Annual report 2010 - plazacenters

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Note 41 – Critical accounting judgments and key sources
of estimation uncertainty
The preparation of financial statements and application of accounting standards often involve management’s judgment and the use
of estimates and assumptions deemed to be reasonable at the time they are made. However, other results may be derived with different
judgments or using different assumptions or estimates, and events may occur that could require a material adjustment to the carrying
amount of the asset or liability affected. Following are the accounting policies subject to such judgments and the key sources of
estimation uncertainty that the Company believes could have the most significant impact on the reported results and financial position.
a. Impairment of Trading Properties analysis
Trading Properties are measured at the lower of cost and net realizable value. In situations where excess Trading Property balances
are identified, estimates of net realizable values for the excess amounts are made.
Management is responsible for determining the net realizable value of the Group’s Trading Properties. In determining net realizable
value of the vast majority of Trading Properties, management utilizes the services of an independent third party recognized as a
specialist in valuation of properties. The independent valuation service utilizes market prices of same or similar properties whenever
such prices are available. Where necessary, the independent third party valuation service uses models employing techniques such
as discounted cash flow analyses. The assumptions used in these models typically include assumptions for rental levels, residential
units sale prices, cost to complete the project, developers profit on costs, financing costs and capitalization yields, utilizing
observable market data, where available. On an annual basis, the Company reviews the valuation methodologies utilized by the
independent third-party valuation service for each property. At December 31, 2010, the majority of the properties were valued by
the independent third-party valuation service. Management made adjustments to the valued received to reflect the net realizable
value by neutralizing the developers profit on costs from the valuations.
Determining net realizable value is inherently subjective as it requires estimates of future events, many of which are difficult to
predict. Actual results could be significantly different than our estimates and could have a material effect on our financial results.
This evaluation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of
development in addition to current economic uncertainty and the lack of transactions in the real estate market in the CEE and
India for same or similar properties.
Trading Properties accumulated write-downs from cost as of December 31, 2010, amounted to EUR 40.6 million or 5% of gross
Trading Properties balance.
Plaza Centers N.V. Annual report 2010127