Disclosure non-financial assets and liabilities

Disclosure non-financial assets and liabilities

– provides a narrative providing guidance on users of financial statements’ needs to present financial disclosures in the notes to the financial statements grouped in more logical orders. But there is and never will be a one-size fits all.

Here it has been decided to separately disclose financial assets and liabilities and non-financial assets and liabilities, because of the distinct different nature of these classes of assets and liabilities and the resulting different types of disclosures, risks and tabulations.

Disclosure non-financial assets and liabilities Guidance

Disclosing non-financial assets and non-financial liabilities in one note

Users of financial reports have indicated that they would like to be able to quickly access all of the information about

the entity’s financial assets and liabilities without having to trawl through various notes in the financial report. As a result, the notes are structured such that financial items and non-financial items are discussed separately. This is not a mandatory requirement in any IFRS.

Accounting policies, estimates and judgements

In general it is considered helpful for readers of the financial report if information about accounting policies that are specific to the entity and about significant estimates and judgements is disclosed with the relevant line items, rather than in separate notes. However, this format is also not mandatory.

For general commentary regarding the disclosures of accounting policies refer to note 25. Commentary about the disclosure of significant estimates and judgements is provided in note 11.

Classes of property, plant and equipment

A class of property, plant and equipment is a grouping of assets of a similar nature and use in the entity’s operation. IAS 16.37 provides the following examples:

1. land  Disclosure non-financial assets and liabilities
2. land and buildings Disclosure non-financial assets and liabilities
3. machinery Disclosure non-financial assets and liabilities
4. ships Disclosure non-financial assets and liabilities
5. aircraft Disclosure non-financial assets and liabilities
6. motor vehicles Disclosure non-financial assets and liabilities
7. furniture and fixtures Disclosure non-financial assets and liabilities
8. office equipment Disclosure non-financial assets and liabilities
9. bearer plants. Disclosure non-financial assets and liabilities

Each entity will have different classes, depending on their individual operations. The number of classes that are separately disclosed also depends on materiality. However, the ‘plant and equipment’ of an entity will normally include assets of quite different nature and use.

It will therefore not be sufficient to provide the information required in IAS 16 only for two classes, being ‘land and buildings’ and ‘plant and equipment’. Rather, entities should provide a further breakdown or, alternatively, use a more specific narrative to illustrate that the entity has only one major class of plant and equipment.

Leasing disclosures

Right-of-use assets

IFRS16 only requires disclosure of depreciation expense and additions to right-of-use assets, but not of a full reconciliation of the right-of-use assets held. However, additional disclosures may be necessary to explain significant changes in the amounts of right-of-use assets, for example as a result of foreign exchange movements or modifications to lease agreements. [IAS 1.112(c), IFRS 16.51]

Where an entity has elected to present right-of-use assets within the same line item as the corresponding underlying assets would be presented if they were owned, it should provide the same disclosures for the right-of-use assets as for the corresponding underlying assets.

For example, where the right-of-use assets are presented as property, plant and equipment, they would need to be included in the reconciliation that is required under IAS 16, with the same amount of detail as is required for other items of property, plant and equipment. [IFRS 16.47(a), IAS 16.73(e)]

Significant judgements and estimates

The accounting for leases under IFRS 16 involves making various judgements and estimates which may need to be

disclosed. Some of these have been disclosed in note 8(b), but the level of detail provided will depend on the individual circumstances of the entity and the materiality of the amounts involved. For example, the following judgements and estimates may also require explanations:

1. how the entity has determined whether a contract is, or contains, a lease
2. how the entity has determined the incremental borrowing rate, for example where third-party financing cannot be obtained (or can only be obtained at a significant premium), or by adjusting rates to reflect the term, security, value or economic environment
3. what the entity considers to be an index or rate in determining lease payments
4. how the entity accounts for costs incurred in connection with a lease that are not part of the cost of the right-of-use asset, and
5. the interpretation of what constitutes a penalty in determining the lease term and why an entity may have an economic incentive to extend or not to terminate a lease (but see paragraph 9 below). [IAS 1.122, IAS 1.125, IFRS 16.51, IFRS 16.59]

The IFRS Interpretations Committee (IFRS IC) has provided guidance on how to determine the incremental borrowing rate, including how to reflect the payment profile of a lease when determining that rate, and the lease term for specific types of cancellable or renewable leases. Entities should refer to this guidance when making judgements in relation to these issues.

Impairment

Impairment testing – disclosure of assumptions

An entity is encouraged to disclose the assumptions used to determine the recoverable amount of all significant assets and cash-generating units during the period. However, as a minimum, paragraph 134 of IAS 36 requires an entity to disclose information about the estimates used to measure the recoverable amount of a cash-generating unit when goodwill or an intangible asset with an indefinite useful life is included in the carrying amount of that unit.

In many cases, the impairment calculations also involve significant estimates and judgements which should be highlighted under IAS 1.122 and IAS 1.125. [IAS 36.132, IAS 36.134, IAS 1.122, IAS 1.125]

Prior year recoverable amount calculation

The most recent detailed calculation made in a preceding period of the recoverable amount of a cash-generating unit (group of units) may, in accordance with paragraphs 24 or 99 of IAS 36, be carried forward and used in the impairment test for that unit (group of units) in the current period provided specified criteria are met.

Where this is the case, the information for that unit (group of units) that is incorporated into the disclosures required by paragraphs 134 and 135 of IAS 36 relate to the carried forward calculation of recoverable amount. A carry-forward of the recoverable amount calculations will not be appropriate where the entity’s carrying amounts of the non-current assets are materially affected by the adoption of IFRS 16. [IAS 36.136]

Deferred tax assets and liabilities

Offsetting

Deferred tax assets and liabilities shall be offset if, and only if:

1. there is a legally enforceable right to set off current tax assets and liabilities, and
2. the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either:
   1. the same taxable entity, or
   2. different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. [IAS 12.74]

The circumstances giving rise to a set off between entities in a consolidated entity are likely to be rare unless the entities are part of a tax consolidated group. As disclosed in note 8(e) it is assumed this to be the case for RePorting Co. Plc. [IAS 12.76]

Disclosure of reconciliation by type of temporary difference

IAS 12 requires the following disclosures for each type of temporary difference and in respect of each type of unused tax loss and tax credit:

1. the deferred tax balances recognised for each period presented
2. the amounts of deferred tax income or expense recognised in profit or loss, if this is not apparent from the changes in the amounts recognised in the balance sheet [IAS 12.81(g)]

This information can be presented in various ways. RePorting Co. Plc has chosen to provide the information in the form of a reconciliation by type of temporary difference. However, other formats are equally acceptable as long as all of the required disclosures are made.

Deferred tax on right-of-use assets and lease liabilities

IAS 12 does not specifically address the tax effects of on-balance sheet leases (ie right-of-use assets and lease liabilities under IFRS 16) and there are currently different approaches in practice. However, the IASB has proposed amendments to IAS 12 which will narrow the scope of the initial recognition exemption in paragraphs 15 and 24 of IAS 12. If implemented, the exemption will no longer apply to the extent that, on the initial recognition of a transaction, an entity will recognise equal amounts of deferred tax assets and tax liabilities.

As a consequence, entities will be required to recognise both a deferred tax asset and a deferred tax liability on the initial recognition of a lease. While these would qualify for offsetting in the balance sheet, the notes would need to disclose the gross amounts. RePorting Co. Plc has illustrated this in note 8(e).

Recognition of deferred tax assets by loss-making entities

If an entity has incurred a loss in the current or a preceding period and the utilisation of the deferred tax assets is depending on future taxable profits in excess of profits arising from the reversal of existing taxable temporary differences, the entity must disclose the amount of the deferred tax assets that are depending on excess future taxable profits and the nature of the evidence that is supporting the recognition of the tax assets. [IAS 12.82]

The recognition of deferred tax assets for carried forward tax losses, particularly by loss-making entities, is a focus area for many regulators. The European Securities and Markets Authority (ESMA), has reminded entities of the importance to assess thoroughly the nature and extent of the evidence that supports the recognition of deferred tax assets.

Disclosures relating to deferred tax assets should be issuer-specific and not boilerplate, and the level of detail provided should be proportionate to the materiality of the assets in the financial statements and the uncertainties and judgements surrounding the recognition of the tax assets.

Assets held for sale

There is no requirement in either IFRS 5 Non-current Assets Held for Sale and Discontinued Operations or IAS 1 Presentation of Financial Statements to present assets of a disposal group separately from individual assets held for sale. RePorting Co. Plc has therefore combined the assets of a disposal group with individual assets held for sale as a single line item in the balance sheet, but provided the associated disclosures in separate notes.

Employee benefit obligations

IAS 37 does not generally apply to employee benefits as these are dealt with by IAS 19 Employee Benefits. However, employee benefits may be classified as provisions in the balance sheet where either the amounts or the timing of the future payments in respect of these obligations is uncertain.

Alternatively, they could either be classified as other payables (where the amount and timing is certain) or, as is done in this publication, presented as a separate line item in the balance sheet. If the amounts recognised in relation to employee benefit obligations are material, entities should consider providing the information required by IAS 37 regardless of how the amounts are presented. [IAS 37.1(c), IAS 37.5(d)]

Classification of employee benefits obligations as non-current

Other long-term employee benefit obligations, which are those that are not expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the service that gives rise to the benefit, can only be classified in the balance sheet as a non-current liability if there is no possibility the entity could be required to settle the obligation within the next 12 months.

This means, for example, that where employees are entitled to take their long service leave or accrued annual leave within the next 12 months, the obligation relating to them must be recorded as a current liability even though the employees may not be expected to take the leave for a longer period. [IAS 1.69]

A net post-employment asset or liability will typically have a current and a non-current portion. However, the distinction between the two might be arbitrary and difficult to determine, in particular for funded post-employment plans.

The net plan asset or liability is therefore generally presented as a single non-current item for funded post-employment plans. However, if a reliable distinction is possible, separate presentation of the two balances would be appropriate. [IAS 19.133]

Disclosures for defined benefit obligations

There is an overriding objective in IAS 19 that the disclosures for defined benefit plans must:

1. explain the characteristics of the plans and the associated risks
2. identify and explain the amounts in the financial statements arising from the plans
3. describe how the plans may affect the amount, timing and uncertainty of the entity’s future cash flows. [IAS 19.135]

Entities will need to consider on a case-by-case basis how detailed the disclosures will have to be to satisfy these objectives. Additional information or further disaggregation may be necessary in some circumstances. However, preparers should also keep in mind that materiality applies to all of the disclosures required under IAS 19. [IAS 19.136-138]

Fair value measurements

Property assets are often unique and not traded on a regular basis. As a consequence, there is a lack of observable input data for identical assets. Fair value measurements of property assets will therefore often be categorised as ‘level 2’ or ‘level 3’ valuations. Whether it is appropriate to classify the fair value as a ‘level 2’ measurement will depend on the individual facts and circumstances.

Examples of ‘level 2’ inputs include sales price per square metre for similar properties in a similar location in an active market, or property yields derived from the latest transactions in active markets for similar properties. Where significant adjustments to market based data are made, or where other significant inputs are unobservable, the valuation would be categorised as ‘level 3’.

If the assets are located in a less developed market, this would also be an indication for a ‘level 3’ classification. Assets classified as level 2 measurements based on recent sales may need to be reclassified in subsequent periods if there have been no more sales of comparable properties in the area. [IFRS 13.B35(g)]

As a typical diversified manufacturing company, RePorting Co. Plc only has a limited number of assets and liabilities that are measured at fair value. For alternative disclosures covering biological assets refer to OUTSTANDING.

Other potential disclosures

The following requirements are not illustrated here as they are not applicable to RePorting Co. Plc:

Leases

Issue not disclosed	Relevant disclosures or references
The entity has received COVID-19 related rent concessions and has applied the practical expedient introduced in May 2020 [IFRS 16.60A] Disclosure non-financial assets and liabilities	Disclose that the practical expedient has been applied to all qualifying rent concessions, or if not, information about the nature of the contracts to which it has been applied, and the amount recognised in profit or loss.
Right-of-use assets included in the same line item as the corresponding underlying assets [IFRS 16.47(a)(ii)]	Identify which line items include the right-of-use assets.
Sale and leaseback transactions [IFRS 16.53(i), IFRS 16.59(d), IFRS 16.B52] Disclosure non-financial assets and liabilities	Disclose gain or loss separately in the notes and consider additional information set out in paragraph B52 of IFRS 16.
Sub-leasing of right-of-use assets [IFRS 16.53(f)]	Disclose income from sub-leasing.
Lessee capitalises leasing costs as part of the cost of another asset [IFRS 16.54] Disclosure non-financial assets and liabilities	Ensure the amounts disclosed in note 8(b) under paragraph 53 of IFRS16 include costs that are included in the carrying amount of another asset.
Portfolio of short-term leases at the end of the reporting period is dissimilar to the portfolio of short-term leases held during the year [IFRS 16.55]	Disclose lease commitments for short-term leases that are recognised as expenses on a straight-line or other systematic basis.
Right-of-use assets that meet the definition of investment property [IFRS 16.48, IFRS 16.56] Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	Must be presented as investment property. Apply the disclosure requirements of IAS 40 Investment Property. Lessees are not required to disclose the depreciation charge, income from sub-leasing, additions and the carrying amount by class of underlying asset at the end of the reporting period in relation to these assets.
Right-of-use assets are measured at revalued amount under IAS 16 [IFRS 16.57]	Provide the disclosures required by paragraph 77 of IAS 16 in relation to those assets.
Leases not yet commenced to which the lessee is committed [IFRS 16.59(b)(iv)]	Provide information about the future cash outflows to which the lessee is potentially exposed.
The entity is a lessor with finance leases [IFRS 16.89-97, IFRS 16.90(a), IFRS 16.93, IFRS 16.94, IFRS 16.90(b), IFRS 16.95, IFRS 16.96] Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	Provide information which allows users of the financial statements to assess the effect that leases have on the lessor’s financial position, financial performance and cash flows. selling profit or loss finance income on the net investment in the lease income relating to variable lease payments not included in the measurement of the net investment qualitative and quantitative explanation of significant changes in the carrying amount of the net investment in the lease, and maturity analysis of lease payments receivable for a minimum of each of the first five years plus a total amount for the remaining years; reconciliation to the net investment in the lease. variable lease payments that do not depend on an index or a rate for items of property, plant and equipment that are subject to an operating lease, the disclosures required by IAS 16 separately for the assets subject to an operating lease and for those that are held and used by the lessor, and where applicable, the disclosure required by IAS 36, IAS 38 and IAS 41.

Investment property

Issue not disclosed	Relevant disclosures or references
Classification as investment property is difficult [IAS 40.75(c)]	Disclose criteria used to distinguish investment property from owner-occupied property and property held for sale in the ordinary course of business.
Adjustments made to valuations [IAS 40.77]	Disclose reconciliation between valuation obtained and the adjusted valuation.
Sale of investment property between pools of assets measured using different methods (paragraph 32C of IAS 40) [IAS 40.75(f)]	Disclose cumulative change in fair value recognised in profit or loss.
Contingent rents recognised as income in the period [IFRS 16.90(b)]	Disclose amounts where applicable.
Operating leases classified as investment property [IAS 40.75(b)]	Explain circumstances of classification as investment property and whether the fair value model is applied.
Investment property cannot be reliably measured at fair value on a continuing basis [IAS 40.78]	Disclose amounts separately and provide additional information about the property.
Entity has elected to use the cost model for measuring its investment property [IAS 40.79]	Disclose additional information such as depreciation methods, useful lives etc.

Intangible assets

Issue not disclosed	Relevant disclosures or references
Intangible assets with indefinite useful lives [IAS 38.122(a)] Disclosure non-financial assets and liabilities	Disclose the carrying amount and factors that have played a significant role in assessing that the assets have an indefinite useful life.
Individually material intangible assets [IAS 38.122(b)]	Describe the assets and disclose the carrying amount and remaining amortisation period.
Intangible assets acquired by way of government grant [IAS 38.122(c)] Disclosure non-financial assets and liabilities	Disclose the fair value initially recognised, the current carrying amount and whether the assets are measured at cost or at revaluation.
Intangible assets with restricted title and/or pledged as security for liabilities [IAS 38.122(d)]	Disclose existence and carrying amounts.
Contractual commitments for the acquisition of intangible assets [IAS 38.122(e)]	Disclose amount. Disclosure non-financial assets and liabilities
Intangible assets measured under the revaluation model [IAS 38.124]	Provide additional disclosures as set out in paragraph 124 of IAS 38.

Impairment and goodwill

Issue not disclosed	Relevant disclosures or references
Impairment losses recognised in OCI and reversals of impairment losses [IAS 36.126(b)-(d), IAS 36.129] Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	Disclose impairment losses recognised in OCI (by segment where applicable). Disclose reversal of impairment losses (P&L and OCI; by segment where applicable).
Individual impairment losses or reversals are not material [IAS 36.131]	Provide information about aggregate impairment losses and reversals.
Unallocated goodwill [IAS 36.133]	Disclose the amount and the reasons why the goodwill remained unallocated (see below for example).
Intangible assets with indefinite useful lives – impairment disclosures [IAS 36.134]	Provide similar disclosures to those illustrated for goodwill in here.
Goodwill and intangible assets with indefinite useful lives: recoverable amount is based on fair value less costs of disposal (FVLCOD) [IAS 36.134(e)]	Provide additional information as set out in paragraph 134 of IAS 36. See below for illustration.
Goodwill and indefinite life intangible assets allocated to multiple CGUs, where the amount allocated to each CGU is not significant [IAS 36.135]	Provide information about impairment testing based on the aggregate carrying amounts.

Other non-financial assets and liabilities

Issue not disclosed	Relevant disclosures or references
Inventories [IAS 2.36(h)]	Disclose amount of inventories pledged as security for liabilities.
Defined benefit plans: reimbursement rights [IAS 19.140(b)] Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	These will need to be separately disclosed in the reconciliation of the amounts recognised in the balance sheet.
Multi-employer and group plans [IAS 19.148, IAS 19.149]	Provide additional information as specified in paragraphs 148 and 149 of IAS 19.
Provisions: information omitted because disclosure would be prejudicial [IAS 37.92]	Disclose that fact, the general nature of the dispute and reasons why further information is not disclosed.
Fair value of non-financial assets: highest and best use differs from current use [IFRS 13.93(i)]	Disclose that fact and why the asset is used in a manner that differs from its highest and best use.

The following additional illustrative disclosures may be useful where relevant to an entity:

Intangible assets with indefinite useful lives

The trademark used to identify and distinguish (product name; carrying amount CU 2,345,000) has a remaining legal life of five years but is renewable every ten years at little cost and is well established. The group intends to renew the trademark continuously and evidence supports its ability to do so.

An analysis of product life cycle studies and market and competitive trends provides evidence that the product will generate net cash inflows for the group for an indefinite period. Therefore, the trademark is carried at cost without amortisation, but is tested for impairment in accordance with note 25(j). [IAS 38.122(a)]

Unallocated goodwill

Shortly before the end of the reporting period, the company acquired XYZ Limited. There was CUXX of goodwill recognised on acquisition which is yet to be allocated to one or more CGUs. XYZ’s business will be integrated into the South America and North America CGUs, but management has not yet finalised the allocation of the goodwill between the relevant CGUs. [IAS 36.133] Disclosure non-financial assets and liabilities

Recoverable amount is determined using fair value less cost of disposal

Management has determined the recoverable amount of the XYZ CGU by assessing the fair value less cost of disposal (FVLCOD) of the underlying assets. The valuation is considered to be level 3 in the fair value hierarchy due to unobservable inputs used in the valuation. No impairment was identified. [IAS 36.134(c)]

Management’s approach and the key assumptions used to determine the CGU’s FVLCOD were as follows:

CGU	Unobservable inputs	Value assigned to key assumption		Approach to determining key assumption
		2020	2019
XYZ Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	Cost of disposal (CU’000)	250	320	Estimated based on the company’s experience with disposal of assets and on industry benchmarks.
	Sales volume (%)	2.7	3.3	Average annual growth rate over the five-year forecast period, based on past performance and management’s expectations of market development.
	Sales price (%) Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	1.4	1.9	Average annual growth rate over the five-year forecast period, based on current industry trends and includes long-term inflation forecasts for each territory.
	Cost reductions from restructuring initiatives (CU’000)	2,900	2,500	Estimated cost reductions are based on management’s judgement and past experience with similar restructuring initiatives.
	Cash flow forecast period (years)	5	5	Board approved/ reviewed five year forecasts which are prepared by management.
	Post-tax discount rate (%)	11.7	11.4	Reflects specific risks relating to the segments and the countries in which it operates.
	Long-term growth rate (%) Disclosure non-financial assets and liabilities Disclosure non-financial assets and liabilities	2.7	2.6	This is the weighted average growth rate used to extrapolate cash flows beyond the budget period. The rate is consistent with forecasts included in industry reports.

Disclosure non-financial assets and liabilities example

8 Non-financial assets and liabilities

This note provides information about the group’s non-financial assets and liabilities, including:

• specific information about each type of non-financial asset and non-financial liability
  • property, plant and equipment (note 8(a))
  • leases (note 8(b))
  • investment properties (note 8(c))
  • intangible assets (note 8(d))
  • deferred tax balances (note 8(e))
  • inventories (note 8(f))
  • other assets, including assets classified as held for sale (note 8(g))
  • employee benefit obligations (note 8(h))
  • provisions (note 8(i))
• accounting policies
• information about determining the fair value of the assets and liabilities, including judgements and estimation uncertainty involved (note 8(j)).

8(a) Property, plant and equipment

Amounts in CU’000	Freehold land	Buildings	Furniture, fittings and equipment	Machinery and vehicles	Assets under construction	Total
At 1 January 2019
Cost or fair value	11,350	28,050	27,510	70,860	–	137,770
Accumulated depreciation	–	–	-7,600	-37,025	–	-44,625
Net carrying amount	11,350	28,050	19,910	33,835	–	93,145
Movements in 2019
Exchange differences	–	–	-43	-150	–	-193
Revaluation surplus	2,700	3,140	–	–	–	5,840
Additions	2,874	1,490	2,940	4,198	3,100	14,602
Assets classified as held for sale and other disposals	-424	–	-525	-2,215	–	3,164
Depreciation charge	–	-1,540	-2,030	-4,580	–	8,150
Closing net carrying amount	16,500	31,140	20,252	31,088	3,100	102,080
At 31 December 2019
Cost or fair value	16,500	31,140	29,882	72,693	3,100	153,315
Accumulated depreciation	–	–	-9,630	-41,605	–	-51,235
Net carrying amount	16,500	31,140	20,252	31,088	3,100	102,080
Movements in 2020
Exchange differences	–	–	-230	-570	–	-800
Revaluation surplus	3,320	3,923	–	–	–	7,243
Acquisition of subsidiary	800	3,400	1,890	5,720	–	11,810
Additions	2,500	2,682	5,313	11,972	3,450	25,917
Assets classified as held for sale and other disposals	-550	–	-5,985	-1,680	–	-8,215
Transfers	–	–	950	2,150	-3,100	–
Depreciation charge	–	-1,750	-2,340	-4,380	–	-8,470
Impairment loss (ii)	–	-465	-30	-180	–	-675
Closing net carrying amount	22,570	38,930	19,820	44,120	3,450	128,890
At 31 December 2020
Cost or fair value	22,570	38,930	31,790	90,285	3,450	187,025
Accumulated depreciation	–	–	-11,970	-46,165	–	-58,135
Net carrying amount	22,570	38,930	19,820	44,120	3,450	128,890

(i) Non-current assets pledged as security

Refer to note 24 for information on non-current assets pledged as security by the group.

(ii) Impairment loss and compensation

The impairment loss relates to assets that were damaged by a fire – refer to note 4(b) for details. The whole amount was recognised as administrative expense in profit or loss, as there was no amount included in the asset revaluation surplus relating to the relevant assets. [IAS 36.130(a)]

An amount of CU300,000 (2019 – nil) was received by the group from an insurance company as compensation for damage to a building caused by the fire and recognised as other income. IAS16(74)(d)

(iii) Revaluation, depreciation methods and useful lives [IAS 1.117]

Land and buildings are recognised at fair value based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to other reserves in shareholders’ equity (note 9(c)). All other property, plant and equipment is recognised at historical cost less depreciation. [IAS 16.73(a)]

Depreciation is calculated using the straight-line method to allocate the cost or revalued amounts of the assets, net of their residual values, over their estimated useful lives as follows: [IAS 16.50, IAS 16.73(b)(c)]

• Buildings 25-40 years
• Machinery 15 years
• Vehicles 3-5 years
• Furniture, fittings and equipment 3-8 years

Furniture, fittings and equipment include assets received in the form of free store fit outs are recognised at their fair value. These assets and other leasehold improvements are depreciated over the shorter of their useful life or the lease term, unless the entity expects to use the assets beyond the lease term.

See note 25(r) for the other accounting policies relevant to property, plant and equipment.

(iv) Significant estimates – valuations of land and buildings

Information about the valuation of land and buildings is provided in note 8(j) below.

(v) Carrying amounts that would have been recognised if land and buildings were stated at cost

If freehold land and buildings were stated on the historical cost basis, the amounts would be as follows: [IAS 16.77(e)]

Amounts in CU’000	2020	2019
Freehold land
Cost	16,100	13,350
Accumulated depreciation	–	–
Net book amount	16,100	13,350
Buildings
Cost	37,322	27,790
Accumulated depreciation	-3,715	-1,850
Net book amount	33,607	25,940

8(b) Leases

This note provides information for leases where the group is a lessee. For leases where the group is a lessor, see note 8(c).

(i) Amounts recognised in the balance sheet

The balance sheet shows the following amounts relating to leases: [IFRS 16.54]

Amounts in CU’000	2020	2019
Right-of-use assets [IFRS 16.47(a)]
Buildings [IFRS 16.53(j)]	3,846	2,994
Equipment [IFRS 16.53(j)]	4,678	5,264
Vehicles [IFRS 16.53(j)]	1,232	1,250
	9,756	9,508
Lease liabilities [IFRS 16.47b)]
Current	3,008	2,777
Non-current	8,493	8,514
	11,501	11,291

Additions to the right-of-use assets during the 2020 financial year were CU2,152,000 (2019 – CU3,000,000). [IFRS 16.53(h)]

(ii) Amounts recognised in profit or loss

The statement of profit or loss shows the following amounts relating to leases: [IFRS 16.54]

Amounts in CU’000	Notes	2020	2019
Depreciation charge of right-of-use assets [IFRS 16.53(a)]
Buildings		-348	-366
Equipment		-1,236	-681
Vehicles		-320	-153
	5(c)	-1,904	-1,200
Interest expense (included in finance cost) [IFRS 16.53(b)]	5(d)	-527	-505
Expense relating to short-term leases (included in cost of goods sold and administrative expenses) [IFRS 16.53(c)]	5(c)	-120	-98
Expense relating to leases of low-value assets that are not shown above as short-term leases (included in administrative expenses) [IFRS 16.53(d)]	5(c)	-85	-69
Expense relating to variable lease payments not included in lease liabilities (included in administrative expenses) [IFRS 16.53(e)]	5(c)	-941	-750

The total cash outflow for leases in 2020 was CU3,615,000 (2019 – CU2,760,000). [IFRS 16.53(g)]

(iii) The group’s leasing activities and their accounting [IAS 1.117]

The group leases various offices, warehouses, retail stores, equipment and vehicles. Rental contracts are typically made for fixed periods of 6 months to 8 years but may have extension options as described in (v) below. [IFRS 16.59(a),(c)]

Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component. [IFRS 16.15]

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: [IAS 1.117, IFRS 16.27]

• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• amounts expected to be payable by the group under residual value guarantees
• the exercise price of a purchase option if the group is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. [IFRS 16.18]

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. [IFRS 16.26]

To determine the incremental borrowing rate, the group: [IAS 1.112(c)]

• where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received
• uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by RePorting Co. Retail Limited, which does not have recent third-party financing, and
• makes adjustments specific to the lease, eg term, country, currency and security.

If a readily observable amortising loan rate is available to the individual lessee (through recent financing or market data) which has a similar payment profile to the lease, then the group entities use that rate as a starting point to determine the incremental borrowing rate.

The group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. [IFRS 16.38]

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following: [IAS 1.117, IFRS 16.24]

• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
• restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.

While the group revalues its land and buildings that are presented within property, plant and equipment, it has chosen not to do so for the right-of-use buildings held by the group. [IFRS 16.35]

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.

Short-term leases are leases with a lease term of 12 months or less without a purchase option. Low-value assets comprise IT equipment and small items of office furniture. [IFRS 16.60]

(iv) Variable lease payments

Some property leases contain variable payment terms that are linked to sales generated from a store. For individual stores, up to 100% of lease payments are on the basis of variable payment terms with percentages ranging from 5% to 20% of sales.

Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established stores. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs. [IFRS 16.59(b)(i), IFRS 16.B49]

A 10% increase in sales across all stores in the group with such variable lease contracts would increase total lease payments by approximately CU93,000 (2019 – CU75,000).

(v) Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the group. These are used to maximise operational flexibility in terms of managing the assets used in the group’s operations.

The majority of extension and termination options held are exercisable only by the group and not by the respective lessor. [IFRS 16.59(b)(ii), IFRS 16.B50]

Critical judgements in determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option.

Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). [IFRS 16.59(b)(ii), IFRS 16.B50]

For leases of warehouses, retail stores and equipment, the following factors are normally the most relevant:

• If there are significant penalty payments to terminate (or not extend), the group is typically reasonably certain to extend (or not terminate).
• If any leasehold improvements are expected to have a significant remaining value, the group is typically reasonably certain to extend (or not terminate).
• Otherwise, the group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.

Most extension options in offices and vehicles leases have not been included in the lease liability, because the group could replace the assets without significant cost or business disruption.

As at 31 December 2020, potential future cash outflows of CU3,000,000 (undiscounted) have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated) (2019 – CU3,570,000).

The lease term is reassessed if an option is actually exercised (or not exercised) or the group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee.

During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options was an increase in recognised lease liabilities and right-of-use assets of CU150,000 (2019 – decrease of CU57,000). [IFRS 16.20]

(vi) Residual value guarantees

To optimise lease costs during the contract period, the group sometimes provides residual value guarantees in relation to equipment leases. [IFRS 16.59(b)(iii), IFRS 16.B51(a),(c)]

Estimating the amount payable under residual value guarantees

The group initially estimates and recognises amounts expected to be payable under residual value guarantees as part of the lease liability. Typically the expected residual value at lease commencement is equal to or higher than the guaranteed amount, and so the group does not expect to pay anything under the guarantees. [IFRS 16.59(b)(iii), IFRS 16.B51(b),(d)]

At the end of each reporting period, the expected residual values are reviewed to reflect actual residual values achieved on comparable assets and expectations about future prices. As at 31 December 2020, CU220,000 is expected to be payable and is included in calculating the lease liabilities while CU350,000 (undiscounted) is not expected to be payable and has hence been excluded from the lease liabilities (2019 – CU250,000 and CU307,000 respectively).

8(c) Investment properties

Amounts in CU’000	2020	2019
Non-current assets – at fair value
Opening balance at 1 January [IAS 40.76]	10,050	8,205
Acquisitions [IAS 40.76(a)]	1,900	–
Capitalised subsequent expenditure [IAS 40.76(a)]	–	810
Classified as held for sale or disposals [IAS 40.76(c)]	–	-112
Net gain/(loss) from fair value adjustment [IAS 40.76(d)]	1,350	1,397
Transfer (to)/from inventories and owner-occupied property [IAS 40.76(f)]	–	-250
Closing balance at 31 December [IAS 40.76]	13,300	10,050

(i) Investment properties related amounts recognised in profit or loss [IAS 40.76(f)]

Amounts in CU’000	2020	2019
Rental income from operating leases [IAS 40.75(f)(i), IFRS 16.90(b)]	6,180	5,165
Direct operating expenses from property that generated rental income[IAS 40.75(f)(ii)]	-807	-606
Direct operating expenses from property that did not generate rental income [IAS 40.75(f)(iii)]	-903	-503
Fair value gain recognised in other income [IAS 40.75(f)(iv)]	1,350	1,397

(ii) Measuring investment property at fair value

Investment properties, principally office buildings, are held for long-term rental yields and are not occupied by the group. They are carried at fair value. Changes in fair values are presented in profit or loss as part of other income. [IAS 40.75(a)]

(iii) Significant estimate – fair value of investment property

Information about the valuation of investment properties is provided in note 8(j) below.

(iv) Non-current assets pledged as security

Refer to note 24 for information on non-current assets pledged as security by the group. [IAS 40.75(g)]

(v) Contractual obligations

Refer to note 18 for disclosure of contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements. [IAS 40.75(h)]

(vi) Leasing arrangements

The investment properties are leased to tenants under operating leases with rentals payable monthly. Lease payments for some contracts include CPI increases, but there are no other variable lease payments that depend on an index or rate. Where considered necessary to reduce credit risk, the group may obtain bank guarantees for the term of the lease. [IFRS 16.92]

Although the group is exposed to changes in the residual value at the end of the current leases, the group typically enters into new operating leases and therefore will not immediately realise any reduction in residual value at the end of these leases. Expectations about the future residual values are reflected in the fair value of the properties.

Minimum lease payments receivable on leases of investment properties are as follows: [IFRS 16.97]

Amounts in CU’000	2020	2019
Within 1 year	4,265	4,245
Between 1 and 2 years	2,580	2,520
Between 2 and 3 years	2,490	2,470
Between 3 and 4 years	2,070	2,050
Between 4 and 5 years	1,980	2,010
Over 5 years	2,370	2,550
	15,775	15,845

8(d) Intangible assets

The following intangible assets are classified as non-current assets and recorded the following movements:

Amounts in CU’000	Goodwill	Patents, trademarks and other rights	Internally developed software	Customer contracts	Total
At 1 January 2019
Cost	9,700	9,410	2,255	–	21,365
Accumulated amortisation and impairment	–	-250	-205	–	-455
Net book amount	9,700	9,160	2,050	–	20,910
Year ended 31 December 2019
Opening net book amount	9,700	9,160	2,050	–	20,910
Additions – internal development	–	–	720	–	720
Exchange differences	45	–	–	–	45
Amortisation charge **	–	-525	-205	–	-730
Closing net book amount	9745	8,635	2,575	–	20,945
At 31 December 2019
Cost	9,745	9,410	2,975	–	22,130
Accumulated amortisation and impairment	–	-775	-410	–	-1,185
Net book amount	9,745	8,635	2,566	–	20,945
Year ended 31 December 2020
Opening net book amount	9,745	8,635	2,566	–	20,945
Additions – internal development	–	–	880	–	880
Acquisition of business (note 14)	1,115	3,020	–	3,180	7,315
Exchange differences	-145	–	–	–	-145
Impairment charge ***	-2,410	–	–	–	-2,410
Amortisation charge **	–	-525	-300	-1,210	-2,035
Closing net book amount	8,305	11,130	3,145	1,970	24,550
At 31 December 2020
Cost	10,715	12,430	3,855	3,180	30,180
Accumulated amortisation and impairment	-2,410	-1,300	-710	-1,210	-5,630
Net book amount	8,305	11,130	3,145	1,970	24,550

* Software consists of capitalised development costs being an internally generated intangible asset. [IAS 38.118(e)(i)]

** Amortisation expenses are included in cost of sales of goods (CU1,050,000; 2019 – CU450,000), cost of providing services (CU475,000; 2019 – CU125,000), marketing expense (CU310,000; 2019 – CU45,000) and administration expenses (CU200,000; 2019 – CU110,000). [IAS 38.118(d)]

*** The carrying amount of the furniture manufacturing and wholesale CGU in Europe has been reduced to its recoverable amount through recognition of an impairment loss against goodwill. This loss is included in cost of sales of goods in the statement of profit or loss. [IAS 36.126(a), IAS 36.130(c)(i),(d)(i)]

RePorting Co. Electronics Group is researching new devices that could replace the current suite of smartphones and tablets. It has incurred research and development expenses of CU1,215,000 (2019 – CU1,010,000), which are included in administration cost in the statement of profit or loss. [IAS 38.126]

(i) Amortisation methods and useful lives [IAS 1.117]

The group amortises intangible assets with a limited useful life, using the straight-line method over the following periods: [IAS 38.118(a),(b)]

• Patents, trademarks and licences 3-5 years
• IT development and software 3-5 years
• Customer contracts 1-3 years

See note 25(t) for the other accounting policies relevant to intangible assets, and note 25(j) for the group’s policy regarding impairments.

(ii) Customer contracts

The customer contracts were acquired as part of a business combination (see note 14 for details). They are recognised at their fair value at the date of acquisition and are subsequently amortised on a straight-line based on the timing of projected cash flows of the contracts over their estimated useful lives. [IAS 1.119]

(iii) Significant estimate: useful life of IT division’s intangible assets [IAS 1.125]

The group has recently completed the development of software that is used to analyse business processes by the IT consulting division. As at 31 December 2020, the carrying amount of this software was CU722,000 (2019 – nil). The group estimates the useful life of the software to be at least five years based on the expected technical obsolescence of such assets.

However, the actual useful life may be shorter or longer than five years, depending on technical innovations and competitor actions. If it were only three years, the carrying amount would be CU702,000 as at 31 December 2020. If the useful life were estimated to be eight years, the carrying amount would be CU732,000.

(iv) Impairment tests for goodwill

Goodwill is monitored by management at the level of the six operating segments identified in note 2. [IAS 36.134]

A segment-level summary of the goodwill allocation is presented below: [IAS 36.134(a)]

Amounts in CU’000	Neverland	US	China	Europe	Total
2020
IT consulting	–	4,200	–	2870	7,070
Furniture – manufacturing and wholesale	120	–	–	–	120
Electronic equipment	1,115	–	–	–	1,115
	1,235	4,200	–	2870	8,305
2019
IT consulting	–	4,200	–	3015	7,215
Furniture – manufacturing and wholesale	120	–	2,410	–	2,530
	120	4,200	2,410	3,015	9,745

(v) Significant estimate: key assumptions used for value-in-use calculations

The group tests whether goodwill has suffered any impairment on an annual basis. For the 2020 and 2019 reporting periods, the recoverable amount of the cash-generating units (CGUs) was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. [IAS 36.134(c), IAS 36.134(d)(i),(iii),(iv)]

Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with forecasts included in industry reports specific to the industry in which each CGU operates.

The following table sets out the key assumptions used in the value-in-use calculations for those CGUs that have significant goodwill allocated to them: [IAS 36.134(d)(i)]

[IAS 36.130(g), IAS 36.134(d)(i),(iv),(v)]	Furniture – manufacturing and wholesale	IT consulting		Electronic equipment
	China	US	Europe	Neverland
2020
Sales volume (% annual growth rate)	2.7%	3.2%	4.1%	2.9%
Sales price (% annual growth rate)	1.4%	1.7%	1.8%	1.8%
Budgeted gross margin (%)	47.0%	60.0%	55.5%	40.0%
Other operating costs (CU’000)	9,500	8,400	5,600	1,650
Annual capital expenditure (CU’000)	`1900	500	230	150
Long-term growth rate (%)	3.5%	2.2%	2.0%	3.1%
Pre-tax discount rate (%)	14.7%	14.0%	14.8%	16.0%
2019
Sales volume (% annual growth rate)	2.5%	3.0%	3.9%	–
Sales price (% annual growth rate)	1.3%	1.6%	1.8%	–
Budgeted gross margin (%)	44.0%	60.0%	54.0%	–
Other operating costs (CU’000)	9,300	8,300	4,350	–
Annual capital expenditure (CU’000)	1850	580	225	–
Long-term growth rate (%)	3.2%	2.2%	1.8%	–
Pre-tax discount rate (%)	14.3%	14.4%	15.1%	–
Management has determined the values assigned to each of the above key assumptions as follows: [IAS 36.134(d)(ii), (iv)]
Assumption	Method used to determining values
Sales volume	Average annual growth rate over the five-year forecast period; based management’s expectations of market development combined with past performance.
Sales price	Average annual growth rate over the five-year forecast period; based on current industry trends and including long-term inflation forecasts for each territory.
Budgeted gross margin	Based on past performance and management’s expectations for the future.
Other operating costs	Fixed costs of the CGUs, which do not vary significantly with sales volumes or prices. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost-saving measures. The amounts disclosed above are the average operating costs for the five-year forecast period.
Annual capital expenditure	Expected cash costs in the CGUs. This is based on the historical experience of management, and the planned refurbishment expenditure. No incremental revenue or cost savings are assumed in the value-in-use model as a result of this expenditure.
Long-term growth rate	This is the weighted average growth rate used to extrapolate cash flows beyond the budget period. The rates are consistent with forecasts included in industry reports.
Pre-tax discount rates [IAS 36.55]	Reflect specific risks relating to the relevant segments and the countries in which they operate.

Customer concentration/dependency – IT consulting CGU – Europe

The IT consulting CGU in Europe generates 20% of its total revenues for each financial year from a key customer in France. The customer contract is for a five-year term, and the customer has been trading with the CGU since 2001. Management has included the renewal of this key customer contract in the value-in-use calculations to determine the recoverable amount of the CGU. [IAS 36.134(d)(ii)]

(vi) Significant estimate – impairment charge [IAS 36.134(f)]

The impairment charge of CU2,410,000 arose in the furniture manufacturing and wholesale CGU in China following a decision to reduce the manufacturing output allocated to these operations. This was a result of a redefinition of the group’s allocation of manufacturing volumes across all CGUs in order to benefit from advantageous market conditions.

Following this decision, the group reassessed the depreciation policies of its property, plant and equipment in this country and estimated that their useful lives will not be affected following this decision. No class of asset other than goodwill was impaired. [IAS 36.129(a), IAS 36.130(a),(b),(d),(e), IAS 36.130(e)]

As at 31 December 2020, the recoverable amount of the entire CGU was CU45,789,000.

(vii) Significant estimate: impact of possible changes in key assumptions

Furniture manufacturing and wholesale CGU – China [IAS 36.134(f)]

If the budgeted gross margin used in the value-in-use calculation for the furniture manufacturing and wholesale CGU in China had been 5% lower than management’s estimates at 31 December 2020 (42% instead of 47%), the group would have had to recognise an impairment against the carrying amount of property, plant and equipment of CU1,300,000.

The reasonably possible change of 5% reduction in budgeted gross margin represents a reasonably possible reduction in sales price of 0.2% (i.e. annual growth rate of 1.2% instead of 1.4%). [IAS 1.129(b), IAS 36.134(f)]

If the pre-tax discount rate applied to the cash flow projections of this CGU had been 1% higher than management’s estimates (15.7% instead of 14.7%), the group would have had to recognise an impairment against property, plant and equipment of CU600,000.

In the prior year, there were no reasonably possible changes in any of the key assumptions that would have resulted in an impairment write-down in the Chinese furniture manufacturing and wholesale CGU.

IT consulting CGU – Europe

The recoverable amount of the IT consulting CGU in Europe is estimated to exceed the carrying amount of the CGU at 31 December 2020 by CU388,000 (2019 – CU463,000). [IAS 36.134(f)(i), IAS 1.38]

The recoverable amount of this CGU would equal its carrying amount if the key assumptions were to change as follows: [IAS 36.134(f)(ii), (iii), IAS 1.38]

	2020		2019
	From	To	From	To
Sales volume (% annual growth rate)	4.1%	3.5%	3.9%	2.5%
Budgeted gross margin (%)	55.5%	49.0%	54.0%	46.0%
Long-term growth rate (%)	2.0%	1.5%	1.8%	1.3%
Pre-tax discount rate (%)	14.8%	15.5%	15.1%	15.9%

The directors and management have considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amount of the European IT consulting CGU to exceed its recoverable amount.

8(e) Deferred tax balances

(i) Deferred tax assets

Amounts in CU’000	Notes	2020	2019
The balance comprises temporary differences attributable to: [IAS 12.81(g)(i)]
Lease liabilities	8(b)	3,450	3,387
Tax losses		3,170	2,245
Defined benefit pension obligations	8(h)	1,317	783
Provisions for warranties, restructurings, refunds, make good obligations and legal claims	8(i)	1,137	786
		9,074	7,201
Other
Employee benefits		914	822
Finance leases	8(a)	–	232
Cash flow hedges	12(a)	230	234
Loss allowances for financial assets	12(c)	215	121
Derivatives held for trading	12(a)	183	186
Contract liabilities – customer loyalty programme	3(b)	166	161
Contingent liability	8(i)	143	–
Write-down of building	4	140	–
Refund liabilities	7(f)	148	71
Other		65	18
Subtotal other		2,204	1,613
Total deferred tax assets		11,278	8,814
Set-off of deferred tax liabilities pursuant to set-off provisions [IAS 12.74]	(ii)	-3,429	-3,290
Net deferred tax assets		7,849	5,524

Significant estimates

The deferred tax assets include an amount of CU1,378,000 which relates to carried-forward tax losses of RePorting Co. Manufacturing Limited. The subsidiary has incurred the losses over the last two financial years following the acquisition of the manufacturing operations in Springfield. They relate to the one-off costs of integrating the operations and will not recur in future.

The group has concluded that the deferred assets will be recoverable using the estimated future taxable income based on the approved business plans and budgets for the subsidiary. The subsidiary is expected to generate taxable income from 2022 onwards. The losses can be carried forward indefinitely and have no expiry date. [IAS 1.125. IAS 12.82]

Amounts in CU’000	Lease liabilities	Tax losses	Pension obligation	Provisions	Other	Total
At 1 January 2019	2,888	1,300	551	610	1,201	6,550
(Charged)/credited
– to profit or loss [IAS 12.81(g)(ii)]	499	945	-41	176	108	1,687
– to other comprehensive income	–	–	273	–	304	577
At 31 December 2019	3,387	2,245	783	786	1,613	8,814
(Charged)/credited
– to profit or loss [IAS 12.81(g)(ii)]	63	-600	-4	351	194	4
– to other comprehensive income	–	–	-36	–	77	41
– directly to equity	–	–	–	–	60	60
Acquisition of subsidiary	–	1,525	574	–	260	2,359
At 31 December 2020	3,450	3,170	1,317	1,137	2,204	11,278

(ii) Deferred tax liabilities

Amounts in CU’000	Notes	2020	2019
The balance comprises temporary differences attributable to: [IAS 12.81(g)(i)]
Property, plant and equipment	8(a)	6,243	4,125
Right-of-use assets	8(b)	2,927	2,852
Intangible assets	8(d)	2,375	770
Investment property	8(c)	1,124	719
		12,669	8,466
Other
Convertible notes	7(g)	955	–
Financial assets at fair value through profit or loss	7(d)	804	441
Cash flow hedges	12(a)	649	639
Financial assets at fair value through other comprehensive income	7(c)	173	142
Investments in associates	11316(e)	131	113
Prepayments	-7(a)	125	118
Inventories	8(f)	120	–
Non-current asset recognised for costs to fulfil a contract	3(b)	94	156
Share-based payments (deferred shares)	21(b)	51	22
Other		114	13
Subtotal other		3,216	1,644
Total deferred tax liabilities		15,885	10,110
Set-off of deferred tax liabilities pursuant to set-off provisions [IAS 12.74]	(i)	-3,429	-3,290
Net deferred tax liabilities		12,456	6,820

Offsetting within tax consolidated group

RePorting Co. Plc and its wholly-owned Neverland subsidiaries have applied the tax consolidation legislation, which means that these entities are taxed as a single entity. As a consequence, the deferred tax assets and deferred tax liabilities of these entities have been offset in the consolidated financial statements.

Amounts in CU’000	Property, plant and equipment	Right-of-use assets	Intangible assets	Investment property	Other	Total
At 1 January 2019	2,150	2,312	615	300	1,291	6,668
(Charged)/credited
– to profit or loss [IAS 12.81(g)(ii)]	223	540	155	419	62	1,399
– to other comprehensive income	1752	–	–	–	291	2,043
At 31 December 2019	4,125	2,852	770	719	1,644	10,110
(Charged)/credited
– to profit or loss [IAS 12.81(g)(ii)]	-379	75	-255	405	-23	-177
– to other comprehensive income	2173	–	–	–	425	2,598
– directly to equity	–	–	–	–	1,050	1,050
Acquisition of subsidiary	324	–	1,860	–	120	2,304
At 31 December 2020	6,243	2,927	2,375	1,124	3,216	15,885

8(f) Inventories

Amounts in CU’000	2020	2019
Current assets
Raw materials and stores [IAS 1.77, IAS 2.36(b)]	6,200	4,800
Work in progress [IAS 2.36(b)]	5,600	5,400
Finished goods – at cost [IAS 2.36(b)]	6,663	8,452
Finished goods – at fair value less cost to sell [IAS 2.36(c)]	1,290	1,020
Land held for development and resale [IAS 2.36(b)]	2,400	–
	22,153	19,672

(i) Assigning costs to inventories [IAS 1.117]

The costs of individual items of inventory are determined using weighted average costs. The exception is land held for development and resale, where costs are assigned by specific identification and include the cost of acquisition, development and borrowing costs incurred during the development. See note 25(m) for the group’s other accounting policies for inventories. [IAS 2.23, IAS 2.25, IAS 2.36(a)]

(ii) Amounts recognised in profit or loss

Inventories recognised as an expense during the year ended 31 December 2020 amounted to CU55,540,000 (2019 – CU34,244,000). These were included in cost of sales and cost of providing services (except for CU535,000 of inventories damaged by a fire which are recognised in administrative expense – refer to note 4). [IAS 2.36(d)]

Write-downs of inventories to net realisable value amounted to CU950,000 (2019 – CU750,000). These were recognised as an expense during the year ended 31 December 2020 and included in cost of sales in the statement of profit or loss. [IAS 2.36(e), IAS 36.126(a)]

The group reversed CU160,000 of a previous inventory write-down in July 2020, as the group sold the relevant goods that had been written down to an independent retailer in Argentina at original cost. The amount reversed has been included in cost of sales in the statement of profit or loss. [IAS 2.36(f),(g)]

8(g) Other assets and assets classified as held for sale

Amounts in CU’000	2020	2019
Other current assets
Prepayments [IAS 1.77]	500	475
Right to returned goods (see note 3(b)) [IAS 1.77]	76	38
	576	513
Non-current assets held for sale
Land	250	–
	250	–

(i) Land held for sale

In November 2020, the directors of RePorting Co. Manufacturing Limited decided to sell a parcel of vacant land which was originally acquired for an expansion of the Nicetown factory. There are several interested parties and the sale is expected to be completed before the end of June 2021.

The asset is presented within total assets of the Neverland Furniture – manufacturing and wholesale segment in note 2. [IFRS 5.41(a),(b),(d)]

Refer to note 15(d) for information about assets and liabilities of a disposal group that were classified as held for sale at 31 December 2019.

(ii) Non-recurring fair value measurements

Land classified as held for sale during the reporting period was measured at the lower of its carrying amount and fair value less costs to sell at the time of the reclassification, resulting in the recognition of a write-down of CU22,000 as administrative expenses in the statement of profit or loss.

The fair value of the land was determined using the sales comparison approach, as described in note 8(j) below. This is a level 2 measurement as per the fair value hierarchy set out in note 7(h) above. [IFRS 13.91(a), IFRS 13.93(b),(d), IFRS 5.41(c)]

8(h) Employee benefit obligations

Amounts in CU’000	2020			2019
	Current	Non-current	Total	Current	Non-current	Total
Leave obligations (i)	690	2,220	2,910	470	2,270	2,740
Share appreciation rights (note 21(d))	–	138	138	–	–	–
Defined pension benefits (ii)	–	3,684	3,684	–	1,900	1,900
Post-employment medical benefits (iii)	–	707	707	–	711	711
Total employee benefit obligations	690	6,749	7,439	470	4,881	5,351

(i) Leave obligations

The leave obligations cover the group’s liabilities for long service leave and annual leave which are classified as either other long-term benefits or short-term benefits, as explained in note 25(y).

The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service leave where employees have completed the required period of service, and also for those employees who are entitled to pro-rata payments in certain circumstances. [IAS 1.61]

The entire amount of the provision of CU690,000 (2019 – CU470,000) is presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations.

However, based on past experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not expected to be taken or paid within the next 12 months.

Amounts in CU’000	2020	2019
Current leave obligations expected to be settled after 12 months	344	272

(ii) Defined benefit pension plans

The group operates defined benefit pension plans in Neverland and the US under broadly similar regulatory frameworks. All of the plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable for life.

The level of benefits provided depends on members’ length of service and their salary in the final years leading up to retirement. In the Neverland plans, pensions in payment are generally updated in line with the retail price index, whereas in the US plans, pensions generally do not receive inflationary increases once in payment. With the exception of this inflationary risk in Neverland, the plans face broadly similar risks, as described below. [IAS 19.139(a), IAS 1.112(c)]

The majority of benefit payments are from trustee-administered funds; however, there are also a number of unfunded plans where the group meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between the group and the trustees (or equivalent) and their composition.

Responsibility for governance of the plans – including investment decisions and contributions schedules – lies jointly with the group and the board of trustees. The board of trustees must be composed of representatives of the group and plan participants in accordance with the plan’s regulations.

The group also operates a couple of defined contribution plans which receive fixed contributions from group companies. The group’s legal or constructive obligation for these plans is limited to the contributions. The expense recognised in the current period in relation to these contributions was CU2,425,000 (2019 – CU2,075,000). [IAS 19.53]

Balance sheet amounts

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows: [IAS 19.140(a)(i), (ii), IAS 19.141]

Amounts in CU’000	Present value of obligation	Fair value of plan assets	Total	Impact of minimum funding requirement/ asset ceiling	Net amount
At 1 January 2019	3,479	-2,264	1,215	120	1,335
Current service cost	319	–	319		319
Past service cost	179	–	179		179
Interest expense/(income)	214	-156	58	5	63
Total amount recognised in profit or loss	712	-156	556	5	561
Remeasurements
– Return on plan assets, excluding amounts included in interest (income)	–	-85	-85	–	-85
– Loss from change in demographic assumptions	20	–	20	–	20
– Loss from change in financial assumptions	61	–	61	–	61
– Experience losses	641	–	641	–	641
– Change in asset ceiling, excluding amounts included in interest expense	–	–	–	80	80
Total amount recognised in other comprehensive income	722	-85	637	80	717
Exchange differences	-324	22	-302	–	302
Contributions:
– Employers	–	-411	-411	–	-411
– Plan participants	30	-30	–	–	–
Benefit payments	-127	127	–	–	–
At 31 December 2019	4,492	-2,797	1,695	205	1,900
Current service cost	751	–	751	–	751
Past service cost	65	–	65		65
Interest expense/(income)	431	-308	123	9	132
Total amount recognised in profit or loss	1,247	-308	939	9	948
Remeasurements
– Return on plan assets, excluding amounts included in interest (income)	–	-187	-187	–	-187
– Loss from change in demographic assumptions	32	–	32	–	32
– Loss from change in financial assumptions	121	–	121	–	121
– Experience losses	-150	–	-150	–	-150
– Change in asset ceiling, excluding amounts included in interest expense	–	–	–	100	100
Total amount recognised in other comprehensive income	3	-187	-184	100	-84
Exchange differences	-61	-25	-86	–	86
Contributions:
– Employers	–	-908	-908	–	-908
– Plan participants	55	-55	–	–	–
Payments from plan:
– Benefit payments	-566	566	–	–	–
– Settlements	-280	280	–	–	–
Acquired in business combination (see note 14)	3,691	-1,777	1,914	–	1,914
At 31 December 2020	8,581	-5,211	3,370	314	3,684

One of our Neverland plans has a surplus that is not recognised, on the basis that future economic benefits are not available to the entity in the form of a reduction in future contributions or a cash refund. [IAS 19.141]

In connection with the closure of a factory, a curtailment loss was incurred and a settlement arrangement agreed with the plan trustees, effective 31 December 2020, which settled all retirement benefit plan obligations relating to the employees of that factory. In the prior year, the group made minor amendments to the terms of the plan, resulting in past service cost of CU179,000. [IAS 19.139(c)]

The net liability disclosed above relates to funded and unfunded plans as follows: [IAS 19.138(e)]

Amounts in CU’000	2020	2019
Present value of funded obligations	6,155	2,943
Fair value of plan assets	-5,211	-2,797
Deficit of funded plans	944	146
Present value of unfunded obligations	2,426	1,549
Total deficit of defined benefit pension plans (before asset ceiling)	3,370	1,695

The group has no legal obligation to settle the deficit in the funded plans with an immediate contribution or additional one off contributions. The group intends to continue to contribute to the defined benefit section of the plan at a rate of 14% of salaries, in line with the actuary’s latest recommendations. [IAS 1.112(c)]

The following table shows a breakdown of the defined benefit obligation and plan assets by country: [IAS 19.138(a)]

Amounts in CU’000	2020			2019
	Neverland	US	Total	Neverland	US	Total
Present value of obligation	4,215	4,366	8,581	1,050	3,442	4,492
Fair value of plan assets	-2,102	-3,109	-5,211	-394	-2,403	-2,797
	2,113	1,257	3,370	656	1,039	1,695
Impact of minimum funding requirement/asset ceiling	314		314	205		205
Total liability	2,427	1,257	3,684	861	1,039	1,900

As at the last valuation date, the present value of the defined benefit obligation included approximately CU3,120,000 (2019 – CU1,371,000) relating to active employees, CU3,900,000 (2019 – CU2,115,000) relating to deferred members and CU1,561,000 (2019 – CU1,006,000) relating to members in retirement. [IAS 19.137(a)]

(iii) Post-employment medical plans

The group operates a number of post-employment medical benefit schemes, principally in the US. The majority of these plans are unfunded. The method of accounting, significant assumptions and the frequency of valuations are similar to those used for the defined benefit pension schemes set out above with the addition of actuarial assumptions relating to the long-term increase in healthcare costs of 8.0% (2019 – 7.6%) and claim rates of 6% (2019 – 5.2%). [IAS 19.138, IAS 19.139(a), IAS 1.112(c), IAS 19.144]

Balance sheet amounts

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows: [IAS 19.140(a)(i), (ii), IAS 19.141]

Amounts in CU’000	Present value of obligation	Fair value of plan assets	Net amount
At 1 January 2019	708	-207	501
Current service cost	107	–	107
Interest expense/(income)	25	-13	12
Total amount recognised in profit or loss	132	-13	119
Remeasurements
– Return on plan assets, excluding amounts included in interest (income)	–	-11	-11
– Loss from change in demographic assumptions	3	–	3
– Loss from change in financial assumptions	7	–	7
– Experience losses	194	–	194
Total amount recognised in OCI	204	-11	193
Exchange differences	-31	2	-29
Employer contributions/premiums paid	–	-73	-73
Benefit payments from plan	-8	8	–
At 31 December 2019	1,005	-294	711
Current service cost	153	–	153
Interest expense/(income)	49	-18	31
Total amount recognised in profit or loss	202	-18	184
Remeasurements
– Return on plan assets, excluding amounts included in interest (income)	–	-33	-33
– Loss from change in demographic assumptions	4	–	4
– Loss from change in financial assumptions	10	–	10
– Experience losses	-16	–	-16
Total amount recognised in OCI	-2	-33	-35
Exchange differences	37	-5	32
Employer contributions/premiums paid	–	-185	-185
Benefit payments from plan	-7	7	–
At 31 December 2020	1,235	-528	707

The net liability disclosed above relates to funded and unfunded plans as follows: [IAS 19.138(e)]

Amounts in CU’000	2020	2019
Present value of funded obligations	650	350
Fair value of plan assets	-528	-294
Deficit of funded plans	122	56
Present value of unfunded obligations	585	655
Total deficit of post-employment medical plans	707	711

(iv) Post-employment benefits (pension and medical)

Significant estimates: actuarial assumptions and sensitivity

The significant actuarial assumptions were as follows: [IAS 19.144]

	2020		2019
	Neverland	US	Neverland	US
Discount rate	5.1%	5.2%	5.5%	5.6%
Salary growth rate	4.0%	4.5%	4.5%	4.0%
Pension growth rate	3.0%	0.0%	3.1%	0.0%
Long-term increase in health care costs	–	8.0%	–	7.6%
Claim rates	–	6.0%	–	5.2%

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:

	2020		2019
	Neverland	US	Neverland	US
Retiring at the end of the reporting period:
– Male	22	20	22	20
– Female	25	24	25	24
Retiring 20 years after the end of the reporting period:
– Male	24	23	24	23
– Female	27	26	27	26

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: [IAS 19.145(a)]

	Change in assumption		Impact on defined benefit obligation
			Increase in assumption			Decrease in assumption
	2020	2019		2020	2019		2020	2019
Discount rate	0.50%	0.30%	Decrease by	8.2%	6.6%	Increase by	9.0%	7.2%
Salary growth rate	0.50%	0.70%	Increase by	1.8%	2.3%	Decrease by	1.7%	2.1%
Pension growth rate	0.25%	0.30%	Increase by	4.7%	5.2%	Decrease by	4.4%	5.1%
Life expectancy	+/- 1 year		Increase by	2.8%	2.5%	Decrease by	2.9%	2.7%
Long-term increase in health care costs	0.50%	0.40%	Increase by	5.5%	5.2%	Decrease by	4.8%	4.3%
Claim rates	0.50%	0.40%	Increase by	6.3%	5.9%	Decrease by	6.8%	6.4%

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.

When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet. [IAS 19.145(b)]

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period. [IAS 19.145(c)]

Balance sheet amounts

The major categories of plan assets are as follows: [IAS 19.142]

Amounts in CU’000	At 31 December 2020				At 31 December 2019
	Quoted	Un-quoted	Total	in %	Quoted	Un-quoted	Total	in %
Equity instruments			1,824	32%			1,216	39%
– Information technology	502	–	502		994	–	994
– Energy	557	–	557		–	–	–
– Manufacturing	746	–	746		194	–	194
– Other	–	19	19		–	28	28
Debt instruments			2,161	38%			571	19%
– Government	916	–	916		321	–	321
– Corporate bonds (investment grade)	900	–	900		99	–	99
– Corporate bonds (non-investment grade)	68	277	345		41	110	151
Property			1,047	18%			943	31%
– In US	–	800	800		–	697	697
– In Neverland	–	247	247		–	246	246
Qualifying insurance policies	–	419	419	7%	–	190	190	6%
Cash and cash equivalents	177	–	177	3%	94	–	94	3%
Investment funds	111	–	111	2%	77	–	77	2%
Total	3,977	1,762	5,739	100%	1,820	1,271	3,091	100%

The assets set out in the above table include ordinary shares issued by RePorting Co. Plc with a fair value of CU530,000 (2019 – CU410,000) and land and buildings occupied by the group with a fair value of CU550,000 (2019 – CU580,000). [IAS 19.143]

Risk exposure

Through its defined benefit pension plans and post-employment medical plans, the group is exposed to a number of risks, the most significant of which are detailed below: [IAS 19.139(b)]

Risk	Considerations
Asset volatility	The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. Both the Neverland and US plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long term while providing volatility and risk in the short term. As the plans mature, the group intends to reduce the level of investment risk by investing more in assets that better match the liabilities. The first stage of this process was completed in FY2020 with the sale of a number of equity holdings and purchase of a mixture of government and corporate bonds. The government bonds represent investments in Neverland and US government securities only. The corporate bonds are global securities with an emphasis on Neverland and the US. However, the group believes that, due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing equity investment is an appropriate element of the group’s long-term strategy to manage the plans efficiently. See below for more details on the group’s asset-liability matching strategy.
Changes in bond yields	A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
Inflation risks	Some of the group’s pension obligations are linked to salary inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plan’s assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that an increase in inflation will also increase the deficit. In the US plans, the pensions in payment are not linked to inflation, so this is a less material risk.
Life expectancy	The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant in the Neverland plan, where inflationary increases result in higher sensitivity to changes in life expectancy.

In the case of funded plans, the group ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the pension schemes.

Within this framework, the group’s ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. [IAS 19.146]

The group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods.

The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

A large portion of assets in 2020 consists of equities and bonds, although the group also invests in property, bonds, cash and investment (hedge) funds. The group believes that equities offer the best returns over the long term with an acceptable level of risk.

The majority of equities are in a globally diversified portfolio of international blue chip entities, with a target of 60% of equities held in Neverland and Europe, 30% in the US, and the remainder in emerging markets.

(v) Defined benefit liability and employer contributions

The group has agreed that it will aim to eliminate the pension plan deficit over the next nine years. Funding levels are monitored on an annual basis, and the current agreed contribution rate is 14% of pensionable salaries in Neverland and 12% in the US.

The next valuation is due to be completed as at 31 December 2021. The group considers that the contribution rates set at the last valuation date are sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase significantly. [IAS 19.147(a)]

Expected contributions to post-employment benefit plans for the year ending 31 December 2021 are CU1,150,000. [IAS 19.147(b)]

The weighted average duration of the defined benefit obligation is 25.2 years (2019 – 25.8 years). The expected maturity analysis of undiscounted pension and post-employment medical benefits is as follows: [IAS 19.147(c)]

Amounts in CU’000	Less than a year	Between 1 – 2 years	Between 2 – 5 years	Over 5 years	Total
At 31 December 2020
Defined benefit obligation	628	927	2,004	21,947	25,506
Post-employment medical benefits	127	174	614	4,775	5,690
Total	755	1,101	2,618	26,722	31,196
[IAS 1.38]
At 31 December 2019
Defined benefit obligation	314	450	1,103	12,923	14,790
Post-employment medical benefits	69	88	388	2,591	3,136
Total	383	538	1,491	15,514	17,926

8(i) Provisions

Amounts in CU’000	2020			2019
	Current	Non-current	Total	Current	Non-current	Total
Make good provision (i)	225	1,573	1,798	–	1,382	1,382
Restructuring costs (i)	900	–	900	–	–	–
Service warranties (i)	635	–	635	920	–	920
Legal claim (i)	460	–	460	320	–	320
Contingent liability (note 14)	477	–	477	–	–	–
	2,697	1,573	4,270	1,240	1,382	2,622

(i) Information about individual provisions and significant estimates

Make good provision

RePorting Co. Retail Limited is required to restore the leased premises of its retail stores to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease and the useful life of the assets. [IAS 37.85(a),(b)]

Restructuring

The reduction in output in the furniture manufacturing and wholesale division (see note 8(d) above) resulted in the loss of 155 jobs at two factories. An agreement was reached with the local union representatives in October 2020, which specifies the number of staff involved and the voluntary redundancy compensation package offered by the group, as well as amounts payable to those made redundant.

The total estimated staff restructuring costs to be incurred are CU1,050,000. Other direct costs attributable to the restructuring, including costs incurred in relation to the cancellation of supply contracts, are CU327,000. These costs were fully provided for in the current reporting period. The remaining provision of CU900,000 is expected to be fully utilised over the next 12 months. [IAS 37.85(a),(b)]

Service warranties

Provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. These claims are expected to be settled in the next financial year. [IAS 37.85(a),(b)]

The group generally offers 12-month warranties for its personal computer products. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims.

The assumptions made in relation to the current period are consistent with those in the prior year. Factors that could impact the estimated claim information include the success of the group’s productivity and quality initiatives, as well as parts and labour costs.

As at 31 December 2020, this particular provision had a carrying amount of CU330,000 (2019 – CU450,000). If claims costs were to differ by 10% from management’s estimates, the warranty provisions would be an estimated CU33,000 higher or lower (2019 – CU45,000 higher/lower). [IAS 1.125, IFRS 15.119(e)]

Legal claim

In October 2020, an unfavourable judgment was handed down against the group in respect of a legal claim made by a customer of the IT consulting segment. However, after taking appropriate legal advice, the directors have decided to appeal against the decision.

No payment has been made to the claimant pending outcome of the appeal. If upheld, payment of CU860,000 will be required. The recognised provision reflects the directors’ best estimate of the most likely outcome. The court of appeal is expected to consider this matter in August 2021. [IAS 37.85(a),(b)]

See note 25(x) for the group’s other accounting policies relevant to provisions.

(ii) Movements in provisions

Movements in each class of provision during the financial year are set out below: [IAS 37.84]

Amounts in CU’000	Make good provision	Restructuring obligations	Service warranties	Contingent liability	Legal claim	Total
At 1 January 2020	1,382	–	920	–	320	2,622
Acquired through business combination	–	–	–	450	–	450
Additional provision charged to plant and equipment [IAS 37.84(b)]	350	–	–	–	–	350
Charged/(credited) to profit or loss
– additional provisions recognised [IAS 37.84(b)]	–	1,377	268	–	140	1,785
– unused amounts reversed [IAS 37.84(d)]	–	–	-330	–	–	-330
– unwinding of discount [IAS 37.84(e)]	66	–	–	27	–	93
Amounts used during the year [IAS 37.84(c)]	–	-477	-223	–	–	-700
at 31 December 2020	1,798	900	635	477	460	4,270

8(j) Recognised fair value measurements

(i) Fair value hierarchy

This note explains the judgements and estimates made in determining the fair values of the non-financial assets that are recognised and measured at fair value in the financial statements.

To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its non-financial assets and liabilities into the three levels prescribed under the accounting standards. An explanation of each level is provided in note 7(h).

Table: [IFRS 13.93(a),(b), IAS 1.38]

Amounts in CU’000	Notes	Level 1	Level 2	Level 3	Total
At 31 December 2020
Investment properties
– Office buildings – West Harbourcity	8(c)	–	–	13,300	13,300
Land and buildings
– Manufacturing sites – Neverland	8(a)	–	–	43,750	43,750
– Manufacturing sites – China		–	–	17,750	17,750
Land held for sale	8(g)	–	250	–	250
Total non-financial assets		–	250	74,800	75,050
At 31 December 2019
Investment properties
– Office buildings – West Harbourcity	8(c)	–	5,135	4,915	1,050
Land and buildings
– Manufacturing sites – Neverland	8(a)	–	–	32,487	32,487
– Manufacturing sites – China		–	–	15,153	15,153
Total non-financial assets		–	5,135	52,555	57,690

The group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. [IFRS 13.95]

There were no transfers between levels 1 and 2 for recurring fair value measurements during the year. For transfers into and out of level 3 measurements see (iv) below. [IFRS 13.93(c)]

(ii) Valuation techniques used to determine level 2 and level 3 fair values

The group obtains independent valuations for its investment properties at least annually and for its freehold land and buildings related to manufacturing sites (classified as property, plant and equipment) at least every three years. [IFRS 13.91(a), IFRS 13.93(d), IAS 16.77(a), IAS 40.75(e)]

At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. The directors determine a property’s value within a range of reasonable fair value estimates.

The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available the directors consider information from a variety of sources including:

• current prices in an active market for properties of a different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences
• discounted cash flow projections based on reliable estimates of future cash flows
• capitalised income projections based on a property’s estimated net market income, and a capitalisation rate derived from an analysis of market evidence.

All resulting fair value estimates for properties are included in level 3 except for land held for resale. The level 2 fair value of land held for resale has been derived using the sales comparison approach.

The key inputs under this approach are the price per square metre from current year sales of comparable lots of land in the area (location and size).

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods ended 31 December 2019 and 31 December 2020 for recurring fair value measurements: [IFRS 13.93(e)]

Amounts in CU’000		Manufacturing sites
	Office buildings	Neverland	China	Total
Opening balance 1 January 2019 [IAS 1.38]	3,470	27,043	12,357	42,870
Acquisitions	810	2,584	1,780	5,174
Disposals	-112	-424	–	-536
Reclassification to inventory	-250	–	–	-250
Amounts recognised in profit or loss
– Depreciation and impairment	–	-1,100	-440	-1,540
– Gains recognised in other income *	997	–	–	997
Gains recognised in other comprehensive income	–	4,384	1,456	5,840
Closing balance 31 December 2019	4,915	32,487	15,153	52,555
Transfer from level 2	5,135	–	–	5,135
Acquisitions	1,900	7,135	2,247	11,282
Disposals	–	-550	–	-550
Amounts recognised in profit or loss
– Depreciation and impairment	–	-1,360	-855	-2,215
– Gains recognised in other income *	1,350	–	–	1,350
Gains recognised in other comprehensive income	–	6,038	1,205	7,243
Closing balance 31 December 2020	1,330	43,750	17,750	74,800

* Note: includes unrealised gains or (losses) recognised in profit or loss attributable to balances held at the end of the reporting period, as follows: [IFRS 13.93(f)]

2020	1,350	–	–	1,350
2019	907	–	–	907

(iv) Transfers between levels 2 and 3 and changes in valuation techniques

The group commenced redevelopment of an office building in Neverland during the year. The redevelopment will greatly expand the net lettable area of the building and is expected to be completed in early 2021. Prior to redevelopment, the building was valued using the sales comparison approach based on recent sales of comparable properties in the area.

This resulted in a level 2 fair value. Upon redevelopment, the group had to revise its valuation technique for the property under construction. The revised valuation technique uses significant unobservable inputs. Accordingly, the fair value measurement was reclassified to level 3. [IFRS 13.93(d)]

The revised valuation technique for the building under construction estimates the fair value of the completed office building and deducts: [IFRS 13.93(d)]

• estimated construction and other costs to completion that would be incurred by a market participant, and
• estimated profit margin that a market participant would require to hold and develop the property to completion, based on the state of the property as at 31 December 2020.

Other than described above, there were no changes in valuation techniques during the year.

(v) Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in recurring level 3 fair value measurements (see (ii) above for the valuation techniques adopted): [IFRS 13.93(d), IFRS 13.99]

Table: [IFRS 13.91(a), IFRS 13.93(d), IFRS 13.93(h)(i)]

Description	Fair value at		Unobservable inputs *	Range of inputs (probability-weighted average)		Relationship of unobservable inputs to fair value
	31/12/20	31/12/19		2020	2019
Leased office buildings	7,765	4,915	Discount rate	4% – 5% (4.8%)	3% – 4% (3.6%)	The higher the discount rate and terminal yield, the lower the fair value
			Terminal yield	6% – 7% (6.6%)	5.5% – 6% (5.8%)
			Capitalisation rate	4% – 4.5% (4.4%)	4% – 4.5% (4.2%)	The higher the capitalisation rate and expected vacancy rate, the lower the fair value
			Expected vacancy rate	9% – 10% (9.2%)	8% – 10% (8.7%)
			Rental growth rate	3% – 3.6% (3.2%)	2% – 2.5% (2.2%)	The higher the rental growth rate, the higher the fair value
Office building under re-development	5,535	n/a – Level 2 fair value	Estimated cost to completion	CU3,230,000 – CU3,510,000 (CU3,395,000)	n/a	The higher the estimated costs, the lower the fair value
			Estimated profit margin required to hold and develop property to completion	12.5% of property value	n/a	The higher the profit margin required, the lower the fair value
Manufacturing sites – Neverland	43,750	32,487	Discount rate	6% – 7% (6.7%)	8% – 9% (7.7%)	The higher the discount rate and terminal yield, the lower the fair value
			Terminal yield	8% – 9% (8.2%)	9.5% – 10% (9.7%)
Manufacturing sites – China	17,750	15,153	Discount rate	10% – 12% (11%)	9% – 10% (9.4%)	The higher the discount rate and terminal yield, the lower the fair value
			Terminal yield	14% – 15% (14.3%)	13% – 14% (13.2%)

* Note: There were no significant inter-relationships between unobservable inputs that materially affect fair values. [IFRS 13.93(h)(i)]

(vi) Valuation processes

[IFRS 13.93(g)]

The group engages external, independent and qualified valuers to determine the fair value of the group’s investment properties at the end of every financial year, and for other land and buildings at least every three years. As at 31 December 2020, the fair values of the investment properties have been determined by ABC Property Surveyors Limited. [IAS 40.75(e), IAS 16.77(a),(b)]

A directors’ valuation has been performed for the land and buildings classified as property, plant and equipment as at 31 December 2020. The last independent valuation of these land and buildings was performed as at 31 December 2019.

The main level 3 inputs used by the group are derived and evaluated as follows:

• Leased office buildings – discount rates, terminal yields, expected vacancy rates and rental growth rates are estimated by ABC Property Surveyors Limited or management based on comparable transactions and industry data.
• Office building under redevelopment – costs to completion and profit margin are estimated by ABC Property Surveyors Limited based on market conditions as at 31 December 2020. The estimates are consistent with the budgets developed internally by the group based on management’s experience and knowledge of market conditions.

Changes in level 2 and level 3 fair values are analysed at each reporting date during the half-yearly valuation discussion between the CFO, AC and the valuation team. As part of this discussion, the team presents a report that explains the reason for the fair value movements.

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