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Notes to the Financial Statements
Washington H. Soul Pattinson and Company Limited
Annual Report 2016
80
Accounting for Our Investments
NOTE 11
OTHER EQUITY INVESTMENTS
11
Accounting policies –
Other equity investments (excluding controlled entities,
jointly controlled entities and associates)
Recognition
Purchases of equity investments are recognised on trade date being the date on which the Group commits to
purchase the asset.
Classification
The Group classifies its equity investments into the following categories: long term equity investments, trading
equities and held for sale equities. The classification depends on the purpose for which the investments are
acquired. Management determines the classification of its investments at initial recognition.
Trading equities
Trading equities are initially recognised at fair value and any transaction costs are immediately expensed.
The portfolio consists of equities that are principally held for the purpose of selling in the short to medium term.
Trading equities are included in current assets.
Long term equity investments
Long term equity investments are initially recognised at fair value plus any transaction costs. These investments
are intended to be held for the long term for capital growth and dividend income. These investments are included
in non-current assets unless management intends to dispose of the investment within 12 months of the reporting
date at which time they are transferred to and disclosed as held for sale equities.
Subsequent measurement
At each balance date, trading equities and long term equity investments are remeasured to fair value. Gains or
losses arising from changes in the fair value of trading equities are recognised in the income statement within
other income in the period in which they arise. Changes in the fair value of long term equity investments are
recognised in equity through the asset revaluation reserve after allowing for deferred capital gains tax. All long
term equities are subject to capital gains tax.
Impairment
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of
financial assets is impaired. In the case of equity securities classified as long term equity investments, a significant
or prolonged decline in the value of a security below its cost is considered an indicator that the security may
be impaired. Impairment losses are recognised in the income statement unless the asset has previously been
revalued through the asset revaluation reserve, in which case the impairment loss is recognised as a reversal
to the extent of that previous revaluation with any excess recognised in the income statement. An impairment
recognised for a long term equity investment is prohibited from being reversed through profit and loss. Any
future increments in the fair value of these investments will be recognised as a fair value increment in the asset
revaluation reserve.
Dividend income
Dividend income is recognised as revenue when the right to receive the dividend is established, and is generally
the ex-dividend date.
Derecognition
Equity investments are derecognised when the rights to receive cash flows from the equity investments have
expired or have been transferred and the Group has transferred substantially all the risks and rewards of
ownership.
When securities classified as long term equity investments are sold, the accumulated fair value adjustments
previously recognised in equity, are transferred to the income statement.