3.10. Intangible Assets
The Company recognizes as an intangible asset the right to charge users for the services provided for distribution of electricity (for generation of the Amazonas Energia infrastructure, which has an exclusive connection with the distribution activity of this Company, and is also classified as intangible). The intangible asset is determined as being the residual value of construction income earned for the construction or acquisition of infrastructure held by the Company and the value of the financial asset in relation to the unconditional right to receive cash at the end of the grant as compensation.
The asset is presented net of accrued amortization and of losses due to the reduction in recoverable value (impairment), when applicable.
The amortization of intangible assets reflects the pattern in which the future economic benefits are expected to be consumed by the Company, or the end of the concession period, or whichever occurs first. The consumption pattern of assets is related to their economic useful life, considering that the assets constructed by the Company are part of the basis of calculation for measuring the tariff for concession services.
The amortization of the intangible asset begins when it is available for use, at its location and in the necessary condition for it to be able to operate in the manner intended by the Company. Depreciation ceases when the asset has been fully consumed or written down, or is not longer integrated in the calculation base of the tariff for concession services, whichever occurs first.
The Company peforms an analysis to evaluate if there were triggering events that would result in impairment of its assets. To the extent such events are identified, the Company performs a recoverability test for the assets identified, using the present value method of the future cash flows generated by the asset, considering that there is no active market for the assets connected with the concession, assessing whether there is indication that a loss event has occurred after the initial recognition of the asset. (See Note 19).
Intangible assets comprise basically the usage rights of the concession, but also include goodwill on acquisition of investments and specific expenses associated with the acquisition of rights, plus the respective costs of deployment, when applicable.
Intangible assets with defined useful lives, purchased separately, are recorded at cost, deducting amortization and losses due to the reduction in the accrued recoverable value. Amortization is recognized linearly based on the estimated useful life of the assets. The estimated useful life and the depreciation method are reviewed at the end of each financial year and the effect of any changes in the estimate is accounted for prospectively.
Intangible assets with indefinite useful lives, purchased separately, are recorded at cost, deducting amortization and losses due to the reduction in the accrued recoverable value.
3.10.1. Concessions for Valuable Consideration (Use of Public Asset - UBP)
The Company and certain subsidiaries have contracts for concessions for valuable consideration with the Government for the use of hydraulic potential and public assets for the generation of electric power in certain plants.
The values identified in the contracts are the future prices and, therefore, the Company and those subsidiaries have adjusted these contracts to the present value based on the discount rate determined on the date of the obligation.
The update of the obligation in relation to the discount rate and monetary variation, defined in the concession agreement is capitalized in the asset, during the construction of the power plants and from the date of entry into commercial operation, it is recognized directly in the income.
These assets are recorded in intangible assets offsetting the noncurrent liabilities.
3.10.2. Expenses with Studies and Projects
Expenses incurred with studies and projects, including feasibility studies and hydroelectric plant inventories and power transmission lines, are recognized as operating expenditures, when incurred, and until it has effective proof of the economic viability of their use or the granting of the concession or authorization. From the concession and/or authorization for use of the public service of electricity or the evidence of economic viability of the project, the expenses incurred are capitalized as cost of development of the project. Currently, the Company does not have capitalized values regarding spending on studies and projects.