NewWorld Development Company Limited
FINANCIAL SECTION
140
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(continued)
(e) Financial guarantees and tax indemnity
(continued)
In respect of the tax indemnity provided to its non-wholly owned subsidiary, the Group makes estimates on
the project costs for the development of the relevant properties and the potential exposure to the relevant
Mainland China tax liabilities based on an estimation of the future market condition and economic environment.
Provision will only be made in the financial period when the outcome of the potential liabilities can be reliably
determined, or otherwise, the potential exposure attributable to the Group is disclosed as contingent liabilities
set out in note 44.
(f) Income taxes
The Group is subject to withholding and income taxes in numerous jurisdictions. Significant judgement is
required in determining the provision for withholding and income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain during the ordinary course of business.
Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will impact the current tax and deferred tax provisions in the financial period in which such
determination is made.
Recognition of deferred tax assets, which principally relate to tax losses, depends on the expectation of
future taxable profit that will be available against which tax losses can be utilised. The outcome of their actual
utilisation may be different.
(g) Estimate of revenue and costs of construction works
The Group recognises its contract revenue according to the percentage of completion of the individual
contract of construction works. The Group reviews and revises the estimates of contract revenue, contract
costs, variation orders and contract claims prepared for each construction contract as the contract progresses.
Budgeted construction income is determined in accordance with the terms set out in the relevant contracts.
Budgeted construction costs which mainly comprise sub-contracting charges and costs of materials are
prepared by the management on the basis of quotations from time to time provided by the major contractors,
suppliers or vendors involved and the experience of the management. In order to keep the budget accurate
and up-to-date, the management conducts periodic reviews on the management budgets by comparing the
budgeted amounts to the actual amounts incurred.
(h) Estimated volume of infrastructures of public services
The amortisation for intangible concession rights and impairment assessment of infrastructures for public
services using discounted cash flow model are affected by the estimated volume for public services, such
as toll roads and bridges. Management performs annual reviews to assess the appropriateness of estimated
volume by making reference to independent professional studies, if necessary.
The traffic volume is directly and indirectly affected by a number of factors, including the availability, quality,
proximity and toll rate differentials of alternative roads and the existence of other means of transportation. The
growth of the traffic flow is also highly tied to the future economic and transportation network development
of the area in which the infrastructures serve, in particular those projects still in their ramp-up period such as
Guangzhou Dongxin Expressway and Guangzhou City Nansha Point Expressway. The growth in future traffic
flow projected by the management is highly dependent on extent of the realisation of the aforementioned
factors.
For the year ended 30 June 2015, an impairment loss of HK$300.0 million against interest in Guangzhou
Dongxin Expressway was shared by the Group in the share of results of joint ventures.
