| Financial statement
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Consolidated nancial statements of Echo Investment Group for 2020
for the transfer of a liability in a transaction between
market participants carried out on normal conditions
at the valuation date. Property fair values are sub-
ject to verification by internal Analyse Department
in cooperation with the Management Board, based
on transaction concluded on active market, oers,
preliminary agreements, knowledge and experience,
or based on external valuations prepared by experts.
As a rule, valuations of oce real estate, for which
the Group carries out an active sales preparation
process, are prepared internally, based on available
market data, in particular a level of discount rate
(yield) discussed with po-tential buyers, and based
on levels of rent and other rental conditions. The
discounted net cash flow (DCF) method is used to
determine the fair value. In the case of in-vestment
property under construction, the valuation is re-
duced by the discounted expenditure necessary to
complete the investment, taking into account the
development margin. At the time the property is
measured at fair value, the Group recognizes at the
same time the provisions related to real estate for
securing rent-free periods, which granted and/or due
to profit share in the event of contractual arrange-
ments providing for the profit share of the sale of
the property of other parties. Provisions for securing
rent-free periods include all expected future pay-
ments related to acquiring tenants that the Group
expects to pay economically, i.e. primarily costs of
rent-free periods (periods with reduced rents), costs
of fit-out work to be carried out, costs other leasing
incentives for tenants and costs of agents. Recog-
nized provisions for projects sold adjust the result
recognized on the valuation of investment property
presented under “revaluation of immovable proper-
ty “, and for projects sold - under “profit / loss on
the sale of the property”. The values expressed in
EUR and USD are converted every quarter accord-
ing to the current exchange rates published by the
National Bank of Poland. In the event of a change
in the use of the property, it shall be appropriately
reclassified in the financial statements. The property
is transferred and recognized in the item of property,
plant and equipment or inventory at the previously
disclosed carrying amount. The result on the sale
of investment property is recognized under ‘profit
/ loss on investment property’. The Group transfers
investment properties to a category of assets held
for sale only when the property is sold outside the
ordinary operating cycle. This is due to the adopt-
ed strategy of the Echo Investment Group, accord-
ing to which real estate is maintained by the Group
and sold at the best moment - in the opinion of the
Management Board - that takes into account expec-
tations regarding return on invested capital, avail-
ability of capital for other investments, as well as
basing the decision on the market situation and ex-
pectations for its further development. The Group’s
goal is to build properties and increase their value
through active management of investment projects.
Therefore, the Group classifies investment projects
as investment properties (or investment properties
under construction) and reclassifies them to assets
held for sale only in rare situations.
ASSETS HELD FOR SALE
Assets (or a disposal group) are classified as held for
sale if their carrying amount is recovered principally
through a sale transaction and not through its fur-
ther use. This condition is considered to be fulfilled
only when the occurrence of the sale transaction is
very likely and the asset (or the disposal group) is
available for immediate disposal in its current state
(in accordance with generally accepted commercial
terms). Classi-fication of an asset as held for sale as-
sumes the intention of the company’s manage-ment
to make a sale transaction within one year from the
change of classification. They are valued at the lower
of the following two amounts: their carrying amount
and fair value minus costs of disposal.
INVENTORY
The item of inventories comprises: semi-finished
products and work in process, finished products, and
goods. Due to the specific nature of the activity, pur-
chased land prepared for development is presented
as work in progress, and land freshly purchased as
land. The work in progress includes also the expens-
es incurred over the process of construction of facil-
ities and sites for sale (design services, construction
works, etc. provided by external contractors). Fin-
ished products mainly include residential and busi-
ness premises completed and sold under final sale
contracts. The goods include land intended for sales.
The inventories of tangible items of current assets
are measured at the value corresponding to the
purchase price of land and the cost of production
of developers’ business products increased by ac-
tivated financial costs, being not higher than the
net realizable value. This value is collected based
on market transaction prices in the residential real
estate market. Reversal of impairment loss of inven-
tories appears either on the sale of inventories exor
due to increased net sales price. Both the amount of
write-downs of inventories recognised as an expense
in the period and the amount of any reversal of any
write-downs decreasing the value of inventories rec-
ognised in the period as reduction in cost are stated
in the profit and loss accounts under sales cost.
FINANCIAL ASSETS
In accordance with IFRS 9, the Group classifies its
financial assets into the following categories:
− financial assets measured at amortised cost,
−
financial assets measured at fair value through
other comprehensive income,
−
financial assets at fair value through profit or loss.
The classification of assets takes place at the mo-
ment of initial recognition. It depends on the finan-
cial instruments management model adopted by the
entity and analysis of the characteristics of contrac-
tual cash flows from these instruments.