annington annual rep 2019-web - Page 52



Financial statements | Notes to the financial statements
Notes to the financial statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IFRS 15 Revenue from Contracts with Customers
Critical accounting judgements and key sources of
estimation uncertainty (continued)
The Group has adopted IFRS 15 Revenue from Contracts with
Customers (as amended in April 2016) as of 1 April 2018. IFRS
15 replaces IAS 18 Revenue, IAS 11 Construction Contracts
and related interpretations. IFRS 15 introduces a five step
approach to determining the amount and timing of revenue to
be recognised in respect of contracts with customers.
Provision for utilities
When determining the provision for utilities, the estimation
technique requires an assumption be made of the future cost
and the timing of works to connect sites to public utilities.
These estimated cash flows are then discounted at an
appropriate rate that reflects current assessments of the risks
associated with the liability. These inputs, i.e. discount rate and
estimates of future costs, if not accurate, could have a material
effect on the provision balance. As an example, if the discount
rate assumption increased/decreased by 0.5%, the provision
would decrease by £0.9 million/increase by £1.0 million
respectively.
Cross currency swap valuations
The Group uses derivative financial instruments to hedge its
exposure to foreign currency movements. The cross currency
swaps are carried in the balance sheet at fair value with
changes in fair value being included in the income statement,
unless the derivate is designated and effective as a hedging
instrument.
The derivative financial instruments are not actively traded
and the fair value of these derivative contracts are based on
assumptions and information derived from directly observable
markets.
Changes in assumptions and observable market information
could materially affect the computed fair value of the
derivatives. This change may affect the profit or loss in
the income statement and/or the gain or loss in other
comprehensive income.
Details of the derivative financial instruments are set out in
Note 19.
New Standards, interpretations and amendments
effective from 1 April 2018
The Group has adopted all the new accounting standards,
interpretations and amendments, which have become effective
for the year ended 31 March 2019. Those that have impacted
the Group’s current accounting policies are described below:
IFRS 9 Financial Instruments
The Group elected to early adopt IFRS 9 Financial Instruments
(as revised in July 2014) for the year ended 31 March 2018,
applying a full retrospective adoption. There are therefore
no transition adjustments in the current year relating to this
standard.
52 | Annington Limited Annual Report & Accounts 2019
The application of this standard has had no impact on revenue
recognition for the current or prior year.
IAS 40 Amendments – Transfers to Investment Property
The Group has applied these amendments for the first time
in the current year. The amendments clarify that a transfer to,
or from, an investment property necessitates an assessment
of whether a property meets, or has ceased to meet, the
definition of investment property, supported by observable
evidence that a change in use has occurred. The amendments
further clarify change in use situations including change in use
for properties under construction (i.e. a change in use is not
limited to completed properties).
The application of this amendment has had no impact on the
Group’s consolidated financial statements in the current or
prior year.
3. NEW STANDARDS AND INTERPRETATIONS ISSUED BUT
NOT YET EFFECTIVE
At the date of authorisation of these financial statements,
the following new and revised IFRSs have been issued and
adopted by the EU but are not yet effective:
New/Amended Standards
and Interpretations
Effective date
(annual periods
beginning on
or after)
IFRS 16
Leases
1 January 2019
IAS 28
Amendments
Long-term Interests in
Associates and Joint
Ventures
1 January 2019
IFRIC 23
Uncertainty over Income Tax
Positions
1 January 2019
Annual
Improvements to
IFRS Standards
2015–2017 Cycle
Amendments to IFRS 3
Business Combinations,
IFRS 11 Joint Arrangements,
IAS 12 Income Taxes and
IAS 23 Borrowing Costs
1 January 2019
These standards and interpretations have not been early
adopted by the Group, however, it has assessed the likely
impact of adoption in future years as follows:
IFRS16 Leases
Under current accounting requirements (IAS 17), arrangements
classified as operating leases result in lease payments
being expensed on a straight-line basis over the lease term
and disclosing in the annual financial statements the total
commitment for future years. No lease asset or liability is
recognised.
For lessees, the adoption of IFRS 16 will result in operating
leases being recognised on the balance sheet, resulting in an
asset for the right to use the leased item and a financial liability
for future lease payments discounted to present value. The
only exceptions are short-term and low-value assets which will
be expensed on a straight-line basis over the lease term.
In contrast, the IFRS 16 accounting treatment for lessors is
largely unchanged from IAS 17, which require the lessor to
continue to classify the lease as either an operating or a finance
lease.
As lessor, the Group leases properties which are currently
recognised as operating leases and under IFRS 16 they will
continue to be classified as operating leases with no change to
the accounting treatment.
As lessee, the Group intends to apply the modified
retrospective adoption method permitted by IFRS 16 and
therefore will only recognise leases on the balance sheet as
at 1 April 2019. Furthermore, the Group expects to measure
the right-of-use assets by reference to the measurement of the
lease liability on that date.
4. PROPERTY AND NET RENTAL INCOME
ACCOUNTING POLICY
Property rental income – Revenue recognition
Property rental income from investment properties is
accounted for on an accruals basis and recognised on a
straight-line basis over the operating lease term. Rent increases
arising from rent reviews not able to be determined at the
outset of the lease are taken into account when such reviews
have been settled with the tenants. Lease incentives and costs
associated with entering into tenant leases are amortised over
the lease term.
Property rental income
2019
£’000
2018
£’000
196,793
193,067
Net rental income
Net rental income comprises property rental income less
property operating expenses. Property operating expenses are
expensed as incurred and property operating expenditure not
recovered from tenants is charged to the income statement.
The Group generates substantially all of its net rental income,
profits before taxation and net assets from residential property
investment in England and Wales.
The Group anticipates that additional liabilities and right-ofuse assets of between £2.4 million and £3.0 million will be
recognised on the balance sheet at 1 April 2019. Instead of
expensing operating lease payments, the Group will instead
recognise interest on its lease liabilities and depreciation on its
right-of-use assets. This is expected to increase administration
expenses and finance charges by approximately £0.6 million to
£1.0 million for the year ended 31 March 2020 when compared
to the current accounting treatment under IAS 17.
Operating cash outflows are expected to decrease and
financing cash outflows increase between approximately
£0.7 million and £1.1 million as the repayment of the principal
portion of the lease liabilities will be classified as cash flows
from financing activities.
The Group will apply the standard from its mandatory adoption
date for reporting periods beginning after 1 January 2019, this
being 1 April 2019.
There are no other standards or interpretations that are not yet
effective and that would be expected to have a material impact
on the Group in the current or future reporting periods and on
foreseeable future transactions.
Annington Limited Annual Report & Accounts 2019 | 53

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