AT DECEMBER 31, 2015, 2014 and JANUARY 1, 2014 (Figures expressed in millions of Colombian Pesos (COP), except when indicated otherwise.

Transcription

1 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GRUPO ARGOS S.A. AT DECEMBER 31, 2015, 2014 and JANUARY 1, 2014 (Figures expressed in millions of Colombian Pesos (COP), except when indicated otherwise.) NOTE 1: GENERAL INFORMATION Grupo Argos S.A. (hereinafter, the Group) was incorporated pursuant to Colombian Law on February 27, Its corporate office is located in the city of Medellín, and its term expires on February 27, 2033, but can be extended. The Company's corporate purpose is to invest in all types of movable and immovable property, in particular stocks, quotas or shares of equity, or any other shareholding in companies, entities, organizations, funds, or any other legal figure that allows the investment of resources. Moreover, it may invest in commercial papers, fixed income securities and the equity markets, whether they are listed on a securities exchange or not. In any case, issuers and/or recipients of the investment may be public, private or mixed, domestic or foreign. Domestic investors represent 96.08%, and foreign investors 3.92%, of total shareholders. Grupo Argos S.A. may create public or private companies of any kind, or enter into partnerships with established companies. Partnerships allowed by this clause may include companies that have a corporate purpose different from its own, provided said partnership is in the best interests of the Group. Through its subsidiaries, the Group participates primarily in the cement, energy, concession, largescale infrastructure, ports, carbon and real estate sectors. The Board of Directors, on February 26, 2016, authorized the issuance of the Consolidated Financial Statements for the Group, corresponding to the year ended December 31, NOTE 2: BASIS FOR PRESENTATION AND RELEVANT ACCOUNTING POLICIES 2.1. Compliance Statement Grupo Argos S.A., pursuant to the current legal provisions issued by Law 1314 / 2009, implemented by Decrees 2420 and 2496 / 2015, prepares its Consolidated Financial Statements in accordance with the Generally Accepted Accounting and Financial Reporting Standards in Colombia (NCIF, for the Spanish original), which are based on the International 1

2 Financial Reporting Standards (IFRS), along with their interpretations, translated into Spanish and issued by the International Accounting Standards Board (IASB) on December 31, In addition, the Group applies the following accounting criteria, which are different from the IFRS issued by the IASB, in order to comply with current laws, decrees and other standards. Decree 2496 of December 23, 2015, whereby the parameters for establishing postemployment benefits in response to IAS 19 are established, which must correspond to Decree 2783 / 2001, as a best market estimate. This decree establishes the actuarial assumptions for calculating future salary and pension increases, the real technical interest rate applicable and the method of calculating expected income increases for active and retired personnel. Decree 2784 / 2012 and Decree 3023 / 2013 regulate the preparation of Financial Statements based on the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), the International Financial Reporting Standards Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC) and the Conceptual Framework for Financial Reporting issued through December 31, 2012 and published by the IASB in In addition, to prepare and present the financial statements, the instructions decreed by the Financial Superintendence of Colombia, through Public Notice 007 / 2015, are considered. For all previous periods and through the end of the fiscal year on December 31, 2014, the Group (The Company and its subsidiaries) prepared its Financial Statements according to the generally accepted accounting principles in Colombia. For all legal purposes, the preparation of the Financial Statements as at December 31, 2014 and 2013, shall be the last Financial Statements pursuant to Decrees 2649 and 2650 / 1993, and the current regulations in Colombia as of that date. The Consolidated Financial Statements for the fiscal year ended December 31, 2015 are the first Financial Statements that the Group has prepared using the NCIF. Note 2.3 includes information on how the Group adopted the NCIF standards for the first time. 2.2 Basis for Preparation and Accounting Policies Basis for Preparation As defined in its bylaws, the Group has defined the yearly account cutoff date to prepare and disclose its general Financial Statements as December 31 for each period. The functional currency is the Colombian peso, which is the currency in the main economic environment where the Company operates. The Group Financial Statements as at December 31, 2015 are the first Financial Statements prepared using the Generally Accepted Accounting and Financial Reporting Standards in Colombia (NCIF). These Financial Statements have been prepared on a historical cost basis. 2

3 Some financial instruments are measured at fair value at the end of each reporting period, as explained in the accounting policies. Historical cost is generally based on the fair value of the compensation delivered in the exchange of goods and services. Through the end of the fiscal year at December 31, 2014, the Group prepared its annual Financial Statements using generally accepted accounting principles in Colombia (COL GAAP). Financial information corresponding to the fiscal year ending on December 31, 2014, included in these Consolidated Financial Statements for comparison purposes, has been modified and is presented using NCIF standards. The effects of changes from COLGAAP in Colombia, applied at December 31, 2014 and January 1, 2014 to the NCIF are explained in the reconciliations described in detail in section 2.3. The Group has applied the accounting policies, judgments, estimates and relevant accounting assumptions described in Note 4. The Group has also considered the exceptions and exemptions provided for in IFRS 1, Firsttime Adoption, which are described below Principles of Consolidation and Relevant Accounting Policies Principles of Consolidation Companies in which the Group holds controlling interest are fully consolidated, including all assets, liabilities, equity, revenue, costs and expenses of subsidiaries in the parent or controlling company Financial Statements, after having eliminated investments made by the parent or controlling company in the equity of subsidiaries, as well as reciprocal operations and balances existing at the date of preparation from the consolidated financial statements. The Group controls a company when it has power over it, is exposed to or has a right to variable returns from its involvement in the company and has the ability to influence such returns, because of such power. The Group reevaluates whether or not it has control over a company, if the events and circumstances indicate there are changes in one or more of the three control elements mentioned above. When evaluating control, among other things the Group considers the existing substantive rights to vote, the contractual agreements signed between the entity and other parties and the rights and ability to appoint and remove key members of management. When the Group holds less than a majority of the voting rights in a company, but said voting rights are sufficient for it to unilaterally exert its influence to direct relevant activities of said company, it has control over the subsidiary. The Group considers all relevant events and circumstances to evaluate whether the rights to vote in a company are sufficient or not to ensure control: The percentage of the Group s rights voting rights compared to the percentage and distribution of voting rights held by other companies. Potential rights to vote held by the Group and other shareholders or other parties. 3

4 Rights derived from contractual agreements. Any additional events or circumstances that indicate that the Group has, or does not have, the actual ability to direct relevant activities when decisions must be made, including voting patterns in previous meetings of shareholders. The Financial Statements for subsidiaries are included in the Consolidated Financial Statements from the date on which the Group took control over the subsidiary and until the date it loses control. Specifically, revenue and expenses of a subsidiary acquired or sold during the year are included in the consolidated statement of income and other comprehensive income from the date the Group took control until the date it lost control over the subsidiary. Changes in a controlling company s ownership over a subsidiary that do not constitute a loss of control are reported as equity transactions. The carrying amount of the Group's controlled and noncontrolled companies is adjusted to reflect changes in its relative share in the subsidiary. Any difference between the amount by which Group holdings in noncontrolled entities is adjusted and the fair value of the compensation paid or received is directly reported as equity and is attributed to the relative share in the subsidiary company owners. When the Group loses control of a subsidiary, profit or loss is reported to the statement of income and calculated as the difference between (i) sum of the fair value of the compensation received and the fair value of the share retained, and (ii) the previous carrying amount of the assets (including capital gains) and liabilities of the subsidiary and any other minority holdings. Amounts previously reported in other comprehensive income for said subsidiary are recorded as if the Group had directly sold the assets held, meaning they are reclassified to the statement of income or transferred to another equity category as specified/allowed by applicable IFRS). The fair value of the investment retained in the former subsidiary as of the date on which control was lost should be considered as fair value for initial reporting purposes of a financial asset under IFRS 9 or, when applicable, the cost initially reported for an investment in an associate or joint venture. Minority holdings in the net assets of consolidated subsidiaries are presented separately from Group equity. The period results and other comprehensive income is attributed to noncontrolled and controlled company shares. The total comprehensive income of subsidiaries is attributed to Group owners and to noncontrolling companies even if the results of noncontrolled companies have a negative balance. Management must make estimates and assumptions that affect the amounts reported for assets and liabilities, revenue, costs and expenses, as well as uptodate asset and liability disclosures for the consolidated financial statements. The critical accounting judgments and key sources for estimates made by Management are presented in detail in Note 4. 4

5 Relevant Accounting Policies Relevant accounting policies the Group applies when preparing its consolidated financial statements are presented below in detail: 1) Business Combinations and Goodwill Business combinations are reported using the acquisition method. Identifiable acquired assets, liabilities, and contingent liabilities taken on during acquisition are reported at fair value on the date of the acquisition; acquisition costs are reported to the statement of income for the period and goodwill as an asset to the consolidated statement of financial position. Compensation transferred is measured on the acquisition date as the sum of the fair of assets delivered, liabilities assumed and equity instruments issued by the Group, including the fair value of any contingent compensation to obtain control of the acquired entity. Assets acquired and liabilities assumed, which are identifiable, are reported at fair value on the date of acquisition, except: Assets or liabilities for deferred income tax and liabilities or assets related to agreements regarding employee benefits are reported and measured using IAS 12 Income Taxes and IAS 19, respectively. Assets or groups of assets held for sale, classified according to IFRS 5 NonCurrent Assets Held for Sale and Discontinued Operations, are measured in line with IFRS 5. Goodwill is measured as the excess of the compensation transferred, the minority holding amount and, when applicable, the fair value of any share previously held in the acquired company, over the net value of acquired assets, liabilities and contingent liabilities assumed on the date of acquisition. When the compensation transferred is less than the fair value of net assets in the acquired entity, the corresponding gain is reported to the statement of income for the period, on the date of acquisition. Minority holdings that represent ownership and guarantee a proportional amount of the entity s net assets to the owner in the case of liquidation can be initially measured at fair value or the proportional amount of minority holdings in identifiable net assets recognized for the acquired entity. The basis for measurement is selected on a transactionbytransaction basis. Other types of minority holdings are measured at fair value or, when applicable, on the basis specified in another IFRS. When the compensation transferred by the Group in a business combination includes assets or liabilities that result from a contingent compensation agreement, the contingent compensation is measured at fair value on the date of acquisition and is included as part of the compensation transferred in a business combination. Changes in the fair value of the contingent compensation that qualify as adjustments for the measurement period are adjusted retrospectively, against goodwill. Adjustments for the measurement period are those that arise from the additional information obtained during the measurement period (which may not 5

6 exceed one year starting from the date of acquisition) for events and circumstances that existed at the date of the acquisition. The subsequent reporting of changes to the fair value of the contingent compensation that do not qualify as adjustments for the measurement period depend on how the contingent compensation is classified. Contingent compensation classified as equity is not remeasured at the dates of subsequent reporting and its subsequent payment is reported as equity. Contingent compensation classified as an asset or liability is measured at the date of reporting in accordance with IAS 39 or IAS 37 Provisions, Contingent Liabilities and Contingent Assets when appropriate, and the corresponding profit or loss is reported to the statement of income. In the cases of business combinations that develop in stages, the Group s equity share in the subsidiary is remeasured at fair value on the date of acquisition (i.e., the date on which the Group took control) and resulting profit or loss, is reported to the statement of income. Income resulting from the Group s equity share in the subsidiary prior to the date of acquisition, which was previously reported to other comprehensive income, is reclassified to the statement of income, provided that said treatment is appropriate in case said share is sold. If the initial reporting of a business combination is not finalized at the end of the financial period in which the combination occurs, the Group reports the provisional amounts of the entries for incomplete accounts. During the measurement period, the buyer reports adjustments to provisional amounts or recognizes additional assets or liabilities necessary to reflect the new information obtained about events and circumstances that existed at the date of acquisition and that when known, could affect the measurement of the amounts reported on that date. On the date of acquisition, goodwill acquired in a business combination is allocated to the cashgenerating units that will expectedly benefit from the combination, regardless of whether other assets or liabilities of the acquired entity are allocated to those units. Goodwill is not amortized, but measured at cost less accumulate impairment losses. The cashgenerating units to which the goodwill is allocated are evaluated for impairment every year, or more frequently, if there is any indication that the unit may have suffered impairment. If the recoverable amount of the cashgenerating unit is less than the carrying amount of the unit, the impairment loss is first allocated to reduce the carrying amount of the capital gains allocated to the unit, and then proportionally to the other assets in the unit, taking the carrying amount of each asset in the unit as a base. Impairment losses are reported to the statement of comprehensive income in the statement of income section. Impairment loss reported for goodwill purposes cannot be reversed in the next period. 6

7 In the disposal of a cashgenerating unit, capital gains associated with the unit are included when calculating gains or losses from retiring the assets. 2) Provisions for Retiring the Restoration and Rebuilding Service The Group reports a provision as part of the cost associated with a given property, plant and equipment entry when there is a legal or implicit obligation to disassemble an asset or restore the place where it was constructed or used. Said cost is equivalent to the present value of future estimated costs expected to be incurred from disassembly or restoration. The provision for disassembly or restoration is reported at the present value of future disbursements estimated to settle the obligation. Cash flows are discounted at a riskfree rate. The estimation of future cash flows from disassembly or restoration are revised periodically. Changes in the estimates expected dates of disbursements or the rate used to discount the flows are reported as an increase or decrease of the cost of assembly included in the property, plant and equipment account. The change in the value of the provision over time is reported as a financial expense on the statement of comprehensive income. 3) Cash and Cash Equivalents Cash and cash equivalents on the statement of financial position and the statement of cash flow include cash on hand and in banks, highly liquid investments, easily convertible to a determined cash amount and subject to an insignificant exchange risk in their value, which mature in three months or less from the date of acquisition. 4) Disbursements for Exploration and Evaluation The Group will report disbursements incurred before demonstrating the technical feasibility and commercial viability of the exploitation project as expenses directly related to or associated with the exploration for and evaluation of mineral resources. These disbursements will be reported at cost at the moment said costs are incurred, and will be classified exclusively in the exploration and evaluation assets account. Tangible and intangible assets will be separated based on the nature of the assets acquired and classified coherently. The Group will stop classifying an asset as for exploration and evaluation when the technical feasibility and commercial viability for the extraction of a mineral resource are demonstrable. 7

8 5) Fair Value Measurements The fair value is the price that could be received from selling an asset or paid by transferring a liability in a transaction ordered between market participants on the date of measurement. The fair value of all financial assets and liabilities is determined on the date the financial statements are presented, for reporting or disclosing in the notes to the financial statements. Judgments include such data as liquidity risk, credit risk and volatility. Changes in the hypotheses as to those factors that could affect the fair value reported for the financial instruments. When estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if the market participants consider those characteristics when valuing the asset or liability on the date of measurement. Fair value for the purposes of measurement and/or disclosure in these consolidated financial statements is established on this basis, except sharebased payment transactions within the scope of IFRS 2, lease transactions within the scope of IAS 17, and measurements that have some similarities to fair value, but that are not fair value, such as net realizable value in IAS 2 or value in use in IAS 36. Fair value measurements are categorized as Level 1, 2 or 3, based on the degree to which the fair value measurement entries are observable and their importance as a whole. These levels are described below: Level 1 entries are prices are quoted (not adjusted) in active markets for identical assets and liabilities for which the entity has access on the date of measurement. Level 2 entries are entries different than the prices quoted included in Level 1, and which are directly or indirectly observable for an asset or liability. Level 3 entries are nonobservable entries for an asset or liability. 6) Financial Assets Financial assets are initially reported at fair value plus transaction costs that are directly attributable, except for those that are measured afterward at fair value through profit or loss. The Group subsequently measures financial assets at amortized cost or fair value, following the Group s business model for managing financial assets and the instrument s characteristics of contractual cash flows. A financial asset is measured afterward at amortized cost, using the effective interest rate and the contractual terms, if the asset is held within a business model with the objective of holding 8

9 it to obtain contractual cash flows. This is on specific dates, and cash flows are only capital plus interest payments on the pending capital value. Financial assets not measured at amortized cost are measured afterward at fair value through profit of loss. However, for investments in capital instruments that are not held for negotiation purposes, the Group may opt to, irrevocably and at the time of initial reporting, present gains or losses from the fair value measurement to other comprehensive income. In the disposal of investments at fair value through other comprehensive income, accumulated gains or losses are directly transferred to retained earnings, not reclassified as income for the period. Cash dividends received from these investments are reported to the statement of comprehensive income. a) Impairment of Financial Assets At the end of each reporting period, the Group evaluates whether there is objective evidence that a financial asset or group of financial assets measured at amortized cost are impaired. For equity investments available for sale, a significant or prolonged fall in fair value of the security due to a drop in its cost is considered to be objective evidence of impairment. For all other financial assets, the objective evidence of impairment may include: Significant financial difficulty of the issuer or counterparty. Breach of contract, such as delayed or missed payments of interest or capital. The probability that the borrower enters into bankruptcy or another form of financial reorganization. The disappearance of an active market for these financial assets due to financial difficulties. If there is any evidence of impairment, the value of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred, discounted with the original effective interest rate of the financial asset. To report impairment loss, the carrying amount of the associated asset is reduced and the loss is reported to the statement of comprehensive income. For certain categories of financial assets, such as trade accounts receivable, impairment that has not been evaluated individually may be revised collectively. Among the objective evidence that a portfolio of accounts receivable may be impaired, past experience may be included with respect to payment collection, an increase in the number of delayed payments in the portfolio 9

10 that exceed the average credit period, as well as observable changes in local and national economic conditions that are related to the failure to make such payments. For financial assets recorded at amortized cost, the impairment loss is the difference between the asset s carrying amount and the current value of estimated future cash flow, discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is directly reduced by the impairment loss for all financial assets except the trade accounts receivable, where the carrying amount is reduced through a provision. When it is considered that a trade account receivable cannot be collected, said provision is eliminated. When amounts previously eliminated are later collected, the amount is credited as a provision. Changes in the carrying amount of the provision are reported on the statement of income. b) Derecognition of Financial Assets A financial asset or part of one is derecognized from the statement of financial position when the contractual rights to the cash flows from the financial asset expire; or the financial asset is transferred and the transfer meets the requirements for derecognition. A financial asset is transferred if the contractual rights to receive cash flows from a financial asset have been transferred or the contractual rights to receive cash flows from a financial asset are retained, but the contractual obligation to pay them to one or more recipients is assumed. When the Group transfers a financial asset, it will be evaluated using the measurement that retains the risks and benefits inherent to its ownership. Once a financial asset or part thereof is derecognized, the difference between the carrying amount and the total of compensation received (including any new asset minus any assumed liability) should be reported on the statement of income for the period. The accumulated gain or loss that has been reported directly under equity to other comprehensive income and that is related to financial assets that have been derecognized will be reclassified as retained earnings. 7) Financial Liabilities and Equity Instruments a) Classification as a debt or equity: Debt and equity instruments are classified as financial liabilities or as equity, based on the substance of the contractual agreement and the definitions of financial liability and equity instrument. b) Equity instruments: An equity instrument is any contract that shows evidence of residual interest in an entity s assets after deducting all its liabilities. Equity instruments issued by an entity under the Group report revenue received, net of direct issuance costs. 10

11 The repurchase of equity instruments belonging to the company is directly reported and deducted as equity. No gain or loss is reported to the statement of income that is a result of the purchase, sale, issuance or cancellation of an entity s own equity instruments. c) Compound instruments: The components of compound instruments (mandatory convertible bonds) issued by the Company are classified separately as financial liabilities and equity depending on the terms of the contractual agreement and the definitions of financial liability and equity instrument. A conversion option that will be settled by exchanging a fixed cash amount or another financial asset for a set number of the Company's equity instruments is an equity instrument. As of the date of issue, the fair value of a liability component is calculated using the current market interest rate for similar, nonconvertible debt. This amount is recorded as a liability at amortized cost, using the effective interest rate method until it is extinguished at the time of conversion or the instrument maturity date. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the whole compound instrument. This is reported and included on the statement of equity, net of income tax, and its measurement may not be reapplied later. In addition, the conversion option classified as equity will remain as equity until it has been exercised, in which case the balance reported on the statement of equity will be transferred as a premium in share issues. When the conversion option still has not been exercised at the convertible instrument maturity date, the balance reported on the statement of equity will be transferred to retained earnings. No gain or loss will be reported to the statement of income at the time of conversion or expiration of the conversion option. The transaction costs related to issuing the convertible instruments will be allocated to the liability components and equity in proportion to the breakdown of gross amounts received. Transaction costs related to the equity component will be directly reported on the statement of equity. Transaction costs related to the liability component are included in the carrying amount of the liability component and are amortized over the life of the convertible instruments using the effective interest rate method. d) Financial liabilities: These are classified at fair value through profit or loss or at amortized cost using the effective interest rate method. The Group determines the classification of financial liabilities at the time of initial reporting. i. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities heldfortrading and financial liabilities designated upon initial recognition at fair value though profit or loss. A financial liability is classified as heldfortrading if: 11

12 It has been acquired primarily for shortterm resale; or At the time of initial reporting it forms part of a financial instruments portfolio managed by the Group and there is evidence of a recent current pattern of shortterm benefits. It is a derivative that has not been designated or effective as a hedging instrument or a financial guaranty. It is an implicit derivative that is reported separately, except that it is designated as an effective hedging instrument. A financial liability (that is not heldfortrading) may also be designated as a financial liability at fair value through profit or loss at the time of initial reporting if: Said designation eliminates or significantly reduces an inconsistency in measurement or reporting that could arise. The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its return is evaluated based on fair value, in accordance with the risk management documented by the Group or its investment strategy, and the information is provided internally on such basis. It forms part of a contract that contains one or more implicit instruments. IFRS 9 allows any combined contract to be designated at fair value through profit and loss. Financial liabilities at fair value through profit or loss are reported at fair value, reporting any gain or loss arising from the new measurement to the statement of income. Any net gain or loss reported to the statement of income incorporates any interest paid on the financial liability. The fair value is determined as described in the fair value measurement policy mentioned in section 8. ii. Other financial liabilities Other financial liabilities (including loans and trade and other accounts payable) are measured afterward at amortized cost using the effective interest rate method. The effective interest rate method is a method used to calculate amortized cost of a financial liability and to post the financial expense over the relevant period. The effective interest rate is the discount rate that gives an equal balance of cash flows receivable or payable (including all fees and points paid or received that form part of the effective interest rate, the transaction costs and other premiums or discounts), estimated over the expected life of the financial liability, or when appropriate, over a shorter period with the net carrying amount at the time of initial reporting. 12

13 iii. Derecognition of a financial liability The Group will derecognize a financial liability if, and only if, they settle or complete the obligations, or they expire. The difference between the derecognized financial liability's carrying amount and the compensation paid and payable is reported to the statement of income. iv. Financial derivatives Financial derivatives are measured at fair value through profit or loss. Some derivatives included in other financial instruments (implicit derivatives) are treated as separate derivatives when their risk or characteristics are not closely related to those of the main contract and are not recorded at fair value. Certain transactions with derivatives that do not qualify to be reported as derivatives for hedging are treated and reported as derivatives for trading, even when they provide hedging effective for managing risk positions. For those derivatives that are qualified to be reported as derivatives for hedging, at the start of the hedging relationship, the Group formally designates and documents the relationship, and the risk management objective and the strategy for hedging. The documentation includes the identification of a hedging instrument, the part or transaction hedged, the nature of the risk being hedged and how the Group will evaluate the efficacy of changes in fair value of the hedging instrument when compensating for the exposure against changes in fair value of the hedged entry or in cash flows attributable to the hedged risk. Such hedging instruments are expectedly highly effective in being able to compensate for changes in fair value or in cash flows, and they are permanently evaluated to determine that they have really been that effective throughout the information periods for which they were designated. For purposes of hedge accounting and standards applicable to the Group, hedging instruments are classified and reported as follows, once the strict criteria for their reporting have been met: Hedging instruments at fair value: When they hedge exposure to changes in fair value of assets and liabilities reported or firm, unreported commitments. The change in fair value of a derivative for hedging is reported to the statement of comprehensive income in the statement of income section as a financial cost or revenue. The change in fair value of the hedged entry attributable to the hedged risk is reported as part of the carrying amount for the hedged entry, and is also reported on the statement of comprehensive income in the statement of income section as a financial cost or revenue. Cash flow hedging instruments: When hedging exposure to a variation in cash flows attributed to either a particular risk associated with a reported asset or liability or to a highly probable foreseen transaction, or to the exchange rate risk in a firm, unreported commitment. Accounting for cash flow hedge has the objective of reporting variations in the fair value of a hedging instrument to other comprehensive income to apply them to the statement of income when and at the rhythm that the hedged entry affects the same. Derivative losses will only be reported to the statement of income when they occur. 13

14 The effective portion of the gain or loss resulting from measuring the hedging instrument is immediately reported to other comprehensive income, while the ineffective portion is immediately reported to the statement of income as a financial cost. Amounts reported in other comprehensive income are reclassified to the statement of income when the hedged transaction affects income, as well as when the hedged finance revenue or expense is reported, or when the foreseen transaction takes place. When the hedged entry is the cost of a nonfinancial asset or liability, the amounts reported in other comprehensive income are reclassified at the initial carrying amount of the nonfinancial asset or liability. If the foreseen transaction or the firm commitment is no longer expected to take place, the accumulated gain or loss previously reported in other comprehensive income is reclassified to the statement of income. If the hedging instrument expires or is sold, is resolved or is exercised without a subsequent replacement or renewal of one hedging instrument for another hedging instrument, or if its designation as a hedging instrument is revoked, any accumulated gain or loss previously reported in other comprehensive income remains there until the foreseen operation or the firm commitment affects the income. 8) Foreign Currency Transactions in currency different than the entity s functional currency (foreign currency) are reported using the exchange rates current on the dates of said operations. At the end of each reporting period, the monetary portions denominated in foreign currency are reconverted at the exchange rates current for that date. Nonmonetary entries reported at fair value, denominated in foreign currency, are reconverted at the exchange rates current on the date said fair value was determined. Nonmonetary entries measured at historic cost are not reconverted. Exchange rate differences for the nonmonetary entries are reported on the statement of income for the period in which they arise, except for: Exchange rate differences resulting from loans denominated in foreign currency related to construction assets for future productive use, which are included in the cost of such assets as they are considered an adjustment to costs because of the interest on such loans denominated in foreign currency, provided they do not exceed the costs for loans of a liability with similar characteristics in functional currency. Exchange rate differences resulting from transactions related to risk hedging instruments at the exchange rate. Exchange rate differences resulting from monetary portions of receivables or payables related to operations abroad for which there is no plan nor is it possible to generate payment (thus forming part of the net investment in the operation abroad), which are 14

15 initially reported in other comprehensive income and reclassified from the statement of equity to the statement of income upon reimbursement of the nonmonetary entries. In the allowance for business abroad (i.e., allowance for all of the Group s shares in a business abroad that involves a partial sale of a share in a joint arrangement or an associate that includes a business abroad for which the retained share is converted to a financial asset), all accumulated exchange rate differences on the statement of equity related to that operation attributable to the Group s owners are reclassified to the statement of income. In addition, as regards the partial allowance for a subsidiary (which includes business abroad), the entity will again attribute the proportional part of the accumulated amount of exchange rate differences to noncontrolling entities shares and they are not reported on the statement of income. In any other partial allowance (i.e., partial allowance for associates or joint arrangements that do not involve the Company's loss of significant influence or joint control), the entity will only reclassify the proportional part of the accumulated exchange rate differences to the statement of income. Adjustments to goodwill and fair value of identifiable assets and liabilities acquired or generated during the acquisition of a business abroad are considered assets and liabilities for said operation and are converted at the exchange rate current at the end of each reporting period. Exchange rate differences that arise will be reported in other comprehensive income and accumulated equity. 9) Impairment of Tangible and Intangible Assets At the end of each period, the Group evaluates whether there are indications of asset impairment. If such indications exist, the recoverable amount of the asset is calculated to determine the scope of impairment loss (if applicable). The recoverable value of an asset or cashgenerating unit is estimated when it is not possible to estimate the recoverable amount of an individual asset when impairment is detected or, at minimum, annually for intangible assets with an indefinite useful life and intangible assets that are no longer in use. When a fair and consistent distribution basis is identified, the common assets are also allocated to the individual cashgenerating units or distributed to the smallest groups of cashgenerating units for which a fair and consistent distribution basis can be identified. The recoverable value of an asset is the greater amount between the fair value less cost of sale, whether it be of an asset or a cashgenerating unit, and its valueinuse. When estimating the valueinuse, the estimated future cash flows are discounted from current value using a pretax discount rate that reflects current market valuations with respect to the money's temporary value and the specific risks for the asset for which the estimated future cash flows have not been adjusted. 15

16 When the carrying amount of an asset or a cashgenerating unit exceeds its recoverable value, the asset is considered impaired and its value is reduced to the recoverable amount. When impairment loss is later reversed, the carrying amount of the asset (or cashgenerating unit) increases to the revised estimate for its recoverable amount, ensuring that the increased carrying amount does not exceed the carrying amount that would have been calculated if the impairment loss for said asset (or cashgenerating unit) was not reported in previous years. The reversal of an impairment loss is automatically reported on the statement of income. 10) Taxes Income tax expense represents the sum of current income tax payable and deferred tax. a) Current income tax: Current income tax assets and liabilities for the period are measured by the values that are expected to be recovered from or paid to the tax authority. Current income tax expense reported is based on taxable income rather than profit or loss on the books. Said income is taxed at the income tax rate for the current year, and in accordance with the provisions set for in the country s tax law. Tax rates and regulations used to calculate such values are those in force or approved at the end of the reporting period in the countries where the Group operates and generates taxable profits. b) Deferred tax: Deferred tax is reported on the temporary difference between the carrying amount of the assets and liabilities included in the financial statements and the corresponding tax bases used to establish tax earnings. Deferred tax liability is generally reported for all temporary tax differences. A deferred tax asset is reported for all deductible temporary differences as long as it is probable that the entity will have future taxable earnings with which to offset these temporary deductible differences. These assets and liabilities are not reported if the temporary differences arise from initial reporting of other assets and liabilities in a transaction that does not affect tax earnings or accounting profit. A deferred tax liability should be reported for temporary taxable differences associated with investments in subsidiaries and associates, and shares in joint ventures, with the exception of those in which it has the ability to control the reversal of the temporary difference and when there is the possibility that it cannot be reversed in the near future. Deferred tax assets that arise from temporary deductible differences associated with such investments and shares are only reported as long as it is probable that the entity will have future taxable profits available with which to offset these temporary differences and when there is the possibility that they can be reversed in the near future. The carrying amount of a deferred tax asset should be subject to review at the end of every period for which it is reported and should be reduced, when it considered probable that there will not be sufficient taxable profits available in the future to allow the full or partial recovery of the asset. 16

17 Deferred tax assets and liabilities should be measured at the tax rates expected to be applied in the period in which the asset is realized or the liability is paid, based on the rates (and tax laws) that have been approved or practically approved and in the final approval phase by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that result from how the entity expects to recover or settle the carrying amount of its assets or liabilities at the end of the reporting period. In the case of a business combination where current or deferred tax results from the initial reporting of the business combination, the tax effect is considered within the accounting for the business combination. c) Wealth tax: Through Law 1739 of December 23, 2014, the National Government established the wealth tax, which is applied for the possession of wealth (gross equity less current debts) equal to or greater than COP 1,000 as at January 1, 2015, January 1, 2016 and January 1, The Group reports this tax on the statement of income, as an operating expense. The marginal rate that applies is 1.15% for 2015, 1% for 2016 and 0.4% for ) Intangible Assets a) Intangible assets acquired separately: Intangible assets with a definite useful life acquired separately are reported at cost less accumulated amortization and accumulated impairment loss. Amortization is reported using the straight line method over estimated useful life. The estimated useful life and depreciation method are reviewed at the end of each reporting period, and the effect of any change in the estimation is recorded on a prospective basis. Intangible assets with an indefinite useful life acquired separately are reported at cost less any accumulated impairment loss. b) Internally generated intangible assets: Disbursements originating from research activities are reported as an expense for the period in which they are incurred. An internally generated intangible asset as a result of development activities, or the development phase of an internal project is reported if, and only if, the conditions indicated below are met: Technically, it is possible to complete the production of an intangible asset in such a way that it becomes available for use or sale. The intention is to complete the intangible asset in question, to use or sell it. The Company can to use or sell the intangible asset. 17

18 It is clear how the intangible asset will generate probable future economic benefits. Appropriate technical, financial or other resources are available to complete development and use or sell the intangible asset. The Company can reliably measure the expenditure attributable to the intangible asset during its development. The amount initially reported for an internally generated intangible asset will be the total expense incurred from the moment the asset meets the conditions for reporting. When an internally generated intangible asset cannot be reported, development expenses are reported to the statement of income for the period in which they were incurred. After its initial reporting, an internally generated intangible asset will be reported at cost less accumulated amortization and accumulated impairment losses, over the same base as intangible assets that are acquired separately. c) Intangible assets acquired in a business combination: When an intangible asset is acquired in a business combination and reported separately from capital gains, its cost will be the fair value on the date of acquisition (which is considered its cost). After its initial reporting, an intangible asset acquired in a business combination will be reported at cost less accumulated amortization and accumulated impairment losses, over the same base as intangible assets acquired separately. d) Derecognition of intangible assets: An intangible asset is derecognized at the time of its disposal, or when future economic benefits from its use or disposal are not expected. The gains or losses that arise from derecognizing the carrying amount of an intangible asset, measured as the difference between the net income from the sale and carrying amount of the asset, are reported to the statement of income when the asset is derecognized. e) Impairment of tangible and intangible assets not including goodwill: At the close of each reporting period, the Group evaluates the carrying amounts of its tangible and intangible assets to determine whether there is any indication that these assets have suffered any impairment losses. In such a case, the recoverable amount of the asset is calculated to determine the impairment loss (if applicable). When it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cashgenerating unit to which said asset belongs is calculated. When a fair and consistent distribution basis is identified, the common assets are also allocated to the individual cashgenerating units or distributed to the smallest groups of cashgenerating units for which a fair and consistent distribution basis can be identified. 18

19 Intangible assets with an indefinite useful life or that are still unavailable for use must be impairment tested annually, or more frequently if there is any indication that their value has been impaired. The recoverable amount is the higher between fair value less costs of disposal and valueinuse. When estimating the valueinuse, the estimated future cash flows are discounted from current value using a pretax discount rate that reflects current market value for the time value of money and the specific asset risks for which the estimated future cash flows have not been adjusted. If the recoverable amount of an asset (or cashgenerating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cashgenerating unit) is reduced to its recoverable amount. Impairment losses are immediately reported to the statement of income, except when the asset recorded is revalued, in which case the impairment loss should be considered as a loss in value. When impairment loss is later reversed, the carrying amount of the asset (or cashgenerating unit) increases to the revised estimate for its recoverable amount, ensuring that the increased carrying amount does not exceed the carrying amount that would have been calculated if the impairment loss for said asset (or cashgenerating unit) was not reported in previous years. The reversal of an impairment loss is automatically reported to the statement of income. 12) Investments in Associates and Joint Arrangements An associate is an entity over which the Group has significant influence, understood as the power to intervene in the financial policy and operational decisions of the company, without having to have absolute or joint control over it. A joint venture is an arrangement whereby the parties involved have a right to net assets. Joint control is the shared control contractually agreed, which exists only when the decisions over the relevant activities require the unanimous consent of the parties. A joint operation is an arrangement through which the parties involved have a right to the assets and obligations associated with the liabilities under the arrangement. Income, assets and liabilities from the associate or joint venture are included in the consolidated financial statements using the equity method, except when the investment or a portion thereof is classified as held for sale, in which case it is reported under IFRS 5. Under this method, the investment is initially reported at cost and adjusted to reflect changes in Company holdings, reporting its share in the statement of income and in other comprehensive income for the associate or joint venture. 19