Sun Hung Kai 2012 Case Questions1. a) What are the three main accounts on the balance sheet of Sun Hung Kai that representtangible assets?b) What are the differences among these accounts?2. a) What is purpose of amortization / depreciation? What is the difference betweendepreciation and amortization?b) According to Note 31, what is the total amount of depreciation and amortization for2012?c) According to Note 11, what is the depreciation expense for the year? What is yourbest guess of the amortization expense?3. What is the amount of fixed assets reported on the balance sheet? How do you reconcilethis with Note 11?4. a) What was the amount of fixed assets acquired in 2012? What was the amount of cashpaid 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 yearsand a residual value of $48m. Prepare a table showing the depreciation expense andnet book value of these assets (i.e., exclude the properties under development) over itsexpected life assuming that a full year of depreciation is taken in fiscal year 2012 andthat the company uses a straight-line basis. What is the journal entry to recorddepreciation 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 usesstraight-line depreciation. Prepare the journal entry to record the transaction. What isthe total income statement impact of these assets over their life? Consider both thegain 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 balancesdepreciation (as in 4d).c) What was the journal entry made by Sun Hung Kai to record the sale of fixed assets in2012? Treat all sales as one single sale.1Independent Auditorâ€™s ReportTO 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 â€œCompanyâ€) and its subsidiaries(collectively referred to as the â€œGroupâ€) set out on pages 114 to 175, which comprise the consolidated and Parent Companystatements of financial position as at 30 June 2012, and the consolidated income statement, consolidated statement of comprehensiveincome, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and asummary of significant accounting policies and other explanatory information.Directorsâ€™ Responsibility for the Consolidated Financial StatementsThe directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view inaccordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and theHong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation ofconsolidated financial statements that are free from material misstatement, whether due to fraud or error.Auditorâ€™s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinionsolely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We donot assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit inaccordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether 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 financialstatements. The procedures selected depend on the auditorâ€™s judgment, including the assessment of the risks of materialmisstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entityâ€™s preparation of consolidated financial statements that give a true and fair view inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entityâ€™s internal control. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidatedfinancial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Groupas at 30 June 2012, and of the Groupâ€™s profit and cash flows for the year then ended in accordance with Hong Kong FinancialReporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance.Deloitte Touche TohmatsuCertified Public AccountantsHong Kong13 September 2012SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12113Consolidated Income StatementFor the year ended 30 June 2012(Expressed in millions of Hong Kong dollars)NotesRevenue2(a)2012201168,40062,553Cost of sales(39,098)(37,259)Gross profit29,30225,294Other net income532574Selling and marketing expenses(2,887)(2,498)Administrative expenses(1,959)(2,004)Operating profit before change in fair value ofinvestment properties2(a)24,98821,36619,48225,07044,47046,436(1,654)Increase in fair value of investment properties(1,095)Operating profit after change in fair value ofinvestment propertiesFinance costsFinance incomeNet finance costs1223(1,532)62(1,033)Share of results (including increase in fair value of investment propertiesnet of deferred tax of HK$3,816 million (2011: HK$4,696 million)) of:Associates2561715,89910,5732(a) & 9(b)6,15510,744Profit before taxation449,09356,147Taxation7(5,284)(7,359)2(a)43,80948,788Companyâ€™s shareholders43,08048,097Non-controlling interests72969143,80948,788Interim dividend paid2,4842,442Final dividend proposed6,2786,1688,7628,610$16.63$18.71$8.37$8.36Jointly controlled entitiesProfit for the yearAttributable to :Dividends8(Expressed in Hong Kong Dollars)Earnings per share based on profit attributable to9(a)the Companyâ€™s shareholders(reported earnings per share)Basic and dilutedEarnings per share excluding the effects of changes in9(b)fair value of investment properties net of deferred tax(underlying earnings per share)Basic and dilutedSUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12114Consolidated Statement of Comprehensive IncomeFor the year ended 30 June 2012(Expressed in millions of Hong Kong dollars)2012201143,80948,7887121,917â€“(47)7121,870â€“ fair value losses on effective hedging instrumentsâ€“(1)â€“ fair value losses transferred to income statement1211Profit for the yearExchange difference on translating financial statements of foreign operationsâ€“ exchange difference arising during the yearâ€“ exchange difference released on disposal of foreign operationsCash flow hedgeAvailable-for-sale investmentsâ€“ fair value (losses)/gains(29)475â€“ fair value gains transferred to income statement on disposal(29)(26)(58)449119645Share of other comprehensive income of associates and jointly controlled entitiesâ€“ exchange difference on translating financial statements of foreign operationsâ€“ fair value (losses)/gains on available-for-sale investments(1)3118648Other comprehensive income for the year7732,968Total comprehensive income for the year44,58251,756Companyâ€™s shareholders43,79250,916Non-controlling interests79084044,58251,756Total comprehensive income attributable to:SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12115Consolidated Statement of Financial PositionAs at 30 June 2012(Expressed in millions of Hong Kong dollars)Notes20122011Non-current assetsInvestment properties10233,867212,863Fixed assets1118,59117,896Associates133,8253,249Jointly controlled entities1445,69038,686Loan receivables15587275Other financial assets163,5223,362Intangible assets174,6995,049310,781281,380117,14498,861Current assetsProperties for sale18Inventories43747924,15923,453Debtors, prepayments and others19Other financial assets217111,126Bank deposits and cash2214,3387,898156,789131,817Current liabilitiesBank and other borrowings23(9,801)(9,682)Trade and other payables24(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 assets114,86293,017Total assets less current liabilities425,643374,397Non-current liabilitiesBank and other borrowings25(61,465)(50,753)Deferred taxation26(12,451)(10,610)Other long-term liabilities27(768)(839)(74,684)(62,202)350,959312,195NET ASSETSCAPITAL AND RESERVESShare capital1,3081,285Share premium and reserves345,251305,680Shareholdersâ€™ funds346,559306,9654,4005,230350,959312,195Non-controlling interestsTOTAL EQUITY28Directors:Kwok Ping-kwong, ThomasKwok Ping-luen, RaymondSUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12116Parent Company Statement of Financial PositionAs at 30 June 2012(Expressed in millions of Hong Kong dollars)Notes2012201130,21330,148Non-current assetsSubsidiaries12Current assetsDebtors, prepayments and others19â€“7Amounts due from subsidiaries20100,74790,470268100,77390,485Bank deposits and cashCurrent liabilitiesTrade and other payables24(40)(20)Net current assets100,73390,465NET ASSETS130,946120,613CAPITAL AND RESERVESShare capital281,3081,285Share premium and reserves30129,638119,328130,946120,613SHAREHOLDERSâ€™ FUNDSSUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12117Consolidated Statement of Cash FlowsFor the year ended 30 June 2012(Expressed in millions of Hong Kong dollars)Notes201231(a)10,1632011Operating activitiesCash generated from operationsHong Kong profits tax paid36(1,865)(149)Outside Hong Kong tax paidNet cash from/(used in) operating activities(4,106)(276)8,149(4,346)â€“(1,914)Investing activitiesPurchase of jointly controlled entitiesPurchase of other financial assets(435)(131)Net repayments (advances to)/from associates and(2,924)1,948Additions to fixed assetsjointly controlled entities(2,156)(2,255)Additions to investment properties(3,982)(6,503)(129)(972)601703Payment of telecommunications licence feesProceeds from disposal of investment propertiesProceeds from disposal of an associateâ€“Proceeds from disposal of subsidiaries31(b)68662Proceeds from disposal of fixed assets1625Proceeds from disposal of other financial assets21â€“490Interest received from investments99220Dividends received from listed investments9693Dividends received from unlisted investments3662,7674,804Dividends received from associates and jointly controlled entitiesLoans and advances (made)/repaid(368)(5,708)(2,722)31,43320,601(21,572)Net cash used in investing activities81(5,869)Financing activitiesBank and other borrowings raisedRepayment of bank and other borrowingsIncrease in amount due to a related company500â€“Decrease/(increase) in pledged bank deposits402(71)Interest paid(1,801)Interest received121Proceeds from issue of shares by a subsidiary(1,198)622856â€“Purchase of additional interests in subsidiaries(1,039)Payment for repurchase of shares by subsidiaries(7)Increase in fundings from non-controlling interests31Dividends paid to shareholders(194)1,776(4,298)(7,197)(452)Dividends paid to non-controlling interests(294)Net cash from financing activities4,385Increase/(decrease) in cash and cash equivalents6,826(435)Cash and cash equivalents at beginning of year7,4117,77267414,2437,411Effect of foreign exchange rates changesCash and cash equivalents at end of year31(c)6,633SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12118Consolidated Statement of Changes in EquityFor the year ended 30 June 2012(Expressed in millions of Hong Kong dollars)Attributable to Companyâ€™s shareholdersInvestmentShareShareCapital revaluation Exchange Retainedcapital premium reservesreservereserveprofitsAt 1 July 2010Profit for the yearOther comprehensive incomefor the yearTotal comprehensive incomefor the yearRecognition of equity-settledshare-based paymentsTransfer to capital reserves arising fromrepurchase of its shares by a subsidiaryShares issued by a subsidiary on exerciseof share optionsInterim dividend paidFinal dividend paidAdjustments arising upon acquisitionof additional interests in subsidiariesRelease upon disposal of subsidiariesContribution from non-controllinginterestsDividends paid to non-controllinginterestsAt 30 June 2011 and 1 July 2011Profit for the yearOther comprehensive income/(expenses) for the yearTotal comprehensive incomefor the yearIssue of shares, net of expensesRecognition of equity-settledshare-based paymentsShares issued by a subsidiary onexercise of share optionsInterim dividend paidFinal dividend paidAdjustments arising upon acquisitionof additional interests in subsidiariesTransfer to joint ventureContribution from non-controllinginterestsDividends paid to non-controllinginterestsAt 30 June 2012NoncontrollingTotal interestsTotal1,285â€“36,451â€“739â€“765â€“3,672â€“220,30948,097263,22148,0974,804691268,02548,788â€“â€“14522,366â€“2,8191492,968â€“â€“14522,36648,09750,91684051,756â€“â€“76â€“â€“â€“76177â€“â€“1â€“â€“(1)â€“â€“â€“â€“â€“â€“â€“â€“â€“(9)â€“â€“â€“â€“â€“â€“â€“â€“â€“(2,442)(4,755)(9)(2,442)(4,755)9â€“â€“â€“(2,442)(4,755)â€“â€“â€“â€“(42)â€“â€“â€“â€“â€“â€“â€“(42)â€“(1,437)(11)(1,479)(11)â€“â€“â€“â€“â€“â€“â€“1,3181,318â€“â€“â€“â€“â€“â€“â€“(294)(294)1,28536,4517661,2176,038261,208306,9655,230312,195â€“â€“â€“â€“â€“43,08043,08072943,809â€“â€“1(56)767â€“71261773â€“23â€“4,3311â€“(56)â€“767â€“43,080â€“43,7924,354790â€“44,5824,354â€“â€“65â€“â€“â€“6549114â€“â€“â€“â€“â€“â€“(2)â€“â€“â€“â€“â€“â€“â€“â€“â€“(2,484)(6,168)(2)(2,484)(6,168)2â€“â€“â€“(2,484)(6,168)â€“â€“â€“â€“37â€“â€“â€“â€“â€“â€“â€“37â€“38(1,205)75(1,205)â€“â€“â€“â€“â€“â€“â€“22â€“â€“â€“â€“â€“â€“â€“(506)(506)1,30840,7828671,1616,805295,636346,5594,400350,959SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12119Notes to the Financial Statements(Expressed in millions of Hong Kong dollars)1Basis of Preparation and Principal Accounting Policiesa.Basis of preparationThe financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards andInterpretations (collectively, â€œHKFRSsâ€) issued by the Hong Kong Institute of Certified Public Accountants (â€œHKICPAâ€)and the disclosure requirements of the Hong Kong Companies Ordinance and Rules Governing the Listing of Securitieson The Stock Exchange of Hong Kong Limited (the â€œListing Rulesâ€). The financial statements are prepared under thehistorical cost convention except for investment properties and certain financial instruments, which are measured atfair value, as explained in the principal accounting policies set out below.b.Changes in accounting policiesIn the current year, the Group has applied, for the first time, the following new and revised standards, amendmentsand interpretations of Hong Kong Financial Reporting Standards (hereinafter collectively referred to as â€œnew HKFRSsâ€)issued by the HKICPA, which are effective for the Groupâ€™s financial year beginning 1 July 2011.HKFRSs (Amendments)Improvements to HKFRSs 20101HKAS 24 (Revised)Related party disclosures2HKFRS 7 (Amendment)Disclosures â€“ transfers of financial assets3Transfers of financial assets3HK (IFRIC)-INT 14 (Amendment)Prepayments of a minimum funding requirement21Amendments that are effective for annual periods beginning on or after 1 January 20112Effective for annual periods beginning on or after 1 January 20113Effective for annual periods beginning on or after 1 July 2011The adoption of the above new HKFRSs has no significant impact on the Groupâ€™s results and financial position.SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12120Notes to the Financial Statements(Expressed in millions of Hong Kong dollars)1Basis of Preparation and Principal Accounting Policies (contâ€™d)b.Changes in accounting policies (contâ€™d)Up to the date of approval for the issuance of the consolidated financial statements, the HKICPA has issued a numberof new and revised standards, amendments and interpretations which are not yet effective for the year. These includethe following which may be relevant to the Group.Amendments to HKFRSsHKAS 1 (Amendments)HKAS 19 (as revised in 2011)HKAS 27 (as revised in 2011)HKAS 28 (as revised in 2011)Amendments to HKAS 32Amendments to HKFRS 7Amendments to HKFRS 7 and HKFRS 9HKFRS 9HKFRS 10HKFRS 11HKFRS 12HKFRS 135Annual improvements to HKFRSs 2009-2011 Cycle4Presentation of items of other comprehensive income5Employee benefits5Separate financial statements5Investments in associates and joint ventures6Offsetting financial assets and financial liabilitiesDisclosures â€“ offsetting financial assets and financial liabilities5Mandatory effective date of HKFRS 9 and transition disclosures7Financial instruments7Consolidated financial statements5Joint arrangements5Disclosure of interests in other entities5Fair value measurement54Effective for annual periods beginning on or after 1 July 20125Effective for annual periods beginning on or after 1 January 20136Effective for annual periods beginning on or after 1 January 20147Effective for annual periods beginning on or after 1 January 2015It is not anticipated that these new and revised standards, amendments and interpretations will have a significantimpact on the results and financial position of the Group.c.Basis of consolidationThe consolidated financial statements of the Group incorporate the financial statements of the Company and all itssubsidiaries made up to 30 June each year and include the Groupâ€™s interests in associates and jointly controlledentities on the basis set out in note 1(g) and note 1(h) below, respectively. The financial statements of the associatesand jointly controlled entities used for this purpose are either coterminous with the financial statements of theCompany or cover a year ended not more than three months before the Companyâ€™s year-end. The results ofsubsidiaries, associates and jointly controlled entities acquired or disposed of during the year are included in theconsolidated income statement from the effective dates of acquisition and to the effective dates of disposal. Allmaterial intra-group transactions and balances are eliminated on consolidation. Unrealized profits and losses resultingfrom transactions between the Group and its associates and jointly controlled entities are eliminated to the extent ofthe Groupâ€™s interest in the associate or jointly controlled entity.Changes in the Groupâ€™s ownership interest in a subsidiary that do not result in the Group losing control over thesubsidiary are accounted for as equity transactions. The carrying amounts of the Groupâ€™s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any differencebetween the amount by which the non-controlling interests are adjusted and the fair value of the consideration paidor 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 theoriginal business combination and their share of changes in equity since the date of the combination.SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12121Notes to the Financial Statements(Expressed in millions of Hong Kong dollars)1Basis of Preparation and Principal Accounting Policies (contâ€™d)d.RevenueRevenue derived from the Groupâ€™s principal activities comprises proceeds from sale of properties (excluding proceedson development properties sold prior to their completion which are included in deposits received on sale ofproperties under current liabilities), gross rental income from properties letting under operating leases, revenue fromtelecommunications, revenue from hotel operation, revenue from transportation, infrastructure and logistics andrevenue 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 andjointly controlled entities.e.Revenue recognitionRevenue of a transaction is recognized when it is probable that the economic benefits associated with the transactionwill flow to the Group and these benefits can be measured reliably, on the following bases:(i)Property salesRevenue from sale of properties is recognized when the significant risks and rewards of ownership of theproperties are transferred to the buyers. Deposits and instalments received from purchasers prior to this stageare included in current liabilities.(ii)Rental incomeRental income from properties letting under operating leases is recognized on a straight line basis over thelease terms.(iii)Hotel operationRevenue from hotel operation is recognized upon provision of services.(iv)Interest incomeInterest income is accrued on a time basis, by reference to the principal outstanding and at the effectiveinterest rate applicable, which is the rate that exactly discounts estimated future cash receipts through theexpected life of the financial asset to that assetâ€™s net carrying amount on initial recognition.(v)ConstructionRevenue in respect of building construction job is recognized based on the stage of completion methodmeasured by reference to the proportion that costs incurred to date bear to estimated total costs for thecontract.(vi)Dividend incomeDividend income from investments is recognized when the right to receive payment is established.(vii)Use of internet services centre facilitiesRevenue from customer use of internet services centre facilities is recognized ratably over the term of theagreement.SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12122Notes to the Financial Statements(Expressed in millions of Hong Kong dollars)1Basis of Preparation and Principal Accounting Policies (contâ€™d)e.Revenue recognition (contâ€™d)(viii)TelecommunicationsRevenue from telecommunication service is recognized when the services are rendered. Revenue from sales ofhandsets and related accessories is recognized upon the transfer of risks and rewards of ownership.(ix)Toll incomeToll income is recognized upon the passage of vehicles through tunnel.(x)Department storeRevenue from sale of goods and commission income from concession and consignment sales fromdepartment store operations are recognized upon the transfer of risks and rewards of ownership of the goods.(xi)Provision of container and cargo handling serviceRevenue from the provision of container and cargo handling service is recognized when the service isrendered.(xii)OthersOther revenue including property management service fee, car parking management fee and insuranceincome are recognized when the services are rendered.f.SubsidiariesA subsidiary is an entity controlled by the Company. Control is achieved where the company has the power to governthe financial and operating policies of an entity so as to obtain benefits from its activities. Investments in subsidiariesare carried in the Companyâ€™s financial statements at cost less impairment loss.g.AssociatesAssociates are those in which the Group is in a position to exercise significant influence, but not control or jointcontrol, 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 Groupâ€™s share ofpost-acquisition profits less losses.Interests in associates are accounted for in the consolidated statement of financial position under the equity methodand are carried at cost as adjusted for post acquisition changes in the Groupâ€™s share of their results and othercomprehensive income less any identified impairment loss.SUN HUNG KAI PROPERTIES LIMITED Annual Report 2011/12123Notes to the Financial Statements(Expressed in millions of Hong Kong dollars)1Basis of Preparation and Principal Accounting Policies (contâ€™d)h.Joint venturesA joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activitywhich is subject to joint control.(i)Jointly controlled entitiesJointly controlled entities involve the establishment of a separate entity in which the Group has a long-terminterest and over which the Group is in a position to exercise joint control with other venturers in accordancewith contractual arrangements.Results of jointly controlled entities are incorporated in the consolidated income statement to the extent ofthe Groupâ€™s share of post-acquisition profits less losses whereas accounted for in the Companyâ€™s incomestatement only to the extent of dividend income.Interests in jointly controlled entities are accounted for in the consolidated statement of financial positionunder the equity method and are carried at cost as adjusted for post-acquisition changes in the Groupâ€™s shareof their results and other comprehensive income less any identified impairment loss whereas in the Compa…
Sun Hung Kai 2012 Case Questions1. a) What are the three main accounts on the balance sheet of Sun H
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