2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE/CHANGES IN ACCOUNTING POLICIES (cont d) 2. Goodwill (cont d) have been recognised as income

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1 1. GENERAL The Company was incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). 1. The Company s principal activity is investment holding and the activities of its principal subsidiaries and associates are set out in notes 44 and 45 respectively. 2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE/CHANGES IN ACCOUNTING POLICIES 2. In the current year, the Group has adopted for the first time a number of new and revised Statements of Standard Accounting Practice ( SSAPs ) issued by the Hong Kong Society of Accountants. Adoption of these SSAPs has led to a number of changes in the Group s accounting policies. The revised accounting policies are set out in note 4. In addition, the new and revised SSAPs have introduced additional and revised disclosure requirements which have been adopted in these financial statements. Comparative amounts for the prior year have been restated in order to achieve a consistent presentation. The adoption of these new and revised SSAPs has resulted in the following changes to the Group s accounting policies that have affected the amounts reported for the current or prior years. Segment reporting In the current year, the Group has changed the basis of identification of reportable segments to that required by SSAP 26 Segment Reporting. Segment disclosures for the year ended 31st December, 2000 have been amended so that they are presented on a consistent basis. Goodwill In the current year, the Group has adopted SSAP 30 Business Combinations and has elected to restate goodwill (negative goodwill) previously eliminated against (credited to) reserves. Accordingly, the amount of such goodwill (negative goodwill) has been remeasured in accordance with the requirements of SSAP 30. Accumulated amortisation and impairment losses in respect of goodwill between the date of acquisition of the relevant subsidiary or associate and the date of adoption of SSAP 30 have been recognised retrospectively. Negative goodwill which would 60 Chinese Estates Holdings Limited annual report 2001

2 2. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE/CHANGES IN ACCOUNTING POLICIES (cont d) 2. Goodwill (cont d) have been recognised as income between the date of acquisition of the relevant subsidiary or associate and the date of adoption of SSAP 30 has been recognised retrospectively. The effect of these adjustments is summarised in note 3. Following restatement, goodwill is presented as an asset in the balance sheet and negative goodwill is presented as a deduction from assets. Goodwill is amortised over its estimated useful life. Negative goodwill will be released to income based on an analysis of the circumstances from which the balance resulted. 3. PRIOR YEAR ADJUSTMENTS 3. The financial effect of the adoption of the new accounting policies described in note 2 is summarised below: Investment properties Capital revaluation Special Accumulated reserve reserve reserve* profits HK$ 000 HK$ 000 HK$ 000 HK$ 000 Balance at 1st January 2000 As originally stated 3,042,666 7,563,944 2,840,370 Retrospective recognition of impairment of goodwill held in reserves 6,123 (6,123) Restatement of negative goodwill held in reserves with retrospective release to income (372,874) 372,874 Adjust the amount of negative 30 goodwill arising on acquisition of subsidiaries according to SSAP 30 (77,784) 20,444 Adjust the amount of negative 30 goodwill arising on acquisition of additional interest in an associate according to SSAP 30 (98,446) 7,000 Reclassification of reserve arising on scheme of arrangement (2,499,685) 2,499,685 As restated 7,584,388 2,499,685 3,214,121 61

3 3. PRIOR YEAR ADJUSTMENTS (cont d) The effect of these changes in accounting policy on the results for the current and prior year is as follows: 3. HK$ 000 HK$ 000 Reduction in impairment loss recognised (note 10) 10 54,998 36,593 Impairment loss recognised in respect of goodwill (note 9) 9 (4,469) (130,361) 50,529 (93,768) * Special reserve represents the difference arising from the aggregate of the share capital and premium amount of the former holding company and the Company upon redomicile of the holding company as a Bermuda Company in 1989 and is non-distributable. 4. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain properties and investments in securities. 4. The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows: Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st December each year. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. 62 Chinese Estates Holdings Limited annual report 2001

4 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its useful economic life. Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. 4. Negative Goodwill Negative goodwill represents the excess of the Group s interest in the fair value of the identifiable assets and liabilities of a subsidiary or associate at the date of acquisition over the cost of acquisition. Negative goodwill is presented as a deduction from assets and is released to income based on an analysis of the circumstances from which the balance resulted. To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight-line basis over the remaining average useful life of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised as income immediately. Negative goodwill arising on the acquisition of an associate is deducted from the carrying value of that associate. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet as a deduction from assets. Investments in subsidiaries Investments in subsidiaries are included in the Company s balance sheet at cost less any identified impairment loss. 63

5 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Interests in associates The consolidated income statement includes the Group s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group s share of the net assets of the associates less any identified impairment loss. 4. The results of associates are accounted for by the Company on the basis of dividends received and receivable during the year. In the Company s balance sheet, investments in associates are stated at cost, as reduced by any identified impairment loss. Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset 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 been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. Investment properties Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm s length. Investment properties are stated at their open market values. Any surplus or deficit arising on the revaluation of investment properties is credited or charged to the investment property revaluation reserve unless the balance on this reserve is insufficient to cover a deficit, in which case the excess of the deficit over the balance on the investment property revaluation reserve is charged to the income statement. Where a deficit has previously been charged to the income statement and a revaluation surplus subsequently arises, this surplus is credited to the income statement to the extent of the deficit previously charged. 64 Chinese Estates Holdings Limited annual report 2001

6 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Investment properties (cont d) On disposal of an investment property, the balance on the investment property revaluation reserve attributable to that property is transferred to the income statement. 4. No depreciation is provided on investment properties except where the unexpired term of the relevant lease is 20 years or less. Property and other fixed assets Property and other fixed assets are stated at cost less depreciation and accumulated impairment losses. Depreciation is provided to write off the cost of property and other fixed assets over their estimated useful lives and after taking into account their estimated residual value, using the straightline method, at the following rates per annum: Type Leasehold land Buildings Furniture, fixtures and equipment Yacht and motor vehicles Basis Over the term of the lease Over the shorter of the unexpired period of the lease and 40 years 3 to 10 years 3 to 10 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Land and buildings in the course of development for rental or administrative purposes or for purposes not yet determined are carried at cost less any identified impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Property interests Property interests represent a right to develop properties on a piece of land upon payment of a final amount, and are carried at cost less any identified impairment loss. 65

7 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Rights held under contractual arrangements relating to properties Rights held under contractual arrangements relating to properties represent propery development projects held under contractual arrangements in which the Group is entitled to all risks and reward of ownership except for the legal title, and are carried at cost less any identified impairment loss. 4. Properties held for sale Properties held for sale are stated at the lower of cost and net realisable value. Other assets Other assets representing club memberships, are stated at cost less any identified impairment loss. Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost. Investments other than held-to-maturity debt securities are classified as investment securities and other investments. Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost, as reduced by any impairment loss that is other than temporary. Other investments are measured at fair value, with unrealised gains and losses included in net profit or loss for the year. Turnover Turnover represents the aggregate of amounts received and receivable from the sales of securities investment, property rental income, dividend income and interest income from loan financing. Revenue recognition Revenue from properties developed for sale is recognised on the execution of a binding sales agreement or when the relevant occupation permit is issued by the binding authority, whichever is the later. 66 Chinese Estates Holdings Limited annual report 2001

8 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Revenue recognition(cont d) Revenue from properties held for sale is recognised on the execution of a binding sales agreement. Payments received from the purchasers prior to this stage are recorded as deposits received on sales of properties and grouped under current liabilities. 4. Rental income, including rental invoiced in advance from properties under operating leases, is recognised in the income statement on a straight-line basis over the term of the relevant lease. Sales of securities investments are recognised on a trade day basis. Management fee income is recognised in accordance with terms of respective agreements over the relevant period in which the services are rendered. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. Interest income from bank deposits is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Taxation The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed using the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future. Foreign currencies Transactions in currencies other than Hong Kong dollars are translated into Hong Kong dollars at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in currencies other than Hong Kong dollars are re-translated into Hong Kong dollars at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement. 67

9 4. SIGNIFICANT ACCOUNTING POLICIES (cont d) Foreign currencies (cont d) On consolidation, the financial statements of subsidiaries and associates which are denominated in currencies other than Hong Kong dollars and which operate in the People s Republic of China other than Hong Kong ( the PRC ) are translated at the rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in reserves. 4. Operating leases Leases of assets in respect of which substantially all the rewards and risks of ownership remain with the lessors are accounted for as operating leases. Rental paid and payable under operating leases are charged to the income statement on a straight-line basis over such term of the relevant lease. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred. Retirement benefits costs The retirement benefit costs charged to the income statement represent the contributions payable in respect of the current year to the Group s defined contribution scheme. 5. BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments For management purposes, the Group is currently organised into four operating divisions - property development, property leasing, money lending and securities investment and investment holding. These divisions are the basis on which the Group reports its primary segment information Chinese Estates Holdings Limited annual report 2001

10 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) Principal activities are as follows: Property development - Property development and sale of properties Property leasing - Property rental Money lending - Loan financing Securities investment and - Securities investments investment holding and trading 5. Segment information about these businesses is presented below. INCOME STATEMENT Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 REVENUE Revenue from external sales 638,782 60,304 15, ,520 RESULT Segment result (366,161) 594,439 60,304 14, ,549 Unallocated corporate expenses (70,685) Profit from operations 232,864 Unrealised holding loss on other listed investments (2,313) Finance costs (328,139) Other losses (20,891) Impairment loss recogrised in respect of advances to associates (223,646) (17) (223,663) Share of results of associates (345,932) 29,624 (12) (16,606) (4,195) (337,121) Loss before taxation (679,263) Taxation 57,018 Loss after taxation (622,245) 69

11 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) BALANCE SHEET At 31st December, Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 ASSETS Segment assets 2,189,954 15,714, , , ,698 19,270,273 Interests in associates 453, ,539 33, ,930 44,030 1,569,216 2,643,568 16,625, , , ,728 20,839,489 LIABILITIES Segment liabilities 1,478,804 3,261, , , ,707 5,357,160 Included in segment liabilities allocated to each reportable segment are corporate loan borrowings in amount of HK$3,926,100, Chinese Estates Holdings Limited annual report 2001

12 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) OTHER INFORMATION 5. Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Capital additions 275,296 1,277,039 1,390 1,553,725 Depreciation ,066 13,260 Impairment losses recognised in the income statement 588,003 10,781 2, ,093 Other non-cash expenses 2,313 2,313 71

13 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) 5. INCOME STATEMENT For the year ended 31st December, 2000 Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (As restated) REVENUE Revenue from external sales 551,492 43,048 55, ,698 RESULT Segment result (49,570) 521,876 43,048 (962) 514,392 Unallocated corporate expenses (54,808) Profit from operations 459,584 Unrealised holding gain on other listed investment 891 Finance costs (325,898) Other losses (130,361) Impairment loss recognised in respect of advances to associates (319,469) (11,614) (331,083) Share of results of associates (127,128) (62,970) 41 62,316 (14,714) (142,455) Loss before taxation Taxation Loss after taxation (469,322) (12,214) (481,536) 72 Chinese Estates Holdings Limited annual report 2001

14 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) BALANCE SHEET At 31st December, Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (As restated) ASSETS Segment assets 2,410,909 14,651, , , ,389 18,461,355 Interests in associates 911, ,246 3, , ,026 2,072,726 3,322,012 15,459, , , ,415 20,534,081 LIABILITIES Segment liabilities 1,353,064 2,327, ,349 82, ,358 4,228,528 Included in segment liabilities allocated to each reportable segment are corporate loan borrowings in amount of HK$3,385,656,

15 5. BUSINESS AND GEOGRAPHICAL SEGMENTS (cont d) OTHER INFORMATION For the year ended 31st December, Securities investment and Property Property Money investment Other development leasing lending holding operations Consolidated HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (As restated) Capital additions 179, ,188 5, ,560 Depreciation ,497 23,186 Impairment losses recognised in the income statement 369, ,361 11, ,014 Other non-cash expenses Geographical segments Over 90% of the activities of the Group during the year were carried out in Hong Kong and over 90% of the assets of the Group were located in Hong Kong. Accordingly, a geographical analysis is not presented. 6. OTHER REVENUE Included in other revenue are: 6. HK$ 000 HK$ 000 Interest earned from bank deposits 21,604 23,435 Interest earned from advances to associates 15,570 22,714 Other interest income 3,747 12,102 Building management fee income 17,912 8,620 Management fee income 10, Chinese Estates Holdings Limited annual report 2001

16 7. PROFIT FROM OPERATIONS 7. HK$ 000 HK$ 000 Profit from operations has been arrived at after charging (crediting): Auditors remuneration 1,816 2,292 Depreciation 13,260 23,186 Staff costs, including Directors emoluments 83,929 79,859 Retirement benefits scheme contributions, net of forfeited 1,455,000 contributions of HK$1,455,000 1,403,000 (2000: HK$1,403,000) 2,087 1,491 Total staff costs 86,016 81,350 Gross rental income from investment properties (638,782) (551,492) Less: Outgoings 44,343 29,616 (594,439) (521,876) Dividend income - listed - (11) - unlisted (15,144) (13,841) 8. FINANCE COSTS 8. HK$ 000 HK$ 000 Interest on bank loans, overdrafts and other loans wholly repayable within five years 273, ,734 Interest on bank loans wholly repayable over five years 14,944 3, , ,899 Other finance costs 39,203 26, , ,898 75

17 9. OTHER LOSSES 9. HK$ 000 HK$ 000 (As restated) () Impairment loss recognised in respect of goodwill (note 3) 3 4, ,361 Loss on disposal of listed shares and warrants in Chi Cheung Investment Company, Limited to comply with the Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ) 15,103 - Share expenses on disposal of listed investments 1,319-20, ,361 During the year, the Directors considered the future economic benefits of goodwill arising from the acquisition of interest in a subsidiary has been impaired, with reference to the diminution in recoverable amount of the relevant assets of the subsidiary. Accordingly, an impairment loss of HK$4,469,000 (2000: HK$130,361,000) was recognised. 76 Chinese Estates Holdings Limited annual report 2001

18 10. SHARE OF RESULTS OF ASSOCIATES Share of results of associates has been arrived at after charging (crediting): 10. HK$ 000 HK$ 000 (As restated) () Loss on disposal of properties held for sales 314,400 98,949 Reduction in impairment loss 3 recognised (note 3) (54,998) (36,593) (Surplus) deficit on revaluation of properties (5,203) 89,818 Deemed loss arising on issue of shares by a subsidiary of an associate at a discount to the net asset value of the subsidiary - 52,969 The reduction in impairment loss incurred is based on the revised fair value attributed to the relevant assets acquired on acquisition of associates in accordance with the requirement of SSAP DIRECTORS EMOLUMENTS 11. HK$ 000 HK$ 000 Fees Executive directors - - Independent non-executive directors Other emoluments Executive directors Salaries and other emoluments 15,000 14,900 15,100 15,000 77

19 11. DIRECTORS EMOLUMENTS (cont d) Emoluments of the directors were within the following bands: 11. Number of directors Nil - HK$1,000,000 1,000, HK$4,000,001 - HK$4,500,000 4,000,001 4,500, HK$10,000,001 - HK$10,500,000 10,000,001 10,500, No Director waived any emoluments in the years ended 31st December, 2001 and EMPLOYEES EMOLUMENTS Of the five individuals with the highest emoluments in the Group, two (2000: two) were executive directors of the Company whose emoluments are included in the disclosures in note 11 above. The emoluments of the remaining three (2000: three) individuals disclosed pursuant to the Listing Rules were as follows: 12. HK$ 000 HK$ 000 Salaries and other benefits 4,478 4,875 Retirement benefit scheme contributions ,789 5,145 Their emoluments were within the following bands: Number of employees HK$1,000,001 - HK$1,500,000 1,000,001 1,500, HK$1,500,001 - HK$2,000,000 1,500,001 2,000, Chinese Estates Holdings Limited annual report 2001

20 13. TAXATION (a) Taxation 13. (a) HK$ 000 HK$ 000 The charge (credit) comprises: Profit for the year Hong Kong 3,008 6,925 PRC 485 3,493 6,925 (Over)under provision in prior years Hong Kong (55,311) 736 (51,818) 7,661 Share of taxation attributable to associates Hong Kong (12,391) 2,200 Overseas 5,476 (2,484) (6,915) (284) (58,733) 7,377 Tax on dividend income of an overseas associate 1,715 4,837 (57,018) 12,214 Hong Kong Profits Tax is calculated at 16% on the estimated assessable profits for the year. Income tax has been provided for at appropriate rates on the estimated assessable profits in the PRC. The Group s subsidiaries and associates in the PRC are generally required under the Foreign Investment Enterprise and the Foreign Enterprise Income Tax Law to pay PRC income tax at a rate of 33%. With respect to those subsidiaries and associates established in the Special Economic Zones, they are subject to income tax at the prevailing rate of 15% or at a rate mutually agreed between the relevant tax authority and the subsidiaries and associates. 79

21 13. TAXATION (cont d) (b) Deferred tax At the balance sheet date, the major components of the unrecognised deferred tax assets are analysed as follows: 13. (b) THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Tax effect of timing differences attributable to: Unutilised tax losses 482, ,080 4,741 2,756 Difference between tax allowances and depreciation 6,297 2, , ,820 4,741 2,756 A deferred tax asset has not been recognised in the financial statements as it is not certain that the benefit will be recognised in the foreseeable future. The amount of unrecognised deferred tax (credit) charge for the year is analysed as follows: THE GROUP THE COMPANY HK$ 000 HK$ 000 HK$ 000 HK$ 000 Tax effect of timing differences attributable to: Tax losses (incurred) utilised (286,267) (6,228) (1,985) 262 Difference between tax allowances (3,557) allowances and depreciation (289,824) (5,397) (1,985) Chinese Estates Holdings Limited annual report 2001

22 13. TAXATION (cont d) No deferred tax is provided on the revaluation surplus arising on the valuation of investment properties situated in Hong Kong as future profits arising on the disposal of these assets would not be subject to taxation. The revaluation therefore does not constitute a timing difference for taxation purpose. 14. DIVIDENDS No interim dividend was paid during the year (2000: Nil) and no final dividend (2000: Nil) is recommended by the Directors. 15. BASIC LOSS PER SHARE The calculation of the basic loss per share is based on the loss attributable to shareholders of HK$535,797,000 (2000: HK$472,598,000 as restated) and on the weighted average number of 2,381,586,275 (2000: 2,146,728,662) ordinary shares in issue during the year. The adjustments to comparative basic loss per share, arising from the changes in accounting policies shown in note 3 above, is as follows: HK cents Reconciliation of basic loss per share for the year ended 31st December, 2000 Reported figure before adjustment 17.6 Adjustments arising from the 30 adoption of SSAP

23 16. INVESTMENT PROPERTIES 16. THE GROUP HK$ 000 VALUATION At 1st January, ,364,278 Acquisition of subsidiaries 1,054,490 Additions 220,393 Surplus on revaluation 49,489 Disposals (84,603) At 31st December, ,604,047 The Group s investment properties were revalued at 31st December, 2001 on an open market value basis by Norton Appraisals Limited, registered professional surveyors. The surplus arising on revaluation has been credited to the investment properties revaluation reserve (note 35). All of the Group s investment properties are rented out under operating leases. The carrying value of investment properties shown above comprises: HK$ 000 HK$ 000 Properties in Hong Kong held under: Long lease 14,945,510 14,125,330 Medium-term lease 423, ,880 Properties outside Hong Kong held under: Freehold 3,286 3,637 Long lease 2,431 2,431 Medium-term lease 228,940 15,604,047 14,364, Chinese Estates Holdings Limited annual report 2001

24 17. PROPERTY AND OTHER FIXED ASSETS Furniture, fixtures Yachts and Land and and motor buildings equipment vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 THE GROUP COST At 1st January, , ,911 41, ,999 Acquisitions of subsidiaries Additions 2, ,097 Disposals (61,143) (30,276) (9,088) (100,507) At 31st December, , ,677 33, ,038 DEPRECIATION At 1st January, , ,557 36, ,723 Charge for the year 1,238 9,747 2,275 13,260 Eliminated on disposals (7,330) (15,812) (8,618) (31,760) At 31st December, 2001 NET BOOK VALUES At 31st December, 2001 At 31st December, , ,492 29, ,223 8,354 22,185 3,276 33,815 63,405 43,354 5, ,276 The carrying value of land and buildings shown above comprises: HK$ 000 HK$ 000 Properties in Hong Kong held under: Long lease 5,501 60,415 Medium-term lease 2,853 2,990 8,354 63,405 83

25 18. PROPERTIES UNDER DEVELOPMENT Properties Properties Properties Properties held under held under held under held under medium- long lease mediumlong lease term lease held in term lease in Hong Kong in Hong Kong the PRC in the PRC Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 THE GROUP COST At 1st January, 2001 as originally stated 1,903, ,765 2,280,921 prior year adjustments (note 3) 3 (57,340) (57,340) as restated 1,845, ,765 2,223,581 New subsidiary 35,204 18,435 53,639 Additions 97,244 14, ,395 At 31st December, ,943, ,916 35,204 18,435 2,388,615 IMPAIRMENT LOSS At 1st January, ,241 10, ,241 Recognised for the year 321,066 45, ,161 At 31st December, ,307 55, ,402 NET BOOK VALUES At 31st December, ,454, ,821 35,204 18,435 1,845,213 At 31st December, 2000 (as restated) 1,678, ,765 2,046,340 At 31st December, 2001 and 31st December, 2000, the net interest capitalised to properties under development was HK$21,846,000. No interest was capitalised during the year. The carrying amount of properties under development is reduced to their recoverable amounts which is determined by reference to the market selling price of similar properties net of estimated cost to complete. Accordingly, an impairment loss of HK$366,161,000 (2000: HK$49,570,000) has been recognised in the current year. 84 Chinese Estates Holdings Limited annual report 2001

26 19. PROPERTY INTERESTS HELD FOR FUTURE DEVELOPMENT. THE GROUP HK$ 000 HK$ 000 COST New subsidiary and balance at 31st December 71,373 The property interests held for future development are located in Shantou. The Group is in the process of obtaining the land use right certificate for the land in Shantou held under long lease and is now holding a pre-registration land use right for such property interests. The land use right certificate will be obtained pending for final payment of RMB24,861,000 (approximately HK$23,440,000) to be made by the Group in RIGHTS HELD UNDER CONTRACTUAL ARRANGEMENTS RELATING TO PROPERTIES THE GROUP HK$ 000 HK$ 000 COST New subsidiary and balance at 31st December 38,889-85

27 20. RIGHTS HELD UNDER CONTRACTUAL ARRANGEMENTS RELATING TO PROPERTIES (cont d) Fujian Asian Win Real Estate Co. Ltd. ( Fujian Asian Win ), an indirect 60% owned subsidiary of the Company, and Hainan Fruitful Real Estate Development Co. Ltd. ( Hainan Fruitful ), an independent third party has an outstanding conditional sale underwriting agreement (the Underwriting Agreement ). Pursuant to which, Fujian Asian Win had agreed to act as underwriter with effect from 15th May, 1999 for the sale of the total developable gross floor area of a development project in Haikou Asian Villas (the Project ) and to pay underwriting fee to Hainan Fruitful by way of reimbursing Hainan Fruitful all the development costs reasonably incurred in respect of the Project. On 15th January, 2001, the Underwriting Agreement was cancelled under the consent of Fujian Asian Win and Hainan Fruitful. On the same date, Gemstar Technology Park Properties Investment Ltd. ( Gemstar ), a 100% owned subsidiary of the Company, and Hainan Fruitful entered into another new conditional sale underwriting agreement (the New Underwriting Agreement ). Pursuant to the New Underwriting Agreement, Gemstar agreed to act as underwriter with effect from 15th January, 2001 for the sale of the Project with all the terms the same as the Underwriting Agreement. The land use right is registered under the name of Hainan Fruitful. The balance at 31st December, 2001 mainly represented underwriting fee paid. 21. NEGATIVE GOODWILL THE GROUP HK$ 000 GROSS AMOUNT Arising on privatisation of Evergo China Holdings Limited Evergo China Holdings Limited ( Evergo China ) during the year and balance at 31st December, (note 37) 324, Chinese Estates Holdings Limited annual report 2001

28 21. NEGATIVE GOODWILL (cont d) The negative goodwill arose on the Group s privatisation of Evergo China by way of a scheme of arrangement dated 4th October, Upon the scheme becoming effective in November 2001, Evergo China became a wholly-owned subsidiary of the Group. At the date of privatisation, HK$324,538,000 of the negative goodwill was identified. Details of the acquisitions are set out in the Group s circular dated 4th October, The negative goodwill is released to income on a straight-line basis over the average useful life of the identifiable acquired depreciable non-monetary assets of not more than 28 years. 22. INTERESTS IN SUBSIDIARIES THE COMPANY HK$ 000 HK$ 000 Unlisted shares, at cost less impairment loss recognised 4,053,708 4,369,737 Interest bearing advances to subsidiaries 538, ,000 Interest free advances to subsidiaries, net of impairment loss recognised 5,259,276 5,554,545 9,851,008 10,257,282 The advances to subsidiaries are unsecured and have no fixed repayment terms. Of the advances, HK$538,024,000 (2000: HK$333,000,000) bears interest at prevailing market rates. The carrying amount of interest free advances to subsidiaries is reduced to their recoverable amounts which is determined by reference to the fair value of the underlying assets of the respective subsidiaries. Accordingly, an impairment loss of HK$78,648,000 (2000: written back of HK$582,547,000) has been recognised in the current year. Particulars of the Company s principal subsidiaries at 31st December, 2001 are shown in note

29 23. INTERESTS IN ASSOCIATES 23. THE GROUP HK$ 000 HK$ 000 (As restated) Share of net assets 605,515 1,122,420 Interest bearing advances to associates 181, ,175 Interest free advances to associates, net of impairment loss recognised 782, ,131 1,569,216 2,072,726 The advances are unsecured and have no fixed repayment terms. In the opinion of the Directors, the Group will not demand repayment within twelve months from the balance sheet date and the amounts are therefore shown as non-current. The carrying amount of interest free advances to associates is reduced to their recoverable amounts which is determined by reference to the fair value of the underlying assets of the respective associates. Accordingly an impairment loss of HK$223,663,000 (2000: HK$331,083,000) has been recognised in the current year. The investment properties and hotel property of the Group s principal associates were revalued at 31st December, 2001 by Messrs. Norton Appraisals Limited, registered professional surveyors, on an open market value basis. The carrying amount shown above includes the Group s attributable share of the revaluation reserve. Particulars of the Group s principal associates at 31st December, 2001 are shown in note 45. The following details have been extracted from the financial statements, after realignment of the Group s accounting policies, of the Group s significant associates. 88 Chinese Estates Holdings Limited annual report 2001

30 23. INTERESTS IN ASSOCIATES (cont d) 23. Power Jade Oriental Arts Finedale Capital Limited Building Co. Ltd. Industries Limited (audited) (audited) (audited) (audited) (unaudited) (unaudited) HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Operating results for the year ended 31st December: Turnover 142,553 96, , ,418 25,503 23,397 (Loss) profit attributable to shareholders (5,906) (183,925) (101,952) 2,076 8,020 (1,544) Group s share of (loss) profit attributable to shareholders (2,953) (91,963) (21,768) 484 2,673 (515) Financial position at 31st December: Non-current assets 1,543,283 1,617, ,317 1,050, , ,668 Current assets 141, ,787 58,867 67,505 10,432 13,247 Current liabilities (877,574) (1,095,497) (44,385) (55,040) (13,060) (26,110) Non-current liabilities (31,393) (49,138) (171,681) (180,324) (361,207) (365,308) Minority interests (804,318) (818,987) Net assets (liabilities) (28,197) (22,515) 708, , , ,497 Net assets attributable to the Group 354, ,673 85,611 84,166 Advances to associates (net of impairment loss recognised) 358, ,936 85,795 41, , ,103 89

31 23. INTERESTS IN ASSOCIATES (cont d) Power Jade Capital Limited (corporate name: Power Jade Limited) and its subsidiary (the Power Jade Group ) had the following contingent liabilities: 23. HK$ 000 HK$ 000 Guarantees given to banks and financial institutions for general facilities granted to associates and investee company 65,971 68,408 A legal action against a listed subsidiary of Power Jade Capital Limited, The Kwong Sang Hong International Limited ( KSH ) was taken by a China joint venture partner. On 17th May, 1996, Huibei Provincial High Court ( Huibei Court ) imposed a judgment against KSH in favour of the China joint venture partner in relation to the joint development of Shuohu Court in Wuhan (the Development ). The judgment, which KSH has appealed against, in effect nullified the joint development agreement for the Development. On 28th May, 1998, the Supreme People s Court of the People s Republic of China dismissed the appeal of KSH but, inter alia, reduced the amount of the judgment sum of the Huibei Court issued on 17th May, Based on the judgment, the judgment sum of approximately HK$13,300,000 which includes unpaid contract sums, damages, legal costs and interest charges, would have to be paid. However, KSH disputes the quantification and through its legal advisors continues to apply for review against the judgment. Based on legal advice, a total provision of HK$64,800,000 was made by KSH in 1998 of which HK$51,400,000 was made against the investment cost paid. The remaining HK$13,400,000 has been provided against damages, legal costs and interest charges up to The Directors of KSH believe that no further provision is required at this stage. On 22nd July, 1999, the Huibei Supreme Court caused an Attachment Order being registered against KSH s investment properties with a carrying value of approximately HK$30,500,000 (2000: HK$30,500,000) situated at 50th Floor, Shun Hing Square, Shenzhen which are being held by a wholly-owned subsidiary of KSH as the registered owner. 90 Chinese Estates Holdings Limited annual report 2001

32 23. INTERESTS IN ASSOCIATES (cont d) Based on legal advice, KSH cannot lease out or sell the above properties during the attachment period. The Huibei Supreme Court can only place attachment orders on wholly-owned properties of KSH in the PRC and 50th Floor, Shun Hing Square is the only wholly-owned property of KSH in the PRC as at 31st December, The Directors of KSH consider that there will not be significant impact on the financial statements as the case has been adequately provided as explained above. On 20th August, 2001, the Attachment Order was released but was reregistered on 21st August, 2001 and is valid until 20th February, On 21st February, 2002, the Attachment Order was released again and no re-registration order received up to date of report. 24. INVESTMENTS IN SECURITIES 24. THE GROUP HK$ 000 HK$ 000 Non-current investments Unlisted investment securities Hong Kong 54,080 54,080 Overseas 3,867 3,867 57,947 57,947 Unlisted convertible debt securities Hong Kong 40,800 57,947 98,747 Current investments Other listed investments Hong Kong 5,383 1,362 Market value of other listed investments 5,383 1,362 91

33 25. ADVANCE TO AN INVESTEE COMPANY 25. The advance made to an investee company, the principal purpose of which is for property development project, is unsecured, interest-free and has no fixed repayment terms. In the opinion of the Directors, the Group will not demand repayment within twelve months from the balance sheet date and the amount is therefore shown as non-current. 26. OTHER ASSETS 26. The carrying value of other assets is reduced to their recoverable amounts which is determined by reference to the market selling price of similar assets. Accordingly, an impairment loss of HK$6,312,000 (2000: Nil) has been recognised in the current year. 27. DEBTORS, DEPOSITS AND PREPAYMENTS 27. Included in debtors, deposits and prepayments are trade debtors of HK$41,355,000 (2000: HK$15,011,000) comprising mainly of rental receivables which are billed in advance and settlements are expected upon receipts of billings. The following is an aged analysis of trade debtors at the balance sheet date: HK$ 000 HK$ days 6,670 4, days 3, days 2, Over 90 days 28,309 9,112 41,355 15, Chinese Estates Holdings Limited annual report 2001

34 28. CREDITORS AND ACCRUALS 28. Included in creditors and accruals are trade creditors of HK$2,870,000 (2000: HK$687,000). The following is an aged analysis of trade creditors at the balance sheet date: HK$ 000 HK$ days 2, Over 90 days ,

35 29. BORROWINGS 29. THE GROUP HK$ 000 HK$ 000 Secured bank loans repayable within a period of: Less than one year 257, ,952 More than one year but within two years 154, ,850 More than two years but within five years 1,921, ,919 Over five years 293,761 94,585 2,626,037 1,721,306 Secured other loans repayable within a period of: Less than one year 1,701,000 80,000 More than one year but within two years 1,701,000 1,701,000 1,781,000 Unsecured bank loan repayable within one year 7,798 4,334,835 3,502,306 Less: Amount due within one year (1,965,842) (650,952) 2,368,993 2,851, Chinese Estates Holdings Limited annual report 2001

36 30. PROVISIONS THE GROUP Construction cost provision Other Total HK$ 000 HK$ 000 HK$ 000 At 1st January, ,156 10,663 39,819 Written back of provision no longer required (13,062) (10,663) (23,725) At 31st December, ,094 16,094 The construction cost provision represents management s best estimate of the Group s liability on contingency claims by a third party to whom a property under development project was previously disposed of. 31. AMOUNTS DUE TO ASSOCIATES The amounts are unsecured, interest-free and have no fixed repayment terms. The associates will not demand repayment within twelve months from the balance sheet date and the amounts are therefore shown as non-current. 32. AMOUNTS DUE TO SUBSIDIARIES The amounts are unsecured and have no fixed repayment terms. Of the advances, HK$532,636,000 (2000: HK$375,000,000) bears interest at prevailing market rates. The subsidiaries will not demand repayment within twelve months from the balance sheet date and the amounts are therefore shown as non-current. 95

37 33. AMOUNTS DUE TO MINORITY SHAREHOLDERS THE GROUP HK$ 000 HK$ 000 Current portion 230,586 Non-current portion 464, , , ,080 The amounts are unsecured, interest free and have no fixed repayment terms. Of which HK$464,686,000 (2000: HK$408,080,000) are shown as non-current because the minority shareholders will not demand repayment within twelve months from the balance sheet date. 34. SHARE CAPITAL Movements in the share capital of the Company during the year were as follows: Number of shares Share capital HK$ 000 HK$ 000 Ordinary shares of HK$0.10 each 0.10 Authorised At 1st January 3,100,000,000 2,300,000, , ,000 Increase during the year 800,000,000 80,000 At 31st December 3,100,000,000 3,100,000, , ,000 Issued and fully paid At 1st January 2,381,481,464 2,081,298, , ,130 New issue 1,062, ,300, ,230 Issued on exercise of warrants 96,258,901 9,626 Repurchased and cancelled (8,376,000) (838) At 31st December 2,382,544,134 2,381,481, , , Chinese Estates Holdings Limited annual report 2001

38 35. RESERVES Investment Hotel properties property Capital Share Contributed Capital revaluation revaluation Special redemption Accumulated premium surplus reserve reserve reserve reserve reserve profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 THE GROUP At 1st January, As originally stated - 2,187,359 3,042,666 7,563,944 30,880 60,526 2,840,370 15,725,745 - Prior year adjustments - (note 3) 3 (3,042,666) 20,444 2,499, ,751 (148,786) - As restated - 2,187,359 7,584,388 30,880 2,499,685 60,526 3,214,121 15,576,959 Exchange adjustments 3,532 3,532 Cancellation on repurchase of own shares (12,229) 838 (11,391) Shares issue on exercise of warrants 88,558 88,558 Placement of shares 148, ,610 Share issue expenses (1,223) (1,223) Revaluation surplus 506, ,652 Deficit realised on disposals Surplus realised on disposal of investment properties of associates (969) (969) Loss for the year (472,598) (472,598) Share of associates reserves movement during the year 79,359 (11,974) 67,385 At 1st January, ,411,075 8,169,606 18,906 2,499,685 61,364 2,745,055 15,905,691 Exchange adjustments Share issue on privatisation of Evergo China Revaluation surplus 49,489 49,489 Share of revaluation reserve by minority interest (104) (104) Deficit realised on disposal 30,699 30,699 Loss for the year (535,797) (535,797) Share of associates reserves movement during the year (3,397) (3,397) At 31st December, ,411,840 8,246,293 18,906 2,499,685 61,364 2,209,820 15,447,908 Attributable to: The Company and subsidiaries 2,411,840 8,146,448 2,499,685 61,364 3,328,785 16,448,122 Associates 99,845 18,906 (1,118,965) (1,000,214) 2,411,840 8,246,293 18,906 2,499,685 61,364 2,209,820 15,447,908 97

39 35. RESERVES (cont d) Investment Hotel properties property Capital Share Contributed Capital revaluation revaluation Special redemption Accumulated premium surplus reserve reserve reserve reserve reserve profits Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 THE COMPANY At 1st January, ,187,359 1,496,727 60,526 1,968,781 5,713,393 Cancellation on repurchase of own shares (12,229) 838 (11,391) Shares issue on exercise of warrants 88,558 88,558 Placement of shares 148, ,610 Share issue expenses (1,223) (1,223) Profit for the year 571, ,136 At 1st January, ,411,075 1,496,727 61,364 2,539,917 6,509,083 Share issue on privatisation of Evergo China Profit for the year 606, ,930 At 31st December, ,411,840 1,496,727 61,364 3,146,847 7,116,778 The contributed surplus represents the difference between the underlying net assets of the subsidiaries at the date on which they were acquired by the Company and the nominal value of the Company s share capital issued for the acquisition at the time of the group reorganisation prior to the listing of the Company s shares in 1989 after adjusting for cancellation on repurchase of own shares in previous years. Under the Companies Act 1981 of Bermuda, the contributed surplus of the Company is available for distribution. In the opinion of the Directors, as at 31st December, 2001, the Company s reserves available for distribution consisted of contributed surplus of HK$1,496,727,000 (2000: HK$1,496,727,000) and accumulated profits of HK$3,146,847,000 (2000: HK$2,539,917,000). 98 Chinese Estates Holdings Limited annual report 2001

40 36. RECONCILIATION OF LOSS BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES HK$ 000 HK$ 000 (As restated) Loss before taxation (679,263) (469,322) Share of results of associates 337, ,455 Interest income (40,921) (58,251) Interest expenses 288, ,899 Depreciation 13,260 23,186 Loss on disposal of investment properties 53, Gain on disposal of property and other fixed assets (63,950) (32,654) Loss (profit) on disposal of associates 488 (29) Impairment loss recognised in respect of goodwill 4, ,361 Impairment loss recognised in respect of advances to associates 223, ,083 Impairment loss recognised in respect of properties under development 366,161 49,570 Impairment loss recognised in respect of other assets 6,312 Unrealised holding loss (gain) on other listed investments 2,313 (891) Written back of provision no longer required (23,725) Decrease in investments in securities 34,466 1,067 Decrease in properties held for sale 5,218 Decrease in debtors, deposits and prepayments 26,022 40,839 Decrease in loans and advances 444,980 92,335 Decrease in creditors and accruals (365,794) (131,356) Increase in deposits and receipts in advance 12,064 14,695 Decrease in amount due to a minority shareholder (49) NET CASH INFLOW FROM OPERATING ACTIVITIES 645, ,424 99