Notes to the Consolidated Financial Statements
For the year ended 31 December 2010
4. Key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Investment properties are stated at fair value based on the valuations performed by independent professional valuers.
In determining the fair value of investment properties situated in Hong Kong, the valuer has used income capitalisation method which involves estimates of future cash flow determined by current leases and future leases with reference to current market conditions as of the end of the reporting period.
In determining the fair value of investment properties situated in the United States of America (“USA”), the valuer has used discounted cash flow method which involves estimates of future cash flow supported by the terms of any existing lease and using discount rates that reflect current market assessments of the uncertainty in the amounts and timing of the cash flows.
In relying on those valuation reports, the Directors have exercised their judgments and are satisfied that the methods of valuations are reflective of the current market conditions.
Fair values of structured notes designated at FVTPL and derivative financial instruments
For structured notes designated at FVTPL and derivative financial instruments and as described in notes 27 and 29, respectively, the Directors determined the fair values of structured notes designated at FVTPL and derivative financial instruments based on valuation from counterparty financial institution and banks.
5. Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 30, and equity attributable to owners of the Company, comprising issued share capital, reserves and retained profits.
The Directors review the capital structure on a regular basis. As part of this review, the Directors consider the cost of capital and the risks associates with each class of capital. Based on recommendations of the Directors, the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt.
Great Eagle Holdings Limited