NewWorld Development Company Limited
FINANCIAL SECTION
138
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated by the Group and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstance.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant effect on
carrying amounts of assets and liabilities are as follows:
(a) Fair value of available-for-sale financial assets and financial assets at fair value through profit
or loss
The fair value of available-for-sale financial assets and financial assets at fair value through profit or loss that
are not traded in an active market is determined by using valuation techniques. The Group uses its judgement
to select a variety of methods (such as discounted cash flow model and option pricing models) and evaluates,
among other factors, the duration and extent to which the fair value of an investment is less than its cost;
and the financial health and short-term business outlook for the investee and historical price volatility of these
investments. The key assumptions adopted on projected cashflow are based on management’s best estimates.
(b) Valuation of investment properties
The fair value of each completed investment property is individually determined at the end of each reporting
period by independent valuers based on a market value assessment. The valuers have relied on the
capitalisation of income approach as their primary methods, supported by the direct comparison method.
These methodologies are based upon estimates of future results and a set of assumptions specific to each
property to reflect its tenancy and cashflow profile. The fair value of each investment property reflects, among
other things, rental income from current leases and assumptions about rental income from future leases in
light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could
be expected in respect of the property.
The fair value of investment properties under development is determined by reference to independent
valuation. For the Group’s majority of investment properties under development, their fair value reflects the
expectations of market participants of the value of the properties when they are completed, less deductions
for the costs required to complete the projects and appropriate adjustments for profit and risk. The valuation
and all key assumptions used in the valuation should reflect market conditions at the end of each reporting
period. The key assumptions include value of completed properties, period of development, outstanding
construction costs, finance costs, other professional costs, risk associated with completing the projects and
generating income after completion and investors’ return as a percentage of value or cost.
At 30 June 2015, if the market value of investment properties had been 5% (2014: 5%) higher/lower with
all other variables held constant, the carrying value of the Group’s investment properties would have been
HK$4,581.3 million (2014: HK$3,869.2 million) higher/lower.
