Explanatory notes
Real estate companies
and other diversifications
General
The combined balance sheet and profit and loss account comprise
the annual account of majority participations in real estate companies
and other diversifications.
The general valuation principle for real estate in use is purchase or
construction costs less depreciation. Depreciation is based on cost and
taking into account the estimated useful life of the property. Certain
properties which are to besold in the near future are valued on the basis
of purchase or construction costs less income realized.
The valuation of real estate in operation does not exceed its market value.
Of the sale of real estate in operation, the difference between net-proceeds
and book value is accounted for. For certain older projects the proceeds
which have been determined are transferred to the replacement reserve
account. Tax claims on this reserve are accounted for under 'Provision
for deferred tax liabilities'.
Real estate under development is valued at the costs incurred with the
projects until the moment of sale or lease. The valuation of r§al estate
under development does not exceed the market value. Capitalized costs
include interest on the money advanced at the average rate for mort
gage loans. However interest is not capitalized if this would cause the
book value to exceed market value.
The proceeds of sale are accounted for in the year in which a project is
completed, or if presold, the proceeds are pro-rated according to the
portion completed in that year. Purchase sums received are deducted
from the cost of real estate in development.
Work in progress of the construction firm is included under 'Real estate
under development' less any installments received. Valuation is at cost
which includes a five per cent weighting for indirect costs. Foreseeable
losses are deducted from the valuation in the year in which they were
incurred. The result is accounted for in the year in which the work is
completed.
All (minority) participations are valued at cost. However the
valuation of these participations is not higher than their intrinsic value
on the basis of the valuation principles applied by FGH. Receipts, includ
ing those from participations, have been valued at face value less
reserve provisions where necessary.
All assets and liabilities denominated in foreign currencies are recalcul
ated at the exchange rates existing as at the date of the balance sheet.
The resulting currency differences are passed on from the entire group
to a central account with the parent company and the balance due to
currency fluctuations is booked as a change in the equity capital.
The maintenance provision is intended to produce a better
allocation of the costs of periodic maintenance. The provision is
increased annually by an amount, chargeable to the results, calculated
on each property based on costs and frequency of periodic mainten
ance. Expenses incurred during the year are charged to this provision.
The method used means that the amount which should be available for
each real estate complex and for each particular kind of maintenance
can be calculated at any time.
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