FY 2012 Annual Report - Orascom Development

F-21 Orascom Development 2012 Annual Report F-22
impacts profit or loss. The hedged interest component of the qualifying asset (hedged risk) impacts profit or loss when the
qualifying asset is amortized, impaired or sold.
– Where fixed rate borrowings are used to finance a qualifying asset and a derivative is designated to hedge the fair value
exposure to changes in interest rates of such borrowings, the synthetic floating interest rate that is achieved as a result of a
highly effective hedge is capitalized, so that borrowing costs always reflect the hedged interest rate. The amount of borrowing
costs capitalized in such a case comprises the actual fixed rate on the borrowings plus the effect of swapping this fixed rate
into floating rates.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
As the financing activity is co-ordinated centrally and generally by the parent and some of the main subsidiaries, the group
determines the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that
asset. The group includes all borrowings of the parent and its subsidiaries when computing the weighted average of the borrowing
costs applicable to the borrowings that are outstanding during the period other than borrowings made specifically for the purpose
of obtaining a qualifying asset.
The amount of borrowing costs that an entity capitalises during the period shall not exceed the amount of borrowing costs it
incurred during that period, provided that the carrying amount of the qualifying asset on which eligible borrowing costs have been
capitalized does not exceed its recoverable amount (being the higher of fair value less costs to sell or amount in use for that asset).
3.11 Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attached
to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as
expenses the related costs for which the grants are received.
Government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets
are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a
systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they
become receivable.
The benefit of a government loan granted at below-market interest rates of interest is treated as a government grant and
measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.
3.12 Retirement benefit costs
Employee pension and retirement benefits are based on the regulations and prevailing circumstances of those countries in which
the Group is represented. In Switzerland, ordinary pension and retirement benefit plans qualify as defined-benefit plans and are
accounted for in conformity with IAS 19 Employee Benefits.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method,
with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses that exceed 10 percent of
the greater of (i) the present value of the Group’s defined benefit obligation and (ii) the fair value of plan assets as at the end of the
prior year are amortised over the excepted average remaining working lives of the participating employees.
Past service-costs are recognised immediately in profit or loss to the extent that the benefits are already vested, and otherwise are
amortized on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the consolidated statement of financial position represents the present value of
the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as
reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and
past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
Payments to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service
entitling them to the contribution.
3.13 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
3.13.1 Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated
statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
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3.13.2 Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the
Balance Sheet Liability Method.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised
for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those
deductible temporary differences can be utilized.
Such deferred tax liabilities are not recognised if the temporary difference arises from goodwill and no deferred tax assets or
liabilities are recognised for temporary differences resulting from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it
is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the
manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current
tax assets and liabilities on a net basis.
3.13.3 Current and deferred tax for the year
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in
other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting
for a business combination, the tax effect is included in the accounting for the business combination.
3.14 Property, plant and equipment
Buildings, plant and equipment, furniture and fixtures held for use in the production, supply of goods or services or for
administrative purposes are stated in the consolidated statement of financial position at cost less any accumulated depreciation
and accumulated impairment losses.
Properties in the course of construction for production, administrative purposes or for a currently undetermined future use are
carried at cost less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs
capitalized in accordance with the Group’s accounting policy as described in note 3.10. Such properties are classified to the
appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these
assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation of buildings, plant and equipment as well as furniture and fixtures commences when the assets are ready for their
intended use.
Freehold land is not depreciated.
Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less
their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values
and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted
for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership of the leased asset will be obtained by the end of the lease term, assets are
depreciated over the shorter of the lease term and their useful lives.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the net sales proceeds and the carrying amount of the asset and is recognised
in profit or loss.
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