New World Development Company Limited
128
Financial Section
3 Principal Accounting Policies
(continued)
(z) Employee benefits
(continued)
(iv) Defined benefit plans
Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the consolidated statement of financial position in respect of defined benefit pension
plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value
of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the
projected unit credit method. The present value of the defined benefit obligation is determined by discounting
the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in
the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of
the related pension obligation. In countries where there is no deep market in such bonds, the market rates on
government bonds are used.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to equity in other comprehensive income in the period in which they arise.
Past-service costs are recognised immediately in the consolidated income statement.
(v) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans. The fair value of the
employee services received in exchange for the grant of share options is recognised as an expense. The total
amount to be expensed over the vesting period is determined by reference to the fair value of the options
granted at the date of grant, excluding the impact of any non-market vesting conditions. At the end of each
reporting period, the Group revises its estimates of the number of options that are expected to vest. It
recognises the impact of the revision of original estimates, if any, in the consolidated income statement, with a
corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal
value) when the options are exercised.
On lapse of share options according to the plan, corresponding amount recognised in employees’ share-based
compensation reserve is transferred to retained profits.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in
the Group is treated as a capital contribution. The fair value of employee services received, measured by
reference to the grant date fair value, is recognised over the vesting period as an increase to investment in
subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.
(aa) Foreign currencies
(i)
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (the “functional currency”). The financial
statements are presented in Hong Kong dollar, which is the Company’s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the
exchange rates ruling at the end of the reporting period are recognised in the consolidated income statement.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale
are analysed between translation differences resulting from changes in the amortised cost of the security and
other changes in the carrying amount of the security. Translation differences related to changes in the
amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in
equity.
Translation differences on financial assets and liabilities held at fair value through profit or loss is reported as
part of the fair value gain or loss. Translation differences on non-monetary available-for-sale financial assets
are included in equity.
