Download TPS, East Africa 2008 Annual Report - Serena Hotels

Notes to the Financial Statements (cont’d)
2 Summary of significant accounting policies (continued)
(h) Financial assets
The Group classifies its financial assets under loans and receivables and available-for-sale financial assets. The
classification depends on the purpose for which the financial assets were acquired. Management determines the
classification of its financial assets at initial recognition and re-evaluates such designation at every reporting date.
(i) Loans and receivables
Loans and receivables are initially recorded at cost and subsequently carried at amortised cost using the effective
interest method. Realised and unrealised gains and losses arising from changes in the fair value of the 'financial
assets at fair value through profit or loss' category are included in the income statement in the period in which they
arise. They are included in current assets, Loans and receivables are included in receivables and prepayments in the
balance sheet.
(ii) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in
any of the other categories. They are included in non-current assets unless management intends to dispose of the
investment within 12 months of the balance sheet date.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group
of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged
decline in the fair value of the security below its cost is considered in determining whether the securities are
impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognised in profit or loss - is removed from equity and recognised in the income statement. Impairment
losses recognised in the profit and loss account on equity instruments are not reversed through the profit and
loss account.
(i) Accounting for leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line
basis over the period of the lease.
(j) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in, first-out (FIFO)
method. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of
completion and selling expenses.
(k) Receivables
Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method. A provision for impairment of receivables is established when there is objective evidence that the
Group will not be able to collect all the amounts due according to the original terms of receivables. The amount of
the provision is the difference between the carrying amount and the present value of expected cash flows, discounted
at the effective interest rate. The amount of the provision is recognised in the profit and loss account.
36 TPS EASTERN AFRICA LIMITED | ANNUAL REPORT AND FINANCIAL STATEMENTS 2008