Investment property which is property held to earn rentals and/or for capital appreciation is initially measured at cost, including transaction costs. Subsequent to initial recognition investment property is carried at fair value at the end of the reporting period. Gains and losses arising from changes in the fair value are included in the profit or loss for the period in which they arise. Property that is being constructed or developed for future use as investment properties are treated as investment property.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.
Investment property is derecognised when it is disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the statement of profit or loss and other comprehensive income in the period of derecognition.
Letting commission relates to initial direct costs incurred by lessors in negotiating and arranging an operating lease. These are added to the carrying amount of the leased asset, and they are recognised as an expense over the lease term on the same basis as the lease income.
The Group’s valuation policies and procedures for the investment property valuations are determined by the asset management team. Each year, the asset management team recommend the appointment of an independent external valuer, subject to the approval of the Risk Management and Audit Committee ("RMAC"), who is responsible for the external valuations of the Group’s investment properties for the annual financial statements. Selection criteria include market knowledge, reputation, independence, objectivity and whether professional standards are maintained.
As at each year end, all valuations of investment properties are performed by independent external valuers. At each reporting date, the asset management team analyses the movements in each property’s value. For this analysis, the asset management team verifies the major inputs applied in the latest valuations. For each property, the latest valuation is also compared with the valuations of the preceding annual periods. If fair value changes (positive or negative) are more than a certain specified threshold, the changes are further considered by discussion with the external valuer.
The asset management team present the Group’s final valuation results to the RMAC and the Group’s independent auditors. This includes a discussion of the major assumptions used in the valuations, with an emphasis on investment properties with fair value changes outside reasonably expected thresholds.
The fair value of investment properties is determined using a discounted cash-flow (DCF) method. The valuation model considers the present value of net cash-flows to be generated from the property, taking into account the expected rental growth, void periods, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), tenant credit quality and lease terms.
The DCF method is also the approach by which private, institutional, local and overseas investors analyse property for investment purposes to estimate the market value. This methodology also takes into account the time value of money between the valuation date and the date when the income stream theoretically reverts to market levels.
The basis of valuation is ‘market value’ and this is defined by the Royal Institution of Chartered Surveyor, South African Institute of Valuers and International Valuation Standards Committee. For all investment properties that are measured at fair value, the current use of the properties is considered the highest and best use.
The investment properties are classified as Level 3 on the fair value hierarchy. There were no transfers between Level 1, 2 or 3 during the year.
Estimated fair value would increase (decrease) if the following respective movement were to occur in isolation:
However, interrelationships exist between the unobservable inputs as they are driven by market conditions. For instance, generally a change in the input used for the net property income is accompanied by a directionally similar change in the input used for the expected market rental growth, discount rate and reversionary rate, and a directionally opposite change in the input used for expense growth, void periods and vacancy rate.
A quantitative sensitivity analysis is shown below for the discount rate and reversionary rate which are the unobservable inputs that management consider
to be most significant.
For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment property, the Directors reviewed the Group's investment property portfolio and concluded that the Group's investment property are held under a business model whose objective is not to consume substantially all of the economic benefits embodied in the investment properties over time, rather through sale.
Therefore, in determining the Group's deferred taxation on investment property, the Directors have determined that the presumption that the carrying amounts of investment property measured using the fair value model is recovered entirely through sale is not rebutted. As a result, the Group has not recognised any deferred tax on changes in fair value of investment property as the Group is not subject to any capital gain taxes on disposal of its investment property.
The cost of equipment is recognised as an asset when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
Subsequent costs and acquisitions are included in the assets' carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
Depreciation is calculated on the straight-line method to write off the cost of the assets to their residual values over their estimated useful lives as follows:
| Years | |
| Machinery and equipment | 5 |
| Furniture and fittings | 4-5 |
The assets' residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Gains and losses on disposals of equipment are determined by comparing proceeds with carrying amount and are included in profit or loss.
The Group derecognises an asset when the equipment is disposed, or when no future economic benefits are expected from use.
Depreciation of Rs 10,518k (2020: Rs 9,314k) has been charged to administrative expenses.
Bank borrowings are secured by floating charges on the assets of the Group, including equipment.
Equipment is depreciated over its useful life taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets.
The directors make estimates based on historical experience and use best judgement to assess the useful lives of assets and the expected residual values of the assets at the end of their expected useful lives.
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree (if any) over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the profit or loss as a bargain purchase gain.
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entities or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
(b) The subsidiary companies of Ascencia Limited (all incorporated and operating in Mauritius) are as follows:
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. It is the contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
Joint venture is accounted for using the equity method. Under this method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss of the joint venture after the date of acquisition. The Group’s share of its joint venture's post acquisition profits or losses is recognised in the Statements of Profit or Loss and its share of post acquisition movements in reserves in other comprehensive income.
In the separate financial statements of the Company, investments in subsidiaries and joint venture are carried at cost. The carrying amount is reduced to recognise any impairment in the value of individual investments.
(a) Details of the joint venture at the end of the reporting period are as follows:
Significant judgements and assumptions are made in determining whether an entity has joint control or significant influence over another entity and the type of joint arrangement. In considering the classification, management considers whether control exists, the nature and structure of the relationship and other facts and circumstances.
The Beauvallon Shopping Mall Ltd ("Bo'Valon") is a private company with limited liability whose legal form confers separation between the parties to the joint arrangement and the Company itself. There is no contractual arrangement or any other facts and circumstances that indicate that the parties to the joint arrangement have rights to the assets and obligations for the liabilities of the joint arrangement. In management's judgement, Bo'Valon is classified as a joint venture entity by virtue of the fact that each of the two shareholders controls exactly 50% of the voting rights and therefore exercise joint control on the company.