29 / 87
Notes to the Consolidated Financial Statements
27
Dar Al-Maal Al-Islami Trust
Annual Report 2014
profit will be available against which
the deductible temporary differences
and unused tax losses and tax
credits can be utilised.
Deferred tax related to fair value
remeasurement of investments
available-for-sale which is charged
or credited directly to the statement
of comprehensive income, is also
credited or charged directly to
statement of comprehensive income
and is subsequently recognised
in the consolidated statement of
income together with the deferred
gain or loss.
Deferred tax related to fair value
remeasurement of investment
property, which is charged or credited
to the consolidated statement of
income, is also charged or credited
to the consolidated statement of
income.
Trust capital
and treasury stock
Dividends on participation units
Dividends on participation units are
recognised in Trust capital in the
period in which they are declared.
Treasury stock
Where DMI purchases its own
capital or obtains rights to purchase
its own capital, the consideration
paid is shown as a deduction from
Trust capital. Gains and losses on
sales of own capital are charged
or credited to the treasury stock
account in Trust capital.
Fiduciary risk reserve
The fiduciary risk reserve is a
component of Trust capital and is
established by an appropriation of
net results, other reserves or by a
transfer from paid in capital, for
the financial year to cover potential
fiduciary risks which might arise and
which are not subject to other specific
provision, in the Group’s capacity as
fund manager. The fiduciary risk
reserve is not distributable.
Acceptances
Acceptances comprise undertakings
by the Group to pay bills of exchange
drawn on customers. The Group
expects most acceptances to be
settled simultaneously with the
reimbursement from the customers.
Acceptances are accounted for
as off-balance sheet transactions
and are disclosed as contingent
liabilities and commitments, unless
payment is probable.
Cash and cash equivalents
For the purposes of the cash
flow statement, cash and cash
equivalents comprise balances
with maturities of three months or
less from the date of acquisition,
including cash and non-restricted
balances with central banks, loans
and advances to banks, amounts
due from other banks and short term
government securities.
Fiduciary activities
The Group through its asset
management subsidiary provides
fund management and advisory
services to third parties which
involve the Group making allocation
and purchase and sale decisions in
relation to a wide range of financial
instruments. Those assets that
are held in a fiduciary capacity
are not included in these financial
statements.
Income arising from fund
management and advisory services
comprises the revenues earned from
the management of the funds in the
modarabas accrued on the basis
of the terms and conditions of the
related management agreements.
Funds under management represent
amounts invested by clients and
placed with funds managed by the
Group.
3. Critical accounting
estimates and
judgements in applying
accounting policies
The Group makes estimates and
assumptions that affect the reported
amounts of assets and liabilities,
income and expenses. Estimates
and judgements are continually
evaluated and are based on
historical experience and other
factors, including expectations of
future events that are believed to be
reasonable under the circumstances.
The estimates and assumptions 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:
Impairment of investments
in financings
The Group reviews its investments
in financings to assess impairment
at least on a quarterly basis. In
determining whether an impairment
loss should be recorded in the
consolidated statement of income,
judgements are made as to whether
there is any observable data
indicating that there is a measurable
decrease in the estimated future cash
flows. This evidence may include
observable data indicating that there
has been an adverse change in
the payment status of a borrower,
or national or local economic
conditions that correlate with defaults
on assets. The methodology and
assumptions used for estimating
both the amount and timing of future
cash flows are reviewed regularly.
Fair value and impairment
of available-for-sale equity
investments
The Group may from time to time
hold investments in financial
instruments that are not quoted
in active markets. Fair values of
such instruments are determined
using valuation techniques. Where
valuation techniques are used to
determine fair values, they are
validated and periodically reviewed
by Group management.
The Group determines that available-
for-sale equity investments are
impaired when there has been a
significant or prolonged decline in
the fair value below its cost. This
determination of what is significant
or prolonged requires judgement. In
making this judgement, the Group
evaluates among other factors, the
normal volatility in share price.
In addition, impairment may be
appropriate when there is evidence
of a deterioration in the financial
health of the investee, industry and
sector performance, changes in
technology, and operational and
financing cash flows.