01 02 03 Financial Statements 04 4. Significant accounting judgments and estimates continued Valuation of land, office buildings, hospitals and clinics The fair value of land, office building, hospitals and clinics included in property and equipment is determined by independent professionally qualified appraisers. Fair value is determined using a combination of the market and discounted replacement cost (“DRC”) approaches. The Group performs valuation of its office buildings and hospitals and clinics at least once in every three years, unless there is a sign of material change in fair values on the market. Last valuation of hospitals and clinics was performed on 1 October 2017 by Georgian Valuation Company. Results of this valuation are presented in Note 11, while valuation inputs and techniques are presented in Note 40. The estimates described above are subject to change as new transaction data and market evidence become available. According to the Management’s assessment of market and internal data available since last revaluation date up to 31 December 2018, there have been no significant change in qualitative or quantative factors affecting the fair value of the Group’s land, office buildings, hospitals and clinics. Current income tax recognition The current income tax charge is calculated in accordance with Georgian legislation enacted or substantively enacted by the reporting date. The Group’s main business activities are operated under tax on distributed profits regime, meaning that there is no tax on retained earnings starting from 2017 for healthcare and pharma segments and from 2023 for insurance segment. Further details on taxation are disclosed in Note 13. Claims reserves arising from insurance contracts For insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date (RBNS) and for the expected ultimate cost of claims incurred but not yet reported (“IBNR”) at the reporting date. It can take a significant period of time before the ultimate claims cost can be established with certainty. Insurance claims provisions are not discounted for the time value of money. The carrying amount of the reserves for claims (“RBNS” and “IBNR”) as at 31 December 2018 was GEL 3,253 (2017: GEL 3,102). Refer to Note 17. 5. Business combinations Acquisitions in year ended 31 December 2018 JSC Vabaco On 27 September 2018 JSC Georgia Healthcare Group (“Acquirer”) acquired 67% of JSC Vabaco (“Vabaco”) shares from individual investors. JSC Vabaco is a software service company in Georgia. The fair values of identifiable assets and liabilities of Vabaco as at the date of acquisition were: Fair value recognised on acquisition Assets Cash and cash equivalents 22 Property and equipment 20 Intangible assets 1,992 Other assets 20 Total assets 2,054 Liabilities Accounts payable 157 Accruals for employee compensation 201 Other liabilities 132 Total liabilities 490 Total identifiable net assets 1,564 Non-controlling interests 516 Goodwill arising on acquisition – Consideration1 1,048 1 Consideration comprised GEL 1,048, which has been fully paid as at reporting date. Net cash outflow for the acquisition was as follows: Cash paid 1,048 Cash acquired with the subsidiary (22) Net cash outflow 1,026 By acquiring Vabaco the Group gets full access to the software and future potential for development and tailoring to the Group’s business needs and extraction benefits from high quality systems. Management considers that the deal will have a positive impact on the value of the Group. Since acquisition, Vabaco has recorded GEL 61 and GEL 12 of revenue and profit, respectively. For the year ended 31 December 2018 revenue and profit of the acquired entity were GEL 365 and GEL 42, respectively. If the combination had taken place at the beginning of the year, the Group would have recorded GEL 846,671 and GEL 53,281 of revenue and profit, respectively. The Group has elected to measure the non-controlling interests in Vabaco at the non-controlling interests’ proportionate share of Vabaco’s identifiable net assets. 143