Page 50 - GROUP 3 NAKED HOTEL LIMITED ANNUAL REPORT

30. Financial instruments

a. Fair Value of Financial Instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction. The amounts included in the
financial statements for cash and bank deposits, receivables, and payables, reflect the
approximate fair values because of the short-term maturity of these instruments. Long term
loan is stated at the original recorded amount less principal repayments.

b. Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation
and cause the other party to incur a financial loss. The company does not have any significant
concentration of credit risk. Cash and short-term investments are held with substantial
financial institutions that are believed to have minimal risk of default. The book value of
receivables is stated after allowance for likely losses. The company’s credit risk exposure is
mitigated as amounts receivable from each customer is not significant.

c. Foreign Currency Risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to
changes in foreign exchange rates. The company incurs foreign currency risks on transactions
that are denominated in currencies other than the Jamaican dollar.

d. Interest Rate Risk
Interest rate risk is the potential that the value of a financial instrument will fluctuate due to
changes in market interest rates. The structure of Naked Hotel’s Balance Sheet, allows the
company not to be significantly affected by interest risk.

31. Contingent Liability
A guest filed a lawsuit against the company in November 2016. The guest is claiming damages
amounting to $150,000 arising out of an alleged accident in the fitness room in which she sustained
injuries to her back and neck. The company’s lawyer, Miguel Williams, is of the opinion that the
plaintiff’s (guest’s) claim against the company is unlike to succeed.

32. Capital Commitments

On December 31, 2016 commitments for capital expenditure not contracted for and for which no
provision has been made in the accounts amounted to $1, 200, 000.

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