Annual Report 2006 - Tamar European Industrial Fund

Notes to the Accounts
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the period, is set
out below.
(a) Basis of Accounting
The consolidated accounts have been prepared in accordance with International Financial Reporting Standards issued
by, or adopted by, the International Accounting Standards Board (the ‘‘IASB’’), interpretations issued by the International
Financial Reporting Interpretations Committee, applicable legal and regulatory requirements of Guernsey Law and the
Listing Rules of the UK Listing Authority. The Company considers that it has complied (and intends to continue to comply)
with the conditions applicable to property investment companies set out in paragraph 15.5.15R of the Listing Rules of the
United Kingdom Listing Authority.
No International Financial Reporting Standards have been adopted early, however it is likely that any Standards issued, but
that are not yet effective, would only require changes in disclosure and not result in changes to the accounting policies for
recognition and measurement.
(b) Basis of Consolidation
The consolidated accounts comprise the accounts of the Company and all of its subsidiaries, being entities controlled by
the Company, drawn up to 31 December each year.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from
the date on which control is transferred out of the Group.
These consolidated financial statements are presented in sterling, which is the Company’s functional currency. All financial
information presented in sterling has been rounded to the nearest thousand.
(c) Revenue Recognition
Rental income, excluding VAT, arising on investment properties is accounted for in the Income Statement on a straight-line
basis over the lease term of ongoing leases. Lease incentives granted are recognised as an integral part of the total rental
income.
Interest income is accounted for on an accruals basis.
(d) Expenses
Expenses are accounted for on an accruals basis. The Group’s investment management and administration fees, finance
costs and all other expenses are charged through the Income Statement.
(e) Taxation
Deferred income tax is provided, using the liability method, on temporary differences at the balance sheet date between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax
liabilities are measured at the tax rates that are expected to apply to the period when the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
As required by IAS 12, deferred income tax is not recognised on temporary differences at the time of initial recognition
arising from transactions treated as asset acquisitions. The aggregate amount of such deferred income tax is disclosed as
unrecognised deferred income tax.
Deferred income tax assets are only recognised if it is considered more likely than not that there will be suitable profits from
which the future reversal of the underlying timing differences can be deducted.
(f) Investment Properties
Freehold investment properties, or the equivalent, are initially recognised at cost, being the fair value of consideration
given, including transaction costs associated.
Leasehold investment properties, or the equivalent, are initially recognised at the lower of fair value and the present value
of minimum lease payments.
After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in
the Income Statement. Fair value is based on the open market valuation provided by Savills SA, chartered surveyors, at the
balance sheet date.
On derecognition, realised gains and losses on disposals of investment properties are recognised in the Income Statement.
Recognition and derecognition occurs on the exchange of signed contracts between a willing buyer and a willing seller.
22
Notes to the Accounts
1. Accounting policies (continued)
(f) Investment Properties (continued)
In the case of development expenditure, cost includes the cost of materials and direct labour and any other costs directly
attributable to bringing the asset to a working condition for its intended use. Cost also includes capitalised borrowing costs
up to the point of practical completion.
(g) Derivative Financial Instruments
The Group holds derivative financial instruments to hedge its interest rate exposures. Derivatives are recognised initially
at fair value; attributable transaction costs are recognised in the Income Statement when incurred. Subsequent to initial
recognition, derivatives are measured at fair value. Hedge accounting is not applied to derivative instruments and changes
in fair value are recognised in the Income Statement.
(h) Share Issue Expenses
Incremental external costs directly attributable to the equity transaction that would have otherwise not been incurred are
written off against the Share Premium Account.
All other expenses relating to the launch of the Company not directly attributable to the issue of equity are expensed
through the Income Statement.
(i) Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment of business being property investment
business, in one geographical area, Europe (excluding the United Kingdom).
(j) Cash and Cash Equivalents
Cash at bank and short term deposits that are held to maturity are carried at amortised cost. Cash and cash equivalents
consist of cash in hand and short term deposits in banks with an original maturity of three months or less.
(k) Trade and Other Receivables
Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the
original invoice amount. As impairment events are identified, provisions are made on either a specific or collective basis,
as may be applicable.
(l) Interest-Bearing Borrowings
All non-current borrowings are initially recognised at cost, being fair value of the consideration received, net of arrangement
costs associated with the borrowing. After initial recognition, all interest bearing borrowings are subsequently measured
at amortised cost using the effective yield method. The effective yield method recognises interest in the Income Statement
in the period to which it relates. Amortised cost is calculated by taking into account any loan arrangement costs and any
discount or premium on settlement.
(m) Foreign Exchange
1. Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary
items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for
effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange
rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at
fair value are retranslated to the functional currency at the exchange rate at the date the fair value was determined. Foreign
currency differences arising on retranslation are recognised in profit or loss.
2. Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to sterling at exchange rates at the reporting date. The income and expenses of foreign operations are translated
to sterling at exchange rates at the dates of the transactions.
Foreign currency differences are recognised directly in equity. When a foreign operation is disposed of, in part or in full, the
relevant amount in equity is transferred to the Income Statement.
(n) Use of Estimates and Judgements
The preparation of financial statements 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.
23