Annual Report 2012 - ORCO Germany

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(g)
Impairment on goodwill and trademark
The Group is testing annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.5. The
recoverable amounts of cash have been determined based on the deferred tax liabilities and the fair value of the buildings for which acquisitions have
generated goodwill.
4.2. Critical judgments in applying the Group’s accounting policies
a) Distinction between investment properties and owner-occupied properties
The Management determines whether a property qualifies as investment property. In making its judgment, the Management considers whether the
property generates cash flows largely independently of the other assets held by an entity. Owner-occupied properties generate cash flows that are
attributable not only to property but also to other assets used in the production or supply process.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the supply of
services or for administrative purposes. If these portions can be sold separately (or leased out separately under a finance lease), the Group treats for
the portions separately. If the portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is
held for use in the supply of services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant
that a property does not qualify as investment property. The Management considers each property separately in making its judgment.
b) Transfer between Inventories and Investment property
If a commercial and office development becomes partially rented, as a result of tenants moving in before the contemplated sale of the asset, the
project is not automatically reclassified as Investment Property. A development will be reclassified as investment property only for capital appreciation
and if the nature of this building has been changed and formally approved by the Investment Committee. The renting revenue on this development
project is specifically disclosed in the consolidated financial statements.
c) Transfer between Investment property and Inventories
Freehold lands for which the destination is not determined at acquisition are classified under Investment property as land bank. The destination of land
bank plots is considered to remain uncertain until the start of the development that will trigger the transfer at fair value to inventories. The start of the
development will depend on whether it is decided by the Investment Committee to perform a land development with a view to sale or a construction
development with a view to sale. In the case of a construction development with a view to sell in the ordinary course of activities, the start of the
development is considered when the project design is definitive, the building permit is granted and the start of the construction has been validated by
the Investment Committee. In the case of a land development with a view to totally or partially sell the parcels in the ordinary course of activities, the
start of the development is considered to be the moment at which the Group has obtained sufficient support from state or city authorities in order to
start working on the master plan modification (see note 2.6).
d) Classification of non-current assets as held for sale
The Management determines whether a non-current asset has to be classified as held for sale when the following conditions are met:
- there is a formal decision taken by the Investment Committee to sell the asset at a price which is reasonable compared to its current fair value;
- the asset is available for immediate sale;
- the sale is highly probable and should be completed within the 12 months following the balance sheet date.
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS | 24