Accounting Practices

The provision for doubtful accounts is organized with grounds on the analysis of the risks at the realization of credits with bad debits receivable, under an amount deemed as sufficient by the Administration, to cover eventual losses. So as to supervise the suitability of the reserves for bad debts, Lopes frequently assess the value and the features of its credits. In order to record a reserve, Lopes takes into account: (i) its historical losses; (ii) the delay to receive the relevant amounts; and (iii) a case by case analysis whether the values recorded may not be received in full. In the event the value of the bad debts reserve is lower than the non-received values, Lopes records an increase to said reserve.

Lopes adopts the record of Reserve for total Contingencies based on the risk of probable loss assessment and, for labor issues, recording provisions of probable loss assessments based on the historical percentages of losses incurred. The reserves are recorded based on the best estimates of risk involved and analyzed case-by-case, according to the opinion of the Company’s and its subsidiaries internal and external counsel, and its management’s judgment. Lopes uses the policy of evaluation of its reserves for contingencies based on the facts, circumstances and events changes, able to cause impact to the estimates, such as court decisions, which may generate relevant impact to the income from operations and to the net worth.

Revenues, costs and expenses are recognized in accordance with the accrual basis of accounting. Expenses and costs are recognized when incurred.

CPC 47 / IFRS 15 derives from the principles that the entity will apply to determine the measurement of revenue and how and when it is recognized, based on five steps: (1) identification of contracts with customers; (2) identification of performance obligations under the contracts; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligation under the contracts and (5) recognition of revenue when the performance obligation is met. Revenue from a contract with a customer is recognized when control of the goods or services is transferred to the customer for an amount that reflects the consideration to which the Company expects to be entitled in exchange for these goods or services.

a) Real estate intermediation services

Group entities formalize brokerage contracts with customers and recognize revenue from services rendered measured at fair value, which, according to market practice, uses a percentage of the value of the property. The Company recognizes revenue, after the owner or developer has accepted the property purchase and sale agreement, as it understands that performance has been satisfied and has transferred control to the customer.

b) Deductibles – Royalties

Among the operating segments (Note 29) the Company has franchise agreements with franchisees whose revenue is subdivided into the following items:

• Initial Fee – The value of the transaction is fixed and contractually defined and without the possibility of return in the event of contractual termination, this amount being recognized at the time of signing the contract.
• Variable rate – The value of the periodic rate is defined by a contractual percentage that takes into account the franchisee’s real estate transactions in a given period. The recognition of this revenue occurs when the performance obligation is met through the execution and execution of the real estate intermediation or lease intermediation agreement between the parties.
• Fixed rates – The franchisee is contractually stipulated a periodic minimum amount to be met as a minimum rate of remuneration, which must be paid to the Company if the variable rate does not exceed the minimum amount required by contract. In addition, the franchise agreement provides for a monthly fiduciary management fee with a pre-set amount. These revenues are recognized monthly on a straight-line basis, according to the contracted amounts.

c) Promotion of financing

Refere-se a receita de promoção e oferta de produtos e serviços financeiros no mercado imobiliário, que consiste na recepção e encaminhamento de propostas relativas à contratação de crédito imobiliário e respectivos seguros obrigatórios. A receita é mensurada por um percentual sobres os financiamentos imobiliários e seguros contratados e reconhecida quando os valores são liberados ao cliente em função dos contratos.
A controlada LPS ONLINE e o Itaú Holding celebraram uma renegociação dos termos do Acordo de Associação, que alteraram a forma de cálculo do custo de alocação de capital, tendo como consequência a geração de lucro na operação. Conforme estabelecido no Acordo de Associação, após a absorção de prejuízos acumulados os lucros desta operação serão distribuídos proporcionalmente (LPS ONLINE 50% e Itaú Holding 50%), em 31 de dezembro de 2021 o saldo a receber deste acordo foi de R$3.071 (R$5.730 em 31 de dezembro de 2020).

The Income Tax and Social Contribution is calculated on the temporary differences at the end of each reporting period between the balances of assets and liabilities recognized in the financial statements and the corresponding tax bases used in the determination of taxable income, including the balance of tax losses, when applicable. Deferred tax liabilities are generally recognized on all taxable temporary differences and deferred tax assets are recognized on all deductible temporary differences only when it is probable that the Group entity will present future taxable profit in an amount sufficient for such deductible temporary differences to be used. Deferred tax assets or liabilities are not recognized on temporary differences resulting from goodwill or from the initial recognition (except for business combinations) of other assets and liabilities in a transaction that does not affect taxable income or accounting income.

The recovery of the balance of deferred tax assets is reviewed at the end of each reporting period and, when it is no longer probable that future taxable income will be available to allow for the recovery of all or part of the asset, the balance of the asset is adjusted by the amount expected to be recovered. Deferred tax assets and liabilities are measured at the rates applicable in the period in which the liability is expected to be settled or the asset is expected to be realized, based on the rates provided for in tax legislation in force at the end of each reporting period, or when new legislation has been substantially approved. The measurement of deferred tax assets and liabilities reflects the tax consequences that would result from the way in which the Company and its subsidiaries taxed at taxable income expect, at the end of each reporting period, to recover or settle the carrying amount of these assets and liabilities.

Management must make judgments and make estimates regarding amounts of assets and liabilities which are not easily obtained from other sources. Estimates and related assumptions are based on historical experience and other factors considered relevant. Actual results may differ from these estimates.

The underlying estimates and assumptions are continually reviewed. The effects arising from the revisions made to the accounting estimates are recognized in the period in which the estimates are revised.

The following are key assumptions about the future and other key sources of uncertainty in estimates at the end of each reporting period, which could lead to significant adjustments to the carrying amounts of assets and liabilities:

(i) Indefinite useful life asset
To determine whether an asset with an indefinite useful life is impaired, it is necessary to estimate the value in use of the cash-generating units to which the asset was individually allocated. The calculation of the value in use requires Management to estimate the expected future cash flows from the cash-generating units and an adequate discount rate for the present value to be calculated.

(ii) Asset with a finite useful life
The Company’s Management annually reviews the book value of its tangible and intangible assets to determine whether there is any indication that such assets are recorded at an amount above their recoverable value. If there is such an indication, the recoverable amount of the asset is estimated in order to measure the amount of this provision.

The recoverable amount is the higher of fair value, less costs to sell, and value in use. In assessing value in use, estimated future cash flows are discounted to present value at the discount rate, before taxes, which reflects a current market valuation.

(iii) Valuation of financial instruments
The Company uses valuation techniques that include information that is not based on observable market data to estimate the fair value of certain types of “Written Put” and “Call Option”.

The fair value of Written Put is calculated based on the multiple of net income for the last 12 months. The fair value of the Call Option is calculated by comparing the multiple of net income and the projection of future cash flows, discounted by the market interest rate calculated on the date of presentation of the financial statements.

Management understands that the valuation techniques selected and the assumptions used are adequate to determine the fair value of these financial instruments.

Periodically, the Company reviews the net book value of its assets, in order to assess events and changes in economic, operational or technological circumstances that may indicate deterioration or loss of their recoverable value. Once such evidence is identified and the net book value exceeds the recoverable value, a provision for devaluation is set up, adjusting the net book value to the recoverable value.

The recoverable amount of an asset or a specific cash-generating unit is defined as the higher of its value in use and its net selling price.

The Company analyzes the recoverability of the assets’ book value based on their value in use, using the discounted future cash flow model. The value in use estimation process involves the use of assumptions, judgments and estimates about future cash flows, growth and discount rates. Assumptions about future cash flows and growth projections are based on the Company’s annual budget and long-term business plan, approved by the Board of Directors, and represent Management’s best estimate of the economic conditions that will exist during the economic useful life of the set of assets that provide the generation of cash flows.

When the provision for impairment is subsequently reversed, except for goodwill, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, provided that it does not exceed the carrying amount that would have been determined, had no impairment loss been incurred, impairment had been recognized for the asset in prior periods. The reversal of the impairment loss is recognized immediately in profit or loss.