31. New and amended standards and interpretations

New and amended IFRS standards that are effective for the current year

In the current year, Vesteda has applied a number of amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are effective for an annual period that begins on or after 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

Impact of initial application of IFRS 9 Financial Instruments

The final version of IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement, and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for financial years beginning on or after 1 January 2018, with early application permitted. With the exception of hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. Vesteda has adopted the new standard on the required effective date.

(a) Classification and measurement

There has been no significant impact on the balance sheet or equity of Vesteda from the application and measurement requirements of IFRS 9. Vesteda values its financial assets and financial liabilities based on amortised cost price and its financial derivatives on market value (if any). Classification and valuation of financial assets of Vesteda have been unchanged by the adoption of IFRS 9. 

(b) Impairment

IFRS 9 requires Vesteda to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. Vesteda has applied the simplified approach and record expected losses on all trade receivables over their lifetime. Given the amounts involved, there has been no significant impact.

(c) Hedge accounting

Vesteda believes that all existing hedge relationships that are currently designated in effective hedging relationships will still qualify as hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, Vesteda does not expect the application of IFRS 9 to have any significant impact. Vesteda expects no significant impact, as it does not apply any hedge accounting at this time.

Impact of initial application of IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. When it comes into effect, IFRS 15 will supersede the current revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a five-step approach to revenue recognition:

  • Step 1: Identify the contract(s) with a customer

  • Step 2: Identify the performance obligations in the contract

  • Step 3: Determine the transaction price

  • Step 4: Allocate the transaction price to the performance obligations in the contract

  • Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control' of the goods or services underlying the particular performance obligation is transferred to the customer.

Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, IFRS 15 requires extensive disclosures.

The implementation of IFRS 15 has had no implication on the recognition of rental income, because rental income classifies as lease revenue and is therefore out of scope of IFRS 15.

In the current year, Vesteda has applied a number of amendments to IFRS Standards and Interpretations issued by the International Accounting Standards Board (IASB) that are effective for an annual period that begins on or after 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

The amendments clarify the following:

  • In estimating the fair value of a cash-settled share-based payment, the accounting for the effects of vesting and non-vesting conditions should follow the same approach as for equity-settled share-based payments.

  • When tax law or regulation requires an entity to withhold a specified number of equity instruments equal to the monetary value of the employee’s tax obligation to meet the employee’s tax liability, which is then remitted to the tax authority, i.e. the share-based payment arrangement has a ‘net settlement feature’, such an arrangement should be classified as equity-settled in its entirety, provided that the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

  • A modification of a share-based payment that changes the transaction from cash-settled to equity-settled should be accounted for as follows:

    • the original liability is derecognised;

    • the equity-settled share-based payment is recognised at fair value on the modification date of the equity instrument granted, to the extent that services have been rendered up to the modification date; and 

    • any difference between the carrying amount of the liability at the modification date and the amount recognised in equity should be recognised in profit or loss immediately. 

Amendments to IAS 40 Transfers of Investment Property

      • The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situations listed in IAS 40 are not exhaustive and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties). The amendments are effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. Entities can apply the amendments either retrospectively (if this is possible without the use of hindsight) or prospectively. Specific transition provisions apply. Given the nature of Vesteda's business and previous transactions, no significant impact has been recorded in 2018 or is expected in the future.

New and revised IFRS Standards in issue but not yet effective

At the date of authorisation of these financial statements, Vesteda has not applied the following new and revised IFRS Standards that have been issued but are not yet effective and [in some cases] had not yet been adopted by the EU.

IFRS 16:

Leases

IFRS 17:

Insurance Contracts

Amendments to IFRS 9:

Prepayment Features with Negative Compensation

Amendments to IAS 28:

Long‑term Interests in Associates and Joint Ventures

Annual Improvements to IFRS Standards 2015-2017 Cycle:

Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

Amendments to IAS 19 Emplyee Benefits:

Plan Amendment, Curtailment or Settlement

IFRS 10 Consolidated Financial Statements and IAS 28 (amendments):

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

IFRIC 23:

Uncertainty over Income Tax Treatments

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except as noted below.

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. When it comes into effect, IFRS 16 will supersede the current lease guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 distinguishes between leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions between operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are replaced by a model in which lessees have to recognise a right-of-use asset and a corresponding liability for all leases (i.e. all leases on the balance sheet), with the exception of short-term leases and leases for low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions), less accumulated depreciation and impairment losses or if it relates to land lease the right of use will be values at fair value in line with IAS 40. The right of use will additionally be adjusted for any remeasurement of the lease liability, when applicable. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications or other modifications. Furthermore, the classification of cash flows will also be affected, as under IAS 17 operating lease payments are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion, which will be presented as financing and operating cash flows respectively. In contrast to lessee accounting, IFRS 16 carries forward a substantial part of the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, IFRS 16 requires extensive disclosures.

Vesteda is currently evaluating the final impact of IFRS 16. The impact is expected to be limited to ground lease payments, the commercial investment property portfolio and car-lease contracts.

Based on current status of the assessment, the ground lease contracts will have the largest impact on the face of the balance sheet during the reporting of the year 2019. Currently Vesteda estimates that the effects of the ground lease accounting in accordance with IFRS 16 will not have an impact on equity and net results. Vesteda has approximately 90 land lease contracts. All with specific arrangements. The majority of the ground lease payments for the contractual time frame (10, 25 or 50 years) has been paid in advance. As a result the ground lease payments only amounted to €0.9 million. Expectation is that a significant ground lease liability will be recorded at initial adoption. As a consequent the same amount will be added to the investment property. Based on the assessment the effect of the fair value of the ground lease contracts are already taken into account in the current external investments property valuation. In the assessment it assumed that the lease obligation is perpetual. As a result the expected future lease payments (perpetual) will be discounted with an interest rate implicit in the lease. Although Vesteda has prepaid a large part of the ground lease payments for the specific time frame a lease liability will be accounted for the payments after that period.

The classification of the current lease payments that are classified under the property expenses will change. The paid ground lease will be deducted directly form the lease liability and an interest charge will be brought to profit and loss in respect to the lease liability. The fair value of the right of use, which will be taken into the investment property position is included in the fair value changes of that account.

For the other categories it is not expected that it will have large impact on the presentation and accounting.

Amendments to IFRS9 Prepayment Features with Negative Compensation

The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI. The amendment does not have any impact on the presentation, notes and the financial results of the Group.

Amendments to IAS 28 Long-term Interest in Associates and Joint ventures

The amendment clarifies that IFRS 9, including its impairment requirements, applies to long-term interests. Furthermore, in applying IFRS 9 to long-term interests, an entity does not take into account adjustments to their carrying amount required by IAS 28 (i.e., adjustments to the carrying amount of long-term interests arising from the allocation of losses of the investee or assessment of impairment in accordance with IAS 28).

The amendments apply retrospectively to annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted. Specific transition provisions apply depending on whether the first-time application of the amendments coincides with that of IFRS 9. The amendments are not expected to have any impact on the presentation, notes or financial results of the Group.

Annual Improvements to IFRS Standards 2015–2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

The Annual Improvements include amendments to four Standards. The changes are minor amendments to the standards. All the amendments are effective for annual periods beginning on or after 1 January 2019 and generally require prospective application. Earlier application is permitted.

The amendments are not expected to have any impact on the presentation, notes or the financial results of the Group.

Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement

The amendments prescribe the accounting of service costs, net interest and the asset ceiling after changing plan, curtailment or settlement. The amendments are applied prospectively. They apply only to plan amendments, curtailments or settlements that occur on or after the beginning of the annual period in which the amendments to IAS 19 are first applied.

The amendments to IAS 19 must be applied to annual periods beginning on or after 1 January 2019, but they can be applied earlier if an entity elects to do so. The amendments are not expected to have any impact on the presentation, notes or financial results of the Group.

IFRS 10 Consolidated Financial Statements and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture. The effective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments is permitted. The amendments are not expected to have any impact on the presentation, notes or financial results of the Group.

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The interpretation clarifies the recognition of uncertain tax positions in the financial statements. The uncertainty in the amount reported and the assumptions used must be explained. The Interpretation is effective for annual periods beginning on or after 1 January 2019. The interpretation is not expected to have any material impact on the financial position and the results of the Group.