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Notes to the consolidated
financial statements
continued
for the year ended 30 June 2017
116
Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
9.
Goodwill
June 2017
R000
June 2016
R000
Cost
Balance at 1 July
29 566
29 566
Acquisition of business
18 134
18 134
Balance at 30 June
47 700
47 700
Accumulated impairment
Balance at 1 July
(29 566)
(29 566)
Impairment of goodwill
(18 134)
Balance at 30 June
(47 700)
(29 566)
Carrying value at end of year
18 134
Goodwill by region and segment
Investment properties – sub-Saharan Africa (excluding SA)
Ikeja City Mall (Lagos, Nigeria)
18 134
Carrying value at end of year
18 134
Impairments/reversal of impairments
The group reviews the carrying amounts of cash-generating units (CGUs) to which goodwill has been allocated for impairment at each reporting date.
A review may be triggered during the financial year if indicators of impairment (suggesting that the carrying amount may be greater than the
recoverable amount) are observed in the ordinary course of business.
Once an impairment has been recognised, no reversal of a previous impairment is processed in subsequent periods, even if the prospects of the
impaired CGU improve.
Value-in-use calculations
The recoverable amount is determined based on the CGU’s value-in-use by using the discounted cash flow method over three years. Key assumptions
relating to this valuation include the discount rate and cash flows used to determine the value-in-use.
Cash flows
Future cash flows are estimated based on local currency financial budgets approved by management, covering a three-year period and are extrapolated
over the useful life of the assets, to reflect the long-term plans for the group, using an estimated growth rate for the asset. The estimated future cash
flows and discount rates used are post-tax, based on an assessment of the current risks applicable to the asset and country in which it operates.
Discount rate
The weighted average cost of capital (WACC) is derived from a pricing model based on credit risk and the cost of the debt. The variables used in the
model are established on the basis of management judgement and current market conditions. Management judgement is also applied in estimating
the future cash flows of the CGU.
Impairments – 2016
During 2016, Hyprop acquired Ikeja City Mall (Lagos, Nigeria) and recognised USD1,3 million of goodwill. Management paid the additional amount due
to an expectation of an increase in value of the shopping centre. Subsequent to the acquisition, the shopping centre was revalued at 30 June 2016 and
increased in value by USD2,7 million (75% – USD2,0 million) confirming management’s initial assessment.
Based on the valuation of the shopping centre at 30 June 2016, management did not recognise an impairment of goodwill in 2016.
Impairments – 2017
Ikeja City Mall (Lagos, Nigeria) was valued at 31 December 2016 and based on this valuation, management recognised an impairment of goodwill in 2017.
The impairment was largely due to a reduction in the independent valuation of the shopping centre.