Sample Disclosure – Critical Judgements Made In Applying Accounting Policies (3 December 2008)
Critical judgements made in applying accounting policies
There are no critical judgements made by management in the process of applying the Group’s accounting policies that has significant effect on the amounts recognised in the financial statements other than:
(i) Classification between investment properties and property, plant and equipment
The Group has developed certain criteria based on FRS 140 in making judgement whether a property qualifies as an investment property. Investment property is a property held to earn rentals or for capital appreciation or both.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group would account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as investment property.
(ii) Operating lease commitments – the Group as lessor
The Group has entered into commercial property leases on its investment property. The Group has determined that it retains all significant risks and rewards of ownership of these properties which are leased out on operating basis.