IBERSOL Annual Report and Consolidated Accounts 2017

Consolidated Financial Statements b) Risk of franchise agreements In restaurants where it operates with international brands, the group enters into long-term franchise agreements: 20 years in the case of Burger King and 10 years in the case of Pizza Hut and KFC, which are renewable for another 10 years at the franchise’s option, provided certain obligations have been fulfilled. It has become practical for these contracts to be renewed. However, nothing obliges the franchisees to do so, so the risk of non-renewal may be verified. In these contracts it is normal to contract the payment of an “Initial Fee” at the beginning of each contract and a “Renewall Fee” at the end of the initial period, in addition to a roy- alty of marketing operations on the sales made. Periodically, development contracts are negotiated which guarantee the right to open new restaurants. At the moment a contract has been signed for the implementation of 40 KFC restaurants in the period between May 2017 and May 2022. 3.3 ESTIMATED FAIR VALUE The fair value of financial instruments commercialised in active markets (such as publicly negoti- ated derivatives, securities for negotiation and available for sale) is determined based on the listed market prices on the consolidated statement of financial position date. The market price used for the group’s financial assets is the price received by the shareholders in the current market. The market price for financial liabilities is the price to be paid in the current market. The nominal value of accounts receivable (minus impairment adjustments) and accounts payable is assumed to be as approximate to its fair value. The fair value of financial liabilities is estimated by updating future cash flows contracted at the current market interest rate that is available for similar financial instruments. 4. IMPORTANT ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgements are continuously evaluated and are based on past experience and on other factors, including expectations regarding future events that are believed to be rea- sonably probable within the respective circumstances. The group makes estimates and outlines premises about the future. Generally, accounting based on estimates rarely corresponds to the real reported results. Estimates and premises that present a significant risk of leading to a material adjustment in the accounting value of the assets and liabilities in the following year are described below: 230

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