
reporting units to which those assets relate. CEMEX determines the discounted amount of estimated future cash flows over a period of 5 years, unless a
longer period is justified in a specific country considering its economic cycle and the situation of the industry. A reporting unit refers to a group of one or
more cash generating units. An impairment loss is recognized if the value in use is lower than the net book value of the reporting unit.
The geographic segments reported by CEMEX (note 4A), each integrated by multiple cash generating units, also represent the reporting units for purposes of
testing goodwill for impairment, considering that: a) the operating components that comprise the reported segment have similar economic characteristics;
b) the reported segments are the level used by CEMEX to organize and evaluate its activities in its internal information system; c) the homogeneous nature
of the items produced and traded in each operative component, which are all used by the construction industry; d) the vertical integration in the value chain
of the products comprising each component; e) the type of clients, which are substantially similar in all components; f) the operative integration among
components; and g) the compensation system of a specific country is based on the consolidated results of the geographic segment and not on the particular
results of the components.