Page 25 - eco_eng

After initial recognition, these assets are stated at fair value including any transaction costs relating to their sale. Changes in fair value are recognized directly in equity until the investment is derecognized or determined to be impaired, at which time the cumulative gain or loss is recognized in the income statement. However, impairment losses and foreign exchange gains and losses on monetary assets denominated in foreign currency are recognized in the income statement. Interest, calculated according to the efective interest rate method and dividend income are also recognized in the income statement.

Investments in equity instruments whose fair value cannot be reliably determined are measured at cost, less any cumulative impairment. When a value must be assigned to these assets because they are derecognized or for another other reason, the homogenous-groups weighted average cost method is applied, with homogenous groups understood to be those that have the same rights. Where preferential subscription or similar rights are sold or separated for the purpose of exercising being exercised, the cost of these rights decreases the carrying amount of the respective assets. This amount is the fair value or the cost of the rights consistent with the measurement of the associated fnancial assets.

B) Interest and dividends received from fnancial assets

Interest and dividends from fnancial assets accrued subsequent to acquisition are recognized as income. Interest must be recognized using the efective interest rate method; dividends are recognized when the right to receive them is established.

For these purposes, fnancial assets are recognized separately on initial measurement, based on maturity, accrued explicit interest receivable at that date, and the proposed dividends at the time the assets are acquired. For these purposes, explicit interest refers to the contract interest rate applied to the fnancial instrument.

In addition, when distributed dividends are derived unmistakably from proft generated prior to the date of acquisition given that the amounts of distributed dividends exceeded the proft generated by the associate since acquisition, the dividends are not recognized as income and decrease the cost of the investment.

C) Impairment of fnancial assets

At year-end, the Company evaluates if its fnancial assets or group of fnancial assets are impaired.

Financial assets recognized at amortized cost (receivables and investments held to maturity)

Valuation adjustments are made, provided that there is objective evidence that the value of a fnancial asset, or group of fnancial assets, recognized at amortized cost has sufered an impairment loss as a result of one or more events that have occurred after their initial recognition causing a reduction or delay in estimated future cash fows.

The impairment loss on these fnancial assets is the diference between their carrying value and the present value of the future cash fows expected to be generated, minus the efective interest rate calculated at the time of their initial recognition. For fnancial assets with foating interest rates, the efective interest rate

25

Financial Statements, Management and Corporate Governance Report. 2010