Page 16 - TreasuryChinaTrust

Treasury China Trust Annual Report 2010 81

NOTES TO THE FINANCIAL STATEMENTS

Period from 19 May 2010 (date of constitution) to 31 December 2010

26 Financial risk management (Continued)

(d) Interest rate risk (Continued)

Cash flow sensitivity analysis for variable rate interest-earning and interest-bearing financial instruments

A change of 100 basis point in interest rate at the reporting date would increase/(decrease) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

Income statement Group $’000

As at 31 December 2010

Cash and cash equivalent 1,039 Variable rate interest-bearing borrowings (6,662)

(5,623)

27 Estimation of fair values

The methodologies and assumptions used in the estimation of fair values depend on the terms and characteristics of the various assets and liabilities and include the following:

Financial instruments for which fair value is equal to the carrying value

These financial instruments include trade and other receivables, cash and cash equivalents, trade and other payables, current portions of interest-bearing liabilities and interest-bearing liabilities with floating interest rates. The carrying values of these financial instruments are an approximation of the fair values because they are short-term in nature or repriceable.

Investment properties

An external, independent valuation company, having appropriate recognised professional qualifications and experience in the location and category of property being valued, values the Group’s investment properties at least once every year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably and willingly.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows then is applied to the net annual cash flows to arrive at the property valuation.

Valuations reflect, when appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, the allocation of maintenance and insurance responsibilities between the Group and the lessee, and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served validly and within appropriate time.

Available-for-sale financial assets

The fair values of available-for-sale financial assets in active markets are based on current bid prices.

In determining the fair value of financial assets with no active market, the Group makes certain estimates and assumptions. These are continually evaluated and are based on historical experience, current information and other factors, including expectations of future events that are believed to be reasonable under the circumstances.