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 POLICIESThe group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNRprovision is to allow for latent losses on a portfolio of loans and advances that have not yet been individuallyevidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objectiveevidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is basedon the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidenceof that impairment becomes evident during the emergence period.The implementation of these principles is at a corporation level and will be specific to the nature of their individual loanportfolios and the loan loss data available to the investment division.Provisions, contingent liabilities and contingent assetsThe group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and businessrisks. Refer to notes 29 and 28 for further information on provisions, contingent liabilities and contingent assets.Fair value of Investment PropertiesFor valuation methodologies utilised to fair value investment properties, refer to note 2.Unlisted investment valuationsThe valuation of unlisted investments is based on the discounted free cash flows of the investments taking into accountthe projected future activities of the entity. These values are established either by independent valuers or managementand are reviewed by the Development Investment Committee.1.17 Borrowing costsBorrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset arecapitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount ofborrowing costs eligible for capitalisation is determined as follows:• Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less anytemporary investment of those borrowings.• Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose ofobtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.The capitalisation of borrowing costs commences when:• expenditures for the asset have occurred;• borrowing costs have been incurred, and• activities that are necessary to prepare the asset for its intended use or sale are in progress.Capitalisation is suspended during extended periods in which active development is interrupted.Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended useor sale are complete.All other borrowing costs are recognised as an expense in the period in which they are incurred.82
EASTERN CAPE DEVELOPMENT CORPORATION 2007/08NOTES TO THECONSOLIDATED ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20082 Investment PropertyReconciliation of movementBalance at beginning of yearDisposalsFair value gainOther movements2008R’000671,689(16,297)53,94616Group2007R’000441,886(23,721)62,303191,2212008R’000Corporation449,962(15,957)47,368162007R’000412,680(23,361)60,643-709,354 671,689 481,389 449,962Reconciliation of fair value gain to income statementFair value gain per balance sheetCompensation received for fair value loss on investment property53,9462,50262,303-Fair value gain recognised in profit or loss (note 23) 56,448 62,303 49,870 60,643These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areasin and surrounding Mthatha, Butterworth, King William’s Town, East London and Queenstown. The portfolio mainlyconsists of industrial, residential and commercial properties.47,3682,50260,643-Corporation - 2008 Percentage ValueR’000Type of propertiesResidentialCommercialVacant LandIndustrialOtherCorporation - 2007 Percentage ValueR’000Type of propertiesResidentialCommercialVacant LandIndustrialOther4821625-226,396103,46929,104122,026394Number ofproperties59325781319773100 481,389 1,9335136742231,071162,39632,07819,4025,015Number ofproperties65744782717120100 449,962 2,068Investment properties were valued in terms of the accounting policy, which requires a value determined by a swornappraiser every three years. However, certain valuations were not captured on the properties register. Valuations arenormally based on comparable sales in the area or on the income earning potential of the building.Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainlybecause the properties are vacant or undeveloped land or unoccupied buildings.Freehold title is held by the Corporation for the majority of properties, but not for all. Properties for which freehold titleis not held are recorded when they are managed by the Corporation and result in the receipt of economic benefits andrewards and when the Corporation incurs the risks incidental to ownership.83
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HUMAN RESOURCES MANAGEMENT2007/08 A
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2007 / 2008 Annual Report - Eastern Cape Development Corporation

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