LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Appendix Btemporary difference; and (b) it is probable that the temporary difference will not reverse in the foreseeablefuture. Taxes relating to items directly related to Unitholders’ funds, in which case it is recognised inUnitholders’ Funds.Segment reporting—A business segment is a distinguishable component of an enterprise that is engaged in providing anindividual product or service or a group of related products or services and that is subject to risks andreturns that are different from those of other business segments. A geographical segment is adistinguishable component that is engaged in providing products or services within a particulareconomic environment and that is subject to risks and returns that are different from those ofcomponents operating in other economic environments. Segment information has not been presentedas all of the Pro Forma Group’s investment properties are used primarily for retail purposes and are alllocated in Indonesia.Critical judgements, assumptions and estimation uncertaintiesOther than as disclosed in section C of this report, there were no critical judgments made in the process ofapplying the entity’s accounting policies that have the most significant effect on the amounts recognised inthe financial statements. There were no key assumptions concerning the future, and other key sources ofestimation uncertainty at the balance sheet date, that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next financial year.Risk management policies for financial instrumentsGENERAL RISK MANAGEMENT PRINCIPLES—The financial instruments comprise borrowings, somecash and liquid resources, and various items, such as trade and other receivables, trade and otherpayables. The main purpose of these financial instruments is to raise finance for the entity’s operations.The main risks arising from the entity’s financial instruments are credit risk, interest risk, liquidity risk,foreign currency risk and market price risk comprising interest rate and currency risk exposures. Themanagement reviews and monitors policies for managing each of these risks and they are summarisedbelow.CREDIT RISKON FINANCIAL ASSETS—Financial assets that are potentially subject to concentrations ofcredit risk and failures by counterparties to discharge their obligations consist principally of cash, cashequivalents and trade and other accounts receivable. Credit risk on cash balances and derivative financialinstruments is limited because the counter-parties are banks with high credit ratings. An ongoing creditevaluation is performed of the debtors’ financial condition and a loss from impairment is recognised in thestatement of total return. There is no significant concentration of credit risk, as the exposure is spread overa large number of counter-parties and customers unless otherwise disclosed in the notes to the financialstatements.OTHER RISKS ON FINANCIAL INSTRUMENTS—The main risks arising from the entity’s financialinstruments are interest risk, liquidity risk and foreign currency risk. The operations will be financedthrough a mixture of retained earnings and borrowings. Borrowings are in the desired currencies at bothfixed and floating rates of interest. The policy is to retain flexibility in selecting borrowings at both fixed andfloating interest rates. There is exposure to interest rate price risk for financial instruments with a fixedinterest rate and to interest rate or cash flow risk for financial instruments with a floating interest rate that isreset as market rates change. Interest rate swaps may be used to generate the desired interest profit andto manage the exposure to interest rate fluctuations. There is also exposure to liquidity. As regards toliquidity, the policy has been to ensure continuity of funding and where necessary a certain percentage ofthe borrowings should mature in two to five years. Short-term flexibility is achieved by overdraft facilities.There is also exposure to changes in foreign exchange rates arising from foreign currency transactionsand balances and changes in fair values. The Pro Forma Group has planned to utilise currency derivativesto eliminate or reduce the exposure of its foreign currency and to hedge future transactions and cash flows.As a matter of principle, the Pro Forma Group does not enter into derivative contracts for speculativepurposes.B-15