SAMP and VONE

rijayasooriya wrote:Moved to expert chamber.

yes, agree with you

yes seyon,

Absolutely this is a long term investment. I would say the time horizon should be 3< years. The main reason is that, the new hotel has to be built and have to wait till that passes the BEP. At the same time have to wait and see how the new management improve the performance of Orit and Delmage. Note that tomorrow one of VONE's associate company (20%) Waskaduwa will be listed.

Think to join with u lately...

Impairment is done where there is indicators for that..So IMO there is no indicators for impaiment since both SAMP and RCL are operating well.

laka wrote:Think to join with u lately...

Impairment is done where there is indicators for that..So IMO there is no indicators for impaiment since both SAMP and RCL are operating well.

How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

seyon wrote:
How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

Answer is there on your question itself as I highlighted above. You need not to be worried on recoverable value since both counters' present value of the future operational cash flow should be
over than purchase consideration due to their high EPS hence no need to impair... If u don't agree pls comment on that.

laka wrote:

seyon wrote:
How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

Answer is there on your question itself as I highlighted above. You need not to be worried on recoverable value since both counters' present value of the future operational cash flow should be
over than purchase consideration due to their high EPS hence no need to impair... If u don't agree pls comment on that.

Yes VONE can come out with very attracive assumption to overcome this issue, further our audtors also not capable to assess the resonableness, However Severe fall on MKT Value is a very good indicator. Anyway impairement is purely on profesional judgement
Will See Ho will take to Final Audited Finacial Statement.

Very good discussion.

I'm sure that VONE will use "Value in Use" and not current "Active Market Price" to test impairment of goodwill. And also the decrease in active current market price could be argued temporary. Another point is that CSE could also be argued not an active market.... coz you can see the recent daily turnover.

With regard to goodwill amount you need also to read this in the Goodwill note in VONE's AR.

"The assets and liabilities as at the acquisition dates are stated at their provisional fair values, and maybe ammended in accordance with the SLAS 25 - Business Combinations, thus resulting an increase/decrease in the above goodwill."

I guess the assets of RCL & LFIN not fair valued in calculating goodwill. They have taken book values as provisional fair values in the accounts. So expect there could be change in the goodwill amount.

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

greedy wrote:Very good discussion.

I'm sure that VONE will use "Value in Use" and not current "Active Market Price" to test impairment of goodwill. And also the decrease in active current market price could be argued temporary. Another point is that CSE could also be argued not an active market.... coz you can see the recent daily turnover.

With regard to goodwill amount you need also to read this in the Goodwill note in VONE's AR.

"The assets and liabilities as at the acquisition dates are stated at their provisional fair values, and maybe ammended in accordance with the SLAS 25 - Business Combinations, thus resulting an increase/decrease in the above goodwill."

I guess the assets of RCL & LFIN not fair valued in calculating goodwill. They have taken book values as provisional fair values in the accounts. So expect there could be change in the goodwill amount.

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

[mention]laka on 16 June 2011- http://forum.srilankaequity.com/t5059-vallibel-one-analysis
[/mention] wrote:But As per VOL Bsheet, Those Reval surplus includes in Goodwill A/c itself...It sd b tranfered to Reval A/C. Have they assessed Fair Value @ the acquisition ???

My guess may be bit different from you.. Anyways Great Minds Think Alike

greedy wrote:

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

Since Samp is a strategic Investment of VONE (14.99% or 15%) , I think they need not adjust MV.

@Laka,

Where did you get this "Strategic Investment" concept?? This is going to change!!!

You may be aware that Sri Lanka is in the process of adopting International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs). When this become effective the old Sri Lanka Accounting Standards (SLASs) will be replaced by IASs & IFRSs. Though the implementation dates have been postponed couple of times.

As per the old SLAS companies had an option to treat investments at lower of cost or market value. But once these new standards comes in there is no such option. Companies will have to account for investments at fair value or amortised cost.

See here for effective dates for new standrds =====> http://www.slaasmb.org/IAS%20AND%20SLAS.html

( I hope this site has been updated for recent developments....)

There is a small error in my previous reply. IAS39 is effective for the financial periods starting on or after 1 January 2012 as per SLAASMB and not 1 January 2013 as I mentioned . IFRS 9 has not yet been adopted in Sri Lanka as per the SLAASMB and efeective date of this is 1 January 2013.

Therefore to the best of my knowledge, SAMP will need to be Mark to Market/Fair valued in VONE's accounts for the accounting periods starting from 1 January 2012 provided the effective date of IFRS9 as per SLAASMB is correct!!!

greedy wrote:
As per the old SLAS companies had an option to treat investments at lower of cost or market value. But once these new standards comes in there is no such option. Companies will have to account for investments at fair value or amortised cost.

@greedy: Due to the restatement of investment values, will the excess over cost be accounted as 'profits'? If so, there are many companies that would report extraordinary profits (and higher book values per share) next year. Do you sense an opportunity here?

greedy wrote:
As per the old SLAS companies had an option to treat investments at lower of cost or market value. But once these new standards comes in there is no such option. Companies will have to account for investments at fair value or amortised cost.

Still option is there as highlighted above..

@Antonym,

Yeah.. there could be one of gains in the P&L depending on how companies going to classify their investments. And also P/B ratio may improve.

However, One of gains will not change value of a company in a big way.


@Laka,

Sorry... Amortised cost method is not applicable to equity investments and will be applicable to financial instruments which are not equity in nature (a simple example bonds & Loans)

Guys, the discussion going from the topic . I can see a topic reminder from Prbath.