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International Accounting Standards

Illustrative Investment Property Financial Statements


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International Accounting Standards
Illustrative Investment Property Financial Statements
Year ended 31 December 2001
This publication by PricewaterhouseCoopers provides an illustrative set of consolidated financial
statements, prepared in accordance with International Accounting Standards, for a fictitious Investment
Property company. The example disclosures in these illustrative financial statements should not be
considered to be the only acceptable form of presentation. The form and content of the reporting entity’s
financial statements are the responsibility of the entity’s management, and other forms of presentation which
are equally acceptable may be preferred and adopted, provided they include the specific disclosures
prescribed in International Accounting Standards.

In particular, these financial statements focus on the disclosures required by IAS 40 – Investment Property.
Because of this specific focus, the company illustrated does not have associates, joint ventures, minority
interests, finance leases, intangible assets, government grants, defined benefit plans, derivatives, fixed rate
borrowings, related party transactions, treasury shares, preferred shares, convertible debt and share options.
Further, there were no acquisitions or disposals of subsidiaries, and no issues of shares in the two years
presented. Please refer to the IAS Illustrative Corporate Financial Statements for disclosures relating to these
items. The company illustrated is listed and therefore disclosures on segments and EPS are included.

These illustrative financial statements are not a substitute for reading the Standards themselves or for
professional judgement as to fairness of presentation. They do not cover all possible disclosures required by
International Accounting Standards, nor do they take account of any specific legal framework. Depending
on the circumstances, further specific information may be required in order to ensure fair presentation under
International Accounting Standards and we recommend that reference is made to our separate publications
‘International Accounting Standards – Illustrative Corporate Financial Statements’ and ‘International
Accounting Standards’ – Disclosure Checklist 2001’. Additional accounting disclosures may be required in
order to comply with local laws and national accounting standards and stock exchange regulations.

Structure of publication
Page
General information 2
Consolidated income statement 3
Consolidated statement of changes in shareholders’ equity 4
Consolidated balance sheet 5
Consolidated cash flow statement 6
Accounting policies 7
Notes to the consolidated financial statements 12
Report of the auditors 23
Index of International Accounting Standards disclosure requirements 24

PricewaterhouseCoopers 1
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

General information
1p102(b) ABCIP Group is an investment property group with a major portfolio in Europe and the Far
East. It is principally involved in leasing out investment property under operating leases and
is also involved in property development.

1p102(a) ABCIP is listed on [name] stock exchange.

Operating and financial review


International Accounting Standards do not address the requirements for information to be included in a
directors’ report or financial review. Generally such requirements are determined by local laws and
regulations.

An investment property group might consider discussing the following subjects:

• The long-term strategic focus for example in terms of business, location of properties, expansion
possibilities and tenant profile.

• The current development of the investment property portfolio in each segment, for example occupancy
level, tenant profile by area occupied, average rent, % of new developed property that has been pre-let.

• A discussion about the financial results for the current period, for example explanation for variations in
the income statement and balance sheet compared with the previous year, analysis of the return on
shareholders’ equity and of the return on each property portfolio, weighted average cost of capital, etc.

• The outlook in the following year considered against the background of likely developments in the
property market.

Other publications on IAS


The following publications on International Accounting Standards have been published by
Pricewaterhouse-Coopers and are available from your nearest PricewaterhouseCoopers office:

International Accounting Standards – A Pocket Guide


International Accounting Standards – Disclosure Checklist – 2001
International Accounting Standards – Illustrative Corporate Financial Statements – 2001
International Accounting Standards – Illustrative Bank Financial Statements – 2001
International Accounting Standards – Understanding IAS 29
International Accounting Standards – Understanding IAS 39
International Accounting – Similarities & Differences – IAS, US GAAP and UK GAAP

and on wider aspects of international reporting :


Audit Committees – Good Practices for Meeting Market Expectations
Reporting Progress – Good Practices for Meeting Market Expectations
The Board Agenda – Good Practices for Meeting Market Expectations
Worldwatch (newsletter) – Governance and Corporate Reporting

You can find latest news, discussions and publications on our website at
http://www.pwcglobal.com/corporatereporting

2 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Consolidated income statement


Year ended 31 December
1p75 (all amounts in [name of currency] thousands) Notes 2001 2000

40p66(d) Revenue 2 42,256 40,016


1p80 Ground rent costs (1,312) (1,488)
40p66(d) Repairs and maintenance costs (3,156) (3,013)
1p80 Other direct property operating expenses (1,212) (1,315)
1p83 Staff costs 4 (1,448) (1,400)
40p67(d) Changes in fair value of investment property 8 6,400 4,218
8p16 Profit on sale of investment property 8 2,080 –
1p80 Amortisation of up-front lease payment 9 (104) (104)
1p80 Depreciation of property, plant and equipment 10 (4,397) (1,954)
1p80 Amortisation of goodwill 11 (852) (852)
1p80 Other operating expenses (2,800) (2,113)

1p75(b) Operating profit 35,455 31,995


1p75(c) Finance costs – net 3 (9,872) (8,464)

Profit before tax 25,583 23,531


12p77 Tax 5 (6,056) (6,152)

1p75(i) Net profit 19,527 17,379

33p47 Basic and diluted earnings per share (LC per share) 6 0.49 0.43

The income statement for the year ended 31 December 2000 has been restated to take account of
the adoption of IAS 40 Investment Property at 1 January 2001; fair value gains on investment
property for the year ended 31 December 2000 of LC 4,218 and the attributable deferred income
tax charge of LC 843 have been reclassified from shareholders’ equity to the income statement.

PricewaterhouseCoopers 3
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Consolidated statement of changes in shareholders’ equity


1p86(f) (all amounts in [name of
1p86(e) currency] thousands) Notes Share Share Translation Revaluation Retained Total
capital premium reserve reserve earnings

Year ended 31 December 2000


1p86(c) Balance at 1 January 2000
8p53(b) – as previously reported 18 40,000 22,720 3,538 112,910 311,217 490,385
8p53(b) – effect of adopting IAS 40 – – – (112,910) 112,910 –
1p86(c) – as restated 40,000 22,720 3,538 – 424,127 490,385

21p30(c) Currency translation differences – – 1,247 – – 1,247


1p86(d) Dividend relating to 1999 7 – – – – (11,379) (11,379)
1p86(a) Net profit – – – – 17,379 17,379

Balance at 31 December 2000 40,000 22,720 4,785 – 430,127 497,632

Year ended 31 December 2001


1p86(c) Balance at 1 January 2001
8p53(b) – as previously reported 40,000 22,720 4,785 116,284 313,843 497,632
8p53(b) – effect of adopting IAS 40 – – (116,284) 116,284 –
1p86(c) – as restated 40,000 22,720 4,785 – 430,127 497,632

1p86(b) Currency translation differences – – (3,242) – – (3,242)


1p86(d) Dividend relating to 2000 7 – – – – (16,373) (16,373)
1p86(a) Net profit – – – – 19,527 19,527

Balance at 31 December 2001 40,000 22,720 1,543 – 433,281 497,544

40p72 The revaluation reserve related to accumulated fair value gains on investment property at 31
December 1999 and 2000 have been reclassified as retained earnings on the adoption of IAS 40. On
subsequent disposal of investment property, this amount is kept in retained earnings and is not
transferred to the income statement.

4 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Consolidated balance sheet


31 December 31 December
1p66 (all amounts in [name of Notes 2001 2001 2000 2000
currency] thousands)

ASSETS
1p53 Non-current assets
1p67 Investment property 8 562,328 500,782
1p67 Prepaid operating lease payments 9 9,809 9,928
1p66(a) Property, plant and equipment 10 55,678 97,689
1p66(b) Goodwill 11 4,657 5,489
1p66(i) Deferred tax asset 16 834 750
633,306 614,638
1p53 Current assets
1p67 Inventories 12 25,345 –
1p66(f) Receivables 13 3,608 5,800
1p66(g) Cash and cash equivalents 6,197 35,152
35,150 40,952
Total assets 668,456 655,590

EQUITY AND LIABILITIES


1p66(m) Capital and reserves
1p73(e) Ordinary shares 18 40,000 40,000
1p73(e) Share premium 18 22,720 22,720
1p73(e) Translation reserve 1,543 4,785
1p73(e) Retained earnings 433,281 430,127
497,544 497,632
1p53 Non-current liabilities
1p66(k) Borrowings 15 109,416 105,392
1p66(i) Deferred tax liabilities 16 24,581 22,763
133,997 128,155
1p53 Current liabilities
1p66(h) Trade and other payables 14 31,221 23,530
1p66(i) Current tax liabilities 5,144 4,672
1p66(j) Provisions 17 550 1,601
36,915 29,803
Total liabilities 170,912 157,958

Total equity and liabilities 668,456 655,590

10p16 On [date] 2002 ABCIP Group’s Board of Directors authorised these financial statements for issue.

PricewaterhouseCoopers 5
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Consolidated cash flow statement


Year ended 31 December
7p10 (all amounts in [name of currency] thousands) Notes 2001 2000
7p18(b)
Cash flows from operating activities
Cash generated from operations 19 40,748 32,732
7p31 Interest received 543 1,075
7p31 Interest paid (10,645) (10,324)
7p35 Tax paid (5,978) (6,425)

Net cash from operating activities 24,668 17,058

7p21 Cash flows from investing activities


7p16(a) Purchase of investment property 8 (5,567) –
7p16(b) Proceeds from sale of investment property 8 12,644 –
7p16(a) Purchase of property, plant and equipment 10 (17,322) (2,134)
7p16(a) Expenditure on property under construction 10 (30,247) (10,267)

Net cash used in investing activities (40,492) (13,246)

7p21 Cash flows from financing activities


7p17(c) Proceeds from borrowings 15 10,763 8,234
7p17(d) Repayments of borrowings 15 (6,739) (10,345)
7p31 Dividend paid 7 (16,373) (11,379)

Net cash used in financing activities (12,349) (2,111)

(Decrease)/increase in cash and cash equivalents (28,173) 1,701

Movement in cash and cash equivalents


At start of year 35,152 34,621
(Decrease)/increase (28,173) 1,701
Effects of exchange rate changes (782) (1,170)
At end of year 6,197 35,152

6 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Accounting policies
1p91(a) The principal accounting policies adopted in the preparation of these consolidated financial
1p97(b) statements are set out below:

A Basis of preparation
1p11 The consolidated financial statements have been prepared in accordance with International
1p97(a) Accounting Standards. The consolidated financial statements have been prepared under the
historical cost convention except that investment property is carried at fair value.

In 2001 the Group adopted IAS 39 – Financial Instruments: Recognition and Measurement
and IAS 40 – Investment Property. The Group does not hold derivatives or significant
financial assets. The Group also already complied with the requirements on borrowings.
Thus the adoption of IAS 39 had no effect. The effects of adopting IAS 40 is summarised in
the consolidated statement of changes in shareholders’ equity (on page 4), and further
information is disclosed in accounting policy C Investment property.

B Group accounting

(1) Subsidiary undertakings

1p99(b) Subsidiary undertakings, which are those entities in which the Group has an interest of
27p11 more than one half of the voting rights or otherwise has power to exercise control over the
1p99(c) operations, are consolidated. Subsidiaries are consolidated from the date on which control
is transferred to the Group and are no longer consolidated from the date that control ceases.
27p17 All intercompany transactions, balances and unrealised gains on transactions between
group companies are eliminated. Unrealised losses are also eliminated unless the group
carrying value cannot be recovered. Where necessary, accounting policies for subsidiaries
have been changed to ensure consistency with the policies adopted by the Group.

(2) Foreign currency translation

1p99(p) Income statements of foreign entities are translated into the Group’s reporting currency at
21p30 the weighted average exchange rates for the year and balance sheets are translated at the
21p17 exchange rates ruling on 31 December. Exchange differences arising from the retranslation
21p19 of the net investment in foreign entities and of financial instruments which are designated as
1p74(b) and are effective hedges of such investments, are taken to shareholders’ equity. On disposal
21p37 of a foreign entity, accumulated exchange differences are recognised in the income
statement as part of the gain or loss on sale.

21p45 Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated
as local currency assets and liabilities of the foreign entity and are translated at the closing
rate.

1p99(p) Foreign currency transactions are accounted for at the exchange rates prevailing at the date
of the transactions. Gains and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement.

PricewaterhouseCoopers 7
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

C Investment property
1p99(h) Property held for long-term rental yields which is not occupied by the companies in the
40p66 (a-b) consolidated Group is classified as investment property.

40p39 [Note: Investment property includes properties that companies in a consolidated group
lease out to an associate or joint venture which occupies the property.]

40p66(c) Investment property comprises freehold land and buildings. Investment property is carried
at fair value. Fair value is based on active market prices, adjusted, if necessary, for any
difference in the nature, location or condition of the specific asset. If this information is not
available, the Group uses alternative valuation methods such as discounted cash flow
projections or recent prices on less active markets. These valuations are reviewed annually
by [name of the external valuers]. Investment property being redeveloped for continuing
use as investment property or for which the market has become less active continues to be
measured at fair value.

40p70(a) Under IAS 40 – Investment Property, which the Group adopted at 1 January 2001, changes
in fair values are recorded in the income statement.

[Note: IAS 40 only permits carrying investment properties at revaluation with gains and
losses taken to income or at cost less depreciation.]

Previously the Group had recorded such fair value changes net of deferred income taxes in
40p72 a revaluation reserve in shareholders’ equity. The fair value amounts for 2000 were
determined in accordance with IAS 40 and the balance of the revaluation reserve at 1
January 2000 has been reclassified to retained earnings; such amounts are not transferred to
the income statement on the disposal of the investment property. In 2001, the comparative
amounts for the year ended 31 December 2000 have been restated.

40p70(b) [Note: if an entity had disclosed or used fair values that were not on an IAS 40 basis, on
adoption of IAS 40 the comparatives should not be restated.]

Where a building is located on land which is held under operating lease, the building is
accounted for as a separate asset only if the lease of land extends beyond the expected life
of the building and there are no provisions in the lease to return the land with the building
remaining intact. Otherwise, the building is accounted for as an operating lease.

Land held under an operating lease (including such land on which investment property is
located) is accounted for as an operating lease (note 9): where up-front payments for
17p11 operating leases of land are made, these up-front payments are capitalised as non-current
assets and in subsequent periods are presented at amortised cost so as to record a constant
annual charge to the income statement over the lease term. These non-current assets are not
revalued.

40p54 If an investment property becomes owner-occupied, it is reclassified as property, plant and


equipment and its fair value at the date of reclassification becomes its cost for accounting
purposes of subsequent recording. Property that is being constructed or developed for
future use as investment property is classified as property, plant and equipment and stated
at cost until construction or development is complete, at which time it is reclassified and
subsequently accounted for as investment property.

40p56 If an item of property, plant and equipment becomes an investment property because its use
has changed, any difference resulting between the carrying amount and the fair value of this
40p56(b) item at the date of transfer is recognised in equity as a revaluation of property, plant and
equipment under IAS 16. However, if a fair value gain reverses a previous impairment loss,
the gain is recognised in the income statement. Upon the disposal of such investment
property, any surplus previously recorded in equity is transferred to retained earnings; the
transfer is not made through the income statement.

8 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

D Property, plant and equipment


16p60(a) Property which is occupied by the companies in the consolidated Group is stated at
historical cost less depreciation.

[Note: If it is carried at fair value under IAS 16, then revaluation gains must be reported in
equity and it must still be depreciated and a full year’s depreciation charge included in the
income statement]

16p60(b) Depreciation is calculated on the straight line method to write off the cost of each asset to
1p99(e) their residual values over their estimated useful life as follows:

16p60(c) Land Nil


Buildings 25-40 years

36p58 Where the carrying amount of an asset is greater than its estimated recoverable amount, it is
written down immediately to its recoverable amount.

1p99(f) All borrowing costs are expensed.

E Goodwill
1p99(c) Goodwill represents the excess of the cost of an acquisition over the fair value of the
Group’s share of the net assets of the acquired subsidiary/associated undertaking at the date
of acquisition. Goodwill on acquisitions of subsidiary undertakings occurring on or after 1
January 1995 is included in intangible assets. Goodwill is amortised using the straight-line
method over its estimated useful life. Goodwill on acquisitions that occurred prior to 1
January 1995 has been charged in full to retained earnings in shareholders’ equity; such
goodwill has not been retroactively capitalised and amortised.

22p88(a) Goodwill arising on major strategic acquisitions of the Group to expand its portfolio or
geographical market coverage is amortised over a maximum period of 15 years. For all
other acquisitions goodwill is generally amortised over 5 years. [Where in rare
22p88(b) circumstances goodwill is amortised over a period exceeding 20 years, the Group should
disclose the specific reasons including describing the factor(s) that played a significant role
in determining the useful life of the goodwill.]

The gain or loss on disposal of an entity includes the unamortised balance of goodwill
relating to the entity disposed of or, for pre 1 January 1995 acquisitions, the goodwill
charged to equity.

F Leases

(1) A group company is the lessee

SIC-15p5 The Group leases land under various long-term operating leases. Up-front payments made
17p11,25 under operating leases (net of any incentives received from the lessor) are capitalised as
prepaid operating lease payments and subsequently amortised on a straight-line basis over
the period of the lease. Otherwise, recurring lease payments are charged to the income
statement on a straight-line basis over the period of the lease. The Group does not hold any
assets under finance leases.

(2) A group company is the lessor

1p99(j) Assets leased out under operating leases are included in investment property in the
32p47(b) balance sheet (Note 8). The Group does not lease assets out under finance leases.

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International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

G Inventories
40p51(b) Investment properties being developed for future sale are reclassified as inventories. They
2p5,34(a) are carried at the lower of cost and net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business less cost to complete redevelopment and
selling expenses.

H Trade receivables
39p73 Trade receivables are carried at the original invoice amount less an estimate made for
1p99(i) doubtful receivables based on a review of all outstanding amounts at the year end. Bad
32p47(b) debts are written off when identified.

I Cash and cash equivalents


39p66, 73 Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the
7p46 cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at
1p99(r) call with banks, other short-term highly liquid investments, and bank overdrafts. In the
balance sheet, bank overdrafts are included in borrowings in current liabilities.

J Share capital

32p47(b) (1) Ordinary shares are classified as equity. External costs directly attributable to the issue of new
shares, other than on a business combination, are shown as a deduction, net of tax, in equity
from the proceeds. Share issue costs incurred directly in connection with a business
combination are included in the cost of acquisition.

10p11 (2) Dividends are accounted for when they have been proposed and declared. They are
31p30 charged to equity.

K Borrowings
32p47(b) Borrowings are recognised initially at the proceeds received, net of transaction costs
39p66,93 incurred. In subsequent periods, borrowings are stated at amortised cost using the effective
yield method; any difference between proceeds (net of transaction costs) and the
redemption value is recognised in the income statement over the period of the borrowings.

L Deferred income taxes


1p99(m) Deferred income tax is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements. The principal temporary difference is between the fair values of
12p46 investment property and the tax base. Tax rates enacted or substantively enacted by the
balance sheet date are used to determine deferred income tax.

12p24 Deferred tax assets are recognised to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised.

M Pensions
1p99(o) The Group operates a number of defined contribution plans throughout the world, the
assets of which are generally held in separate trustee-administered funds. The pension plans
are generally funded by payments from employees and by the relevant Group companies,
taking account of the recommendations of independent qualified actuaries.

1p99(o) The Group’s contributions to defined contribution pension plans are charged to the
19p46 income statement in the period to which the contributions relate.

10 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

N Provisions
1p99(n) Provisions are recognised when the Group has a present legal or constructive obligation as
a result of past events, it is probable that an outflow of resources will be required to settle
the obligation, and a reliable estimate of the amount can be made. Where the Group
expects a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when the reimbursement is
virtually certain.

O Revenue
1p99(a) Revenue includes gross rental income, service charges and management charges from
18p35(a) properties and income from property trading. Revenue is recorded on an accrual basis.
18p30

PricewaterhouseCoopers 11
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Notes to the consolidated financial statements


1p46(d,e) (In the notes all amounts are shown in [name of currency] thousands unless otherwise stated)

1 Segment information
14p50 Primary reporting format – business segments

Year ended
31 December 2001 Industrial Offices Hotels Retail Group

14p51,67 Revenue 3,381 16,399 17,405 5,071 42,256

14p52 Segment result 2,511 15,364 14,582 4,132 36,589


Unallocated costs (1,134)
14p67 Operating profit 35,455
Finance costs – net (9,872)
Profit before tax 25,583
Tax (6,056)
14p67 Net profit 19,527

14p55 Segment assets 39,075 284,218 254,911 83,221 661,425


Unallocated assets 7,031
14p67 Total assets 668,456

14p56 Segment liabilities 1,561 14,362 11,552 3,746 31,221


Unallocated liabilities 139,691
14p67 Total liabilities 170,912

14p57 Capital expenditure 3,139 22,833 20,479 6,685 53,136


14p58 Depreciation 220 2,023 1,627 527 4,397
14p58 Amortisation – 956 – – 956

12 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Notes to the consolidated financial statements


1p46(d,e) (In the notes all amounts are shown in [name of currency] thousands unless otherwise stated)

1 Segment information (continued)


14p50 Primary reporting format – business segments

Year ended
31 December 2000 Industrial Offices Hotels Retail Group

14p51,67 Revenue 3,202 15,006 17,006 4,802 40,016

14p52 Segment result 2,263 13,747 13,141 3,723 32,874


Unallocated costs (879)
14p67 Operating profit 31,995
Finance costs – net (8,464)
Profit before tax 23,531
Tax (6,152)
14p67 Net profit 17,379

14p55 Segment assets 36,610 266,284 238,826 77,968 619,688


Unallocated assets 35,902
14p67 Total assets 655,590

14p56 Segment liabilities 1,176 10,824 8,706 2,824 23,530


Unallocated liabilities 134,428
14p67 Total liabilities 157,958

14p57 Capital expenditure 782 5,692 5,105 1,667 13,246


14p58 Depreciation 98 899 723 234 1,954
14p58 Amortisation 956 956

14p81 The Group is organised on a world-wide basis into four main business segments determined
1p99(q) in accordance with the type of investment property:
• Industrial – principally warehouses
• Offices – mainly in large cities
• Hotels – principally big city hotels (5 Star hotels) and a few leisure hotels
• Retail – mainly shops, supermarkets and shopping centres

14p51 There are no transactions between the business segments. Unallocated costs represent
corporate expenses. Segment assets consist primarily of investment property, property plant
and equipment and receivables. Unallocated assets comprise deferred tax assets and cash
14p57 and cash equivalents. Segment liabilities comprise operating liabilities. Unallocated
liabilities mainly comprise litigation provisions, taxation liabilities and borrowings. Capital
expenditure comprises additions to investment property (Note 8) and property, plant and
equipment (Note 10).

PricewaterhouseCoopers 13
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

1 Segment information (continued)

Secondary reporting format – geographical segments

14p69 Revenue Total assets Capital expenditure


2001 2000 2001 2000 2001 2000

United Kingdom 13,522 12,405 167,114 163,898 10,322 1,567


France 10,564 10,004 147,060 144,230 30,247 7,126
Other European countries 7,184 6,803 127,007 124,562 4,568 1,365
Hong Kong 4,648 4,802 100,268 98,339 5,345 2,654
Other countries in Asia 6,338 6,002 93,584 91,783 2,654 534
42,256 40,016 635,033 622,812 53,136 13,246

Unallocated assets 33,423 32,778


Total assets 668,456 655,590

14p69 With the exception of these countries, no other individual country contributed more than 10% of
consolidated sales or assets.
Revenue is based on the country in which the customer is located. There are no transactions
between the segments. Total assets and capital expenditure are where the assets are located.

2 Revenue
2001 2000

40p66(d)(i) Rental income 40,144 38,215


18p35(b) Service and management charges 2,112 1,801
42,256 40,016

17p48(c) The Group leases out all its investment property under operating leases. The leases are for terms
17p48(b) of three years or more. Contingent rents are LC 1,234 in 2001 (LC 1,115 in 2000).

17p48(a) The future aggregate minimum rentals receivable under non-cancellable operating leases are as
follows:
2001 2000

Not later than 1 year 32,534 30,971


Later than 1 year and not later than 5 years 45,989 43,779
Later than 5 years 3,198 3,045
81,721 77,795

3 Finance costs – net


2001 2000
39p170(c)(i) Interest expense on bank borrowings 10,020 9,100
21p42(a) Net foreign exchange transaction losses 412 460
39p170(c)(i) Interest income (560) (1,096)
9,872 8,464

14 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

4 Staff costs
2001 2000

Wages and salaries 1,064 1,008


Social security costs 104 96
19p46 Pension costs – defined contribution plans 280 296
1,448 1,400

1p102(d) The average number of employees in 2001 was 76 (2000:74), of whom 10 (2000:9) were part-
time.

5 Tax
2001 2000

12p79 Current tax 4,524 4,828


12p79 Deferred tax (Note 16) 1,532 1,324
6,056 6,152

12p81(c) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using
the tax rate of the home country of the Company as follows:
2001 2000

Profit before tax 25,583 23,531

Tax calculated at a tax rate of 30% (2000 : 30%) 7,675 7,059


Expenses not deductible for tax purposes 201 250
Income not subject to tax (1,654) (1,087)
Different tax rates (166) (70)
Tax charge 6,056 6,152

12p51 The different tax rates are mainly due to the use of the capital gain tax rate (20% in 2000 and
2001) to compute deferred tax on the change in fair value of investment property.

6 Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the
weighted average number of ordinary shares outstanding during the year.
2001 2000

33p49(a) Net profit attributable to shareholders (LC 000) 19,527 17,379


33p49(b) Weighted average number of ordinary shares in issue (thousands) 40,000 40,000
33p47 Basic earnings per share (LC per share) 0.49 0.43

The Company has no dilutive potential ordinary shares, therefore the diluted earnings per share is
the same as the basic earnings per share.

7 Dividend
1p85 At the Annual General Meeting on [date] 2002, a dividend in respect of 2001 of LC 0.31 per
1p74(c) share amounting to a total dividend of LC 12,400 is to be proposed. These financial
statements do not reflect this dividend payable, which will be accounted for in
shareholders’ equity as an appropriation of retained earnings in the year ending 31
December 2002. The dividends declared in respect of 2000 and 1999 were, respectively,
LC 16,373 and LC 11,379.

PricewaterhouseCoopers 15
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

8 Investment property
Year ended 31 December 2001 2000
40p67,69(d) At beginning of year 500,991 505,171
Net exchange differences (8,731) (8,607)
Additions 5,567 –
Transfer from property, plant and equipment (Note 10) 109,355 –
Transfer to property, plant and equipment (Note 10) (25,456)
Transfer to inventories (Note 12) (15,234) –
Disposal (10,564) –
Fair value gains/(losses) 6,400 4,218
At end of year 562,328 500,782

40p67 [Note: The comparative information is not required for the reconciliation.]

The Group acquired in November 2001 a property in Hong Kong for LC 5,567, which has
been rented out since December 2001.

40p51(e) In July 2001, the Group completed the construction of the 5 Star ABCIP Hotel located in
France and reclassified this item from property, plant and equipment (Note 10) to
investment property.

40p51(a) A warehouse in the United Kingdom, previously leased out under an operating lease, has
been used for administration purposes from April 2001 and was therefore reclassified from
investment property to property, plant and equipment (Note 10).

40p51(b) An office building located in Switzerland was redeveloped in 2001 prior to sale. It was
reclassified from July 2001 from investment property to inventories (Note 12). It was sold on
10p20 31 January 2002 for LC 29,567, yielding a gain on disposal of LC 4,222.

An investment property located in Hong Kong was sold in July 2001 for LC 12,644 yielding
a gain on disposal of LC 2,080.

In Singapore, the Group owns a shopping centre which is situated on land held under an
operating lease (Note 9). As the expected life of the building (60 years) is shorter than the
long-term operating lease (99 years) and there is no provision for ABCIP to return the
building at the end of the lease, this property is recorded as a separate asset at fair value.
17p11 The prepaid operating lease payments on the land are recorded separately at amortised cost
(Note 9).

There were no additions, disposals or transfers of investment property in 2000.

Bank borrowings are secured on investment property to the value of LC 174,395


(2000: LC 155,307) (Note 15).

40p66(c) The Group’s investment properties were revalued at 31 December 2001 by independent
professionally qualified valuers. Valuations were based on current prices on an active
market for all properties except for the properties located in [name of country] because this
information is not available there. For these properties the Group used discounted cash flow
projections.

40p66(f) At 31 December 2001, the Group had unprovided contractual obligations for future repairs
and maintenance of LC 3,765 (2000: LC 3,796).

40p66(d)(iii) In the income statement direct operating expenses include LC 456 (2000: LC 412) relating
to investment property that was unlet.

16 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

9 Prepaid operating lease payments


Year ended 31 December 2001 2000

Opening net book amount 9,928 10,052


Exchange differences (15) (20)
Amortisation of up-front lease payments (104) (104)
Closing net book amount 9,809 9,928

17p27 The up-front payments for an operating lease of land in Singapore (LC 10,260), paid in January
1998, are amortised over 99 years, the period of the lease (Note 8).

10 Property, plant and equipment


1p73(a) Land & Property Total
buildings under
construction
16p60(e),61(c) Year ended 31 December 2000
Opening net book amount 17,224 69,348 86,572
Exchange differences 398 (573) (175)
Additions 2,568 10,678 13,246
Depreciation charge (1,954) – (1,954)
Closing net book amount 18,236 79,453 97,689

16p60(e),61(c) At 31 December 2000


Cost 40,679 79,453 120,132
Accumulated depreciation (22,443) – (22,443)
Net book amount 18,236 79,453 97,689

16p60(e),61(c) Year ended 31 December 2001


Opening net book amount 18,236 79,453 97,689
Exchange differences (939) (345) (1,284)
Additions 17,322 30,247 47,569
Transfers to investment property (Note 8) – (109,355) (109,355)
Transfer from investment property (Note 8) 25,456 – 25,456
Depreciation charge (4,397) – (4,397)
Closing net book amount 55,678 – 55,678

16p60(e),61(c) At 31 December 2001


Cost 82,518 – 82,689
Accumulated depreciation (26,840) – (26,840)
Net book amount 55,678 – 55,678

16p60(e) The comparative information is not required for the movements on PPE.

There were no impairment charges in 2000 and 2001.

PricewaterhouseCoopers 17
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

11 Goodwill
Year ended 31 December 2000
22p88(e) Opening net book amount 6,377
Exchange differences (36)
Amortisation charge (852)
Closing net book amount 5,489

At 31 December 2000
22p88(e) Cost 8,560
Accumulated amortisation (3,071)
Net book amount 5,489

Year ended 31 December 2001


22p88(e) Opening net book amount 5,489
Exchange differences 20
Amortisation charge (852)
Closing net book amount 4,657

At 31 December 2001
22p88(e) Cost 8,560
Accumulated amortisation (3,903)
Net book amount 4,657

22p88 [Note: The comparative information is not required for the reconciliation of movements on
intangible assets including goodwill.]

12 Inventories
2001 2000

40p51(b) Transfer from investment property (Note 8) 15,234 –


Redevelopment expenditures 10,111 –
Closing amount 25,345 –

An office building situated in Switzerland, which was classified as investment property (Note 8)
10p20 in 2000, was redeveloped starting in July 2001 prior to sale and was therefore reclassified as
2p5 inventories. The property was sold on 31 January 2002 for LC 29,567, yielding a gain on disposal
of LC 4,222.

13 Receivables
2001 2000

Trade receivables 3,930 6,040


39p170(f) Less: Provision for bad and doubtful debts (322) (240)
3,608 5,800

39p170(f) The charge in the income statement for bad and doubtful debts was LC 82 (2000: LC 113).

18 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

14 Trade and other payables


2001 2000

Trade payables 20,459 16,456


Social security and other taxes 4,568 3,478
Other payables 6,194 3,596
31,221 23,530

Trade payables are interest free and have settlement dates within one year.

15 Borrowings
39p169(b) All the Group’s borrowings are at floating rates of interest. The Group takes on exposure to the
effects of fluctuations in the prevailing levels of market interest rates on its financial position and
cash flows. Interest costs may increase as a result of such changes but may reduce or create losses
in the event that unexpected movements arise. The Board has decided that the Group should not
be exposed to changes in fair values of borrowings.
[As mentioned earlier these illustrative financial statements do not include fixed rate borrowings
or derivatives. Where such arrangements exist, further disclosures are required under IAS 39.
Please refer to Note 22 and Note 28 of the IAS Illustrative Corporate Financial Statements]
2001 2000
Non-current
Bank borrowings 85,764 87,654
Debentures and other loans 23,652 17,738
109,416 105,392

The borrowings include secured liabilities on investment property to the value of LC 174,395
(2000: LC 155,307) (Note 8).

32p56(b) The weighted average effective interest rates at the balance sheet date were as follows:
2001 2000

Bank borrowings 7.0% 6.8%


Debentures and other loans 7.2% 7.0%

32p56(a) Maturity of non-current borrowings


2001 2000

Between 1 and 2 years 74,897 83,456


Between 2 and 5 years 22,054 12,060
Over 5 years 12,465 9,876
109,416 105,392

32p77 The fair value of these floating rate borrowings approximated their carrying values at the balance
sheet date.

PricewaterhouseCoopers 19
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

16 Deferred income taxes


Deferred income taxes are calculated in full on temporary differences under the liability method
using a principal corporate tax rate of 30% (2000: 30%).
The movement on the deferred income tax account is as follows:
2001 2000

At beginning of year 22,013 20,257


Exchange differences 202 432
Income statement (credit)/charge (Note 5) 1,532 1,324
At end of year 23,747 22,013

12p81(g)(i)(ii) The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same
12p81(a) tax jurisdiction) during the period is as follows:

Deferred tax liabilities Accelerated Fair Total


tax value
depreciation gains

At 31 December 2000 679 22,209 22,888


Charged / (credited) to P/L 288 1,356 1,644
Exchange differences 34 239 273
At December 2001 1,001 23,804 24,805

Deferred tax assets Provisions Other Total


At 31 December 2000 (480) (395) (875)
Credited to P/L (36) (76) (112)
Exchange differences (12) (59) (71)
At 31 December 2001 (528) (530) (1,058)

12p74 Deferred income tax assets and liabilities are offset when there is a legally enf orceable
right to set off current tax assets against current tax liabilities and when the deferred income
taxes relate to the same fiscal authority. The following amounts, determined after
appropriate offsetting, are shown in the consolidated balance sheet:

2001 2000

Deferred tax assets (834) (750)


Deferred tax liabilities 24,581 22,763
23,747 22,013
The amounts shown in the balance sheet include the following:

1p54 Deferred tax assets to be recovered after more than 12 months (167) (120)
1p54 Deferred tax liabilities to be settled after more than 12 months 21,678 20,764

20 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

17 Provisions
37p84(a) At 31 December 2000 1,601
Exchange differences 59
37p84(b) Additional provisions – charged to income statement 302
37p84(c) Utilised during year (1,412)
37p84(a) At 31 December 2001 550

37p85(a) The amounts shown are for certain legal claims relating to disputes over service and
maintenance changes brought against ABCIP by certain tenants in [name of country]. The
balance at 31 December 2001 is expected to be utilised in the first half of 2002. In the
opinion of the directors, after taking appropriate legal advice, the outcome of these legal
claims will not give rise to any significant loss beyond the amounts provided at 31
December 2001.

18 Ordinary shares and share premium

1p74(a) Number of Ordinary Share


shares shares premium Total
(thousands) LC 000 LC 000 LC 000

At 31 December 1999, 2000 and 2001 40,000 40,000 22,720 62,720

1p74(a) The total authorised number of ordinary shares is 40 million shares (2000: 40 million
shares) with a par value of LC 1 per share. All issued shares are fully paid.

19 Cash generated from operations


2001 2000

7p18(b) Net profit 19,527 17,379


7p20
Adjustments for:
Tax (note 5) 6,056 6,152
Depreciation of property, plant and equipment 4,397 1,954
Amortisation of up-front operating lease payments 104 104
Amortisation of goodwill 852 852
(Profit)/loss on sale of investment property (2,080) –
Fair value (gains) / losses on investment property (6,400) (4,218)
Interest income (Note 3) (560) (1,096)
Interest expense (Note 3) 10,020 9,100

Changes in working capital:

Trade and other receivables 2,192 (8,431)


Payables 7,691 10,045
Provisions (1,051) 891

Cash generated from operations 40,748 32,732

PricewaterhouseCoopers 21
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

20 Principal subsidiary undertakings


27p32(a) Europe Country of incorporation Asia Country of incorporation

Name UK Name Hong Kong


Name UK Name Singapore
Name France Name Korea
Name Switzerland Name Thailand
Name Italy
Name Spain
Name Belgium
Name Germany

All subsidiaries are wholly owned. All holdings are in the ordinary share capital of the
undertaking concerned and are unchanged from 2000.

22 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Report of the auditors


To the Members of ABCIP

We have audited the accompanying balance sheet of ABCIP (the Company) and its subsidiaries (the Group)
as of 31 December 2001 and the related income and cash flow statements for the year then ended. These
financial statements set out on pages 3 to 22 are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the financial statements give a true and fair view of [or ‘present fairly in all material respects’]
the financial position of the Group as of 31 December 2001 and of the results of its operations and its cash
flows for the year then ended in accordance with International Accounting Standards.

Date

Address

The format of the audit report will need to be tailored to reflect the legal framework of particular countries.
In certain countries the audit report covers both the current year and the comparative year.

PricewaterhouseCoopers 23
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Index of International Accounting Standards disclosure requirements


This Index identifies the financial statement, or note to the financial statements, in which the disclosure
requirements of a particular International Accounting Standard have been demonstrated in this publication.
As these financial statements focus on the disclosures required by IAS 40 – Investment Property, the
following standards are not applicable to these financial statements: IAS 2 (in part), IAS 11, IAS 19 (in part),
IAS 20, IAS 22 (in part), IAS 24, IAS 28, IAS 29, IAS 31, IAS 32 (in part), IAS 35, IAS 38, IAS 39 (in part).

The SIC are not shown as they do not contain any disclosure requirements.

Key G = General Information CF = Cash Flow Statement


IS = Income Statement AP = Accounting Policies
BS = Balance Sheet 7 = Note 7 to the Financial Statements
SE = Statement of Movements in NA = Not applicable to these financial
Shareholders’ Equity statements

Para Refer Para Refer Para Refer Para Refer Para Refer

IAS 1 Presentation of Financial Statements


7 ................... G 44,46 ............ G 72 ...... 13,14,21 74(b) ....…. AP 85...............….7
11 ............... AP 49 .............. NA 73(a) ...........10 74(c) ..............7 86 ….....…… SE
13,19.......... NA 53 ............... BS 73(b–c)…….NA 74(d) ......... NA 91(a)…….….AP
23 .............. NA 54 ...... 15,16,18 73(d)....…….18 75,77 .......... IS 97,99,101.... AP
38 ................. G 60,63……..NA 73(e) ..... SE,BS 80,82 .......... IS 102(a–b) .......G
40 ............... AP 66–67 .......... BS 74(a) ............ 20 83 ................ 4 102(d) ............4

IAS 2 Inventories (portion relating to accounting policies)


34 (a)………….AP

IAS 7 Cash Flow Statements


10 ............... CF 18(b) ..... CF,21 29 .............. NA 39,40...........NA 46 .........…..AP
18(a) .......... NA 21 ............... CF 31,35 .......... CF 43,45.....…. NA 48 ...............NA

IAS 8 Net Profit or Loss for the Period, Fundamental Errors, Changes in Accounting Policies
10 ................ IS 16 .................IS 34,37 ......... NA 46 ............... AP 54,57 ......... NA
11 ...............NA 30 .............. NA 38,40 ......... NA 49,53 .... AP,SE

IAS 10 Events Occurring After the Balance Sheet Date


16 ................BS 20 ....……….. 8

IAS 12 Income Taxes


69 ............... BS 79 .................. 5 81(b) ...........NA 81(d) ...........NA 81 (h–i) …. NA
77 ................ IS 81(a) .....……16 81(c) ..........….5 81(e–g) ........ 16 82 ….....…. NA

IAS 14 Segment Reporting


50–52 .....….NA 61 ...............NA 66–67 ......…NA 70–72 ......... NA 81,84...........NA
55–58 .....….NA 64 ...............NA 69 .............…..1 74–76 ......... NA

IAS 16 Property, Plant and Equipment


60(a–c) ....... AP 60(d–e) ........ 10 61(a–c) ........NA 61(d) ...........NA 64……........NA

IAS 17 Leases
23…............NA 27…......……..9 39…………NA 48(a–c).......…2 56,59.......... NA

24 PricewaterhouseCoopers
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Para Refer Para Refer Para Refer Para Refer Para Refer

IAS 18 Revenue
35(a) .......... AP 35(b) ........….2 35(c) ...........NA

IAS 19 Employee Benefits (portion relating to defined contribution plans)


23 …………. 4 46 .................17

IAS 21 The Effects of Change in Foreign Exchange Rates


42(a) .............. 3 42(b) ............SE 42(c) .......... NA 43–47.......... NA

IAS 22 Business Combinations (portion relating to goodwill)


88 (a–b)……AP 88 (e)………11

IAS 23 Borrowing Costs


9 ................. AP 29(a) .......... AP 29(b–c) ........NA

IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries


8,21 ........... NA 26 ..........….NA 32(a) ............ 22 32(b–c)….…NA

IAS 32 Financial Instruments: Disclosure and Presentation (portion relating to borrowings)


56(a)………..15 56(b)………15 77………….15

IAS 33 Earnings Per Share


43 .............. NA 45 ……......NA 47.................IS 49 ….............. 6 51................NA

IAS 36 Impairment of Assets


113…….... NA 116…..........NA 117…...…..NA

IAS 37 Provisions, Contingent Liabilities and Contingent Assets


84(a–d) ........ 18 85(a) ............ 18 86(a–c) ........NA 89,91...........NA 93,95…..…NA
84(e) .......... NA 85(b–c) ....... NA

IAS 39 Financial Instruments; Recognition and Measurement (portion relating to borrowings and impairment
charges for financial assets)
169(b)..........15 170(c)(i)..........3 170(f)………13

IAS 40 Investment Property


66(a–b) …... AP 66(d)(i) …..…2 66(d)(iii) ….... 8 66(f) ……......8 68–69 ….… NA
66(c) ............8 66(d)(ii) ……IS 66(e)…….. NA 67 …………..8

International Accounting Standards – Illustrative Investment Property Financial Statements is designed for
the information of readers. While every effort has been made to ensure accuracy, information contained in
this publication may not be comprehensive or may have been omitted which may be relevant to a particular
reader. In particular, this publication is not intended as a study of all aspects of International Accounting
Standards, nor as a substitute for reading the actual Standards when dealing with specific issues. No
responsibility for loss to any person acting or refraining from acting as a result of any material in this
publication can be accepted by PricewaterhouseCoopers. Recipients should not act on the basis of this
publication without seeking professional advice

PricewaterhouseCoopers 25
International Accounting Standards – Illustrative Investment Property Financial Statements
ABCIP Group – Year ended 31 December 2001

Page
Amortisation 3,17,18

Borrowings 5, 10, 19

Cash and cash equivalents 5,10


Cash flow statement 6

Deferred tax 10,15,20


Depreciation 3, 8, 9,13,17
Development expenditure 6
Development property 8,16
Dividends 4,10,18

Earnings per share 3, 15

Fair value 3, 8,16


Finance costs 3,12,13
Foreign currency translation 4,7

Goodwill 5, 9, 18

Impairment 9
Interest expense 14, 21
Interest income 14, 21
Inventories 5, 10,16,18
Investment property 5, 8, 16

Land held under operating lease 5, 8, 16,17


Leases 9,14
Long term operating lease 8,16,17

Pension 10,15
Property, plant and equipment 9,17
Provisions 10,21

Repairs and maintenance 3,16


Revaluation reserve 4
Revenue 3, 13

Segment information 12,13,14


Staff costs 3, 15
Subsequent events 16
Subsidiary undertakings 22

Valuers 8, 16

26 PricewaterhouseCoopers
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