ANNUAL REPORT

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Middle East Development Singapore ltdannual report 2007 43NOTES TO FINANCIALSTATEMENTS30 June 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)ASSOCIATES – An associate is an entity including an unincorporated entity in which the investor has a substantial financialinterest (usually not less than 20% of the voting power), significant influence and that is neither a subsidiary nor a joint ventureof the investor. Significant influence is the power to participate in the financial and operating policy decisions of the investeebut is not control or joint control over those policies. The investments in associates are carried in the group balance sheet at costplus post-acquisition changes in the group’s share of net assets of the associate, less any impairment in value. In the company’sown separate financial statements, the investments in associates are stated at cost less any provision for impairment in value.Impairment loss recognised in profit or loss for an associate is reversed only if there has been a change in the estimates used todetermine the asset’s recoverable amount since the last impairment loss was recognised. The net book values of the associatesare not necessarily indicative of the amounts that would be realised in a current market exchange.CURRENT INVESTMENTS – Investments with a quoted market price in an active market and derivatives that are not designatedas hedges are classified as financial assets held for trading or those designated at fair value through profit or loss at inception.They are initially measured at fair value (transaction costs are expensed). After initial recognition such financial assets aremeasured at their fair values based on current bid prices, without any deduction for transaction costs that may be incurred onsale or other disposal. They are classified as current assets if they are held for trading or are expected to be realised within 12months of the balance sheet date. Those items designated at fair value through profit or loss that are expected to be realisedafter 12 months are included in the balance sheet as non-current assets. A gain or loss on remeasuring trading financial assets tofair value (other than those relating to hedges) is recognised in the income statement. The transactions are recorded at the tradedate method.BUSINESS COMBINATIONS – Business combinations are accounted for by applying the purchase method. The cost of abusiness combination includes the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the acquirer, in exchange for control of the acquiree; plus any costs directly attributable to the businesscombination. Any excess of the cost over the acquirer’s interest in the net fair value of the identifiable assets, liabilities andcontingent liabilities so recognised is accounted for as goodwill. The excess of acquirer’s interest in the net fair value of acquiree’sidentifiable assets, liabilities and contingent liabilities over cost is accounted for as “negative goodwill”. The acquiree’s identifiableassets, liabilities and contingent liabilities that meet the conditions for recognition under FRS 103 are recognised at their fairvalues at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordancewith FRS 105 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair valueless costs to sell. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is notamortised but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it mightbe impaired. An impairment loss in respect of goodwill is not reversed. There was no negative goodwill.MINORITY INTERESTS – Any minority interest in the acquiree (subsidiary) is initially measured at the minority’s proportion ofthe net fair value of the assets, liabilities and contingent liabilities recognised.PROPERTY, PLANT AND EQUIPMENT – Depreciation is provided on a straight-line basis to allocate the gross carrying amountsless their residual values over their estimated useful lives of each part of an item of property, plant and equipment. The annualrates of depreciation are as follows:Leasehold land and building - Over the terms of lease which is 3.6% to 4.5%Leasehold improvements - 10 years or 10%Motor vehicles - 2.5 to 10 years or 10% to 40%Plant and equipment - 1-10 years or 10% to 100%
44Middle East Development Singapore ltdannual report 2007NOTES TO FINANCIALSTATEMENTS30 June 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle. Fullydepreciated assets still in use are retained in the financial statements.Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment losses.The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the item and is recognised in the income statement. Theresidual value and the useful life of an asset is reviewed at least at each financial year-end and, if expectations differ from previousestimates, the changes are accounted for as a change in an accounting estimate, and the depreciation charge for the current andfuture periods are adjusted.Cost also includes acquisition cost, any cost directly attributable to bringing the asset to the location and condition necessary forit to be capable of operating in the manner intended by management. Subsequent cost are recognised as an asset only when it isprobable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measuredreliably. All other repairs and maintenance are charged to the income statement when they are incurred.IMPAIRMENT OF NON-FINANCIAL ASSETS – At each reporting date an assessment is made whether there is any indicationthat a depreciable or amortisable asset may be impaired. If any such indication exists, an estimate is made of the recoverableamount of the asset. Irrespective of whether there is any indication of impairment, an annual impairment test is performed atthe same time every year on an intangible asset with an indefinite useful life or an intangible asset not yet available for use. Theimpairment loss is the excess of the carrying amount over the recoverable amount and is recognised in the income statementunless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).At each reporting date non-financial assets other than goodwill with impairment loss recognised in prior periods are assessedfor possible reversal of the impairment. An impairment loss is reversed only to the extent that the asset’s carrying amount doesnot exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss hadbeen recognised.IMPAIRMENT OF FINANCIAL ASSETS – All financial assets except those measured at fair value through profit or loss are subjectto review for impairment. A financial asset or a group of financial assets is impaired and impairment losses are incurred if there isobjective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘lossevent’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financialassets that can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognised.FINANCIAL LIABILITIES – Financial liabilities at fair value through profit or loss when recognised initially are measured atfair value. Financial liabilities not at fair value through profit or loss are measured at fair value plus transaction costs that aredirectly attributable to the acquisition or issue of the financial liability. After initial recognition financial liabilities at fair valuethrough profit or loss, including derivatives that are financial liabilities, are measured at fair value. Other financial liabilities notat fair value through profit or loss are measured at amortised cost and any difference between the proceeds (net of transactioncosts) and the redemption value is recognised in the income statement over the period of the borrowings using the effectiveinterest method. Financial liabilities including bank and other borrowings are classified as current liabilities unless there is anunconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Items classified withintrade and other payables are not usually re-measured, as the obligation is usually known with a high degree of certainty andsettlement is short-term.
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ANNUAL REPORT

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