New World Development Company Limited
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Financial Section
3 Principal Accounting Policies
(continued)
(a) Consolidation
(continued)
(ii) Joint arrangements
(continued)
(2)
Joint operations
The assets that the Group has the rights and the liabilities that the Group has the obligations in relation to
the joint operations are recognised in the statement of financial position on an accrual basis and
classified according to the nature of the item. The share of expenses that the Group incurs and its share
of income that it earns from the joint operations are included in the consolidated income statement.
(iii) Associated companies
An associated company is a company other than a subsidiary and a joint venture, in which the Group has
significant influence, but not control, exercised through representatives on the board of directors.
Interests in associated companies are accounted for by the equity method of accounting and are initially
recognised at cost. The Group’s interests in associated companies include goodwill (net of any accumulated
impairment loss) identified on acquisition. Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of the net identifiable assets of the acquired associated companies at the date
of acquisition. The interests in associated companies also include long-term interest that, in substance, form
part of the Group’s net investment in the associated companies.
The Group’s share of its associated companies’ post acquisition profits or losses is recognised in the
consolidated income statement, and the share of post-acquisition movements in other comprehensive income
is recognised in the consolidated statement of comprehensive income. The cumulative post-acquisition
movements are adjusted against the carrying amount of the investment. When the share of losses in an
associated company equals or exceeds its interests in the associated company, including any other unsecured
receivable, the Group does not recognise further losses, unless it has incurred legal and constructive
obligations or made payments on behalf of the associated company.
Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent
of the Group’s interests in the associated companies. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. For equity accounting purpose,
accounting policies of associated companies have been changed where necessary to ensure consistency with
the policies adopted by the Group.
The Company’s interests in associated companies are stated at cost less provision for impairment losses. The
results of associated companies are accounted for by the Company on the basis of dividend income received
and receivable.
Gains or losses on deemed disposal on dilution arising from interests in associated companies are recognised
in the consolidated income statement.
The cost of an associated company acquired in stages is measured as the sum of consideration paid for each
purchase plus a share of investee’s profits and other equity movements.
The Group ceases to use the equity method from the date an investment ceases to be an associated company
that is the date on which the Group ceases to have significant influence over the associated company or on the
date it is classified as held for sale.
(iv) Transactions with non-controlling interests
Non-controlling interests is the equity in a subsidiary which is not attributable, directly or indirectly, to a parent.
The Group treats transactions with non-controlling interests (namely, acquisitions of additional interests and
disposals of partial interests in subsidiaries that do not result in a loss of control) as transactions with equity
owners of the Group. For purchases of additional interests in subsidiaries from non-controlling shareholders,
the difference between any consideration paid and the relevant share acquired of the carrying value of net
assets of the subsidiary is recorded in equity. Gains or losses on disposals of partial interests to non-controlling
shareholders are also recorded in equity.
