T K Lo & Co

Hong Kong CPA Firm


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Account - Standard



This page will share with clients some important or new accounting classifications or definiations or practices to assist the preparation of financial statements in accordance with the up-to-date accounting standards.

Investments in Subsidiaries

A subsidiary is an enterprise that is controlled by the Company.  Control is achieved when the Company (i) has power over the investee; (ii) is exposed, or has rights, to variable returns from its involvement with the investee; and (iii) has the ability to use its power to affect its returns.  When assessing whether the Company has power, only substantive rights are considered.  Investment in a subsidiary is carried at cost less  impairment. 

Associates or Joint Arrangements

An associate is an enterprise in which the Company has significant influence, but not control or join control,  through participation in its financial and operating policy decisions. A joint venture is an arrangement whereby the Company and other parties contractually agree to share control of the arrangement, and have rights to net assets of the arrangement.

 Investments in associates or joint venture are accounted for using the equity method, they are carried in the financial position statement at cost as adjusted for post-acquisition changes in the Company’s share of the net assets, less any impairment in the value of individual investments. Post-acquisition profit or loss are recognised in the Company’s profit or loss, while post-acquisition changes in other equities are recognised in other comprehensive income of the Company. Losses of an associate or a joint venture in excess of the Company’s interest in that associate or joint  venture (which includes any long-term interests that in substance, form part of the Company’s net investment) are not recognised. Where the Company transacts with an associate or a joint venture, profits and losses are eliminated to the extent of the Company’s interest in it. Goodwill is the excess of the cost of an investment in an associate or a joint venture over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities recognised. The goodwill included within the carrying amount of the investment. Any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

 Investments

(i)         Classification

Investments of the Company are classified under the following categories: 

     Fair value through profit or loss

This category comprises designated items or financial assets and liabilities held for trading and derivatives, including debt securities and bank deposits with embedded derivatives for yield enhancement whose economic characteristics and risks are not closely related to the host contracts. Financial liabilities, other than trading liabilities and those designated at fair value through profit or loss, are measured at amortised cost using the effective interest method.

 Available-for-sale financial assets

This category comprises financial assets which are non-derivatives and not classified under other investment categories.

 (ii)       Recognition

Purchases and sales of investments are recognised on trade-date basis.

 (iii)       Gains or losses on subsequent measurement and interest income

  Fair value through profit or loss             

Investments under this category are carried at fair value. Unrealised gains and losses arising from changes in the fair value are recognised in profit or loss in the period in which they arise. Upon disposal, the difference between the net sale proceeds and the carrying value is recognised in profit or loss.            

 Available-for-sale financial assets

Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from changes in the fair value are recognised in other comprehensive income, except for exchange differences on monetary items which are recognised in profit or loss. When the securities are sold, the difference between the net sale proceeds and the carrying value, and the cumulative gain or loss  previously recognised in other comprehensive income are treated as gains or losses on disposal. Where the available-for-sale financial assets do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are stated at cost or amortised cost using the effective interest method less accumulated impairment.

(iv)      Impairment

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment on equity instruments and instruments carried at cost recognised in profit or loss are not reversible.

Related Parties

Two parties are considered to be related if one party has the ability, directly or indirectly through one or more intermediaries, to control the other party or exercise significant influence over the other party in making financial and operating decisions or has joint control over the other party.  Parties are also considered to be related if they are business partners, in cohabitation relationship, close family members, including spouse, children and dependants, or subject to common control.  Directors of the Company are considered to be key management personnel and related parties.