Registered number:
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
CONTENTS
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STRATA RESIDENTIAL FINANCE PLC
COMPANY INFORMATION
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STRATA RESIDENTIAL FINANCE PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2024
The directors present the strategic report and financial statements for the year ended 31 March 2024.
The trading activity of Strata Residential Finance PLC (the ‘Company’) is the provision of funding to developers with experience and demonstrable track record who are carrying out residential property developments with planning permission in the South of England.
The Company reduced in size during the year with 23,337,764 shares in issue (2023: 23,684,331), and 3,060,816 of those shares held in Treasury. The target maximum shares in issue remains at 35,000,000. The reduction is due to share withdrawals during the year (with reasons including some deaths, a significant shareholder emigrating to Australia, plus rising interest rates and the Company performance suffering in Q4 2023 with a large loan write down).
The loss before taxation of £977,763 (2023: Profit £1,359,159) is only the second time in 17 years that the Strata business has suffered a loss, and the first time the Company has done so. The end of 2023 and start of 2024 saw a notable change in sentiment in the UK residential market. Expectations that interest rates had peaked and competition between lenders led to mortgage approvals rising for three consecutive months to 50,500 in December 2023 (c40% more than December 2022) (Bank of England). Correspondingly, the Company’s loan book saw several new sales agreed, notably during January 2024. These included units in Woking, Bermondsey and Barnstaple. Forecasts for 2023 to see 10+% falls in residential values proved overly pessimistic, if not as inaccurate as predictions for greater falls during Covid; when values rose to peak in mid- 2022. Nationwide reported a 3.8% fall in UK house prices in 2023, sensationalised in the press but insignificant for most owners. A similar fall was forecasted for 2024 - Nationwide: 0 - 2%; Capital Economics: -1.5%; Savills: -3%; Knight Frank: -4% - although this collection of predictions were made before reported increases for early 2024. Whilst any increase or fall in value is important for the Company, loans are normally redeemed when end units are sold. Transaction levels are therefore fundamental, and these are mostly driven by sentiment. In this regard, 2023 saw the lowest level of UK house sales in over 10 years, falling c21% to c1m (Zoopla). The Bank of England base interest rate rose from 0.1% in November 2021 to 3.5% by the end of 2022 and has remained 5.25% since August 2023. It was therefore not a surprise that the Company had just 4 loans redeemed in 2023 (2 of which were re-financings and none in the last 6 months of 2023), compared to 15 in 2021. There were 5 loans redeemed in 2022, impacted by Ukraine and rising interest rates. Two more loans were redeemed in early 2024. 2024 started with improved sentiment. There remains an overall lack of supply compared to demand. The surge in buyer interest has been greatest in London (Zoopla), however, activity reports across the portfolio are mixed. Whilst the mortgage market represents c36% of UK homeowners, mortgage free owners are c28% of the market. This is important in the context of the significant weight of equity that remains on deposit and available for house purchases. £800m of mortgage debt was repaid in December 2023 (Bank of England). Renewed activity in the UK housing market can only be assisted by the fall in inflation to 2% and the hope of a further fall in interest rates later in 2024. It is now two years since the war in Ukraine started in February 2022. Back then the Company had very significant cash reserves, following c£16.5m of ‘covid housing boom’ loan redemptions in 2021. This was a reassuring position for the Company and shareholders when there was so much uncertainty, even though it led to a reduced profit and dividend in March 2023.
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STRATA RESIDENTIAL FINANCE PLC
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
Business review (continued)
The Company was performing well until late in 2023 when it put in place a significant provision for the Tunbridge Wells 2 debt. This followed the appointment of an administrator for the borrower. The provision of c£2.44m caused the Company to suffer the loss during the year. The guarantor for the loan did agree to repay the Company £500,000 over time and has paid c£66,000 to date. However, the Company does not expect to recover any further sums for this debt. As a consequence the Company could only declare and distribute a 2% dividend in March 2024, using distributable reserves. The loan book at 31 March 2024 included 19 loans with £13,968,142 advanced to developers. The senior debt for the scheme in Norwich is being carefully managed with a LPA Receiver appointed in July 2024 (after the financial year end) to achieve a completed scheme and full recovery of all debt. The senior debt at Middle Barton remains in place following eight successful house sales. The Farmhouse was sold for £875,000 after the year end in July 2024. The barn (the final unit) remains on the market and it continues to provide income to the Company through short term lettings. The Company declared and then distributed a 2% dividend per £1.00 A share in March 2024. This was significantly below the target 7.25% and it reflected the loss made during the financial year. The contracts for the Asset Manager (evolve) and the Funding Adviser (Davon) will be renewed in March 2025 and these matters will be reported to the Annual General Meeting later in 2024. The Company maintains a cautious approach to trading. It now holds significantly less cash than a year ago, with reduced ability to lend on new schemes but a large, diverse loan book that should assist in generating improved performance in the months ahead. The company maintains a constant analysis of the financial status of all schemes and expects the robust quality of the portfolio to perform. There is pressure on the Norwich loan to perform, but the Company remains confident in the quality of the location and scheme. There has been some increased competition in what is a competitive environment for the company as it continues to trade within a specialised market niche. However, the company continues to receive increasing numbers of business referrals from reputable senior lenders. At the discretion of the shareholders and in compliance with the terms of the Strategic Business Plan (‘SBP’), if, from time to time there is cash in the company and sufficient profit has been generated, then dividends will be paid to A shareholders in proportion to the shares held by them. The SBP for the company envisages the payment of dividends for A shareholders with a target of 7.25% per annum per £1.00 A share. The board has the authority to incrementally increase this target dividend.
The financial instruments used by the Company arise wholly and directly from its activities. The financial instruments comprise debtors (borrowers), cash at bank and trade creditors. The Company has no borrowings.
The Company has put in place the following measures in order to manage the financial risks arising from these financial instruments.
The key performance indicators used by the Company are detailed in the SBP and the current Information Memorandum prepared by the Company. The Company targets a pre-tax profit of 7.25% per annum.
The Company has greatly enhanced governance and the reporting of key performance indicators to ensure optimal business performance, including monthly reporting of key metrics to the board.
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STRATA RESIDENTIAL FINANCE PLC
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
The non financial key performance indicators for the Company include:
The Company considers communication with the shareholders to be of significant importance and seeks to deliver a Trading Statement twice a year in addition to the delivery of formal accounts. The directors of the Company make their contact details freely available to all shareholders to enable personal communication on an ongoing basis. The directors of the Company actively seek to build relationships with senior lenders as a recognised and valuable source of business introduction. In addition, the Company seeks a balance in the source of introductions to ensure that over reliance on one source does not take place. The Company actively seeks to maintain a high level of repeat business with borrowers. Repeat business is a clear indicator of trading success. The Company is rigorous in selecting suitable projects and borrowers for new loans and seeks to trade within a range of 5 to 10% of new enquiries to actual loans without forsaking the fundamental need to only advance loans on the very best situations. The Company targets a conversion rate of heads of terms issued to drawdown of loan of near 90% and strives to achieve a greater than 75% target in this area. Key performance indicators are maintained across all parts of the business to ensure we are constantly monitoring and challenging our results.
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STRATA RESIDENTIAL FINANCE PLC
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
The board of directors of Strata Residential Finance PLC consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole in decisions taken during the year ended 31 March 2024 and in full compliance with the SBP. In particular:
∙Our SBP was designed to have a long term beneficial impact on the Company and to contribute to its success in delivering an efficient and well regarded business capable of paying regular dividends of in excess of 7% per annum per £1.00 A share to shareholders and to maintain similar attractive performance to C shareholders.
∙Our employees are fundamental to the delivery of our plan. The only Company employees are the directors. We aim to be a responsible employer in our approach to the pay and benefits our employees receive. The health, safety and well being of our employees is one of our primary considerations in the way we conduct business.
∙Our customers are the borrowers that approach the Company seeking the financial assistance of the Company to advance their projects to mutual benefit. The Company strives to maintain a consistent and fair image in its marketplace and to treat borrowers fairly to achieve business results that develop the reputation of the Company further.
∙We work with our professional advisers to help drive change in our organisation through promoting new ideas and ways of working, whilst working with our borrowers to ensure that they reflect the same values and behaviours that we expect from our own people. The board has sight of all the construction processes in place and receives regular updates on any matters of significance.
∙As well as borrowers and advisers, we seek to build strong relationships with other key stakeholders in the areas in which we operate, such as financial advisers and wealth managers. Our directors take an active interest in these connections and participate where possible in building such relationships and are proactive in developing investor interest in the Company to assist in maintaining share liquidity. The Company has not failed to meet a share Withdrawal request to date.
∙Our SBP took into account the impact of the Company's operations on the community and environment and our wider societal responsibilities. All schemes subject to Company loans have already been through an exhaustive planning process that takes account of many areas of concern at all levels. The Company does not take on board planning risk and it does not seek to be involved in contentious schemes.
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STRATA RESIDENTIAL FINANCE PLC
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
Statement by the directors on performance of their statutory duties in accordance with S172 (1) Companies Act 2006 (continued)
∙As the board of directors, our intention is to behave responsibly and ensure that the board operates the business in a responsible manner, operating within the high standards of business conduct and good governance expected for a business such as ours and in doing so, will contribute to the delivery of the SBP. The intention is to nurture our reputation, through both the construction and delivery of our plan, that reflects our responsible behaviour.
∙As the board of directors, our intention is to behave responsibly toward our shareholders and treat them fairly and equally, so they too may benefit from the successful delivery of the SBP.
This report was approved by the board and signed on its behalf.
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STRATA RESIDENTIAL FINANCE PLC
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2024
The directors present their report and the financial statements for the year ended 31 March 2024.
The loss for the year, after taxation, amounted to £736,349 (2023 - profit £1,089,905).
An interim ordinary dividend was paid for A shares amounting to £253,515 (2023: £749,301). The directors continue to follow the Strategic Business Plan and do not recommend the payment of a final dividend.
The directors who served during the year were:
The company continues to follow the Strategic Business Plan.
As permitted by s414c(11) of the Companies Act 2006, the directors have elected to disclose information, required to be in the directors' report by Schedule 7 of the 'Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008', in the strategic report.
This report was approved by the board and signed on its behalf.
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STRATA RESIDENTIAL FINANCE PLC
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 MARCH 2024
The directors are responsible for preparing the strategic report, the directors' report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.
In preparing these financial statements, the directors are required to:
∙select suitable accounting policies for the company's financial statements and then apply them consistently;
∙make judgements and accounting estimates that are reasonable and prudent;
∙state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
∙prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
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STRATA RESIDENTIAL FINANCE PLC
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF STRATA RESIDENTIAL FINANCE PLC
FOR THE YEAR ENDED 31 MARCH 2024
We have audited the financial statements of Strata Residential Finance Plc (the 'company') for the year ended 31 March 2024, which comprise the profit and loss account, the balance sheet, the statement of changes in equity, the statement of cash flows and the notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. 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 company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
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STRATA RESIDENTIAL FINANCE PLC
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF STRATA RESIDENTIAL FINANCE PLC (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 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 course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. 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.
In our opinion, based on the work undertaken in the course of the audit:
∙the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
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STRATA RESIDENTIAL FINANCE PLC
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF STRATA RESIDENTIAL FINANCE PLC (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2024
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 (UK) 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
for and on behalf of
Chartered Accountants
Statutory Auditor
16 Great Queen Street
Covent Garden
WC2B 5AH
Date:
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STRATA RESIDENTIAL FINANCE PLC
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
BALANCE SHEET
AS AT 31 MARCH 2024
The financial statements were approved and authorised for issue by the board and were signed on its behalf on
The notes on pages 16 to 25 form part of these financial statements.
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STRATA RESIDENTIAL FINANCE PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
Strata Residential Finance PLC is a public company limited by shares incorporated in England and Wales. The registered office is Terminal Buildings, Blackbushe Airport.
The financial statements are presented in Sterling (£), which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
2.Accounting policies
The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the company's accounting policies (see note 3).
The following principal accounting policies have been applied:
After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence and meet its liabilities as they fall due for the foreseeable future, being a period of at least twelve months from the date these financial statements were approved. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Revenue is recognised and measured as the fair value of the consideration receivable when it falls due.
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
The company has elected to apply Sections 11 and 12 of FRS 102 in respect of financial instruments.
Financial assets and financial liabilities are recognised when the company becomes party to the contractual provisions of the instrument.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
The company’s policies for its major classes of financial assets and financial liabilities are set out below.
Financial assets
Basic financial assets, including trade and other debtors, cash and bank balances are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest for a similar debt instrument. Financing transactions are those in which payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate.
Such assets are subsequently carried at amortised cost using the effective interest method, less any impairment.
Financial liabilities
Basic financial liabilities, including trade and other creditors, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. Financing transactions are those in which payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
Impairment of financial assets
Financial assets measured at cost and amortised cost are assessed at the end of each reporting period for objective evidence of impairment. If objective evidence of impairment is found, an impairment loss is recognised in the profit and loss account.
For financial assets measured at cost less impairment, the impairment loss is measured as the difference between the asset's carrying amount and the best estimate of the amount the company would receive for the asset if it were to be sold at the reporting date.
For financial assets measured at amortised cost, the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If the financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Derecognition of financial assets and financial liabilities
Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party or (c) despite having retained some significant risks and rewards of ownership, control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions.
Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged, cancelled or expires.
Offsetting of financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is an enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
Current tax is the amount of income tax payable in respect of taxable profit for the year or prior years. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods. Critical judgements The following judgments (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements. Key accounting estimates and assumptions Recoverability of receivables The company establishes a provision for loans receivable from developers (trade debtors) that are estimated not to be recoverable. When assessing recoverability the directors consider factors such as the ageing of the receivables, past experience of recoverability and the credit profile of the developer.
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
9.Taxation (continued)
There were no factors that may affect future tax charges.
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
11.Debtors (continued)
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
15.Share capital (continued)
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STRATA RESIDENTIAL FINANCE PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
There is no single overall controlling party.
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