Annual Report 2012 - Development Securities PLC

Available-for-sale financial assets are non-derivatives that are designated
as such or are not classified in any other category. After initial recognition
at cost, available-for-sale assets are measured at fair value, with gains or
losses being recognised as a separate component of equity until the
investment is derecognised or until the investment is determined to be
impaired at which time the cumulative gain or loss previously represented
in equity is included in the Statement of Comprehensive Income. Equity
instrument financial assets are held at cost in the event that the fair value
of the instruments is not reliably measurable.
Trade receivables are recognised and carried at the lower of their original
invoiced value and recoverable amount. Where the time value of money is
material, receivables are carried at amortised cost. Provision is made when
there is objective evidence that the Group will not be able to recover
balances in full. Balances are written off when the probability of recovery
is assessed as being remote. Subsequent recoveries of amounts
previously written off are credited against the appropriate cost line in the
Statement of Comprehensive Income.
Amounts due from customers for contract work are included in Trade and
other receivables and represent revenue recognised in excess of
payments on account received.
Cash and bank balances comprise deposits held at call with banks and
other short-term highly liquid investments with no significant risk of
changes in value. Bank overdrafts that are repayable on demand and
which form an integral part of the Group’s cash management are included
as a financial liability. For the purposes of the Consolidated Cash Flow
Statement, cash and cash equivalents are stated net of outstanding
bank overdrafts.
Financial assets are included within current assets except for assets
maturing after one year, which will be classified as non-current.
Financial assets are assessed for impairment at each reporting date. Assets
are impaired where there is evidence that as a result of events that occurred
after initial recognition, the estimated future cash flows from the assets have
been adversely affected.
(ii) Financial liabilities
Loans and borrowings are initially recognised at fair value, net of directly
attributable transaction costs, and subsequently measured at amortised
cost using the effective interest method. Gains and losses arising on the
repurchase, settlement or otherwise cancellation of liabilities are recognised
respectively in finance income and finance costs.
Other financial liabilities, including trade and other payables, are initially
recognised at fair value and subsequently at amortised cost and are
classified as current liabilities if payment is due within one year or less.
If not, they are presented as non-current liabilities.
Amounts due to customers for contract work is included within Trade
and other payables and represents payments received in advance
from customers.
(iii) Derivatives
The Group enters into derivative financial instruments, including interest rate
swaps, caps and collars and cross-currency swaps, to manage its exposure
to interest rate and foreign exchange rate risk.
Financial Statements
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each reporting date. The resulting gain or loss is recognised in profit
or loss immediately unless the derivative is designated as an effective
hedging instrument, in which case the fair value is taken through Other
Comprehensive Income.
(iv) Hedging
The fair value of hedging derivatives is classified as a non-current asset or
a non-current liability if the remaining maturity of the hedge relationship is
more than twelve months and as a current asset or a current liability if the
remaining maturity of the hedge relationship is less than twelve months.
At the inception of the hedge relationship the Group documents the
relationship between the hedging instrument and hedged item, along with its
risk management objectives and its strategy for undertaking various hedge
transactions, the nature of the risk being hedged and how effectiveness will
be measured throughout its duration. Furthermore, at the inception of the
hedge and on an ongoing basis, the Group documents whether the hedging
instruments that are used in hedging transactions are highly effective in
offsetting changes in fair value or cash flows of hedged items.
The Group has designated derivatives as cash flow hedges, in which case
the effective portion of changes in the fair value of the hedging instrument
is recognised in Other comprehensive income. The gain or loss relating to
an ineffective portion is recognised immediately in the Statement of
Comprehensive Income. Amounts taken to equity are recycled to the
Statement of Comprehensive Income in the periods when the hedged item
is recognised in profit or loss.
Hedge accounting is discontinued when the Group revokes the hedging
relationship or the hedging instrument expires or is sold, terminated, or
exercised, or no longer qualifies for hedge accounting.
o) Borrowing costs
Gross borrowing costs relating to direct expenditure on investment
properties and inventories under development are capitalised. The interest
capitalised is calculated using the rate of interest on the loan to fund the
expenditure, or the Group’s weighted average cost of borrowings where
appropriate, over the period from commencement of the development work
until substantially all the activities necessary to prepare the qualifying asset
for its intended use or sale are complete. The capitalisation of finance costs
is suspended if there are prolonged periods when development activity is
interrupted.
Capitalised interest is written off to direct costs on disposal of inventory or
to operating profit on disposal of investment properties.
Fees paid on establishment of loan facilities are capitalised as a prepayment
for liquidity services and amortised over the period of the facility to which
it relates. All other borrowing costs are recognised in the Statement of
Comprehensive Income in the period in which they are incurred.
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