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REA Finance B.V.: Annual accounts for 2020 -5-

06/10/2021 | 08:31am EDT

Modifications of financial instruments are assessed from a qualitative and quantitative prospective when they are present, if the discounted present value of the cash flows at market rate under the new terms was less than 10% different from the discounted present value of the remaining cash flows of the original financial liability and asset, it is considered that there is no substantial modification, therefore it is not required to derecognise the financial instruments and account for a new financial instrument; as such, the Company calculates the amortised cost of the financial asset and liability as the present value of the future contractual cash flows that are discounted at the financial instrument's effective interest rate.

Substantial modifications to financial instruments are treated as an extinguishment, and so derecognition, of the existing liability and recognition of a new liability based on the new contractual terms. Any difference between the amortised cost of the 'old' loan and the present value of the modified cash flows at the original effective interest rate is recognised as a gain or loss within the profit and loss account. iii. Derecognition of financial instruments

Financial instruments are derecognised if a transaction results in a considerate part of the contractual risks or rewards with respect to that financial instrument being transferred to a third party.

Loans granted and other receivables

Loans granted and other receivables are carried at amortised cost on the basis of the effective interest method, less impairment losses. The effective interest and impairment losses, if any, are

2.3 Notes to the financial statements (continued)

directly recognised in the profit and loss account. Purchases and sales of financial assets that belong to the category loans granted and other receivables are accounted for at the transaction date.

Non-current and current liabilities and other financial commitments

Non-current and current liabilities and other financial commitments are measured after their initial recognition at amortised cost on the basis of the effective interest rate method. The effective interest is directly recorded in the profit and loss account.

Redemption payments regarding non-current liabilities that are due next year are presented under current liabilities.

Impairment of financial assets

A financial asset that is not measured at (1) fair value with value changes reflected in the profit and loss account, or at (2) amortised cost or lower market value, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, with negative impact on the estimated future cash flows of that asset, which can be estimated reliably.

Objective evidence that financial assets are impaired includes significant financial difficulty of the issuer or obligor, breach of contract such as default or delinquency in interest or principal payments, granting to the borrower a concession that the Company would not otherwise consider, indications that a debtor or issuer will enter bankruptcy or other financial restructuring, the disappearance of an active market for that financial asset because of financial difficulties or observable data indicating that there is a measurable decrease in the estimated future cash flow, including adverse changes in the payment status of borrowers or issuers, indications that a debtor or issuer is approaching bankruptcy, and the disappearance of an active market for a security. Indicators for subjective evidence are also considered together with objective evidence of impairments, such as the disappearance of an active market because an entity's financial instruments are no longer publicly traded, a downgrade of an entity's credit rating or a decline in the fair value of a financial asset below its cost or amortised cost.

The entity considers evidence of impairment for financial assets measured at amortised cost (loans and receivables and financial assets that are held to maturity). All individually significant assets are assessed individually for impairment.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.

Impairment losses are recognised in the profit and loss account and reflected in an allowance account against loans and receivables or investment securities held to maturity. Interest on the impaired asset continues to be recognised by using the asset's original effective interest rate.

Impairment losses below (amortised) cost of investments in equity instruments that are measured at fair value through profit or loss, are recognised directly in the profit and loss account.

When, in a subsequent period, the amount of an impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the decrease in impairment loss is reversed through profit or loss (up to the amount of the original cost).

Offsetting financial instruments

A financial asset and a financial liability are offset when the entity has a legally enforceable right to set off the financial asset and financial liability and the Company has the firm intention to settle the balance on a net basis, or to settle the asset and the liability simultaneously.

2.3 Notes to the financial statements (continued)

If there is a transfer of a financial asset that does not qualify for derecognition in the balance sheet, the transferred asset and the associated liability are not offset.

Cash

Cash and cash equivalents are measured at nominal value. If cash and cash equivalents are not readily available, this fact is taken into account in their measurement.

Cash and cash equivalents denominated in foreign currencies are translated at the balance sheet date in the functional currency at the exchange rate ruling at that date. Reference is made to the accounting policies for foreign currencies.

Shareholder's equity

Financial instruments that are designated as equity instruments by virtue of the economic reality are presented under shareholders' equity. Payments to holders of these instruments are deducted from the shareholders' equity as part of the profit distribution.

The translation adjustment for the Euro-denominated share capital is reflected in other reserves.

Financial instruments that are designated as a financial liability by virtue of the economic reality are presented under liabilities. Interest, dividends, income and expenditure with respect to these financial instruments are recognised in the profit and loss as financial income or expense.

The purchase of own shares is deducted from the other reserves.

Share premium reserve

Amounts contributed by the parent company (and sole shareholder) of the Company in excess of the nominal share capital are accounted for as share premium. This also includes additional capital contributions without the issue of shares or issue of rights to acquire shares of the Company. Costs and capital taxes associated with the issue of shares that are not capitalised are deducted from share premium, after taking into account tax effects. If the share premium is insufficient for such deductions, the amounts are deducted from retained earnings.

Other reserves

Other reserves comprise translation adjustments arising on Euro-denominated share capital and profit appropriations.

Long-term liabilities

The valuation of long-term liabilities is explained under the heading "Financial Instruments".

Current liabilities

The valuation of current liabilities is explained under the heading "Financial Instruments".

2.3 Notes to the financial statements (continued)

Interest income and similar income and interest expenses and similar charges

Interest income is recognised in the profit and loss account on an accrual basis, using the effective interest rate method. Interest expenses and similar charges are recognised in the period to which they belong.

The redemption premium, being the present value of the total possible premium payable on redemption of the sterling notes discounted at the coupon rate, is charged over the remaining term of the sterling notes and is recognised within financial expenses in the profit and loss account using the effective interest rate method. Such amount is aggregated with the nominal value of the sterling notes in the balance sheet.

An amount equivalent to the redemption premium, being the present value of the total possible premium payable on redemption of the sterling notes discounted at the coupon rate on the loan to REAH, is added to the loan and recognised over the remaining term of the loan within financial income in the profit and loss account using the effective interest rate method. Such amount is aggregated with the nominal value of the loan to REAH in the balance sheet.

Corporate income tax

Corporate income tax comprises the current corporate income tax payable and deductible for the reporting period. Corporate income tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity, or to business combinations.

Current tax comprises the expected tax payable or recoverable on the taxable profit or loss for the financial year, calculated using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years.

If the carrying amount of assets and liabilities for financial reporting purposes differ from their values for tax purposes (tax base), this results in temporary differences.

For taxable temporary differences, a provision for deferred tax liabilities is recognised.

(MORE TO FOLLOW) Dow Jones Newswires

June 10, 2021 08:30 ET (12:30 GMT)

Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.15% 0.62446 Delayed Quote.-1.08%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) 0.00% 1.88119 Delayed Quote.5.97%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) 0.04% 1.74319 Delayed Quote.0.36%
BRITISH POUND / EURO (GBP/EUR) 0.14% 1.17505 Delayed Quote.4.79%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.31% 152.651 Delayed Quote.7.51%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) -0.03% 1.97133 Delayed Quote.3.88%
BRITISH POUND / SWISS FRANC (GBP/CHF) 0.16% 1.26145 Delayed Quote.4.06%
BRITISH POUND / US DOLLAR (GBP/USD) 0.21% 1.39216 Delayed Quote.1.78%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.10% 0.674136 Delayed Quote.4.44%
DJ INDUSTRIAL -0.92% 34792.67 Delayed Quote.13.83%
EURO / BRITISH POUND (EUR/GBP) -0.14% 0.85091 Delayed Quote.-4.53%
INDIAN RUPEE / EURO (INR/EUR) -0.06% 0.011377 Delayed Quote.1.29%
REA GROUP LIMITED 0.82% 167.49 End-of-day quote.12.52%
US DOLLAR / EURO (USD/EUR) -0.07% 0.844195 Delayed Quote.2.90%
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