EQUITY INVESTMENT BANK UNIT TRUST FUNDS ANNUAL REPORT AND FINANCIAL STATEMENTS

Transcription

1 EQUITY INVESTMENT BANK UNIT TRUST FUNDS ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017

2 Equity Investment Bank Unit Trust Funds Corporate Information Table of Contents Page No Corporate information 1 Trustee s report 2-3 Statement of Trustee s responsibilities 4 Fund Manager s report 5-7 Custodian s report 8 Report of the independent auditor 9 12 Equity Investment Bank Money Market Fund: Statement of comprehensive income 13 Statement of financial position 14 Statement of changes in unit holder capital balances 15 Statement of cash flows 16 Notes to the financial statements Equity Investment Bank Balanced Fund: Statement of comprehensive income 38 Statement of financial position 39 Statement of changes in unit holder capital balances 40 Statement of cash flows 41 Notes to the financial statements 42-58

3 Equity Investment Bank Unit Trust Funds Corporate Information CORPORATE TRUSTEE KCB Bank Kenya Limited KCB Towers, 7 th Floor Kenya Road, Upper Hill P.O Box Nairobi, Kenya REGISTERED OFFICE Equity Centre Hospital Road, Upper Hill P.O Box Nairobi, Kenya FUND MANAGER Britam Asset Managers (Kenya) Limited Britam Centre, 5 th Floor Junction of Mara and Ragati Roads,Upper Hill P.O. Box Nairobi, Kenya ADMINISTRATOR Equity Investment Bank Limited Equity Centre Hospital Road, Upper Hill P.O Box Nairobi, Kenya CUSTODIAN Equity Bank (Kenya) Limited Equity Centre Hospital Road, Upper Hill P O Box Nairobi, Kenya AUDITOR PricewaterhouseCoopers Kenya Certified Public Accountants PwC Tower, Waiyaki Way/Chiromo Road P.O. Box Nairobi, Kenya 1

4 Equity Investment Bank Unit Trust Funds Trustee s report The Trustee submits the Funds report together with the audited financial statements for the year ended 31 December INVESTMENT OBJECTIVES Equity Investment Bank Unit Trust Fund is an umbrella fund with two sub funds whose objectives are as described below; The objective of the Equity Investment Bank Money Market Fund is to achieve a high level of yield while protecting the investors capital. To achieve this, the portfolio is invested in fixed income securities of various durations at attractive yields to ensure the return on the Fund is maximised. The collective investment scheme is an approved collective investment scheme with the meaning of the Capital Markets Act. The holders are not liable for the debts of the collective investment scheme. The objective of the Equity Investment Bank Balanced Fund is to achieve reasonable level of current income and enhance capital growth. This is achieved by investing in a diversified spread of fixed income securities. The key investment philosophies for the fund are; To maintain a balanced and optimal portfolio by investing in shares of companies with strong potential of growth and fixed income instruments with attractive yields. To achieve its performance objectives through well researched and superior share selection. To invest in quality businesses diligently selected based upon attractive long term fundamentals. CHANGES TO INCORPORATION DOCUMENTS There were no changes made to the incorporation documents (Prospectus, Trust Deed and Rules of the Fund) during the year. FUND PERFORMANCE For the Equity Investment Bank Money Market Fund, the highest and lowest effective annual yields during the years were as below Highest Effective Annual Yield 20.02% 14.07% 5.91% Lowest Effective Annual Yield 3.45% 4.31% 1.88% *Effective annual yield captured as Net of fees and Gross of tax For the Equity Investment Bank Balanced Fund, the highest and lowest Net Asset Value (NAV) during the years were as below: Highest NAV Lowest NAV

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7 Equity Investment Bank Unit Trust Funds Fund Manager s Report Dear Unit Holder, The investment objective of Equity Investment Bank Money Market Fund is to preserve capital, liquidity and generate regular income. The Fund primarily invests in treasury bills and bonds, commercial papers and cash with a short to medium term investment horizon. The fundamental investment objective of the Equity Investment Bank Balanced Fund is to offer investors a high level of current income and long term capital growth. In order to achieve this, the fund invests primarily in government fixed income securities, corporate bonds and quoted shares. The Fund is biased towards equities offering long term value as a hedge against inflation. Typically, the Fund s equity weighting ranges between 20%-60% depending on market opportunities, with the balance held in fixed income and cash. Britam Asset Managers (Kenya) Limited adopts an investment philosophy that ensures high returns for investors while optimizing overall portfolio risk. For the Equity Investment Bank Money Market Fund, we aim to generate a high level of interest income by investing primarily in fixed income securities. This is all done in an environment of rigorous risk management by investing in fundamentally sound fixed income assets to protect against credit risk. Britam Asset Managers (Kenya) Limited also ensure that the Balanced Fund maintains a balanced and optimal portfolio. The fixed income portion of the Fund provides stability during volatile years in the markets. The equity portion is invested in companies with quality businesses which are trading at attractive valuations. We actively monitor and invest in companies that match our criteria: namely, consistent financial performance, specialized competitive advantage, positive earnings outlook and sound management. The Kenyan macroeconomic environment was challenging in Drought at the beginning of the year, a protracted election period and the credit crunch as a result of interest rate caps all contributed to slower economic growth. Highlights: Kenya s economic growth is expected to decelerate to 4.9 percent in 2017 according to estimates by the World Bank. This is due to drought conditions at the beginning of the year that affected agricultural output, slowdown in private sector lending in the year and the prolonged electioneering period that saw reduced business investment. The economy is estimated to have expanded by 4.4 percent in Q from 5.6 percent in Q with the largest weakness seen in the financial services sector. Recovery in the agriculture sector and the end of the political season will see increased private investment and economic growth improve in The Kenya Shilling weakened marginally against the US Dollar during the year, even as it weakened significantly against other major international currencies. This was due to overall global dollar weakness with the dollar index declining 9.9 percent in The local currency traded in a narrow band as it shed 0.7 percent in 2017 to close the year at to the US Dollar. The local unit depreciated against both the Euro and the Sterling Pound by 15.1 percent and 10.6 percent respectively as the currencies appreciated globally. Regionally, the Kenya Shilling depreciated marginally against the Ugandan shilling by 0.2 percent while appreciating against the Tanzania Shilling by 2.1 percent The interest rate environment stabilized during the year with rates generally trending lower as ample liquidity among the large banks continued to support short term rates. The yields on the 3-month, 6-month and 1-year Treasury Bills declined by 0.5 percent on average to 8.4 percent, 10.4 percent and 10.9 percent respectively. The monetary policy committee kept the Central Bank Rate unchanged at 10.0 percent despite the spike in inflation at the beginning of the year, highlighting the low core inflation. 5

8 Equity Investment Bank Unit Trust Funds Fund Manager s Report The money market liquidity tightened relatively during the year, with the interbank rate averaging 6.4 percent from 4.8 percent in the previous year. Liquidity remained skewed to the large banks while CBK intervened in the money markets to offer liquidity support to the smaller banks through reverse repos. The equities market recovered in 2017 with the Nairobi All share Index gaining 28.4 percent in the year. This was despite the challenging macro-economic environment characterized by drought at the beginning of the year, slowdown in private sector credit growth and an extended electioneering season. The equities market mainly followed global equities with most markets recording positive performance in the year as a result of a pick-up in global growth. The benchmark Nairobi Securities Index 20 (NSE 20) rose 16.5% in the year. Investor appetite was strong during the year due to low valuation compared to historical valuation as well as other comparable markets. The market was also boosted by attractive dividend yields especially across the banking sector. Inflation spiked at the beginning of the year reaching a high of percent in May 2017 as a result of poor harvest following drought conditions experienced in the first quarter of the year. The government however intervened by importing maize and subsidizing the cost of maize flour to the public. This resulted in decline in food inflation from a high of percent in May 2017 to 4.68 percent in December Rising crude oil prices in the last quarter of 2017 led to increase in the transport, electricity and fuel indices but this was largely contained due to low base effects. Given the Money Market Fund s objectives and increasing interest rates observed in the year, the Fund maintained its overweight exposure in short tenure instruments. The Fund generated a return of 3.99% during the year, compared to the average yield on the 91-day Treasury bill of 8.38% and the benchmark return of 9.38%. Money Market Fund Performance Highest Effective Annual Yield 20.02% 14.07% 5.91% Lowest Effective Annual Yield 3.45% 4.31% 1.88% *Effective annual yield captured as Net of fees and Gross of tax Going forward, we will be looking to boost the returns of the portfolio by investing in highyielding short to medium term interest bearing assets. Our disciplined investment strategy, coupled with the philosophy of investing in high-quality fixed income investments with attractive yields, will continue to benefit investors who invest in the Fund in the medium term. In line with the balanced fund strategy and expected withdrawals during the year, the fund manager adopted a conservative strategy investing only in fixed income instruments. The fund therefore generated a return of 10.32% while the NSE All Share Index recorded a positive return of 28%. The fund benchmark return in 2017 was 19.40% Balanced Fund Performance Highest NAV Lowest NAV End Year Unit price movement 31/12/ /12/ /12/2017 Shs. Shs. Shs. Bid Price Offer Price

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11 INDEPENDENT AUDITOR S REPORT TO THE UNIT HOLDERS OF EQUITY INVESTMENT BANK UNIT TRUST FUNDS Report on the audit of the financial statements Opinion We have audited the accompanying financial statements of Equity Investment Bank Unit Trust Funds comprising of the following sub funds: 1. Equity Investment Bank Money Market Fund set out on pages 13 to 37;and 2. Equity Investment Bank Balanced Fund set out on pages 38 to 58; These financial statements each comprise the statement of financial position at 31 December 2017, and the statement of comprehensive income, changes in unit holder capital balances and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the financial statements give a true and fair view of the financial position of Equity Investment Bank Unit Trust Funds at 31 December 2017 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Capital Markets Authority (Collective Investments Scheme) Regulations, Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report. We are independent of the Funds in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 17 in the financial statements for the Equity Investment Bank Money Market Fund, which indicate that the Fund has not received contributions from unitholders as from 1 May As a result, the unitholders funds decreased from Shs 2,919,782,000 in 2016 to Shs 1,220,432,000 in Similarly, we also draw attention to Note 17 in the financial statements of Equity Investment Bank Balanced Fund which indicates that the Fund has not received contributions from unitholders as from 1 May As a result, the unitholders funds decreased from Shs 51,343,000 in 2016 to Shs 49,872,000 in PricewaterhouseCoopers CPA. PwC Tower, Waiyaki Way/Chiromo Road, Westlands P O Box Nairobi, Kenya T: +254 (20) F: +254 (20) Partners: A Eriksson E Kerich B Kimacia K Muchiru M Mugasa F Muriu P Ngahu A Murage S N Ochieng R Njoroge B Okundi K Saiti

12 INDEPENDENT AUDITOR S REPORT TO THE UNIT HOLDERS OF EQUITY INVESTMENT BANK UNIT TRUST FUNDS (CONTINUED) Material Uncertainty Related to Going Concern (continued) These events or conditions, along with other matters as set forth in Note 17 of both financial statements, indicate that a material uncertainty exists that may cast significant doubt on the Funds ability to continue as going concern. Our opinion is not modified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. There were no key audit matters to report. Other Information The Trustee is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Trustee for the financial statements The Trustee is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of the Kenyan Capital Markets Authority (Collective Investment Schemes) Regulations, 2001, and for such internal control as the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Trustee is responsible for assessing the Funds ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. The Trustee is responsible for overseeing the Funds financial reporting processes. 10

13 INDEPENDENT AUDITOR S REPORT TO THE UNIT HOLDERS OF EQUITY INVESTMENT BANK UNIT TRUST FUNDS (CONTINUED) Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the Trustee s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Funds to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Trustee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. From the matters communicated with the Trustee, we determine those matters that were of most significance in the audit of the Funds financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 11

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15 EQUITY INVESTMENT BANK MONEY MARKET FUND

16 Equity Investment Bank Money Market Fund At 31 December 2017 Statement of comprehensive income Notes Shs 000 Shs 000 Investment income 5 (a) 117, ,178 Fair value gain on financial assets 5 (b) , , ,168 Operating expenses 6 (36,186) (117,944) Profit before income tax 81, ,224 Income tax expense Profit for the year 81, ,224 Other comprehensive income Gain/(loss) on fair value of available for sale ,930 Reserves released on disposal of available for sale (452) (16,990) Total comprehensive income for the year 81, ,164 The notes on pages 17 to 37 are an integral part of these financial statements. 13

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18 Equity Investment Bank Money Market Fund Statement of changes in unit holder capital balances Year ended 31 December 2017 At start of year Unit holders funds Available for sale reserve Total Shs 000 Shs 000 Shs 000 2,919,782 (60) 2,919,722 Transactions with unit holders Refunds made on withdrawals by unit holders (1,780,772) - (1,780,772) Total transaction with unit holders (1,780,772) - (1,780,772) Profit for the year 81,422-81,422 Fair value gains on available for sale financial assets Reserves released on disposal of available for sale investments (452) (452) At end of year 1,220,432 (24) 1,220,408 Year ended 31 December 2016 At start of year 3,333,847-3,333,847 Transactions with unit holders Transfer from unallocated unit holders funds 21,470 21,470 Proceeds from units issued in the year 3,898,963-3,898,963 Refunds made on withdrawals by unit holders (4,675,722) - (4,675,722) Total transaction with unit holders (776,759) - (776,759) Profit for the year 341, ,224 Fair value gains on available for sale financial assets Reserves released on disposal of available for sale investments - 16,930 16,930 - (16,990) (16,990) At end of year 2,919,782 (60) 2,919,722 The notes on pages 17 to 37 are an integral part of these financial statements 15

19 Equity Investment Bank Money Market Fund Statement of cash flows Notes Shs 000 Shs 000 Cash flows from operations Profit before income tax 81, ,224 Adjustment for Fair value gains (502) (692) Accrued interest on treasury bills 11 (58,942) (207,600) Accrued interest on treasury bonds 13 (2,404) (263) 19, ,669 Changes in working Capital: Purchase of treasury bills 11 (142,662) (2,848,801) Proceeds from sale of treasury bills 11 1,741,000 1,622,284 Purchase of treasury bonds 13 (20,965) (739,154) Proceeds from sale of treasury bonds 13 23, ,578 Movement in restricted cash 8 29,215 (251,115)( Movement in fixed deposits with maturities of longer 649 than 3 months - 694,989 Due to related parties 16 (c) (16,605) 13,611 Investment in money market fund 12 ) - 51,174 Other payables and accruals 14 (5,452) (59) Cash generated from operations 1,627,412 (563,824) Tax paid Net cash (used in)/ generated from operating 1,627,412 (563,824) activities Financing activities Net contributions from unit holders - 3,898,963 Net liquidations by unit holders (1,780,722) (4,675,722) Net cash used in financing activities (1,780,722) (776,759) Decrease in cash and cash equivalents (153,310) (1,340,583) Cash and cash equivalents at start of year 605,226 1,945,809 Cash and cash equivalents at end of year 8 451, ,226 The notes on pages 17 to 37 are an integral part of these financial statements 16

20 Equity Investment Bank Money Market Fund Notes 1 General information Equity Investment Bank Money Market Fund (the Fund ) is a collective investment scheme, which is registered under the Capital Markets Authority Act and is domiciled in Kenya. The address of its registered office is: Equity Investment Bank Money Market Fund P.O. Box Nairobi 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. (a) Basis of preparation The financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS) as issued by the IASB. The financial statements are prepared on a historical cost basis, except for available for sale investments, which have been measured at fair value through other comprehensive income. Changes in accounting policy and disclosures (i) New and amended standards adopted by the Fund The following standards and amendments have been applied by the Fund for the first time for the financial period beginning 1 January 2017: Amendment to IAS 12 Income taxes, the amendments were issued to clarify the requirements for recognising deferred tax assets on unrealised losses. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset s tax base. They also clarify certain other aspects of accounting for deferred tax assets. The amendments clarify the existing guidance under IAS 12. They do not change the underlying principles for the recognition of deferred tax assets. Amendment to IAS 7 Cash flow statements, in January 2017, the International Accounting Standards Board (IASB) issued an amendment to IAS 7 introducing an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment responds to requests from investors for information that helps them better understand changes in an entity s debt. The amendment will affect every entity preparing IFRS financial statements. However, the information required should be readily available. Preparers should consider how best to present the additional information to explain the changes in liabilities arising from financing activities. The revised standards did not have any effect on the Fund s reported earnings or financial statement position and had no impact on the accounting policies. 17

21 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (a) Basis of preparation (Continued) Changes in accounting policy and disclosures (continued) (ii) New standards, amendments and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Fund. IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss (P/L). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Fund is in the process of assessing the impact of the new standard. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Fund. (b) Foreign exchange translation (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The financial statements are presented in Kenya Shillings in thousands (Shs) which is the Fund s functional currency. 18

22 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (b) Foreign exchange translation (continued) (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses arising from translation are included in profit of loss. (c) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Fund and that revenue can be reliably measured. Revenue is recognized as follows: (i) (ii) Interest income is recognised in profit or loss for all interest bearing investments measured at amortised cost using the effective interest method. Interest income is accrued on a timely basis by reference to the principal outstanding and at the effective interest rate applicable. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset net the carrying amount on initial recognition. Unrealised / realised gains and losses on valuation of financial assets at the reporting date or sale of financial assets are recognised in profit or loss. Gain and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised cost and are recorded on occurrence of the sale transaction. (d) Provisions Provisions are recognised when; the Fund has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 19

23 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (e) Fair value measurement The Fund measures financial instruments such as available-for-sale financial assets at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to by the Fund. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Fund determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Fund has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. (f) Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Purchases and sales of financial instruments are recognised on trade date the date on which the Fund commits to purchase or sell the asset. 20

24 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (f) Financial instruments (Continued) Financial assets The Fund classifies its financial assets into the following IAS 39 categories: Financial assets at fair value through profit or loss; loans and receivables; held to maturity financial assets; and available for sale financial assets. Management determines the appropriate classification of its financial instruments at initial recognition. Financial assets are initially recognised at fair value plus, in the case of all financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the Fund has also transferred substantially all risks and rewards of ownership. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Fund establishes fair value by using valuation techniques. These include the use of recent arm s length transactions and reference to other instruments that are substantially the same. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified into this category at inception if acquired principally for the purpose of selling it in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short term profit-taking, or if so designated by management. Subsequent to initial recognition, these investments are remeasured at fair value. Fair value adjustments are recognised in profit or loss in the period that they arise. The Fund did not hold any financial assets at fair value through profit or loss. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market They include deposits with financial institutions, treasury bills, investment in money market Fund and amounts due to related parties on Notes 9, 10, 11 and 16. After initial measurement, loans and receivables are measured at amortised cost, using the effective interest rate method (EIR) less impairment. Amortised 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 amortisation is included in investment income in profit or loss. Gains and losses are recognised in the profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables that the Fund s management has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity financial assets are measured at amortised cost, using the effective interest rate method, less impairment. Amortised 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 gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. 21

25 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (f) Financial instruments (continued) Held-to-maturity financial assets (continued) Financial assets held to maturity comprise treasury bonds designated in this category. The Fund has not designated any financial assets as held to maturity at the end of the year. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Subsequent to initial recognition, these investments are re-measured at fair value unless their value cannot be reliably measured in which case they are carried at cost less provision for impairment. Unrealised gains and losses arising from changes in the fair value of available-for-sale are recognised in other comprehensive income and accumulated under the heading of fair value reserve in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in profit or loss for the year as net realised gains/losses on financial assets. Financial assets classified as available for sale comprise treasury bonds designated in this category (Note 13). Impairment of financial assets The Fund assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only 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 reorganisation 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. Loans and receivables For financial assets carried at amortized cost, the Fund first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Fund determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. The impairment assessment is performed at each reporting date. 22

26 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (f) Financial instruments (continued) Loans and receivables (Continued) If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the impairment 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 been incurred) discounted at the financial asset s original effective interest rate. If a loan has variable interest rate, the discount rate for measuring any impairment loss is the current 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 recognised in profit or loss. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. Available-for-sale financial investments For available-for-sale financial investments, the Fund 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 to be evaluated against the original cost of the investment and prolonged against the period in which the fair value 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 recognised in profit or loss is removed from other comprehensive income and recognised in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognised directly in other comprehensive income. In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Derecognition of financial instruments A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired The Fund has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the cash flows in full without material delay to a third party under a passthrough arrangement; and either a) the Fund has transferred substantially all the risks and rewards of the asset, or b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 23

27 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (f) Financial instruments (continued) Financial liabilities Initial recognition and measurement Financial liabilities are recognised when the Fund enters into the contractual provisions of the arrangements with counterparties, which is generally on trade date, and initially measured at fair value, which is normally the consideration received, net of directly attributable transaction costs incurred. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Loans and borrowings and payables After initial recognition, interest-bearing loans and borrowings and payable are subsequently measured at amortised cost using the EIR method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the carrying amount on initial recognition. Amortised 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. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. This category generally applies to interest-bearing loans and borrowings and payables. Derecognition A financial liability is derecognised 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss. Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the profit or loss unless required or permitted by an accounting standard or interpretation, as specifically disclosed in the accounting policies of the Fund. 24

28 Equity Investment Bank Money Market Fund 2 Summary of significant accounting policies (continued) (g) Income tax The Fund is exempt from income tax and withholding tax on dividend and interest as from October Before distribution of funds to unit holders, a withholding tax of 15% is withheld from their income. (h) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank balances, call deposits and fixed deposit maturing within three months from the reporting date are designated as cash and cash equivalents. (i) Distribution All income or loss arising from investment is distributed to unit holders after provision for expenses. All distributions including unclaimed distributions are reinvested in the unit holders account. (j) Unit holder balances Unit holder balances are redeemable on demand at an amount equal to a proportionate share of the unit portfolio s net asset value. The balances are carried at the redemption amount that is payable at the balance sheet date if the holder exercised their right to redeem the balances. Unit holder balances are classified as equity. (k) Payables Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. (l) Receivables Receivables are amounts due from investments in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Receivables are recognised initially at fair value and subsequently recognised at amortised cost, less any provision for impairment. 25

29 Equity Investment Bank Money Market Fund 3 Critical judgements in applying the fund s accounting policies The preparation of the Fund's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Fund based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the end of reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Going concern The Fund s management has made an assessment of the Fund s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. As detailed in note 17, the Fund has not received contributions from unit holders since 1 May 2016 due to unavailability of appropriate investment opportunities. This casts doubt on ability Fund to continue as going concern. The Trustees and Administrator have assessed business outlook of the Fund and they are confident that viable investment opportunities with attractive returns will be available in the near future and the Fund will start receiving contributions from the unit holders. The Trustee and Administrator are not aware of any other material going concern uncertainties and have no immediate plan to cease the operations of the Fund. Therefore, the financial statements continue to be prepared on the going concern basis. Impairment of financial assets. The Fund assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only 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 a debtor 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 reorganisation 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. The carrying amount of the affected assets are included in note 4 in the financial statements.. 26