Constance Hotels, Resorts and Golf | Annual Report 2023

158

Financial Statements

Constance Hotels Services Limited

Annual Report 2023

159

Financial Statements

Constance Hotels Services Limited

Annual Report 2023

Notes to the Financial Statements Year ended December 31, 2023

Notes to the Financial Statements Year ended December 31, 2023

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

4.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

4.1

Critical accounting estimates and assumptions (continued)

Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(f) Determining the lease term of contracts with renewal and termination options - Group as lessee The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension and termination options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customisation to the leased asset). The Group included the renewal period as part of the lease term for leases of plant and machinery with shorter non-cancellable period (12 months). The Group typically exercises its option to renew for these leases because there will be a significant negative effect on production if a replacement asset is not readily available. The renewal periods for leases of plant and machinery with longer non-cancellable periods are not included as part of the lease term as these are not reasonably certain to be exercised. In addition, the renewal options for leases of motor vehicles are not included as part of the lease term because the Group typically leases motor vehicles for not more than five years and, hence, is not exercising any renewal options. Furthermore, the periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised. Refer to Note 6 for information on potential future rental payments relating to periods following the exercise date of extension and termination options that are not included in the lease term. Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities in Note 6. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). Impairment of non-financial assets Investment in subsidiaries are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the investment’s carrying value exceeds its recoverable amount, which represents the investment’s fair value less cost to sell, which require the use of assumptions. The calculations use cash flow projections of the subsidiary based on financial forecasts prepared by management covering a five-year period. The carrying amount of the investment as at 31 December 2023 amounted to MUR 2.9 billion (2022: MUR 2.9 billion). Refer to Note 8 for more information. Simultaneously, Property, plant and equipment and rights-of-use assets are tested for impairment using the cash flow projections derived from the Cash Generating Unit. Convertible bonds The Group entered into an agreement with the Mauritius Investment Corporation Ltd (“MIC”), a wholly owned subsidiary of the Bank of Mauritius, to issue redeemable convertible bonds. The Group has the option to classify the funds received from the MIC as an equity instrument or compound financial instrument. The Directors have applied judgement for the accounting treatment of these funds and have opted to treat the convertible bonds as equity. Refer to Note 20 for further details. (g) (h) (i)

4.1

Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Depreciation policies Property, plant and equipment are depreciated to their residual values over their estimated useful lives. The residual value of an asset is the estimated net amount that the Group would currently obtain from disposal of the asset, if the asset was already of the age and in the condition expected at the end of its useful life. The Directors therefore make estimates based on an independent professional valuer’s work and historical experience and use best judgement to assess the useful lives of assets and to forecast the expected residual values of the assets at the end of their expected useful lives. Refer to Note 5 for more disclosures. Deferred tax assets arising from tax losses The Group has a deferred tax asset arising from tax losses of MUR 40.6 million (2022: MUR 9.9 million) part of which has been used to offset against a deferred tax liability arising from accelerated capital allowances. Based on Management judgements and estimates of the future taxable income, they believe that the tax losses will be fully utilised within the relevant period during which such tax losses may be carried forward. Refer to Note 11 for more disclosures. Employee benefit liabilities The present value of the pension obligations depend on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/(income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. Refer to Note 18 for more information. Revaluation of freehold land The freehold land were last revalued in November 2022 by an independent professional valuer. The valuation was based on an open market value basis based on direct sales comparison taking into account recent transactions adjusted for any differences in the nature, location or condition of a specific property. A revaluation surplus of MUR 232.8 million was reflected in the revaluation reserve. Refer to Note 5 for Property, Plant and Equipment disclosures. Impairment of financial assets The loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. Refer to Notes 10 and 13 for more details.

(a)

(b)

(c)

(d)

(e)