Page 46 - CODIC 2017/2018 Annual Report

Gains and losses on disposal or decommissioning of property, plant and equipment are determined by comparing
the proceeds with the carrying amount and are recognised in profit or loss.
Subsequent costs are recognised in profit or loss as incurred, except where such expense leads to an increase in
the expected future economic benefits from the use of the asset concerned compared with its initial performance.

6. IMPAIRMENT OF NON-CURRENT ASSETS
At each closing, the Group reviews the carrying amounts of its non-current assets in order to determine whether
there is any indication that these assets have suffered impairment. If there is such an indication, the recoverable
value of the asset is estimated with a view to determining any impairment if the carrying amount of the asset
exceeds its recoverable value. If it is not possible to estimate the recoverable value of the asset taken individually,
the Group assesses the recoverable value of the cash-generating unit to which the asset belongs. If a reasonable
and consistent allocation method can be determined, the supporting assets are also allocated to cash generating
units taken individually; if not, they are allocated to the smallest group of cash generating units for which a
reasonable and consistent allocation method can be determined.

The recoverable value is the higher of fair value less costs to sell and value in use. If the recoverable value of an
asset (cash-generating unit) is estimated at below its carrying amount, the carrying amount of the asset (cash-
generating unit) is reduced to its recoverable value. An impairment loss is immediately recognised in profit and loss.
When an impairment loss is subsequently reversed, the carrying amount of the asset (cash-generating unit) is
increased to the amount of the revised estimate of its recoverable value, however it can never be more than
the carrying amount that would have been determined if no impairment loss had been recognised for this asset
(cash-generating unit) in previous years.

7. LEASES
In operating lease agreements where the Group is the lessee, lease payments are recognised as expenses on
a straight-line basis over the duration of the lease. Any incentives and other benefits granted by the lessor are
thus spread over the duration of the lease.
Where the Group is the lessee under a finance lease agreement, the leased asset is recognised in the balance
sheet at the present value of the minimum lease payments and depreciated over the useful life of the asset,
except where the lease term is shorter and no transfer of ownership is envisaged upon conclusion of the
lease. In this case, a finance lease liability is recognised for the same initial value and subsequently measured
at amortised cost.
When the Group is a temporary lessor of buildings intended for sale, the rent collected is booked in inventory
or revenue (see item 8 below).

8. INVENTORIES
Group projects in the development phase are recognised in inventories.
Inventories are measured at the lower of cost and net realisable value. Cost includes all expenses associated
with the completion of the project, namely:

• land and associated expenses;
• design costs;
• construction costs and consultants’ fees;
• borrowing costs associated with the financing of the project (see item 10);
• other direct and indirect costs incurred in bringing the inventories to their current state.

A write down is recognised in profit and loss when the estimated net realisable value at closing is lower than
the carrying amount.

In the event that a property acquired by the Group with a view to redeveloping it is leased out wholly or in part,
the lease payments temporarily received are applied in reduction of inventories.
Since the property is not intended to be leased out by the Group but rather to be sold, it is classified in inven-
tories and as such not depreciated. To recognise rental income without a corresponding expense therefore
seems inappropriate.

Although, as far as we know the question is not explicitly addressed in the IFRS, an analogy could be drawn with
the treatment in accordance with IAS 16 of revenues arising from a test phase of a fixed asset under construction
which are directly deducted from the asset concerned (IAS 16.17(e)).
However, once the building has been redeveloped but not yet sold, the rents received must be recognised as
revenue.

44 Codic Annual Report 2017/2018