2007 / 2008 Annual Report - Eastern Cape Development Corporation

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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
EASTERN CAPE DEVELOPMENT CORPORATION 2007/081.4 Investments in subsidiariesSubsidiaries are entities, including unincorporated partnerships and companies without a share capital, that arecontrolled by the Group. Control exists where the Group has the power to govern the financial and operating policies ofan entity so as to obtain benefits from its activities.Consolidated annual financial statementsThe consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows ofthe corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are includedfrom the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated onconsolidation.Corporation annual financial statementsIn the Corporation’s separate annual financial statements, investments in subsidiaries are carried at cost less anyaccumulated impairment.The cost of an investment in a subsidiary is the aggregate of:• the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instrumentsissued by the Corporation; plus• any costs directly attributable to the purchase of the subsidiary.An adjustment to the cost of a business combination contingent on future events is included in the cost of thecombination if the adjustment is probable and can be measured reliably.1.5 Investments in associatesAssociates are entities, including unincorporated partnerships and companies without a share capital, over which theGroup exercises significant influence.Consolidated annual financial statementsAn investment in an associate is accounted for using the equity method, except when the asset is classified as held-forsalein accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Under the equity method,the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’sshare of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued fromthe date the group ceases to have significant influence over an associate.Any impairment losses are deducted from the carrying amount of the investment in associate.Distributions received from the associate reduce the carrying amount of the investment.Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’interests in the associate.The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets,liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate.The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingentliabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in theperiod in which the investment is acquired.Corporation annual financial statementsAssociate companies are those companies in which the Corporation holds a long-term equity interest and over which itexercises a significant influence over its financial and operating policies, other than investments in companies acquiredto protect advances or as a conduit for advances.The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investmentin the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policyon financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provisionis made where there is considered to be a permanent diminution in the value of the investment.77
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2007 / 2008 Annual Report - Eastern Cape Development Corporation

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