Cemex 2012 Annual Report Download - page 48

Notes to the
consolidated
financial
statements
48
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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. 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 and recognized as part of
costs and operating expenses (note 5). Based on IFRS 13, CEMEX modified the value of certain extraction permits considering
that as of the date of transition to IFRS, there were better indicators of fair value as compared to the carrying amount related to
such permits under MFRS.
Startup costs are recognized in the statements of operations as they are incurred. Costs associated with research and development
activities (“R&D”), performed by CEMEX to create products and services, as well as to develop processes, equipment and methods
to optimize operational eciency 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 2012, 2011 and 2010, total
combined expenses of these departments were approximately $514 (US$40), $487 (US$39) and $519 (US$41), respectively.
Development costs are capitalized only if they meet the definition of intangible asset mentioned above.
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.
Costs incurred in exploration activities such as payments for rights to explore, topographical and geological studies, as well as
trenching, among other items incurred to assess the technical and commercial feasibility of extracting a mineral resource, which
are not significant to CEMEX, are capitalized when future economic benefits associated with such activities are identified. When
extraction begins, these costs are amortized during the useful life of the quarry based on the estimated tons of material to be
extracted. When future economic benefits are not achieved, any capitalized costs are subject to impairment.
CEMEX’s extraction rights have maximum useful lives that range from 30 to 100 years, depending on the sector, and the
expected life of the related reserves. As of December 31, 2012, except for extraction rights and/or as otherwise indicated,
CEMEX’s intangible assets are amortized on a straight line basis over their useful lives that range on average from 3 to 20 years.
2K) Impairment of long lived assets (notes 14 and 15)
Property, machinery and equipment, intangible assets of definite life and other investments
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 CEMEX’s operating environment, 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 such cases, an impairment loss is recorded in the income
statements for the period when such determination is made within “Other expenses, net.” The impairment loss of an asset results
from the excess of the asset’s carrying amount over its recoverable amount, corresponding to the higher of the fair value of the
asset, less costs to sell such asset, and the asset’s value in use, the latter represented by the net present value of estimated cash
flows related to the use and eventual disposal of the asset.
Significant judgment by management is required to appropriately assess the fair values and values in use of these assets. The
main assumptions utilized to develop these estimates are a discount rate that reflects the risk of the cash flows associated with
the assets evaluated and the estimations of generation of future income. Those assumptions are evaluated for reasonableness by
comparing such discount rates to available market information and by comparing to third-party expectations of industry growth,
such as governmental agencies or industry chambers of commerce.