NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2022 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2022 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of estimates and judgements (cont’d) 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 26 Share-based payment arrangements Note 40 Acquisition of subsidiaries Note 42 Financial instruments 2.5 CHANGES IN ACCOUNTING POLICIES New standards and amendments The Group has applied various new SFRS(I)s, amendments to and interpretations of SFRS(I) for the first time for the annual period beginning on 1 January 2022. In addition, the Group has early adopted the Amendments to SFRS(I) 1-1 Non-current Liabilities with Covenants. Under the amendments, only covenants with which an entity must comply on or before the reporting date affect the classification of a liability as current or non-current. Covenants with which the entity must comply after the reporting date (future covenants) do not affect a liability’s classification at that date. When non-current liabilities are subject to future covenants, information on the risk that the non-current liabilities could become repayable within 12 months after the reporting date is to be disclosed. The application of these amendments to standards and interpretations did not have a material effect on the financial statements. 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Group entities, except as explained in note 2.5, which addresses changes in accounting policies. 3.1 Basis of consolidation (i) Business combinations The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. 2 BASIS OF PREPARATION (CONT’D) 2.4 Use of estimates and judgements (cont’d) 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), 44 and 45 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 a material 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 Notes 7 and 42 Measurement of recoverable amounts of investments in subsidiaries and expected credit losses on balances with subsidiaries Note 10 Measurement of expected credit losses on financial assets – unquoted debt investment at amortised cost Note 13 Measurement of realisable amounts of development properties Note 26 Valuation of defined benefit obligations Note 42 Measurement of expected credit losses on amounts owing by HCP Chongqing Property Development Co., Ltd and its subsidiaries 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. 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). CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2022 FINANCIALS 126 127
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