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AL MAZAYA HOLDING COMPANY K.S.C. (HOLDING) AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
(All amounts are in Kuwaiti Dinars)
vi) Impairment of investments
The Group follows the guidance of lAS 39 to determine when an available-for-sale equity investment
is impaired. This determination requires significant judgment. In making this judgment, the Group
evaluates, among other factors, a significant or prolonged decline in the fair value below its cost; and
the financial health of and short term business outlook for the investee, including factors such as
industry and sector performance, changes in technology and operational and financing cash flow. The
determination of what is "significant" or "prolonged" requires significant judgment.
(vii) Application of IFRIC
15 -
Agreements for the construction of real estate.
The determination, whether the agreements within the scope of lAS
11-
Construction Contracts or
lAS 18 - Revenue, require significant judgment.
b)
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimating uncertainty at the
consolidated statement of financial position date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed
below.
(i) Fair value of unquoted equity investments
If the market for a financial asset is not active or not available, the Group establishes fair value by
using valuation techniques which include the use of recent arm's length transactions, reference to
other instruments that are substantially the same, discounted cash flow analysis, and option pricing
models refined to reflect the issuer's specific circumstances. This valuation requires the Group to
make estimates about expected future cash flows and discount rates that are subject to uncertainty.
(ii) Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an
estimation of the "value in use" of the asset or the cash-generating unit to which the goodwill is
allocated. Estimating a value in use requires the Group to make an estimate of the expected future
cash-flows from the asset or the cash-generating unit and also choose an appropriate discount rate in
order to calculate the present-value of the cash-flows.
(iii) Construction contracts
Revenue from construction contracts that are considered to be within the scope of lAS
11
are
recognized in accordance with the percentage of completion method of accounting measured by
reference to the physical percentage of completion. The revenue recognition as per the above criteria
should correspond to the actual work completed. The determination of estimated costs and the
application of percentage of completion method involve estimation. Further, the budgeted cost and
revenue should consider the claims and variations pertaining to the contract.
(iv) Provision for doubtful debts
The extent of provision for doubtful debts involves estimation process. Provision for doubtful debts is
made when there is an objective evidence that the Group will not be able to collect the debts. Bad
debts are written off when identified. The benchmarks for determining the amount of provision or
write-down include analysis, technical assessment and subsequent events. The provisions and write-
down of receivables are subject to management approval.
(v) Revaluation of investment properties
The Group carries its investment properties at fair value, with changes in fair value being recognized
in the consolidated statement of income. The Group engaged an independent valuation specialist to
determine fair value as at December 31, 2010. For the investment property the evaluator used a
valuation technique based on a discounted cash flow model as there is a lack of comparable market
data because of the nature of the property. The determined fair value of the investment properties is
most sensitive to the estimated yield as well as the long term vacancy rate.
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