Arhag Annual Report 2019/2020

1.8 Other fixed assets Cost incurred for scheme equipment is capitalised and recovered from residents through service charges levied over the life of the asset. Other fixed assets are included at cost to the Association less depreciation, which is provided on a straight-line basis over the periods shown below: Long Leasehold Land Over the period of the lease – starting from the date of the lease Long Lease Office Buildings (including the M&R Hub) 100 years – starting from date of handover Office furniture and equipment 5 years Computer Hardware 5 years Computer Software 5 years White Goods 5 years Scheme equipment (including digital aerials) 10 years and 15 years 1.9 Impairment Financial assets (including rent and service charge arrears) Financial assets are assessed at each reporting date to determine whether there is objective evidence that they might be impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. For financial instruments measured at cost less impairment, an impairment is calculated as the difference between its carrying amount and the best estimate of the amount that the Association would receive for the asset if it were to be sold at the reporting date. Interest on the impaired asset continues to be recognised through the unwinding of the discount. Impairment losses are recognised in the Statement of Comprehensive Income. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the Statement of Comprehensive Income. Non-financial assets (Property, Plant and Equipment) The carrying amounts of the Association’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). Impairment arises where the cost is lower than the Net Realisable Value, and where the cost is greater than the Net Realisable Value, the impairment is recognised within the Statement of Comprehensive Income. The Association assesses the recoverable amount as being the higher of the fair value of the asset (less any incidental costs of selling the asset) and its value in use (the present value of anticipated future cash flows arising from its present use). Where the asset or CGU comprises assets held for their service potential (for example social housing properties and the “hub”) and the asset is both in demand and intended to be used for the long term, the Association also considers depreciated replacement cost (“DRC”) (the estimated cost of replacing the asset either by purchasing on the open market or rebuilding on the same, less an allowance for depreciation to match the present condition of the existing properties). If DRC is higher than both the fair value of the asset or CGU and its value in use, then the recoverable amount is considered to be equal to DRC. The Association operates entirely in the London area, where the demand for housing is high (void levels for the year ended 31 March 2020 were 0.20% and for the previous year 0.10%). As there are no plans currently to regenerate or demolish our units, the Association can derive its recoverable amounts fromDRC. 40 Arhag