PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of pr

Transcription

1 86 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements (Amounts expressed in Hong Kong dollars) 1. General Information Phoenix Satellite Television Holdings Limited (the Company ) and its subsidiaries (collectively, the Group ) engage in satellite television broadcasting activities. The Company is a limited liability company incorporated in the Cayman Islands and domiciled in Hong Kong. The address of its registered office is Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands. The Company is listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the Stock Exchange ). These consolidated financial statements were approved for issue by the Board of Directors on 7 March Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The consolidated financial statements of Phoenix Satellite Television Holdings Limited have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRS ) issued by the Hong Kong Institute of Certified Public Accountants and applicable disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss. 1. Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands 2. (a)

2 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The 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 Note 4. (i) Standards, amendments to standards and interpretations effective in 2007 The following new standards, amendments to standards and interpretations are mandatory for the financial year ended 31 December The Group adopted those which are relevant to its operations. HKFRS 7, Financial instruments: Disclosures, and the complementary amendment to HKAS 1, Presentation of financial statements Capital disclosures, introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuation of the Group s financial instruments, or the disclosures relating to taxation and accounts payables. HK(IFRIC) Int 8, Scope of HKFRS 2, requires consideration of transactions involving the issuance of equity instruments, where the identifiable consideration received is less than the fair value of the equity instruments issued in order to establish whether or not they fall within the scope of HKFRS 2. This standard does not have any impact on the Group s financial statements. 2. (a) 4 (i)

3 88 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) (i) Standards, amendments to standards and interpretations effective in 2007 (continued) HK(IFRIC) Int 9, Reassessment of embedded derivatives, requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. As the Group s entities have not changed the terms of their contracts. This does not have any material impact on the Group s financial statements. HK(IFRIC) Int 10, Interim financial reporting and impairment, prohibits the impairment losses recognised in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. This standard does not have any impact on the Group s financial statements. There is also a number of new standards, amendments to standards and interpretations issued that are not yet effective for the financial year ended 31 December The Group has carried out a preliminary assessment of these standards, amendments to standards and interpretations and considered that HKAS 23 (Revised), HK(IFRIC) Int 11, HK(IFRIC) Int 12, HK(IFRIC) Int 13 and HK(IFRIC) Int 14 may not have significant impact on the Group s results of operations and financial position but a detailed assessment is still being carried on. The Group is also in the process of assessing the impact of HKFRS (a) (i)

4 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) (ii) Standards, amendments and interpretations effective in 2007 but not relevant The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2007 but they are not relevant to the Group s operations: HKFRS 4, Insurance contracts ; and HK(IFRIC) Int 7, Applying the restatement approach under HKAS 29, Financial reporting in hyper-inflationary economies. (iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group s accounting periods beginning on or after 1 January 2008 or later periods, but the Group has not early adopted them: HKAS 23 (Amendment), Borrowing costs (effective from 1 January 2009). The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group is in the process of assessing the impact of this impact, but it is not expected to have any material impact on the Group s consolidated financial statement as the Group does not have any borrowings. 2. (a) (ii) (iii) 23

5 90 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) (iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) HKFRS 8, Operating segments (effective from 1 January 2009). HKFRS 8 replaces HKAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, Disclosures about segments of an enterprise and related information. The new standard requires a management approach, under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply HKFRS 8 from 1 January The expected impact is still being assessed in detail by management, but it appears likely that the number of reportable segments, as well as the manner in which the segments are reported, will change in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. 2. (a) (iii) US Standard SFAS131 8 HK(IFRIC) Int 11, HKFRS 2 Group and treasury share transactions (effective from 1 March 2007). HK(IFRIC) Int 11 provides guidance on whether share-based transactions involving treasury shares or involving Group entities (for example, options over a parent s shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-alone accounts of the parent and Group companies. The Group is in the process of assessing the impact of this interpretation, but it is not expected to have any material impact on the Group s consolidated financial statements

6 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) (iii) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) HK(IFRIC) Int 14, HKAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction (effective from 1 January 2008). HK(IFRIC) Int 14 provides guidance on assessing the limit in HKAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Group will apply HK(IFRIC) Int 14 from 1 January 2008, but it is not expected to have any impact on the Group s accounts. (iv) Interpretations to existing standards that are not yet effective and not relevant for the Group s operations The following interpretations to existing standards have been published and are mandatory for the Group s accounting periods beginning on or after 1 January 2008 or later periods but are not relevant for the Group s operations: HK(IFRIC) Int 12, Service concession arrangements (effective from 1 January 2008). HK(IFRIC) Int 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. HK(IFRIC) Int 12 is not relevant to the Group s operations because none of the Group s companies provide public sector services. 2. (a) (iii) (iv)

7 92 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (a) Basis of preparation (continued) (iv) Interpretations to existing standards that are not yet effective and not relevant for the Group s operations (continued) HK(IFRIC) Int 13, Customer loyalty programmes (effective from 1 July 2008). HK(IFRIC) Int 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. HK(IFRIC) Int 13 is not relevant to the Group s operations because none of the Group s companies operate any loyalty programmes. (b) Consolidation The consolidated financial statements include the financial statements of the Company and all its subsidiaries made up to 31 December. (i) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. 2. (a) (iv) ( ) 13 (b) (i)

8 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (b) Consolidation (continued) (i) Subsidiaries (continued) The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group s share of the identifiable net assets of the subsidiary acquired, the difference is recognised directly to the income statement. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In the Company s balance sheet the investments in subsidiaries and amount due from a subsidiary are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. 2. (b) (i)

9 94 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (b) Consolidation (continued) (ii) Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the consolidated income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. (iii) Jointly controlled entities The Group s interests in jointly controlled entities are accounted for by the equity method of accounting and are initially recognised at cost. The Group s share of its jointly controlled entities post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in a jointly controlled entity equals or exceeds its interest in the jointly controlled entity, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the jointly controlled entity. Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group s interest in the jointly controlled entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of jointly controlled entities have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses in jointly controlled entities are recognised in the consolidated income statement. 2. (b) (ii) (iii)

10 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (c) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated financial statements are presented in Hong Kong dollars, which is the Company s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at yearend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on nonmonetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the available-for-sale reserve in equity. 2. (c) (d) (i) (ii)

11 96 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (d) Foreign currency translation (continued) (iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the exchange rates on the dates of the transactions); and (c) all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. The functional currency of the jointly controlled entities in which the Group has invested is the Renminbi. The Group s investment in the net assets of the jointly controlled entities are translated at the closing rate at the date of the balance sheet. The Group s share of losses of the jointly controlled entities are translated at the average exchange rates for equity accounting purposes. All resulting exchange differences are recognised as a separate component of equity. 2. (d) (iii) (a) (b) (c)

12 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (e) Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged in the income statement during the financial period in which they are incurred. No depreciation is provided on assets under construction until they are completed and are available for use. Depreciation of other property, plant and equipment is calculated using the straight-line method to allocate cost to their residual values over their estimated useful lives, as follows: Buildings 2.22% 3.33% Leasehold improvements 15% or over the terms of the leases Furniture and fixtures 15% 20% Broadcast operations and 20% other equipment Motor vehicles 20% The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. 2. (e) 2.22% 3.33% 15% 15% 20% 20% 20% An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (Note 2(i)). Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement. 2(i)

13 98 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (f) Club debentures Acquired club debentures are intangible assets with an infinite useful life. They are therefore shown at historical cost and are not amortised. Impairment assessments on club debentures are carried out by comparing their recoverable amounts with their carrying amounts annually and whenever there is an indication that the intangible assets maybe impaired. (g) Purchased programme and film rights Purchased programme and film rights are recorded at cost less accumulated amortisation and any impairment losses. The cost of purchased programme and film rights is expensed in the income statement either on the first and second showing of such purchased programme and film rights or amortised over the license period if the license allows multiple showings within the license period. Purchased programme and film rights with a remaining license period of 12 months or less are classified as current assets. (h) Self-produced programmes Self-produced programmes are stated at cost less any impairment losses. Cost comprises direct production expenditures and an appropriate portion of production overheads. Programmes in production that are abandoned are written off in the income statement immediately, or when the revenue to be generated by these programmes is determined to be lower than cost, the cost is written down to recoverable amount. Completed programmes will be broadcast over a short period of time and their costs are expensed in the income statement in accordance with a formula computed to write off the cost over the broadcast period. 2. (f) (g) (h)

14 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (i) Impairment of investments in subsidiaries, jointly controlled entities and non-financial assets Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cashgenerating units). Assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivable and available-for-sale. The classification depends on the purposes for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) Financial assets at fair value through profit or loss This category has financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current if the remaining period to maturity is less than 12 months after the balance sheet date. 2. (i) (j) (i)

15 100 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (j) Financial assets (continued) (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are also included in accounts receivable, and prepayments, deposits and other receivables in the balance sheet. (iii) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Available-for-sale financial assets represented unlisted securities of private issuers outside Hong Kong. Regular purchases and sales of financial assets are recognised on the trade-date the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at cost as these securities have no quoted market price in an active market and their fair values cannot be reliably measured. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. 2. (j) ( ) (ii) (iii)

16 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (j) Financial assets (continued) (iii) Available-for-sale financial assets (continued) Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within other gains net, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group s right to receive payments is established. The fair value of quoted investments are based on current bid prices. If the market for a financial asset carried at fair value is not active (and for unlisted securities), the Group established fair value by using valuation techniques feasible to the Group. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, indicative market values obtained from reputable financial institutions, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets are impaired. Impairment testing of loans and receivables, accounts receivable, and prepayments, deposits and other receivables is described in Note 2(l). 2. (j) ( ) (iii) 2(l)

17 102 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (k) Inventories Inventories, comprising decoder devices and satellite receivers, are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (l) Loans and receivables, accounts receivable, and prepayments, deposits and other receivables Loans and receivables, accounts receivable, and prepayments, deposits and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect or realise all amounts due according to the original terms of the assets. Significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the asset is impaired. The amount of the provision 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 assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within selling, general and administration expenses. When an accounts receivable is determined to be uncollectible, it is written off against the allowance account for accounts receivable. Subsequent recoveries of amounts previously written off are credited against selling, general and administration expenses in the income statement. 2. (k) (l)

18 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (m) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. (n) Deferred income Deferred income represents advertising revenue, subscription revenue and promotion service revenue received in advance from third party customers. (o) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (p) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 2. (m) (n) (o) (p)

19 104 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (p) Deferred income tax (continued) Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and jointly controlled entities, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. (q) Employee benefits (i) Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity or paternity leave are not recognised until the time of leave. (ii) Bonus plans The expected bonus payments are recognised as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. 2. (p) (q) (i) (ii)

20 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (q) Employee benefits (continued) (iii) Pension obligations The Group operates defined contribution retirement schemes for the Hong Kong employees based on local laws and regulations. Contributions to the schemes by the Group and employees are calculated as a percentage of employees basic salaries. The retirement benefit schemes costs expensed in the income statement represent contributions paid or payable by the Group to the funds. The Group s contributions to the defined contribution retirement schemes are expensed as incurred and are reduced by contributions forfeited by those employees who leave the schemes prior to vesting fully in the contributions. The assets of the schemes are held separately from those of the Group in independently administered funds. Pursuant to the relevant local regulations of the countries where the overseas subsidiaries of the Group are located, these subsidiaries participate in respective government retirement benefit schemes and/or set up their own retirement benefit schemes (the Schemes ) whereby they are required to contribute to the Schemes to fund the retirement benefits of the eligible employees. Contributions made to the Schemes are calculated either based on certain percentages of the applicable payroll costs or fixed sums for each employee with reference to a salary scale, as stipulated under the requirements in the respective countries. The Group has no further obligation beyond the required contributions. The contributions under the Schemes are expensed in the income statement as incurred. 2. (q) (iii)

21 106 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (q) Employee benefits (continued) (iv) Share-based compensation The fair value of the employee services received in exchange for the grant of share options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Company revises its estimates of the number of share options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. When the share options are exercised, the proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium account. (r) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. 2. (q) (iv) (r)

22 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (r) Provisions (continued) Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. (s) Revenue recognition Revenue mainly represents income from advertising sales, net of the related agency commission expenses, and subscription sales after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised as follows: (i) Broadcasting advertising revenue Broadcasting advertising revenue, net of agency commission expenses, is recognised upon the broadcast of advertisements. (ii) Subscription revenue Subscription revenue received or receivable from the cable distributors or agents is amortised on a time proportion basis to the income statement. The unamortised portion is classified as deferred income. 2. (r) (s) (i) (ii)

23 108 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (s) Revenue recognition (continued) (iii) Magazine advertising revenue Magazine advertising revenue net of commission expense is recognised when the magazine is published. (iv) Magazine subscription/circulation revenue Magazine subscription or circulation revenue represents subscription or circulation money received or receivable from customers and is recognised when the respective magazine is dispatched or sold. (v) Sales of decoder devices and satellite receivers Revenue from sales of decoder devices and satellite receivers is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed. (vi) Technical services income Revenue from the provision of technical services is recognised when the value-added telecommunication services are provided/delivered to customers. (vii) Interest income and income from certificate of deposit Interest income from bank deposits and income from certificate of deposit are recognised on a timeproportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. (viii) Barter revenue Barter revenue is recognised at the fair value of goods or services received or receivable in the transaction upon the broadcast of advertisements, the publishing of the magazine or the provision of promotion services to be provided by the Group in the barter transaction. 2. (s) (iii) (iv) (v) (vi) (vii) (viii)

24 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 2. Summary of Significant Accounting Policies (continued) (t) Leases (i) Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed in the income statement on a straight-line basis over the period of the lease. The up-front prepayments made for land use rights are amortised on a straight-line basis over the period of the lease, or where there is impairment, the impairment is expensed in the income statement. (ii) Finance leases The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. (u) Dividend distribution Dividend distribution to the Company s equity holders is recognised as a liability in the Group s financial statements in the period in which the dividends are approved by the Company s equity holders. 2. (t) (i) (ii) (u)

25 110 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 3. Financial Risk Management (a) Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. Risk management is mainly carried out by the finance department (the Finance Department ) headed by the Chief Financial Officer of the Group. The Finance Department identifies and evaluates financial risks in close co-operation with the Group s operating units to cope with overall risk management, as well as specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity. (i) Market risk (a) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Renminbi ( RMB ), US dollar ( US$ ) and UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group engage in transactions mainly in HK dollar ( HK$ ), RMB and US$ to the extent possible. The Group currently does not hedge transactions undertaken in foreign currencies but manages its exposure through constant monitoring to limit as much as possible the amount of its foreign currencies exposures. Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity s functional currency. The Finance Department is responsible for monitoring and managing the net position in each foreign currency. 3. (a) (i) (a)

26 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 3. Financial Risk Management (continued) (a) Financial risk factors (continued) (i) Market risk (continued) (a) Foreign exchange risk (continued) The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group s operations, such as those in the People s Republic of China (the PRC ), the United Kingdom and the United States is managed primarily through operating liabilities denominated in the relevant foreign currencies. During the year ended 31 December 2007, if HK$ had weakened/strengthened by 6% against the RMB, with all other variables held constant, after-tax profit for the year would have been HK$24,640,000 (2006: HK$21,898,000), lower or higher, mainly as a result of foreign exchange losses/gains on translation of RMBdenominated accounts receivable and receivables from an advertising agent, Shenzhou. Profit is more sensitive to movement in HK$/RMB exchange rates in 2007 than 2006 because of the increased amount of RMB-denominated receivables. At 31 December 2007, if HK$ had weakened/strengthened by 6% against the RMB, equity would have been HK$7,136,000 (2006: HK$6,013,000), lower or higher, arising mainly from foreign exchange losses/gains on translation of PRC subsidiaries equity denominated in RMB. Equity is more sensitive to movement in HK$/RMB exchange rates in 2007 than in 2006 because of the increased amount of PRC subsidiaries equity denominated in RMB. At 31 December 2007, certain of the assets of the Group are denominated in US$. The Group also had operations in the United States. Since HK$ is pegged to US$, foreign exchange exposure with respect to the US$ denominated asset or its operations in the United States is considered as minimal. 3. (a) (i) (a) 6% 24,640,000 21,898,000 6%7,136,000 6,013,000

27 112 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 3. Financial Risk Management (continued) (a) Financial risk factors (continued) (i) Market risk (continued) (a) Foreign exchange risk (continued) During the year ended, 31 December 2007, if HK dollar had weakened/strengthened by 5% against the UK pound, with all other variables held constant, after-tax profit for the year would have been HK$781,000 (2006: HK$615,000), lower or higher, mainly as a result of foreign exchange losses/gains on translation of UK pound-denominated accounts receivables. Profit is more sensitive to movement in HK$/ UK pound exchange rates in 2007 than 2006 because of the increased amount of UK pounddenominated receivables. At 31 December 2007, if HK$ had weakened/strengthened by 5% against the UK pound, equity would have been HK$518,000 (2006: HK$517,000), lower or higher, arising mainly from foreign exchange losses/gains on translation of UK subsidiaries, equity denominated in UK pound. Equity is more sensitive to movement in HK$/UK pound exchange rates in 2007 than in 2006 because of the increased amount of UK subsidiaries deficits denominated in UK pound. (b) Price risk The Group is exposed to unlisted and listed equity securities price risk because investments held by the Group are classified on the consolidated balance sheet as financial assets at fair value through profit or loss, for which management adopts the indicative market value provided by the issuers as their best estimate of the fair values of such securities and some of the equity linked notes are linked to some listed securities. None of Group s equity investments in equity of other entities are publicly traded. The Group exposes to commodity price risk as some of the equity linked notes are linked to some listed securities. For the further price risk exposed by the Group, please refer to Note (a) (i) (a) 5% 781, ,000 5% 518, ,000 (b) 21

28 PHOENIX ANNUAL REPORT Notes to the Consolidated Financial Statements 3. Financial Risk Management (continued) (a) Financial risk factors (continued) (ii) Credit risk The Group s credit risk arises from cash and cash equivalents, financial assets at fair value through profit or loss, loans and receivables, deposits with banks and financial institutions, as well as credit exposures to advertising agents and customers, including outstanding receivables and committed transactions. The Group has a receivable from an advertising agent, Shenzhou, in the PRC amounting to HK$377,501,000 representing approximately 23% of the total assets of the Group as of 31 December The Group manages its exposure to credit risk through continual monitoring of the credit quality of its customers and advertising agents, taking into account their financial position, collection history, past experience and other factors. For banks, financial institutions and issuers of derivative financial instruments, only reputable well established banks and financial institutions are accepted. The Group has put in place policies to ensure that the sales, in particular advertising airtime and other activities are made to customers with an appropriate credit history and the Group performs periodic credit evaluations of its customers. Most of the payment terms for advertising revenue will be agreed between the Group and the customers. The customer will make the payment in accordance with the contract terms. Thus, all the outstanding receivable balances are due immediately and there is no credit period granted to the customers. 3. (a) (ii) 377,501,000 23%

29 114 PHOENIX ANNUAL REPORT 2007 Notes to the Consolidated Financial Statements 3. Financial Risk Management (continued) (a) Financial risk factors (continued) (iii) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed banking facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Finance Department aims to maintain flexibility in funding by keeping committed banking facilities available. Details of cash and cash equivalents and banking facilities are set out in Notes 25 and 32 respectively. The table below analyses the Group s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. 3. (a) (iii) Less than 1 year Total 1 $ 000 $ 000 Group At 31 December 2007 Deferred income 95,365 95,365 Accounts and other payables 46,438 46,438 Amounts due to related companies 3,506 3,506 At 31 December 2006 Deferred income 119, ,580 Accounts and other payables 56,776 56,776 Amounts due to related companies 4,743 4,743