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
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
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June 05, 2020 02:00 ET (06:00 GMT)
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