CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 130 131 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 3.3 Property, plant and equipment (cont ’d) (iii) Depreciation (cont’d) The estimated useful lives for the current and comparative years are as follows: Freehold and leasehold land and buildings • Core component of hotel buildings – 50 years, or lease term if shorter • Surface, finishes and services of hotel buildings – 30 years, or lease term if shorter • Leasehold land – Lease term Furniture, fittings, plant and equipment and improvements – 3 to 20 years Residual values ascribed to the core component of hotel buildings depend on the nature, location and tenure of each hotel property. No residual values are ascribed to surface, finishes and services of hotel buildings and right-of-use assets in respect of leases where the Group is a lessee. Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date. 3.4 Investment propert ies (i) Recognition and measurement Investment properties are properties held either to earn rental income or capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services, or for administrative purposes. Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the investment properties. Costs of self-constructed investment properties include costs of materials and direct labour, any other costs directly attributable to bringing the investment properties to a working condition for their intended use and capitalised borrowing costs. Gains and losses on disposal of investment properties (calculated as the difference between the net proceeds from disposal and the carrying amounts of the investment properties) are recognised in profit or loss. (ii) Depreciation Depreciation is recognised as an expense in profit or loss on a straight-line basis over the estimated useful lives of each component of an investment property. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. No depreciation is provided on freehold land (including 999-year leasehold land) included in the investment properties. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 3.4 Investment propert ies (cont ’d) (ii) Depreciation (cont’d) The estimated useful lives for the current and comparative years are as follows: Freehold and leasehold properties – 50 years, or lease term if shorter Leasehold land – Lease term ranging from 50 to 96 years Furniture, fittings, plant and equipment and improvements – 3 to 20 years Depreciation methods and useful lives are reviewed, and adjusted as appropriate, at each reporting date. 3.5 Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. As a lessee At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate. Generally, the Group uses the lessee’s incremental borrowing rate as the discount rate. The Group determines the lessee’s incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
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