The preparation of the financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Management bases its estimates and judgements on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis for making judgements about carrying value of assets and liabilities that are not readily available from other sources.
Actual results may differ from these estimates under different assumptions and conditions.
In preparing these financial statements the directors have identified the below as the key areas which requires judgements or key sources of estimation uncertainty.
The main area of judgement relates to the carrying value of company's investment in its sole subsidiary. King William St Limited whose principal asset is a flagship property in the City of London. The directors review the carrying value of the investment on an annual basis for evidence of impairment. Given that the principal asset within the subsidiary company is a freehold property, the directors pay particular attention to the regular valuations of the property carried out by leading property specialists.
Where the company receives loans from related parties at beneath market rates, the directors are required to estimate the market rate which would be payable on a loan of similar size, maturity and risk profile in order to calculate the net present value of the payments due under the loan. In doing this the directors have considered the rates paid on unconnected third party loans taken from financial institutions by its subsidiary King William St Limited and have made adjustments to primarily recognise the
superior security position of the third party lender.