FY 2010 Annual Report - Part II - Orascom Development

ODH Annual Report 2010
3.19 Investment property
Investment properties are properties (land or a building – or part
of a building – or both) held by the Group entities to earn rentals
and / or for capital appreciation (including property under
construction for such purposes). Investment properties are
measured initially at cost, including transaction costs. Subsequent
to initial recognition, investment properties are measured at fair
value at the end of each reporting period. Gains and losses
arising from changes in the fair value of investment properties are
recognised in profit or loss including an adjustment to the related
deferred tax position in the period in which they arise.
Fair value is the amount for which an asset could be exchanged
between knowledgeable and willing parties in an arm’s length
transaction. The fair value of investment properties reflects market
conditions at the end of each reporting period and is determined
without any deduction for transaction costs which the Group may
incur on sale or other disposal. The fair value of investment
properties is determined based on evaluations performed by
independent valuators.
An investment property is derecognised upon disposal or when
the investment property is permanently withdrawn from use and
no future economic benefits are expected from the disposal. Any
gain or loss arising on de-recognition of the property (calculated
as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in profit or loss in the
period in which the property is derecognised.
3.20 Impairment of tangible assets
At the end of each reporting period, the Group reviews the
carrying amounts of its tangible assets to determine whether there
is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the
impairment loss (if any).
Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell
and value in use. 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 for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in profit or
loss, unless the relevant asset is carried at a revaluated amount,
in which case the impairment loss is treated as a revaluation
decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
3.21 Inventories
Inventories are stated at the lower of cost and net realizable
value.
Costs, including an appropriate portion of fixed and variable
production overheads as well as other costs incurred in bringing
the inventories to their present location and condition, are
assigned to inventories by the method most appropriate to the
particular class of inventory, with the majority being valued on a
weighted average basis. For items acquired on credit and where
payment terms of the transaction are extended beyond normal
credit terms, the cost of that item is its cash price equivalent at the
recognition date with any difference from that price being treated
as an interest expense on an effective-yield basis (see note 11).
Net realizable value represents the estimated selling price for
inventories less all estimated costs of completion and costs
necessary to make the sale.
Estimates of net realisable value are generally made on an itemby-item
basis, except in circumstances, where it is more
appropriate to group items of similar or related inventories.
The net realizable value of an item of inventory may fall below its
cost for many reasons including, damage, obsolescence, slow
moving items, a decline in selling prices, or an increase in the
estimate of costs to complete and costs necessary to make the
sale. In such cases, the cost of that item is written-down to its net
realizable value and the difference is recognized immediately in
profit or loss.
Properties intended for sale in the ordinary course of business or
in the process of construction or development for such a sale are
included in inventories. These are stated at the lower of cost and
net realizable value. The cost of development properties includes
the cost of land and other related expenditure attributable to the
construction or development during the period in which activities
are in progress that are necessary to get the properties ready for
its intended sale.
3.22 Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle the obligation,
and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset, if it is virtually certain that
reimbursement will be received and the amount of the receivable
can be measured reliably.
3.23 Financial instruments
Financial assets and financial liabilities are recognised when a
Group entity becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially measured at
fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
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