Annual Report - QuamIR

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Notes to the Consolidated Financial Statements (Continued) 4 Critical accounting estimates and judgements (Continued) (a) Valuation of investment properties/recoverable amount of prepaid land lease payments (Continued) For the prepaid land lease payments, management determined the recoverable amount based on the valuation report prepared by Knight Frank. Knight Frank has valued the investment properties under development/recoverable amount of prepaid land lease payments on the basis that the properties will be developed in accordance with the information provided from management. It is assumed that approvals for the development scheme will be obtained without any onerous condition which would affect the value of investment properties under development/recoverable amount of prepaid land lease payments. In arriving the opinion of value, Knight Frank has made reference to comparable transactions in the locality and has also taken into account the construction costs that will be expended to complete the development and the quality of the completed development in the development scheme. Management has reviewed the Knight Frank valuation and compared it with its own assumptions, with reference to comparable sales transaction data where such information is available, and has concluded that the Knight Frank valuation of the Group’s investment portfolio and prepaid land lease payments is reasonable. If the valuation of the investment properties (included investment properties classified as assets held for sale) had been 10% higher or lower than the value stated on the valuation report, the fair value adjustment for the year arising from the Group’s investment properties would have been increased or decreased by HK$596.6 million (2010: HK$719.7 million). If the recoverable amount of the prepaid land lease payments had been 10% higher than the value stated on the valuation report, assuming that the conditions of the reversal are met, the reversal of provision for impairment loss for the year arising from the Group’s prepaid land lease payments would have been increased by HK$371.1million (2010: HK$159.2 million). If the recoverable amount had been lower by 10%, provision for impariment loss for the year would have been increased by HK$1.5 million (2010: HK$290.6 million). 4 (a) 10% 596,600,000 719,700,000 10% 371,100,000 159,200,000 10% 1,500,000 290,600,000 118 HKC (Holdings) Limited • <strong>Annual</strong> <strong>Report</strong> 2011
Notes to the Consolidated Financial Statements (Continued) 4 Critical accounting estimates and judgements (Continued) (b) Toll Road – Estimated impairment of concession right The Group tests annually whether intangible assets have suffered any impairment in accordance with the accounting policy. The calculations use pre-tax cash flow projections based on financial budgets approved by management. 4 (b) The unit prices used for the analysis are determined by management making reference to the agreements approved by the government authorities. The weighted average growth rates used are consistent with the forecasts expected in the industry. The discount rates used are pre-tax and reflect specific risks relating to the relevant segments. If the discount rate used in the value-in-use calculation had been 10% higher or lower than management’s estimates at 31 December 2011, the profit for the year arising from the Group’s concession right (toll road) would have been decreased by HK$101.1 million or increased by HK$224.8 million (2010: loss for the year arising from the Group’s concession right (toll road) would have been increased by HK$50.7 million or decreased by HK$294.8 million). 10% 101,100,000224,800,000 50,700,000 294,800,000 The Group has performed impairment assessment by using the discounted cash flow model with the assumptions that traffic flow would increase by 11% every year on average, the tariff rate would increase by 7.5% every five years and the discount rate is 10.48%. According to the impairment assessment, the recoverable amount of Guilin Tollroad is RMB1,012.8 million, which is barely higher than the carrying value as at 31 December 2011. Considering the recoverable amount is approximate to the carrying value, the Group has performed sensitivity test on the discounted cash flow model. If all other assumptions remain unchanged, each of the changes of the following assumptions on a stand-alone basis would cause the recoverable amount of Guilin Tollroad to reduce to its carrying amount: 11%7.5% 10.48% 1,012,800,000 – Average traffic flow decreases by 2.7%, – 2.7% – Tariff growth rate decreases to 6.09% every five years, – 6.09% – Discount rate increases to 10.8%. – 10.8% • 119
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HKC (HOLDINGS) LIMITED (incorporat
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Contents 2 Corporate Information
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Corporate Information (Continued)
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Chairman’s Statement (Continued)
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Chairman’s Statement (Continued)
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Management Discussion and Analysis
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Corporate Governance Report (Contin
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Directors and Senior Management (Co
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Report of the Directors (Continued)
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Page 69 and 70: Report of the Directors (Continued)
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Notes to the Consolidated Financial
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Principal Subsidiaries, Associated
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Five-Year Financial Summary 2011 2
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Schedule of Principal Properties (C
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HKC (HOLDINGS) LIMITED 9/F., Tower
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Annual Report - QuamIR

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