Annual Report (in PDF) - Hongkong Land

g. Depreciation
Depreciation is calculated on the straight line basis at annual
rates estimated to write down the cost or valuation of each
asset to its residual value over its estimated useful life. The
residual values and useful lives are reviewed at each balance
sheet date. The principal rates in use are as follows:
Buildings 2%
Other assets 10 – 33 1 /3%
h. Debtors
Debtors are measured at amortised cost using the effective
interest method except where the effect of discounting would
be immaterial. Provision for impairment is established when
there is objective evidence that the outstanding amounts will
not be collected. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are
considered indicators that the debtor is impaired. The carrying
amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in arriving at
operating profit. When a debtor is uncollectible, it is written
off against the allowance account. Subsequent recoveries
of amount previously written off are credited to the profit and
loss account.
Debtors with maturities greater than twelve months after the
balance sheet date are classified under non-current assets.
i. Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash
equivalents comprise bank balances net of bank overdrafts. In
the balance sheet, bank overdrafts are included in current
borrowings.
j. Provisions
Provisions are recognised when the Group has present legal or
constructive obligations as a result of past events, it is probable
that an outflow of resources embodying economic benefits will
be required to settle the obligations, and a reliable estimate of
the amount of the obligations can be made.
k. Borrowings and borrowing costs
Borrowings are initially recognised at fair value, net of transaction
costs incurred. In subsequent periods, borrowings are stated
either at amortised cost using the effective yield method or
adjusted for fair value when accounting for fair value hedges set
out in (o) below applies.
On the issue of convertible bonds, the fair value of the liability
portion is determined using a market interest rate for an
equivalent non-convertible bond and is included in long-term
borrowings on the amortised cost basis until extinguished on
conversion or maturity of the bonds. The remainder of the
proceeds is allocated to the conversion option which is
recognised and included in shareholders’ funds.
Borrowings are classified under non-current liabilities unless
their maturities are within twelve months after the balance
sheet date.
Borrowing costs relating to major development projects are
capitalised until the asset is substantially completed. The
capitalisation rate is arrived at by reference to the actual rate
payable on borrowings for development purposes or, with
regard to that part of the development cost financed out of
general funds, to the average rate. Capitalised borrowing costs
are included as part of the cost of the asset. All other borrowing
costs are expensed as incurred.
l. Deferred tax
Deferred tax is provided, using the liability method, in respect of
all temporary differences arising between the tax bases of assets
and liabilities and their carrying values.
Provision for deferred tax is made on the revaluation of certain
non-current assets and, in relation to acquisitions, on the
difference between the fair values of the net assets acquired
and their tax base. Provision for withholding tax which could
arise on the remittance of retained earnings relating to
subsidiaries is only made where there is a current intention to
remit such earnings. Deferred tax assets relating to carry forward
of unused tax losses are recognised to the extent that it is
probable that future taxable profit will be available against
which the unused tax losses can be utilised.
Annual Report 2007 23