The main recognition and measurement standards used by the Company in the preparation of its financial statements are the following:
4.1 - Intangible assets
As a general rule, intangible assets are recognised initially at their purchase price or production cost. They are subsequently carried at cost less accumulated amortisation and any impairment losses. These assets are amortised over their useful lives.
The intangible assets correspond to:
The cost of maintaining these assets is treated as an expense in the financial year in which it is incurred.
The amortisation of research and development expenses does not commence until the product is used or goes on sale.
The assets are amortised on a straight-line basis over the following useful lives:
Research and development expenses... 3 years
Registered trademarks............... 10 years
Computer software................... 3 to 5 years
Industrial and intellectual property ... 5 years
Industrial and intellectual property:
The Company recognises as industrial property the amounts paid to acquire ownership or usage rights in whatever form. Industrial property is amortised on a straight line basis over five years.
The Company recognises as intellectual property the amounts paid to acquire any rights from authors and other owners over their creative output and services. Intellectual property is amortised on a straight-line basis over five years or over the period for which those rights have been acquired.
The Company recognises as other rights the amounts paid to acquire usage rights to the property of third parties. These rights are amortised on a straight-line basis over the period for which those rights have been acquired.
The Company records the cost of acquiring and developing IT programs under this heading, including the cost of developing web pages. Computer software is amortised on a straight line basis over three to five years.
4.2 - Property, plant and equipment
The land and buildings recorded in the balance sheet which are subject to the provisions of article 6 of Law 33/2014 were valued by an independent expert on 8 June 2015.
The carrying amount of the property located at Avda. Meritxell 112 increased in 2016, 2017 and 2018 as a result of the transfer of the net book value of the demolished buildings and the capitalisation of the demolition costs. In 2018 the Company had the land revalued by an independent expert. The current net carrying amount therefore reflects its market value (see note 6).
Other property, plant and equipment, and land and buildings acquired after the above date, are stated initially at cost and subsequently at cost less accumulated depreciation and any impairment losses.
The costs of conservation and maintenance of property, plant and equipment are expensed as incurred. Conversely, amounts invested in improvements that increase the capacity or efficiency or prolong the useful life of these assets are added to the carrying value of the assets.
For items of property, plant and equipment that take more than one year to get ready for use, the capitalised costs include any borrowing costs incurred before the asset is ready for use that have been billed by the supplier or that relate to loans or other generic or specific third-party financing directly attributable to the acquisition or manufacturing of the asset.
The items grouped under plant and equipment include IT equipment and other fixed assets adjacent to that equipment, as they form an inseparable part of the project and so have the same useful lives as the main items of plant and equipment.
The Company depreciates property, plant and equipment on a straight line basis over the estimated useful lives of the assets as follows:
Buildings................... 30 years
Networks............... 5 to 15 years
Cabins....................... 5 years
Electrical lines............ 15 years
Installed equipment.......... 5 years
Central installations.. 5 to 10 years
Relay installations......... 10 years
Measuring equipment.......... 5 years
Safety equipment............. 5 years
Materials and tools..... 2 to 5 years
Transport.................... 5 years
Administrative materials.……………………………3 to 5 years
Furniture...............................................................10 years (*)
(*) Includes works of art which are not depreciated.4
Whenever there is evidence of impairment, intangible assets and property, plant and equipment are tested to determine whether there are any losses that reduce the assets’ recoverable value to below their carrying amount.
The recoverable amount is the greater of fair value less selling costs and the asset's value in use. If an impairment loss has to be recognised, the carrying amount of the asset is reduced to the greater of fair value less costs to sell, value in use and zero.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. Any reversal of an impairment loss is recognised as income.
Those leases where it can be deduced from the terms of the lease that substantially all the risks and rewards of ownership of the leased asset are transferred to the lessee are classified as finance leases. All other leases are classified as operating leases.
Operating lease expenses are charged against income in the year in which they accrue.
Any amount received or paid when entering into an operating lease agreement is treated as deferred income or expense and is released to the income statement over the lease term as the benefits of the leased asset are transferred or received.
At the end of the reporting period the Company had no finance leases.
4.5. Financial instruments
4.5.1. Financial assets
The Company’s main financial assets are the following:
Provisions have been recognised in the financial statements wherever it is more likely than not that an outflow of resources will be required to settle the obligation. Contingent liabilities are not recognised in the financial statements but are disclosed in the notes thereto, provided the possibility of an outflow of resources is considered remote.
Provisions for contingent liabilities are measured at the present value of the best estimate of the expenditure required to settle or transfer the obligation, taking into account the information available on the event and its consequences. Any adjustments resulting from the remeasurement of these provisions are recorded as a financial expense as incurred.
Provisions for pensions and similar obligations
The Company has constituted a provision in respect of present and future commitments to retired employees and early retirees covered by the defined benefits model subject to pension regulations established by the General Council on 29 July 1981 and the Government Decree on early retirement of 5 June 1996, the Regulation approved by the Board of Directors on 12 March 2009 and the PERM/F2000 P mortality and disability tables. The financial/actuarial valuation is performed using the Projected Unit Credit method based on generally accepted actuarial principles. These commitments were revalued on 22 February 2019 and the corresponding allocations made in order to update the current and non-current provisions at 31 December 2018.
It should be noted that current staff are covered by the new “Regulations on the staff pension plan” approved on 20 November 2014 and the pension plan was externalised on 7 February 2017 to two Andorran insurance providers.
Other provisions for liabilities and charges
The Company records a provision for cards not yet consumed at 31 December of each year under this heading in the financial statements. The value of the cards is measured in accordance with the operating margin reported in the previous financial year. This provision is revised at the end of every reporting period.
4.15 – Prepayments and accrued income
The prepayment and accrued income accounts include items recorded as "advance payments" and "unearned receipts". Advance payments are those made in the financial year for expenses corresponding to the following financial year. Unearned receipts are those collected in the financial year in respect of goods or services supplied in the following year.
4.16 - Termination benefits
Under current employment legislation, the Company is obliged to pay termination benefits to employees whose contract is terminated under certain conditions. Where the amount of the benefits can be reasonably estimated, such benefits are recognised as an expense in the year in which the dismissal decision is made. No provision of this type was recognised in the year.
4.17 – Transactions and balances with related parties
The Company records as balances and transactions with related parties the balances at the end of the reporting period and operations in the financial year with companies in which it holds shares and with its sole shareholder, but not balances and transactions with companies in which its sole shareholder has holdings.