FY 2012 Annual Report - Orascom Development

F-23 Orascom Development 2012 Annual Report F-24
The following estimated useful lives are used in the calculation of depreciation:
Buildings
Plant and equipment
Furniture and fixtures
20 – 50 years
4 – 25 years
3 – 20 years
3.15 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An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and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.
3.16 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.
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. A
reversal of an impairment loss is recognized immediately in profit or loss.
3.17 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 item-by-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.
3.18 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.
3.19 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 (other than financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
3.20 Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way
purchases or sales are purchases or sales of financial assets that require delivery of assets within the timeframe established by
regulation or convention in the market place.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the
classification of the financial assets.
3.20.1 Classification of financial assets
Debt instruments that meet the following conditions are subsequently measured at amortised cost less impairment loss (except
for debt investments that are designated as at fair value through profit or loss on initial recognition):
– the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
– the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair value.
3.20.2 Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all
fees or points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on
initial recognition.
Income is recognised on an effective interest basis for debt instruments measured subsequently at amortised cost. Interest income
is recognised in profit or loss and is included in the “investment income” line item.
3.20.3 Financial assets at fair value through other comprehensive income (FVTOCI)
On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate
investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for
trading.
A financial asset is held for trading if:
– it has been acquired principally for the purpose of selling it in the near term; or
– on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has
evidence of a recent actual pattern of short-term profit-taking; or
– it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
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