Annual Report 2011/12 - International Entertainment Corporation

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Notes to the Consolidated Financial StatementsFor the year ended 31 March 201228. DEFERRED TAXATION (Continued)The remaining tax losses will be expired as follows:2012 2011HK$’000 HK$’000Year 2011 – 21,561Year 2012 29,453 30,946Year 2013 6,608 3,636Year 2014 913 876Year 2015 708 –No deferred tax liability has been recognised in respect of the temporary differences associated with undistributedearnings of subsidiaries operating in the Philippines because the Group is in a position to control the timing of thereversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.29. CONVERTIBLE NOTE AND CONVERSION OPTION DERIVATIVEOn 11 October 2007, the Company issued a convertible note of HK$400 million due in three years, which wasbeneficially owned by Cross-Growth Co., Ltd., a company wholly-owned by CTF, as part of the consideration inthe acquisition of the entire equity interest of Fortune Gate. Details of the acquisition are set out in the circular of theCompany dated 29 June 2007.The convertible note was denominated in HK$ and was unsecured. The convertible note entitled the holder to convertinto ordinary shares of the Company in amounts or integral multiples of HK$4,000,000 at any time after the date ofissue of the convertible note until the business day immediate prior to the maturity date of the convertible note at aninitial conversion price of HK$2 per share subject to customary adjustments for, among other things, subdivision orconsolidation of shares, bonus issues, rights issues and other events which had diluting effects on the issued sharecapital of the Company. If the whole amount of the convertible note was converted at the conversion price of HK$2 pershare, 200,000,000 ordinary shares of the Company would be issued. If the convertible note had not been converted,it would be repaid on the maturity date at its outstanding principal amount. Interest of 1% per annum would be paidannually in arrear up to the maturity date of the convertible note. Neither the Company nor the holder had the rightsto redeem the convertible note prior to its maturity date. The fair values of conversion option derivative as at the issuedate of 11 October 2007 and as at the end of each reporting period were determined by the valuation performed byan independent valuer. The convertible note was fully repaid during the year ended 31 March 2011.International Entertainment Corporation - Annual Report 2011/12 79
Notes to the Consolidated Financial StatementsFor the year ended 31 March 201229. CONVERTIBLE NOTE AND CONVERSION OPTION DERIVATIVE (Continued)The convertible note contained the following components that were required to be separately accounted for inaccordance with HKAS 32 “Financial instruments: Disclosure and Presentation” and HKAS 39 “Financial instruments:Recognition and Measurement”:(a)Liability component of the convertible note represented the present value of the contractually determined streamof future cash flows discounted at the rate of interest at that time by the market to instruments of comparablecredit status and providing substantially the same cash flows, on the same terms, but without the conversion andredemption option. The effective interest rate of the liability component is 13.41% per annum.(b)Embedded conversion option of the convertible note to be accounted for as a separate financial liabilityrepresented the fair value of the option to convert the liability into equity of the Company but the conversionwould be settled other than by the exchange of a fixed number of the Company’s own equity.The movements of the liability component and conversion option derivative of the convertible note for the year ended31 March 2011 are set out as below:LiabilitycomponentConversionoptionderivativeTotalHK$’000 HK$’000 HK$’000As at 1 April 2010 379,010 60,000 439,010Interest charge (note 10) 24,957 – 24,957Interest paid (3,967) – (3,967)Change in fair value of conversion option derivative – (60,000) (60,000)Repaid on the maturity date (400,000) – (400,000)As at 31 March 2011 – – –80International Entertainment Corporation - Annual Report 2011/12
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Annual Report 2011/12 - International Entertainment Corporation

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