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LIPPO MALLS INDONESIA RETAIL TRUST ANNUAL REPORT 2014
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Provisions
A liability or provision is recognised when there is a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation. A provision is made using best estimates of the
amount required in settlement and where the effect of the time value of money is material, the amount recognised
is the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the obligation. The increase
in the provision due to passage of time is recognised as interest expense. Changes in estimates are reflected in profit
or loss in the reporting year they occur.
Critical judgements, assumptions and estimation uncertainties
The critical judgements made in the process of applying the accounting policies that have the most significant effect
on the amounts recognised in the financial statements and the key assumptions concerning the future, and other key
sources of estimation uncertainty at the end of the reporting year, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next reporting year are discussed below. These
estimates and assumptions are periodically monitored to make sure they incorporate all relevant information available at
the date when financial statements are prepared. However, this does not prevent actual figures differing from estimates.
Fair values of investment properties:
Certain judgements and assumptions are made in the valuation of the investment properties based on calculations
and these calculations require the use of estimates in relation to future cash flows and suitable discount rates as
disclosed in Note 14.
Income tax amounts:
The entity recognises tax liabilities and tax assets based on an estimation of the likely taxes due, which requires significant
judgement as to the ultimate tax determination of certain items. Where the actual amount arising from these issues
differs from these estimates, such differences will have an impact on income tax and deferred tax amounts in the
period when such determination is made. In addition management judgement is required in determining the amount
of current and deferred tax recognised and the extent to which amounts should or can be recognised. A deferred tax
asset is recognised if it is probable that the entity will earn sufficient taxable profit in future periods to benefit from a
reduction in tax payments. This involves the management making assumptions within its overall tax planning activities
and periodically reassessing them in order to reflect changed circumstances as well as tax regulations. Moreover, the
measurement of a deferred tax asset or liability reflects the manner in which the entity expects to recover the asset’s
carrying value or settle the liability. As a result, due to their inherent nature assessments of likelihood are judgmental
and not susceptible to precise determination. The income tax amounts are disclosed in Note 10.
Deferred tax: Recovery of underlying assets:
The deferred tax relating to an asset is dependent on whether the entity expects to recover the carrying amount of the
asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through
sale when the asset is measured using the fair value model in FRS 40 Investment Property or when fair value is required
or permitted by a FRS for a non-financial asset. Management has taken the view that as there is clear evidence that
it will consume the relevant asset’s economic benefits throughout its economic life. The amount is stated in Note 10.
Determination of functional currency:
In determining the functional currencies of the entities in the Group, judgement is required to determine the currency
that mainly influences sales prices and of the country whose competitive forces and regulations mainly determines the
sales prices. The functional currencies of the entities in the Group are determined based on management’s assessment
of the economic environment in which the entities operate and the entities’ process of determining sales prices.
Notes to the Financial Statements
(Cont’d)
31 December 2014
