NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 1. GENERAL INFORMATION 1. The Company is an exempted company incorporated in Bermuda with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited ( Stock Exchange ). The addresses of the Company s registered office and principal office in Hong Kong are disclosed in the Corporate Information section of this annual report. Details of the substantial shareholders of the Company are disclosed in the paragraph headed Substantial Shareholders Interests in the Securities of the Company in the section headed Directors Report of this annual report. The consolidated financial statements are presented in Hong Kong dollar ( HK$ ), which is the same as the functional currency of the Company and its subsidiaries ( Group ) and all amounts are rounded to the nearest thousand () except otherwise indicated. The Company s principal activity is investment holding and the principal activities of its principal subsidiaries and associates are set out in Notes 50 and 51 respectively. 50 51 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) 2. The accounting policies adopted in these consolidated financial statements for the year ended 31st December, 2016 are consistent with those followed in the preparation of the Group s consolidated financial statements for the year ended 31st December, 2015 except as described below. 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. In the current year, the Group has applied, for the first time, the following amendments to existing HKFRSs ( Amendments ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), which are effective for current financial year of the Group. The Amendments adopted by the Group in these consolidated financial statements are set out below: HKFRSs (Amendments) Annual Improvements to 20122014 HKFRSs 2012-2014 Cycle HKFRS 10, HKFRS 12 and Investment Entities: Applying 10 HKAS 28 (2011) the Consolidation Exception 12 (Amendments) 28 2011 HKFRS 11 (Amendments) Accounting for Acquisitions of 11 Interests in Joint Operations HKAS 1 (Amendments) Disclosure Initiative 1 HKAS 16 and HKAS 38 Clarification of Acceptable 16 (Amendments) Methods of Depreciation 38 and Amortisation HKAS 16 and HKAS 41 Agriculture: Bearer Plants 16 (Amendments) 41 HKAS 27 (2011) (Amendments) Equity Method in Separate 27 Financial Statements 2011 In addition, the Group has applied HKFRS 9 (2014) Financial Instruments in advance that is effective for annual periods beginning on or after 1st January, 2018 and chosen its date of initial application on 1st January, 2016. 92014 106 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. Amendments to HKAS 1 Disclosure Initiative 1 Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify: 1 the materiality requirements in HKAS 1; 1 that specific line items in the statement of comprehensive income and the statement of financial position may be disaggregated; that entities have flexibility as to the order in which they present the notes to financial statements; and that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss. Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of comprehensive income. The application of the Amendments had no material effect on how the results and financial position for the current or prior accounting periods are prepared and presented. Accordingly, no prior period adjustment has been required. 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 9 (2014) Financial Instruments 92014 Accounting policies applied from 1st January, 2016 HKFRS 9 (2014) addresses the classification, measurement and recognition of financial assets and financial liabilities. The final version of HKFRS 9 (2014) was issued in September 2014. It replaces the guidance in HKAS 39 Financial Instruments: Recognition and Measurement that relates to the classification and measurement of financial instruments. HKFRS 9 (2014) retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income ( FVTOCI ) and fair value through profit or loss ( FVTPL ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial assets. Investments in equity instruments (that are not held-for-trading) are measured at fair values with an irrevocable election at inception to present changes in fair value in other comprehensive income not recycling. There is now a new expected credit losses ( ECLs ) model that replaces the incurred loss impairment model used in HKAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at FVTPL. HKFRS 9 (2014) relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually uses for risk management purposes. 92014 92014 39 92014 39 92014 In accordance with HKFRS 9 (2014), the Group did not restate prior periods and the cumulative effect of initially applying the standard as an adjustment was recognised in either retained profits or an appropriate equity reserve as of the opening balance as at 1st January, 2016. 92014 108 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 9 (2014) Financial Instruments (Cont'd) 92014 The following summarises the classification and measurement changes for the Group s financial assets and financial liabilities on 1st January, 2016, the Group s date of initial application of HKFRS 9 (2014): 92014 Availablefor-sale investments Originally stated HKFRS 9 (2014) 92014 Fair value through profit or loss Loans and receivables Remeasurement upon application of HKFRS 9 (2014) FVTPL FVTOCI Amortised cost 9 2014 Notes Financial assets Advances to associates 55,482 55,482 Advance to an investee company 413,579 413,579 Advance to a non-controlling shareholder 14,908 14,908 Debtors, deposits and other receivables 7,306,708 7,306,708 Securities trading receivables and deposits 86,175 86,175 Pledged deposits 202,750 202,750 Time deposits, bank balances and cash 2,849,807 2,849,807 Sales proceeds held by stakeholders 1,891,712 1,891,712 Equity securities Held-for-trading 364,244 364,244 Not held-for-trading (i) 794,693 96,960 891,653 Club debentures (ii) 16,581 61,553 78,134 Bonds (iii) 11,069,270 11,069,270 811,274 11,433,514 12,821,121 158,513 11,511,648 891,653 12,821,121 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 9 (2014) Financial Instruments (Cont'd) 92014 The following summarises the classification and measurement changes for the Group s financial assets and financial liabilities on 1st January, 2016, the Group s date of initial application of HKFRS 9 (2014): (Cont'd) 92014 Originally stated HKFRS 9 (2014) 92014 Amortised cost Remeasurement upon application of HKFRS 9 (2014) Amortised cost 9 2014 Financial liabilities Creditors and accruals 1,081,746 1,081,746 Securities trading and margin payable 11,181 11,181 Deposits received 2,051,899 2,051,899 Borrowings 14,531,773 14,531,773 Amounts due to associates 1,789,647 1,789,647 Amounts due to investee companies 27,085 27,085 Amounts due to non-controlling shareholders 523,768 523,768 20,017,099 20,017,099 110 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 9 (2014) Financial Instruments (Cont'd) 92014 Effect on interests in associates to the consolidated financial statements upon the Group s early adoption of HKFRS 9 (2014) as at 1st January, 2016 is as follows: 92014 Originally stated Remeasurement upon application of HKFRS 9 (2014) HKFRS 9 (2014) 9 2014 9 2014 Interests in associates 3,770,476 433 3,770,909 The impact on the Group s reserves due to reclassification and remeasurement of financial instruments as at 1st January, 2016 is as follows: Securities investments reserve Financial assets measured at FVTOCI reserve Retained profits Notes At 1st January, 2016 (originally stated) Reclassification upon initial application of HKFRS 9 (2014) Remeasurement upon initial application of HKFRS 9 (2014) Effect on interests in associates upon initial application of HKFRS 9 (2014) 16,044 37,311,403 92014 (i) (16,044) 16,044 92014 (i) and (ii) (i)(ii) 96,960 61,553 92014 (i) 433 At 1st January, 2016 (restated) 113,437 37,372,956 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 9 (2014) Financial Instruments (Cont'd) 92014 Notes: (i) Unlisted equity securities previously classified as available-for-sale investments (i) The Group elected to present in other comprehensive income the subsequent changes in fair value of all its unlisted equity securities previously classified as available-for-sale investments because these investments are not held-for-trading. As a result, the financial assets were reclassified from available-for-sale investments with original carrying amount of approximately HK$794,693,000 to financial assets measured at FVTOCI and were remeasured at fair value to approximately HK$891,653,000. Cumulative fair value gain of approximately HK$16,044,000 was reclassified from the securities investments reserve to the financial assets measured at FVTOCI reserve and additional fair value gain of approximately HK$97,393,000 (including share of other comprehensive income of associates of approximately HK$433,000) was recognised in the financial assets measured at FVTOCI reserve upon remeasurement on 1st January, 2016. 794,693,000 891,653,000 16,044,000 97,393,000 433,000 (ii) Club debentures previously classified as available-forsale investments (ii) The Group elected to present in profit or loss the subsequent changes in fair value of all its club debentures previously classified as available-for-sale investments because the Group considered their investment purpose at the date of initial application of HKFRS 9 (2014). As a result, the financial assets were reclassified from available-for-sale investments with original carrying amount of approximately HK$16,581,000 to financial assets measured at FVTPL and were remeasured at fair value to approximately HK$78,134,000. Additional fair value gain of approximately HK$61,553,000 was recognised in retained profits upon remeasurement on 1st January, 2016. 92014 16,581,000 78,134,000 61,553,000 (iii) Bonds previously classified as financial assets designated as at fair value through profit or loss (iii) The Group reclassified the financial assets designated as at fair value through profit or loss to financial assets measured at FVTPL and no change in their measurement on 1st January, 2016. 112 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. The Group has not early adopted the following new HKFRSs and amendments to existing HKFRSs ( new and amended HKFRSs ) that have been issued but are not yet effective. HKFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions 2 HKFRS 10 and HKAS 28 Sale or Contribution of Assets (2011) (Amendments) between an Investor and its Associate or Joint Venture 4 HKFRS 15 Revenue from Contracts with Customers 2 HKFRS 15 (Amendments) Clarifications to HKFRS 15 2 HKFRS 16 Leases 3 HKAS 7 (Amendments) Disclosure Initiative 1 HKAS 12 (Amendments) Recognition of Deferred Tax Assets for Unrealised Losses 1 1 Effective for annual periods beginning on or after 1st January, 2017 2 Effective for annual periods beginning on or after 1st January, 2018 3 Effective for annual periods beginning on or after 1st January, 2019 4 Effective for annual periods beginning on or after a date to be determined 2 2 10 28 2011 4 15 2 15 15 2 16 3 7 1 12 1 1 2 3 4 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. Amendments to HKFRS 10 and HKAS 28 (2011) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1028 2011 The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor s profit or loss only to the extent of the unrelated investor s interest in that associate or joint venture. 10 282011 10282011 HKFRS 15 Revenue from Contracts with Customers 15 HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgments and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In September 2015, the HKICPA issued an amendment to HKFRS 15 regarding a one-year deferral of the mandatory effective date of HKFRS 15 to 1st January, 2018. In June 2016, the HKICPA issued amendments to HKFRS 15 to address the implementation issues on identifying performance obligations, application guidance on principal versus agent and licences of intellectual property, and transition. The amendments are also intended to help ensure a more consistent application when entities adopt HKFRS 15 and decrease the cost and complexity of applying the standard. 15 15 15 15 15 15 15 114 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 2. APPLICATION OF NEW AND AMENDED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) (Cont'd) 2. HKFRS 16 Leases 16 HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. It distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Subject to limited exceptions for short-term leases and low value assets, distinctions of operating and finance leases are removed for lessee accounting, and is replaced by a model where a right-ofuse asset and a corresponding liability have to be recognised for all leases by lessees. However, the standard does not significantly change the accounting of lessors. 16 The directors of the Company ( Directors ) are in the process of assessing the potential impact of the new and amended HKFRSs but are not yet in a position to determine whether the new and amended HKFRSs will have a significant impact on how the Group s results of operations and financial position are prepared and presented. The new and amended HKFRSs may result in changes in the future as to how the results and financial position are prepared and presented. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3. These consolidated financial statements have been prepared in accordance with all applicable HKFRSs, which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the HKICPA and accounting principles generally accepted in Hong Kong. In addition, these consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange ( Listing Rules ) and the disclosure requirements of the Hong Kong Companies Ordinance (Cap. 622). 622 These consolidated financial statements have been prepared under the historical cost basis, except for certain properties and financial instruments, which are measured at their fair values as explained in the accounting policies set out below. 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. Fair value measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based Payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of Assets. 2 17 2 36 In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety, which are described as follows: Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3: inputs are unobservable inputs for the asset or liability. 116 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (a) Basis of consolidation (a) Subsidiaries The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company: (i) has (i)(ii) power over the investee; (ii) is exposed, or has rights, to variable returns from its involvement with the investee; and (iii) (iii) has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in profit or loss from the date the Group gains control until the date when the Group ceases to control the subsidiary. Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (a) Basis of consolidation (Cont'd) (a) Subsidiaries (Cont'd) Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on the basis specified in another HKFRS. Total comprehensive income and expense of subsidiaries is attributed to the owners of the Company and to the non- controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group s ownership interests in existing subsidiaries Changes in the Group s ownership interests in existing subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. 118 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (a) Basis of consolidation (Cont'd) (a) Changes in the Group s ownership interests in existing subsidiaries (Cont'd) When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the (i) difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained (ii) interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary, that is, reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs. The fair value of any investment retained in the former subsidiary at the 9 date when control is lost that is regarded as the fair value on 2014 initial recognition for subsequent accounting under HKFRS 9 (2014), when applicable, the cost on initial recognition of an investment in an associate or a joint venture. (b) Goodwill (b) Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any (see the accounting policy above). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (b) Goodwill (Cont'd) (b) For the purposes of impairment testing, goodwill is allocated to each of the Group s cash-generating-units ( CGUs ) (or groups of CGUs) that is expected to benefit from the synergies of the combination. A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the gain or loss on disposal. (c) Investments in associates (c) An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. 120 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (c) Investments in associates (Cont'd) (c) The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for 5 sale, in which case it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group s share of the profit or loss and other comprehensive income of the associate. When the Group s share of losses of an associate exceeds the Group s interest in that associate (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. The requirements of HKFRS 9 (2014) are applied to 92014 determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment 36 in accordance with HKAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is 36 recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases. 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (c) Investments in associates (Cont'd) (c) The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment (or a portion thereof) is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on 92014 initial recognition in accordance with HKFRS 9 (2014). The difference between the carrying amount of the associate at the date the equity method was discontinued and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. When a group entity transacts with an associate of the Group (such as a sale or contribution of assets), profits and losses resulting from the transactions with the associate are recognised in the Group s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. 122 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (d) Impairment losses (other than goodwill and intangible (d) assets with indefinite useful lives) At the end of the reporting period, the Group reviews the carrying amounts of its tangible assets and intangible assets with finite useful lives 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. An impairment loss is recognised immediately in profit or loss. When 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 immediately in profit or loss. (e) Investment properties and investment properties (e) under construction and development Investment properties are properties held to earn rental income and/or for capital appreciation including properties under construction and development for such purposes and land held for a currently undetermined future use. On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair values of investment properties are included in profit or loss for the period in which they arise. However, if the fair values of investment properties under construction and development are not reliably determinable but expect the fair values of the properties to be reliably determinable when construction/ development is completed, it shall measure that investment properties under construction and development at cost, less any impairment loss, until either its fair value become reliably determinable or construction/development is completed (whichever is earlier). 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (e) Investment properties and investment properties (e) under construction and development (Cont'd) Leasehold land held for undetermined future use is regarded as held for capital appreciation purpose and classified as an investment property, and carried at fair value. Changes in fair value of the leasehold land are recognised directly in profit or loss for the period in which changes take place. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the property) is included in profit or loss for the period in which the property is derecognised. An investment property is transferred at fair value to property, plant and equipment when the property begins to be occupied by the owner. Gain or loss arising from change in fair value of the investment property upon the transfer is included in profit or loss. An owner-occupied property is transferred from property, plant and equipment to investment properties at fair value when it is evidenced by the end of owner-occupation. The difference between the carrying amount and the fair value 16 at the date of transfer is recognised in other comprehensive income and accounted for as a revaluation increase or decrease in accordance with HKAS 16 Property, Plant and Equipment. On the subsequent sale or retirement of assets, the relevant revaluation reserve is transferred directly to retained profits. A property is transferred from investment property to stock of properties when, and only when, there is a change in use, evidenced by commencement of development with a view to sale. Any difference between the fair value of the property at the date of change in use and its previous carrying amount is recognised in the consolidated statement of comprehensive income. 124 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (f) Property, plant and equipment (f) Property, plant and equipment including buildings and leasehold land classified as finance leases (other than properties under development) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Buildings and leasehold land mainly comprise hotels and office premises. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Depreciation is provided to write off the cost of property, plant and equipment (other than properties under development) over their estimated useful lives and after taking into account their estimated residual values, using the straight-line method, at the following rates per annum: Type Basis Leasehold land Over the remaining lives of the leases Buildings Over the shorter of the remaining unexpired period of the lease and 40 years Furniture, fixtures and 3 to 10 years equipment Yachts and motor vehicles 3 to 10 years An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the asset is derecognised. 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (g) Stock of properties (g) Stock of properties including completed properties and properties under development, which are held-for-trading, is stated at the lower of cost and net realisable value. The cost of completed properties held for sale is determined by apportionment of the total development costs, including borrowing costs capitalised, attributable to unsold units. Net realisable value is estimated by the management of the Group based on prevailing market conditions, which represents the estimated selling price less estimated costs to be incurred in selling the property. The cost of properties under development held for sale includes identified costs including the acquisition cost of land, aggregate cost of development, borrowing costs capitalised, material and supplies, wages, other direct expenses and an appropriate proportion of overheads. Net realisable value is estimated by the management of the Group taking into account the expected price that can ultimately be achieved based on prevailing market conditions, the anticipated costs of completion and costs to be incurred in selling the property. The amount of any write-down of or provision for completed properties held for sale and properties under development held for sale is recognised as an expense in the period when the write-down or loss occurs. The amount of any reversal of any write-down or provision arising from an increase in net realisable value is recognised in profit or loss in the period in which the reversal occurs. 126 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (h) Inventories (h) Inventories comprise finished goods and raw materials for cosmetic products and food and beverages held for sale in hotel operation, which are stated at the lower of cost and net realisable value. Cost represents the invoiced cost of inventories. Costs are assigned to individual items on the weighted-average basis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. (i) Intangible assets (i) Trading rights, exchange rights and trademark Trading rights, gold and silver exchange rights and trademark are stated at cost less accumulated amortisation and less any identified impairment loss. The amortisation period adopted for intangible assets is 5 years. (j) Financial instruments (j) Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the financial instruments. Financial assets and financial liabilities are initially measured at fair value. A financial asset or financial liability (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus or minus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. (i) Classification and measurement (i) Debt instruments that meet the following conditions are subsequently measured at amortised cost less impairment loss (except for debt investments that are designated as at FVTPL on initial recognition): the financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset shall be measured at FVTOCI if both of the following conditions are met: the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial asset; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 128 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (i) Classification and measurement (Cont'd) (i) All other financial assets that are other than those categorised as amortised cost and FVTOCI above, are categorised as measured at FVTPL. (1) Amortised cost and effective interest method (1) The effective interest method is a method of calculating the amortised cost of a debt instrument and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument or, where appropriate, a shorter period, to the net carrying amount at initial recognition. Interest income is recognised using effective interest method for debt instruments measured subsequently at amortised cost. Interest income is recognised in profit or loss and is included in investment income. 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (i) Classification and measurement (Cont'd) (i) (2) Financial assets measured at FVTOCI (2) On the date of initial application of HKFRS 9 (2014), the Group may make an irrevocable 92014 election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held-for- trading. A financial asset is held-for-trading if it has been acquired principally for the purpose of selling it in the near term or it is a derivative that is not designated and effective as a hedging instrument. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the financial assets measured at FVTOCI reserve. Fair value is determined in the manner described in Note 5(c) to the consolidated financial statements. 5(c) Dividend income is recognised in profit or loss and is included in investment income. The Group has designated all investments in equity instruments (listed or unlisted) that are 92014 not held-for-trading as at FVTOCI since the application of HKFRS 9 (2014). 130 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (i) Classification and measurement (Cont'd) (i) (3) Financial assets measured at FVTPL (3) Financial assets measured at FVTPL comprise derivatives that are not designated and effective as hedging instruments and club debentures. Investments in equity instruments are classified as FVTPL, unless the Group designates such investment that is not held-for-trading as at FVTOCI on initial recognition (see (i)(2) above). (i)(2) Debt instruments that do not meet the amortised cost and FVTOCI criteria (see above) are measured at FVTPL. In addition, debt instruments that meet the amortised cost criteria but are designated as at FVTPL are measured at FVTPL. A debt instrument may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. 131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (i) Classification and measurement (Cont'd) (i) (3) Financial assets measured at FVTPL (Cont'd) (3) Financial assets measured at FVTPL are measured at fair value at the end of the reporting period, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss is included in investment income. Fair value is determined in the manner described in Note 5(c) to the consolidated financial statements. 5(c) Interest income on debt instruments at FVTPL recognised in profit or loss is included in investment income. 132 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (ii) Impairment of financial assets (ii) The Group recognises loss allowances for ECLs on financial assets measured at amortised cost. An impairment gain or loss, the amount of ECLs (or reversal) that is required to adjust the loss allowance at reporting date is recognised in profit or loss. The Group measures loss allowances at an amount equal to lifetime ECLs. For trade receivables, the Group applies the simplified approach to providing for ECLs prescribed by HKFRS 9 (2014), which requires the 92014 use of the lifetime expected loss provision for all trade receivables. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group s historical experience and informed credit assessment and including forward- looking information. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). In all cases, the maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. 133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31st December, 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) 3. (j) Financial instruments (Cont'd) (j) Financial assets (Cont'd) (ii) Impairment of financial assets (Cont'd) (ii) Measurement of ECLs ECLs are a probability-weighted estimate of credit losses over the expected life of the financial assets. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). Credit-impaired financial assets At each reporting date, the Group assesses on a forward-looking basis whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data of the following events: significant financial difficulty of the borrower or issuer; a breach of contract such as a default or past due event; the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is becoming probable that the borrower will enter bankruptcy or other financial re-organisation, or the disappearance of an active market for a security because of financial difficulties. 134 CHINESE ESTATES HOLDINGS LIMITED ANNUAL REPORT 2016