Question 9.17: Financial Statement Presentation and Disclosures for Long-Li......
Financial Statement Presentation and Disclosures for Long-Lived Assets
The following exhibit presents an excerpt from the annual report for the year ended 31 March 2009 of Daejan Holdings PLC (London: DJAN), a property company headquartered in the United Kingdom.
1. What was the primary cause of the company’s £224,381 thousand net operating loss
before net financing costs for the year ended 31 March 2009?
2. What was the primary cause of the company’s £59,101 thousand net operating profit before financing costs for the year ended 31 March 2008?
3. What was the primary cause of the change from a £59,101 thousand net operating profit in 2008 to a £224,381 thousand net operating loss in 2009?
4. Do the valuation gains and losses on investment properties indicate that the properties have been sold?
| EXHIBIT 11 Excerpt from the Consolidated Income Statements at 31 March (Currency in £ thousands) | ||
| 2009 | 2008 | |
| Gross rental income | 83,918 | 73,590 |
| Service charge income | 12,055 | 13,362 |
| Total Rental and Related Income from Investment Properties | 95,973 | 86,952 |
| Property operating expenses | (53,470) | (46,464) |
| Net Rental and Related Income from Investment Properties | 42,503 | 40,488 |
| Profit on Disposal of Investment Properties | 6,758 | 6,578 |
| Valuation gains on investment properties | 6,646 | 46,646 |
| Valuation losses on investment properties | (268,249) | (25,982) |
| Net Valuation (Losses)/Gains on Investment Properties | (261,603) | 20,664 |
| Administrative expenses | (12,039) | (8,629) |
| Net Operating (Loss)/Profit before Net Financing Costs | (224,381) | 59,101 |
to 1: The primary cause of the company’s net operating loss for the year ended 31 March 2009 was the net valuation loss on investment properties. The net valuation loss of £262 million (valuation gain of £6,646 thousand minus the valuation loss of £268,249 thousand) exceeded the company’s net rental income plus its profit on disposal of investment properties.
to 2: The primary cause of the company’s net operating profit for the year ended 31 March 2008 was the £40 million net rental income. Additionally, the company reported net valuation gains on investment properties of £21 million (valuation gain of £46,646 thousand minus the valuation loss of £25,982 thousand) and profit on disposal of investment properties of £7 million.
to 3: The change from a net operating profit to a net operating loss was primarily due to valuation gains exceeding valuation losses (net valuation gains) in 2008 and valuation losses significantly exceeding valuation gains (net valuation losses) in 2009.
to 4: No. The valuation gains and losses on investment properties arise from changes in the fair value of properties that are owned by the company. The gains and losses on properties that have been sold are reported as Profit (Loss) on Disposal of Investment Properties. In neither 2008 nor 2009 did the company experience a loss on disposal of investment properties so the line item was reported as Profit on Disposal of Investment Properties.