Cemex 2012 Annual Report Download - page 45

Notes to the
consolidated
financial
statements
45
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Pursuant to IAS 28, Investments in associates and joint ventures (“IAS 28”), investments in associates are accounted for by the
equity method when CEMEX has significant influence, which is generally presumed with a minimum equity interest of 20%, unless
it is proven in unusual cases that CEMEX has significant influence with a lower percentage. The equity method reflects in the
financial statements the investment’s original cost and the proportional interest of the holding company in the associate’s equity
and earnings after acquisition, considering, if applicable, the effects of inflation. The financial statements of joint ventures, which
are those entities in which CEMEX and other third-party investors have agreed to exercise joint control, are also recognized under
the equity method. The equity method is discontinued when the carrying amount of the investment, including any long-term
interest in the associate or joint venture, reaches zero, unless CEMEX has incurred or guaranteed additional obligations of the
associate or joint venture.
Other investments of a permanent nature where CEMEX holds equity interests of less than 20% and/or there is no significant
influence are carried at their historical cost.
2C) Use of estimates and critical assumptions
The preparation of financial statements in accordance with IFRS principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues and expenses during the period. These assumptions
are reviewed on an ongoing basis using available information. Actual results could differ from these estimates.
The main items subject to estimates and assumptions by management include, among others, impairment tests of long-lived
assets, allowances for doubtful accounts and inventories, recognition of deferred income tax assets, as well as the measurement of
financial instruments at fair value, and the assets and liabilities related to employee benefits. Significant judgment by management
is required to appropriately assess the amounts of these assets and liabilities.
2D) Foreign currency transactions and translation of foreign currency financial statements
According to IAS 21, The eects of changes in foreign exchange rates (“IAS 21”), transactions denominated in foreign currencies are
recorded in the functional currency at the exchange rates prevailing on the dates of their execution. Monetary assets and liabilities
denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet
date, and the resulting foreign exchange fluctuations are recognized in earnings, except for exchange fluctuations arising from:
1) foreign currency indebtedness directly related to the acquisition of foreign entities; and 2) fluctuations associated with related
parties’ balances denominated in foreign currency, which settlement is neither planned nor likely to occur in the foreseeable
future and as a result, such balances are of a permanent investment nature. These fluctuations are recorded against “Other equity
reserves”, as part of the foreign currency translation adjustment (note 20B) until the disposal of the foreign net investment, at
which time, the accumulated amount is recycled through the statement of operations as part of the gain or loss on disposal.
The financial statements of foreign subsidiaries, as determined using their respective functional currency, are translated to pesos
at the closing exchange rate for balance sheet accounts and at the closing exchange rates of each month within the period for
income statements accounts. The corresponding translation adjustment is included within “Other equity reserves” as part of the
foreign currency translation adjustment (note 20B) until the disposal of the net investment in the foreign subsidiary. As permitted
by IFRS 1, in its opening balance sheet under IFRS as of January 1, 2010, CEMEX elected to reset to zero all cumulative foreign
currency translation adjustments determined under MFRS. Consequently, upon disposal of the foreign operations, those effects
determined before the migration to IFRS will not be considered in the determination of disposal gains or losses.
During the reported periods, there were no subsidiaries whose functional currency was the currency of a hyperinflationary
economy, which is generally considered to exist when the cumulative inflation rate over the last three years is approaching, or
exceeds, 100%. In a hyperinflationary economy, the accounts of the subsidiary’s statements of operations should be restated
to constant amounts as of the reporting date, in which case, both the balance sheet accounts and the statements of operations
accounts would be translated to pesos at the closing exchange rates of the year.