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ANNUAL REPORT
2015
Notes to The Consolidated Financial Statement
AL MAZAYA HOLDING COMPANY K.S.C.P. AND ITS SUBSIDIARIES
31 December 2015
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 properties or properties held for trading:
• Investment properties comprise 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 comprise properties that are 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 had based its assumptions and estimation on 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. Three main methods were used to
determine the fair value of property interests in investment properties; (a) formula based discounted cash flow analysis (b) Income
approach and (c) 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) Income approach, where the property’s value is estimated based on the its income produced, and is computed by dividing
the property’s net operating income by the expected rate of return on the property in the market, known as ‘Capitalization
Rate’.
(c) 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.
The significant methods and assumptions used by valuers in estimating fair value of investment properties are stated in Note 8
and 29.
Valuation of unquoted equity investments
Valuation of unquoted equity investments is normally based on one of the following:
• Recent arm’s length market transactions;
• Current fair value of another instrument that is substantially the same;
• The expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or
• Other valuation models.
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