Summary Of Significant Accounting Policies

New accounting standards The following standards and amendments have been issued by the IASB. Below we outline the standards and amendments that may potentially have an impact on the Group at the time of application. Standards and amendments adopted by the Group <table cellspacing="0" cellpadding="0" style="font-family: inherit; margin-left: 0px; margin-right: 0px; width: 100%"> <tr style="vertical-align: bottom"> <td style="border-left: #000000 1px solid; width: 43%; border-top: #000000 1px solid; text-align: center; text-indent: 0px">Standards and amendments</td> <td style="border-left: #000000 1px solid; width: 42%; border-top: #000000 1px solid; text-align: center; text-indent: 0px">Description</td> <td style="border-left: #000000 1px solid; width: 15%; border-top: #000000 1px solid; border-right: #000000 1px solid">Date of mandatory adoption for the Group in the year ended on </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Cycle of annual improvements 2014-2016. IFRS 12 “Disclosure of Interests in other entities”.</td> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Clarifies the standard scope.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2018 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Amendments to IAS 7 "Disclosure initiative".</td> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Establishes that the entity shall disclose information so that users of the Financial Statements may assess the changes in liabilities resulting from financing activities, including both cash and non-cash changes.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2018 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Amendments to IAS 12 "Recognition of deferred tax assets for unrealized losses".</td> <td style="border-left: #000000 1px solid; text-align: justify; text-indent: 0px">Clarifies the accounting of deferred income tax assets in the case of unrealized losses from debt instruments measured at fair value.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2018 </td></tr> </table> The adoption of these standards and amendments has not had a material impact for the Group. See details of IAS 7 modifications in Note 19. Standards and amendments not yet adopted by the Group <table cellspacing="0" cellpadding="0" style="font-family: inherit; margin-left: 0px; margin-right: 0px; width: 100%"> <tr style="vertical-align: bottom"> <td style="border-left: #000000 1px solid; width: 43%; border-top: #000000 1px solid; text-align: center; text-indent: 0px">Standards and amendments</td> <td style="border-left: #000000 1px solid; width: 42%; border-top: #000000 1px solid; text-align: center; text-indent: 0px">Description</td> <td style="border-left: #000000 1px solid; width: 15%; border-top: #000000 1px solid; border-right: #000000 1px solid">Date of mandatory adoption for the Group in the year ended on </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Amendments to IAS 40 "Transfers of Investment Properties"</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Clarifies the conditions that should be met for an entity to transfer a property to, or from, investment properties.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2019 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Cycle of annual improvements 2014-2016. IAS 28 “Investments in Associates and Joint ventures”.</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Clarifies that the option to measure an associate or a joint venture at fair value for a qualifying entity is available upon initial recognition.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2019 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">IFRS 9 “Financial Instruments”.</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Adds a new impairment model based on expected losses and introduces some minor amendments to the classification and measurement of financial assets.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2019 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">IFRS 15 “Revenues from contracts with customers”</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Provides the new revenue recognition model derived from contracts with customers. The core principle underlying the model is satisfaction of performance obligations assumed with customers. Applies to all contracts with customers, except those covered by other IFRSs, such as leases, insurance and financial instruments contracts. The standard does not address recognition of interest or dividend income.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2019 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Amendments to IFRS 2 "Share-based Payment".</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">The amendments clarify the scope of the standard in relation to (i) accounting of the effects that the concession consolidation conditions have on cash settled share-based payments, (ii) the Classification of the share-based payment transactions subject to net settlement, and (iii) accounting for the amendment of terms and conditions of the share-based payment transaction that reclassifies the transaction from cash settled to equity settled.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2019 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">IFRS 16 "Leases".</td> <td style="border-left: #000000 1px solid; text-align: left; text-indent: 0px">Will supersede IAS 17 currently in force (and associated interpretations) and its scope includes all leases, with a two specific exceptions (low cost assets’ leases and short-term leases). Under the new standard, lessees are required to account for leases under one single model in the balance sheet that is similar to the one used to account for financial leases under IAS 17. The accounting of the lessor has no significant changes.</td> <td style="border-left: #000000 1px solid; border-right: #000000 1px solid; border-bottom: #000000 2px solid"> 06-30-2020 </td></tr> </table> The future adoption of these standards modifications and interpretations will not have a significant impact to the Group, except for the following: IFRS 15: Revenues from contracts with customers The standard introduces a new five step model for recognizing revenue from contracts with customers: 1. Identifying the contract with the customer. 2. Identifying separate performance obligations in the contract. 3. Determining the transaction price. 4. Allocating the transaction price to separate performance obligations. 5. Recognizing revenue when the performance obligations are satisfied. The Group will apply the cumulative effect approach, therefore, accumulated impact will be recognized in Retained earnings as of July 1, 2018. Comparative figures will not be restated. Main effects that affect the Group: Costs of obtaining a contract with a client: Customer acquisition costs are capitalized when it is expected that the Group will recover these costs, instead of recognizing these costs in profit or loss as incurred. Accordingly, incremental incentives and commissions paid to Group employees while resellers for securing contracts with customers, are recognized as an asset and are amortized to profit or loss, in accordance with the expected service period from these contracts (over a period of 2-4 years). In the statements of cash flows, customer acquisition costs paid will be presented as part of cash flows used in investing activities and the amortization of capitalized customer acquisition costs, will be presented under depreciation and amortization as part of cash flows from operating activities. The Group applies the practical exemption specified in the standard and recognizes customer acquisition costs in profit or loss when the expected amortization period of these costs is one year or less. Satisfaction of performance obligation in real estate contracts: Revenues from the sale of offices and apartments will be recognized during the period of construction, in accordance with the work in progress, instead of upon the delivery or signing of the property’s deed, if one of the following conditions are met: 1. The customer simultaneously receives and consumes the benefits provided by the Group’s performance when the Group provides such services. 2. The Group’s performance creates or enhances an asset that is controlled by the customer at the time it is being created or enhanced. 3. The Group’s performance does not create an asset with an alternative use for the Group and the Group has the enforceable right to payment for performance completed to date. The Group will recognize revenue over time on sales contracts with customers for the development of real estate in which no alternative use exists but the sale to the client and it has the right to enforce the performance of the contract. When these conditions are not met, revenue will be recognized at the time of the deed or upon delivery of the asset. The Group determines the amount of revenue from each contract according to the transaction price and work in progress of the asset of each customer separately. IFRS 9: Financial instruments The new standard includes a new model of "expected credit loss" for receivables or other assets not measured at fair value. The new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an allowance for impairment will be recorded in the amount of expected credit losses resulting from the possible non- compliance events within a certain period. If the credit risk has increased significantly, in most cases the allowance will increase and the amount of the expected losses should be recorded. In accordance with the new standard, in cases where a change in terms or exchange of financial liabilities is immaterial and does not lead, at the time of analysis, to the reduction of the previous liability and recognition of the new liability, the new cash flows must be discounted at the original effective interest rate, recording the impact of the difference between the present value of the financial liability that has the new terms and the present value of the original financial liability in net income. As a result of the application of the new standard, the amount of the liabilities, whose terms were modified and for which a new effective interest rate was calculated at the time of the change in accordance with IAS 39, will be recalculated from the date of the change using the original effective interest rate. IFRS 16: Leases The Group is currently assessing the impact of the amendments on its Financial Statements. IFRS 16 will be effective for fiscal year beginning July 1, 2019. On the issue date of these Consolidated Financial Statements, there are no other standards or amendments, issued by the IASB that are yet to become effective and that are expected to have a material effect on the Group. Breakdown of the expected changes to the financial position of the Group due to the application of IFRS 9 and 15 are described below: <table cellspacing="0" cellpadding="0" style="font-family: inherit; margin-left: 0px; margin-right: 0px; width: 100%"> <tr style="vertical-align: bottom"> <td style="width: 40%"> </td> <td style="width: 15%">Current statement of financial position </td> <td style="width: 15%"> IFRS 15 impact </td> <td style="width: 15%"> IFRS 9 impact </td> <td style="width: 15%"> Adjusted statement of financial position </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">ASSETS</td> <td> </td> <td></td> <td> </td> <td> </td></tr> <tr style="vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Non-current assets</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trading properties</td> <td> 6,018 </td> <td> (3,338)</td> <td> - </td> <td> 2,680 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Investments in associates and joint ventures</td> <td> 24,650 </td> <td> 24 </td> <td> (19)</td> <td> 24,655 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Deferred income tax assets</td> <td> 380 </td> <td> (95)</td> <td> - </td> <td> 285 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trade and other receivables</td> <td style="border-bottom: #000000 2px solid"> 8,142 </td> <td style="border-bottom: #000000 2px solid"> 497 </td> <td style="border-bottom: #000000 2px solid"> (63)</td> <td style="border-bottom: #000000 2px solid"> 8,576 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Total non-current assets</td> <td style="border-bottom: #000000 2px solid"> 239,755 </td> <td style="border-bottom: #000000 2px solid"> (2,912)</td> <td style="border-bottom: #000000 2px solid"> (82)</td> <td style="border-bottom: #000000 2px solid"> 236,761 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Current assets</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trading properties</td> <td> 3,232 </td> <td> (734)</td> <td> - </td> <td> 2,498 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trade and other receivables</td> <td style="border-bottom: #000000 2px solid"> 14,947 </td> <td style="border-bottom: #000000 2px solid"> 292 </td> <td style="border-bottom: #000000 2px solid"> (32)</td> <td style="border-bottom: #000000 2px solid"> 15,207 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Total current assets</td> <td style="border-bottom: #000000 2px solid"> 96,018 </td> <td style="border-bottom: #000000 2px solid"> (442)</td> <td style="border-bottom: #000000 2px solid"> (32)</td> <td style="border-bottom: #000000 2px solid"> 95,544 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">TOTAL ASSETS</td> <td style="border-bottom: #000000 2px solid"> 335,773 </td> <td style="border-bottom: #000000 2px solid"> (3,354)</td> <td style="border-bottom: #000000 2px solid"> (114)</td> <td style="border-bottom: #000000 2px solid"> 332,305 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">SHAREHOLDERS’ EQUITY</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Shareholders' equity attributable to equity holders of the parent</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Retained earnings</td> <td> 37,421 </td> <td> 127 </td> <td> (453)</td> <td> 37,095 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Non-controlling interest</td> <td style="border-bottom: #000000 2px solid"> 37,120 </td> <td style="border-bottom: #000000 2px solid"> 126 </td> <td style="border-bottom: #000000 2px solid"> (473)</td> <td style="border-bottom: #000000 2px solid"> 36,773 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">TOTAL SHAREHOLDERS’ EQUITY</td> <td style="border-bottom: #000000 2px solid"> 74,541 </td> <td style="border-bottom: #000000 2px solid"> 253 </td> <td style="border-bottom: #000000 2px solid"> (926)</td> <td style="border-bottom: #000000 2px solid"> 73,868 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">LIABILITIES</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Non-current liabilities</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trade and other payables</td> <td> 3,484 </td> <td> (1,647)</td> <td> - </td> <td> 1,837 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Borrowings</td> <td> 181,046 </td> <td> - </td> <td> 1,025 </td> <td> 182,071 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Deferred income tax liabilities</td> <td style="border-bottom: #000000 2px solid"> 26,197 </td> <td style="border-bottom: #000000 2px solid"> (43)</td> <td style="border-bottom: #000000 2px solid"> (268)</td> <td style="border-bottom: #000000 2px solid"> 25,886 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Total non-current liabilities</td> <td style="border-bottom: #000000 2px solid"> 214,476 </td> <td style="border-bottom: #000000 2px solid"> (1,690)</td> <td style="border-bottom: #000000 2px solid"> 757 </td> <td style="border-bottom: #000000 2px solid"> 213,543 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Current liabilities</td> <td> </td> <td> </td> <td> </td> <td> </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Trade and other payables</td> <td> 14,617 </td> <td> (1,925)</td> <td> - </td> <td> 12,692 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Borrowings</td> <td> 25,587 </td> <td> - </td> <td> 55 </td> <td> 25,642 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Income tax and MPIT liabilities</td> <td style="border-bottom: #000000 2px solid"> 522 </td> <td style="border-bottom: #000000 2px solid"> 8 </td> <td style="border-bottom: #000000 2px solid"> - </td> <td style="border-bottom: #000000 2px solid"> 530 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">Total current liabilities</td> <td style="border-bottom: #000000 2px solid"> 46,756 </td> <td style="border-bottom: #000000 2px solid"> (1,917)</td> <td style="border-bottom: #000000 2px solid"> 55 </td> <td style="border-bottom: #000000 2px solid"> 44,894 </td></tr> <tr style="background-color: #cceeff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">TOTAL LIABILITIES</td> <td style="border-bottom: #000000 2px solid"> 261,232 </td> <td style="border-bottom: #000000 2px solid"> (3,607)</td> <td style="border-bottom: #000000 2px solid"> 812 </td> <td style="border-bottom: #000000 2px solid"> 258,437 </td></tr> <tr style="background-color: #ffffff; vertical-align: bottom"> <td style="text-align: justify; text-indent: 0px">TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES</td> <td style="border-bottom: #000000 2px solid"> 335,773 </td> <td style="border-bottom: #000000 2px solid"> (3,354)</td> <td style="border-bottom: #000000 2px solid"> (114)</td> <td style="border-bottom: #000000 2px solid"> 332,305 </td></tr></table> At the date of presentation of these financial statements, the analysis of IFRS 9 in some of the Group's associates is still being performed, which could modify the preceding information at the time of effective adoption.

2.4.

Segment information

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker (“CODM”), responsible for allocating resources and assessing performance. The operating segments are described in Note 6.

Investment properties

2.6.

Investment properties

Investment properties are those properties owned by the Group that are held either to earn long-term rental income or for capital appreciation, or both, and that are not occupied by the Group for its own operations. Investment property also includes property that is being constructed or developed for future use as investment property. The Group also classifies as investment properties land whose future use has not been determined yet. The Group’s investment properties primarily comprise the Group’s portfolio of shopping malls and offices, certain property under development and undeveloped land.

Where a property is partially owner-occupied, with the rest being held for rental income or capital appreciation, the Group accounts for the portions separately. The portion that is owner-occupied is accounted for as property, plant and equipment under IAS 16 “Property, Plant and Equipment” and the portion that is held for rental income or capital appreciation, or both, is treated as investment properties under IAS 40 “Investment Properties”.

Investment properties are measured initially at cost. Cost comprises the purchase price and directly attributable expenditures, such as legal fees, certain direct taxes, commissions and in the case of properties under construction, the capitalization of financial costs.

For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating.

Direct expenses related to lease contract negotiation (such as payment to third parties for services rendered and certain specific taxes related to execution of such contracts) are capitalized as part of the book value of the relevant investment properties and amortized over the term of the lease.

Borrowing costs associated with properties under development or undergoing major refurbishment are capitalized. The finance cost capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Finance cost is capitalized from the commencement of the development work until the date of practical completion. Capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted. Finance cost is also capitalized on the purchase cost of land or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress.

After initial recognition, investment property is carried at fair value. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. Investment properties under construction are measured at fair value if the fair value is considered to be reliably determinable. On the other hand, properties under construction for which the fair value cannot be determined reliably, but for which the Group expects it to be determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier.

Fair values are determined differently depending on the type of property being measured.

Generally, for the Operations Center in Argentina, fair value of office buildings and land reserves is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Fair value of office building for the Operations Center in Israel is based on discounted cash flow projections.

The fair value of the Group’s portfolio of Shopping Malls is based on discounted cash flow projections. This method of valuation is commonly used in the shopping mall industry in the region where the Group conducts its operations.

The fair value of office buildings in the Operations Center in Israel is based on discounted cash flow projections.

As required by CNV 576/10 Resolution, valuations are performed as of the financial position date by accredited externals appraisers who have recognized professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the Consolidated Financial Statements. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions.

Subsequent expenditures are capitalized to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized.

Changes in fair values are recognized in the Statement of Income under the line item “Net gain from fair value adjustment of investment properties”.

Asset transfers, including assets classified as investments properties which are reclassified under other items or vice-versa, may only be carried out when there is a change of use evidenced by: a) commencement of occupation of real property by the Group, where investment property is transferred to property, plant and equipment; b) commencement of development activities for sale purposes, where investment property is transferred to property for sale; c) the end of Group occupation, where it is transferred from property, plant and equipment to investment properties; or d) commencement of an operating lease transaction with a third party, where properties for sale are transferred to investment property. The value of the transfer is the one that the property had at the time of the transfer and subsequently is valued in accordance with the accounting policy related to the item.

The Group may sell its investment property when it considers that such property no longer forms part of the lease business. The carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the Statement of Income in the line “Net gain from fair value adjustments of investment properties”.

Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefits are expected to arise from their disposals. The disposal of properties is recognized when the significant risks and rewards have been transferred to the buyer. As for unconditional agreements, proceeds are accounted for when title to property passes to the buyer and the buyer intends to make the respective payment. In the case of conditional agreements, where such conditions have been met. Where consideration receivable for the sale of the properties is deferred, it is discounted to present value. The difference between the discounted amount and the amount receivable is treated as interest income and recognized over the period using the effective interest method. Direct expenses related to the sale are recognized in the line "Other operating results, net" in the Statement of Income at the time they are incurred.

Leases

2.8.

Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement.

A Group company is the lessor:

Properties leased out to tenants under operating leases are included in “Investment Properties” in the Statement of Financial Position. See Note 2.25 for the recognition of rental income.

The Group has not leased out to tenants under financial leases.

A Group company is the lessee:

The Group acquires certain specific assets (especially machinery and computer equipment) under finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the property and the present value of the minimum lease payments. Capitalized lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. The finance charges are charged over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Liabilities corresponding to finance leases, measured at discounted value, are included in current and non-current borrowings.

Operating leases where the Group acts as lessee were charged to results at the time they accrue. They mainly include offices and properties for commercial uses.

Trading properties

2.10.

Trading properties

Trading properties comprises those properties either intended for sale or in the process of construction for subsequent sale. Trading properties are carried at the lower of cost and net realizable value. Where there is a change in use of investment properties evidenced by the commencement of development with a view to sale, the properties are reclassified as trading properties at cost, which is the carrying value at the date of change in use. They are subsequently carried at the lower of cost and net realizable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the trading properties to their present location and condition.

Financial instruments

2.12.

Financial instruments

The Group classifies financial assets in the following categories: those to be measured subsequently at fair value, and those to be measured at amortized cost. This classification depends on whether the financial asset is an equity investment or a debt investment.

Debt investments

A debt investment is classified at amortized cost only if both of the following criteria are met: (i) the objective of the Group’s business model is to hold the asset to collect the contractual cash flows; and (ii) the contractual terms give rise on specified dates to cash derived solely from payments of principal and interest due on the principal outstanding. The nature of any derivatives embedded in the debt investment are considered in determining whether the cash derives solely from payment of principal and interest due on the principal outstanding and are not accounted for separately.

If either of the two criteria mentioned in the previous paragraph is not met, the debt instrument is classified at fair value through profit or loss. The Group has not designated any debt investment as measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch. Changes in fair values and gains from disposal of financial assets at fair value through profit or loss are recorded within “Financial results, net” in the Statement of Income.

Equity investments

All equity investments, which are neither subsidiaries nor associate companies nor joint venture of the Group, are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the Group can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. The Group decided to recognize changes in fair value of equity investments through changes in profit or loss.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value though profit or loss are expensed in the Statement of Income.

In general, the Group uses the transaction price to ascertain the fair value of a financial instrument on initial recognition. In the other cases, the Group records a gain or loss on initial recognition only if the fair value of the financial instrument can be supported by other comparable transactions observable in the market for the same type of instrument or if based on a technical valuation that only inputs observable market data. Unrecognized gains or losses on initial recognition of a financial asset are recognized later on, only to the extent they arise from a change in factors (including time) that market participants would consider upon setting the price.

Gains/losses on debt instruments measured at amortized cost and not identified for hedging purposes are charged to income where the financial assets are derecognized or an impairment loss is recognized, and during the amortization process under the effective interest method. The Group is required to reclassify all affected debt investments when and only when its business model for managing those assets changes.

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets measured at amortized cost is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) can be reliably estimated. The amount 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 at the financial asset’s original effective interest rate.

Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

Groups of assets and liabilities held for sale

2.14.

Groups of assets and liabilities held for sale

The groups of assets and liabilities are classified as held for sale where the Group is expected to recover their value by means of a sale transaction (rather than through use) and where such sale is highly probable. Groups of assets and liabilities held for sale are valued at the lower of their net book value and fair value less selling costs.

Other assets

2.16.

Other assets

Other assets are recognized initially at cost and subsequently measured at the acquisition cost or the net realizable value, the lower. Within this item the Group includes CLN tokens (digital assets).

Borrowings

2.18.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as finance cost over the period of the borrowings using the effective interest method.

Onerous contracts

2.20.

Onerous contracts

A provision for onerous contracts is recognized when the expected benefits are lower than the costs of complying with contractual obligations. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the net expected cost of continuing the contract. Before recognizing a provision, the Group recognizes the impairment of the assets related to the mentioned contract.

Employee benefits

2.22.

Employee benefits

(a)

Defined contribution plans

The Group operates a defined contribution plan, which is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current year or prior periods. The contributions are recognized as employee benefit expense in the Statements of Income in the fiscal year they are due.

(b)

Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or as a result of an offer made to encourage voluntary termination as a result of redundancy.

(c)

Bonus plans

The Group recognizes a liability and an expense for bonuses based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

(d)

Defined benefit plans

The Group’s net obligation concerning defined benefit plans are calculated on an individual basis for each plan, estimating the future benefits employees have gained in exchange for their services in the current and prior periods. The benefit is disclosed at its present value, net of the fair value of the plan assets. Calculations are made on an annual basis by a qualified actuary.

(e)

Share-based payments

The fair value of share-based payments is measured at the date of grant. The Group measures the fair value using the valuation technique that it considers to be the most appropriate to value each class of award. Methods used may include Black-Scholes calculations or other models as appropriate. The valuations take into account factors such as non-transferability, exercise restrictions and behavioral considerations.

The fair value of the share-based payment is expensed and charged to income under the straight-line method over the vesting period in which the right to the equity instrument becomes irrevocable (“vesting period”); such value is based on the best available estimate of the number of equity instruments expected to vest. Such estimate is revised if subsequent information available indicates that the number of equity instruments expected to vest differs from original estimates.

(f)

Other long-term benefits

The net obligations of IDBD, DIC and its subsidiaries concerning employee long-term benefits, other than retirement plans, is the amount of the minimum future benefits employees have gained in exchange for their services in the current and prior periods. These benefits are discounted at their present values.

Cash and cash equivalents

2.24.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are not included.

Cost of sales

2.26.

Cost of sales

The cost of sales of supermarkets, includes the acquisition costs for the products less discounts granted by suppliers, as well as all expenses associated with storing and handling inventories. It also includes operational and management costs for shopping malls held by the Group as part of its real estate investments.

The Group’s cost of sales in relation to the supply of communication services mainly includes the costs to purchase equipment, salaries and related expenses, service costs, royalties, ongoing license dues, interconnection and roaming expenses, cell tower lease costs, depreciation and amortization expenses and maintenance expenses directly related to the services provided.

Share capital

2.28.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

When any Group’s subsidiary purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. When such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity.

Instruments issued by the Group that will be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset are classified as equity.

Out-of-period adjustment

2.30.

Out-of-period adjustments

During the fiscal year ended June 30, 2017, the Group reclassified Ps. 31 into intangible assets, Ps. 224 into investment property, Ps. 59 into deferred tax liabilities and Ps. 133 into non-controlling interests, with modifications to such items by those amounts for the previous fiscal year. These reclassifications were not material to the Financial Statements previously issued, and are not material to these Consolidated Financial Statements, either individually or as a whole.