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Investor Presentaiton

d. Cash and cash equivalents Cash and cash equivalents principally consist of bank deposits and highly liquid investments with original maturities of less than 90 days. Such investments are stated at historical cost plus accrued interest, not in excess of their market value. Walmart Bank makes the monetary regulation deposits required by Banco de México (the Central Bank), the amounts of which are calculated based on traditional deposits in Mexican pesos. e. Financial instruments The Company has no transactions with derivative financial instruments. f. Accounts receivable and reserve for bad debts The balance of Walmart Bank's loan receivables portfolio is represented by outstanding loan balances, plus uncollected earned interest. The preventive allowance for credit risks is presented net of portfolio balances. WALMEX recognizes the reserve for bad debts at the time the legal collection process begins in conformity with its internal procedures. g. Inventories Inventories are valued using the retail method, except for merchandise for the Sam's Club, ClubCo and distribution centers, which are valued using the average-cost method, and Vips restaurant inventories, which are valued using the first-in, first-out method. These inventory valuation methods are the same as those applied in the prior year. Inventories, including obsolete, slow-moving and defective items or items in poor condition, are stated at amounts not in excess of their net realizable value. Inventory pertaining to the Agro-industrial Development of grains, edibles and meat is valued using the average-cost method. Buying allowances are recognized in the income statement based on the turnover of the inventories that gave rise to them. h. Prepaid expenses Prepaid expenses are recognized as current assets in the consolidated statement of financial position as of the date the prepayments are made. At the time the goods are received, prepaid expenses are charged to the income statement or capitalized in the corresponding asset line when there is certainty that the acquired goods will generate future economic benefits. i. Property and equipment Property and equipment are recorded at acquisition cost and presented net of accumulated depreciation. Depreciation of property and equipment is computed on a straight-line method at the following annual rates: j. Lease Buildings, facilities and leasehold improvements Furniture and equipment 2.5% 5.0% to 33.3% to 33.3% In conformity with IAS 17, Leases, the Company classifies its property lease agreements as either finance or operating leases. A lease is considered a finance lease if it transfers substantially all the risks and rewards incident to ownership of the underlying property to the lessee, considering the renewals established in each lease agreement. Rent is recognized in the income statement over the lease term as incurred. Lease agreements that do not qualify as finance leases are treated as operating leases. Fixed lease payments are recognized in the income statement on a straight-line method over the lease term. The commencement date of lease is considered the occupancy date of the leased property, including the lessee's rights to renewal. Variable lease payments are based on a percentage of the Company's sales, and are recognized as an expense in the period in which they are incurred. k. Impairment in the value of property and equipment Based on the guidelines of IAS 36, Impairment of Assets, the Company recognizes impairment in the value of property and equipment by applying the expected present value technique to determine value in use, considering each store or restaurant as the minimum cash generating unit. The present value technique requires detailed budget calculations, which are prepared separately for each cash-generating unit. These budgets generally cover five years and for those projected beyond five years, an expected growth percentage is applied. Impairment losses are recognized in the consolidated statement of comprehensive income in the other income (expenses), net line. 2013 Financial and Social Responsibility Report 22 72
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