2007 / 2008 Annual Report - Eastern Cape Development Corporation

EASTERN CAPE DEVELOPMENT CORPORATION 2007/08CONSOLIDATED ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2008ACCOUNTING POLICIES1.2 Investment propertyInvestment property is held for long-term rental yields or for capital appreciation or both and comprises properties notoccupied by the Group. Hotel buildings held by the Group are classified as investment property as the group is notinvolved in the hotel operations. Investment properties are initially measured at cost, including transaction costs, andare subsequently stated at fair value determined by an independent sworn appraiser, every third year.Fair valueSubsequent to initial measurement investment property is measured at fair value. A gain or loss arising from a changein fair value is included in net profit or loss for the period in which it arises. Fair value gains and losses are transferredfrom accumulated surplus to reserves.1.3 Property, plant and equipmentProperty, plant and equipment are depreciated on a straight line basis at rates that will reduce the gross carryingamount to estimated residual values over the expected useful lives of the assets. Property, plant and equipmentacquired under finance lease agreements are capitalised. Such assets are depreciated on a straight line basis at ratesconsidered appropriate to reduce capitalised cost to estimated residual values over the expected useful lives of theassets. Lease finance charges are amortised over the duration of the finance leases using the effective interest ratemethod.The expected useful lives of the assets are as follows:ItemBuildings and infrastructurePlant and machineryFurniture and fixturesMotor vehiclesOffice equipmentIT equipmentOther property, plant and equipmentAverage useful life25 - 50 years4 years6 - 10 years4 - 5 years4 - 5 years3 years5 yearsLand is not depreciated as it is deemed to have an infinite life. The residual value and the useful life of each asset arereviewed at each financial period-end.On initial recognition, property, plant and equipment is measured at cost. The cost of buildings and infrastructureincludes all direct building costs, allocated overhead costs and capitalised borrowing costs. Subsequent to initialrecognition, costs incurred to add to, replace part of, or perform major services are included in the cost of an item ofproperty, plant and equipment. If a replacement cost is recognised in the carrying amount of an item of property, plantand equipment, the carrying amount of the replaced part is derecognised.Land and buildings and infrastructure are carried at revalued amounts. All other classes of property, plant andequipment are carried at cost.When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of therevaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carryingamount of the asset after revaluation equals its revalued amount.If an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity underthe heading of revaluation reserve. However, the surplus is recognised in profit or loss to the extent that it reversesa revaluation decrease of the same asset previously recognised in profit or loss. If an asset’s carrying amount isdecreased as a result of a revaluation, the decrease is recognised in profit or loss. However, the decrease is debiteddirectly to equity under the heading of revaluation reserve to the extent of any credit balance existing in the revaluationreserve in respect of that asset.Where the carrying amount of an asset is greater than its estimated market value, it is written down to its market value.76