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SHOPPING 69ANNUAL REPORT 2014 Deutsche EuroShop FINANCIAL STATEMENTS Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (since 1 January 2014) The amendment to the application guideline of the IAS 32 clarifies several rules for offsetting financial assets and financial liabilities in the balance sheet. The previous offset model is retained and defined in more detail by additional application guidelines. After clarification, an en- forceable legal right to offset must currently exist, i.e. the right may not be dependent on an event in the future. The right must be legally enforceable both in the normal course of business as well as in the event of default, insolvency or bankruptcy. The following IFRSs adopted into EU law were issued as at the reporting date, but are only required to be applied in later re- porting periods as long as the right to opt for early adoption was not exercised. Amendment/standard Date of publication Date of incorporation into EU law Date applied in EU Annual Improvements to IFRSs – 2011–2013 Cycle 12 December 2013 18 December 2014 1 July 2014 Annual Improvements to IFRSs – 2010–2012 Cycle 12 December 2013 17 December 2014 1 July 2014 Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) 21 November 2013 17 December 2014 1 July 2014 IFRIC 21 – Levies 20 May 2013 13 June 2014 17 June 2014 The following standards as well as interpretations of and amendments to existing standards that were also issued by IASB, were not yet compulsory for the preparation of the con- solidated financial statements as at 31 December 2014. Applica- tion requires that they are endorsed by the EU within the scope of the IFRS endorsement process. Amendment/standard Date of publication Date of incorporation into EU law IASB application date IFRS 9 Financial Instruments 24 July 2014 H2/2015 1 January 2018 IFRS 14 Regulatory Deferral Accounts 30 January 2014 To be decided 1 January 2016 IFRS 15 Revenue from Contracts with Customers 28 May 2014 Q2/2015 1 January 2017 Investment Entities: Applying the Consolidation Exception (Amendments to IRFS 10, IRFS 12 and IAS 28) 18 December 2014 Q4/2015 1 January 2016 Disclosure Initiative (Amendments to IAS 1) 18 December 2014 Q4/2015 1 January 2016 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IRFS 10 and IAS 28) 11 September 2014 Q4/2015 1 January 2016 Equity Method in Separate Financial Statements (Amendments to IAS 27) 12 August 2014 Q3/2015 1 January 2016 Bearer Plants (Amendments to IAS 16 and IAS 41) 30 June 2014 Q1/2015 1 January 2016 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) 12 May 2014 Q1/2015 1 January 2016 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) 6 May 2014 Q1/2015 1 January 2016 Annual Improvements to IFRSs 2012–2014 Cycle 25 September 2014 Q3/2015 1 January 2016 Significant accounting policies Revenue and expense recognition Revenue and other operating income are recognised once the relevant service has been rendered or once the risk has passed to the customer. Operating expenses are recognised once the service has been utilised or at the time when they are booked through profit and loss. Interest income and expense are accrued. Intangible assets Intangible assets relate exclusively to software purchased by Deutsche EuroShop AG. Additions are measured at cost. These are amortised at 20% using the straight-line method over the expected useful life of five years. The method of depreciation and the depreciation period are reviewed annually at the end of each financial year. Property, plant and equipment Property, plant and equipment is reported at cost, less scheduled depreciation and, where applicable, unscheduled write-downs (impairment charges). Operating and office equipment comprises company cars, office equipment, tenant fixtures, fittings and technical equipment belonging to Deutsche EuroShop AG, and is depreciated using the straight-line method over three to 13 years. The method of depreciation and the depreciation period are reviewed annually at the end of each financial year. Investment properties Under IAS 40, investment property must initially be measured at cost at the date of acquisition. Property that is under construc- tion and intended to be used as investment property following its completion also falls under the scope of IAS 40. Property held as a financial investment can either be recognised at amortised cost (cost model) or using the fair-value model. Subsequently, all properties must be measured at their fair value and the annual net changes recognised in income under measure- ment gains/losses (recurring fair value measurement). Invest- ment property is property held for the long term to earn rental income or capital gains. Under IAS 40, investment property measured using the fair value model is no longer depreciated. As in previous years, the fair values of the properties in the period under review were determined by the Feri EuroRating Services AG and GfK GeoMarketing GmbH appraisal team using the discounted cash flow (DCF) method. In accordance with the DCF method, future cash flows from the property in ques- tion are discounted back to the measurement date. In addition, the net income from the property is determined over a detailed planning period of ten years. A resale value is forecast for the end of the ten-year detailed planning phase. The net income is then capitalised over the remaining life. In a second step, the resale value is discounted back to the measurement date. Averaged across all properties, 11.0% (2013: 10.9%) of rental income is deducted for management and administrative costs, with the result that net income equates to 89.0% (2013: 89.1%). Actual management and administrative costs amounted to 9.5% of rental income in the year under review (2013: 9.5%). The capitalisation rate applied comprises a forecast yield on a ten-year German federal government bond and a premium that takes account of the individual risk profile of the proper- ty. Around 150 individual indicators are used to determine the risk profile. These include a forecast of population trends over the long term, the rate of employment and the resulting effects on retail demand, trends in the competitive environment and construction activity. The discount rate averaged 6.44%, compared with 6.65% in the previous year. It is composed of an average yield of 3.68% on a ten-year German federal government bond (2013: 4.24%) and an average risk premium of 2.76% (2013: 2.41%) On the basis of the expert appraisals, the property portfolio has a net initial yield of 5.87% for financial year 2015, compared with 5.97% in the previous year. There is no differentiation between the domestic and interna- tional operations, as the differences are not material. Borrowing and initial rental costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset until the time at which the asset is largely ready for its intended use. Income realised from the temporary investment of specifically borrowed funds up to the point when these are used to obtain qualifying assets is deducted from the capitalisable costs of these assets. All other borrowing costs are recognised in income in the period in which they occur. Maintenance measures relating to property, plant and equip- ment are recognised as an expense in the financial year in which they occur. No appraisal report was produced for the properties owned by CASPIA Investments Sp. z o.o., Warsaw, due to their lesser im- portance. The properties were also recognised at market value in accordance with IAS 40. The following shows details and disclosures in accordance with IFRS 13 for the hierarchical levels of the fair values of the Group’s investment properties as at 31 December 2014: Stadt-Galerie, Passau Annual Improvements to IFRSs – 2011–2013 Cycle 12 December 201318 December 20141 July 2014 Annual Improvements to IFRSs – 2010–2012 Cycle 12 December 201317 December 20141 July 2014 Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) 21 November 201317 December 20141 July 2014 IFRIC 21 – Levies 20 May 201313 June 201417 June 2014 IFRS 9 Financial Instruments 24 July 2014 H2/20151 January 2018 IFRS 15 Revenue from Contracts with Customers 28 May 2014 Q2/20151 January 2017 (Amendments to IRFS 10, IRFS 12 and IAS 28) 18 December 2014 Q4/20151 January 2016 Disclosure Initiative (Amendments to IAS 1) 18 December 2014 Q4/20151 January 2016 or Joint Venture (Amendments to IRFS 10 and IAS 28) 11 September 2014 Q4/20151 January 2016 Equity Method in Separate Financial Statements (Amendments to IAS 27) 12 August 2014 Q3/20151 January 2016 Bearer Plants (Amendments to IAS 16 and IAS 41) 30 June 2014 Q1/20151 January 2016 (Amendments to IAS 16 and IAS 38) 12 May 2014 Q1/20151 January 2016 (Amendments to IFRS 11) 6 May 2014 Q1/20151 January 2016 Annual Improvements to IFRSs 2012–2014 Cycle 25 September 2014 Q3/20151 January 2016