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 Livraria e Papelaria Saraiva S.A. Notes to the financial statements
The main business of Livraria e Papelaria Saraiva S.A. is the sale of books, stationery, audio and video products, periodicals and multimedia products. Distribution is carried out through an Internet sales platform and a chain of stores comprising 32 units, of which 14 are “Mega Stores” and 18 conventional stores. 2 Presentation and drawing up of the financial statements The financial statements were drawn up based on the accounting practices established by the Brazilian corporate legislation and the norms of the Securities Commission (Comissăo de Valores Mobiliáros - CVM). Description of the main accounting practices a. Calculation of results The result of operations is calculated in accordance with the accrual accounting regime. b. Accounting estimates Accounting estimates are revised annually and take into consideration the management’s best judgement in order to determine the proper value to be registered in the financial statements. The settlement of transactions involving these estimates may result in different values, due to imprecisions inherent in the process of determining these estimates. • Financial investments Booked at cost, with the addition of the yield earned up to the date of the balance sheet, which does not exceed market value. • Provisions for doubtful receivables Constituted in an amount considered sufficient to provide for any losses in the realization of accounts receivable from clients and checks receivable. Credits that are considered unrecoverable are booked directly in the statement of income. • Inventories Valued at the average cost of acquisition, which does not exceed market value. • Other current and long-term assets Presented at the net realizable value. d. Fixed assets • Investments Valued at acquisition cost, with the deduction of a provision for devaluation. • Property, Plant & Equipment Booked at acquisition, formation or construction cost. Depreciation is calculated on a straight-line basis, at rates that take into account the useful life of the assets. • Deferred charges Booked at acquisition or formation cost; refers to pre-operating expenses with commercial assignments and expenses incurred prior to the start-up of operations at new stores. The amortization of these expenses is effected over a period of 5 years, or in accordance with rental contract provisions, as from the beginning of commercial operations at these stores. e. Current and long-term liabilities • Other current and long-term liabilities These are shown at the known or calculable values, with the addition, when applicable, of the corresponding charges and monetary and/or exchange-rate variations incurred up to the date of the balance sheets. f. Provisions Provisions are booked based on the best estimates of the risk involved. Taxes on the year’s profit or loss comprise current and deferred amounts. The income tax and the social contribution for the year are calculated, respectively, at the rate of 15% on the taxable profit, plus the additional 10% levy, and at the rate of 9% on the adjusted book profit.
5 Deferred items
6 Loans and financing
The finance obtained from the BNDES – FINEM program was for the investment project for “Mega Stores” and for modernization of the conventional stores, and 100% of the amount financed is guaranteed by the controlling company. Annual interest at rates between 3% and 3.5%, plus the Long-term Interest Rate (TJLP), is charged on the principal amount. During the year, the Company received two additional amounts, equivalent to R$ 2,308, under the contract signed with the BNDES – FINEM Program. 7 Related Parties Transactions between related parties comprised commercial purchase and sale operations with the controlling company, and were effected under usual market conditions.
The origins of the deferred income tax and social contribution are as follows:
CVM Instruction no. 371 dated June 27, 2002 The Company, in accordance with the procedures adopted by the controlling company in relation to the requirements of the Securities Commission (CVM), based on: a) the expected generation of future taxable profits and positive cash-flows, brought to the present value; and b) the measures that are being taken by the management in order to reverse the loss situation observed in the last three years, which have led to a 38% reduction in the loss booked in the year here analyzed, in relation to the loss booked in the previous year; thus complying with the provisions and conditions established by CVM Instruction no. 371/02, has maintained and complemented, in its financial statements, the deferred tax assets constituted on the basis of long-term liabilities, represented by lawsuits questioning federal taxes, and on the balance of tax losses and negative social contribution bases.
9 Provision for contributions and taxes The Company is questioning in the Courts the legality of taxes in the federal sphere, namely PIS, COFINS, IT (income tax) and CSLL.
As of December 31, 2003, the company had insurance coverage against fire and diverse risks for property, plant and equipment and for inventories, for amounts considered sufficient to cover possible losses. Board of Directors Jorge Eduardo Saraiva Ruy Mendes Gonçalves |
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