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Critical accounting policies andrecommended accounting practiceAs required by the Companies Act, the Group’s and Company’sfinancial statements have been prepared in accordance withSingapore Financial Reporting Standards (“FRS”). The followingare the critical accounting policies and methods:Revenue and profit recognitionRevenue and profit on partly completed projects which areheld for sale are recognised on the percentage of completionbasis. For Singapore trading properties, profit recognition uponsigning of sales contracts and payment of the first instalmentis 20% of the total estimated profit attributable to the actualcontracts signed. Subsequent profit recognition is based on thestage of physical completion. For overseas trading properties,profit recognition upon the signing of sales contracts is thedirect proportion of total expected project profit attributableto the actual sales contracts signed, but only to the extentthat is related to the stage of physical completion.The more conservative percentage of completion basis foroverseas trading properties is appropriate as the markets thereare less matured and risks are greater. In respect of largetrading projects both in Singapore and overseas, the percentageof completion method is applied on a phase by phase basis(i.e. one phase for every part of a project with one temporaryoccupation permit).Leasehold propertiesLeasehold fixed assets are depreciated evenly over the periodof the lease. Profits and losses on disposal of leasehold fixedassets are included in the profit and loss account.The Group does not depreciate leasehold investmentproperties as they are stated at valuation made each yearand are accounted for as long-term investments. Revaluationsurpluses arising on annual valuations of the Group’s investmentproperties are credited directly to capital reserves. Revaluationdeficits are taken to the profit and loss account in the absenceof or to the extent that they exceed any surpluses held inreserves relating to previous revaluations. Profits and losseson disposal of leasehold investment properties are includedin the profit and loss account. Any surpluses held in capitalreserves in respect of previous revaluations of investmentproperties disposed of are regarded as having becomerealised and are transferred to the profit and loss account.Business combinationsUnder the relevant reporting standard, assets and liabilities ofsubsidiaries which the Group acquired during the year werestated at their fair values at the dates of acquisition.Convertible bondOn 23 June 2006, the Company issued a $300,000,0007-year convertible bond. Interest is payable at the couponrate of 2.5% per annum semi-annually. The bond maturing on23 June 2013 is convertible at the option of the bondholdersinto ordinary shares of the Company at the conversion priceof $6.55 per share. Any bondholder may request that theCompany redeems all or some of its bonds on 23 June 2011or in the event that the Company’s shares cease to be listedor admitted to trading on the Singapore Exchange SecuritiesTrading Limited. Interest expense on the convertible bondis calculated based on the effective interest method byapplying the interest rate of 4.78% per annum for anequivalent non-convertible bond to the liability component ofthe convertible bond.Investment in subsidiaries and associated companiesAs of 1 January 2006, investments in subsidiaries andassociated companies in the books of the Company werestated at cost less impairment loss, as fair values under theprevious basis cannot be reliably determined in the lightof volatile property prices. In past years, they were statedat the Company’s attributable shares of the fair values oftheir combined net assets. The change in accounting policyhas resulted in a decrease of $181.1 million in the revenuereserve of the Company as at 1 January 2006. However, thischange has no impact on the revenue reserves of the Group.Critical accounting policies andrecommended accounting practiceKeppel Land LimitedReport to Shareholders 200693