CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 122 123 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of est imates and judgements The preparation of the financial statements in conformity with SFRS(I) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is described in the following notes: Note 3.1(i) Accounting for acquisitions as business combinations or asset acquisitions Notes 3.1(iv), 43 and 44 Assessment of ability to control or exert significant influence over partly owned investments Information about assumptions and estimation uncertainties that have a significant risk of resulting in amaterial adjustment within the next financial year is described in the following notes: Note 3.19 Estimation of provisions for current and deferred taxation Notes 4 and 5 Measurement of recoverable amounts of property, plant and equipment, and investment properties Note 7 and 41 Measurement of recoverable amounts of investments in subsidiaries and expected credit losses on balances with subsidiaries Note 9 Measurement of expected credit losses on amounts owing by HCP Chongqing Property Development Co., Ltd and its subsidiaries Note 10 Measurement of expected credit losses on financial assets – unquoted debt investment at amortised cost Note 12 Measurement of realisable amounts of development properties Note 25 Valuation of defined benefit obligations Note 28 Estimate of provision relating to sale of Millennium Hilton Seoul Measurement of fair values A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a team that regularly reviews significant unobservable inputs and valuation adjustments and reports to the Group Chief Financial Officer who has overall responsibility for all significant fair value measurements. If third party information, such as broker quotes or independent valuers’ report, is used to measure fair values, then the team assesses and documents the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of SFRS(I), including the level in the fair value hierarchy in which the valuations should be classified. Significant valuation issues are reported to the Group’s Audit & Risk Committee and Board of Directors. 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of est imates and judgements (cont ’d) When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement (with Level 3 being the lowest). The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. Further information about assumptions made in measuring fair values is included in the following notes: Note 5 Investment properties Note 25 Share-based payment arrangements Note 39 Acquisition of subsidiaries Note 41 Financial instruments 2.5 Changes in account ing pol ices Amendments to standards and interpretations The Group has applied Interest Rate Benchmark Reform – Phase 2 (Amendments to SFRS(I) 9, SFRS(I) 1-39 and SFRS(I) 7, SFRS(I) 4 and SFRS(I) 16) for the first time for the annual period beginning on 1 January 2021. In addition to the above, the Group has early adopted COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to SFRS(I) 16) which is effective for annual periods beginning after 1 January 2021 with earlier application permitted. Interest rate benchmark reform – Phase 2 amendments The Group applied the Phase 2 amendments retrospectively. However, in accordance with the exceptions permitted in the Phase 2 amendments, the Group has elected not to restate comparatives for the prior periods to reflect the application of these amendments. Since the Group had no transactions for which the benchmark rate had been replaced with an alternative benchmark rate as at 31 December 2020, there is no impact on opening equity balances as a result of retrospective application.
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