NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2014

Transcription

1 NOTES TO THE FINANCIAL STATEMENTS CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2014 These notes form an integral part of the financial statements. The financial statements were authorised for issue by the Board of Directors on 13 March DOMICILE AND ACTIVITIES City Developments Limited (the Company) is incorporated in the Republic of Singapore and has its registered office at 36 Robinson Road, #04-01 City House, Singapore The principal activities of the Company are those of a property developer and owner and investment holding. The principal activities of the subsidiaries are those of property developers and owners, hotel owners and operators, a club operator and owner, investment in properties and in shares, property management, project management and provision of consultancy services, hospitality-related information technology and procurement services. The consolidated financial statements for the year ended 31 December 2014 relate to the Company and its subsidiaries (together referred to as the and individually as entities) and the s interests in associates and joint ventures. The directors consider the immediate and ultimate holding company to be Hong Leong Investment Holdings Pte. Ltd., a company incorporated in the Republic of Singapore. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The financial statements have been prepared on the historical cost basis except that financial instruments at fair value through profit or loss, derivative financial instruments and certain equity investments available for sale are stated at fair value. The financial statements are presented in Singapore dollars, which is the Company s functional currency. All financial information has been rounded to the nearest thousand, unless otherwise stated. The preparation of financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 115

2 Financial Statements 2 Summary of significant accounting policies (cont d) 2.1 basis of preparation (cont d) Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following note: Note 2.3 Assessment of ability to control or exert significant influence over partly-owned investments Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are described in the following notes: Note 2.20 Note 2.23 Notes 3 and 4 Note 5 Note 8 Note 10 Note 22 Note 37 Measurement of profit attributable to properties under development Estimation of provisions for current and deferred taxation Measurement of recoverable amounts of property, plant and equipment, and investment properties Measurement of recoverable amounts of investments in and balances with subsidiaries Impairment of available-for-sale equity investments Measurement of realisable amounts of development properties Valuation of defined benefit obligations Valuation of financial instruments that are not actively traded The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by entities except as explained in note 2.2, which addresses changes in accounting policies. 2.2 changes in accounting policies (i) Subsidiaries As a result of FRS 110 Consolidated Financial Statements, the has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. FRS 110 introduces a new control model that focuses on whether the has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. In accordance with the transitional provisions of FRS 110, the reassessed the control conclusion for its investees at 1 January As a consequence, the has changed its control conclusion in respect of its investment in CDL Hospitality Trusts (CDLHT), which was previously accounted for as an associate using the equity method. Although the owns less than half of the voting power of the investee, management has determined that the has had control over the investee, since its inception. This is because a subsidiary of the, M&C REIT Management Limited acts as REIT manager with its fees having a performance-based element. Accordingly, the consolidated CDLHT since inception and restated the relevant amounts as if the investee had been consolidated from that date. The quantitative impact of the change is set out below: 116

3 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.2 changes in accounting policies (cont d) (i) S Subsidiaries (cont d) summary of quantitative impact The following tables summarise the material impacts of the above change on the s financial position, profit or loss, other comprehensive income and cash flows. The has taken advantage of the transitional provisions of FRS 110, and has not included in the following tables the impact of consolidating the additional subsidiary on the s financial position, profit or loss, other comprehensive income and cash flows as at and for the year ended 31 December Consolidated statement of financial position 1 January 2013 As previously reported Adjustments As restated $ 000 $ 000 $ 000 Property, plant and equipment 3,405, ,319 4,169,793 Investment properties 2,916, ,250 3,258,443 Investment in associates 417,855 (240,233) 177,622 Lease premium prepayment 85,282 85,282 Other non-current assets 79,072 (6,494) 72,578 Trade and other receivables 1,182,731 12,644 1,195,375 Other assets, excluding cash and cash equivalents 5,364,894 5,364,894 Deferred tax liabilities (352,637) (111) (352,748) Trade and other payables (1,034,400) (24,190) (1,058,590) Provision for taxation (221,360) (2) (221,362) Provisions (current) (23,816) 6,715 (17,101) Other liabilities (252,132) (76) (252,208) Interest-bearing borrowings (net of cash and cash equivalents) (2,310,101) (454,417) (2,764,518) Net assets 9,257, ,405 9,657,460 Share capital 1,991,397 1,991,397 Reserves 5,312,251 (113,712) 5,198,539 Non-controlling interests 1,953, ,117 2,467,524 Total equity 9,257, ,405 9,657,

4 Financial Statements 2 Summary of significant accounting policies (cont d) 2.2 changes in accounting policies (cont d) (i) Subsidiaries (cont d) Consolidated statement of financial position 31 December 2013 As previously reported Adjustments As restated $ 000 $ 000 $ 000 Property, plant and equipment 3,566, ,598 4,399,023 Investment properties 2,785, ,251 3,161,073 Investment in associates 493,174 (228,356) 264,818 Lease premium prepayment 88,205 34, ,769 Other non-current assets 22,314 (6,675) 15,639 Trade and other receivables 1,634,576 7,338 1,641,914 Other assets, excluding cash and cash equivalents 5,228,882 5,228,882 Deferred tax liabilities (328,490) (321) (328,811) Trade and other payables (1,313,057) (14,175) (1,327,232) Provision for taxation (188,137) (28) (188,165) Provisions (current) (25,172) 7,252 (17,920) Other liabilities (181,118) (497) (181,615) Interest-bearing borrowings (net of cash and cash equivalents) (1,955,039) (619,500) (2,574,539) Net assets 9,828, ,451 10,215,836 Share capital 1,991,397 1,991,397 Reserves 5,853,983 (113,983) 5,740,000 Non-controlling interests 1,983, ,434 2,484,439 Total equity 9,828, ,451 10,215,

5 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.2 changes in accounting policies (cont d) (i) Subsidiaries (cont d) Consolidated statement of profit or loss Year ended 31 December 2013 As previously reported Adjustments As restated $ 000 $ 000 $ 000 Revenue 3,162,146 51,191 3,213,337 Cost of sales (1,549,643) (2,635) (1,552,278) Other operating income 200,331 (1,418) 198,913 Administrative expenses (529,061) 54,103 (474,958) Other operating expenses (413,887) (3,091) (416,978) Finance income 30, ,645 Finance costs (75,718) (16,279) (91,997) Share of after-tax profit of associates 34,139 (26,474) 7,665 Share of after-tax profit of joint ventures 33,703 33,703 Income tax expense (69,313) (250) (69,563) 823,136 55, ,489 Profit attributable to: Owners of the Company 682,988 3, ,241 Non-controlling interests 140,148 52, ,248 Profit for the year 823,136 55, ,489 Earnings per share Basic 73.7 cents 0.3 cents 74.0 cents Diluted 71.6 cents 0.3 cents 71.9 cents Consolidated statement of comprehensive income Year ended 31 December 2013 As previously reported Adjustments As restated $ 000 $ 000 $ 000 Profit for the year 823,136 55, ,489 Other comprehensive income Items that will not be reclassified to profit or loss (1,862) (1,862) Items that are or may be reclassified subsequently to profit or loss 134,657 (1,658) 132,999 Total comprehensive income for the year 955,931 53,695 1,009,626 Total comprehensive income attributable to: Owners of the Company 749,039 4, ,540 Non-controlling interests 206,892 49, ,086 Total comprehensive income for the year 955,931 53,695 1,009,

6 Financial Statements 2 Summary of significant accounting policies (cont d) 2.2 changes in accounting policies (cont d) (i) Subsidiaries (cont d) Consolidated statement of cash flows Year ended 31 December 2013 As previously reported Adjustments As restated $ 000 $ 000 $ 000 Net cash from operating activities 540, , ,733 Net cash from/(used in) investing activities 214,098 (225,206) (11,108) Net cash used in financing activities (249,667) 83,603 (166,064) 505,155 (5,594) 499,561 (ii) Joint Arrangements From 1 January 2014, as a result of FRS 111 Joint Arrangements, the has changed its accounting policy for its interests in joint arrangements. Under FRS 111, the has classified its interests in joint arrangements as either joint operations (if the has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint ventures (if the has rights only to the net assets of an arrangement). When making this assessment, the considered the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously, the structure of the arrangement was the sole focus of classification. The has re-evaluated its involvement in its joint arrangements and has reclassified its investments in jointly-controlled entities to joint ventures but no reclassification is made for its joint operations. Notwithstanding the reclassification, the investments in joint ventures continue to be recognised by applying the equity method and there has been no impact on the recognised assets, liabilities and comprehensive income of the. (iii) Disclosures of interests in other entities From 1 January 2014, as a result of FRS 112 Disclosure of Interests in Other Entities, the has expanded its disclosures about its interests in subsidiaries and non-controlling interests (see notes 40 and 42), associates (see note 6) and joint ventures (see note 7). 2.3 basis of consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. 120

7 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.3 basis of consolidation (cont d) Business combinations (cont d) When share-based payment awards (replacement awards) are exchanged for awards held by the acquiree s employees (acquiree s awards) and relate to past services, then all or a portion of the amount of the acquirer s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree s awards and the extent to which the replacement awards relate to past and/or future service. For non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the acquiree s net assets in the event of liquidation, the elects on a transaction-by-transaction basis whether to measure them at fair value, or at the non-controlling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets, at the acquisition date. All other non-controlling interests are measured at acquisition-date fair value or, when applicable, on the basis specified in another standard. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the incurs in connection with a business combination are expensed as incurred. Changes in the s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners and therefore no adjustments are made to goodwill and no gain or loss is recognised in profit or loss. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. Any difference between the adjustment to non-controlling interests and the fair value of consideration paid is recognised directly in equity and presented as part of equity attributable to owners of the Company. Subsidiaries Subsidiaries are entities controlled by the. The controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Upon the loss of control, the derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained. Associates and joint ventures (equity-accounted investee) Associates are companies in which the has significant influence, but not control or joint control, over their financial and operating policies. Significant influence is presumed to exist when the holds 20% or more of the voting power of another entity. Joint ventures are arrangements in which the has joint control, whereby the has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Associates and joint ventures are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the s share of the profit or loss and other comprehensive income of equity-accounted investees, after adjustments to align the accounting policies with those of the, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. 121

8 Financial Statements 2 Summary of significant accounting policies (cont d) 2.3 basis of consolidation (cont d) Associates and joint ventures (equity-accounted investee) (cont d) When the s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest (including any long-term interests that, in substance, form part of the s net investment in the equityaccounted investee) is reduced to zero, and the recognition of further losses is discontinued except to the extent that the has an obligation or has made payments on behalf of the investee. Joint operations A joint operation is an arrangement in which the has joint control whereby the has rights to the assets, and obligations for the liabilities, relating to an arrangement. The consolidated financial statements include the assets that the controls and the liabilities that it incurs in the course of pursuing the joint operation, and the expenses that the incurs and its share of the income that it earns from the joint operation. The recognises its interests in joint operations using proportionate consolidation. The joint operation is proportionately consolidated until the date on which the ceases to have joint control over the joint operations. As at 31 December 2014, the is a 51% partner in Hong Realty (Private) Limited Pasir Ris Joint Venture (the Pasir Ris Joint Venture), a joint arrangement formed with 2 fellow subsidiaries, whose principal activity is that of a property developer and place of business is in Singapore. The has classified the Pasir Ris Joint Venture as a joint operation as the joint venture partners control the Pasir Ris Joint Venture collectively and the Pasir Ris Joint Venture is not structured through a separate legal vehicle. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and joint ventures are eliminated against the investment to the extent of the s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting for subsidiaries, associates and joint ventures by the Company Investments in subsidiaries, associates and joint ventures are stated in the Company s statement of financial position at cost less accumulated impairment losses. 2.4 Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of entities at the exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currencies at the exchange rates at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currencies at the exchange rates at the dates on which their fair values were determined. Foreign currency differences arising on translation are recognised in profit or loss, except for differences arising on the translation of monetary items that in substance form part of the s net investment in a foreign operation (see below), available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective (see below) or qualifying cash flow hedges to the extent that the hedge is effective which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 122

9 NOTES TO THE FINANCIAL STATEMENTS CITY DEVELOPMENTS LIMITED ANNUAL REPORT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT D) 2.4 Foreign currencies (cont d) Foreign operations The assets and liabilities of foreign operations, excluding goodwill and fair value adjustments arising on acquisition, are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates at the dates of the transactions. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operation and translated at the exchange rates at the reporting date. For acquisitions prior to 1 January 2005, the exchange rates at the date of acquisition were used. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the foreign operation is a non wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the foreign currency translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. Net investment in a foreign operation When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within equity in the foreign currency translation reserve. When the foreign operation is disposed of, the cumulative amount in the foreign currency translation reserve is transferred to profit or loss as part of gain or loss on disposal. Hedge of net investment in a foreign operation Foreign currency differences arising on the translation of a financial liability designated as a hedge of the s net investment in a foreign operation are recognised in other comprehensive income to the extent that the hedge is effective, and are presented within equity in the foreign currency translation reserve. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net investment is disposed of, the cumulative amount in the foreign currency translation reserve is transferred to profit or loss as an adjustment to the gain or loss on disposal. 2.5 Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, the cost of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net in profit or loss. 123

10 Financial Statements 2 Summary of significant accounting policies (cont d) 2.5 Property, plant and equipment (cont d) Subsequent expenditure Subsequent expenditure is recognised in the carrying amount of the asset if it is probable that future economic benefits embodied within the expenditure will flow to the, and its cost can be measured reliably. All other subsequent expenditure are recognised in profit or loss when incurred. Depreciation No depreciation is provided on freehold and 999-year leasehold land. For freehold and leasehold properties under development and renovation-in-progress, no depreciation is provided until these items have been completed. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives (or lease term, if shorter) of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows: Freehold and leasehold land and buildings Core component of hotel buildings 50 years, or lease term if shorter Surface finishes and services of hotel buildings 30 years, or lease term if shorter Leasehold land (other than 999-year leasehold land) Lease term Furniture, fittings, plant and equipment and improvements 3 to 20 years Residual values ascribed to the core component of hotel buildings depend on the nature, location and tenure of each hotel property. No residual values are ascribed to surface finishes and services of hotel buildings. Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date. 2.6 intangible assets Goodwill Goodwill and negative goodwill arise on the acquisition of subsidiaries, associates and joint ventures. Acquisitions prior to 1 January 2001 Goodwill represents the excess of the cost of the acquisition over the s interest in the net fair value of the identifiable assets and liabilities of the acquiree. Goodwill and negative goodwill on acquisitions were written off against reserves in the year of acquisition. Goodwill and negative goodwill that had previously been taken to reserves are not taken to profit or loss when (a) the business is disposed of or (b) the goodwill is impaired. Acquisitions occurring between 1 January 2001 and 1 January 2005 There was no goodwill arising from acquisition of subsidiaries occurring between 1 January 2001 and 1 January

11 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.6 intangible assets (cont d) Acquisitions occurring between 1 January 2005 and 31 December 2009 Goodwill represents the excess of the cost of the acquisition over the s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill arising on the acquisition of subsidiaries is presented in intangible assets. Goodwill arising on the acquisition of associates and joint ventures is presented together with investments in associates and joint ventures. Goodwill is measured at cost less accumulated impairment losses, and tested for impairment (note 2.14). Negative goodwill is recognised immediately in profit or loss. Acquisitions on or after 1 January 2010 Goodwill represents the excess of: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree, over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Goodwill arising on the acquisition of subsidiaries is presented in intangible assets. Goodwill arising on the acquisition of associates and joint ventures is presented together with investments in associates and joint ventures. Goodwill is measured at cost less accumulated impairment losses, and tested annually for impairment (note 2.14). When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Other intangible assets Other intangible assets that are acquired by the, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses. Other intangible assets (comprise mainly technology, trade name, franchise application, research and development and customer relations) are amortised in profit or loss on a straight-line basis over their estimated useful lives ranging from 1 to 15 years, from the date on which they are available for use. 2.7 investment properties Investment properties are properties held either to earn rental income or capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services, or for administrative purposes. Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses. Gains and losses on disposal of investment properties are determined by comparing the proceeds from disposal with the carrying amount of investment property, and are recognised net in profit or loss. 125

12 Financial Statements 2 Summary of significant accounting policies (cont d) 2.7 investment properties (cont d) Depreciation No depreciation is provided on freehold and 999-year leasehold land included in the investment properties. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives (or lease terms, if shorter) of each component of the investment properties. The estimated useful lives are as follows: Freehold and leasehold properties 50 years, or lease term if shorter Leasehold land (other than 999-year leasehold land) Lease term ranging from 85 to 97 years Furniture, fittings, plant and equipment and improvements 3 to 20 years Depreciation methods and useful lives are reviewed, and adjusted as appropriate, at each reporting date. Transfers Transfers to, or from, investment properties are made where there is a change in use, evidenced by: commencement of owner-occupation, for a transfer from investment properties to property, plant and equipment; commencement of development with a view to sell, for a transfer from investment properties to development properties; and end of owner-occupation, for a transfer from property, plant and equipment to investment properties. 2.8 leased assets Leases in terms of which the assumes substantially all risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases, and the leased assets are not recognised in the statement of financial position. 2.9 lease premium prepayment Lease premium prepayment relates to upfront premium paid in respect of long leasehold land where substantially all risks and rewards of ownership are not anticipated to pass to the. It is classified appropriately between current and non-current assets and is charged to profit or loss on a straight-line basis over the term of the lease. 126

13 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.10 Financial instruments Non-derivative financial assets The initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the becomes a party to the contractual provisions of the instrument. The derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in transferred financial assets that is created or retained by the is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The has the following categories of non-derivative financial assets: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. Financial assets at fair value through profit or loss A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the manages such investments and makes purchase and sale decisions based on their fair value in accordance with the s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which takes into account any dividend income, are recognised in profit or loss. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, trade and other receivables excluding prepayments and tax recoverable, and other non-current assets excluding deferred tax assets, deferred expenditure, prepayment and intangible assets. Cash and cash equivalents comprise cash balances and bank deposits. Bank overdrafts that are repayable on demand and form an integral part of the s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 127

14 Financial Statements 2 Summary of significant accounting policies (cont d) 2.10 Financial instruments (cont d) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. The s investments in certain equity securities and certain debt securities are classified as available-for-sale financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see note 2.14) and foreign currency differences on available-for-sale monetary items (see note 2.4), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is reclassified to profit or loss. Where an investment in equity securities classified as available for sale does not have a quoted market price in an active market and other methods of determining fair value do not result in a reasonable estimate, the investment is measured at cost less accumulated impairment losses. Non-derivative financial liabilities The initially recognises all financial liabilities on the trade date at which the becomes a party to the contractual provisions of the instrument. The derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The has the following non-derivative financial liabilities: borrowings, other liabilities and trade and other payables excluding deferred income and derivative financial liabilities. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Derivative financial instruments, including hedging activities The holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. 128

15 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.10 Financial instruments (cont d) Cash flow hedges When a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently results in the recognition of a nonfinancial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains or losses that were recognised directly in equity are reclassified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss (i.e. when interest income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policy statements, the associated cumulative gain or loss is removed from equity and recognised in profit or loss in the same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in profit or loss. When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealised gain or loss recognised in equity is recognised immediately in profit or loss. Separable embedded derivatives Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss. Other non-trading derivatives When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss interest-free intercompany loans Loans to subsidiaries Intercompany loans to subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future and are, in substance, a part of the Company s net investment in those subsidiaries, are stated at cost less accumulated impairment losses. Such balances are eliminated in full in the consolidated financial statements Development properties Development properties are those properties which are held with the intention of development and sale in the ordinary course of business. They are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. The cost of properties under development comprise specifically identified costs, including acquisition costs, development expenditure, borrowing costs and other related expenditure. Borrowing costs payable on loans funding a development property are also capitalised, on a specific identification basis, as part of the cost of the development property until the completion of development. 129

16 Financial Statements 2 Summary of significant accounting policies (cont d) 2.12 Development properties (cont d) Properties under development, the sales of which are recognised using the percentage of completion method The aggregated costs incurred together with attributable profits and net of progress billings are presented as development properties in the statement of financial position. Other properties under development The aggregated costs incurred are presented as development properties while progress billings are presented separately as deferred income within trade and other payables consumable stocks Consumable stocks comprise principally food and beverage and other hotel related consumable supplies. Stocks are valued at the lower of cost and net realisable value. Cost is determined on a first-in first-out principle. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses Impairment Impairment of non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more loss events have had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss and reflected in an allowance account. When the considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. Impairment losses on available-for-sale financial asset are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, an impairment loss once recognised in profit or loss is not reversed through profit or loss. Any subsequent increase in fair value of such assets is recognised in other comprehensive income. 130

17 Financial statements CITY DEVELOPMENTS LIMITED ANNUAL REPORT Summary of significant accounting policies (cont d) 2.14 impairment (cont d) Impairment of non-financial assets The carrying amounts of the s non-financial assets, other than development properties, consumable stocks and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amounts are estimated. For goodwill, the recoverable amount is estimated at each reporting date, and as and when indicators of impairment are identified. The recoverable amount of an asset or cash-generating unit is the greater of its value-in-use and its fair value less costs to sell. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised Assets and liabilities classified as held for sale Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the s accounting policies. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to consumable stocks, financial assets and deferred tax assets which continue to be measured in accordance with the s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss. Property, plant and equipment and investment property once classified as held for sale are not depreciated share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. Preference shares Preference shares are classified as equity if they are non-redeemable, or are redeemable only at the option of the Company and dividend payments are discretionary. Dividends thereon are recognised as distributions within equity. Dividends on non-redeemable preference shares are recognised as a liability in the period in which they are declared. 131

18 Financial Statements 2 Summary of significant accounting policies (cont d) 2.17 employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The s net obligation in respect of defined benefit post-employment plans, including pension plans, is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on AA credit rated bonds that have maturity dates approximating the terms of the s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised immediately as an expense in profit or loss. The recognises remeasurement gains or losses within the consolidated statement of comprehensive income in the period in which they occur. The determines the net interest expense/(income) on the net defined benefit liability/(asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability/(asset), taking into account any changes in the net defined benefit liability/ (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. Other long-term employee benefits The s net obligation in respect of long-term employee benefits, other than pension plans is the amount of future benefit that employees have earned in return for their service in current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value and the fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on AA credit rated bonds that have maturity dates approximating the terms of the s obligations. Any actuarial gains or losses are recognised in profit or loss in the period in which they arise. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 132