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98
STARHILL
GLOBAL
REIT
Annual
Report
FY 2014/15
Notes to the
Financial Statements
Fair value hedges
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognised in the
statement of total return. The hedged item is also stated at fair value in respect of the risk being hedged; the gain or loss
attributable to the hedged risk is recognised in the statement of total return with an adjustment to the carrying amount of
the hedged item.
3.7 Impairment
Non-derivative financial assets
A financial asset not carried at fair value through the statement of total return is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss
event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a tenant, restructuring of an amount
due to the Group on terms that the Group would not consider otherwise, indications that a tenant or issuer will enter bankruptcy.
In addition, for an investment, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
Loans and receivables
The Group considers evidence of impairment for loans and receivables at both a specific asset and collective level. All
individually significant receivables are assessed for specific impairment. All individually significant receivables found not to
be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans
and receivables that are not individually significant are collectively assessed for impairment by grouping together loans and
receivables with similar risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for the Manager’s judgement as to whether current economic and credit conditions are such
that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its
carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognised in the statement of total return and reflected in an allowance account against loans and receivables.
Interest on the impaired asset continues to be recognised through the unwinding of the discount. When the Group considers
that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment
loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised, then the previously recognised impairment loss is reversed through the statement of total return.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than investment properties, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount
is estimated. For goodwill, the recoverable amount is estimated each year at the same time. An impairment loss is recognised
if the carrying amount of an asset or its related cash-generating unit (“CGU”) exceeds its estimated recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment
testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating
segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are
aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal
reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit
from the synergies of the combination.
Impairment losses are recognised in the statement of total return. Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill allocated to the CGU (groups of CGUs) and then to reduce the
carrying amount of the other assets in the CGU (groups of CGUs) on a
pro rata
basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss
is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation, if no impairment loss had been recognised.
3.8 Employee benefits
Short-term employee benefit obligations, including contributions to defined contribution pension plans, if any, are measured on
an undiscounted basis and are expensed as the related service is provided in the statement of total return.
A liability is recognised for the amount expected to be paid under short-term cash bonus where the Group has a present legal
or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably.
3.9 Revenue recognition
Rental income from operating leases
Rental income receivable under operating leases is recognised in the statement of total return on a straight-line basis over the
term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the
leased assets. Lease incentives granted are recognised as an integral part of the total rental to be received. Contingent rentals,
which include gross turnover rental, are recognised as income in the accounting period on a receipt basis. No contingent rentals
are recognised if there are uncertainties due to the possible return of amounts received.
Dividend income
Dividend income is recognised in the statement of total return on the date that the Trust’s right to receive payment is established.
3.10 Finance income and finance expenses
Finance income comprises interest income on funds invested and derivative financial instruments. Interest income
is recognised as it accrues in the statement of total return, using the effective interest method.
Finance expenses comprises interest expense on borrowings and derivative financial instruments and amortisation of loan
acquisition expenses. All borrowing costs are recognised in the statement of total return using the effective interest method.
3.11 Expenses
(i) Property operating expenses
Property operating expenses are recognised on an accrual basis. Included in property operating expenses are mainly property
tax, maintenance and sinking fund contributions, leasing and upkeep expenses, marketing expenses, administrative expenses
and the property management fees and leasing commission which is based on the applicable formula stipulated in Note 1(a).
(ii) Management fees
Management fees are recognised on an accrual basis based on the applicable formula stipulated in Note 1(b).
(iii) Trust expenses
Trust expenses are recognised on an accrual basis. Included in trust expenses is the Trustee’s fee which is described in Note 1(d).
3.12 Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in the statement of total
return except to the extent that it relates to a business combination, or items directly related to unitholders’ funds, in which case
it is recognised in unitholders’ funds.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.
