Notes to The Consolidated Financial Statement
AL MAZAYA HOLDING COMPANY K.S.C. AND ITS SUBSIDIARIES
31 December 2012
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying
disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Judgments
In the process of applying the Group's accounting policies, management has made the following judgements, apart from
those involving estimations, which has the most significant effect on the amounts recognised in the consolidated financial
statements:
Classification of property
The Group determines whether a property is classified as investment property or properties held for trading:
• Investment property comprises land and buildings which are not occupied substantially for use by, or in the operations
of, the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income and/or
capital appreciation.
• Properties held for trading comprises property that is held for sale in the ordinary course of business.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are described below:
The group based its assumptions and estimation parameters available when the consolidated financial statements were
prepared. Existing circumstances and assumptions about future developments however may change due to market changes
or circumstances arising beyond the content of the Group. Such changes are reflected in the assumptions when they occur.
Estimation of net realisable value for property held for trading
Property held for trading is stated at the lower of cost and net realisable value (NRV). NRV for completed property held for
trading is assessed with reference to market conditions and prices existing at the reporting date and is determined by the
Group in the light of recent market transactions.
NRV in respect of property held for trading under construction is assessed with reference to market prices at the reporting
date for similar completed property, less estimated costs to complete construction and less an estimate of the time value
of money to the date of completion.
Valuation of investment properties
Fair value of investment properties have been assessed by an independent real estate appraiser. Two main methods were
used to determine the fair value of property interests in investment properties; (a) formula based discounted cash flow
analysis and (b) comparative analysis as follows:
(a) Formula based discounted cash flow, is based on a series of projected free cash flows supported by the terms of any
existing lease and other contracts and discounted at a rate that reflects the risk of the asset.
(b) Comparative analysis is based on the assessment made by an independent real estate appraiser using values of actual
deals transacted recently by other parties for properties in a similar location and condition, and based on the knowledge
and experience of the real estate appraiser.
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