Mazaya_FS_E Q4. 20

AL-MAZAYA HOLDING COMPANY - K.S.C. (PUBLIC) AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 (All amounts are in Kuwaiti Dinars) 32 - Leases Critical judgements required in the application of IFRS 16 include, among others, the following: • Identifying whether a contract (or part of a contract) includes a lease; • Determining whether it is reasonably certain that an extension or termination option will be exercised; • Classification of lease agreements (when the entity is a lessor); • Determination of whether variable payments are in-substance fixed; • Establishing whether there are multiple leases in an arrangement, • Determining the stand-alone selling prices of lease and non-lease components. b) Estimates and assumptions The key assumptions concerning the future and other key sources of estimating uncertainty at the end of the reporting period 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: - Fair value of unquoted financial assets 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. - Useful lives of depreciable assets The Group reviews its estimate of useful lives of depreciable assets at each reporting date based on the expected utility of assets. Uncertainties in these estimates mainly relate to obsolescence and changes in operations. - 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. - Allowance for expected credit losses: The extent of allowance for expected credit losses involves estimation process. Allowance for expected credit losses is based on a forward looking ECL approach as explained in Note (5). Bad debts are written off when identified. The ECL allowance and write-down of accounts receivable are subject to management approval. - Valuation of investment properties The Group carries its investment properties at fair value, with change in fair values being recognized in consolidated statement of profit or loss. The main methods used to determine the fair value of the investment properties are: a) Income approach, where the property’s value is estimated based on the its income produced and is computed by dividing the property’s net operating income by the expected rate of return on the property in the market, known as ‘Capitalization Rate’. b) Comparative analysis using values of actual deals transacted recently by other parties for properties in a similar location and condition and based on the knowledge and experience of the independent real estate appraiser.