What are the three main accounts on the balance sheet of Sun Hung Kai that represent

| March 31, 2017

Question
Sun Hung Kai 2012 Case Questions

1. a) What are the three main accounts on the balance sheet of Sun Hung Kai that represent
tangible assets?
b) What are the differences among these accounts?
2. a) What is purpose of amortization / depreciation? What is the difference between
depreciation and amortization?
b) According to Note 31, what is the total amount of depreciation and amortization for
2012?
c) According to Note 11, what is the depreciation expense for the year? What is your
best guess of the amortization expense?
3. What is the amount of fixed assets reported on the balance sheet? How do you reconcile
this with Note 11?
4. a) What was the amount of fixed assets acquired in 2012? What was the amount of cash
paid to acquire these fixed assets?
b) Are properties under development depreciated?
c) Assume that the rest of the newly acquired fixed assets have a useful life of 5 years
and a residual value of $48m. Prepare a table showing the depreciation expense and
net book value of these assets (i.e., exclude the properties under development) over its
expected life assuming that a full year of depreciation is taken in fiscal year 2012 and
that the company uses a straight-line basis. What is the journal entry to record
depreciation in the first year?
d) Redo part c) assuming the company is using a double-declining-balance depreciation.
5. Assume that all the fixed assets of (4c) was sold one year after the acquisition for
$1,000m.
a) Calculate any gain or loss on this transaction assuming that the company uses
straight-line depreciation. Prepare the journal entry to record the transaction. What is
the total income statement impact of these assets over their life? Consider both the
gain or loss on disposal as well as the total depreciation recorded on these assets.
b) Redo part (5a) but assuming that the company uses a double declining balances
depreciation (as in 4d).
c) What was the journal entry made by Sun Hung Kai to record the sale of fixed assets in
2012? Treat all sales as one single sale.

1

Independent Auditor’s Report

TO THE MEMBERS OF SUN HUNG KAI PROPERTIES LIMITED
(incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of Sun Hung Kai Properties Limited (the “Company”) and its subsidiaries
(collectively referred to as the “Group”) set out on pages 114 to 175, which comprise the consolidated and Parent Company
statements of financial position as at 30 June 2012, and the consolidated income statement, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a
summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in
accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the
Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion
solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do
not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in
accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group
as at 30 June 2012, and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial
Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
13 September 2012
SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

113

Consolidated Income Statement
For the year ended 30 June 2012
(Expressed in millions of Hong Kong dollars)

Notes
Revenue

2(a)

2012

2011

68,400

62,553

Cost of sales

(39,098)

(37,259)

Gross profit

29,302

25,294

Other net income

532

574

Selling and marketing expenses

(2,887)

(2,498)

Administrative expenses

(1,959)

(2,004)

Operating profit before change in fair value of
investment properties

2(a)

24,988

21,366

19,482

25,070

44,470

46,436

(1,654)

Increase in fair value of investment properties

(1,095)

Operating profit after change in fair value of
investment properties
Finance costs
Finance income
Net finance costs

122
3

(1,532)

62
(1,033)

Share of results (including increase in fair value of investment properties
net of deferred tax of HK$3,816 million (2011: HK$4,696 million)) of:
Associates

256

171

5,899

10,573

2(a) & 9(b)

6,155

10,744

Profit before taxation

4

49,093

56,147

Taxation

7

(5,284)

(7,359)

2(a)

43,809

48,788

Company’s shareholders

43,080

48,097

Non-controlling interests

729

691

43,809

48,788

Interim dividend paid

2,484

2,442

Final dividend proposed

6,278

6,168

8,762

8,610

$16.63

$18.71

$8.37

$8.36

Jointly controlled entities

Profit for the year
Attributable to :

Dividends

8

(Expressed in Hong Kong Dollars)
Earnings per share based on profit attributable to

9(a)

the Company’s shareholders
(reported earnings per share)
Basic and diluted
Earnings per share excluding the effects of changes in

9(b)

fair value of investment properties net of deferred tax
(underlying earnings per share)
Basic and diluted

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

114

Consolidated Statement of Comprehensive Income
For the year ended 30 June 2012
(Expressed in millions of Hong Kong dollars)

2012

2011

43,809

48,788

712

1,917

(47)

712

1,870

– fair value losses on effective hedging instruments

(1)

– fair value losses transferred to income statement

1

2

1

1

Profit for the year
Exchange difference on translating financial statements of foreign operations
– exchange difference arising during the year
– exchange difference released on disposal of foreign operations
Cash flow hedge

Available-for-sale investments
– fair value (losses)/gains

(29)

475

– fair value gains transferred to income statement on disposal

(29)

(26)

(58)

449

119

645

Share of other comprehensive income of associates and jointly controlled entities
– exchange difference on translating financial statements of foreign operations
– fair value (losses)/gains on available-for-sale investments

(1)

3

118

648

Other comprehensive income for the year

773

2,968

Total comprehensive income for the year

44,582

51,756

Company’s shareholders

43,792

50,916

Non-controlling interests

790

840

44,582

51,756

Total comprehensive income attributable to:

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

115

Consolidated Statement of Financial Position
As at 30 June 2012
(Expressed in millions of Hong Kong dollars)

Notes

2012

2011

Non-current assets
Investment properties

10

233,867

212,863

Fixed assets

11

18,591

17,896

Associates

13

3,825

3,249

Jointly controlled entities

14

45,690

38,686

Loan receivables

15

587

275

Other financial assets

16

3,522

3,362

Intangible assets

17

4,699

5,049

310,781

281,380

117,144

98,861

Current assets
Properties for sale

18

Inventories

437

479

24,159

23,453

Debtors, prepayments and others

19

Other financial assets

21

711

1,126

Bank deposits and cash

22

14,338

7,898

156,789

131,817

Current liabilities
Bank and other borrowings

23

(9,801)

(9,682)

Trade and other payables

24

(22,256)

(20,452)

Deposits received on sales of properties

(3,120)

(3,525)

Taxation

(6,750)

(5,141)

(41,927)

(38,800)

Net current assets

114,862

93,017

Total assets less current liabilities

425,643

374,397

Non-current liabilities
Bank and other borrowings

25

(61,465)

(50,753)

Deferred taxation

26

(12,451)

(10,610)

Other long-term liabilities

27

(768)

(839)

(74,684)

(62,202)

350,959

312,195

NET ASSETS
CAPITAL AND RESERVES
Share capital

1,308

1,285

Share premium and reserves

345,251

305,680

Shareholders’ funds

346,559

306,965

4,400

5,230

350,959

312,195

Non-controlling interests
TOTAL EQUITY

28

Directors:
Kwok Ping-kwong, Thomas
Kwok Ping-luen, Raymond

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

116

Parent Company Statement of Financial Position
As at 30 June 2012
(Expressed in millions of Hong Kong dollars)

Notes

2012

2011

30,213

30,148

Non-current assets
Subsidiaries

12

Current assets
Debtors, prepayments and others

19

7

Amounts due from subsidiaries

20

100,747

90,470

26

8

100,773

90,485

Bank deposits and cash

Current liabilities
Trade and other payables

24

(40)

(20)

Net current assets

100,733

90,465

NET ASSETS

130,946

120,613

CAPITAL AND RESERVES
Share capital

28

1,308

1,285

Share premium and reserves

30

129,638

119,328

130,946

120,613

SHAREHOLDERS’ FUNDS

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

117

Consolidated Statement of Cash Flows
For the year ended 30 June 2012
(Expressed in millions of Hong Kong dollars)

Notes

2012

31(a)

10,163

2011

Operating activities
Cash generated from operations
Hong Kong profits tax paid

36

(1,865)
(149)

Outside Hong Kong tax paid
Net cash from/(used in) operating activities

(4,106)
(276)

8,149

(4,346)

(1,914)

Investing activities
Purchase of jointly controlled entities
Purchase of other financial assets

(435)

(131)

Net repayments (advances to)/from associates and
(2,924)

1,948

Additions to fixed assets

jointly controlled entities

(2,156)

(2,255)

Additions to investment properties

(3,982)

(6,503)

(129)

(972)

601

703

Payment of telecommunications licence fees
Proceeds from disposal of investment properties
Proceeds from disposal of an associate

Proceeds from disposal of subsidiaries

31(b)

686

62

Proceeds from disposal of fixed assets

1

625

Proceeds from disposal of other financial assets

21

490

Interest received from investments

99

220

Dividends received from listed investments

96

93

Dividends received from unlisted investments

36

6

2,767

4,804

Dividends received from associates and jointly controlled entities
Loans and advances (made)/repaid

(368)
(5,708)

(2,722)

31,433

20,601

(21,572)

Net cash used in investing activities

81

(5,869)

Financing activities
Bank and other borrowings raised
Repayment of bank and other borrowings
Increase in amount due to a related company

500

Decrease/(increase) in pledged bank deposits

402

(71)

Interest paid

(1,801)

Interest received

121

Proceeds from issue of shares by a subsidiary

(1,198)
62

28

56

Purchase of additional interests in subsidiaries

(1,039)

Payment for repurchase of shares by subsidiaries

(7)

Increase in fundings from non-controlling interests

31

Dividends paid to shareholders

(194)
1,776

(4,298)

(7,197)

(452)

Dividends paid to non-controlling interests

(294)

Net cash from financing activities

4,385

Increase/(decrease) in cash and cash equivalents

6,826

(435)

Cash and cash equivalents at beginning of year

7,411

7,772

6

74

14,243

7,411

Effect of foreign exchange rates changes
Cash and cash equivalents at end of year

31(c)

6,633

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

118

Consolidated Statement of Changes in Equity
For the year ended 30 June 2012
(Expressed in millions of Hong Kong dollars)

Attributable to Company’s shareholders
Investment
Share
Share
Capital revaluation Exchange Retained
capital premium reserves
reserve
reserve
profits
At 1 July 2010
Profit for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
Recognition of equity-settled
share-based payments
Transfer to capital reserves arising from
repurchase of its shares by a subsidiary
Shares issued by a subsidiary on exercise
of share options
Interim dividend paid
Final dividend paid
Adjustments arising upon acquisition
of additional interests in subsidiaries
Release upon disposal of subsidiaries
Contribution from non-controlling
interests
Dividends paid to non-controlling
interests
At 30 June 2011 and 1 July 2011
Profit for the year
Other comprehensive income/
(expenses) for the year
Total comprehensive income
for the year
Issue of shares, net of expenses
Recognition of equity-settled
share-based payments
Shares issued by a subsidiary on
exercise of share options
Interim dividend paid
Final dividend paid
Adjustments arising upon acquisition
of additional interests in subsidiaries
Transfer to joint venture
Contribution from non-controlling
interests
Dividends paid to non-controlling
interests
At 30 June 2012

Noncontrolling
Total interests

Total

1,285

36,451

739

765

3,672

220,309
48,097

263,221
48,097

4,804
691

268,025
48,788

1

452

2,366

2,819

149

2,968

1

452

2,366

48,097

50,916

840

51,756

76

76

1

77

1

(1)





(9)






(2,442)
(4,755)

(9)
(2,442)
(4,755)

9


(2,442)
(4,755)



(42)




(42)

(1,437)
(11)

(1,479)
(11)

1,318

1,318

(294)

(294)

1,285

36,451

766

1,217

6,038

261,208

306,965

5,230

312,195

43,080

43,080

729

43,809

1

(56)

767

712

61

773


23


4,331

1

(56)

767

43,080

43,792
4,354

790

44,582
4,354

65

65

49

114





(2)






(2,484)
(6,168)

(2)
(2,484)
(6,168)

2


(2,484)
(6,168)



37




37

38
(1,205)

75
(1,205)

2

2

(506)

(506)

1,308

40,782

867

1,161

6,805

295,636

346,559

4,400

350,959

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

119

Notes to the Financial Statements
(Expressed in millions of Hong Kong dollars)

1

Basis of Preparation and Principal Accounting Policies
a.

Basis of preparation
The financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards and
Interpretations (collectively, “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”)
and the disclosure requirements of the Hong Kong Companies Ordinance and Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). The financial statements are prepared under the
historical cost convention except for investment properties and certain financial instruments, which are measured at
fair value, as explained in the principal accounting policies set out below.

b.

Changes in accounting policies
In the current year, the Group has applied, for the first time, the following new and revised standards, amendments
and interpretations of Hong Kong Financial Reporting Standards (hereinafter collectively referred to as “new HKFRSs”)
issued by the HKICPA, which are effective for the Group’s financial year beginning 1 July 2011.
HKFRSs (Amendments)

Improvements to HKFRSs 20101

HKAS 24 (Revised)

Related party disclosures2

HKFRS 7 (Amendment)

Disclosures – transfers of financial assets3
Transfers of financial assets3

HK (IFRIC)-INT 14 (Amendment)

Prepayments of a minimum funding requirement2

1

Amendments that are effective for annual periods beginning on or after 1 January 2011

2

Effective for annual periods beginning on or after 1 January 2011

3

Effective for annual periods beginning on or after 1 July 2011

The adoption of the above new HKFRSs has no significant impact on the Group’s results and financial position.

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

120

Notes to the Financial Statements
(Expressed in millions of Hong Kong dollars)

1

Basis of Preparation and Principal Accounting Policies (cont’d)
b.

Changes in accounting policies (cont’d)
Up to the date of approval for the issuance of the consolidated financial statements, the HKICPA has issued a number
of new and revised standards, amendments and interpretations which are not yet effective for the year. These include
the following which may be relevant to the Group.
Amendments to HKFRSs
HKAS 1 (Amendments)
HKAS 19 (as revised in 2011)
HKAS 27 (as revised in 2011)
HKAS 28 (as revised in 2011)
Amendments to HKAS 32
Amendments to HKFRS 7
Amendments to HKFRS 7 and HKFRS 9
HKFRS 9
HKFRS 10
HKFRS 11
HKFRS 12
HKFRS 13

5

Annual improvements to HKFRSs 2009-2011 Cycle
4
Presentation of items of other comprehensive income
5
Employee benefits
5
Separate financial statements
5
Investments in associates and joint ventures
6
Offsetting financial assets and financial liabilities
Disclosures – offsetting financial assets and financial liabilities5
Mandatory effective date of HKFRS 9 and transition disclosures7
Financial instruments7
Consolidated financial statements5
Joint arrangements5
Disclosure of interests in other entities5
Fair value measurement5

4

Effective for annual periods beginning on or after 1 July 2012

5

Effective for annual periods beginning on or after 1 January 2013

6

Effective for annual periods beginning on or after 1 January 2014

7

Effective for annual periods beginning on or after 1 January 2015

It is not anticipated that these new and revised standards, amendments and interpretations will have a significant
impact on the results and financial position of the Group.

c.

Basis of consolidation
The consolidated financial statements of the Group incorporate the financial statements of the Company and all its
subsidiaries made up to 30 June each year and include the Group’s interests in associates and jointly controlled
entities on the basis set out in note 1(g) and note 1(h) below, respectively. The financial statements of the associates
and jointly controlled entities used for this purpose are either coterminous with the financial statements of the
Company or cover a year ended not more than three months before the Company’s year-end. The results of
subsidiaries, associates and jointly controlled entities acquired or disposed of during the year are included in the
consolidated income statement from the effective dates of acquisition and to the effective dates of disposal. All
material intra-group transactions and balances are eliminated on consolidation. Unrealized profits and losses resulting
from transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of
the Group’s interest in the associate or jointly controlled entity.
Changes in the Group’s ownership interest in a subsidiary that do not result in the Group losing control over the
subsidiary are accounted for as equity transactions. The carrying amounts of the Group’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference
between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid
or received is recognized directly in equity and attributed to owners of the Company.
Non-controlling interests in the net assets or liabilities consist of the amount of those interests at the date of the
original business combination and their share of changes in equity since the date of the combination.

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

121

Notes to the Financial Statements
(Expressed in millions of Hong Kong dollars)

1

Basis of Preparation and Principal Accounting Policies (cont’d)
d.

Revenue
Revenue derived from the Group’s principal activities comprises proceeds from sale of properties (excluding proceeds
on development properties sold prior to their completion which are included in deposits received on sale of
properties under current liabilities), gross rental income from properties letting under operating leases, revenue from
telecommunications, revenue from hotel operation, revenue from transportation, infrastructure and logistics and
revenue derived from other business activities including property management, construction, financial services,
internet infrastructure, enabling services and department store. It does not include the revenue of associates and
jointly controlled entities.

e.

Revenue recognition
Revenue of a transaction is recognized when it is probable that the economic benefits associated with the transaction
will flow to the Group and these benefits can be measured reliably, on the following bases:
(i)

Property sales
Revenue from sale of properties is recognized when the significant risks and rewards of ownership of the
properties are transferred to the buyers. Deposits and instalments received from purchasers prior to this stage
are included in current liabilities.

(ii)

Rental income
Rental income from properties letting under operating leases is recognized on a straight line basis over the
lease terms.

(iii)

Hotel operation
Revenue from hotel operation is recognized upon provision of services.

(iv)

Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount on initial recognition.

(v)

Construction
Revenue in respect of building construction job is recognized based on the stage of completion method
measured by reference to the proportion that costs incurred to date bear to estimated total costs for the
contract.

(vi)

Dividend income
Dividend income from investments is recognized when the right to receive payment is established.

(vii)

Use of internet services centre facilities
Revenue from customer use of internet services centre facilities is recognized ratably over the term of the
agreement.

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

122

Notes to the Financial Statements
(Expressed in millions of Hong Kong dollars)

1

Basis of Preparation and Principal Accounting Policies (cont’d)
e.

Revenue recognition (cont’d)
(viii)

Telecommunications
Revenue from telecommunication service is recognized when the services are rendered. Revenue from sales of
handsets and related accessories is recognized upon the transfer of risks and rewards of ownership.

(ix)

Toll income
Toll income is recognized upon the passage of vehicles through tunnel.

(x)

Department store
Revenue from sale of goods and commission income from concession and consignment sales from
department store operations are recognized upon the transfer of risks and rewards of ownership of the goods.

(xi)

Provision of container and cargo handling service
Revenue from the provision of container and cargo handling service is recognized when the service is
rendered.

(xii)

Others
Other revenue including property management service fee, car parking management fee and insurance
income are recognized when the services are rendered.

f.

Subsidiaries
A subsidiary is an entity controlled by the Company. Control is achieved where the company has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. Investments in subsidiaries
are carried in the Company’s financial statements at cost less impairment loss.

g.

Associates
Associates are those in which the Group is in a position to exercise significant influence, but not control or joint
control, over the management, including participation in the financial and operating policy decisions.
Results of associates are incorporated in the consolidated income statement to the extent of the Group’s share of
post-acquisition profits less losses.
Interests in associates are accounted for in the consolidated statement of financial position under the equity method
and are carried at cost as adjusted for post acquisition changes in the Group’s share of their results and other
comprehensive income less any identified impairment loss.

SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12

123

Notes to the Financial Statements
(Expressed in millions of Hong Kong dollars)

1

Basis of Preparation and Principal Accounting Policies (cont’d)
h.

Joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity
which is subject to joint control.
(i)

Jointly controlled entities
Jointly controlled entities involve the establishment of a separate entity in which the Group has a long-term
interest and over which the Group is in a position to exercise joint control with other venturers in accordance
with contractual arrangements.
Results of jointly controlled entities are incorporated in the consolidated income statement to the extent of
the Group’s share of post-acquisition profits less losses whereas accounted for in the Company’s income
statement only to the extent of dividend income.
Interests in jointly controlled entities are accounted for in the consolidated statement of financial position
under the equity method and are carried at cost as adjusted for post-acquisition changes in the Group’s share
of their results and other comprehensive income less any identified impairment loss whereas in the Compa…

Get a 30 % discount on an order above $ 50
Use the following coupon code:
COCONUT
Place your order today and save 30% with the discount code: COCONUTOrder Now
Positive SSL