1. Corporate Information
1.1 General
The Lighthouse Hotel PLC (‘Company’) is a limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office of the Company is located at ‘Jetwing House’ 46/26 Navam Mawatha, Colombo 2 and principal place of business is situated at Dadella, Galle.
1.2 Principal Activities and Nature of Operations
The Company owns and operates Jetwing Lighthouse, which is targeted at the up market leisure travellers.
1.3 Parent Enterprise and Ultimate Parent Enterprise
The Company does not have an identifiable parent of its own.
1.4 Date of Authorization for Issue
The Financial Statements of The Lighthouse Hotel PLC, for the year ended 31st March, 2014 were authorized for issue in accordance with a resolution of the Board of Directors on 28th April, 2014.
2. Basis of Preparation
2.1
The Financial Statements have been prepared on a historical cost basis except for Freehold Land and Financial Instruments: Available-for-sale financial assets that have been measured at fair value. The preparation and presentation of these Financial Statements is in compliance with the requirements of the Companies Act No. 07 of 2007.2.2 Statement of Compliance
The Financial Statements of the Company have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter ‘SLFRS’), as issued by The Institute of Chartered Accountants of Sri Lanka.
2.3 Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year.
2.4 Summary of Significant Accounting Policies Applied
The following are the significant accounting policies applied by the Company in preparing its Financial Statements:
2.4.1 Foreign Currencies
The Financial Statements are presented in Sri Lankan Rupees, which is also the Company’s functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. Differences arising on settlement or translation of monetary items are recognized in the profit and loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
2.4.2 Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements.
The following specific recognition criteria must also be met before revenue is recognized:
(a) Room Revenue
Revenue is recognized on the rooms occupied on daily basis.
(b) Food & Beverage Revenue
Food & beverage revenue is accounted at the time of sale.
(c) Other Hotel Related Revenue
Other hotel related revenue is accounted when such service is rendered.
(d) Interest
Interest income is recognized on a time proportion basis that takes into account the effective yield on the asset unless collectibles is in doubt.
(e) Others
Other income is recognized on an accrual basis.
Net gains and losses of a revenue nature on the disposal of Property, Plant and Equipment has been accounted for in the Income Statement, having deducted from proceeds on disposal, the carrying amount of the assets and related selling expenses.
Gains and losses arising from incidental activities to main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis.
2.4.3 Taxation
(a) Current Income Taxes
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Pursuant to an agreement dated 29th January, 1994 entered into with Board of Investment under Section 17 of the Board of Investment Law, the Company is taxed at the rate of 2% of the turnover from 1st April, 2008 for a period of 15 years in accordance with the said agreement. Current income tax relating to items recognized directly in equity is recognized in equity and not in the Income Statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
(b) Sales Tax
Revenues, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a purchase of assets or service is not recoverable from the taxation authorities in which case the sales tax is recognized as a part of the cost of the asset or part of the expense items as applicable and receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.
(c) Deferred Tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
2.4.4 Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
2.4.5 Inventories
Inventories are valued at the lower of cost and net realizable value, after making due allowances for obsolete and slow moving items. Net realizable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.
The cost incurred in bringing inventories to its present location and condition is accounted using the following cost formula:
| Food and Beverage | - | At purchase cost on weighted average basis. |
| Other Inventories | - | At purchase cost on weighted average basis. |
2.4.6 Cash and Cash Equivalents
Cash at bank and in hand in the Statement of Financial Position comprise cash at bank and in hand.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits with a maturity of three months or less, net of outstanding bank overdrafts.
2.4.7 Property, Plant and Equipment
Property, Plant and Equipment (except for land) is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the Property, Plant and Equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of Property, Plant and Equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major refurbishment is performed, its cost is recognized in the carrying amount of the Property, Plant and Equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the profit or loss as incurred.
Land is measured at fair value, less impairment losses recognized at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.
A revaluation surplus is recognized in other comprehensive income and credited to the revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in the income statement, in which case the increase is recognized in the income statement. A revaluation deficit is recognized in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve.
Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.
An item of Property, Plant and Equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
The Company provides depreciation from the date the assets are available for use up to the date of disposal, on a straight-line basis over the periods appropriate to the estimated useful lives based on the pattern in which the asset’s future economic benefits are expected to be consumed by the Company of the different types of assets, except for which are disclosed separately. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held-for-sale or the date that the asset is derecognized. Depreciation does not cease when the assets become idle or is retired from active use unless the asset is fully depreciated.
The useful life and residual value of assets are reviewed, and adjusted if required, at the end of each financial year.
2.4.8 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Company as a lessee:
Finance leases that transfer to the Company substantially all of the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the income statement.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating leases, where the lessor effectively retains substantially all of the risk and benefits of ownership over the term of the lease are classified as operating leases. Operating lease payments are recognized as an operating expense in the income statement on a straight-line basis over the lease term.
2.4.9 Financial Instruments
Financial assets of the Company comprise trade and other receivables, cash at bank and in hand, short term deposits and available-for-sale financial instruments.
i. Financial Assets
Initial Recognition and Measurement
Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. The Company determines the classification of its financial assets at initial recognition.
All financial assets except for those that are at fair value through profit or loss are recognized initially at fair value plus transaction costs. Those that are at fair value through profit or loss, are initially measured at fair value.
Subsequent Measurement
The subsequent measurement of financial assets depends on their classification as described below:
Financial Assets at Fair Value through Profit or Loss
Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value fit and loss are carried in the Statement of Financial Position at fair value with changes in fair value recognized in finance income or finance costs in the income statement.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the income statement in finance costs.
Held-to-Maturity Financial Instruments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the income statement in finance costs.
Available-for-Sale Financial Investments
Available-for-sale financial investments held at the reporting date consists of equity securities. Equity investments classified as available-for-sale are those, neither classified as held-for-trading nor designated at fair value through profit or loss. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time, the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the income statement in finance costs and removed from the available-for-sale reserve.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when the rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset.
ii. Impairment of Financial Assets
The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial Assets Carried at Amortized Cost
For financial assets carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. Loans together with the associated allowance are written-off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write off is later recovered, the recovery is credited to finance costs in the income statement.
Available-for-Sale Financial Instruments
For available-for-sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost.’ Significant is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair values has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement is removed from other comprehensive income and recognized in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairments are recognized directly in other comprehensive income.
iii. Financial Liabilities
The Company’s financial liabilities include trade and other payables, bank overdrafts and loans and borrowings.
Recognition and Measurement
Initial measurement of financial liabilities is based on their fair value, but adjusted in respect of any transaction costs that are incremental and directly attributable to the acquisition or issue of the instrument. After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate method (EIR) amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance costs in the income statement.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement.
iv. Offsetting of Financial Instruments
Financial assets and financial liabilities are offset with the net amount reported in the Consolidated Statement of Financial Position only if there is a current enforceable legal right to offset the recognized amounts and an intent to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
v. Fair Value of Financial Instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:
- Using recent arm’s length market transactions;
- Reference to the current fair value of another instrument that is substantially the same;
- A discounted cash flow analysis or other valuation models.
2.4.10 Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, except capitalized development costs, are not capitalized and expenditure is recognized in the income statement when it is incurred.
Intangible assets with finite lives are over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category consistent with the function of the intangible assets.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is derecognized.
2.4.11 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.
2.4.12 Post-Employment Benefit - Retirement Benefit Obligations
(a) Defined Benefit Plan - Gratuity
The Company measures the present value of the promised retirement benefits of gratuity, which is a defined benefit plan with the advice of an independent professional actuary each year using the Projected Unit Credit method. Actuarial gains and losses are recognized in full in the period in which they occur in other comprehensive income.
This item is stated under Post-Employee Benefit Liability in the Statement of Financial Position.
The gratuity liability is not externally funded.
(b) Defined Contribution Plans - Employees’ Provident Fund and Employees’ Trust Fund
Employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in line with the respective statutes and regulations. The Company contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.
2.4.13 Impairment of Non-Financial Assets
The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating Unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or companies of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators.
Impairment losses of continuing operations are recognized in the income statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this case the impairment is also recognized in equity up to the amount of any previous revaluation.
For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the income statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.
2.4.14 Dividend Distributions
The Company recognizes a liability to make cash or non-cash distributions to owners of equity when the distribution is authorised and is no longer at the discretion of the Company. A corresponding amount is recognized directly in equity.
Non-cash distributions are measured at the fair value of the assets to be distributed. Upon settlement of the distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets distributed is recognized in income as a separate line in Statement of Comprehensive Income.
2.5 Significant Accounting Judgments, Estimates and Assumptions
Judgments
In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the Financial Statements.
Impairment of Trade Debtors:
The Company reviews at each reporting date all receivables to assess whether an allowance should be recorded in the income statement. The Management uses judgment in estimating such amounts in the light of the duration of outstanding and any other factors management is aware of, that indicate uncertainty in recovery. Further details are given in Notes 9 and 25.
Critical Accounting Estimates and Assumptions
The Financial Statements are sensitive to assumptions and estimates made in measuring certain carrying amounts represented in the Statement of Financial Position and amounts charged to the income statement. These could result in a significant risk of causing material adjustments to the carrying amounts of assets and liabilities which are disclosed in the relevant notes to the Financial Statements.
Fair Value of Property, Plant and Equipment:
The Land (and buildings at the date of transition when the Company first adopted SLFRS in 2012/2013) of the Company were reflected at fair value. When current market prices of similar assets are available, such evidences are considered in estimating fair values of these assets. In the absence of such information the Company determines within reasonable fair value estimates, amounts that can be attributed as fair values, with the assistance of an independent valuer. Further details are given in Note 4.
Components of Buildings:
In determining the depreciation expense, the Company with the assistance of an independent professional valuer determined the components of buildings that have varying useful lives. Approximation techniques and appropriate groupings were used in such determination as well as in the assessment of the useful lives of each component. Further details are given in Note 4.7.
Fair Value of Available-for-Sale Financial Instruments
The Fair value of available-for-sale financial instruments that are unquoted is determined using valuation technique based on discounted cash flow analysis. Further details are given in Note 7.1.
Defined Benefit Plans:
The defined benefit obligation and the related charge for the year are determined using actuarial valuations. The actuarial valuations involve making assumptions about discount rates, future salary increases, mortality rates etc. Due to the long term nature of such obligations these estimates are subject to significant uncertainty. Further details are given in Note 12.
2.6 Effect of Sri Lanka Accounting Standards Issued But Not Yet Effective
The following SLFRS have been issued by The Institute of Chartered Accountants of Sri Lanka that have an effective date in the future and have not been applied in preparing these Financial Statements. Those SLFRS can have an effect on the accounting policies currently adopted by the Company and may have an impact on the future Financial Statements.
(a) SLFRS 9 - Financial Instruments: Classification and Measurement
SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities. The Company will quantify the effect in due course.
This standard was originally effective for annual periods commencing on or after 1st January 2015. However effective date has been deferred subsequently.
(b) SLFRS 13 - Fair Value Measurement
SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements and provides guidance on all fair value measurements under SLFRS.
This Standard will be effective for the annual period beginning on or after 1st January 2014. However use of fair value measurement principles contained in these standards are currently recommended.
(c)
In addition to the above, following standards will also be effective for the annual periods commencing on or after 1st January 2014:
SLFRS 10 - Consolidated Financial Statements
SLFRS 11 - Joint Arrangements
SLFRS 12 - Disclosure of Interests in Other Entities
The above parcel of three standards will impact the recognition, measurement and disclosures aspects currently contained in LKAS 27 - consolidated and separate Financial Statements, LKAS 28 - Investments in Associates, LKAS 31 - Interest in Joint Ventures and SIC - 12 and SIC - 13 which are on consolidation of special purpose entities (SPEs) and jointly controlled entities respectively.
Establishing a single control model that applies to all entities including SPEs and removal of option to proportionate consolidation of jointly controlled entities are the significant changes introduced under SLFRS 10 and SLFRS 11 respectively.
SLFRS 12, establishes a single standard on disclosures related to interests in other entities. This incorporates new disclosures as well as the ones previously captured in earlier versions of LKAS 27, LKAS 28 and LKAS 31.
The Company will adopt these standards when they become effective. Pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these Financial Statements.
3. Revenue
The business activities of the Company are only organized as a single reportable segment, where the management of the hotel monitors the Revenue per Available Room as a key performance indicator. Revenue consists of the following type and nature of services:
| 2014 | 2013 | |
| Rs. | Rs. | |
| Room Revenue | 343,046,667 | 300,922,423 |
| Food and Beverage Income | 301,960,012 | 280,625,090 |
| Other Hotel Related Income | 36,097,886 | 33,179,787 |
| Total Revenue | 681,104,565 | 614,727,300 |
4. Property, Plant and Equipment
4.1 Gross Carrying Amounts
| Balance as at | Disposals/ | Balance as at | |||
| 01.04.2013 | Additions | Transferred | Written-Off | 31.03.2014 | |
| At Cost | Rs. | Rs. | Rs. | Rs. | Rs. |
| Buildings and Building integrals | 1,783,376,680 | 8,477,440 | 245,433,152 | (858,122) | 2,036,429,150 |
| Plant and Equipment | 49,398,949 | 7,595,802 | 11,175,016 | (1,364,516) | 66,805,251 |
| Sewerage Treatment Plant | 6,078,731 | 732,850 | 230,316 | (168,281) | 6,873,615 |
| Kitchen/Bar Equipment | 31,819,832 | 5,231,591 | 7,494,592 | (262,125) | 44,283,891 |
| Electrical Equipment | 14,636,302 | 4,112,720 | 19,590,977 | (2,137,013) | 36,202,986 |
| Office Equipment | 1,861,840 | 179,400 | – | (219,424) | 1,821,816 |
| Sports Equipment | 8,057,221 | – | – | – | 8,057,221 |
| Furniture and Fittings | 42,572,645 | 2,937,799 | 38,809,329 | (859,200) | 83,460,574 |
| Swimming Pool Equipment | 7,469,409 | 433,032 | 161,772 | (79,000) | 7,985,212 |
| Generator | 4,993,862 | 13,541,562 | – | – | 18,535,424 |
| Motor Vehicles | 12,189,563 | 4,500,786 | – | (1,558,261) | 15,132,088 |
| Water Treatment Plant | 1,690,724 | 71,650 | 39,000 | – | 1,801,374 |
| Linen, Cutlery and Crockery | 19,650,920 | 6,489,224 | 2,043,561 | (2,719,501) | 25,464,205 |
| Laundry and Hot Water Equipment | 15,209,018 | 346,402 | 1,385,110 | (29,691) | 16,910,838 |
| Telephone System | 3,325,431 | 113,564 | 409,830 | (38,128) | 3,810,696 |
| Elevators | 2,257,883 | – | 4,072,384 | – | 6,330,267 |
| SMA TV System | 10,660,822 | 33,970 | 3,454,193 | (283,792) | 13,865,193 |
| Maintenance Tools | 674,619 | 32,550 | – | (15,000) | 692,169 |
| Music Instruments | 671,274 | – | – | – | 671,274 |
| Bar Furniture and Equipment | 10,385,208 | 4,226,653 | 734,658 | – | 15,346,519 |
| Computer Systems | 8,952,510 | 1,624,769 | 1,592,807 | (467,100) | 11,702,986 |
| 2,035,933,443 | 60,681,764 | 336,626,697 | (11,059,154) | 2,422,182,749 | |
| At Fair Value | |||||
| Freehold Land | 431,467,850 | 27,215,032 | – | – | 458,682,882 |
| 431,467,850 | 27,215,032 | – | – | 458,682,882 | |
| In the Course of Construction | |||||
| Buildings and Equipment | 54,036,093 | 301,012,748 | (336,626,697) | – | 18,422,144 |
| 54,036,093 | 301,012,748 | (336,626,697) | – | 18,422,144 | |
| Total Gross Carrying Amount | 2,521,437,386 | 388,909,544 | – | (11,059,154) | 2,899,287,776 |
4.2 Depreciation
| Balance | Disposals/ | Balance | ||
| As at | Charge for | Written-Off/ | As at | |
| 01.04.2013 | the year | Transferred | 31.03.2014 | |
| At Cost | Rs. | Rs. | Rs. | Rs. |
| Buildings and Building integrals | 178,024,737 | 38,532,205 | (281,802) | 216,275,140 |
| Plant and Equipment | 24,161,796 | 2,754,241 | (1,329,955) | 25,586,082 |
| Sewerage Treatment Plant | 2,355,891 | 309,069 | (65,999) | 2,598,962 |
| Kitchen/Bar Equipment | 18,616,742 | 2,044,206 | (239,843) | 20,421,104 |
| Electrical Equipment | 6,267,236 | 1,896,269 | (1,969,718) | 6,193,787 |
| Office Equipment | 1,264,734 | 123,533 | (175,136) | 1,213,131 |
| Sports Equipment | 5,296,394 | 657,975 | – | 5,954,369 |
| Furniture and Fittings | 23,055,179 | 3,281,111 | (746,671) | 25,589,619 |
| Swimming Pool Equipment | 3,926,787 | 560,932 | (54,175) | 4,433,544 |
| Generator | 4,467,798 | 69,543 | – | 4,537,341 |
| Motor Vehicles | 4,068,575 | 2,171,174 | (1,558,261) | 4,681,488 |
| Water Treatment Plant | 1,524,267 | 46,615 | – | 1,570,882 |
| Linen, Cutlery and Crockery | 15,248,166 | 5,679,172 | (2,337,878) | 18,589,460 |
| Laundry and Hot Water Equipment | 9,839,022 | 763,862 | (29,691) | 10,573,193 |
| Telephone System | 1,640,488 | 312,878 | (23,781) | 1,929,586 |
| Elevators | 1,552,477 | 163,102 | – | 1,715,578 |
| SMA TV System | 4,074,200 | 920,398 | (280,513) | 4,714,086 |
| Maintenance Tools | 230,167 | 55,555 | (4,459) | 281,262 |
| Music Instruments | 540,190 | 55,957 | – | 596,147 |
| Bar Furniture and Equipment | 3,157,477 | 1,229,995 | – | 4,387,473 |
| Computer Systems | 6,217,252 | 2,476,754 | (384,968) | 8,309,039 |
| Total Depreciation | 315,529,575 | 64,104,544 | (9,482,848) | 370,151,272 |
4.3 Net Book Values
| 2014 | 2013 | |
| At Cost | Rs. | Rs. |
| Buildings and Building integrals | 1,820,154,010 | 1,605,351,943 |
| Plant and Equipment | 41,219,169 | 25,237,153 |
| Sewerage Treatment Plant | 4,274,653 | 3,722,840 |
| Kitchen/Bar Equipment | 23,862,787 | 13,203,090 |
| Electrical Equipment | 30,009,200 | 8,369,066 |
| Office Equipment | 608,685 | 597,107 |
| Sports Equipment | 2,102,852 | 2,760,827 |
| Furniture and Fittings | 57,870,955 | 19,517,466 |
| Swimming Pool Equipment | 3,551,669 | 3,542,622 |
| Generator | 13,998,082 | 526,064 |
| Motor Vehicles | 10,450,600 | 8,120,988 |
| Water Treatment Plant | 230,492 | 166,457 |
| Linen, Cutlery and Crockery | 6,874,745 | 4,402,755 |
| Laundry and Hot Water Equipment | 6,337,645 | 5,369,996 |
| Telephone System | 1,881,111 | 1,684,943 |
| Elevators | 4,614,689 | 705,406 |
| SMA TV System | 9,151,107 | 6,586,622 |
| Maintenance Tools | 410,906 | 444,452 |
| Music Instruments | 75,127 | 131,084 |
| Bar Furniture and Equipment | 10,959,047 | 7,227,731 |
| Computer Systems | 3,393,947 | 2,735,257 |
| 2,052,031,478 | 1,720,403,867 | |
| At Fair Value | ||
| Freehold Land | 458,682,882 | 431,467,850 |
| 458,682,882 | 431,467,850 | |
| In the Course of Construction | ||
| Buildings and Equipment | 18,422,144 | 54,036,093 |
| 18,422,144 | 54,036,093 | |
| Total Carrying Amount of Property, Plant and Equipment | 2,529,136,504 | 2,205,907,810 |
4.4
The fair value of freehold land comprising approximately 1,400 perches was determined by means of a revaluation during the financial year 2012/13 by Messrs. K. Arthur Perera (AMIV - Sri Lanka), an independent valuer, in reference to market based evidence. The valuer has made reference to market evidence of transacted prices for similar size and location. The appraised fair values were approximated within a range of values between Rs. 45,000/- to Rs. 400,000/- a perch, depending on the location. The results of such revaluation were incorporated in these Financial Statements from its effective date which was 31.03.2013. The surplus arising from the revaluation, amounting to Rs. 12,385,939/- was transferred to a Revaluation Reserve in 2013.
4.5
During the financial year, the Company acquired Property, Plant and Equipment to the aggregate value of Rs. 388,909,544/- (2013 - Rs. 110,597,298/-). Cash payments amounting to Rs. 386,985,288/- (2013 - Rs. 110,597,298/-) were made during the year for purchase of Property, Plant and Equipment.
4.6
Property, Plant and Equipment includes fully depreciated assets having a gross carrying amount of Rs. 83,232,773/- (2013 - Rs. 87,198,908/-), that consisted of individually insignificant items.4.7 The useful lives of the assets is estimated as follows:
| 2014 | 2013 | |
| Years | Years | |
| Buildings and Building Integrals | 15 to 60 | 15 to 60 |
| Plant and Equipment | 13.33 | 13.33 |
| Sewerage Treatment Plant | 20 | 20 |
| Kitchen/Bar Equipment | 10 | 10 |
| Electrical Equipment | 10 | 10 |
| Office Equipment | 10 | 10 |
| Sports Equipment | 10 | 10 |
| Furniture and Fittings | 10 | 10 |
| Swimming Pool Equipment | 10 | 10 |
| Generator | 13.33 | 13.33 |
| Motor Vehicles | 05-08 | 05 |
| Water Treatment Plant | 10 | 10 |
| Linen, Cutlery and Crockery | 02-03 | 02-03 |
| Laundry and Hot Water Equipment | 10-13.33 | 10-13.33 |
| Telephone System | 13.33 | 13.33 |
| Elevators | 20 | 20 |
| SMA TV System | 10 | 10 |
| Maintenance Tools | 10 | 10 |
| Music Instruments | 10 | 10 |
| Bar Furniture and Equipment | 10 | 10 |
| Computer System | 4 | 4 |
| 2014 | 2013 | |
| Years | Years | |
| Components included in buildings and building integrals: | ||
| Buildings | 60 years | 60 years |
| Super Structure | 60 years | 60 years |
| Bathroom Fittings | 15 years | 15 years |
| Restaurant Floors | 15 years | 15 years |
| Tennis and Squash Court | 60 years | 60 years |
4.8
During the year bank loan interest expense amounting to Rs. 1,561,028/- (2013 - Nil) and exchange loss on foreign currency loan amounting to Rs. 1,924,256/- (2013 - Nil) that were incurred in connection with the borrowing of funds for the building construction have been capitalized as a part of the building and building Integrals.
5. Prepaid Lease Rent
| 2014 | 2013 | |
| Rs. | Rs. | |
| At 1st April, | 2,454,546 | 2,484,849 |
| Amortization for the Year | (30,303) | (30,303) |
| At 31st March, | 2,424,243 | 2,454,546 |
Prepaid lease rental represents the lease rental paid to acquire the leasehold rights of land situated in Dadalla - Galle obtained from The Urban Development Authority of Sri Lanka by the agreement dated 18th January, 1995. The amount paid upfront has been amortized over the lease period of 99 years.
6. Intangible Assets
| 2014 | 2013 | |
| Rs. | Rs. | |
6.1 Cost |
||
| As at the beginning of the Year | 2,425,924 | 1,806,274 |
| Incurred during the Year | 603,938 | 619,650 |
| As at the end of the Year | 3,029,862 | 2,425,924 |
| Amortization | ||
| As at the beginning of the Year | (1,489,060) | (940,239) |
| Amortized during the Year | (688,885) | (548,821) |
| As at the end of the Year | (2,177,945) | (1,489,060) |
| Net Book Value | ||
| As at the beginning of the Year | 936,864 | 866,035 |
| As at the end of the Year | 851,917 | 936,864 |
6.2
Intangible assets stated above consist of Computer Software and Licences together with related costs. These are amortized over a period of 4 years, on a straight line basis.7. Other Financial Assets
7.1 Other Non-Current Financial Assets
Available-for-Sale Financial Instruments
| 2014 | 2013 | |
| Rs. | Rs. | |
| Investments in Equity Securities - Non Quoted: | ||
| Rainforest Ecolodge (Pvt) Ltd. (Note 7.1.1) | 59,071,482 | 58,259,680 |
| Gain Recognized in Other Comprehensive Income | 317,303 | 811,802 |
| Fair Value at the end of the Year | 59,388,785 | 59,071,482 |
7.1.1
The Company held 15.4% (2013 - 15.4%) shareholding in Rainforest Ecolodge (Pvt) Ltd. The commercial operations of Rainforest Ecolodge (Pvt) Ltd. commenced during the year 2013. The fair value of above unquoted equity securities was determined using Discounted Cash Flow (DCF) valuation technique, where significant inputs were not based on observable market data (Level 3). There were no share sales or purchases during the year. Valuation techniques, key assumption and the sensitivity of the significant inputs to the fair value of the Investment are as follows:| Valuation Technique | Significant Unobservable Input | Sensitivity of the input to fair value |
| Discounted Cash Flow (DCF) method | Long term growth rate | 5% increase/(decrease) in the growth rate would result in increase/(decrease) in fair value by Rs. 1.9 million and (Rs. 1.2 million) respectively. |
| Weighted Average Cost of Capital (WACC) | 1% increase/(decrease) in the WACC would result in (decrease)/Increase in fair value by (Rs. 7 million) and Rs. 9.3 million respectively. |
7.2 Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Other valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
As at 31st March 2014, the Company held the following financial instruments carried at fair value on the Statement of Financial Position:
7.3 Assets Measured at Fair Value
| Total | Level 1 | Level 2 | Level 3 | |
| Rs. | Rs. | |||
| Available for Sale Financial Assets | ||||
| Non-Quoted Equity Investment (7.1) | 59,388,785 | – | – | 59,388,785 |
| 2014 | 59,388,785 | – | – | 59,388,785 |
| 2013 | 59,071,482 | – | – | 59,071,482 |
During the reporting year ending 31st March 2014, there were no transfers between Level 2 and Level 3 fair value measurements.
7.4 Other Current Financial Assets
Held-to-Maturity Financial Instruments
| 2014 | 2013 | |
| Rs. | Rs. | |
| Investments in Treasury Bills Repos | – | 1,124,867 |
| Investment in Fixed Deposits | – | 98,176,064 |
| – | 99,300,931 |
8. Inventories
| 2014 | 2013 | |
| Rs. | Rs. | |
| Food and Beverage | 14,620,123 | 10,860,172 |
| Other Inventories | 14,011,024 | 11,761,504 |
| 28,631,147 | 22,621,676 |
9. Trade and Other Receivables
| 2014 | 2013 | |
| Rs. | Rs. | |
| Trade Debtors - Related Parties (Note 9.1) | 15,655,180 | 12,347,531 |
| - Others | 75,065,944 | 71,559,867 |
| Other Debtors | 3,054,070 | 4,680,104 |
| Less: Impairment of Trade Debtors | (1,177,666) | (2,427,156) |
| 92,597,528 | 86,160,346 | |
| Prepayments | 6,512,994 | 6,592,581 |
| 99,110,522 | 92,752,927 |
Trade receivables are non-interest bearing and are generally on terms of 30 days.
See Note 25 on credit risk of trade receivables, which discusses how the Company manages and measures credit quality of trade receivables that are neither past due nor impaired.
9.1 Related Parties
| Relationship | 2014 | 2013 | |
| Rs. | Rs. | ||
| Jetwing Travels (Pvt) Ltd. | Other Related Party | 15,040,777 | 11,943,157 |
| Jetwing Eco Holidays (Pvt) Ltd. | Other Related Party | 83,334 | 82,388 |
| Jetwing Hotels Ltd. | Other Related Party | 211,746 | 91,495 |
| Blue Oceanic Beach Hotel (Pvt) Ltd. | Other Related Party | 25,510 | – |
| Jetwing Events (Pvt) Ltd. | Other Related Party | 247,461 | 112,250 |
| Rainforest Ecolodge (Pvt) Ltd. | Other Related Party | 46,352 | 118,241 |
| 15,655,180 | 12,347,531 |
10. Stated Capital
| 2014 | 2013 | |||
| Number | Rs. | Number | Rs. | |
Fully Paid Ordinary Shares |
46,000,000 | 460,000,974 | 46,000,000 | 460,000,974 |
| 46,000,000 | 460,000,974 | 46,000,000 | 460,000,974 | |
11. Reserves
| 2014 | 2013 | |
| Rs. | Rs. | |
| Revaluation Reserve (Note 11.1 ) | 369,921,676 | 369,921,676 |
| Special Reserve (Note 11.2 ) | 1,325,671,060 | 1,325,671,060 |
| Available-for-Sale Reserve (Note 11.3) | 1,129,105 | 811,802 |
| 1,696,721,841 | 1,696,404,538 |
11.1 Revaluation Reserve
| 2014 | 2013 | |
| Rs. | Rs. | |
| On: Freehold Land | ||
| As at 1st April | 369,921,676 | 357,535,737 |
| Effect of revaluation carried out in 2013 (Note 11.4) | – | 12,385,939 |
| As at 31st March | 369,921,676 | 369,921,676 |
11.2 Special Reserve
| 2014 | 2013 | |
| Rs. | Rs. | |
| As at 1st April | 1,325,671,060 | – |
| Transferred from Retained Earnings (Note 11.5) | – | 1,325,671,060 |
| As at 31st March | 1,325,671,060 | 1,325,671,060 |
11.3 Available-for-Sale Reserve
| 2014 | 2013 | |
| Rs. | Rs. | |
| As at 1st April | 811,802 | – |
| Gain on Available-for-Sale Financial Instruments (Note 7.1) | 317,303 | 811,802 |
| As at 31st March | 1,129,105 | 811,802 |
11.4
The above revaluation surplus consists of net surplus resulting from the revaluation of freehold land as described in Note 4.4.
11.5
With the adoption of SLFRS in 2012/2013, the Company opted to reflect its building at deemed cost. The Board resolved to transfer such impact to a Special Reserve during the year 2013. This Special Reserve is available to be used in a manner determined by the Board from time to time.12. Post-Employment Benefit Liability
| 2014 | 2013 | ||
| Rs. | Rs. | ||
| Balance as at 1st April | 14,970,860 | 12,625,270 | |
| Charge for the Year (Note 12.1) | 6,848,770 | 4,208,716 | |
| Transfers (Net) during the Year | 1,894,869 | (185,701) | |
| Payments made during the Year | (1,036,016) | (1,677,425) | |
| Balance as at 31st March | 22,678,483 | 14,970,860 | |
12.1 Defined Benefit Plan Cost
| 2014 | 2013 | |
| Rs. | Rs. | |
| Current Service Cost | 1,608,661 | 1,497,119 |
| Interest Cost on Benefit Obligation | 1,721,649 | 1,262,527 |
| Recognized in the Income Statement | 3,330,310 | 2,759,646 |
| Actuarial Loss for the Year Recognized in Other Comprehensive Income | 3,518,460 | 1,449,070 |
| Balance as at 31st March | 6,848,770 | 4,208,716 |
12.2
As at 31st March, 2014 the gratuity liability was actuarially valued by Messrs K.A. Pandit, an independent firm of actuaries.Principal Actuarial Assumptions
The principal financial assumptions underlying the valuation are as follows:
| 2014 | 2013 | |
| Discount Rate | 10% p.a | 11.5% p.a |
| Salary Increase | 9% p.a | 10% p.a |
| Staff Turnover | 5% at each age | 2% at each age |
The principal demographic assumption underlying the valuation is the retirement age of 60 years, applied consistently for both years.
12.3 Sensitivity of Assumptions employed in Actuarial Valuation
The following table demonstrates the sensitivity to a reasonable possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement, in respect of the year 2013/2014. The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increase rate on the profit or loss and post employment benefit liability for the year:
| Change in assumptions | Effect on Total Comprehensive Income - (reduction)/ increase in results |
Proforma Post Employment Benefit Liability |
| Rs. | Rs. | |
| +1% Change in Discount Rate | (1,453,298) | 21,225,185 |
| –1% Change in Discount Rate | 1,682,277 | 24,360,760 |
| +1% Change in Rate of Salary Increase | 1,682,276 | 24,360,759 |
| –1% Change in Rate of Salary Increase | (1,478,310) | 21,200,173 |
13. Interest Bearing Loans and Borrowings
| 2014 | 2014 | 2014 | 2013 | |
| Amount | Amount | Total | Total | |
| Repayable | Repayable | |||
| within 1 Year | after 1 Year | |||
| Rs. | Rs. | Rs. | Rs. | |
| Bank Loans (Note 13.1) | 41,179,950 | 87,353,786 | 128,533,736 | – |
| Bank Overdrafts (Note 21.2) | 10,245,224 | – | 10,245,224 | – |
| 51,425,174 | 87,353,786 | 138,778,960 | – |
13.1 Bank Loans
| As At | Loans | Exchange | Repayment | As At | |
| 01.04.2013 | Obtained | (Gain)/Loss | 31.03.2014 | ||
| Rs. | Rs. | Rs. | Rs. | Rs. | |
| Commercial Bank of Ceylon PLC | |||||
| - USD Term loan 1* | – | 128,902,000 | 1,832,676 | (8,737,440) | 121,997,236 |
| - USD Term loan 2** | – | 6,536,500 | – | – | 6,536,500 |
| – | 135,438,500 | 1,832,676 | (8,737,440) | 128,533,736 |
* Unsecured term loan of USD 1 Mn repayable in 60 monthly installments commencing from December 2013.
** Unsecured term loan of USD 572,500 repayable in 60 monthly installments commencing from April 2014.
14. Trade and Other Payables
| 2014 | 2013 | |
| Rs. | Rs. | |
| Trade Payables - Related Party (Note 14.1) | 9,159,773 | 6,997,551 |
| - Others | 21,781,981 | 18,671,036 |
| Other Payables | 50,265,356 | 15,530,281 |
| Sundry Creditors including Accrued Expenses | 65,593,721 | 46,931,528 |
| 146,800,831 | 88,130,396 |
14.1 Trade Payables - Related Parties
| 2014 | 2013 | ||
| Relationship | Rs. | Rs. | |
| Jetwing Travels (Pvt) Ltd. | Other related party | – | 179,200 |
| Jetwing Hotels Ltd. | Other related party | 9,159,773 | 6,818,351 |
| 9,159,773 | 6,997,551 |
15. Dividends Paid and Proposed
| 2014 | 2013 | |
| Rs. | Rs. | |
| Declared and Paid during the Year | ||
| Equity Dividends on Ordinary Shares: | ||
| Final Dividend for 2013: Rs. 2/- per Share (2012 - Rs. 2/- per share), Paid in the Subsequent Year | 92,000,000 | 92,000,000 |
| 92,000,000 | 92,000,000 | |
| Proposed for approval at AGM (not recognized as a liability as at 31st March) | ||
| Equity Dividends on Ordinary Shares: | ||
| Final Dividend for 2014 Rs. 2/- per share (2013 – Rs. 2/- per share) | 92,000,000 | 92,000,000 |
16. Other Income and Gains
| 2014 | 2013 | |
| Rs. | Rs. | |
| Insurance Claim Received | 503,649 | 5,100,000 |
| Write Back of Sundry Payables | 1,787,323 | – |
| 2,290,972 | 5,100,000 |
17. Finance Income and Finance Cost
| 2014 | 2013 | |
| Rs. | Rs. | |
17.1 Finance Cost |
||
| Interest Expense on Bank Loan | 1,253,861 | – |
| Interest Expense on Bank Overdraft | 688,679 | 24,610 |
| 1,942,540 | 24,610 | |
17.2 Finance Income |
||
| Interest on Fixed Deposits | 5,430,143 | 7,794,795 |
| Interest on Treasury Bills Repos | 61,496 | 1,519,358 |
| 5,491,639 | 9,314,153 |
18. Profit Before Tax
Stated after Charging/(Crediting)
| 2014 | 2013 | |
| Rs. | Rs. | |
| Included in Administrative Expenses | ||
| Employees, Benefits (including the following) | 115,012,979 | 98,144,985 |
| - Defined Benefit Plan Costs - Gratuity | 3,330,310 | 2,759,646 |
| - Defined Contribution Plan Costs - EPF and ETF | 9,831,479 | 8,336,704 |
| Depreciation | 64,104,544 | 55,516,143 |
| Amortization of Leasehold Property | 30,303 | 30,303 |
| Amortization of Intangible Assets | 688,885 | 548,819 |
| Exchange (Gain)/Loss | (2,226,836) | (654,254) |
| (Profit)/Loss on Disposal of Property, Plant and Equipment | (646,068) | 5,142,582 |
| Hotel Operation and Marketing Fees | 37,328,414 | 33,571,672 |
| Non-Executive Directors’ Fees | 1,596,000 | 1,650,000 |
| Donations | 769,362 | 620,834 |
| Allowance for Doubtful Debts | 421,631 | – |
| Included in Marketing and Promotional Expenses | ||
| Advertisements & Promotional Expenses | 18,013,414 | 18,348,238 |
19. Income Tax
| 2014 | 2013 | |
| Rs. | Rs. | |
| Computation of Tax Charge is as follows: | ||
| Current Income Tax | ||
| Statutory Income from Trade - Tax Rate 2% on Turnover | 12,494,757 | 11,017,417 |
| Statutory Income from Other Sources (Note 19.1) | 2,295,567 | 4,121,009 |
| Current Income Tax Charge | 14,790,324 | 15,138,426 |
| Under/(Over) Provision of Current taxes in Respect of Prior Years | (512,889) | – |
| Income Tax Expense Reported in the Income Statement | 14,277,435 | 15,138,426 |
19.1 Current Tax Expenses/(Income) from Other Sources |
||
| Accounting Profit | 136,596,828 | 127,292,387 |
| Deduction (Note 19.2) | (125,717,035) | (105,399,408) |
| Accounting Profit from Other Sources | 10,879,793 | 21,892,979 |
| Aggregate Disallowed Items | 2,577,790 | 1,379,126 |
| Aggregate Allowable Income | (1,279,572) | (1,349,235) |
| Taxable Profit for the Year | 12,178,011 | 21,922,870 |
| Current Income Tax Expense at 12% (Note 19.2) | 835,707 | 1,513,046 |
| Current Income Tax Expense at 28% | 1,459,860 | 2,607,963 |
| 2,295,567 | 4,121,009 |
19.2
As described in Note 2.4.3, income tax related to normal operation of The Lighthouse Hotel PLC is based on 2% of Turnover. Income tax on operations of Era Beach, Galle Heritage Villa and Kurulubedda is computed on taxable profits at prevailing rates stipulated by the Inland Revenue Act. Hence, the amount of accounting profit not subject to tax is presented in the above Note as deduction.20. Earnings Per Share
20.1
Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and previous year are adjusted for events that have changed the number of ordinary shares outstanding, without a corresponding change in the resources such as a bonus issue.
20.2
The following reflects the income and share data used in the Basic Earnings Per Share computation:| 2014 | 2013 | |
| Rs. | Rs. | |
| Amount Used as the Numerator: | ||
| Net Profit Attributable to Ordinary Shareholders for Basic Earnings Per Share (Rs.) | 122,319,393 | 112,153,962 |
| Number of Ordinary Shares Used as Denominator: | ||
| Weighted Average number of Ordinary Shares in issue | 46,000,000 | 46,000,000 |
| Applicable to Basic Earnings Per Share (Rs.) | 2.66 | 2.44 |
21. Cash and Cash Equivalents
Components of Cash and Cash Equivalents
21.1 Favourable Cash & Cash Equivalents Balance
| 2014 | 2013 | |
| Rs. | Rs. | |
| Cash at Bank and in Hand | 22,565,455 | 26,738,158 |
| Short Term Investments (Note 7.4) | – | 99,300,931 |
| 22,565,455 | 126,039,089 | |
21.2 Unfavourable Cash & Cash Equivalents Balance |
||
| Bank Overdrafts (Note 13) | (10,245,224) | – |
| Total Cash and Cash Equivalents for the Purpose of Cash Flow Statement | 12,320,231 | 126,039,089 |
22. Commitments and Contingencies
(a) Capital Expenditure Commitments
The Company has purchased construction commitments on Property, Plant and Equipment incidental to the ordinary course of business as at 31st March, as follows:
| 2014 | 2013 | |
| Rs. | Rs. | |
| Authorised by the Board, but not Contracted for | 31,400,000 | 43,000,000 |
| Contractual Commitments | – | 332,000,000 |
| 31,400,000 | 375,000,000 |
(b) Operating Lease Commitments
The Company has entered into operating lease agreements where the future minimum rentals payable under operating leases as at 31st March are as follows:
| 2014 | 2013 | |
| Rs. | Rs. | |
| Within one Year | 10,617,892 | 8,156,914 |
| After one year but not more than Five Years | 10,214,452 | 20,276,208 |
| 20,832,344 | 28,433,122 |
(c) Contingent Liabilities
There are no significant contingencies as at the reporting date.
23. Assets Pledged
There are no assets pledged as securities for liabilities as at the year end.
24. Related Party Disclosures
Details of significant related party disclosures are as follows:
24.1 Transactions with Key Management Personnel of the Company
The Key Management Personnel of the Company are the members of its Board of Directors.
(a) Key Management Personnel Compensation
| 2014 | 2013 | |
| Rs. | Rs. | |
| Executive Directors' Fees | – | – |
| Non-Executive Directors' Fees | 1,596,000 | 1,650,000 |
| 1,596,000 | 1,650,000 |
24.2 Other Related Party Disclosures
Transactions with entities that are significantly influenced by Key Management Personnel of the Company:
Some Key Management Personnel of the Company and their members of the families, collectively have control directly or indirectly in certain entities with which the Company entered into the transactions, summarized as follows:
| 2014 | 2013 | |
| Rs. | Rs. | |
| Nature of Transactions | ||
| Amount Receivable as at 31st March, (Note 9) | 15,655,180 | 12,347,531 |
| Amount (Payable) as at 31st March, (Note 14) | (9,159,773) | (6,997,551) |
| Hotel Operation and Marketing Fees | 37,328,414 | 33,571,672 |
| Development Fees | 6,709,585 | – |
| Purchases of Beverages | 13,031,960 | 9,532,082 |
| Advertising Expenses and Other Reimbursements | 14,432,707 | 12,001,549 |
| Sale of Accommodation and Transfers | 99,112,607 | 76,323,933 |
| Other Expenses | 1,271,916 | 1,262,228 |
| Transport Charges | 1,309,195 | 1,021,196 |
| Rent Received | 22,777 | – |
| Gratuity Received | 2,240,456 | – |
| Gratuity Transfer | (345,587) | (185,701) |
| Laundry Income | 727,003 | – |
All related party balances are payable or receivable within one year, and non-interest bearing.
25. Risk Management Objectives and Policies
Financial Risk Management
The Company has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Market risk
Company’s exposure to each of the above risks, and the Company’s policies and processes for measuring and managing risk is detailed below:
(a) Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments. The maximum exposure will be equal to the carrying amount of these instruments.
Exposure to credit risk is monitored on an ongoing basis, with the Company trades only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures and approval by Credit committee. A credit approved customer list has been prepared by the Credit Committee and credit is only granted to these customers. Further, credit granted is subject to regular review during monthly meetings of the Credit Committee, to ensure it remains consistent with the customer’s current credit worthiness and appropriate to the anticipated volume of business. Currently, certain free independent travellers’ settlements are received at the time of departure and this is monitored by the General Manager.
Short term Investments are made only in liquid short term instruments in licensed commercial banks. Long term investments are made with the Board approval.
The maximum exposure to credit risk at the reporting date was as follows:
| Carrying Value | ||
| 2014 | 2013 | |
| Rs. | Rs. | |
| Cash at Bank and in Hand | 22,565,455 | 26,738,158 |
| Other Current Financial Assets | – | 99,300,931 |
| Unquoted Equity Securities | 59,388,785 | 59,071,482 |
| Trade and Receivables | 92,597,528 | 86,160,346 |
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
| 2014 | 2013 | |
| Rs. | Rs. | |
| Balance as at 1st April, | 2,427,156 | 2,427,156 |
| Impairment Recognized | 421,631 | – |
| Written off net | (1,671,121) | – |
| Balance as at 31st March, | 1,177,666 | 2,427,156 |
The ageing of trade and other receivables, excluding prepayments, at the end of the reporting period is:
| 2014 | 2013 | |||||
| Gross Carrying Amount |
Impairment Allowance |
Net Carrying Amount |
Gross Carrying Amount |
Impairment Allowance |
Net Carrying Amount |
|
| Rs. | Rs. | Rs. | Rs. | Rs. | Rs. | |
| Neither past Due, nor Impaired | 55,018,685 | – | 55,018,685 | 51,001,546 | – | 51,001,546 |
| Past Due 31 - 60, but not impaired | 25,200,391 | – | 25,200,391 | 17,281,926 | – | 17,281,926 |
| Past Due 61-180, | 11,958,739 | 177,128 | 11,781,611 | 17,823,978 | 971,844 | 16,852,134 |
| Past Due More than 180 Days | 1,597,379 | 1,000,537 | 596,842 | 2,480,052 | 1,455,313 | 1,024,739 |
| 93,775,194 | 1,177,666 | 92,597,528 | 88,587,502 | 2,427,156 | 86,160,346 | |
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company had access to undrawn committed facilities of US$ 522,500 (Rs. 68.3 million) at the year end and US$ 1 million (Rs. 126.9 million) and Rs. 75 million as at 31st March 2013.
The following are the undiscounted contractual cash flows of financial liabilities as at 31st March:
| 1 - 6 Months | 6 - 12 Months | 1 - 5 Years | Total | |
| Maturity Analysis | Rs. | Rs. | Rs. | Rs. |
| Commercial Bank of Ceylon - US$ Loan | 20,589,975 | 20,589,975 | 87,353,786 | 128,533,736 |
| Bank Overdraft | 10,245,224 | – | – | 10,245,224 |
| Trade and Other Payables | 146,800,831 | – | – | 146,800,831 |
| Total 2014 | 177,636,030 | 20,589,975 | 87,353,786 | 285,579,791 |
| Total 2013 | 88,130,396 | – | – | 88,130,396 |
As at the reporting date, the Company had cash of Rs. 22,565,455/- which is held in bank funds which allow daily withdrawals.
(c) Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has exposure to foreign currency risk where it has foreign currency transactions which are affected by foreign exchange movements.
An analysis of financial instruments based on the currency they are denominated as at 31st March, are as follows:
| In Rs. | In US$ | In EURO | |
| Cash at Bank and in hand | 13,607,050 | 67,634 | 649 |
| Unquoted Equity Securities | 59,388,785 | – | – |
| Trade Receivables (Non-Interest Bearing and Uncollateralized) | 51,467,209 | 278,951 | 25,952 |
| Bank Loans | – | (983,200) | – |
| Net Aggregate Carrying Value | 124,463,044 | (636,614) | 26,601 |
| Net Aggregate Carrying Value in Rs. 2014 | 124,463,044 | (83,224,679) | 4,779,668 |
| Net Aggregate Carrying Value in Rs. 2013 | 218,888,037 | 40,881,761 | 6,388,351 |
The Company invoices Tour Operators and Travel Agents based on the contracted foreign currency. Tour Operators and certain key Travel Agents make settlements in foreign currency.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to risk of changes in market interest rates, relates primarily to the Company’s long term debt obligations with floating interest rates.
Interest Rate Sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates with all other variables held constant, of the Company’s profit before tax as affected through an impact on floating rate borrowings.
| Assumed Impact due to Increase/(Decrease) in Basis Points |
Effect on Profit Before Tax Rs. |
|
| US$ Bank Loans | + 50 basis points | (54,988) |
| US$ Bank Loans | - 50 basis points | 55,821 |
The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment changes to base rate of LIBOR.
(d) Capital Management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company’s objective for managing its capital is to ensure that Company will be able to continue as a going concern while maximizing the return to shareholders, as well as sustaining the future development of its business. In order to maintain or adjust the capital structure, the Company may alter the total amount of dividends paid to shareholders, issue new shares, and draw down additional debt.
26. Fair Value
Set out below is a comparison of the carrying amounts and fair values of the Company’s financial instruments by classes, that are not carried at fair value in the Financial Statements. This table does not include the fair values of non-financial assets and non-financial liabilities.
| Carrying Amount | Fair Value | ||||
| 2014 | 2013 | 2014 | 2013 | ||
| Notes | Rs. | Rs. | Rs. | Rs. | |
| Financial Assets | |||||
| Trade & Other Receivables | A | 92,597,528 | 86,160,346 | 92,597,528 | 86,160,346 |
| Cash at Bank and in Hand | A | 22,565,455 | 26,738,158 | 22,565,455 | 26,738,158 |
| Other Current Financial Assets | A | – | 99,300,931 | – | 99,300,931 |
| Total | 115,162,983 | 212,199,435 | 115,162,983 | 212,199,435 | |
| Financial Liabilities | |||||
| Interest Bearing Loans and Borrowings | B | 138,778,960 | – | 138,778,960 | – |
| Trade and Other Payables | A | 146,800,831 | 88,130,396 | 146,800,831 | 88,130,396 |
| Total | 285,579,791 | 88,130,396 | 285,579,791 | 88,130,396 | |
The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:
A. Cash at bank and in hand, trade & other receivables, short term deposits and trade & other payables approximate their carrying amounts largely due to the short term maturities of these instruments.
B. Long term variable rate borrowings are evaluated by the Company based on parameters such as interest rates, risk characteristics of the financed project etc. As at 31st March 2014, the carrying amounts of such borrowings are not materially different from their calculated fair values.
27. Events Occurring After the Reporting Date
There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements other than proposed dividends which is disclosed in Note 15.