4 Investment Property Financial Statements

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 General information Consolidated income statement Consolidated statement of changes in shareholders’ equity Consolidated balance sheet Consolidated cash flow statement Accounting policies Notes to the consolidated financial statements Report of the auditors Index of International Accounting Standards disclosure requirements

Page 2 3 4 5 6 7 12 23 24

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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

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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)

40p66(d)

Revenue

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)

11

1p80

Amortisation of goodwill

1p80

Other operating expenses

1p75(b)

Operating profit

1p75(c)

Finance costs – net

Notes

2001

2000

2

42,256

40,016

3

Profit before tax 12p77

Tax

1p75(i)

Net profit

33p47

Basic and diluted earnings per share (LC per share)

5

6

(852)

(852)

(2,800)

(2,113)

35,455

31,995

(9,872)

(8,464)

25,583

23,531

(6,056)

(6,152)

19,527

17,379

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.

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

Consolidated statement of changes in shareholders’ equity 1p86(f) 1p86(e)

(all amounts in [name of currency] thousands)

Notes Share Share Translation Revaluation Retained capital premium reserve reserve earnings

Total

Year ended 31 December 2000 1p86(c)

Balance at 1 January 2000

8p53(b)

– as previously reported

8p53(b)

– effect of adopting IAS 40

1p86(c)

– as restated

21p30(c)

Currency translation differences

1p86(d)

Dividend relating to 1999

1p86(a)

Net profit

18 40,000

22,720

3,538

–

–

–

40,000

22,720

3,538

– 424,127 490,385

–

–

1,247

–

–

–

–

– (11,379) (11,379)

–

–

–

–

40,000

22,720

4,785

40,000

22,720

4,785

7

Balance at 31 December 2000

112,910 311,217 490,385 (112,910) 112,910

– 17,379

–

1,247 17,379

– 430,127 497,632

Year ended 31 December 2001 1p86(c)

Balance at 1 January 2001

8p53(b)

– as previously reported

8p53(b)

– effect of adopting IAS 40

1p86(c)

– as restated

1p86(b)

Currency translation differences

1p86(d)

Dividend relating to 2000

1p86(a)

Net profit Balance at 31 December 2001

40p72

4

–

7

–

116,284 313,843 497,632 (116,284) 116,284

–

40,000

22,720

4,785

– 430,127 497,632

–

–

(3,242)

–

–

–

– (16,373) (16,373)

–

–

–

–

40,000

22,720

1,543

–

– 19,527

(3,242) 19,527

– 433,281 497,544

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.

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

Consolidated balance sheet 31 December 1p66

(all amounts in [name of currency] thousands)

Notes

2001

2001

31 December 2000

2000

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

Total assets

35,150

40,952

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

1p53

Non-current liabilities

1p66(k)

Borrowings

15

109,416

1p66(i)

Deferred tax liabilities

16

24,581

497,632 105,392 22,763

133,997 1p53

Current liabilities

1p66(h)

Trade and other payables

1p66(i)

Current tax liabilities

1p66(j)

Provisions

10p16

14 17

31,221

128,155 23,530

5,144

4,672

550

1,601 36,915

29,803

Total liabilities

170,912

157,958

Total equity and liabilities

668,456

655,590

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

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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

19

40,748

32,732

543

1,075

7p18(b) Cash flows from operating activities Cash generated from operations 7p31

Interest received

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)

(40,492)

(13,246)

Net cash used in investing activities 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

35,152

34,621

Movement in cash and cash equivalents At start of year (Decrease)/increase

6

(28,173)

1,701

Effects of exchange rate changes

(782)

(1,170)

At end of year

6,197

35,152

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

Accounting policies 1p91(a) 1p97(b)

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below:

A Basis of preparation 1p11 1p97(a)

The consolidated financial statements have been prepared in accordance with International 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) 27p11 1p99(c) 27p17

Subsidiary undertakings, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to exercise control over the 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. 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) 21p30 21p17 21p19 1p74(b) 21p37

Income statements of foreign entities are translated into the Group’s reporting currency at the weighted average exchange rates for the year and balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the retranslation of the net investment in foreign entities and of financial instruments which are designated as and are effective hedges of such investments, are taken to shareholders’ equity. On disposal 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.

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

C Investment property 1p99(h) 40p66 (a-b)

Property held for long-term rental yields which is not occupied by the companies in the 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.]

40p72

40p70(b)

Previously the Group had recorded such fair value changes net of deferred income taxes in 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. [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.

17p11

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 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 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.

40p56(b)

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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) 1p99(e)

Depreciation is calculated on the straight line method to write off the cost of each asset to their residual values over their estimated useful life as follows:

16p60(c)

Land Buildings

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.

Nil 25-40 years

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 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.]

22p88(b)

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 17p11,25

The Group leases land under various long-term operating leases. Up-front payments made 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) 32p47(b)

Assets leased out under operating leases are included in investment property in the 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 Investment properties being developed for future sale are reclassified as inventories. They 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.

40p51(b) 2p5,34(a)

H Trade receivables Trade receivables are carried at the original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off when identified.

39p73 1p99(i) 32p47(b)

I

Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at 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.

39p66, 73 7p46 1p99(r)

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 31p30

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

K Borrowings 32p47(b) 39p66,93

Borrowings are recognised initially at the proceeds received, net of transaction costs 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)

12p46

12p24

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 investment property and the tax base. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. 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) 19p46

The Group’s contributions to defined contribution pension plans are charged to the income statement in the period to which the contributions relate.

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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) 18p35(a) 18p30

Revenue includes gross rental income, service charges and management charges from properties and income from property trading. Revenue is recorded on an accrual basis.

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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 42,256

14p51,67

Revenue

3,381

16,399

17,405

5,071

14p52

Segment result

2,511

15,364

14,582

4,132

14p67

36,589

Unallocated costs

(1,134)

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

Unallocated assets 14p67

Total assets

14p56

Segment liabilities

661,425 7,031 668,456

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

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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 14p67

(879)

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

Unallocated assets 14p67

Total assets

14p56

Segment liabilities

619,688 35,902 655,590

1,176

10,824

8,706

2,824

23,530

Unallocated liabilities

134,428

14p67

Total liabilities

157,958

14p57

Capital expenditure

14p58

Depreciation

14p58

Amortisation

14p81 1p99(q)

The Group is organised on a world-wide basis into four main business segments determined 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 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).

14p57

782

5,692

5,105

1,667

13,246

98

899

723

234

1,954

956

956

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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

Capital expenditure

2000

2001

2000

2001

2000

United Kingdom

13,522

12,405

167,114

163,898

10,322

1,567

France

7,126

10,564

10,004

147,060

144,230

30,247

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 Total assets 14p69

Total assets

2001

33,423

32,778

668,456

655,590

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

40p66(d)(i)

Rental income

18p35(b)

Service and management charges

2001

2000

40,144

38,215

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

2001

2000

10,020

9,100

3 Finance costs – net 39p170(c)(i)

Interest expense on bank borrowings

21p42(a)

Net foreign exchange transaction losses

39p170(c)(i)

Interest income

14

PricewaterhouseCoopers

412

460

(560)

(1,096)

9,872

8,464

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

4 Staff costs

Wages and salaries Social security costs 19p46

1p102(d)

Pension costs – defined contribution plans

2001

2000

1,064

1,008

104

96

280

296

1,448

1,400

The average number of employees in 2001 was 76 (2000:74), of whom 10 (2000:9) were parttime.

5 Tax 2001

2000 4,828

12p79

Current tax

4,524

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:

Profit before tax Tax calculated at a tax rate of 30% (2000 : 30%) Expenses not deductible for tax purposes

2000

25,583

23,531

7,675

7,059

201

250

(1,654)

(1,087)

Different tax rates

(166)

(70)

Tax charge

6,056

6,152

Income not subject to tax

12p51

2001

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 1p74(c)

At the Annual General Meeting on [date] 2002, a dividend in respect of 2001 of LC 0.31 per 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 40p67,69(d)

2001

2000

500,991

505,171

(8,731)

(8,607)

5,567

–

Transfer from property, plant and equipment (Note 10)

109,355

–

Transfer to property, plant and equipment (Note 10)

(25,456)

At beginning of year Net exchange differences Additions

Transfer to inventories (Note 12)

(15,234)

–

Disposal

(10,564)

–

Fair value gains/(losses) At end of year

40p67

6,400

4,218

562,328

500,782

[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 31 January 2002 for LC 29,567, yielding a gain on disposal of LC 4,222.

10p20

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.

17p11

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. 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

(15)

(20)

Exchange differences

17p27

Amortisation of up-front lease payments

(104)

(104)

Closing net book amount

9,809

9,928

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)

16p60(e),61(c)

Exchange differences Additions Depreciation charge Closing net book amount

Exchange differences Additions Transfers to investment property (Note 8) Transfer from investment property (Note 8) Depreciation charge Closing net book amount

69,348

86,572

398

(573)

(175)

2,568 (1,954) 18,236

10,678 – 79,453

13,246 (1,954) 97,689

40,679 (22,443) 18,236

79,453 – 79,453

120,132 (22,443) 97,689

18,236

79,453

97,689

(939)

(345)

(1,284)

17,322

30,247

47,569

–

(109,355)

(109,355)

25,456 (4,397) 55,678

– – –

25,456 (4,397) 55,678

82,518 (26,840) 55,678

– – –

82,689 (26,840) 55,678

At 31 December 2001 Cost Accumulated depreciation Net book amount

16p60(e)

17,224

Year ended 31 December 2001 Opening net book amount

16p60(e),61(c)

Total

At 31 December 2000 Cost Accumulated depreciation Net book amount

16p60(e),61(c)

Property under construction

Year ended 31 December 2000 Opening net book amount

16p60(e),61(c)

Land & buildings

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 22p88

4,657

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

12 Inventories

40p51(b)

2001

2000

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

39p170(f)

39p170(f)

18

2001

2000

Trade receivables

3,930

6,040

Less: Provision for bad and doubtful debts

(322)

(240)

3,608

5,800

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

PricewaterhouseCoopers

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

14 Trade and other payables

Trade payables Social security and other taxes Other payables

2001

2000

20,459

16,456

4,568

3,478

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

32p56(a)

32p77

2000

Bank borrowings

7.0%

6.8%

Debentures and other loans

7.2%

7.0%

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

Maturity of non-current borrowings

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 At beginning of year

22,013

Exchange differences Income statement (credit)/charge (Note 5) At end of year

2000 20,257

202

432

1,532

1,324

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 tax depreciation

Fair value gains

Total

At 31 December 2000

679

22,209

22,888

288 34 1,001

1,356 239 23,804

1,644 273 24,805

Charged / (credited) to P/L Exchange differences At December 2001 Deferred tax assets

12p74

Provisions

Other

Total

At 31 December 2000

(480)

(395)

(875)

Credited to P/L Exchange differences At 31 December 2001

(36) (12) (528)

(76) (59) (530)

(112) (71) (1,058)

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 Deferred tax assets Deferred tax liabilities

2000

(834)

(750)

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

37p84(a)

At 31 December 2001

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.

(1,412) 550

18 Ordinary shares and share premium 1p74(a)

Number of shares (thousands)

Ordinary shares LC 000

Share premium LC 000

Total LC 000

40,000

40,000

22,720

62,720

At 31 December 1999, 2000 and 2001

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

7p18(b)

2001

2000

19,527

17,379

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

Net profit

7p20 Adjustments for:

(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

2,192

(8,431)

Changes in working capital: Trade and other receivables 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

Name Name Name Name Name Name Name Name

Country of incorporation

UK UK France Switzerland Italy Spain Belgium Germany

Asia

Name Name Name Name

Country of incorporation

Hong Kong Singapore Korea Thailand

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 IS BS SE

= = = =

Para IAS 1

General Information Income Statement Balance Sheet Statement of Movements in Shareholders’ Equity Refer

Para

Refer

CF AP 7 NA

Para

= = = =

Refer

Cash Flow Statement Accounting Policies Note 7 to the Financial Statements Not applicable to these financial statements Para

Refer

Para

Refer

Presentation of Financial Statements

7 ................... G 11 ............... AP 13,19.......... NA 23 .............. NA 38 ................. G 40 ............... AP IAS 2

44,46 ............ G 49 .............. NA 53 ............... BS 54 ...... 15,16,18 60,63……..NA 66–67 .......... BS

72 ...... 13,14,21 73(a) ...........10 73(b–c)…….NA 73(d)....…….18 73(e) ..... SE,BS 74(a) ............ 20

74(b) ....…. AP 74(c) ..............7 74(d) ......... NA 75,77 .......... IS 80,82 .......... IS 83 ................ 4

85...............….7 86 ….....…… SE 91(a)…….….AP 97,99,101.... AP 102(a–b) .......G 102(d) ............4

39,40...........NA 43,45.....…. NA

46 .........…..AP 48 ...............NA

Inventories (portion relating to accounting policies)

34 (a)………….AP IAS 7

Cash Flow Statements

10 ............... CF 18(a) .......... NA IAS 8

29 .............. NA 31,35 .......... CF

Net Profit or Loss for the Period, Fundamental Errors, Changes in Accounting Policies

10 ................ IS 11 ...............NA IAS 10

IAS 12

54,57 ......... NA

20 ....……….. 8

79 .................. 5 81(a) .....……16

81(b) ...........NA 81(c) ..........….5

81(d) ...........NA 81(e–g) ........ 16

81 (h–i) …. NA 82 ….....…. NA

61 ...............NA 64 ...............NA

66–67 ......…NA 69 .............…..1

70–72 ......... NA 74–76 ......... NA

81,84...........NA

60(d–e) ........ 10

61(a–c) ........NA

61(d) ...........NA

64……........NA

27…......……..9

39…………NA

48(a–c).......…2

56,59.......... NA

Property, Plant and Equipment

60(a–c) ....... AP IAS 17

46 ............... AP 49,53 .... AP,SE

Segment Reporting

50–52 .....….NA 55–58 .....….NA IAS 16

34,37 ......... NA 38,40 ......... NA

Income Taxes

69 ............... BS 77 ................ IS IAS 14

16 .................IS 30 .............. NA

Events Occurring After the Balance Sheet Date

16 ................BS

Leases

23…............NA

24

18(b) ..... CF,21 21 ............... CF

PricewaterhouseCoopers

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

Para IAS 18

Refer

42(b) ............SE

42(c) .......... NA

43–47.......... NA

88 (e)………11

29(a) .......... AP

29(b–c) ........NA

26 ..........….NA

32(a) ............ 22

32(b–c)….…NA

56(b)………15

77………….15

45 ……......NA

47.................IS

116…..........NA

117…...…..NA

49 ….............. 6

51................NA

85(a) ............ 18 85(b–c) ....... NA

86(a–c) ........NA

89,91...........NA

93,95…..…NA

Financial Instruments; Recognition and Measurement (portion relating to borrowings and impairment charges for financial assets)

169(b)..........15 IAS 40

46 .................17

Provisions, Contingent Liabilities and Contingent Assets

84(a–d) ........ 18 84(e) .......... NA IAS 39

35(c) ...........NA

Impairment of Assets

113…….... NA IAS 37

35(b) ........….2

Earnings Per Share

43 .............. NA IAS 36

Refer

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

56(a)………..15 IAS 33

Para

Consolidated Financial Statements and Accounting for Investments in Subsidiaries

8,21 ........... NA IAS 32

Refer

Borrowing Costs

9 ................. AP IAS 27

Para

Business Combinations (portion relating to goodwill)

88 (a–b)……AP IAS 23

Refer

The Effects of Change in Foreign Exchange Rates

42(a) .............. 3 IAS 22

Para

Employee Benefits (portion relating to defined contribution plans)

23 …………. 4 IAS 21

Refer

Revenue

35(a) .......... AP IAS 19

Para

170(c)(i)..........3

170(f)………13

66(d)(i) …..…2 66(d)(ii) ……IS

66(d)(iii) ….... 8 66(e)…….. NA

Investment Property

66(a–b) …... AP 66(c) ............8

66(f) ……......8 67 …………..8

68–69 ….… NA

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 Borrowings

3,17,18 5, 10, 19

Cash and cash equivalents Cash flow statement

5,10 6

Deferred tax Depreciation Development expenditure Development property Dividends

10,15,20 3, 8, 9,13,17 6 8,16 4,10,18

Earnings per share

3, 15

Fair value Finance costs Foreign currency translation

3, 8,16 3,12,13 4,7

Goodwill

5, 9, 18

Impairment Interest expense Interest income Inventories Investment property Land held under operating lease Leases Long term operating lease Pension Property, plant and equipment Provisions Repairs and maintenance Revaluation reserve Revenue Segment information Staff costs Subsequent events Subsidiary undertakings Valuers

26

PricewaterhouseCoopers

9 14, 21 14, 21 5, 10,16,18 5, 8, 16 5, 8, 16,17 9,14 8,16,17 10,15 9,17 10,21 3,16 4 3, 13 12,13,14 3, 15 16 22 8, 16

Copyright © 2001 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers is authorised by the Institute of Chartered Accountants in England and Wales to carry on investment business. Designed by the studio 12506. Printed in the UK.