Consolidated Financial Statements and Independent Auditor's Report
“Hayastan” All Armenian Fund
December 31, 2013 "Hayastan" All Armenian Fund Consolidated financial statements December 31, 2013
Contents
Page Independent auditor’s report 1 Consolidated statement of financial position 3 Consolidated statement of comprehensive income 4 Consolidated statement of changes in equity 5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 8
"Hayastan" All Armenian Fund Consolidated financial statements December 31, 2013
“Hayastan” All Armenian Fund Members of the Board of Trustees as of December 31, 2013
1. Serzh Sargsyan RA President, President of the Board of Trustees 2. Robert Kocharyan RA Ex-president 3. Bako Sahakyan NKR President 4. Arkadi Ghukassyan NKR Ex-president, Vice President of the Board of Trustees 5. Gagik Harutiunyan Vice President of the Board of Trustees, Chairman of RA Constitutional Court 6. Hovik Abrahamyan Speaker of RA National Assembly 7. Tigran Sargsyan RA Prime Minister 8. Eduard Nalbandyan RA Minister of Foreign Affairs 9. Arayik Harutyunyan NKR Prime Minister 10. Arthur Djavadyan Chairman of RA Central Bank 11. Davit Sargsyan RA Minister of Finance 12. Hranush Hakobyan RA Minister of Diaspora 13. H.H. Garegin II Catholicos of All Armenians 14. H.H. Aram I Catholicos of the Great House of Cilicia 15. Nerses Petros XIX Tarmouni Catholicos Patriarch of the Armenian Catholic Church 16. Very Rev. Mkrtich Melkonian Representative of the Armenian Evangelical Church 17. Mike Kharapian Representative of the Armenian Ramgavar Azadagan Party 18. Vagharsh Ehramdjian Representative of the Armenian Revolutionary Federation 19. Ara Boyajian Representative of the S.D. Hunchakian Party 20. Hirair Hovnanian President of the Armenian Assembly of America, 21. Berge Setrakian President of the Armenian General Benevolent Union 22. Hasmik Terterian Representative of the Armenian Relief Society 23. Arsen Ghazaryan President of the Union of Manufacturers and Businessmen (Employers) of Armenia 24. Jerry Manoukian President of Armenian Medical International Committee 25. Charles Aznavour France 26. Albert Boyajian United States of America 27. Vartan Gregorian United States of America 28. Eduardo Eurnekian Argentina 29. Bedros Terzian France 30. Dikran Izmirlian Switzerland 31. Samvel Karapetyan Russia 32. Mark Geragos United States of America 33. Kabriel Ghenberdji Syria 34. Vatche Manoukian Great Britain 35. Albert Boghossian Switzerland 36. Diruhi Burmayan Brazil 37. Eduardo Seferian Argentina
Control committee
38. Vahe Jazmadarian France 39. Gagik Khachatryan Chairman of the State Revenues Committee under the RA Government
Independent auditor’s report ¶ñ³Ýà ÂáñÝÃáÝ ö´À ÐÐ, ù. ºñ»õ³Ý 0012 ì³Õ³ñßÛ³Ý 8/1
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To the Board of Trustees of “Haystan” All Armenian Fund
We have audited the accompanying consolidated financial statements of “Hayastan” All Armenian Fund and its subsidiary, which comprise the consolidated statement of financial position as of December 31, 2013, and the consolidated statement of comprehensive income, the consolidated statement of changes in net assets and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
²áõ¹Çï, гñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ Audit, Tax, Advisory ¶ñ³Ýà ÂáñÝÃáÝ ÆÝûñÝ»ßÝÉÇ ³Ý¹³Ù Member of Grant Thornton International Ltd
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of “Hayastan” All Armenian Fund and and its subsidiary as of December 31, 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
March 21, 2014
Gagik Gyulbudaghyan Emil Vassilyan, FCCA
Managing Partner Engagement Partner
²áõ¹Çï, гñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ A udit, Tax, Advisory ¶ñ³Ýà ÂáñÝÃáÝ ÆÝûñÝ»ßÝÉÇ ³Ý¹³Ù Member of Grant Thornton International Ltd "Hayastan" All Armenian Fund 3 Consolidated financial statements December 31, 2013
Consolidated statement of financial position
In thousand drams As of December As of December Note 31, 2013 31, 2012
Assets
Non-current assets
Property and equipment 4 223,760 226,059
Intangible assets 567 163 Deferred income tax assets 5 15,964 3,967
240,291 230,189
Current assets
Inventories 6 305,666 335,719
Receivables and advances 7 1,026,077 531,922
Current income tax assets 6,782 23,458
Term deposits 8 247,378 427,847
Cash and bank balances 9 135,519 289,049
1,721,422 1,607,995
Total assets 1,961,713 1,838,184
Liabilities and net assets
Non-current liabilities
Grants related to assets 10 156,202 284
156,202 284
Current liabilities
Accounts payable 11 390,122 447,063
Loans and borrowings 12 65,245 30,569
455,367 477,632
Net assets 1,350,144 1,360,268
Total liabilities and net assets 1,961,713 1,838,184
The consolidated financial statements were approved on March 4, 2014 by:
Ara Vardanyan Ruzanna Aghayan Executive Director Financial Manager
The consolidated statement of financial position is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 39.
"Hayastan" All Armenian Fund 4 Consolidated financial statements December 31, 2013
Consolidated statement of comprehensive income
In thousand drams Year ended Year ended December 31, December 31, Note 2013 2012
Income from financing of operations 14 3,783,673 4,796,870 Other income 104,627 295,720 Operating expenses 15 (3,546,397) (3,957,795) Administrative expenses 16 (392,937) (438,923) Other expenses (203,078) (170,816) Profit/(loss) from operating activities (254,112) 525,056
Finance income 17 48,554 46,392 Finance expense 17 (5,682) (6,071) Other financial items 18 7,526 26,172 Result before taxes (203,714) 591,549
Income tax expense 19 (2,215) (21,934) Profit/(loss) for the year (205,929) 569,615
Other comprehensive income Items that will not be reclassified subsequently to result Net increase (decrease) of operating financing 13 247,199 (399,896) Net decrease as a result of revaluation of property and equipment (64,242) - Income tax on other comprehensive income 12,848 (12,848) 195,805 (412,744)
Total comprehensive result for the year (10,124) 156,871
The consolidated statement of comprehensive income is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 39.
"Hayastan" All Armenian Fund 5 Consolidated financial statements December 31, 2013
Consolidated statement of changes in net assets
In thousand drams Financing for operations (refer to Revaluation Accumulated note 13) reserve loss Total as of January 1, 2012 2,560,155 64,242 (1,421,000) 1,203,397 Profit for the year - - 569,615 569,615 Other comprehensive loss for the year (399,896) (12,848) - (412,744) Total comprehensive result for the year (399,896) (12,848) 569,615 156,871 as of December 31, 2012 2,160,259 51,394 (851,385) 1,360,268 Loss for the year - - (205,929) (205,929) Other comprehensive result for the year 247,199 (51,394) - 195,805 Total comprehensive result for the year 247,199 (51,394) (205,929) (10,124) as of December 31, 2013 2,407,458 - (1,057,314) 1,350,144
The consolidated statement of changes in equity is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 39.
"Hayastan" All Armenian Fund 6 Consolidated financial statements December 31, 2013
Consolidated statement of cash flows
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Cash flows from operating activities Profit/(loss) for the year (205,929) 569,615 Adjustments for: Depreciation and amortization 18,810 37,480 Loss on disposal of property and equipment 34 27 Loss on impairrment of property and equipment 90,142 - Income from grants (3,783,673) (4,796,870) Income tax expense 2,215 21,934 Interest income (48,554) (46,392) Finance cost 5,682 6,071 Movement of the allowance for doubtful receivables 20 24,305 Foreign exchange gain (7,526) (26,172) Operating loss before working capital changes (3,928,779) (4,210,002)
Change in advances and receivables (242,595) 379,038 Change in inventories 42,286 267,435 Change in payables (46,113) (322,274) Cash used in operating activities (4,175,201) (3,885,803)
Donations received 3,767,994 3,884,071 Interest paid (5,418) (5,757) Income tax paid 4,501 (116,464) Net cash used in operating activities (408,124) (123,953)
Cash flows from investing activities Acquisition of property and equipment and intangible assets (15,248) (2,026) Interest income received 64,990 19,389 Net cash from investing activities 49,742 17,363
"Hayastan" All Armenian Fund 7 Consolidated financial statements December 31, 2013
Consolidated statement of cash flows (continued)
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Cash flows from financing activities Borrowings received, net 34,227 11,560 Net cash from financing activities 34,227 11,560
Net decrease in cash and bank balances (324,155) (95,030) Foreign exchange effect on cash 6,593 26,423 Cash and bank balances at the beginning of the year (refer to note 25) 686,315 754,922 Cash and bank balances at the end of the year (refer to note 25) 368,753 686,315
The consolidated statement of cash flows is to be read in conjunction with the notes to and forming part of the consolidated financial statements set out on pages 8 to 39.
"Hayastan" All Armenian Fund 8 Consolidated financial statements December 31, 2013
Notes to the consolidated financial statements
1 Nature of operations and general information
“Hayastan” All Armenian Fund was founded on March 3, 1992, in accordance with the decree of the President of the Republic of Armenia.
“Hayastan” All Armenian Fund is humanitarian, non-political organization acting in accordance with the Constitution of the Republic of Armenia, its charter and decisions of the Board of Trustees.
The objectives of “Hayastan” All Armenian Fund are to:
· support to the social – economic development and reform processes in the Republic of Armenia;
· support to improvement and development of science, education, culture, social and healthcare sectors;
· support to the implementation of projects of high significance, etc.
The projects are implemented by the Executive Board. “Hayastan” All Armenian Fund has affiliate offices worldwide that work closely with the local Armenian communities. Each community contributes to realizing the “Hayastan” All Armenian Fund projects via their local affiliate offices.
Since 1996, each November “Hayastan” All Armenian Fund holds annual telethons in Los Angeles. Funds collected during the marathon are directed to the implementation of large scaled strategic projects defined in the annual meeting of the Executive Board. Along with telethons, the Fund organizes annual phoneathons that are held in European countries.
“Hayastan” All Armenian Fund implemented different projects such as the Earthquake Relief Initiative, Winter 92-94 Humanitarian Project, construction of Goris-Stepanakert and North-South highways as well as the revitalization of hundreds of schools, hospitals, massive water and gas supply networks and other key elements of infrastructure.
Today, “Hayastan” All Armenian Fund focus is on the construction of the Vardenis-Martakert Highway. The third project of its kind to be carried out by “Hayastan” All Armenian Fund, the Vardenis-Martakert Highway (about 116 km) is expected to be a boon to the further socio- economic development of Artsakh and Armenia alike.
"Hayastan" All Armenian Fund 9 Consolidated financial statements December 31, 2013
The average number of employees of “Hayastan” All Armenian Fund during 2013 was 61 (2012: 59). The average number of employees of its subsidiary during 2013 was 54 (2012: 63).
“Hayastan” All Armenian Fund registered office is located at 3 Government House, Yerevan, Republic of Armenia.
2 Basis of preparation
2.1 Statement of compliance The consolidated financial statements of "Hayastan" All Armenian Fund and its subsidiary (the “Fund”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Currently, IFRS do not contain specific guidance for non-profit organizations and non- governmental organizations concerning the accounting treatment and presentation of financial statements. Where IFRS do not give guidance on how to treat transactions specific to not for profit sector, accounting policies have been based on the general principles of IFRS, as detailed in the International Accounting Standards Board (“IASB”) “Framework for Preparation and Presentation Financial Statements ”.
The management of the Fund applied the “net assets” basis for presentation of the financial statements. The net asset is the difference between the Fund’s assets and liabilities and includes the accumulated profit or loss of the Fund, the revaluation reserve as well as the unused balance of financing.
2.2 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis with the exception of the Fund’s buildings, which are presented at revalued amount.
2.3 Functional and presentation currency The national currency of Armenia is the Armenian dram (“dram”), which is the Fund’s functional currency, since this currency best reflects the economic substance of the underlying events and transactions of the Fund.
These consolidated financial statements are presented in Armenian drams, since management believes that this currency is more useful for the users of these consolidated financial statements. All financial information presented in Armenian drams has been rounded to the nearest thousand.
2.4 Use of estimates and judgment The preparation of consolidated financial statements in conformity with IFRS requires management to make critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in the note 20 to the consolidated financial statements.
"Hayastan" All Armenian Fund 10 Consolidated financial statements December 31, 2013
2.5 Adoption of new and revised standards In the current year the Fund has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the “IASB”) and International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on January 1, 2013.
New and revised standards and interpretations that are effective for annual periods beginning on or after January 1, 2013
IFRS 10 Consolidated Financial Statements
IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. IFRS 10 revises the definition of control and provides extensive new guidance on its application. These new requirements have the potential to affect which of the Fund’s investees are considered to be subsidiaries and therefore change the scope of consolidation. However, the requirements on consolidation procedures, accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary remain the same. Management has concluded that IFRS 10 has not changed the classification (as subsidiaries or otherwise) of any of the Fund’s existing investees at December 31, 2013.
IFRS 11 Joint Arrangements
IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non- Monetary Contributions By Venturers. It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. In addition, IAS 31’s option of using proportionate consolidation for joint ventures has been eliminated. IFRS 11 now requires the use of the equity accounting method, which is currently used for investments in associates.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.
IFRS 13 Fair Value Measurement
IFRS 13 clarifies the definition of fair value and provides relevant guidelines and enhanced disclosures about fair value measurements. It does not affect which items are required to be fair- valued. The scope of IFRS 13 is broad and it applies to both financial and non-financial items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except in certain circumstances.
IFRS 13 applies prospectively for annual periods beginning on or after January 1, 2013. Its disclosure requirements need not be applied for comparative information in the first year of application.
The Fund has applied IFRS 13 for the first time in the current year. Refer to note 23.
"Hayastan" All Armenian Fund 11 Consolidated financial statements December 31, 2013
Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Fund
At the date of authorization of these consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Fund.
Management anticipates that all of the relevant pronouncements will be adopted in the Fund’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Fund’s consolidated financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Fund’s financial statements.
IFRS 9 Financial Instruments
The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety with IFRS 9. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities, as well as chapters dealing with hedge accounting have been issued. Previously these chapters were supposed to be effective for annual periods beginning on or after January 1, 2015. However, in November 2013 the January 1, 2015 mandatory effective date of IFRS 9 has been removed to provide sufficient time for entities to make the transition to the new requirements. Chapters dealing with impairment methodology are still being developed. The amendments made to IFRS 9 in November 2013 allow the changes to address the so-called “own credit” issue that were already included in IFRS 9 to be applied in isolation without the need to change any other accounting for financial instruments.
The Fund’s management have yet to assess the impact of this new standard on the Fund’s consolidated financial statements. Management does not expect to implement IFRS 9 until it has been completed and its overall impact can be assessed.
Annual Improvements 2010-2012
The Annual Improvements 2010-2012 made several minor amendments to a number of IFRSs. The amendments relevant to the Fund are summarized below:
IFRS 3 Business Combinations
Accounting for contingent consideration in a business combination
· clarifies that the classification of contingent consideration in a business combination as either a financial liability or an equity instrument is based solely on the requirements of IAS 32 Financial Instruments: Presentation
· states that the subsequent measurement of contingent consideration in a business combination should be measured at fair value at each reporting date and changes in fair value should be recognized in profit or loss, regardless of whether it is a financial instrument or a non-financial instrument.
"Hayastan" All Armenian Fund 12 Consolidated financial statements December 31, 2013
IFRS 13 Fair Value Measurement
Short-term receivables and payables
· amends the Basis for Conclusions to clarify that an entity is not required to discount short-term receivables and payables without a stated interest rate below their invoice amount when the effect of discounting is immaterial.
IAS 16 Property, Plant and Equipment
Revaluation method-proportionate restatement of accumulated depreciation
· addresses the diversity in practice in calculating the accumulated depreciation for an item of property, plant and equipment that is measured using the revaluation method
· clarifies that the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount
· clarifies that the accumulated depreciation is calculated as the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses.
IAS 24 Related Party Disclosures
Key management personnel
· amends the definition of a “related party” in order to include “management entities” that provide key management personnel services to the reporting entity
· requires the disclosure of the amounts recognized by the reporting entity as a service fee to a separate management entity for the provision of the key management personnel services
· provides a relief so that the reporting entity is not required to disclose components of the compensation to key management personnel where the compensation is paid via a management entity.
IAS 38 Intangible Assets
Revaluation method-proportionate restatement of accumulated amortization
· makes equivalent changes to the accounting of intangible assets, as described above for IAS 16 Property, Plant and Equipment.
The Annual Improvements 2010-2012 noted above are effective for annual periods beginning on or after July 1, 2014. Management does not anticipate a material impact on the Fund’s consolidated financial statements from these Amendments.
"Hayastan" All Armenian Fund 13 Consolidated financial statements December 31, 2013
Annual Improvements 2011-2013
The Annual Improvements 2011-2013 made several minor amendments to a number of IFRSs. The amendments relevant to the Fund are summarized below:
IFRS 3 Business Combinations
Scope exceptions for joint ventures
· amends IFRS 3 to exclude from its scope the accounting for the formation of all types of joint arrangements as defined in IFRS 11 Joint Arrangements
· clarifies that the above mentioned scope exclusion only addresses the accounting in the financial statements of the joint arrangement itself, and not the accounting by the parties to the joint arrangement for their interests in the joint arrangement.
IAS 40 Investment Property
Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property
Clarifies that IFRS 3 and IAS 40 are not mutually exclusive. Therefore, in determining:
· whether a property is owner-occupied property or investment property requires judgment based on IAS 40.7 - 40. 14
· whether the acquisition of an investment property meets the definition of a business combination or is the acquisition of an asset, reference should be made to IFRS 3 (not to IAS 40.7-40.14).
The Annual Improvements 2011-2013 noted above are effective for annual periods beginning on or after July 1, 2014. Management does not anticipate a material impact on the Fund’s consolidated financial statements from these Amendments.
2.6 Subsidiaries The consolidated financial statements include the following subsidiaries:
December 31, 2013 Ownership Date of Date of Subsidiary % Country incorporation Industry acquisition
“HATM” LLC 100% Republic of May 14, 1999 Production 1999 Armenia and sale of furniture and woodworks and other
"Hayastan" All Armenian Fund 14 Consolidated financial statements December 31, 2013
3 Significant accounting policies
3.1 Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises, which are controlled by the Fund. Control exists when the Fund has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date when control effectively commences until the date that control effectively ceases.
The financial statements of “HATM” LLC are included in the consolidated financial statements of the Fund. The Fund is 100% owner of “HATM” LLC.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in presenting the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment in the associate.
3.2 Foreign currencies
In preparing the consolidated financial statements, transactions in currencies other than the functional currency are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates defined by the Central Bank of Armenia prevailing on the reporting date, which is 405.64 drams for 1 US dollar as of December 31, 2013 (December 31, 2012: 403.58 drams for 1 US dollar).
Exchange differences arising on the settlement and retranslation of monetary items, are included in profit or loss for the period.
3.3 Property and equipment
Buildings and land owned by the Fund, are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the reporting date.
Any revaluation increase arising on the revaluation of such property and equipment is recognized in other comprehensive income (except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged) and shows as revaluation reserve in shareholder’s equity. A decrease in the carrying amount arising on the revaluation of such property and equipment is charged to profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.
"Hayastan" All Armenian Fund 15 Consolidated financial statements December 31, 2013
The revaluation surplus is transferred to the accumulated profit as the asset is used by the Fund. The amount of the surplus transferred is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to accumulated profit.
Other property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost comprises purchase price including import duties and non-refundable purchase taxes and other directly attributable costs. When an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Expenditure to replace a component of an item of property and equipment that is accounted for separately is capitalized with the carrying amount of the component being written off. Other subsequent expenditure is capitalized if future economic benefits will arise from the expenditure. All other expenditure, including repair and maintenance, is recognized in the consolidated statement of comprehensive income as incurred.
Depreciation is charged to the consolidated statement of comprehensive income on a straight line basis over the estimated useful lives of the individual assets. Depreciation commences when assets are available for use. The estimated useful lives are as follows:
Buildings 10-20 years Computers and accessories 1-5 years Vehicles 5 -10 years Other property and equipment 5-10 years.
3.4 Intangible assets Intangible assets, which are acquired by the Fund and which have finite useful lives, are stated at cost less accumulated amortization and impairment losses.
Amortization is charged to the consolidated statement of comprehensive income on a straight line basis over the estimated useful lives of the intangible assets, which is estimated at 5-10 years.
3.5 Inventories Inventories include valuable items and other material values to be donated by the Fund or maintained for other purposes, construction materials and finished goods of the subsidiary, as well as other items to be distributed through various projects.
Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
"Hayastan" All Armenian Fund 16 Consolidated financial statements December 31, 2013
At each reporting date the Fund assesses the net realizable value of available inventories. The Fund management uses judgment to determine their net realizable value derived from the characteristics of those inventories. In valuating certain items the Fund invites external valuators.
If, as a result of valuation, it becomes evident that the net realizable value is lower than the cost of inventories, this difference is expensed in the consolidated statement of comprehensive income.
3.6 Financial instruments Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognized when the Fund becomes a part to the contractual provisions of the financial instrument.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
Financial liabilities are derecognized when they are extinguished, discharged, cancelled or expire.
Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement financial assets other than hedging instruments are divided into the following categories upon initial recognition:
• loans and receivables • financial assets at fair value through profit or loss • available-for-sale financial assets • held-to-maturity investments.
Financial assets are assigned to different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument's category is relevant for the way it is measured and whether any resulting income and expenses are recognized in profit or loss or in other comprehensive income. Refer to note 21.2 for a summary of the Fund's financial assets by category.
Generally, the Fund recognizes all financial assets using settlement date accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expenses relating to financial assets that are recognized in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. i. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include trade and other receivables as well as cash and bank balances.
"Hayastan" All Armenian Fund 17 Consolidated financial statements December 31, 2013
Trade and other receivables
Current accounts receivable are initially recognized at fair value. Subsequently they are measured at amortized cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor and default and delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.
The Fund recognizes receivables (under the caption of “Receivables incurred for implementation of projects”) against expenses incurred during the implementation of certain projects only if the full reimbursement is expected to be made by the donor. If there are no sufficient guarantees that the spent amounts will be reimbursed then the Fund does not recognize receivables. The management estimates the recoverability of receivables at the end of each reporting period. The Fund creates allowance for doubtful and bad debts if their collection is not considered probable.
The balance of the allowance is adjusted by recording a charge or income to profit or loss of the reporting period. Any amount written-off with respect to customer account balances is charged against the existing allowance for doubtful accounts. All accounts receivable for which collection is not considered probable are written-off.
Cash and bank balances
The Fund’s cash and bank balances comprise cash in hand, bank accounts and cash in transit. ii. Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity and include deposits at commercial banks. Investments are classified as held-to-maturity if it is the intention of the Fund's management to hold them until maturity.
Deposits are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence that the deposit has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the deposit are recognized in profit or loss.
Classification and subsequent measurement of financial liabilities
The Fund's financial liabilities include loans and borrowings and trade and other payables (including finance lease liabilities). A summary of the Fund's financial liabilities by category is given in note 21.2. i. Loans and borrowings
Loans and borrowings are recognized initially at fair value, net of issuance costs associated with the borrowing. Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value recognized in profit or loss over the period of the borrowings on an effective interest basis. Interest and other costs incurred in connection with
"Hayastan" All Armenian Fund 18 Consolidated financial statements December 31, 2013
borrowings are expensed as incurred as part of finance expenses, except for the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, which are capitalized as part of that asset. ii. Trade and other payables
Trade and other payables are stated at fair value and subsequently stated at amortized cost.
3.7 Impairment
Impairment of property and equipment and intangible assets
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of net selling price and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash- generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount, in which case any reversal of impairment loss is treated as a revaluation increase.
Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.
For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account.
With the exception of available-for-sale equity instruments, 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 recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is
"Hayastan" All Armenian Fund 19 Consolidated financial statements December 31, 2013
reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity.
3.8 Grants Grants are not recognized until there is reasonable assurance that the Fund will comply with the conditions attaching to them and the grants will be received.
Grants whose primary condition is that the Fund should purchase, construct or otherwise acquire non-current assets are recognized as deferred income in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Other grants are recognized as income over the periods necessary to match them with the cost for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Fund with no future related costs are recognized in profit or loss in the period in which they become receivable.
3.9 Financing for operations Donations received within the framework of the Fund’s activities as well as financing received for the projects implemented through different funds are recognized in the consolidated statement of changes in the net assets.
Donations received from Telethon and other sources Donations received from annual telethon and other sources (including paid donations and the part of promised donations on which some expenses have already been incurred at the reporting year) are recognized in the consolidated statement of changes in net assets.
Donations, which have been received for the projects that are not directly implemented by the Fund, are not included in these consolidated financial statements.
Projects co-financed by the Fund are reflected in these financial statements only at the amount of co-financing, since the remaining amounts are not controlled by the Fund. Refer to note 13 for disclosure of these amounts.
Executive Committee funds Amounts for this fund are received from “Financing for operations” and are used to cover administrative expenses.
Special funds Consolidated statement of changes in net assets includes the amounts for the special funds, which are deposited in commercial banks and interests earned on these funds are used to deliver pensions to the children of died soldiers and students.
"Hayastan" All Armenian Fund 20 Consolidated financial statements December 31, 2013
3.10 Income tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Fund expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Fund intends to settle its current tax assets and liabilities on a net basis.
3.11 Income recognition The income of the Fund arises from the use of donations received, business operations of the Fund, operations of the subsidiary, investments of free funds, etc.
Income from donation
This income is recognized when there is a reasonable assurance that the donation will be received or when the donation is factually received. This income is included in “Income from financing of operations” caption.
"Hayastan" All Armenian Fund 21 Consolidated financial statements December 31, 2013
Income from business operation
This income includes rendering of services and sale of goods and is recognized when the service has been delivered and goods are actually transferred, which is evidenced by the documents signed by the parties received the service. This income is included in “Other income” caption.
Income from operations of subsidiary
This income includes sale of goods and recognized when the goods have been actually transferred to the buyer, which is the point when the risks related to the damage of these goods, are transferred to the buyer. This income is included in “Other income” caption.
Income from investment
This income includes deposited funds and is recognized using settlement date accounting. This income is included in “Finance income” caption.
"Hayastan" All Armenian Fund 22 Consolidated financial statements December 31, 2013
4 Property and equipment
n thousand drams Land, Computers buildings and and constructions Vehicles accessories Total
Cost or valuation As of January 1, 2012 236,780 264,502 136,516 637,798 Additions 532 292 534 1,358 Disposal - - (916) (916) as of December 31, 2012 237,312 264,794 136,134 638,240 Additions 156,200 13,366 812 170,378 Disposal - - (310) (310) Revaluation decrease (64,242) - - (64,242) as of December 31, 2013 329,270 278,160 136,636 744,066
Accumulated depreciation as of January 1, 2012 18,874 240,030 117,527 376,431 Charge for the year 12,213 11,936 12,490 36,639 Eliminated on disposal - - (889) (889) as of December 31, 2012 31,087 251,966 129,128 412,181 Charge for the year 1,943 12,336 3,980 18,259 Eliminated on disposal - - (276) (276) Loss from impairment 90,142 - - 90,142 as of December 31, 2013 123,172 264,302 132,832 520,306
Carrying amount as of December 31, 2012 206,225 12,828 7,006 226,059 as of December 31, 2013 206,098 13,858 3,804 223,760
As of December 31, 2013, the Fund’s subsidiary “HATM” LLC pledged property and equipment with the cost of drams 123,884 thousand (December 31, 2012: drams 123,884 thousand) as a security for credit line (refer to note 12).
As of December 31, 2013 the cost of the assets with a carrying amount of nil is drams 249,417 thousand (December 31, 2012: drams 184,001 thousand).
The Fund’s land and building were last revalued as of June 20, 2013 and July 1, 2011, respectively by “Oliver-Group” LLC independent valuer. Valuations were made on the basis of recent market transactions on arm length terms.
If land and building were stated at historical cost, their carrying amounts as of the reporting dates would be drams 138,826 thousand (as of December 31, 2012: drams 138,826 thousand), respectively.
"Hayastan" All Armenian Fund 23 Consolidated financial statements December 31, 2013
In accordance with the contract dated September 19, 2011 land and building located at 28 Arshakunyats avenue, Yerevan, which were granted to the Ministry of Culture of the Republic of Armenia by the Fund for the establishment of a museum named after Komitas are accounted for in the Fund’s property and equipment class of “Lands, buildings and construction”. As of December 31, 2013 the carrying amounts of land and building are drams 39,570 thousand and drams 156,200 thousand, respectively (as of December 31, 2012 drams 39,570 thousand and drams 152,276 thousand, respectively).
Depreciation expense has been charged as follows.
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Administrative expenses 2,285 29,295 Distribution expense 12,841 3,376 Cost of sales 1,200 1,301 Other expenses 1,933 2,667 18,259 36,639
5 Deferred income taxes The movement of deferred income taxes is disclosed below: n thousand drams 2013 2012 Balance at the beginning of year 3,967 2,348 (Debited)/credited to other consolidated statement of comprehensive income 12,848 (12,848) Credited /(charged) to consolidated statement of comprehensive income (refer to note 19) (851) 14,467 Balance at the end of year 15,964 3,967
Deferred income taxes for the year ended December 31, 2012 can be summarized as follows: n thousand drams Recognized in other January 1, comprehensive Recognized December 2013 income in profit or loss 31, 2013 Deferred income tax assets Accumulated tax losses 14,082 - (1,163) 12,919 Accounts payable 1,526 - 324 1,850 Accounts receivable 402 - (12) 390 Inventories 189 - - 189 Property and equipment 616 - - 616 16,815 - (851) 15,964 Deferred income tax liabilities Property and equipment 12,848 (12,848) - - 12,848 (12,848) - - Net position – deferred income tax assets 3,967 12,848 (851) 15,964
"Hayastan" All Armenian Fund 24 Consolidated financial statements December 31, 2013
Deferred income taxes for the year ended December 31, 2012 can be summarized as follows:
In thousand drams Recognized in Recognized statement of January directly in comprehensive December 1, 2012 equity income 31, 2012 Deferred income tax assets Accumulated tax losses - - 14,082 14,082 Accounts payable 1,186 - 340 1,526 Accounts receivable 357 - 45 402 Inventories 189 - - 189 Property and equipment 616 - - 616 2,348 - 14,467 16,815 Deferred income tax liabilities Property and equipment - 12,848 - 12,848 - 12,848 - 12,848 Net position – deferred income tax assets 2,348 (12,848) 14,467 3,967
Analyzed as: 2013 2012 To be redeemed after more than 12 months 2,429 2,117 To be redeemed within 12 months 13,535 1,850
6 Inventories
In thousand drams As of As of December 31, December 31, 2013 2012 Jewelry and other items 245,003 246,631 Construction materials 10,265 12,281 Finished goods for sale 29,099 33,311 Other 21,299 43,496 305,666 335,719
Construction materials and finished goods for sale relate to the operation of the Fund’s subsidiary.
Other inventories include goods that are to be donated to different projects, but are not yet distributed and are transferred under the custody.
The cost of inventories recognized as an expense during the year is drams 374,336 thousand (2012: drams 260,266 thousand).
Jewelry and other items are presented at net realizable value as follows:
In thousand drams As of As of December 31, December 31, 2013 2012 Cost 338,676 340,304 Impairment (93,673) (93,673) Net realizable value 245,003 246,631
"Hayastan" All Armenian Fund 25 Consolidated financial statements December 31, 2013
Impairment of inventories
At each reporting date the Fund estimates the recoverability of the carrying values of inventories by calculating for them the net realizable value. The Fund’s management makes judgment to determine the net realizable value for those inventories based on their characteristics. As of December 31, 2013 the impairment loss of inventories amounts to drams 93,673 thousand (2012: drams 93,673 thousand).
7 Receivables and advances
In thousand drams As of As of December 31, December 31, 2013 2012 Advances for construction works 615,266 175,175 Advances for goods and services 80,802 32,160 Accounts receivable for projects implementation 348,349 357,878 Other 61,304 46,333 1,105,721 611,546
Allowances for doubtful receivables (79,644) (79,624)
Net receivables and advances 1,026,077 531,922
Increase in advances for construction works is explained by the commencement of the construction works of Vardenis-Martakert highway (refer to note 1).
Advances for construction works have been paid to the following entities:
In thousand drams As of As of December 31, December 31, 2013 2012 “Qaravan” LLC 150,588 - “Chanshin” CJSC 100,000 - “Virazh” PC 95,847 - “Sigma Group Service ”LLC 35,746 78,915 “Kapavor” LLC 90,000 “Karalans” LLC - 47,307 “Dorojnik” LLC 60,000 - “Pargev” LLC - 28,021 “Milaqs Group” CJSC 12,500 - “Nver” LLC 9,447 550 Other 61,138 20,382 615,266 175,175
"Hayastan" All Armenian Fund 26 Consolidated financial statements December 31, 2013
Accounts receivable for projects implementation are presented below:
In thousand drams As of As of December 31, December 31, 2013 2012 Reconstruction of music school in Stepanakert 102,321 - Construction of community center in Khandzq village 72,447 - Renovation of school in Meliq village 29,766 - Organizational fund/President's award 10,813 - Kirants irrigation project 4,946 - Karmir Shuka village drinking water supply system construction project, Martuni region - 88,182 Secondary school project in Oshakan village, Aragatsotn Region - 45,231 Project for the furnishing of Tchaikovsky music school/Australia 16,382 28,816 Renovation of Gyumri Children's Home Orphanage - 77,467 Shengavit district boarding kindergarten renovation project - 17,065 Project for the construction of Ghuze Tchartan kindergarden 34,137 34,137 Reconstruction of water supply system in Nrnadzor village, Syunik region 23,393 23,393 Construction of “Drakhtik” kindergarten 13,450 13,450 Renovation of the Medical center’s obstetric-gynecologic department in Charentsavan 8,000 8,000 Other projects 32,694 22,137 348,349 357,878
The policy for recognition or derecognition of these receivables is presented in the note 3.6.
Movement of the allowance for doubtful receivables is presented below:
In thousand drams 2013 2012 Balance at the beginning of year 79,624 55,319 Increase in the allowance during the year (included in other expenses) 20 24,305 Balance at the end of year 79,644 79,624
The provision includes the part of receivables in the amount of drams 23,393 thousand, which was intended for the water supply reconstruction project in Nrnadzor village. This is explained by the fact that the donor did not confirm his intention to further fund the project.
Receivables include overdue but not reserved balances, which is based on the management estimations.
Management believes that there is no further credit provision required in excess of the allowance for doubtful debts.
Refer to note 21 for the currencies in which the trade and other receivables are denominated.
"Hayastan" All Armenian Fund 27 Consolidated financial statements December 31, 2013
8 Term deposits
In thousand drams As of As of December 31, December 31, Currency 2013 2012 Euro 5,849 21,930 US dollar 36,271 36,147 Armenian dram 205,258 369,770 247,378 427,847
Term deposits were invested with different maturity periods, from 32 to 454 days and with the following rates: · Armenian dram 6.8-12%, average effective interest rate – 9.71% · US dollar 2-7%, average effective interest rate – 4% · Euro 5.5 %, average effective interest rate – 5.5 %.
As of December 31, 2013 the balance of interests receivable from deposits made up drams 14,144 thousand (December 31, 2012: drams 30,581 thousand).
9 Cash and bank balances
In thousand drams As of As of December 31, December 31, 2013 2012 Cash in hand 1,600 1,125 Bank accounts 133,919 287,924 135,519 289,049
10 Grants related to assets
In thousand drams
2013 2012 Balance at beginning of year 284 3,384 Additions 156,200 - Realized to income (included in income from financing of operations) (282) (3,100) Balance at end of year 156,202 284
According to the Republic of Armenia Government decree 47-² dated January 24, 2013 the plot of land of 3,396 square meter located near the building located at 28 Arshakunyats avenue, Yerevan has been donated to “Hayastan” All Armenian Fund. According to the valuation made by “Oliver- Group” LLC, the market price of land made up drams 156,200 thousand.
"Hayastan" All Armenian Fund 28 Consolidated financial statements December 31, 2013
11 Accounts payable
In thousand drams As of As of December 31, December 31, 2013 2012 Payables to contractors 275,277 334,866 Trade payables 13,780 9,392 Advances received 4,119 6,275 Employee benefits payable 51,770 47,100 Other 45,176 49,430 390,122 447,063
Payables to contractors are presented below:
In thousand drams As of As of December 31, December 31, 2013 2012 “Karalans” LLC 48,257 33,650 “Qaravan” LLC 36,521 100,434 “Sigma Group Service” LLC 35,638 27,418 “Hov-Grig-Shin” LLC 32,469 7,321 “Techno Fit” LLC - 34,007 “Nver” LLC - 8,291 “Tiv 1 Shinvarchutyun” OJSC 4,739 6,671 “Nairi Shin” OJSC 990 4,312 “Ayg” LLC 13,500 - “Avtoban” LLC 11,100 - “Vahagn and Samvel” LLC 5,444 - “Dorojnik” LLC - 13,782 “Pareqs - Gaz” LLC 25,637 25,182 The MInistry of Urban Development of NKR - 26,405 Other 60,982 47,393 275,277 334,866
12 Loans and borrowings
In thousand drams Current As of As of December 31, December 31, 2013 2012 Secured bank borrowings 58,245 30,569 Unsecured borrowings from related parties 7,000 - 65,245 30,569
In 2012 the Fund's subsidiary signed an agreement with Inecobank LLC on credit lines of US dollars 110,000 and of US dollars 10,000. The credit line of US dollars 110,000 has an annual interest rate of 13% and the maturity period is defined as January 9, 2014, and the credit line of US
"Hayastan" All Armenian Fund 29 Consolidated financial statements December 31, 2013
dollars 10,000 has an annual interest rate of 18% and the maturity period is defined as February 28, 2017. As of December 31, 2013 the used balance of the provided credit line amounted to drams 44,189 thousand (2012: drams 30,146 thousand) and the accrued interests amounted to drams 472 thousand (2012: drams 423 thousand). The annual financial expenses amounted to drams 5,682 thousand (2012: drams 6,071 thousand).
On December 25, 2013 the subsidiary of “Hayastan” All Armenian Fund and a physical person signed an agreement on short-time borrowing of drams 7,000 thousand for industrial and economic purposes.
On September 11, 2013 “Hayastan” All Armenian Fund signed an agreement with “Converse Bank” LLC on a credit line of drams 25,000 thousand with an annual interest rate of 18% and the maturity period is defined as October 1, 2014. As of December 31, 2013 the used balance of the provided credit line amounted to drams 13,584 thousand (2012: nil).
Loans are secured by the Fund’s subsidiary “HATM” LLC property and equipment.
The fair values of current loans and borrowings equal their carrying amount, as the impact of discounting is not significant.
Refer to note 21 for the currencies in which the loans and borrowings are denominated.
13 Financing for operations and other items of net assets As of the reporting date the balance of financing for operations includes the unused portion of donations received from annual telethons and other sources, as well as special and executive committee fund balances.
Movement of this financing is presented below:
In thousand drams 2013 2012 Balance at beginning of year 2,160,259 2,560,155 Funds received 4,028,837 4,394,038 Funds used (3,783,391) (4,793,770) Other movements 1,753 (164) Balance at end of year 2,407,458 2,160,259
Funds are received from telethons, special funds and other sources.
Received funds include drams 12,117 thousand (2012: drams 261,680 thousand) in form of donated goods and drams 250,479 thousand (2012: drams 180,859 thousand) which were accrued but not actually received by the Fund.
Donations received from Telethons and other sources Donations received in the annual telethon in November 2013 made up US dollar 22,661,372 (2012: US dollar 21,422,477), which includes actually received and promised donations.
As presented in the note 3.10, the Fund’s consolidated financial statements include only those projects, which were financed or co-financed by the Fund.
"Hayastan" All Armenian Fund 30 Consolidated financial statements December 31, 2013
In case of co-financing, the part of projects, which are not controlled by the Fund are not included in these consolidated financial statements. During 2013, for the implementation of the Fund’s projects drams 526,665 thousand of co-financing was used by the Government of the Nagorno- Karabakh Republic (2012: drams 429,941 thousand), which were not included in the consolidated financial statements of the Fund due to the above mentioned reason.
In addition, the consolidated financial statements of the Fund do not include expenses incurred within the framework of “HimnaTavush” Development Foundation. These expenses were made and controlled by the Fund and during the year ended December 31, 2013 amounted to drams 308,573 thousand (2012: drams 351,748 thousand) as well as the balance of the provided advance made up drams 348,662 thousand (2012: drams 120,521 thousand).
The movement of the donations from telethon and other sources is presented below:
In thousand drams
2013 2012 Balance at beginning of year 2,084,345 2,476,636 Funds received 4,017,284 4,392,797 Funds used (refer to note 14) (3,436,062) (4,456,422) Amounts returned - (164) Inflows from special funds 16,234 - Outflows to Executive Committee fund (338,548) (328,502) Balance at end of year 2,343,253 2,084,345
Special fund Movement of the special funds is presented below:
In thousand drams
2013 2012 Balance at beginning of year 75,914 83,519 Funds received 11,553 1,241 Outflows to donations received from telethon and other sources (16,234) - Other movements 1,753 - Income from use of funds (refer to note 14) (8,781) (8,846) Balance at end of year 64,205 75,914
Executive Committee fund Movement of the special funds is presented below:
In thousand drams
2013 2012 Balance at beginning of year - - Inflows from telethon donations and other sources 338,548 328,502 Income from use of funds (refer to note 14) (338,548) (328,502) Balance at end of year - -
"Hayastan" All Armenian Fund 31 Consolidated financial statements December 31, 2013
14 Income from financing of operations
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Income from projects 3,783,391 4,793,770 Income from grants related to assets (refer to note 10) 282 3,100 3,783,673 4,796,870
Income incurred from the financing of implemented targeted projects is disclosed below:
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Income received from Telethon's donations and other sources (refer to note 13) 3,436,062 4,456,422 Income from special funds (refer to note 13) 8,781 8,846 Income from Executive Committee fund (refer to note 13) 338,548 328,502 3,783,391 4,793,770
15 Operating expenses
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Construction works 2,799,819 2,198,362 President's award 59,406 54,983 Donation of equipment 255,907 736,148 Annual expenses of the Board of Trustees 41,575 36,423 Telethon organization expenses 195,437 144,826 Republic of Nagorno-Karabakh airport expenses 2,878 491,371 Financial aid to Syrian Armenians 35,936 20,327 Other projects 155,439 275,355 3,546,397 3,957,795
The construction works for 2012 and 2013 performed in Armenia and Nagorno-Karabakh include the following:
- reconstruction and renovation of water pipelines, - construction of buildings of public importance, - construction and renovation of medical institutions, - construction of roads, - construction of schools etc.
"Hayastan" All Armenian Fund 32 Consolidated financial statements December 31, 2013
16 Administrative expenses
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Employee benefits 269,834 286,992 Trip expenses 18,020 34,757 Promotion expenses 16,970 16,808 Office expenses 40,370 37,718 Depreciation and amortization expenses 12,470 29,547 Other 35,273 33,101 392,937 438,923
17 Finance income and costs
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Interest expenses on bank borrowings (5,682) (6,071) Total finance costs (5,682) (6,071)
Interest income on short-term bank deposits 48,554 46,392 Total finance income 48,554 46,392
Net finance income 42,872 40,321
18 Other financial items
In thousand drams Year ended Year ended December 31, December 31, 2013 2012
Gain/(loss) from exchange differences on:
Financial liabilities measured at amortized costs 7,704 27,788 Loans and receivables (178) (1,616) 7,526 26,172
19 Income tax expense
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Current tax 1,364 36,401 Deferred tax (refer to note 5) 851 (14,467) 2,215 21,934
"Hayastan" All Armenian Fund 33 Consolidated financial statements December 31, 2013
Reconciliation of effective tax rate is as follows:
In thousand drams Year ended Year ended December Effective tax December 31, Effective tax 31, 2013 rate (%) 2012 rate (%) Profit /(loss) before taxation (under IFRS) (203,714) 591,549 Tax calculated at a tax rate of 20% (2012: 20%) (40,743) 20.0 118,310 20.0 Income tax losses/(use) (1,163) 0.57 14,082 2.4 (Non-taxable)/non-deductible items, net 44,121 (21.7) (110,458) (18.7) Income tax expense/(recovery) 2,215 (1.09) 21,934 3.7
20 Critical accounting estimates and judgments Estimates and judgments 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.
20.1 Critical accounting estimates The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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.
Useful lives of property and equipment
Management has estimated useful lives of the property and equipment. Management believes that estimated useful lives of the property and equipment are not materially different from economical lives of those assets. If actual useful lives of property and equipment are different from estimations, financial statements may be materially different.
Receivables for Projects’ implementation
Amounts that are expected to be received against the expenses incurred within the scope of the Fund’s activity are recognized in the caption of “Receivables incurred for implementation of projects”. The Fund’ management estimates the recoverability of the spent amounts. The estimates are made based on the historical experience, the donor’s commitment, probability of project implementation, etc. If the recovered amounts differ from the estimated amounts then the financial statements may be materially different.
21 Financial instruments
21.1 Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.6.
21.2 Categories of financial instruments The carrying amounts presented in the consolidated statement of financial position relate to the following categories of assets and liabilities:
"Hayastan" All Armenian Fund 34 Consolidated financial statements December 31, 2013
Financial assets
In thousand drams As of As of December 31, December 31, 2013 2012 Held-to-maturity investments: Term deposits 247,378 427,847 Loans and receivables: Accounts receivable 409,653 404,211 Cash and bank balances 135,519 289,049 792,550 1,121,107
Financial liabilities
In thousand drams As of As of December 31, December 31, 2013 2012 Financial liabilities measured at amortized costs: Loans and borrowings 65,245 30,569 Accounts payable 325,620 388,787 390,865 419,356
22 Financial risk management The Fund is exposed to various risks in relation to financial instruments. The main types of risks are market risk, credit risk and liquidity risk.
Financial risk factors a) Market risk The Fund is exposed to market risk through its use of financial instruments and specifically to currency risk.
Foreign currency risk
The Fund undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Most of the Fund’s donations are received in Armenian drams, US dollars and Euro. Exposures to currency exchange rates arise from the Fund’s term deposits, receivables, cash and loans, which are primarily denominated in US dollars and Euro. The Fund also has a US dollar loan, which has been used to fund the purchase. Besides the subsidiary of “Hayastan” All Armenian Fund has a credit, which was used for the procurement.
"Hayastan" All Armenian Fund 35 Consolidated financial statements December 31, 2013
Foreign currency denominated financial assets and liabilities which expose the Fund to currency risk are disclosed below. The amounts shown are those reported to key management translated into Armenian drams at the closing rate:
Item
As of December 31, 2013 US dollar Euro Other Financial assets Term deposits 36,271 5,849 - Receivables 348,349 - - Cash and bank balances 52,091 15,019 205 436,711 20,868 205 Financial liabilities Loans 65,245 - - 65,245 - - Net position 371,466 20,868 205
Item
As of December 31, 2012 US dollar Euro Other Financial assets Term deposits 36,147 21,930 - Receivables 356,907 - - Cash and bank balances 157,019 69,372 10,166 550,073 91,302 10,166
Financial liabilities Loans 30,569 - - 30,569 - - Net position 519,504 91,302 10,166
The following table details the Fund’s sensitivity to a 7% (2012: 10%) increase and decrease in dram against US dollar. 7% (2012: 10%) represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 7% (2012: 10%) change in foreign currency rates.
If Armenian dram had strengthened against US dollar and Euro by 7% (2012: 10%) then this would have had the following impact:
In thousand drams US dollar impact Euro impact 2013 2012 2013 2012 Consolidated statement of comprehensive income 26,003 51,950 1,461 9,130
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Fund’s exposure to currency risk.
"Hayastan" All Armenian Fund 36 Consolidated financial statements December 31, 2013
b) Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Fund. The effect of this risk for the Fund arises from different financial instruments, such as accounts receivable, term deposits, etc. The maximum exposure to credit risk is represented by the carrying amounts of the following financial instruments:
In thousand drams As of As of December 31, December 31, 2013 2012 Financial assets at carrying amounts Term deposits 247,378 427,847 Accounts receivable 409,653 404,211 Cash and bank balances 135,519 289,049 792,550 1,121,107
At the reporting date there was no significant concentration of credit risk in respect of trade and other receivables. The Fund has made provisions of drams 79,644 thousand as of December 31, 2013 (December 31, 2012: drams 79,624 thousand) for overdue receivables.
The credit risk for cash and cash equivalents is small, since the counterparties are reputable banks. c) Liquidity risk Liquidity risk is the risk that the Fund will be unable to meet its obligations.
The Fund’s policy is to run a prudent liquidity management policy by means of holding sufficient cash and bank balances, as well as highly liquid assets for making all operational and debt service related payments when those become due.
The following table details the Fund’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Fund can be required to pay. The table includes both interest and principal cash flows.
2013 Non-interest Fixed interest rate bearing instruments Total Weighted average effective interest rate (%) 15.5% Less than 6 months 325,620 - 325,620 6 months to 1 year - 65,245 65,245 325,620 65,245 390,865
2012 Non-interest Fixed interest rate bearing instruments Total Weighted average effective interest rate (%) 16% Less than 6 months 388,787 - 388,787 6 months to 1 year - 30,569 30,569 388,787 30,569 419,356
"Hayastan" All Armenian Fund 37 Consolidated financial statements December 31, 2013
The Fund considers expected cash flows from financial assets in assessing and managing liquidity risk, particularly its cash resources and trade receivables. The Fund’s cash resources and trade receivables do not exceed the current cash outflow requirements. Cash flows from trade and other receivables are all contractually due within one year.
23 Fair value measurement
23.1 Fair value measurement of non-financial assets The land and buildings of the Fund are stated at revalued amount. The estimated fair values of the land and buildings are categorized within Level 2 of the fair value hierarchy. The fair values of those assets are estimated based on appraisals performed by independent, professionally-qualified property valuers who hold necessary licenses. The significant inputs and assumptions are developed in close consultation with management. Further information is set out below.
Land and building (Level 2)
The Fund’s land and the building were revalued by an independent valuer on June 24, 2013 and on July 1, 2011, respectively.
The appraisal of land was carried out using a comparable sales method and the appraisal of building was carried out using a cost method.
Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include: a) quoted prices for similar assets or liabilities in active markets b) quoted prices for identical or similar assets or liabilities in markets that are not active c) inputs other than quoted prices that are observable for the asset or liability d) inputs that are derived principally from or corroborated by observable market data by correlation or other means ('market-corroborated inputs').
24 Contingencies
24.1 Business environment Armenia continues to undergo political and economic changes. As an emerging market, Armenia does not possess a developed business and regulatory infrastructure that generally exists in a more mature free market economy. In addition, economic conditions continue to limit the volume of activity in the financial markets, which may not be reflective of the values for financial instruments. The main obstacle to further economic development is a low level of economic and institutional development, along with a centralized economic base, regional instability and international economic crisis.
The possible effects of these factors on the Fund may include the inability to pay creditors when they become due, impaired reputation, difficulties in selling the goods and services, difficulties in obtaining funds, etc. All these problems may lead to the lessened liquidity of the Fund and, accordingly, to going concern problems. Also, there are still uncertainties about the economic
"Hayastan" All Armenian Fund 38 Consolidated financial statements December 31, 2013
situation of countries, collaborating with Armenia, due to the forecasted slowdown in the world economy, which may lead to the shortage of money transfers from abroad, as well as to the decline in the prices of mining products, upon which the economy of Armenia is significantly dependant. In times of more severe market stress the situation of Armenian economy and of the Fund may be exposed to deterioration. However, as the number of variables and assumptions involved in these uncertainties is big, management cannot make a reliable estimate of the amounts by which the carrying amounts of assets and liabilities of the Fund may be affected.
The financial statements of the Fund do not include the effects of adjustments, if any, which might have been considered necessary, had the effects of the factors described above become observable and reliably measurable in Armenia.
24.2 Insurance The Armenian insurance industry is in its development stage and many forms of insurance protection common in other parts of the world are not yet generally available in Armenia. The Fund does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on the Fund property or relating to the Fund operations. Until the Fund obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets or environmental damage could have a materially adverse affect on the Fund’s operations and financial position.
24.3 Taxes The taxation system in Armenia is relatively new and is characterized by frequently changing legislation, which is often subject to interpretation. Often differing interpretations exist among various taxation authorities and jurisdictions. Taxes are subject to review and investigations by tax authorities, which are enabled by law to impose severe fines and penalties.
These facts may create tax risks in Armenia substantially more than in other developed countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations and the effects could be significant.
25 Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks and short-term investments with a maturity period of less than 3 months, net of outstanding bank overdrafts. Cash and bank balances at the end of the financial year as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position, as follows:
In thousand drams As of As of December 31, December 31, 2013 2012 Cash and bank balances 135,519 289,049 Short-term bank deposits 233,234 397,266 368,753 686,315
"Hayastan" All Armenian Fund 39 Consolidated financial statements December 31, 2013
26 Related party transactions The Fund's related parties includes subsidiary for separate financial statements and key management and others as described below.
26.1 Transactions with management and close family members Key management received the following remuneration during the year, which is included in payroll and employee benefits.
In thousand drams Year ended Year ended December 31, December 31, 2013 2012 Salaries and bonuses 21,504 20,480
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