Cash and cash equivalents include cash on hand, financial investments that are highly liquid, bank deposits, and special funds with original maturity dates of ninety days or less which are subject to an insignificant risk of changes in value.

4.1.3Financial liabilities

Financial liabilities correspond to the financing obtained by the Ecopetrol Group through bank credit facilities and bonds, accounts payable to suppliers, and creditors.

Bonds and bank credit facilities are initially recognized at their fair value, net of directly attributable transactions cost. After initial recognition, interest–bearing credit facilities and bonds are subsequently measured at amortized cost, using the effective interest rate method. The effective interest method amortization is included as a financial expense in the statement of profit or loss. Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate (EIR). The EIR amortization is included as finance costs in the statement of profit or loss.

Accounts payable to suppliers and other creditors are short-term financial liabilities recognized at their transaction value upon subsequent recognition, considering that the effect of the time value of money is not significant as they have short maturities.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled, or expires. When an existing financial liability has been replaced by another from the same lender, under substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de–recognition of the original liability and recognized as a new liability. The difference between the respective carrying amounts is recognized in the statement of profit or loss.

4.1.5Hedging operations

For purposes of hedge accounting, hedges are classified as:

At the inception of a hedge relationship, the Ecopetrol Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine whether they have been highly effective throughout the financial reporting years for which they were designated.

4.1.7Hedge of net investment in a foreign operation

Hedges of a net investment in a foreign operation are accounted for similarly to cash flow hedges.

Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized as OCI while any gains or losses relating to the ineffective portion are recognized in the statement of profit or loss. On the disposal of a foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the statement of profit or loss.

The Ecopetrol Group designates long–term loans as hedging instruments for its exposure to foreign exchange risk on its investment in subsidiaries whose functional currency is the U.S. dollar. See Note 29- Financial result.

Inventories are recorded at the lower of cost and net realizable value.

Inventories mainly comprise crude oil, fuels and petrochemicals, and materials for goods production.

The cost of crude oil, fuels and petrochemicals includes the production costs and the transportation costs related to the process of giving the products the current conditions and locations. Inventories of crude oil, fuels and petrochemicals are valuated using weighted average method.

The cost of materials for goods production (mainly raw materials) is determined based on the weighted average cost method, which includes acquisition costs (deducting commercial discounts, rebates, and other similar items), transformation, and other costs incurred to bring inventory to their current location and condition, such as transportation costs.

Materials for goods production are recognized as inventory and then charged to expense, maintenance, or project to the extent that such items are consumed.

The Ecopetrol Group estimates the net realizable value of inventories at the end of the year. When the circumstances that previously caused inventories to be written down below cost no longer exist, or when there is clear evidence of an increase in the net realizable value because of a change in economic circumstances, the amount of the write down is reversed. The reversal cannot be greater than the amount of the cumulative write-down, so that the new carrying amount will always be the lower of the cost and the revised net realizable value.

4.3.1Investments in associates

An associate is an entity over which the Ecopetrol Group has significant influence but not control. Significant influence is the power to participate in the financial and operational policy decisions of the investee, but it is not control or joint control over those policies. Generally, these entities are those in which the Ecopetrol Group holds an equity interest with voting rights of 20% to 50%. (See Exhibit 1 and 2 – Consolidated subsidiaries, associates, and joint ventures).

Investments in associates are accounted for using the equity method. Under this method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Ecopetrol Group’s share of net assets of the associate since the acquisition date. Goodwill related to the associate is included in the carrying amount of the investment and it is not tested for impairment separately.

The Ecopetrol Group’s share of the results of operations of the associate is recognized in the consolidated statement of profit or loss. Any change in the investee’s other comprehensive income is recognized by the Group.

After application of the equity method, the Ecopetrol Group determines if it is necessary to recognize an impairment on its investment in its associate. The Ecopetrol Group determines at each reporting date whether there is objective evidence that the investment is impaired. If there is such evidence, the amount of impairment is calculated as the difference between the recoverable amount and the carrying value, and then the impairment is recognized in the consolidated statement of profit or loss.

When necessary, the Ecopetrol Group adjusts the accounting policies of associates to ensure consistency with the policies adopted by the Group. Additionally, the equity method of these companies is measured on their most recent financial statements.

A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement.

Joint operation contracts are entered into between the Ecopetrol Group and third parties to share risk, secure capital, maximize operating efficiency, and optimize the recovery of reserves. In these joint operations, one party is designated as operating partner to execute the operations and report to partners according to their participating interests. Likewise, each party takes its share of the produced hydrocarbons (crude oil or gas), according to their share in production.

When the Ecopetrol Group acquires or increases its participation in a joint operation in which the activity constitutes a business combination, such transaction is recognized applying the acquisition method in accordance with IFRS 3 – Business combination. The acquisition cost is the sum of the consideration transferred, which corresponds to the fair value, on the date of acquisition of the assets transferred and the liabilities incurred.

The excess of the sum of the consideration transferred and the amount paid in the operation is recognized as goodwill. If the result is in an excess value of the net assets acquired over the amount paid in the purchase transaction, the difference is recognized as income in the consolidated statement of profit or loss on the date of recognition of the transaction.

Recognition and measurement

Property, plant, and equipment are stated at cost less accumulated depreciation and impairment losses. Tangible components related to natural and environmental resources are part of property, plant, and equipment.

The initial cost of property, plant and equipment comprises its purchase price or construction cost, including import duties and non–refundable purchase taxes, any costs directly attributable to bringing the asset into operation, costs of employee benefits arising directly from the construction or acquisition, borrowing costs incurred that are attributable to the acquisition and construction of qualifying assets and the initial estimate of the costs of dismantling and abandonment of the property, plant and equipment.

Spare parts and servicing equipment are recorded as inventories and recognized as an expense as they are used. Major spare parts and stand–by equipment that the Ecopetrol Group expects to use during more than one year are recognized as property, plant, and equipment.

Any gain or loss arising from the disposal of a property, plant, and equipment is recognized in the consolidated statement of profit or loss.

Subsequent disbursements

Subsequent disbursements correspond to all payments to be made on existing property, plant and equipment to increase or extend the initial expected useful life, increase productivity or productive efficiency, allow for significant reduction of operating costs, increase the level of reserves in exploration or production areas or replace a part or component of a property, plant and equipment that is considered critical for the operation.

The costs of repair, conservation and maintenance of a day-to-day nature are expensed as incurred. However, disbursements related to major maintenance (primarily including replaced components) are capitalized.

Depreciation

Property, plant, and equipment is depreciated using the straight–line method, except for those associated with exploration and production activities which are depreciated using the units–of–production method. Technical useful lives are updated annually considering factors such as: additions or improvements (due to parts replacement or critical components for the asset’s operation), technological advances, obsolescence, and other factors; the effect of this change is recognized from the year in which it was executed. Depreciation of an asset starts when it is ready to be used.

Useful lives are determined based on the year over which a property, plant and equipment is expected to be available for use, physical exhaustion, technical or commercial obsolescence and legal limits or restrictions over the use of the property, plant and equipment. Depreciation is classified as cost or expense, depending on the activities for which the assets are used.

The estimated useful life of property, plant and equipment fluctuates in the following ranges:

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Lands are recognized separately from buildings and facilities, have unlimited useful lives, and they are not subjected to depreciation.

Depreciation methods and useful lives are reviewed annually and adjusted prospectively if appropriate.

Impairment

Property, plant and equipment are subject to review for possible impairment in their recoverable amount. See notes 3.2 – Impairment (recovery) of long – term non-monetary assets and 4.13 – Impairment of long – term non-monetary assets.

Borrowing costs related to the acquisition, construction or production of a qualifying asset that requires a substantial year to get ready for its intended use are capitalized as part of the cost of such asset when it is probable that future economic benefits associated with the asset will flow to the Ecopetrol Group and costs can be measured reliably. Other borrowing costs are recognized as financial expenses. Projects that have been suspended but that the Ecopetrol Group intends to continue to pursue their development in the future, are not considered qualifying assets for the purpose of capitalization of borrowing costs.

The Ecopetrol Group operates concessions under public service concession agreements, in which the grantor controls or regulates the services provided by the concessionaire, whom they are provided to, and price of the service.

IFRIC 12, Service Concession Arrangements, establishes general guidelines for the recognition and measurement of rights and obligations related to concession agreements and applies when the granting authority controls or regulates which services the concessionaire should provide with the infrastructure, to whom the services should be provided and at what price, and controls any significant residual interest in the infrastructure at the end of the concession period.

Concession arrangements that meet the above criteria and in which the Ecopetrol Group is required to return the infrastructure to the grantor, or where the grantor retains a residual interest in the infrastructure at the end of the concession term, are accounted for in accordance with IFRIC 12 – Service Concession Arrangements.

The Ecopetrol Group applies the guidance of IFRIC 12 to concession arrangements that meet the above criteria; otherwise, the Ecopetrol Group applies the guidance of IAS 16. Service revenues are measured and recognized in accordance with IFRS 15 – Revenue from Contracts with Customers (Note 4.17- Revenue from contracts with customers). Financial concession assets are measured and recognized in accordance with IFRS 9 – Financial Instruments. Concession arrangements in which the Ecopetrol Group has a contractual right to receive cash or another financial asset from the grantor are accounted for under the financial asset model (see description of the concession financial asset model below).

Concession arrangements in which the Ecopetrol Group does not have a contractual right to receive cash or another financial asset from the grantor but has the right to charge users for the services provided, are accounted for under the intangible asset model (see description of the concession intangible asset model below).

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Revenues from construction services or enhancements to concession services are recognized based on the percentage of completion of the construction, determined by the costs actually incurred, including the construction margin. Operating and maintenance costs related to the concession are recognized in profit or loss once the concession infrastructure is available for its intended use. Revenues are recognized based on the services provided and the tariff established in the concession agreements.

Details of each type of concession by country are disclosed in Note 25 – Revenue from contracts with customers.

Impairment

The Ecopetrol Group periodically performs a qualitative impairment assessment of concession-related assets to identify events or circumstances, at the CGU level, defined as the concession contract together with any related extensions, if applicable, that indicate that the carrying amount of the assets exceeds their recoverable amount. When such events are identified, a quantitative impairment test is performed, and any resulting impairment loss is recognized in profit or loss for the period (Note 4.13 - Impairment of long-term non–monetary assets).

Intangible asset model

Concessions under which the Ecopetrol Group does not have a contractual right to receive cash or another financial asset from the grantor but has the right to collect to the users in exchange for the services provided, are accounted under the intangible asset model. Costs incurred by the Ecopetrol Group for the construction of the concession infrastructure are recognized as intangible assets and are amortized on a straight-line basis over the term of the concession, recognized in profit or loss for the year.

Infrastructure expansions are recognized as intangible assets when they are expected to generate future economic benefits. The renovations costs, improvements and additions are capitalized, while routine maintenance and repairs that do not extend the useful life of the assets are recognized in the profit or loss statement (Note 4.17- Revenue from contracts with customers).

Financial asset model

Concessions in which the Ecopetrol Group has a contractual right to receive cash or another financial asset from the grantor for the services provided under the concession agreements and the grantor has little or no power to avoid payment are recognized under the financial asset model. In this model, the financial asset is classified as a financial asset concession, according to IFRS 9 – Financial Instruments, and it is presented as current and non-current concessions in the financial position of the Group. This asset accrues interest using the effective interest rate method (see Note 4.1 - Financial instruments).

Mixed model for concessions

This model is applied when the contract simultaneously includes remuneration commitments guaranteed by the grantor and remuneration commitments that depend on the level of use of the concession infrastructure.

Contractual asset model for concessions

This business model is developed under energy concession agreements associated with the obligation to construct and implement power transmission infrastructure and is classified under the contractual asset model in accordance with IFRS 15 – Revenue from Contracts with Customers (Note 4.17 - Revenue from contracts with customers). The contractual asset arises as the Ecopetrol Group satisfies its obligation to construct and implement the infrastructure, and revenue is recognized over the duration of the project.

4.12Leases

At the inception of a contract, the Ecopetrol Group assesses whether a contract is, or contains, a lease. This situation arises if the contract transfers the right to use an identified asset for a period in exchange for consideration. For this assessment, the Ecopetrol Group applies the definition of a lease set out in IFRS 16.

Ecopetrol Group as a lessee

At the commencement date of the lease, the Ecopetrol Group recognizes lease liabilities for lease payments and corresponding right-of-use assets representing the right to use the underlying asset over the lease term. The interest expense on the lease liability and the depreciation expense on the right-of-use asset are recognized separately.

In subsequent recognition, the Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) upon the occurrence of events such as a) changes in the lease term and b) changes in future lease payments resulting from variations in an index or in the rate used for determining the payments. The amount of the remeasurement of the lease liability is recognized as an adjustment to the right-of-use asset.

Ecopetrol Group as a lessor

The Group classifies as financial leases those contracts in which the terms of the lease substantially transfer to the lessees all the risks and inherent rewards to ownership of the asset. All other leases are classified as operating.

If the lease is classified as financial, an account receivable is recorded in the statement of financial position, for an amount equal to the net investment in the lease.

For leases classified as operating leases, income from payments is recognized on a straight-line basis in the profit and loss statement.

Right-of-use assets

The Ecopetrol Group recognizes right-of-use assets on the commencement date of the lease (that is, the date on which the underlying asset is available for use). The right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are amortized in a straight-line basis during the lease term. Right-of-use assets are subject to impairment assessment.

Lease liabilities

At the commencement date of the lease, the Ecopetrol Group recognizes lease liabilities measured at the present value of the lease payments to be made during the term of the lease. Variable payments that do not depend on an index or rate are recognized as expenses in the year in which an event or condition indicates that the payment will occur. To calculate the present value of the lease payments, the Ecopetrol Group uses the incremental borrowing rate on the lease’s commencement date. The carrying amount of lease liabilities is remeasured if there is a change in the lease term, in fixed lease payments, or in the assessment of an option to purchase the underlying asset.

Short-team leases and low-value asset leases

The Ecopetrol Group elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option, and lease contracts for which the underlying asset is of low value. For these leases, the Group recognizes lease payments as an operating expense on a straight-line basis over the lease term, unless another systematic basis is more representative of the pattern over which the economic benefits of the leased assets are consumed.

Joint Operating Agreements (JOA)

In JOAs, an analysis is conducted to determine who controls the use of the asset, and the method for recognizing right-of-use assets is determined accordingly. If The Operating partner controls the use of the asset, they must recognize 100% of the right in their financial statements. If the JOA controls the right, an analysis is conducted to determine if the agreement meets the characteristics of a sublease. If so, each party must recognize the right-of-use assets proportionally to their share. Ecopetrol recognizes 100% of the right-of-use in the JOA in which it participates as The Operating partner.

4.14Provisions and contingent liabilities

Provisions are recognized when the Ecopetrol Group has a current obligation (legal or constructive) because of a past event, it is probable that Ecopetrol will be required to settle the obligation, and a reliable estimation can be made of the amount of the obligation. Where applicable, they are recorded at present value, using a rate reflecting the risk specific to the liability.

If the effect of the time value of money over time is significant, the provisions are discounted using a current market rate before taxes that reflects, when applicable, the specific risks of the liability. The increase in the provision due to interest unwinding is recognized as a financial expense in the statement of profit and loss.

Disbursements related to environmental conservation, linked to revenue from current or future operations, are recognized as expenses or assets, as appropriate. Disbursements related to past operations, which do not contribute to obtaining current or future revenue, are recorded as expenses.

The recognition of these provisions coincides with the identification of an obligation related to environmental remediation and the Ecopetrol Group uses all available information to determine a reasonable estimate of their respective cost.

A contingent liability is: (a) a possible obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity’s control; or (b) a present obligation arising from past events, but which is not recognized because: (i) it is not probable that an outflow of resources representing economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured reliably.

In cases where the provision is expected to be reimbursed in whole or in part, for example under an insurance contract, the reimbursement is recognized as a separate asset only in cases where such reimbursement is practically certain. The amount recognized for the asset does not exceed the amount of the provision.

Asset retirement obligation

Liabilities associated with the retirement of assets are recognized when there are current obligations, either legal or constructive, related to the abandonment and dismantling of wells, facilities, pipelines, buildings, and equipment.

The obligation is usually recorded when the assets are installed or when the surface or the environment are altered at the operating sites. These liabilities are calculated using the discounted cash flow method, using a pre–tax rate reflecting current market conditions similar liabilities and considering the economic limits of the field or the useful life of the respective asset. When it is not possible to determine a reliable estimation in the year in which the obligation originates, a provision is recognized when there is enough information available to make the best estimation.

The carrying amount of the provision is reviewed and adjusted annually considering changes in the assumptions used for its estimation, using a risk-free rate adjusted by a premium that reflects the risk and the company credit rating under the current market conditions. Any change in the present value of the estimated expenditure, due to a modification in the estimated outflow of resources that represent economic benefits or a change in the current market-based discount rate is reflected as an adjustment to the provision and the corresponding property, plant, and equipment and natural and environmental resources. When a decrease in the asset retirement obligation related to a producing asset, due to changes in the present value of the estimated expenditure or the discount rate, exceeds the carrying amount of the asset, the excess is recognized in the statement of profit or loss. The increase in the provision due to the passage of time is recognized as a financial expense.

The Ecopetrol Group determines the provision for income tax based on the highest amount between taxable income and presumptive income (the minimum estimated amount of taxable profit on which the law expects to quantify and collect income taxes). Taxable income differs from profit before tax as reported in the consolidated statement of profit or loss, because of items of income or expense that are taxable or deductible in other years, special taxable deductions, tax losses and income and line items measured that, according to applicable tax laws in each jurisdiction, are considered nontaxable or nondeductible.

4.15.3Other taxes

The Ecopetrol Group recognizes in profit or loss the costs and expenses related to other taxes than the income tax, such as the wealth tax, which is determined based on the tax equity, the industry and commerce tax on income obtained in the municipalities for performance of commercial, industrial, and service activities, and the transport tax on volumes loaded in the transport systems. Taxes are calculated in accordance with current tax regulations.

4.17Revenue from contracts with customers

The Ecopetrol Group’s business is based on four principal sources of revenue from customer contracts: 1) sales of crude oil and natural gas, 2) services associated with the transport of hydrocarbons, 3) sales of refined and petrochemical products and biofuels (such as mid-distillates, gasolines and turbo fuels, asphalts, plastic and rubber, LPG and propane), and 4) energy transmission and toll roads concessions. In contracts with clients Ecopetrol is rarely committed to perform multiple performance obligations regarding oil and gas industry. These sources of revenues are based on contract types such as product supply, nominations, and sales orders. Revenue from customer contracts is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration that the Ecopetrol Group expects to receive in exchange for those goods or services (See notes 7 – Trade and other receivables, 25 – Revenue from contracts with customers and 33 – business segment information).

Sales of crude oil and natural gas

Revenue from sales of crude oil and natural gas is recognized upon transfer of control to the buyer. This generally occurs when the product is physically transferred into a vessel, pipeline or by another delivery method, considering its risks and benefits, such as the legal transfer of title, thus fulfilling the Ecopetrol Group’s performance obligations to its customers.

For some natural gas supply contracts, a distinction is made between quantities of gas consumed and not consumed to recognize the respective revenue or liability relating to quantities that will be requested in the future. Once the customer claims such natural gas, the revenue is recognized.

Services associated with the transport of hydrocarbons

Revenue from hydrocarbons transport services is recognized when the service is provided to the customer and there are no contractual conditions that prevent recognition of the revenue.

Ship/Take or Pay contracts for the sale of products, storage, and transportation specify minimum quantities of product or service that a customer will pay for, even if they do not receive or use them (shortages). If the Ecopetrol Group expects the customer to recover all the shortages to which they are contractually entitled, any payment received in advance related to temporary shortages that will be made up in a future period will be accounted for other liabilities, and that amount will be recognized as revenue when any of the following situations occur:

Refined and petrochemical products and biofuels

In the case of refined products and petrochemicals, such as fuel oil, asphalt, polyethylene, LPG and propane and gasoline, etc., revenue is recognized when the products are shipped and delivered by the refinery; subsequently, they are adjusted for price changes, in the case of products with regulated prices, as described below (also see Note 7). In the case of the companies that distribute natural gas and LPG, the revenue from the services is recognized when the service is provided to the customer.

Ecopetrol Group recognizes revenue when the performance obligation is satisfied, giving rise to the certain, probable, and quantifiable right to demand payment.

Under current local regulation, the Group sells regular gasoline and ACPM in Colombia at a regulated price.

In accordance with Decree 1068 of 2015, the Ministry of Mines and Energy semiannually calculates and settles Ecopetrol’s net position to be stabilized for each fuel by the Fuel Price Stabilization Fund (FEPC, for its acronym in Spanish). The net position corresponds to the sum of the spreads throughout the year, the result of which is the amount in pesos owed to the Company and charged to the resources of the FEPC. The differential corresponds to the product between the volume reported by the Company at the time of sale and the difference between the parity price and the reference price, the parity price being that which corresponds to the daily prices of motor and diesel gasoline observed during the month, expressed in pesos, referenced to the Gulf of the United States market, calculated by applying Resolution 18 0522 of 2010, and the reference price is the Producer Income defined by the Ministry of Mines and Energy for these purposes. Therefore, this differential constitutes a greater or lesser value of sales revenue and a receivable or payable account for Ecopetrol and is recognized simultaneously with the fulfillment of performance obligations to customers.

According to risk profiles, the Ecopetrol Business Group manages advance payment systems for some of its contracts with clients.

Energy transmission and toll roads concessions

This source of revenue refers to 1) supplying of electricity transmission services in Latin America through the operation and maintenance of high-voltage transport networks and interconnections 2) design, construction, operation, and maintenance of road infrastructures, 3) supplying of information technology and telecommunications services.

The recognition of revenue from energy transmission services occurs according to performance obligations based on the conditions of the contracts that include requirements established by the electricity market regulators in the countries in which the Ecopetrol Group operates. This is generally achieved when the performance obligations agreed with the regulatory entities are executed, considering the year and the quality of the service established in the contracts. Technology and telecommunications services revenue is also recognized according to the performance obligations defined in contracts with customers. ISA and its subsidiaries Intercolombia, Transelca and XM are providers of electricity transportation services and other services associated with these and are regulated by the Energy and Gas Regulatory Commission (CREG, for its acronym in Spanish).

Regarding the concessions associated with the energy transmission and roads business, the Group measures the revenue in accordance with IFRIC 12, applicable to the energy transmission subsidiaries in Brazil, Bolivia and Peru and to the roads subsidiaries in Chile, Panama and Colombia, at the fair value of the consideration received or receivable, considering the payment defined in the contracts.

The following specific criteria must be met to recognize revenue in accordance with IFRIC 12. See Note 4.10 Service concession agreements:

In concession agreements (Note 4.10), the Group determines that its performance obligations (construction, operation, and maintenance) are met over time and measures progress toward completion to determine the stage of completion for revenue recognition using a method that represents the transfer of goods or services to the customer and/or grantor. The Group considers the nature of the products or services provided and the terms of the contract, such as the right to cancel, rights to demand or withhold payments, and the legal title to work, in a process to determine the best input or output method for measuring progress toward fulfilling a performance obligation.

The Group applies a single method to measure progress on each performance obligation in a contract. The method is based on the costs incurred to fulfill each performance obligation, in terms of capital expenditures (capex) and operating expenditures (opex), with a technically defined implicit rate that is subject to review when there is a change in the circumstances that gave rise to it. Revenue estimates, costs, or the stage of completion are revised if circumstances change. Any increase or decrease in estimated revenues or costs is reflected in the profit or loss statement in the year in which management became aware of the circumstances that led to the revision.

Significant financing component

Payments received from customers are generally short term (except for revenue of concessions). Using the practical expedient in IFRS 15, the Ecopetrol Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and the customer’s payment for that good or service to be one year or less.

Considering that revenues related to concessions generates long term accounts receivables, a financial component is applied considering the measurement of the asset at amortized cost, defining the future cash flows, and applying and discount rate, according to IFRS 9 – Financial Instruments.

Variable considerations

Upon fulfillment of the obligations set forth in agreements with customers, via delivery of the product or provision of the service, variable components of the transaction price may exist, such as the exchange rate for crude exports or international price fluctuations. In these cases, the Ecopetrol Group makes its best estimate of the transaction price that reflects the goods and services transferred to customers and adjusted subsequently when new information appears or final settlement is made.

Agreements signed with customers do not include material variable considerations such as rebates, refunds, or discounts.

Customer advances

They correspond to contractual obligations in which the Ecopetrol Group receives monetary resources from customers to subsequently transfer goods and services. These advances made by customers are part of the policies and risk assessment defined by the Ecopetrol Group and they are recognized as a liability until the performance obligation to the client is fulfilled.

4.19Finance income (expenses)

Finance income and expenses include mainly: a) borrowings costs on loans and financing, except for those that are capitalized on qualifying asset, b) gains and losses on changes in fair value of financial instruments measured at fair value through profit or loss, c) currency exchange differences of monetary assets and liabilities, except for debt instruments designated as hedging instruments, d) interest expenses as a result of discounting long–term liabilities (abandonment costs and pension liabilities).

4.21Business combinations

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The Ecopetrol Group accounts for business combinations using the acquisition method. Identifiable assets acquired and liabilities assumed are initially measured at fair value on the acquisition date, except for deferred taxes and employee benefits. The Group recognizes separately, at the acquisition date, the identifiable assets and liabilities of the acquiree that meet the appropriate criteria for recognition, regardless of whether they had been previously recognized in the financial statements of the acquiree.

On the acquisition date, the Group will recognize separately the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree.

The group recognizes the goodwill generated as an asset on the acquisition date, measured as the difference between (i) the sum of the fair value of the consideration transferred, the amount of any non-controlling interest, and the fair values on the date of acquisition of the any previously held interest in the acquiree, and (ii) the net amount of the acquisition date of the identifiable assets acquired and the liabilities assumed.