New World Development Company Limited
116
Financial Section
2 Basis of Preparation
(continued)
(c) Hong Kong Companies Ordinance (Cap.622)
The consolidated financial statements comply with the applicable requirements of Hong Kong Companies Ordinance
(Cap. 622), with the exception of section 381 which requires a company to include all its subsidiary undertakings
(within the meaning of Schedule 1 to Cap. 622) in the company’s annual consolidated financial statements. Section
381 is inconsistent with the requirements of HKFRS 10 Consolidated Financial Statements so far as they apply to
subsidiary undertakings which are not controlled by the Group in accordance with HKFRS 10. For this reason, under
the provisions of section 380(6), the Company has departed from section 381 and has not treated such companies as
subsidiaries but they are accounted for in accordance with the accounting policies in notes 3(a)(ii) and 3(a)(iii). Those
excluded subsidiary undertakings of the Group are disclosed in notes 50 and 51.
3 Principal Accounting Policies
The principal accounting policies adopted for the preparation of these consolidated financial statements, which have been
consistently applied to all the years presented, unless otherwise stated, are set out as below:
(a) Consolidation
The consolidated financial statements incorporate the financial statements of the Company and all its subsidiaries
made up to 30 June.
(i)
Subsidiaries
A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the
date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement at the acquisition date. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. There is a choice, on the basis of each acquisition
to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the recognised amount of acquiree’s identifiable net assets. If the business combination
is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value
at the acquisition date through profit or loss.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
fair value of any previous equity interest in the acquiree at the date of acquisition over the fair value of the
Group’s share of the identifiable net assets acquired is recorded as goodwill. If this consideration is less than
the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in the consolidated income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of
the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the
date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the
carrying amount for the purposes of subsequently accounting for the retained interest as associated
companies, joint ventures or financial assets. In addition, any amounts previously recognised in other
comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the
related assets or liabilities. It means the amounts previously recognised in other comprehensive income are
reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable
HKFRSs.
The Company’s investments in subsidiaries are stated at cost less provision for impairment losses. The results
of subsidiaries are accounted for by the Company on the basis of dividend received and receivable.
