PSH-Annual-Report

Annual Report December 31, 2014Notes to Financial Statements (continued)3. SIGNIFICANT ACCOUNTINGJUDGMENTS, ESTIMATES ANDASSUMPTIONSThe preparation of the Company’s financialstatements requires management to makejudgments, estimates and assumptions that affectthe reported amounts recognized in the financialstatements and disclosure of contingent liabilities.Uncertainty about these assumptions andestimates could result in outcomes that couldrequire a material adjustment to the carryingamount of the asset or liability affected in futureperiods.JudgmentsIn the process of applying the Company’saccounting policies, management has made thefollowing judgments, which have a significant effecton the amounts recognized in the financialstatements:Assessment as an investment entityIFRS 10 requires management to assess whetherthe Company is an investment entity based on thebelow criteria. If the Company were an investmententity, the Company’s subsidiaries (if any) wouldbe recorded in the Company’s financial statementsas financial assets at fair value through profit orloss. If the Company were not an investment entity,IFRS 10 would require the Company to consolidatethe subsidiary’s financial statements with theCompany’s financial statements. The criteria forthe assessment are: An entity that obtains funds from one or moreinvestors for the purpose of providing thoseinvestors with investment services; An entity that commits to its investors that itsbusiness purpose is to invest funds solely forreturns from capital appreciation, investmentincome or both; and An entity that measures and evaluates theperformance of substantially all of itsinvestments on a fair value basis.The Company satisfies all of the aboverequirements as an investment entity.The Board has also concluded that the Companymeets the additional characteristics of aninvestment entity in that: it has more than oneinvestment, it has more than one investor, and itsinvestors are not related parties.Part of the assessment in relation to meeting thebusiness purpose aspects of the IFRS 10 criteriarequires consideration of exit strategies. TheCompany has an exit strategy for all investments.Furthermore, the Directors have determined thatthe Company’s investment plans support itsbusiness purpose as an investment entity.The Board has concluded that the Company meetsthe definition of an investment entity based on theabove criteria. These conclusions will bereassessed on a semi-annual basis in order todetermine if there was a change in any of theabove criteria or characteristics.Assessment of Company investment as structured entityAs of December 31, 2014 and December 31, 2013,the Company held an investment in PS VInternational, Ltd. (“PS V”) and as of December 31,2014, the Company also held an investment in PSFund 1, LLC (“PSF1”). PS V and PSF1 areaffiliated investment funds managed by theInvestment Manager. The investment objective ofPS V is to create significant capital appreciation byinvesting in stock of Air Products and Chemicals,Inc. The investment objective of PSF1 is to createsignificant capital appreciation by investing in thestock of Allergan, Inc. in connection with a potentialbusiness combination transaction with Allergan,Inc. as further discussed in Note 17.All realized and unrealized gains and losses frominvestments in PS V and PSF1 are reflected in thestatement of comprehensive income for the yearsended 2014 and 2013. See Note 7 for thediscussion on the fair value measurement andNote 16 for related party transactions regarding theCompany’s investments in PS V and PSF1.IFRS 12 defines a structured entity as an entitythat has been designed so that voting or othersimilar rights of the investors are not the dominantfactor in deciding who controls the entity. TheCompany has assessed whether the affiliatedentities, PS V and PSF1, in which the Companyinvests should be classified as structured entities.The Company has determined that the voting andother similar rights of the investors in PS V andPSF1, including the rights to remove theinvestment manager or redeem holdings, are notthe dominant factors of control. The dominantfactor of control of PS V and PSF1 are thecontractual agreements with the investmentmanager.PERSHING SQUARE HOLDINGS, LTD. 49