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| Name | Symbol | Market | Type |
|---|---|---|---|
| Acorn P2. 24 | LSE:77WZ | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
From Dec 2019 to Dec 2024
TIDM77WZ
RNS Number : 0882P
Acorn Project (Two) LLP
05 June 2020
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
ANNUAL REPORT
AND
FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
CONTENTS PAGE
Partnership Information 1
Report of the Managing Partner 2
Statement of Managing Partner's Responsibilities 3
Report of the Independent Auditors 4 - 5
Financial Statements:
Partnership Statement of Financial Position 6
Consolidated Statement of Financial Position 7
Partnership Statement of Profit or Loss and Other Comprehensive Income
8
Consolidated Statement of Profit or Loss and Other Comprehensive Income
9
Statement of Changes in Partners' Equity 10
Partnership Statement of Cash Flows 11
Consolidated Statement of Cash Flows 12
Notes to the Financial Statements 13 - 30
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP INFORMATION
FOR THE YEARED 31 DECEMBER 2019
PRINCIPAL PLACE OF BUSINESS AND REGISTERED OFFICE
Acorn House, 2(nd) Floor
97 James Gichuru Road
Lavington
P.O. Box 13759, 00100
Nairobi
BANKERS
Stanbic Bank Kenya Limited
Chiromo Branch
P.O Box 72833-00200
Nairobi
SOLICITORS
Triple OK Law Advocates
ACK Garden House, 5th Floor, Wing C
First Ngong Avenue, off Bishop Road
P.O Box 43170-00100
Nairobi
AUDITORS
Ernst & Young LLP
Kenya-Re Towers, Upper Hill
3 Ragati Close
P.O. Box 44286 - 00100
Nairobi
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
REPORT OF THE MANAGING PARTNER
FOR THE YEARED 31 DECEMBER 2019
The Managing Partner submits the annual report and the audited financial statements for the year ended 31 December 2019, which show the state of affairs of Acorn Project (Two) LLP ("the partnership") and subsidiaries (together, "the group").
1. PRINCIPAL ACTIVITIES
The principal activity of the partnership is that of being a holding partnership with subsidiaries operating at different levels of the value chain in the real estate sector .
2. RESULTS
The results of the partnership and the group for the year are set out on pages 8 to 9.
3. PARTNERS' EQUITY
The partners' equity is set out in page 10.
4. BOARD OF RE PRESENTATIVES
The representatives who served during the year and to the date of this report were:
Name Representing Edward Kirathe Managing Partner Peter Njenga Managing Partner 5. AUDITORS
The auditors, Ernst & Young LLP, were appointed during the year and have expressed their willingness to continue in office.
...........................................
Managing Partner's representative
............................................
Date
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
STATEMENT OF MANAGING PARTNER'S RESPONSIBILITIES
FOR THE YEARED 31 DECEMBER 2019
The Managing Partner is required by the partnership deed to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the group and the partnership as at the end of the financial year and of its operating results for that year. The partnership deed also requires the Managing Partner to ensure the group and the partnership keeps proper accounting records that disclose, with reasonable accuracy, the financial position. The Managing Partner is also responsible for safeguarding the assets of the group and the partnership.
The Managing Partner accepts responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and in the manner required by the partnership deed. The Managing Partner is of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the group and the partnership and of its operating results.
The Managing Partner further accepts responsibility for the maintenance of accounting records, which may be relied upon in the preparation of the financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the Managing Partner to indicate that the group and the partnership will not remain a going concern for at least the next twelve months from the date of this report.
The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that the group and the partnership will continue to receive the support of its Managing Partner and that the realization of assets and settlement of liabilities will occur in the ordinary course of business.
................................................
Managing Partner's representative
REPORT OF THE INDEPENT AUDITORS
TO THE MEMBERS OF
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
We have audited the accompanying financial statements of Acorn Project (Two) LLP ("the partnership") and its subsidiaries (together, "the group") , set out on pages 6 to 30, which comprise the consolidated and partnership statement of financial position as at 31 December 2019, and the consolidated and partnership statement of profit or loss and other comprehensive income, statement of changes in partners equity, consolidated and partnership statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the group and the partnership as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in a manner required by the Partnership Deed.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audits of financial statements in Kenya. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
The Managing Partner is responsible for the other information. The other information comprises the Managing Partner's Report and Statement of Managing Partner's Responsibilities. The other information does not include the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Managing Partner's for the Financial Statements
The Managing Partner is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and in a manner required by the Partnership Deed and for such internal control as the Managing Partner determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Managing Partner is responsible for assessing the group and the partnership's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the group and the partnership either intends to liquidate the or to cease operations, or has no realistic alternative but to do so.
The Managing Partner is responsible for overseeing the Partnership's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Managing Partner.
-- Conclude on the appropriateness of the Managing Partner's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Partnership's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Partnership to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated and the partnership's financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Managing Partner regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
The engagement partner responsible for the audit resulting in this independent auditor's report is CPA Allan Gichuhi - practicing certificate number 1899.
Nairobi, Kenya
................................. 2020
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
Hot Features
Premium
2019
ASSETS Note KShs 000
NON-CURRENT ASSETS
Investment in subsidiaries 7 1,909,915
Intercompany loan 6 709,729
2,619,644
CURRENT ASSETS
Other receivables 5 85,813
Bank balances and cash 8 34,077
119,890
TOTAL ASSETS 2,739,534
EQUITY AND LIABILITIES
PARTNERS' EQUITY
Partners' capital account 1,936,670
NON-CURRENT LIABILITIES
Borrowing 10 786,000
CURRENT LIABILITIES
Trade and other payables 9 16,864
TOTAL EQUITY AND LIABILITIES 2,739,534
The financial statements were approved by the Partners on...............................................2020 and signed on their behalf by:
................................................................. )
)
) Partners' representatives
)
................................................................. )
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
2019
ASSETS Note KShs 000
NON-CURRENT ASSETS
Investment property 4 2,651,000
CURRENT ASSETS
Other receivables 5 216,180
Bank balances and cash 8 200,434
416,614
TOTAL ASSETS 3,067,614
EQUITY AND LIABILITIES
PARTNERS' EQUITY
Non-controlling interest 95,157
Partners' capital account 1,936,670
2,031,827
NON-CURRENT LIABILITIES
Borrowing 10 786,000
CURRENT LIABILITIES
Trade and other payables 9 249,787
TOTAL EQUITY AND LIABILITIES 3,067,614
The financial statements were approved by the Partners on...............................................2020 and signed on their behalf by:
................................................................. )
)
) Partners' representatives
)
................................................................. )
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
2019
Note KShs 000
EXPENSES
Administration 12 (547)
OPERATING LOSS (547)
Share of profit in subsidiaries 238,656
PROFIT FOR THE YEAR 238,109
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
2019
Note KShs 000
INCOME
Fair value gain on revaluation of investment
properties 4 246,977
Other income 11 4,020
250,997
EXPENSES
Administration 12 (13,301)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 237,696
Total comprehensive income for the year is attributable
to:
Partner of the parent 238,109
Non-controlling interests (413)
237,696
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
STATEMENT OF CHANGES IN PARTNERS EQUITY
FOR THE YEARED 31 DECEMBER 2019
Partnership
Managing
partner
KShs 000
Capital contribution 1,698,561
Share of profit for the year 238,109
At 31 December 2019 1,936,670
Consolidated
Managing Other
partner partner Total
KShs 000 KShs 000 KShs 000
Capital contribution 1,698,561 95,570 1,794,131
Share of profit/(loss)
for the year 238,109 (413) 237,696
At 31 December 2019 1,936,670 95,157 2,031,827
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
PARTNERSHIP STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
2019
OPERATING ACTIVITIES Note KShs 000
Profit for the year 238,109
Operating profit before working capital changes 238,109
Increase in other receivables (85,813)
Increase in trade and other payables 16,864
Net cash flows generated from operating activities 169,160
INVESTING ACTIVITIES
Intercompany loan advanced (709,729)
Investment in subsidiaries 7 (1,909,915)
Net cash flows used in investing activities (2,619,644)
FINANCING ACTIVITIES
Proceeds from borrowings 786,000
Capital contributions from the partners 1,698,561
Net cash flows generated from financing activities 2,484,561
Net increase in cash and cash equivalents 34,077
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR -
CASH AND CASH EQUIVALENTS AT THE OF THE
YEAR 8 34,077
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
Note 2019
KShs 000
OPERATING ACTIVITIES
Profit for the year 237,696
Adjustment for:
Fair value gain on revaluation of investment
property 4 (246,977)
Operating loss before working capital changes (9,281)
Increase in other receivables and prepayments (216,180)
Increase in trade and other payables 249,787
Net cash flows generated from operating activities 24,326
INVESTING ACTIVITIES
Investment in subsidiaries (2,651,000)
Net cash flows used in investing activities (2,651,000)
FINANCING ACTIVITIES
Proceeds from borrowings 786,000
Capital contributions from the partners 2,041,108
Net cash flows generated from financing activities 2,827,108
Net increase in cash and cash equivalents 200,434
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR -
CASH AND CASH EQUIVALENTS AT THE OF THE
YEAR 8 200,434
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
1. GENERAL INFORMATION
Acorn Project (Two) LLP ('the Partnership') is a limited liability partnership registered on 1 November 2017.
The registered office and principal place of business of the partnership is Acorn house, 2(nd) floor, 97 James Gichuru Road, Lavington, Nairobi. The Managing Partner of the partnership is Acorn Holdings Limited. The Managing Partner is responsible for day to day management of the business of the LLP and management of assets and the contributed land and conduct of the business and shall otherwise have full power and authority to do all things necessary to carry out the purpose of the LLP. The Managing Partner has delegated most of the day to day management activities to Acorn Management Services Limited ('the Project Manager').
This includes but is not limited to communicate to the consultants the requirements of the project brief; monitor the design of design work and achievement of function be reference to the project brief; monitor and regulate the program and progress; monitor and use his best endeavors to coordinate the efforts of all consultants, advisors, contractors and suppliers directly connected to the project; monitor the cost and financial rewards of the project. Whilst this delegation exists, the Managing Partner remains responsible for approving all actions taken as a result of these activities.
The objectives of the partnership are: construction and development of the construction land for purpose of developing the contributed land as commercial property ('The project'); procure financing for the project in order to undertake the project; undertake such activities that would be necessary to realize the objectives of the LLP and maximize capital appreciation including (i) reducing risk profile of the project (ii) improving the project's business outlook and (iii) achieving the preferred IRR.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below.
(a) Basis of preparation
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretation of those standards and in the manner required by the Partnership Deed. The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenyan Shillings and all values are rounded to the nearest thousand (KShs 000), except where otherwise indicated.
(b) Statement of compliance
The financial statements of the Partnership have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
(c) Basis of consolidation
The consolidated financial statements comprise the financial statements of the partnership and its subsidiaries, as at 31 December 2019. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continues to be consolidated until the date when such control ceases. The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (c) Basis of consolidation (continued)
Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee), exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. The Group consolidates an investee and present in its consolidated financial statements the investee's assets, liabilities, equity, income, expenses and cash flows, if the Group has the current ability to direct those activities of the investee that significantly affect the investee's returns and can benefit by using that ability.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiary to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets, liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
(d) Significant accounting judgments, estimates and assumptions
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on the Managing Partner's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.
Other disclosures relating to the Partnership's exposure to risks and uncertainties include:
-- Financial risk management (note 14), and -- Capital risk management (note 15).
The most significant use of judgment, estimates and assumptions are as follows:
Valuation of Investment property
The fair value of investment property is determined by real estate valuation experts using recognised valuation techniques and the principles of IFRS 13 Fair Value Measurement. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in notes 4 and 13.
(e) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued)
(e) Financial instruments (continued)
Financial assets (continued)
Initial recognition and measurement (continued)
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Partnership's business model for managing them. The Partnership initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Partnership's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Partnership commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
-- Financial assets at amortised cost (debt instruments)
-- Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
-- Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
-- Financial assets at fair value through profit or loss
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Partnership. The Partnership measures financial assets at amortised cost if both of the following conditions are met:
-- The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and,
-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Partnership's financial assets at amortised cost includes loans to cash and bank balances, receivables and prepayments and amounts due from related parties.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (e) Financial instruments (continued)
Financial assets (continued)
Financial assets at fair value through OCI (debt instruments)
The Partnership measures debt instruments at fair value through OCI if both of the following conditions are met:
-- The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling
And
-- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
For debt instruments at fair value through OCI, foreign exchange revaluation and impairment losses or reversals are recognised in profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.
The Partnership does not have any financial assets classified as debt instruments at fair value through OCI.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Partnership can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Partnership does not have any financial assets classified as Financial assets designated at fair value through OCI (equity instruments)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in profit or loss.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (e) Financial instruments (continued)
Financial assets (continued)
Impairment of financial assets
Overview of ECL principles
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 1 months' expected credit loss (1mECL).
The 1mECL is the portion of LTECLs that represent the ECLs that result from default events on a financial instrument that are possible within the 1 months after the reporting date.
The Partnership has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument's credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.
For receivables, the entity applies a simplified approach in calculating ECLs. Therefore, the entity does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.
There were no expected credit losses on the other financial instruments. This is due to the fact that cash and bank and other receivables are short-term, thus the fair value does not materially differ from the cost
Derecognition
A financial asset is derecognised when:
-- The rights to receive cash flows from the asset have expired
-- The Partnership has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement ; and either:
(a) the Partnership has transferred substantially all the risks and rewards of the asset, or
(b) the Partnership has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
When the Partnership has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Partnership continues to recognise the transferred asset to the extent of the Bank's continuing involvement. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Partnership has retained.
Write-offs
Financial assets are written off either partially or in their entirety only when the Partnership has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (e) Financial instruments (continued)
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings or other liabilities, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Partnership's financial liabilities include tenant deposits, other payables, borrowings, interest payable and amounts due to related
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Partnership has not designated any financial liability as at fair value through profit or loss.
Loans and borrowings
This is the category most relevant to the Partnership. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
This category generally applies to:
Borrowings: Interest bearing loans are recorded at the proceeds received. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (f) Taxes
Value added tax
Expenses and assets are recognised net of the amount of value added tax, except:
-- When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable
-- When receivables and payables are stated with the amount of sales tax included
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
(g) Provisions
Provisions are recognised when the Partnership has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Partnership expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement.
(h) Investment property
Investment property comprises property under construction that is held to earn rentals or for capital appreciation or both.
Investment property is measured initially at cost, including transaction costs. Transaction costs include transfer taxes, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise, including the corresponding tax effect.
(i) Fair value measurements
The Partnership measures investment properties at fair value at each reporting date. Fair value related disclosures for items measured at fair value or where fair values are disclosed, are summarised in the following notes:
-- Accounting policy disclosures; note 2 -- Disclosures for valuation methods, significant estimates and assumptions; notes 2, 4 and 13 -- Investment properties; notes 4 and 13
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
-- In the principal market for the asset or liability
Or
-- In the absence of a principal market, in the most advantageous market for the asset or liability
The Partnership must be able to access the principal or the most advantageous market at the measurement date.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (i) Fair value measurements (continued)
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Partnership uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
(j) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. In the instance of specific funding being obtained, the net borrowing costs capitalised is the actual borrowing cost incurred on the amount borrowed specifically to finance the asset less any investment income earned on surplus funds. In the case of general borrowings, the capitalised borrowing cost is determined using the overall weighted average cost of the general borrowings during the year and applying this rate to the costs incurred on the asset. The amount capitalised can never exceed the borrowing costs incurred. Capitalisation of borrowing costs ceases when all activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised in the profit or loss in the year in which they are incurred.
(k) Revenue recognition
The entity recognises revenue from the following major source:
Rental income
Rental income comprises direct lets to students and leases to commercial tenants. This revenue is recognised in the income statement over the length of the tenancy period as the Partnership provides the services to its customers. Included in the rental contract is the use of broadband facilities and room cleaning services. The Partnership does not offer these services as stand-alone products. Under IFRS 15 the Partnership does not consider these services to be individually material and has, consequently, bundled these obligations as a single contract. The transaction prices for rental income are explicitly stated in each contract. A contract liability can result from payments received in advance, until the date at which control is transferred to the customer and at that point the revenue begins to be recognised over the tenancy period. Lease incentives are sometimes recognised on commercial units; these are recognised as an integral part of the total rental income and spread over the term of the lease.
Revenue is measured based on the consideration to which the Partnership expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Partnership recognises revenue when it transfers control of its service to a customer. There has been no impact to the revenue balances on transition to IFRS 15.
Interest income
Interest income is recognised as it accrues using the effective interest rate (EIR) method. The EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. Interest income is included in finance income in the statement of profit or loss.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (l) Property and equipment
Recognition and measurement
Items of property and equipment are initially measured at cost. Cost includes the purchase price of an asset and other costs that are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. After initial recognition, property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs
The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.
(m) Business combination and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
(n) Investments in subsidiaries
Investments in subsidiaries are carried in the Partnership's statement of financial position at fair value. The Partnership's subsidiary is a limited liability partnership, which own investment property, either completed or under construction. The Group carries investment properties at fair value as do the subsidiary. As a result, the carrying value of a subsidiary reflects the Group's share of the underlying property asset.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
2. SIGNIFICANT ACCOUNTING POLICIES ( continued) (n) Investments in subsidiaries (continued)
The Group's share of profits or losses of the partnership is recognised in profit or loss in the period it is earned. The Group's capital and current accounts with partnerships are presented in the statement of financial position as non-current receivables or payables.
(o) Impairment of non-financial assets
Non-financial assets that are carried at amortised cost are reviewed at the end of each reporting period for any indication that an asset may be impaired. If any such indication exists, an impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.
3. NEW AND AMED STANDARDS AND INTERPRETATIONS
New standards, amendments and interpretations adopted by the Partnership
The below amendments and interpretations apply for the first time in 2019, but do not have an impact on the financial statements of the Partnership. The Partnership has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
The following new standards and amendments became effective as of 1 January 2019:
-- IFRS 16 Leases
-- IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
-- Prepayment Features with Negative Compensation - Amendments to IFRS 9
-- Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28
-- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
-- AIP IFRS 3 Business Combinations - Previously held Interests in a joint operation
-- AIP IFRS 11 Joint Arrangements - Previously held Interests in a joint operation
-- AIP IAS 12 Income Taxes - Income tax consequences of payments on financial instruments
-- AIP IAS 23 Borrowing Costs - Borrowing costs eligible for capitalization
Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Partnership's financial statements are listed below.
Effective for annual periods beginning on or after 1 January 2020
-- Definition of a Business - Amendments to IFRS 3
-- Definition of Material - Amendments to IAS 1 and IAS 8
-- The Conceptual Framework for Financial Reporting
Effective for annual periods beginning on or after 1 January 2021
-- IFRS 17 Insurance Contracts
Effective date postponed indefinitely
-- Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
None of the standards and interpretations listed above is expected to have a significant impact on the Partnership's financial statements when they become effective.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
Group
2019
4. INVESTMENT PROPERTY KShs 000
Construction costs incurred 2,404,023
Changes in fair value gain on revaluation
of investment property 246,977
At 31 December 2019 2,651,000
The fair value of Acacia Vale Properties LLP has been determined
using the income capitalisation method, while the other subsidiaries
have been determined using market comparable and cost approach
as described in note 13.
The valuations were performed by Axis Real Estate Limited, an
accredited independent valuer with a recognised and relevant
professional qualification and immense local experience and
category of the investment property being valued. The valuation
model in accordance with that recommended by the International
Valuation Standards Committee has been applied. These valuation
models are consistent with the principles in IFRS 13.
All investment property is classified as Level 3 in the fair
value hierarchy (see note 13).
5. OTHER RECEIVABLES
Partnership Group
2019 2019
KShs 000 KShs 000
VAT recoverable 5,753 5,753
Accrued income 80,060 80,060
Advance payments - 12,166
Deposit and prepayments - 118,201
85,813 216,180
6. INTERCOMPANY LOAN Partnership
2019
KShs 000
Acacia Vale Properties LLP 661,422
Linden Properties LLP 48,307
709,729
The Partnership has advanced an intercompany loan to Acacia
Vale Properties LLP and Linden Properties LLP. The purpose of
the loan is to finance construction of rental property on LR
No. 209/11654 Nairobi Kenya and LR No.8393/26. The intercompany
loan, which is part of the first draw down of the Medium-Term
Note by Acorn Project (Two) LLP, is unsecured. Interest charged
is payable within the 5 years at 12.5% per annum.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
7. INVESTMENT IN SUBSIDIARIES
At 31 December 2019, Rowan Properties LLP is partly owned by
non-controlling partners. The amounts receivable/(payable) under
the current accounts with the LLPs during the year were:
At 1 January Fair Value Additional At 31 December
2019 Gain/(loss) Investment 2019
KShs 000 KShs 000 KShs 000 KShs 000
Acacia Vale Properties
LLP 337,622 381,129 (7,706) 711,045
Rowan Properties LLP 99,562 (1,554) 278,329 376,337
Linden Properties LLP 93,143 (67,165) 36,142 62,120
Beech Properties LLP 333,591 (55,645) 32,599 310,545
Spruce Properties LLP - (17,003) 341,630 324,627
Mahogany Creek Properties
LLP - (504) 27,494 26,990
Ashvale Properties LLP - (516) 98,755 98,239
Hemlock Properties LLP - (4) 10 6
Scotchpine Properties
LLP - (4) 10 6
863,918 238,734 807,263 1,909,915
The fair values of the LLPs are based on their net asset values which have underlying properties valued with reference to the market valuation. Details of the Group's property valuations are set out in note 13 and the fair values are classified within Level 3 of the fair value hierarchy.
Below is a summary of the subsidiaries, held by the Partnership
at 31 December 2019
Ownership Voting Country of
% rights incorporation Activity
Acacia Vale Properties
LLP 100% 100% Kenya Student Accommodation
Rowan Properties LLP 50% 50% Kenya Student Accommodation
Linden Properties
LLP 100% 100% Kenya Student Accommodation
Beech Properties LLP 100% 100% Kenya Student Accommodation
Spruce Properties
LLP 100% 100% Kenya Student Accommodation
Mahogany Creek Properties
LLP 100% 100% Kenya Student Accommodation
Ashvale Properties
LLP 100% 100% Kenya Student Accommodation
Hemlock Properties
LLP 100% 100% Kenya Student Accommodation
Scotchpine Properties
LLP 100% 100% Kenya Student Accommodation
Partnership Group
2019 2019
8. BANK BALANCES AND CASH KShs 000 KShs 000
Cash at bank and on hand 34,077 200,434
9. TRADE AND OTHER PAYABLES
Trade payables 2,116 23,625
Accruals and other payables 14,748 153,565
Retention - 72,597
16,864 249,787
Partnership
2019
10. BORROWINGS KShs 000
Medium Term Note 786,000
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
10. BORROWINGS (continued)
The partnership issued Medium Term Note that were subscribed
up to KShs 4.3 billion. The notes were issued through a restricted
public offer to professional investors. The purpose of the loan
is to finance construction of purpose-built student accommodation
in Nairobi and its environs . The loan is secured by (i) a composite
debenture over all the assets of the issuer and the project entities,
(ii) a legal charge over each title of land held by the project
entities over which the project development will be constructed,
(iii) 50% guarantee from GuarantCo on principal and interest
payments, (iv) corporate guarantee by Acorn Holdings Ltd, (v)
pledge in respect of the partnership interest of Acorn Holdings
Limited in the Issuer and the partnership interest of the Issuer
in each of the project entities including various subordination
agreements, (vi) charge over each collection account and the
debt service reserve account.
The principal amount is repayable over a term of 5 years with
yearly redemption clause at issuer's option. The interest rate
is at a fixed rate of 12.25% per annum. The drawdown will be
in 14 quarterly tranches as actual project development progresses.
The interest repayment will be made quarterly from the first
drawdown.
Group
2019
11. OTHER INCOME KShs 000
Interest income 4,020
Interest income arose from interest earned from funds placed
in call account.
Partnership Group
2019 2019
12. ADMINISTRATION AND ESTABLISHMENT KShs 000 KShs 000
Auditor's remuneration 538 4,072
Payroll processing fees - 4,215
Salaries and benefits - 2,742
Tax consultancy and other professional
fees - 2,098
Exchange loss on foreign exchange - 4
Other costs 9 170
547 13,301
13. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY
An external valuer is responsible for the external valuations of the entity's investment property for the annual financial statements on an annual basis. The selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. In the year under reporting, we used the services of Axis Real Estate Limited.
Valuations for interim reporting purposes are performed internally by the Managing Partner. Internal methodology is aligned with those used by external valuers and such methods are externally validated by an independent party. As at each year end, the investment property is valued by external valuers. The Managing Partner is also involved in the year end valuation process.
At each reporting date, the Managing Partner analyses the movements in the property's value. For this analysis, the Managing Partner analyzes major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts (e.g., rent amounts in leases), market reports (e.g., market rent, cap rates in property market reports) and other relevant documents. In addition, the accuracy of the computation is tested on a sample basis.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
13. FAIR VALUE MEASUREMENT - INVESTMENT PROPER (continued)
13.1 Changes in valuation techniques
The fair value was previously determined based on the discounted cashflow method. The Group believes that the income capitalization approach and market comparable and cost approach methods provides better transparency than the discounted cashflow method and has, therefore, decided to change the valuation method. This change in valuation method is applied prospectively as it is a change in estimate. Other than as described above, there were no other changes in valuation techniques during the year.
13.2. Highest and best use
Given the location of the investment properties, the current use of the properties is considered the highest and best use.
13.3 Fair value hierarchy
The following tables show an analysis of the fair values of investment property recognised in the statement of financial position by level of the fair value measurement hierarchy (as disclosed in note 2):
Fair value measurement using
Total gain
Quoted for the
year in
prices Significant Significant the
in active Observable unobservable statement
of profit
markets Inputs inputs or
(Level (Level
31 December 2019 1) 2) (Level 3) Total loss
KShs 000 KShs 000 KShs 000 KShs 000 KShs 000
Investment property - - 2,651,000 2,651,000 246,977
Transfers between hierarchy levels
There were no transfers between Levels 1, 2 or 3 during 2019.
Profits recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to KShs 246,977,000 and are presented in the statement of profit or loss in line item 'Fair value gain on revaluation of investment property'.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting year.
Valuation techniques used to derive Level 2 and Level 3 fair values
The table below presents the following for each class of the investment property:
-- The fair value measurements at the end of the reporting year
-- The level of the fair value hierarchy (e.g. Level 2 or Level 3) within which the fair value measurements are categorised in their entirety
-- A description of the valuation techniques applied
-- The inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
13. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued)
For Level 3 fair value measurements, quantitative information about the significant unobservable inputs used in the fair value measurement.
Fair value Range
Investment properties Valuation (weighted
KShs 000 technique Key unobservable inputs average)
2019
Acacia Vale
Properties LLP Income capitalization
Estimated Rental Value (p.a)
LR 209/11654 1,329,000 KShs 000 167,148
Occupancy rate 92%
Outgoings 30%
Net yield p.a. 8%
Rowan Properties
LLP Market comparable
LR 9509/44 537,000 Average % of completion 47%
Plinth area (sq. ft) 145,016
Avg cost per sq. ft 4,200
Apportioned professional fees
(KShs 000) 28,269
Land value (KShs 000) 120,000
Linden Properties
LLP Market comparable
LR 8393/26 120,000 Average % of completion 4.5%
Plinth area (sq. ft) 122,793
Avg cost per sq. ft 5,000
Apportioned professional fees
(KShs 000) 15,840
Land value (KShs 000) 85,000
Beech Properties
LLP Market comparable
LR 209/5663/2 340,000 Plinth area (sq. ft) 20,575
Avg cost per sq. ft 500
Apportioned professional fees
(KShs 000) 29,500
Land value (KShs 000) 280,000
Spruce Properties
LLP Market comparable
LR 7820/1 325,000 Acre 5
Market rate per acre (KShs
000) 65,000
Total 2,651,000
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEARED 31 DECEMBER 2019
13. FAIR VALUE MEASUREMENT - INVESTMENT PROPERTY (continued)
Significant increases (decreases) in estimated rental value (ERV), net rent per square feet per month and occupancy rate in isolation would result in a significantly higher (lower) fair value of the property.
Significant increases (decreases) in the net initial yield rate, construction costs to completion and development profit in isolation would result in a significantly lower (higher) fair value.
14. FINANCIAL RISK MANAGEMENT
The Partnership's principal financial liabilities comprise trade and other payables. The main purpose of these financial liabilities is to finance the Partnership's operations. The Partnership's principal financial assets comprise cash and cash equivalents that derive directly from its operations.
The Partnership is exposed to market risk, credit risk and liquidity risk. Risk management is carried out by the finance department under policies approved by the Managing Partner. Finance department identifies and evaluates financial risks. The policies lay down principles for overall risk management, as well as those covering specific areas such as foreign exchange risk, interest rate risk, credit risk and investing any excess liquidity.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. The Financial instruments affected by market risk are loans and borrowings which are mainly exposed to currency risk.
(i) Foreign currency risk
The Partnership operates wholly within Kenya and its assets and liabilities are reported in the local currency.
The Partnership had few foreign currency denominated assets or liabilities as at 31 December 2019 such that the sensitivity analysis borne of the foreign exchange rate would not be representative of the inherent risk associated with changes in exchange rate.
(ii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair value of financial instruments. Interest rate risk to the Partnership is the risk of changes in market interest rates reducing the overall return or increasing the cost of finance to the Partnership. The Partnership limits interest rate risk by regularly monitoring changes in interest rates for the interest-bearing liabilities.
Credit risk
The Partnership has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Credit risk arises from cash and cash equivalents, due from related parties as well as other receivables. The Partnership has no significant concentrations of credit risk. The finance department assesses the credit quality of each customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal ratings in accordance with limits set by the management.
The amount that best represents the Partnership's maximum exposure to credit risk for the year ended 31 December 2019 is made up as follows:
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
14. FINANCIAL RISK MANAGEMENT (continued)
Partnership Group
2019 2019
KShs 000 KShs 000
Other receivables 85,813 216,180
Bank balances and cash 34,077 200,434
119,890 416,614
Additional disclosures are made in note 5 and 8.
Liquidity risk
Liquidity risk concerns the ability of the Partnership to fulfill its financial obligations as they become due. The Partnership's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Partnership's reputation.
Partnership
On Less than 3 to 12 Over
demand 3 months months one year Total
KShs 000 KShs 000 KShs 000 KShs 000 KShs 000
Financial liabilities
Trade payables - 2,116 - - 2,116
Accruals and other
payables - - 14,748 - 14,748
Borrowings - - - 786,000 786,000
- 2,116 14,748 786,000 802,864
Consolidated
Trade payables - 23,625 - - 23,625
Accruals and other
payables - - 153,565 72,597 226,162
Borrowings - - - 786,000 786,000
- 23,625 153,565 858,597 1,035,787
15. CAPITAL RISK MANAGEMENT
For the purpose of the Partnership's capital management, capital includes partners' capital and all other capital attributable to the partners. The primary objective of the Partnership's capital management is to maximise the partners' value.
The Partnership manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Partnership may adjust the partners' distributions and receive or repay partnership capital. The Partnership monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Partnership includes within net debt, interest bearing loans and borrowings, less cash and short-term deposits, excluding discontinued operations.
ACORN PROJECT (TWO) LLP AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (continued)
FOR THE YEAR ENDED 31 DECEMBER 2019
15. CAPITAL RISK MANAGEMENT (continued)
Group
2019
KShs 000
Interest bearing loans and borrowings (Note
10) 786,000
Less: Bank and cash balances (Note 8) (200,434)
Net debt 585,566
Equity 2,031,827
Capital and debt ratio 2,617,393
Gearing ratio 22%
16. EVENTS AFTER THE REPORTING DATE
The outbreak of COVID-19 (corona virus disease) has resulted in disruption of business activity globally and market volatility, since mid-January 2020. The estimates and judgements applied to determine the financial position at 31 December 2019, most specifically as they relate to the calculation of fair value of investment property, were based on a range of forecast economic conditions as at that date. As of the date of approval of this report, the partners have determined that the country is in the early stages of the pandemic and the high level of uncertainty due to the unpredictable outcome of this disease, may make it difficult to estimate the financial effects of the pandemic. It is expected that the COVID-19 crisis will disrupt supply chains both from materials from China and locally sourced. As a result, management is working proactively to order materials well in advance to cater for any delays to mitigate cost and time overruns and minimize the impact as much as possible. Barring further directives from the Government, we are hopeful that project timelines will not be significantly impacted and expected to be within 3 months of initial budgets. Consequently, the partners have assessed the post year-end effects of the outbreak as a non-adjusting event.
Whereas the pandemic will have some effects on future business performance, the partners have considered these facts and actions taken by the Government of Kenya to minimize the effects of the pandemic. In addition, at the date of the issue of these financial statements, the partners believe the partnership will be a going concern for the foreseeable future.
The partners are not aware of any other event after the reporting date, as defined by IAS 10 Events after the Reporting Period, that require disclosure in or adjustments to the financial statements as at the date of this report.
17. CONTIGENCIES AND COMMITMENTS
Legal claim contingency
There were no contingencies arising out of legal claims as at 31 December 2019.
Commitments
The partnership had no capital commitments as at 31 December 2019.
Please click on the below link to view the signed announcement.
http://www.rns-pdf.londonstockexchange.com/rns/0882P_1-2020-6-5.pdf
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UPUCGQUPUUCA
(END) Dow Jones Newswires
June 05, 2020 02:00 ET (06:00 GMT)
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