Originally Posted by
Mogul
Hi Maverick,
Thanks. Looking further into this I think you make a good point.
As context, the concept of Embedded Value is not relevant to IFRS Reported profit or to Comprehensive Income where the Management Fee is booked as profit on a straight line basis over the relevant or expected term of the ORA. I am pretty sure I have this part right, but welcome any feedback if you see it differently. The balance sheet also has assets at market valuation which feeds directly into quoted NTA's.
However, Embedded Value is relevant to the calculation of "Underlying profit" where capital gains and also DMF fees it seems, do not get booked as profit until the ORA terminates and a new ORA is sold for the unit. As per the chart you shared, the Embedded Value represents the difference between the carrying value of the assets at market value (as per balance sheet) and the amount owed to residents under the terms of the ORA. Part of this is estimated capital gain and part of it is DMF as you say. Thanks for pointing this out.