Annual Report 2012 - Development Securities PLC

g) Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries
is included in Intangible assets. Goodwill is tested annually for impairment
and carried at cost less accumulated impairment losses. Impairment losses
on goodwill are not reversed. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of
impairment testing. The allocation is made to those CGUs that are expected
to benefit from the business combination in which the goodwill arose,
identified according to operating segment.
(ii) Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not
subject to amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to sell and value-inuse.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (CGUs).
Non-financial assets, other than goodwill, that have suffered an impairment
are reviewed for possible reversal of the impairment at each reporting date.
h) Revenue recognition
(i) Rental income is recognised on a straight-line basis over the term of the
lease. Incentives for lessees to enter into lease agreements are spread
evenly over the lease term, even if payments are not made on such a
basis. The lease term is the non-cancellable period of the lease together
with any further term for which the tenant has the option to continue
the lease, where, at inception of the lease, the Directors are reasonably
certain that the tenant will exercise that option. Lease incentives are
usually in the form of rent-free periods or capital contributions. Assets
held within both the investment and development and trading segments
earn rental income.
(ii) Lease surrender payments from tenants are recognised in income when
they are contractually agreed.
(iii) Sales of property (both those classified as Investment and Inventory)
are recognised when the risks and rewards of ownership have been
transferred to the purchaser.
(iv) Licence fee income from serviced offices is recognised on a straightline
basis over the term of the licence. Other income from serviced
offices is recognised when the service is provided. The income is
classified within the operating segment.
(v) Project management fee income is recognised over the contract term
for which project management services are provided.
(vi) Development revenue and profits are recognised in accordance with IAS
11, ‘Construction contracts’ or IAS 18, ‘Revenue’ depending on whether
all development risks, apart from the construction risk have passed to
the purchaser under the terms of the development agreement.
Financial Statements
Where only the construction risk remains, the revenue and profit on the
development is recognised under IAS 11, so as to match the proportion
of development work completed on a percentage completion basis as
determined by consultant monitoring surveyors or using a suitable
method particular to the contract concerned. Profits are only recognised
where the outcome can be determined with reasonable certainty. Full
provision is made for losses as soon as such losses are foreseen.
Where revenue and profit is recognised under IAS 18, disposals are
recognised where the risks and rewards of ownership are considered to
have been transferred to the purchaser. Profits are recognised within the
development and trading segment.
(vii) Finance income is recognised by reference to the principal outstanding
using the effective interest method.
(viii) Dividend income from investments is recognised when the Group’s right
to receive income has been established.
i) Investment properties
(i) Investment properties are those properties, including land holdings, that
are held either to earn rental income or for capital appreciation or both.
Investment properties may be freehold or leasehold properties. For
leasehold properties that are classified as investment properties, the
associated leasehold obligations are accounted for as finance lease
obligations if they qualify to be treated as such.
(ii) Investment properties are measured initially at cost, including directly
attributable transaction costs, and thereafter are stated at fair value.
Surpluses and deficits arising from changes in the fair value of
investment properties are recognised in the Statement of
Comprehensive Income in the period in which they arise.
(iii) Completed investment properties are valued, at each reporting date, by
independent valuers on the basis of market value in accordance with the
Appraisal and Valuation Standards of the Royal Institution of Chartered
Surveyors. Fair value is assessed as the estimated amount for which a
property should exchange on the date of valuation between a willing
buyer and a willing seller in an arm’s-length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently
and without compulsion. A deduction is made to reflect purchaser’s
acquisition costs. In determining the fair value, the capitalisation of net
income method and the discounting of future cash flows to their present
value have been used, which are based upon assumptions including
future rental income, anticipated maintenance costs and appropriate
discount rate, and make reference to market evidence of transaction
prices for similar properties.
(iv) Investment properties under construction are valued by the Directors, on
the basis of the expected value of the property when complete, less
deductions for the costs required to complete the project and
appropriate adjustments for risk and finance costs. In preparing these
valuations the Directors consult with agents and other advisors to derive
appropriate assumptions specific to each asset.
(v) Profits and losses on disposal of investment properties are calculated by
reference to book value and recognised when the risks and rewards of
ownership are considered to have passed to the purchaser. Gains and
losses are recognised within ‘Gains or losses on disposal of investment
properties’ in the Statement of Comprehensive Income.
(vi) Investment properties held for sale are held at fair value and classified
separately within current assets in the Balance Sheet.
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