#1KPMG Illustrative Annual Financial Statements Under Hong Kong Financial Reporting Standards December 2023 kpmg.com/cn#2Empty#3Illustrative Annual Financial Statements under Hong Kong Financial Reporting Standards KPMG 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 3rd Floor, South Island Place 8 Wong Chuk Hang Road Hong Kong Telephone Telefax (852) 2522 6022 (852) 2845 2588 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#4Empty#5Contents Abbreviations Foreword Illustrative annual report for a company incorporated under the Hong Kong Companies Ordinance and listed on the Main Board of the Stock Exchange of Hong Kong Appendices Index of policies illustrated in note 1 to the illustrative annual financial statements A B New and amended HKFRSS C Recent IFRICⓇ agenda decisions D Notable HKICPA financial reporting guidance E HKFRSS in issue at 31 August 2023 F Exposure drafts in issue at 31 August 2023 G Requirements applicable to non-Hong Kong incorporated entities listed on the Stock Exchange of Hong Kong Page 1 2 5 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#6Empty#7Abbreviations Example of abbreviation Sources used CO S380(2)(a) C(DR)R.7 C(DIBD)R C(AS(PB))R Hong Kong Companies Ordinance (Cap. 622) Paragraph 2(a) of Section 380 of the Hong Kong Companies Ordinance (Cap. 622) Section 7 of Companies (Directors' Report) Regulation (Cap. 622D) Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) Companies (Accounting Standards (Prescribed Body)) Regulation (Cap. 622C) Sch 5 Schedule 5 to the Hong Kong Companies Ordinance (Cap. 622) HKICPA Hong Kong Institute of Certified Public Accountants HKFRS HKAS HKAS 1.138(a) HK (IFRIC) HK (SIC) HK (INT) PS 2.88F HKSA HKSA 700.17(a) Hong Kong Financial Reporting Standard Hong Kong Accounting Standard Paragraph 138(a) of Hong Kong Accounting Standard 1 HK (IFRIC) Interpretation HK (SIC) Interpretation HK Interpretation Paragraph 88F of HKFRS Practice Statement 2 Hong Kong Standard on Auditing Paragraph 17(a) of Hong Kong Standard on Auditing 700 PNote 600.1(22) Paragraph 22 of Practice Note 600.1 issued by the HKICPA IASB SEHK MBLRS International Accounting Standards Board The Stock Exchange of Hong Kong Limited Main Board Listing Rules of the SEHK A16(2) Paragraph 2 of Appendix 16 to the MBLRS R17.07(1) Paragraph 1 of Rule 17.07 of the MBLRS PN5(3.2) CP GAAP Paragraph 3.2 of Practice Note 5 of the MBLRs Current common practice in Hong Kong or recommended by KPMG (but not specifically required or recommended in any of the various guidelines or standards) Generally accepted accounting principles 1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#8Foreword This Guide has been prepared primarily to provide guidance for companies listed on the Main Board of The Stock Exchange of Hong Kong Limited (SEHK), which are required to prepare their annual reports in accordance with the applicable disclosure provisions of the Main Board Listing Rules of the SEHK (MBLRS). This Guide includes: an illustrative annual report for the year ended 31 December 2023 issued by a fictitious Main Board listed company, HK Listco Ltd (HK Listco), which includes: a directors' report, an independent auditor's report to the shareholders of the company, annual financial statements prepared in accordance with Hong Kong Financial Reporting Standards (HKFRSS) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), the Hong Kong Companies Ordinance and the applicable disclosure provisions of the MBLRs, and a list of group properties and five year summary as required by Appendix 16 to the MBLRS, Disclosure of financial information; • further information on new and amended HKFRSS, including a brief overview of their scope and requirements; • a table of recent IFRIC agenda decisions, including concise summaries of IFRIC technical conclusions, starting from January 2022; highlight of a particular piece of HKICPA financial reporting guidance that may have pervasive impact on entities reporting under HKFRSS; an index of all HKFRSS, including their Interpretations, in issue as of 31 August 2023; • a list of exposure drafts in issue as of 31 August 2023; and • additional guidance on requirements applicable to non-Hong Kong incorporated entities listed on the Stock Exchange of Hong Kong. Recent financial reporting developments Appendix B to this Guide sets out a list of new and amended HKFRSS which are first effective for annual periods beginning on or after 1 January 2023, including a brief overview of these new and amended HKFRSS. The list is current as of 31 August 2023 and contains two tables: table B1 lists those new standards and amendments to HKFRSS which are required to be adopted in annual accounting periods beginning on or after 1 January 2023 or are effective immediately upon issuance; and table B2 lists other amendments to HKFRSS which are available for early adoption in that period, but are not yet mandatory. 2 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#9All of these new and amended HKFRSS arise from the HKICPA adopting equivalent changes made to IFRS® Accounting Standards by the International Accounting Standards Board (the IASB), word for word and with the same effective dates and transitional provisions. As of 31 August 2023, there are no recent amendments to IFRS Accounting Standards which the HKICPA has yet to adopt, except for amendments to IAS 21, Lack of exchangeability, which were issued by the IASB in August 2023. We expect that the HKICPA will adopt them as local amendments in due course. As can be seen from table B1, there are a number of new and amended HKFRSS which are required to be adopted for the first time in the 2023 annual financial statements. It is possible that some entities will be affected by one or more of the changes. Management of each entity should check table B1 carefully to see whether any of these new and amended HKFRSS could have a material impact on the entity and, if so, to note the transitional requirements. Care should also be taken to tailor the disclosures to suit the entity's circumstances, particularly in the discussion of changes in accounting policies resulting from the amendments. In addition, in the 2023 update to this Guide, we have introduced an Appendix D to highlight a recent piece of HKICPA guidance that may have pervasive impact on entities reporting under HKFRSS. Details of the new developments which have been illustrated in this Guide are discussed below: • HKFRS 17, Insurance contracts HKFRS 17, which replaces HKFRS 4, sets out the recognition, measurement, presentation and disclosure requirements applicable to issuers of insurance contracts. HKFRS 17 is generally required to be applied retrospectively unless this is impracticable, in which case entities may apply the modified retrospective approach or the fair value approach on transition. Amendments to HKAS 8, Accounting policies, changes in accounting estimates and errors: Definition of accounting estimates The amendments provide further guidance on the distinction between changes in accounting policies and changes in accounting estimates. Entities are required to apply the amendments prospectively to changes in accounting estimates and changes in accounting policies occurring on or after the beginning of the first annual reporting period in which the entity applies the amendments. Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies The amendments require entities to disclose material accounting policy information and provide guidance on applying the concept of materiality to accounting policy disclosure. Further details of the amendments can be found in footnote 80. Amendments to HKAS 12, Income taxes: Deferred tax related to assets and liabilities arising from a single transaction The amendments narrow the scope of the initial recognition exemption such that it does not apply to transactions that give rise to equal and offsetting temporary differences on initial recognition, such as leases and decommissioning liabilities. For leases and decommissioning liabilities, the associated deferred tax assets and liabilities are required to be recognised from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments are applied to those transactions that occur after the beginning of the earliest period presented. The accounting policy note on income tax in note 1(y) and disclosures on deferred tax assets and liabilities recognised in note 30(b) have been updated accordingly. Further details about the application of the amendments can be found in footnote 250. 3 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#10. Amendments to HKAS 12, Income taxes: International tax reform - Pillar Two model rules The amendments introduce a temporary mandatory exception from deferred tax accounting for the income tax arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD), including tax laws that implement qualified domestic minimum top-up taxes described in those rules. The amendments also introduce disclosure requirements about such tax. They are immediately effective upon issuance and require retrospective application. The accounting policy note on income tax in note 1(y) and disclosures on Pillar Two income taxes in note 6(c) have been updated accordingly. Further details of the amendments can be found in footnotes 85, 104 and 147. HKICPA guidance on abolition of the mandatory provident fund (MPF) - long service payment (LSP) offsetting mechanism On 4 July 2023, the HKICPA issued guidance on the accounting considerations for the MPF-LSP offsetting mechanism in the Hong Kong SAR, and the abolition of such mechanism, which was gazetted by the Government of Hong Kong SAR on 9 June 2022. In this Guide, HK Listco has applied the above HKICPA guidance and implemented the accounting policy change in connection with its LSP liability retrospectively. The accounting policy note on employee benefits in note 1(x) and disclosures on LSP liabilities and related deferred tax in notes 28(c) and 30(b)(i) have been updated accordingly. Further details of the accounting considerations and the HKICPA guidance can be found in footnotes 86, 244, 254 and Appendix D to this Guide. 4 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#11Illustrative Annual Report (for a company incorporated under the Hong Kong Companies Ordinance and listed on the Main Board of the Stock Exchange of Hong Kong) 31 December 2023 Prepared in accordance with Hong Kong Financial Reporting Standards "Illustrative annual report" is produced by KPMG China's Audit Quality & Professional Practice and is for the use of clients, partners and staff of KPMG. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity, or to illustrate all the regulatory or HKFRS disclosures that may need to be made to reflect the particular circumstances of a reporting entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. All entities and persons mentioned herein are fictitious. Any resemblance to any entities or persons is purely coincidental. ©2023 KPMG, a Hong Kong (SAR) partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Hong Kong (SAR). 5#12Information for users of this illustrative annual report The following annual report is prepared in accordance with Hong Kong Financial Reporting Standards (HKFRSS) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), the Hong Kong Companies Ordinance (HKCO) and the applicable disclosure provisions of the Main Board Listing Rules of the SEHK (MBLRS). The annual report is assumed to have been issued by a fictitious Main Board listed company, HK Listco Ltd (HK Listco) for the year ended 31 December 2023. HK Listco and its subsidiaries are primarily involved in the businesses of manufacturing and sale of electronic products, property development, construction and trading and property investment. HK Listco is assumed to have been applying HKFRSS in prior periods. Entities applying HKFRSS for the first time in their annual financial reports also need to consider the application of HKFRS 1, First-time adoption of Hong Kong Financial Reporting Standards, when making the transition from previous GAAP to HKFRSS¹. The annual report illustrates the effects of certain changes that may commonly affect entities in the Hong Kong SAR. However, it should not be relied upon to identify all of the significant changes that an entity may need to make as a result of the new or revised HKFRSS first effective from 1 January 2023. As is further highlighted in the Foreword to this Guide, to assist in the assessment of the effects of the new and revised standards, the appendices to this Guide contain further information on HKFRS developments. The full text of the HKFRSS is available from the HKICPA's website. Use of the illustrative annual report The format and wording of this annual report are illustrative only and hence are not intended to be mandatory. Other methods or styles of presentation adopted may be equally acceptable provided that they comply with the presentation and disclosure provisions of the HKFRSS, HKCO and MBLRs and that the financial statements as a whole present a true and fair view. The annual report illustrates a range of common accounting policies and transactions but should not be used as a substitute for referring to the rules, standards and interpretations themselves. In addition, care should be taken to take account of the impact of any changes in requirements that may result from the finalisation of current exposure drafts or other current projects of the SEHK, HKICPA, IASB or its interpretive body, IFRS Interpretations Committee, between the date of this Guide and the finalisation of your annual report. 1 For further information on transitioning to HKFRS or asserting dual compliance (for example with IFRS Accounting Standards and HKFRS), please refer to our Hong Kong Companies Ordinance Information Sheet "Meeting the requirement to comply with applicable accounting standards and asserting dual compliance", available from your usual KPMG contact. 6 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#13References Where the HKFRSS, HKCO or MBLRs state that a specific item should be disclosed, references to the relevant paragraphs are provided. For example, the reference "HKAS 1.10(b)" is given at the start of the consolidated statement of profit or loss and other comprehensive income as paragraph 10(b) of HKAS 1 specifies that a complete set of financial statements should include such a statement. We have used "CP" to indicate disclosures that, while not required, are common practice or, in our view, are likely to be considered best practice. The information which is only required to be disclosed in the directors' report or the financial statements of a listed company or group is highlighted by the use of black italics (see for example, the information on major customers and suppliers given on page 13). Materiality Materiality is relevant to the presentation and disclosure of items in the financial statements. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. In accordance with paragraph 31 of HKAS 1, an entity need not provide a specific disclosure required by a HKFRS if the information resulting from that disclosure is not material. This is the case even if the HKFRS contains a list of specific requirements or describes them as "minimum requirements". On the other hand, paragraph 17 of HKAS 1 indicates that an entity should consider whether it needs to provide disclosures in addition to those specifically required by a HKFRS to help users understand the impact of a particular transaction or event on the entity's financial position and financial performance. In addition, obscuring material information with immaterial information in financial statements will make the financial statements less understandable. HKFRS Practice Statement 2, Making materiality judgements, provides guidance and examples on applying materiality in preparing financial statements. In addition, the amendments to HKAS 1, Disclosure of accounting policies, which are effective from 1 January 2023, require disclosures of "material" rather than "significant" accounting policy information. The updated HKFRS Practice Statement 2 issued along with the amendments to HKAS 1 includes further guidance and examples on applying the principles of materiality to accounting policy disclosures. See further details in footnote 80. In this illustrative annual report, we have included example accounting policy disclosures that cover a wide range of transactions and circumstances, and monetary amounts some of which are very small. These accounting policy disclosures and numbers are included to assist users of this Guide and to illustrate the relationship between different captions and between the primary statements and the notes. They are not intended to illustrate the principle of materiality; therefore these disclosures and numbers, in and of themselves, should not be relied on as a guide to materiality judgement and minimum levels of disclosures. 7 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#14S380 2 C(AS(PB))R Compliance with International Financial Reporting Standards (IFRS Accounting Standards) Since the completion of the IFRS Accounting Standards convergence project with effect from 1 January 2005, the HKICPA has maintained its policy of adopting word for word all amendments and Interpretations from their IFRS Accounting Standards equivalents and with the same effective dates. Hence the body of HKFRSS is almost identical to the body of IFRS Accounting Standards. However, some legacy differences remain and these may still result in financial statements prepared under HKFRSS showing different amounts and disclosures than would have been shown by an entity that had adopted IFRS Accounting Standards. For example, entities which carried property, plant and equipment at revalued amounts in financial statements relating to periods ended before 30 September 1995 are not required to make regular revaluations in accordance with paragraphs 31 and 36 of HKAS 16, Property, plant and equipment, even if the carrying amounts of the revalued assets are materially lower than the asset's fair values, provided that they have not revalued their property, plant and equipment subsequent to 30 September 1995. Further information on these differences between HKFRSS and IFRS Accounting Standards can be found from a detailed comparison maintained by the HKICPA on their website. In addition, an entity is required to apply IFRS 1, First-time adoption of International Financial Reporting Standards, when preparing its "first IFRS financial statements" as described in that standard. In this connection, IFRS 1 contains a number of elections that can be made on first time adoption of IFRS Standards and a number of other mandatory transitional requirements. This process of transition could also lead to differences between financial statements prepared in accordance with IFRS Accounting Standards and those that would have been prepared in accordance with HKFRSS (or other local GAAP) had the entity not transitioned to IFRS Accounting Standards. Listed issuers which prepare their annual reports in accordance with IFRS Accounting Standards should check carefully the impact of these differences before using this Guide for reference². Section 380 of the CO requires companies incorporated under the CO to prepare their annual financial statements in accordance with the applicable accounting standards "issued or specified" by the HKICPA. Accordingly, issuers incorporated under the CO can adopt IFRS Standards only when they assert dual compliance with both HKFRS and IFRS Standards. Companies that are not incorporated under the CO, can choose to apply IFRS Accounting Standards or HKFRS or both, as allowed by the Hong Kong Listing Rules. Further information on this requirement and guidance on asserting dual compliance can be found in our Hong Kong Companies Ordinance Information Sheet "Meeting the requirement to comply with applicable accounting standards and asserting dual compliance", available from your usual KPMG contact. 8 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#15R13.51A 3 HKAS 1.51(a) 4 HK Listco Ltd 香港上市有限公司 (Stock code: (formerly Model Electronics Company Limited)4 2023 Annual Report for the year ended 31 December 2023 A listed issuer shall set out its stock code in a prominent position on the cover page or, where there is no cover page, the first page of all announcements, circulars and other documents published pursuant to the MBLRs. For an issuer's annual report and interim report, SEHK would consider such requirement to be satisfied if the issuer's stock code is displayed prominently in the corporate or shareholder information section of the report. The name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period should be prominently displayed and repeated when necessary for a proper understanding of the information presented. 9 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#16HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 Contents Directors' Report Independent auditor's report Consolidated statement of profit or loss Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the financial statements 1 Material accounting policies 2 Accounting judgements and estimates 3 Revenue and segment reporting 4 Other income 5 Profit before taxation 6 Income tax in the consolidated statement of profit or loss 7 Directors' emoluments 8 Individuals with highest emoluments 9 Other comprehensive income 10 Earnings per share 11 Investment property and property, plant and equipment 12 Intangible assets 13 Goodwill 14 Investments in subsidiaries 15 Interests in associates 16 Interest in joint venture 17 17 Other investments in securities 18 Derivative financial instruments 12 24 30 32 36 38 39 41 ཊུ ➢ ཥ ཚ ཚ ཚ ཞ ཆ ཚ ཚ ཎྜ 101 114 116 119 121 123 125 127 10 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#17HKAS 1.51 19 Inventories and other contract costs HK Listco Ltd Year ended 31 December 2023 128 20 Contract assets and contract liabilities 131 21 Trade receivables, other receivables and prepayments 134 22 Cash and cash equivalents and other cash flow information 135 23 Loans to directors and entities connected with directors 140 24 Trade and other payables 142 25 Non-current interest-bearing borrowings 143 26 Bank loans and overdrafts 145 27 Lease liabilities 147 28 Post-employment benefits 148 29 Equity settled share-based transactions 155 30 Income tax in the consolidated statement of financial position 156 31 Provisions 160 32 Capital, reserves and dividends 161 33 Financial risk management and fair values of financial instruments 167 34 Commitments 189 35 Contingent assets and liabilities 36 Material related party transactions 37 Company-level statement of financial position 38 Non-adjusting events after the reporting period 39 Comparative figures 189 190 193 194 195 40 40 Immediate and ultimate controlling party 195 41 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2023 196 Group properties Five year summary 198 199 11 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#18HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 Directors' Report The directors submit herewith their annual report together with the audited financial statements for the year ended 31 December 2023. HKAS 1.138(a) S390(1)(b), (3) S388(1)(a), (2) Principal place of business HK Listco Ltd ("the company") is a company incorporated and domiciled in Hong Kong and has its registered office and principal place of business at 11/F New View Building, 100 Smith Street, Central, Hong Kong5. Principal activities and business review The principal activities of the company and its subsidiaries ("the group") are the manufacturing and sale of electronic products, property development, property investment and carrying out construction activities for others. Further discussion and analysis of these activities as required by Schedule 5 to the Hong Kong Companies Ordinance, including a discussion of the principal risks and uncertainties facing the group and an indication of likely future developments in the group's business, can be found in the Management Discussion and Analysis set out on pages [•] to [•] of this Annual Report. That discussion forms part of this directors' report. HKAS 1.138(a) S388(1)(a), (2) Sch 5 5 HKAS 1 requires disclosure of the address of the registered office of the company (or its principal place of business, if different from its registered office), if this information is not disclosed elsewhere in information published with the financial statements. 6 7 The CO requires all companies incorporated under the CO to include a "business review" in accordance with Schedule 5 to the CO in their directors' report, unless they are specifically exempted under section 388 of the CO. Paragraph 28 of Appendix 16 to the MBL RS requires all listed entities, whether or not they are incorporated under the CO, to comply with Schedule 5, consistent with the SEHK's level playing field principle. This means that overseas issuers listed on the Stock Exchange of Hong Kong have also been required to include a business review in their directors' report. At the invitation of the Companies Registry, the HKICPA has issued Accounting Bulletin 5 to provide guidance on the preparation and presentation of the business review. Our publication "A practical guide to the business review (May 2015)" provides further guidance applicable to listed companies. Our business review disclosure checklist, which helps listed companies ensure that the minimum requirements of Schedule 5 and the MBLRs are met and includes checkpoints to cover the guidance in Accounting Bulletin 5, can be obtained from your usual KPMG contact. Section 388 and Schedule 5 to the CO requires the business review to be included in the directors' report. According to the response to Q15/Question A8 in the HKICPA's Q&A series on the CO (in the sub-section "Part A Directors' report" under the category "other than those relating to transition from the predecessor Ordinance (Cap. 32)"), this requirement can be met by including a cross reference in the directors' report to where this review is located if it is included elsewhere in the annual report. For example, given the similarities between the requirements of Schedule 5 and paragraphs 32 and 52 of Appendix 16 to the MBLRS, the requirements of Schedule 5 can be met by including a cross reference in the directors' report to the MD&A, provided that: • the cross reference is clear and it is clearly stated that the cross referenced part of the annual report forms part of the directors' report; and • the discussion and analysis in that MD&A is sufficient to meet the minimum content requirements of Schedule 5. The cross reference illustrated here is made with reference to the example statement in Q15/Question A8. The HKICPA's Q&A series on the CO can be found in the HKICPA's website. 12 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#19HKAS 1.51 A16(31) HK Listco Ltd Year ended 31 December 2023 Major customers and suppliers The information in respect of the group's sales and purchases attributable to the major customers and suppliers respectively during the financial year is as follows: A16(31)(3) The largest customer A16(31)(4) A16(31)(1) Five largest customers in aggregate The largest supplier A16(31)(2) Five largest suppliers in aggregate A16(31)(5) Percentage of the group's total Sales Purchases [•]% [•]% [•]% [•]% At no time during the year have the directors, their associates or any shareholder of the company (which to the knowledge of the directors owns more than 5% of the number of issued shares of the company) had any interest in these major customers and suppliers³. C(DR)R.7 CP Recommended dividend⁹ An interim dividend of 30 cents per share (2022: 30 cents per share) was paid on 18 September 2023. The directors now recommend the payment of a final dividend of 60 cents per share (2022: 55 cents per share) in respect of the year ended 31 December 2023. Change of company's name 10 LRA By a special resolution passed on 10 January 2024, the name of the company was changed from Model Electronics Company Limited to HK Listco Ltd and the company adopted the Chinese name as part of its legal name. C(DR)R.4 Charitable donations Charitable donations made by the group during the year amounted to HK$[•] (2022: HK$[•])¹¹. A16(31)(5) 8 C(DR)R.7 9 HKAS 1.51(a) Under paragraph 31(5) of Appendix 16 to the MBLRS, a listed issuer is required to give a statement of interests in the five largest suppliers or customers of: ⚫any shareholder which to the knowledge of the directors own more than 5% of the number of issued shares of the listed issuer, any of the directors; or any of the directors' close associates. A negative statement is required when there are no such interests. Section 7 of Companies (Directors' Report) Regulation (Cap. 622D) requires companies to disclose the amount of dividends recommended by the directors for the financial year in the directors' report. Although not required, a negative statement explaining that no dividend is recommended for the year is a best practice. 10 Disclosure of change of company's name is optional in the directors' report, but should be in any event prominently displayed and repeated when it is necessary for a proper understanding of the information presented. C(DR)R.4 11 The disclosure requirements in respect of donations do not apply if the entity is a wholly owned subsidiary of a company incorporated under the CO. Furthermore, donations are not required to be disclosed if the total amount of donations made by the company (or the group if the company has subsidiaries) during the year is less than $10,000. 13 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#20HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 C(DR)R.5 A16(10)(4) R10.06(4)(b) A16(29) Share capital¹² Details of the movements in share capital of the company during the year are set out in note 32(c) to the financial statements. Shares were issued during the year on exercise of share options and bonus issue. Details about the issue of shares are also set out in note 32(c) to the financial statements. Except for the repurchase of the company's own ordinary shares as set out in note 32(c)(iii) to the financial statements, there were no purchases, sales or redemptions of the company's listed securities by the company or any of its subsidiaries during the year 13. Shares were repurchased during the year to reduce the dilutive effect of granting share options. Distributability of reserves¹4 At 31 December 2023, the aggregate amount of reserves available for distribution to equity shareholders of the company, as calculated under the provisions of Part 6 of the Hong Kong Companies Ordinance and including the distributable amounts disclosed in note 32(d)(iii) to the financial statements 15, was $205,080,000 (2022: $168,369,000). After the end of the reporting period the directors proposed a final dividend of 60 cents per ordinary share (2022: 55 cents per share), amounting to $59,700,000 (2022: $49,500,000) (note 32(b)). This dividend has not been recognised as a liability at the end of the reporting period. S390(1), (3) Directors The directors during the financial year were: Non-executive Chairman Hon WS Tan Executive directors SK Ho, Chief Executive Officer YK Ng PK Smith (alternate: BB Nash) CJ Wang (appointed on 18 June 2023) BC Tong (resigned on 31 March 2023) C(DR)R.5, 5A 12 A16(10)(4) 13 A16(29) Section 5 of C(DR)R requires disclosure of the following information in the directors' report if the company has issued any shares during the year: the reason for making the issue; • the classes of shares issued; and ⚫ for each class of share, the number of shares issued and the consideration received by the company for the issue. Section 5A of C(DR)R requires similar disclosures for issue of debentures. A negative statement is required if there is no purchase, sale or redemption by the listed issuer, or any of its subsidiaries, of its listed securities during the financial year. 14 Paragraph 29 of Appendix 16 to the MBLRS requires a listed issuer to include a statement of the reserves available for distribution to shareholders in its annual report. In the case of an issuer incorporated under the CO, the amount should be calculated with reference to the requirements of sections 291, 297 and 299 of Part 6 of the CO. In all other cases, paragraph 29 states that the amount should be calculated in accordance with any statutory provisions applicable the listed issuer's place of incorporation or, in the absence of such provisions, with generally accepted accounting principles. 15 In May 2010, the HKICPA issued Accounting Bulletin 4 to provide further guidance on calculating distributable profits under the predecessor Companies Ordinance. As the requirements under the predecessor Companies Ordinance have been brought forward largely unchanged, the guidance in Accounting Bulletin 4 continues to be applicable under the CO even though, as of the time of writing, the CO section references have not yet been updated. 14 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#21HKAS 1.51 Independent non-executive directors TY Sham YH Li AC Man HK Listco Ltd Year ended 31 December 2023 CP CP A16(14) The following directors were appointed after the end of the financial year 16: AB Clark (appointed on 25 March 2024) EF Graves (appointed on 25 March 2024) A full list of the names of the directors of the group's subsidiaries can be found in the company's website at www.hk_listco.com.hk under "About HK Listco/Board of Directors". 1 17 Messrs CJ Wang, AB Clark and EF Graves, having been appointed to the board since the date of the last annual general meeting, retire at the forthcoming annual general meeting in accordance with article 87 of the company's articles of association and, being eligible, offer themselves for re-election. In accordance with article 88 of the company's articles of association, Mr PK Smith retires from the board by rotation at the forthcoming annual general meeting and, being eligible, offers himself for re-election. No director proposed for re-election at the forthcoming annual general meeting has an unexpired service contract which is not determinable by the company or any of its subsidiaries within one year without payment of compensation, other than normal statutory obligations 18. S390(1)(a)(ii) 16 The CO requires the disclosure of directors' names to the date of approving the directors' report. This means that the names of directors appointed after the financial year end but before the approval of directors' report should also be disclosed. S390(1), (3)-(7) 17 A16(14.1) 18 If a company incorporated under the CO prepares consolidated financial statements, the CO requires the disclosure of directors' names in the directors' report of the company to include the names of the directors of all subsidiaries included in the consolidated financial statements, unless the criteria set out in section 390(6) are complied with. These criteria are that the list of names of the directors who were directors of the company's subsidiaries during the period or in the period since the year end and up to the date of the directors' report must be continually accessible throughout the period until the next directors' report is sent to the members. Specifically, under section 390(6) this list must be accessible throughout that period in at least one of the following ways: ⚫ The list is kept at the company's registered office and is made available for inspection by the members free of charge during business hours; or • The list is made available on the company's website. HK Listco has taken advantage of this relief by giving a cross reference to its website where the full list of names of directors can be found. So far as issuers that are not incorporated under the CO are concerned, the requirement to disclose the names of the directors of subsidiaries in the directors' report was explicitly excluded from the level playing field requirements in the Listing Rules since 2015. This departure from the level playing field principle was explicitly stated in a footnote to paragraph 28 of Appendix 16 to the MBLRs and Rule 18.07A of the GEM Listing Rules. In the case of an issuer which is duly incorporated in the Chinese Mainland as a joint stock limited company, references to directors shall also mean and include supervisors. 15 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#22HKAS 1.51 HK Listco Ltd A16(6.3)(m) A16(13)(1) A16(13)(2) PN5(3.2) & (3.3)(1) PN5(3.2) PN5(4) Year ended 31 December 2023 Directors'19 interests and short positions in shares, underlying shares and debentures The directors of the company who held office at 31 December 2023 had the following interests in the shares of the company, its holding company, subsidiaries and other associated corporations (within the meaning of the Securities and Futures Ordinance ("SFO")) at that date as recorded in the register of directors' and chief executives' interests and short positions required to be kept under section 352 of the SFO: (i) Interests in issued shares Beneficial Interests HK Listco Ltd Hon WS Tan PK Smith Ordinary shares Personal interests Family interests Corporate interests Trustee interests Total number of shares held % of total issued voting shares (Note 1) 650,000 250,000 (Note 2) 800,000 52,410,000 (Note 3) 52,410,000 (Note 3) 53,310,000 53.0% 53,210,000 52.9% 300,000 300,000 0.3% CJ Wang HK (Holding) Co. Ltd Hon WS Tan (Note 3) 420,000 PK Smith (Note 3) 380,000 BB Trading Ltd Hon WS Tan 420,000 42.0% 380,000 38.0% 5,000 5,000 0.5% (Note 2) PK Smith 3,000 3,000 0.3% Timing Trading Ltd CJ Wang 2,000 2,000 20.0% Non-beneficial Interests HK Listco Ltd YK Ng 90,000 (Note 4) 90,000 0.1% Notes: 1 The shares are registered under the names of the directors who are the beneficial shareholders. The spouse of Hon WS Tan is the beneficial shareholder. 2 3 Hon WS Tan and Mr PK Smith are beneficial shareholders of 42% and 38% respectively of the issued shares of HK (Holding) Co. Ltd which owned 52,410,000 shares in the company at 31 December 2023.20 4 Mr YK Ng is one of the trustees of HK Listco Pension Scheme which owned 90,000 shares in the company at 31 December 2023.21 (ii) Interests in underlying shares The directors of the company have been granted options under the company's share option scheme, details of which are set out in the section "Equity-linked agreements - Share option scheme" below. A16(13) 19 PN5(3.2) PN5(4) 20 21 Where the chief executive of an entity is not a member of the board, this disclosure should be extended to include disclosure of the chief executive's interests, to the same extent as is disclosed for the directors. In the case of an issuer which is duly incorporated in the Chinese Mainland as a joint stock limited company, references to directors or chief executive shall also mean and include supervisors. Where the corporation holding the interest or short position is not wholly-owned by the person/corporation making the disclosure, the percentage interest held by such person/corporation in that corporation should be disclosed. Where there is any duplication between the interests, the extent of this duplication should be clearly stated. Sections 25 and 27 of the Hong Kong Occupational Retirement Scheme Ordinance contain provisions which restrict the extent to which (a) an employee of the relevant employer can be a trustee of a registered scheme and (b) a registered scheme can hold shares in the relevant employer. Similar restrictions may also exist in other jurisdictions. 16 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#23HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 A16(13)(1) C(DR)R.6 A16(10)(1)& (2) C(DR)R.6(2) Apart from the foregoing, none of the directors of the company or any of their spouses or children under eighteen years of age has interests or short positions in the shares, underlying shares or debentures of the company, or any of its holding company, subsidiaries or other associated corporations, as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the company pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers. Equity-linked agreements²² Details of the equity-linked agreements entered into during the year or subsisting at the end of the year are set out below: Convertible notes On 31 December 2020, the company issued 2 tranches, Tranche A and B, of 5,000,000 convertible notes. Each tranche has a face value of HK$5,000,000 and a maturity date of 31 December 2025. The notes bear interest at []% per annum and are unsecured. The rights of the noteholders to convert the notes into ordinary shares are as follows: • Conversion rights are exercisable at any time up to maturity at the noteholders' option. . . If a holder of Tranche A notes exercises its conversion rights, the company is required to deliver ordinary shares at a rate of one ordinary share for every 20 notes converted. If a holder of Tranche B notes exercises its conversion rights, the company has the right to choose whether to deliver ordinary shares at a rate of one ordinary share for every 20 notes converted, or whether to settle in cash at an amount equal to the fixed number of shares under the conversion option multiplied by the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the [•] days immediately preceding the date of conversion. Notes of either tranche, in respect of which conversion rights have not been exercised, will be redeemed at face value on 31 December 2025. C(DR)R.6 22 Section 6 of the C(DR)R requires the disclosure for "equity-linked agreements", which are defined in section 6(3) of the C(DR)R to mean an agreement that will (or may) result in a company issuing shares, or an agreement requiring the company to enter into such agreement (such as, granting (or agreeing to grant) options to subscribe for shares, issuing convertible bonds, setting up a share option scheme or an employee share scheme). Section 6(1) of the C(DR)R requires the disclosure for equity-linked agreements entered into during the year: the reason for entering into the agreement; the nature and terms of the agreement, including if applicable: the conditions that must be met before the company issues any shares; ⚫ the conditions that must be met before a third party may require the company to issue any shares; and ⚫ any monetary or other consideration that the company has received or will receive under the agreement. ⚫ the classes of shares issued under the agreements; and ⚫ for each class of shares, the number of shares that have been issued under agreement. Section 6(2) of the C(DR)R requires the disclosure for equity-linked agreements subsisting at the end of the year (e.g. if the options are unexercised): the classes of shares that may be issued under the agreement; ⚫ for each class of shares, the number of shares that may be issued under the agreement; • any monetary or other consideration that the company has received or will receive under the agreement; and ⚫ any other conditions or terms that remain to be met before the shares are issued. In addition to the above disclosures required by the CO, listed issuers are also subject to the requirements in Chapter 17 of the MBLRS and paragraphs 6.3 and 10 of Appendix 16 to the MBLRs to provide disclosures about share options, warrants, convertible securities and similar rights. 17 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#24HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 A16(6):Note 6.3(j) R17.09 C(DR)R.6(2) Share option scheme23 R17.07(2) & (3) C(DR)R.3 A16(13)(2) R17.07 PN5(3.2) & (3.3)(1) The company has a share option scheme which was adopted on 1 March 2019 whereby the directors of the company are authorised, at their discretion, to invite employees of the group, including directors of any company in the group, to take up options to subscribe for ordinary shares of the company. The purpose of the scheme is to provide an opportunity for employees of the group to acquire an equity participation in the company and to encourage them to work towards enhancing the value of the company and its shares for the benefit of the company and its shareholders as a whole. The share option scheme shall be valid and effective for a period of ten years ending on 28 February 2029, after which no further options will be granted. The exercise price of options is the highest of the nominal value of the shares (if any), the closing price of the shares on The Stock Exchange of Hong Kong Limited on the date of grant and the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the five business days immediately preceding the date of grant 24. The options vest after one year from the date of grant and are then exercisable within a period of two years. The total number of shares which may be issued under the share option scheme is 9,000,000 shares. The number of shares issued and to be issued upon exercise of the options granted to each participant in any 12- month period is limited to [•]% of the company's ordinary shares in issue. Up to 31 December 2023, 1,000,000 shares have been issued under the share option scheme, leaving 8,000,000 shares available for issue (including 6,000,000 shares issuable under options that have been granted but not yet lapsed or exercised). At the date of this report, the total number of shares available for issue under the share option scheme remained at 8,000,000 shares, which represented 8% of the ordinary shares of the company in issue. The remaining number of options available for grant under the share option scheme as at 1 January 2023 and 31 December 2023 are 2,300,000 and 2,000,000 respectively 25. The number of shares that may be issued in respect of the options granted during the year is 500,000 shares, representing 0.5% of the weighted average number of ordinary shares in issue for the year. At 31 December 2023, the directors and employees of the company had the following interests in options to subscribe for shares of the company (market value per share at 31 December 2023 was HK$6.70) granted for nil consideration under the share option scheme of the company 26. As at 31 December 2023, the total grant date fair value of unexercised vested options and unvested options, measured in accordance with the accounting policy set out in note 1(x)(iii) to the financial statements, amounted to $3,450,000 and $100,000, respectively27. The options are unlisted. Once vested, each option gives the holder the right to subscribe for one ordinary share of the company. Assuming that all the options outstanding as at 31 December 2023 are exercised, the company will receive proceeds of $36,250,00027. R17.01 23 R17.09(8) R17.07(2) 24 25 Chapter 17 of the MBLRs governs share option schemes and share award schemes (collectively referred as the "share schemes") and includes specific disclosure requirements. In this illustration, it is assumed that HK Listco only has one single share option scheme at the parent level, and that is funded by the issuance of new shares. Listed issuers should refer to Chapter 17 of the MBLRs if they have other types of share option or share award schemes, in particular if they have schemes funded by existing shares (Rule 17.12) or scheme at the principal subsidiary level (Rules 17.13- 15). Chapter 17 of the MBLRS requires, for each scheme, the disclosure of the basis of determining the exercise price of the share options granted, or the purchase price of shares awarded. In this illustration, it is assumed that the participants of HK Listco's share option scheme do not include any service providers. If a listed issuer's share scheme includes service providers, it should disclose the number of share options and awards available for grant under the sublimit applicable to service providers at the beginning and the end of the financial year. 18 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#25HKAS 1.51 HK Listco Ltd R17.07(1)(c) R17.07(1)(d) Year ended 31 December 2023 No. of options No. of shares No. of outstanding options at the granted beginning of during the the year year acquired on exercise of options during the year Directors YK Ng 200,000 (200,000) 500,000 (500,000) PK Smith 800,000 (300,000) BC Tong 200,000 Employees 5,000,000 500,000" No. of options forfeited during the year No. of options outstanding at the year end Period during Market value per share at which options Exercise price date of grant per share of options Date granted Vesting period are exercisable (200,000) Market value per share on exercise of options* 1 November 2020 1 November 2020 to 31 October 2021 1 November HK$6.0 HK$6.0 HK$6.6 2021 to 31 October 2023 1 July 2022 1 July 2022 to 30 June 1 July 2023 to 30 June HK$6.0 HK$6.0 HK$6.6 2023 2025 500,000 1 July 2022 1 July 2022 to 30 June 1 July 2023 to 30 June HK$6.0 HK$6.0 HK$6.6 2023 2025 1 July 2022 1 July 2022 to 30 June 1 July 2023 to 30 June HK$6.0 HK$6.0 2023 2025 5,000,000 1 July 2022 1 July 2022 to 30 June 2023 1 July 2023 to 30 June 2025 HK$6.0 HK$6.0 500,000 1 May 2023 1 May 2023 to 30 April 2024 1 May 2024 to 30 April 2026 HK$6.5 HK$6.5 The options granted to the directors are registered under the names of the directors who are also the beneficial owners. # The grant date fair value of options granted to the other employee participants during the financial year is HK$0.4. Information on the accounting policy adopted for share options granted in accordance with HKFRS 2, Share-based Payment, and the methodology and assumptions used in calculating the fair value of the options are provided in note 1(x)(iii) and note 29 to the financial statements 28,29 * being the weighted average closing price of the company's ordinary shares immediately before the dates on which the options were exercised, as applicable. 19 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#26HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 R17.07 26 C(DR)R.6(2)(c) R17.07(1)(c) R17.07(1)(c)(iii) 27 The information set out in the table under "Share option scheme" sub-section of "Equity-linked agreements" in the illustrative directors' report is required to be disclosed in relation to share options and awards granted and to be granted to: a) each of the directors, chief executive or substantial shareholders of the listed issuer, or their respective associates; b) each participant with options and awards granted and to be granted in excess of the 1% individual limit; c) each related entity participant or service provider with options and awards granted and to be granted in any 12-month period exceeding 0.1% of the relevant class of shares in issue; and d) other employee participants, related entity participants and service providers by category. In this illustration, it is assumed that HK Listco only has share options granted to directors and employee participants, and the grants do not exceed the 1% individual limit. Section 6(2)(c) of C(DR)R requires the disclosure of any monetary or other consideration that an entity "has received or will receive" under the equity-linked agreements subsisting at the end of the year. In respect of share options and warrants, the consideration that an entity "has received or will receive" typically comprises two components a) the premium paid (or payable) when the option or warrant was issued; and b) the strike price i.e. the amount that the option/warrant holders would pay if they choose to exercise their rights to subscribe for shares. In respect of share option schemes which fall under HKFRS 2, the premium paid or payable (i.e. component (a)) comprises the fair value of the goods or services that will be received from the grantee in exchange for the grant, in addition to any other consideration provided by the grantee (often any other consideration is just a nominal amount). Therefore, to satisfy the CO disclosure requirement, an entity needs to disclose the grant date fair value of any unexercised options as the best estimate that the entity has of the "other consideration" that has been or will be provided by the grantee. This information will be available in the accounting records but will generally not already be disclosed in the financial statements. This is because the grant date fair value information is only discloseable under HKFRS 2 in the year of the grant, whereas the CO requirement is to disclose the amount of consideration that has been or will be received in respect of any equity-linked arrangements that are subsisting at the year end. This is in addition to disclosing how much would be received if those options were exercised. 28 Rule 17.07(1)(c)(v) of the MBLRS requires disclosures in annual reports the grant date fair value of the share options and awards granted during the financial year, and the accounting standard and policy adopted by each participant or category of participants. The latter disclosure has been illustrated in note 1(x)(iii) and 29(c) to the illustrative financial statements as part of the disclosures required also by HKFRS 2. In addition, note to Rule 17.07(1)(c) requires listed issuers to calculate the fair value of share options and awards in accordance with the accounting standards and policies adopted for preparing its financial statements, and disclose the methodology and assumptions used, including but not limited to: (1) In the case of share options, a description of the option pricing model and details of the significant assumptions and inputs used in that pricing model, such as the expected volatility, expected dividends and the risk-free interest rate. The issuer should include an explanation of how these significant assumptions and inputs have been determined. (2) In the case of share awards, a description of the basis for fair value measurement and information on whether and how the features of the awards (for example, the expected dividends) have been incorporated in fair value measurement. In this illustration, it is assumed that HK Listco granted options to only one category of participants during the financial year. If a listed issuer grants share options or awards to different participants or categories of participants, consideration should be given to whether the disclosures should be disaggregated by each participant or category of participants to meet the requirements in Rule 17.07(1)(c). 29 In this illustration, it is assumed that there is no performance target under HK Listco's share option scheme. If a listed issuer grants share options and awards with performance targets, these targets should be disclosed. C(DR)R.3 30 R1.01 PN5(3.1) The example disclosure under "Share option scheme" sub-section of "Equity-linked agreements" in the illustrative directors' report illustrates the information required to be disclosed to meet both the requirements of the C(DR)R and the MBLRs. Unlisted companies need only comply with the requirements of the C(DR)R which, in addition to the disclosure requirements in section 6 of the C(DR)R relating to "equity-linked agreements" (see footnote 22), include the disclosure requirements in section 3 of the C(DR)R relating to arrangements "whose objects are, or one of whose objects is, to enable directors of the company to acquire benefits by means of the acquisition of shares on, or debentures of, the company or any other body corporate". Therefore, if the directors are a party to the equity-linked agreements disclosable under section 6 of the C(DR)R or other arrangements involving debentures, and these agreements have arisen under arrangements "whose objects are, or one of whose objects is, to enable directors of the company to acquire benefits by means of acquisitions in the shares of the company or any other body corporate" disclosable under section 3 of the C(DR)R, then the company (whether listed or not) will need to disclose a statement explaining the effect of these arrangements and the names of the directors who held shares or debentures acquired under those arrangements to satisfy the requirements in both sections. Although not required, a negative statement explaining that no such arrangement exists is best practice. 31 "Substantial shareholders" are persons (including holders of depositary receipts other than depositaries) who are entitled to exercise, or control the exercise of, 10% or more of the voting power at any general meeting of the company. Note that this definition is modified for the purposes of Rule 14A, Equity securities - Connected Transactions of the MBLRs by Rule 14A.29. "Other persons" are persons who are required pursuant to Part XV of the Securities and Futures Ordinance to notify the company of their interests and short positions in the company's shares and underlying shares, but who are not substantial shareholders, directors or chief executives of the company. 20 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#27HKAS 1.51 CP HK Listco Ltd Year ended 31 December 2023 A16(13)(3) PN5(3.2), (3.4)(1) & (3.5)(1) Apart from the foregoing, at no time during the year was the company, or any of its holding company, subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors of the company to acquire benefits by means of the acquisition of shares in or debentures of the company or any other body corporate. 30 Substantial shareholders' and other persons'³¹ interests and short positions in shares and underlying shares The company has been notified of the following interests in the company's issued shares at 31 December 2023 amounting to 5% or more of the ordinary shares in issue: Ordinary shares Registered shareholders Corporate interests Total number of ordinary shares held % of total issued voting shares Substantial shareholders Safety International Holdings Ltd 11,750,000 (Note) 11,750,000 11.69% Safety Company Ltd (Note) HK (Holding) Co. Ltd 11,750,000 52,410,000 11,750,000 11.69% 52,410,000 52.15% Other persons Modern Trading Ltd 7,537,500 7,537,500 7.50% PN5(4) Note: A16(34A) C(DR)R.9 The register of interests in shares and short positions kept under section 336 of the SFO indicates that the interest disclosed by Safety International Holdings Ltd is the same as the 11,750,000 shares disclosed by Safety Company Ltd, its 100% owned subsidiary 20. Apart from the foregoing, no other interests required to be recorded in the register kept under section 336 of the SFO have been notified to the company. Sufficiency of public float Based on the information that is publicly available to the company and within the knowledge of the directors of the company as at the date of this annual report, the company has maintained the prescribed public float under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("the Listing Rules"). Indemnity of directors A permitted indemnity provision (as defined in section 469 of the Hong Kong Companies Ordinance) for the benefit of the directors of the company is currently in force and was in force throughout this year. 32 A16(15) Directors' interests in transactions, arrangements or contracts No transaction, arrangement or contract of significance to which the company, or any of its holding company, subsidiaries or fellow subsidiaries was a party, and in which a director of the company or entities connected with the director had a material interest, subsisted at the end of the year or at any time during the year. 33 C(DR)R.9 32 Companies are required to disclose "permitted indemnity provisions", which are defined as a provision that provides for indemnity against liability incurred by a director of the company to a third party and meets the requirements specified in section 469(2) of the CO. When a permitted indemnity provision is in force when the directors' report is approved or was in force at any time during the financial year, companies are required to include a statement in the directors' report to state this fact. 21 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#28HKAS 1.51 HK Listco Ltd Year ended 31 December 2023 A16(22) A16(19) A16(23) A16(26) A16(12B) Bank loans and other borrowings Particulars of bank loans and other borrowings of the group as at 31 December 2023 are set out in notes 25 to 27 to the financial statements. Five year summary A summary of the results and of the assets and liabilities of the group for the last five financial years is set out on pages 199 and 200 of the annual report. Properties Particulars of the major properties and property interests of the group are shown on page 198 of the annual report. Retirement schemes and other post-employment benefits The group operates two defined benefit retirement schemes which cover 1% of the group's employees, and a Mandatory Provident Fund scheme. The employees employed under the Hong Kong Employment Ordinance are also entitled to long service payment if the eligibility criteria are met. Particulars of these post-employment benefits are set out in note 28 to the financial statements. Confirmation of independence The company has received from each of the independent non-executive directors an annual confirmation of independence pursuant to Rule 3.13 of the Listing Rules and considers all the independent non-executive directors to be independent. 22 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#29HKAS 1.51 A16(30) OP CP S391 C(DIBD)R.22 C(DR)R.10 A16(15) HK Listco Ltd Year ended 31 December 2023 Auditors KPMG were first appointed as auditors of the company in 2021 upon the retirement of Wood & Co³4. KPMG retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of KPMG as auditors of the company is to be proposed at the forthcoming Annual General Meeting. 35 By order of the board F. Cullen 36 Secretary 28 March 2024 33 The CO requires the disclosure of directors' material interests in significant transactions, arrangements or contracts. Specifically, the requirement is prescriptive about the location of disclosures such that: • • if the transaction, arrangement or contract relates to the company, then it is now required to be disclosed in the financial statements (section 383(1)(e) and C(DIBD)R section 22); whereas if the transaction, arrangement or contract relates to the company's parent, subsidiary or fellow subsidiary (collectively referred to as "specified undertakings" in the CO), then it is still required to be disclosed in the directors' report (C(DR)R section 10). A similar requirement to disclose directors' material interests in significant transactions, arrangements or contracts is found in paragraph 15 of Appendix 16. In the case of a listed issuer which is duly incorporated in the Chinese Mainland as a joint stock limited company, references to directors shall also mean and include supervisors. Paragraph 15 specifically requires a negative statement when there are no such interests to be disclosed, and it has been a common practice for non-listed companies to also make such a statement. If there have been no such transactions, arrangements or contracts, then a negative statement covering both categories of transactions (i.e. including those involving the company and those involving the company's specified undertakings) can continue to be included in the directors' report as illustrated. If there have been such transactions, arrangements or contracts involving directors of the company, care needs to be taken to ensure that they are disclosed in the correct location in the annual report. Giving a modified negative statement with reference to where the disclosures may be found is best practice. An example of such a modified negative statement is given below, which assumes that the directors had material interests in significant transactions etc involving the company as well as having interests in transactions etc involving other group companies: [Disclose details of any transaction, arrangement or contract of significance to which any of the company's holding company, subsidiaries or fellow subsidiaries was a party, and in which a director of the company or entities connected with the director had a material interest] Apart from [the above] [and] [the details disclosed in note xx to the financial statements], no transaction, arrangement or contract of significance to which the company, or any of its holding company, subsidiaries or fellow subsidiaries was a party, and in which a director of the company or entities connected with the director had a material interest, subsisted at the end of the year or at any time during the year. 34 Disclosure of a statement of any change in auditors in any of the preceding three years is required under the MBLRs. A16(30) 35 Disclosure of such information relating to auditors is optional, but commonly done. S391(2) 36 Section 391(2) of the CO requires the directors' report to state the name of the director or company secretary who signed the directors' report on the directors' behalf. 23 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#30S405 HKSA 700.21 & 22 CP Independent auditor's report to the members of HK Listco Ltd 37 (Incorporated in Hong Kong with limited liability)38 S406 HKSA 700.23 & 24 HKSA 700.28 HKSA 700.30 Opinion We have audited the consolidated financial statements of HK Listco Ltd ("the company") and its subsidiaries ("the group") set out on pages 30 to 197, which comprise the consolidated statement of financial position as at 31 December 2023, the consolidated statement of profit or loss 39, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and notes, comprising material accounting policy information 40 and other explanatory information. In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position 41 of the group as at 31 December 2023 and of its consolidated financial performance 41 and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSS") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the Hong Kong Companies Ordinance. Basis for opinion We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAS") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code") and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Heading: name the specific key audit matter] 42 Refer to notes [...] to the consolidated financial statements and the accounting policies on page [...]. The Key Audit Matter [description] How the matter was addressed in our audit Our audit procedures to [...] included the following: We identified [name of specific key audit matter] as a key audit matter because [...] 24 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#31KPMG HKSA 700.24(c) HKAS 1.10A S406 HKSA 700.30 37 38 39 40 41 42 The auditor's report illustrated here is prepared with reference to Illustration 2 of the Appendix to HKSA 700 (Revised). It is a common local practice to disclose the place of incorporation of the company in the auditor's report. The auditor's report illustrated here is suitable for companies incorporated under the CO preparing consolidated financial statements. Example auditor's reports for Chinese Mainland, Cayman Islands and Bermuda incorporated companies listed on the Stock Exchange of Hong Kong are included at the end of Appendix G to this Guide. Paragraph 24(c) of HKSA 700 (Revised) requires the title of each of the statements that comprise the complete set of financial statements be identified in the opinion section of the auditor's report. As HK Listco has chosen to present income and expenses using a two-statement format, i.e. by presenting both a consolidated statement of profit or loss and a consolidated statement of profit or loss and other comprehensive income (see footnote 47), the opinion section of the auditor's report has identified both the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as parts of the complete set of financial statements. Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies, effective for annual periods beginning on or after 1 January 2023, clarify that an entity is required to disclose its "material" rather than "significant" accounting policy (see note 1(c) and footnote 80). The opinion paragraph in this illustrative auditor's report has been updated to align with the amendments. Section 406 of the CO specifically requires the terms "financial position" and "financial performance" to be used in statement of the auditor's opinion. Although not required, companies that are not incorporated under the CO may also adopt the above terminology to align with the Hong Kong practice, unless there is requirement to the contrary in the company laws of their country of incorporation. For audits of complete sets of general purpose financial statements of listed entities, the auditor is required to describe key audit matters in the auditor's report in accordance with HKSA 701. "Key audit matters" are those matters that, in the auditor's professional judgement, were of most significance in the audit of the financial statements of the current period. The auditor should describe each key audit matter by using an appropriate subheading and by including the following information: • a reference to any related financial statement disclosures; an explanation as to why the matter was considered to be of most significance in the audit; and a description of how the matter was addressed in the audit. 25 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#32KPMG HKSA 700.32 HKSA 720.21 & 22 HKSA 700.33- 36 Information other than the consolidated financial statements and auditor's report thereon 43 The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSS issued by the HKICPA and the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the group's financial reporting process. 43 The wording illustrated here is only appropriate when the auditor has obtained all of the other information at least in draft form prior to the date of the auditor's report and has not identified a material misstatement in the other information. If the auditor has in fact only obtained part or none of the other information prior to the date of the auditor's report, then the wording will need to be modified to describe this fact. Please talk to your usual KPMG contact if you would like further information about this requirement. In addition, the wording illustrated here should be modified in the following situations: (a) if the auditor's report contains an unmodified opinion but auditor concludes that a material misstatement of the other information exists; or (b) if the auditor's report contains a qualified opinion due to a limitation of scope/adverse opinion on the financial statements which also affects the other information. Illustrative wording for such situations can be found in Illustrations 5 to 8 of HKSA 720 (Revised). 26 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#33KPMG HKSA 700.37- Auditor's responsibilities for the audit of the consolidated financial statements 40 Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.4 44 Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAS, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group's internal control. • • • • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. 44 The HKICPA issued a Professional Risk Management Bulletin No.2 ("the Bulletin"), recommending to its practising members to adopt a revised wording for the statement of auditor's responsibilities in statutory audit reports. The revised statement of responsibilities clarifies that the auditor's duty of care and responsibilities are owed under the CO to the shareholders, as a body, and not to third parties. It does not change the duty and responsibilities of auditors under the CO. Our firm follows the recommendation in the Bulletin and adopts the revised statement in our reports. 27 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#34KPMG HKSA 700.46 HKSA 700.47 HKSA 700.48 HKSA 700.49 HKSA 700.46 From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor's report is [partner's name as appearing on his/her Practising Certificate]. 45 KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 28 March 2024 45 The name of the engagement partner shall be included in the auditor's report on the financial statements of listed entities. 28 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#35KPMG HKAS 1.8, 10, 10A 46 In this illustration, HK Listco uses the titles "Statement of profit or loss" and "Statement of profit or loss and other comprehensive income", which are the titles used in HKAS 1. However, as allowed by paragraph 10 of HKAS 1, an entity may use other titles, such as "Income statement" and "Statement of comprehensive income". HKAS 1.106 47 HKAS 1.7, 81A- 82A HKAS 1.113 HKAS 1.29, 30A, 85 HKAS 1.85A-85B HKAS 1.99 HKAS 2.38 HKAS 1.45 & 85 Similarly, although HKAS 1 uses the terms "other comprehensive income", "profit or loss" and "total comprehensive income", an entity may use other terms to describe the totals as long as the meaning is clear. For example, an entity may use the term "net income" to describe profit or loss. Whatever titles and terms are used, care should be taken to ensure that they are used consistently throughout the financial statements. HKAS 1 requires an entity to separately present non-owner changes in equity (i.e. items of income and expense) from owner changes in equity (i.e. all other changes in equity, such as from capital injections or dividends paid). For non-owner changes in equity, the standard uses the term "total comprehensive income" to refer to all items of income and expense, whether or not recognised in profit or loss. HKAS 1 allows a choice of format for disclosing comprehensive income between either: (i) presenting a statement of profit or loss to arrive at "profit or loss", and then immediately afterwards presenting a statement of profit or loss and other comprehensive income which begins with "profit or loss" for the period (as derived from the statement of profit or loss) and then presents all other items of comprehensive income (such as changes in revaluation surplus on property, plant and equipment under paragraphs 39 and 40 of HKAS 16) in order to arrive at "total comprehensive income"; or (ii) presenting all items of total comprehensive income in a single statement of profit or loss and other comprehensive income. In this illustration, HK Listco has opted for the two-statement approach in (i) above. 48 Each item on the face of the statement of profit or loss/the statement of profit or loss and other comprehensive income shall be cross-referenced to any related information in the notes. HKAS 1 requires an entity to present separately items of a dissimilar nature or function, unless they are immaterial, and take into consideration all relevant facts and circumstances in deciding how it aggregates information in the financial statements. The entity should not reduce the understandability of the financial statements by aggregating material items that have different natures or functions. In some cases, the entity may need to further disaggregate the line items in the statement of financial position and the statement of profit or loss and other comprehensive income beyond the "minimums" prescribed in HKAS 1 to improve the understandability of the financial statements. However, the entity need not disclose immaterial information, even though the information is specifically required by a HKFRS or is described as "minimum requirement". HKAS 1 also requires that when an entity presents additional subtotals (i.e. in addition to those specifically required by HKFRS) in the statement of financial position and statement of profit or loss and other comprehensive income, it should also present line items that reconcile those additional subtotals with the subtotals or totals required by HKFRS. 49 The analysis of expenses can be shown either on the face of the statement of profit or loss (or the statement of profit or loss and other comprehensive income if a separate statement of profit or loss is not presented), or in the notes. The analysis presented here is referred to as the "function of expense" or "cost of sales" method (paragraph 103 of HKAS 1). The analysis could alternatively be presented using a classification based on the nature of expenses (paragraph 102 of HKAS 1). 50 When an entity classifies expenses based on function, HKAS 2 notes that the amount of inventories recognised as an expense during the period (often referred to as "cost of sales") consists of those costs previously included in the measurement of inventory that has now been sold, and unallocated production overheads and abnormal amounts of production costs of inventories. Neither HKAS 1 nor HKAS 40 prescribes where movements in the fair value of investment property should be presented on the face of the statement of profit or loss/the statement of profit or loss and other comprehensive income, nor whether they should be separately presented from other items of income and expense. However, once a form of presentation has been adopted by an entity, it should be followed consistently from one period to the next unless it is apparent that another presentation would be more appropriate. 29 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#36HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.10A & 51 A16(4)(1) HKAS 1.113 Consolidated statement of profit or loss 46, 47, 48 for the year ended 31 December 2023 (Expressed in Hong Kong dollars) Note HKAS 1.51(e) 2023 $'000 2022 $'000 (restated) HKAS 1.99 HKAS 1.85 HKAS 1.82(a) Revenue Cost of sales 49 Gross profit 3 1,084,895 985,240 (808,507) (733,575) 276,388 251,665 HKAS 1.85 Valuation gains on investment property 22,980 8,520 HKAS 1.85 Valuation losses on investment property (4,720) (2,000) HKAS 1.85 Net valuation gain on investment property 50 11 18,260 6,520 HKAS 1.85 Other income 51 4 11,119 9,190 HKAS 1.99 Distribution costs49 (62,919) (57,328) HKAS 1.99 Administrative expenses 49 (86,689) (81,996) HKAS 1.99 HKAS 38.126 Research and development costs 49, 52 (7,530) (4,560) HKAS 1.82(ba) Impairment loss on trade receivables and contract assets 53 33(a) (2,300) (1,720) HKAS 1.99 Other operating expenses 49, 54 (953) (702) HKAS 1.85 Profit from operations 145,376 121,069 HKAS 1.82(b) Finance costs 55 5(a) (20,618) (16,166) HKAS 28.38 Share of profits less losses of associates 13,830 12,645 HKAS 1.82(c) Share of profits of joint venture 10,670 10,135 HKAS 12.77 HKAS 1.81A(a) Profit for the year HKAS 1.85 HKAS 1.82(d) Profit before taxation Income tax 5 149,258 127,683 6(a) (24,475) (21,335) 124,783 106,348 HKAS 1.81B(a) Attributable to: Equity shareholders of the company HKFRS 10.B94 Non-controlling interests HKAS 1.81A(a) Profit for the year HKAS 33.66 Earnings per share56 Basic Diluted 114,367 96,181 10,416 10,167 124,783 106,348 10 $1.15 $1.14 $0.97 $0.97 The notes on pages 41 to 197 form part of these financial statements. Details of dividends payable to equity shareholders of the company attributable to the profit for the year are set out in note 32(b)57. 30 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#37HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.82(a) HKAS 38.126- 127 51 In this illustration, HK Listco's interest income arises from bank deposits, loans to associates and refundable rental deposits. As HK Listco does not consider such interest income as income arising in the course of its ordinary activities, it includes interest income as part of "other income". If the interest income constituted part of income arising in the course of ordinary activities and therefore "revenue", then paragraph 82(a) of HKAS 1 requires an entity to present interest revenue, calculated using the effective interest method, separately from other sources of revenue. 52 In this illustration, HK Listco presents its expenses by function (see footnote 43), and regards "research and development" as a separate function within the entity. For research and development expenditure, an entity is required to disclose the aggregate amount recognised as an expense during the period. Research and development expenditure comprises all expenditure that is directly attributable to research and development activities. Paragraph 66 of HKAS 38 provides the following examples of directly attributable costs: • costs of materials and services used or consumed in generating the intangible asset; • • costs of employee benefits arising from the generation of the intangible asset; fees to register a legal right; and HKAS 1.82(ba) HKAS 1.82 HKAS 1.82(b) HKAS 33.4, 4A & 66 HKAS 1.IN16, 107, BC75 amortisation of patents and licences that are used to generate the intangible asset. 53 Paragraph 82(ba) of HKAS 1 requires an entity to present impairment losses (including reversals of impairment losses or impairment gains) determined in accordance with HKFRS 9 as a single amount in the statement of profit or loss/the statement of profit or loss and other comprehensive income. 54 In addition to the items separately presented in this illustration, paragraph 82 of HKAS 1 requires the following line items to be presented as separate items on the face of the statement of profit or loss/the statement of profit or loss and other comprehensive income: • • gains and losses arising from the derecognition of financial assets measured at amortised cost; if a financial asset is reclassified out of the amortised cost measurement category so that it is measured at fair value through profit or loss, any gain or loss arising from a difference between the previous amortised cost of the financial asset and its fair value at the reclassification date; if a financial asset is reclassified out of the fair value through other comprehensive income measurement category so that it is measured at fair value through profit or loss, any cumulative gain or loss previously recognised in other comprehensive income that is reclassified to profit or loss. These items have not been illustrated as HK Listco did not have events or transactions to be reflected in those line items during the reporting period. 55 In accordance with paragraph 82(b) of HKAS 1, finance costs (including interest expense on the lease liability as stated in paragraph 49 of HKFRS 16) are required to be disclosed as a separate item on the face of the statement of profit or loss/the statement of profit or loss and other comprehensive income. This amount should be stated gross, i.e. it should not be net of finance income, although in our view an additional line item for "net finance costs" would be acceptable. 56 As stated in footnote 47, HKAS 1 allows entities to present comprehensive income using either a one-statement approach (i.e. a single "statement of profit or loss and other comprehensive income") or a two-statement approach (i.e. a "statement of profit or loss" together with a "statement of profit or loss and other comprehensive income"). HKAS 33 requires the presentation of basic and diluted earnings per share in the separate statement of profit or loss if such a statement is presented or in the statement of profit or loss and other comprehensive income if an entity opts for the single-statement approach. In addition, where the entity has reported amounts relating to discontinued operations, basic and diluted earnings per share amounts should be disclosed in the relevant statement for both (a) profit or loss from continuing operations attributable to the parent entity and (b) profit or loss attributable to the parent entity (i.e. profit or loss including discontinued operations). Also, all these disclosures shall be made separately for each class of ordinary share that has a different right to share in profit for the period. 57 HKAS 1 does not permit an entity to disclose the amount of dividends to equity owners in either the statement of profit or loss or the statement of profit or loss and other comprehensive income. Instead, as such dividends are an owner change in equity, they are required to be reported in the statement of changes in equity or in the notes. However, as it has been common place to refer to dividends in the statement of profit or loss, we expect that users will find useful a cross reference, such as is illustrated here, to where details of the dividends can be found in the financial statements. 31 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#38HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.10(b) & 51 HKAS 1.113 HKAS 1.51(e) Consolidated statement of profit or loss and other comprehensive income 46, 47, 48 for the year ended 31 December 2023 (Expressed in Hong Kong dollars) Note 2023 $'000 2022 $'000 (restated) HKAS 1.81A(a) Profit for the year 124,783 106,348 HKAS 1.81A(b) Other comprehensive income 58 for the year (after tax59 and reclassification adjustments58) 9 HKAS 1.82A(a) Items that will not be reclassified to profit or loss 58. Surplus on revaluation of land and buildings held for own use Remeasurement of defined benefit plan obligations 11(a) 28(b)(v) & (c) 25,152 6,312 (9) (10) Equity investments at FVOCI - net movement in fair value reserves (non-recycling) 60 90 50 25,233 6,352 HKAS 1.82A(b) Items that are or may be reclassified subsequently to profit or loss 58 Exchange differences on translation of: - financial statements of overseas subsidiaries - related borrowings Cash flow hedge: net movement in the hedging reserve (2,173) 1,047 33(d)(iii) 494 (219) (1,679) 828 (286) (264) (1,965) 564 Other comprehensive income for the year HKAS 1.81A(c) Total comprehensive income for the year Attributable to: 23,268 6,916 148,051 113,264 HKAS 1.81B(b) Equity shareholders of the company 137,782 103,024 HKFRS 10.B94 Non-controlling interests 10,269 10,240 HKAS 1.81A(c) Total comprehensive income for the year 148,051 113,264 The notes on pages 41 to 197 form part of these financial statements. 32 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#39HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.82A HKAS 1.92-96 HKFRS 9.6.5.11(d) HKAS 1.90-91 58 Entities are required to present the items of other comprehensive income that may be reclassified to profit or loss in the future (e.g. the effective portion of a cash flow hedge that is recognised in other comprehensive income) separately from those that would never be reclassified to profit or loss (e.g. revaluation surplus of property, plant and equipment). Also, the items of other comprehensive income arising from equity accounted investments should be presented in aggregate in two line items as follows: • . the share of other comprehensive income of associates and joint ventures accounted for using the equity method that will not be reclassified subsequently to profit or loss; and the share of other comprehensive income of associates and joint ventures accounted for using the equity method that will be reclassified subsequently to profit or loss. In this illustration, HK Listco did not have any share of other comprehensive income of associates and joint ventures during the reporting period. Individual HKFRSS specify whether and when amounts that were previously recognised in other comprehensive income are reclassified to profit or loss as follows: • Items that will not be reclassified to profit or loss: • changes in the revaluation surplus recognised in respect of right-of-use assets under paragraph 35 of HKFRS 16, items of property, plant and equipment recognised under paragraphs 39 and 40 of HKAS 16, or intangible assets under paragraphs 85 and 86 of HKAS 38; remeasurements of net defined benefit liability (asset) under paragraphs 120(c), 127 to 130 of HKAS 19; remeasurements of equity investments designated at fair value through other comprehensive income in accordance with paragraph 5.7.5 of HKFRS 9; Items that may be reclassified subsequently to profit or loss: gains and losses arising from translating a monetary item that forms part of the net investment in a foreign operation and from translating the financial statements of a foreign operation in accordance with paragraphs 32 and 39 of HKAS 21; gains and losses on re-measuring debt investments in accordance with paragraph 4.1.2A of HKFRS 9; the effective portion of gains and losses on hedging instruments in a cash flow hedge or hedge of a net investment in a foreign operation in accordance with paragraphs 6.5.11(d) and 6.5.14 of HKFRS 9. Reclassification adjustments are included with the related components of other comprehensive income in the period these adjustments are reclassified to profit or loss. The adjustments should be either separately disclosed on the face of the statement of profit or loss and other comprehensive income, or in the notes. In this illustration, the reclassification adjustments are presented separately in note 9 to the financial statements, with the net amounts for each item of other comprehensive income being presented in the statement of profit or loss and other comprehensive income. In accordance with paragraph 6.5.11(d) of HKFRS 9, when (i) a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or (ii) a hedged forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value accounting is applied, an entity should remove that amount from the cash flow hedge reserve and include it directly in the initial carrying amount of the asset or liability (i.e. a basis adjustment). Such removal is not a reclassification adjustment under HKAS 1, and therefore does not impact other comprehensive income. In this illustration, the basis adjustment is shown as a separate line item in the consolidated statement of changes in equity. 59 Entities are allowed to present the items of other comprehensive income on the face of the statement of profit or loss and other comprehensive income either (i) net of related tax effects, or (ii) before related tax effects with the aggregate tax shown separately. If alternative (ii) is elected, then the "aggregate" amount should be allocated between the items that may be reclassified subsequently to profit or loss and those that will not be reclassified subsequently to profit or loss. Irrespective of the approach taken, the entity should disclose the tax amount relating to each item of other comprehensive income in the notes, to the extent that this information is not provided on the face of the statement of profit or loss and other comprehensive income. In this illustration, HK Listco has taken the alternative (a), i.e. presenting the after-tax amounts in the statement of profit or loss and other comprehensive income. Disclosure of the tax attributable to individual items of other comprehensive income is given in note 9 to the financial statements. 60 As explained in footnote 58, HKAS 1 requires an entity to present the items of other comprehensive income that may be reclassified to profit or loss in the future separately from those that would never be reclassified to profit or loss in the statement of profit or loss and other comprehensive income. Although there are no such requirements for the statement of changes in equity, it may be useful to specify whether the fair value reserves are recycling or not. In this illustration, HK Listco only has equity instruments that are designated at FVOCI, for which the accumulated other comprehensive income will not be reclassified to profit or loss (i.e. non-recycling). Accordingly, it has labelled the corresponding fair value reserve as such. 33 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#40HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.10(f), 40A-D HKAS 1.113 HKAS 1.29, 30A HKAS 1.55, 57- 58 61 62 63 The CO explicitly uses the term "statement of financial position" in different sections, including section 387 and section 2 of Part 1 of Schedule 4 to the CO. Given that these requirements explicitly refer to "statement of financial position", we believe that the company should use the title "statement of financial position", and not other titles such as "balance sheet". The term "statement of financial position" is also in line with the terminology in Appendix 16 to the MBLRs. HKAS 1 requires entities to include a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively, makes a retrospective restatement of items, or when it reclassifies items; and such retrospective application, restatement or reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period. Each item on the face of the statement of financial position shall be cross-referenced to any related information in the notes. As discussed in footnote 48, HKAS 1 requires an entity to present separately items of a dissimilar nature or function, unless they are immaterial, and take into consideration all relevant facts and circumstances in deciding how it aggregates information in the financial statements. Specifically, an entity should not reduce the understandability of the financial statements by aggregating material items that have different natures or functions. An entity should also present additional line items, headings and subtotals (i.e. in addition to those specifically required by HKFRS) in the statement of financial position when the size, nature or function of an item (or aggregation of similar items) is such that separate presentation is relevant to an understanding of the entity's financial position. In assessing whether it is required to present additional items separately, an entity considers: • the nature and liquidity of assets; CP 64 HKAS 1.29-30A, 55, 77 65 • the function of assets within the entity; and the amounts, nature and timing of liabilities. Although there is no specific requirement under HKFRSS or the MBLRs to disclose the amounts of net current assets (liabilities) and total assets less current liabilities, it is a common local practice to disclose these two subtotals. Entities should apply judgement in determining whether the following HKFRS 15 items should be presented separately (either in the statement of financial position or in the notes) or aggregated with another line item (and if so, then which line item): refund/repurchase liability; • right to recover a returned good; • costs to obtain/fulfil a contract (contract costs); and • asset relating to the consideration paid to the customer. HKFRS 15.128 HKFRS 15.55, B21, BC367 HKFRS 16.47 HKFRS 16.48 HKAS 19.133 66 67 As further explained in footnote 201, in this illustration, HK Listco aggregates capitalised contract costs with inventories as a single line item in the statement of financial position because of their similar nature. The closing balances of the capitalised costs are disclosed in the note under the disclosure requirements of paragraph 128 of HKFRS 15 (see note 19). In this illustration, HK Listco also aggregates the asset recognised for its right to recover returned goods with inventories, and refund liabilities arising from right to return and volume rebates with trade and other payable, in the statement of financial position because of their similar nature, and discloses them separately in the notes (see note 19 for the right to recover returned goods and note 24 for refund liabilities). In this illustration, it is assumed that HK Listco does not have any liabilities arising from repurchase agreements or assets relating to consideration paid to the customers. For right-of-use assets and lease liabilities, an entity can as an accounting policy election either present them separately in the statement of financial position or disclose them separately in the notes. If the entity chooses not to present right-of-use assets separately in the statement of financial position, the amounts shall be presented within the same line item as that within which the corresponding underlying assets would be presented if they were owned. In this illustration, HK Listco has chosen not to present right-of-use assets separately and therefore includes the amount of the right-of-use assets within "Property, plant and equipment", i.e. the same line item used to present the underlying assets of the same nature that it owns (see note 11). However, the above accounting policy choice does not apply to right-of-use assets that meet the definition of investment property. These assets are specifically required to be presented as investment property in the statement of financial position. HKAS 19 states that it does not specify whether assets and liabilities arising from post-employment benefits should be distinguished between current and non-current portions. We interpret this to mean that there is no need to apply the current/non-current distinction to all such assets and liabilities. However, where the distinction is clear, for example for outstanding contributions to defined contribution schemes due within 12 months, the distinction should be made. Also, a note may be necessary in accordance with paragraph 61 of HKAS 1, for example as illustrated in note 28(b)(i) to these financial statements, with regard to whether any of these balances include amounts due within and after 12 months. 34 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#41HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 15.105, HKAS 1.60, 66, 69 68 HKFRS 15.109 HKFRS 15 does not specify whether entities are required to present their contract assets and contract liabilities as separate line items or how to classify them as current or non-current in the statement of financial position. Entities should therefore apply the general principles in HKAS 1 for presenting and classifying contract assets and contract liabilities. In determining whether to classify the entire item as current or non-current or split into current and non-current component, an entity should consider the nature of its contract assets and contract liabilities and applies the guidance for similar assets or liabilities. For example, if contract assets are considered similar in nature to trade receivables, then it may be appropriate to split into current and non-current components. If contract liabilities are considered similar in nature to other operating liabilities, then it may be appropriate to classify the entire balance as current; whereas if they are similar in nature to long-term borrowings, then the balance should be split into current and non-current components. In this illustration, HK Listco determines that contract assets and contract liabilities are sufficiently material to be presented separately. In addition, as it expects these amounts to be realised or settled within its normal operating cycle, it presents them as current in the statement of financial position. HK Listco uses the terms "contract assets" and "contract liabilities" as these are used in HKFRS 15. However, entities are not prohibited from using alternative terms to describe these items in their statements of financial position, provided that the entities give sufficient information to users to distinguish these amounts from receivables and payables, which are different in nature. 35 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#42HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 1.10(a) & 51. A16(4)(2) Financial statements for the year ended 31 December 2023 Consolidated statement of financial position 61, 62, 63, 64 (Expressed in Hong Kong dollars) HKAS 1.113 HKAS 1.51(e) Note 31 December 2023 $'000 HKAS 1.60 & 66 Non-current assets HKAS 1.54(a) Property, plant and equipment 66 HKAS 1.54(b) Investment property66 EE 11 234,508 31 December 2022 $'000 (restated) 201,321 11 84,950 66,690 319,458 268,011 HKAS 1.54(c) Intangible assets HKAS 1.54(c) Goodwill 13 HKAS 1.54(e) Interests in associates 15 HKAS 28.15 HKAS 1.54(e) Interest in joint venture 2356 12 15,220 14,400 916 1,100 40,308 29,478 16 42,765 32,095 Equity securities designated at fair value through HKAS 1.54(d), 55 & 59 17(a) 5,040 4,950 other comprehensive income ("FVOCI") Financial assets measured at fair value through HKAS 1.54(d), 55 & 59 17(b) 24,289 21,886 profit or loss ("FVPL") HKAS 1.54(d), 55 & 59, HKFRS 7.8(f) Financial assets measured at amortised cost 17(c) 31,601 21,596 HKAS 1.54(d) & 55 HKAS 1.54(o) & 56 Derivative financial instruments 18 893 1,214 Deferred tax assets 30(b) HKAS 1.60 & 66 Current assets HKAS 1.54(d) & 55 Derivative financial instruments 18 2,539 483,029 1,828 3,495 398,225 2,399 HKAS 1.54(g) Inventories and other contract costs 65 19 258,644 218,073 HKAS 1.55 Contract assets 68 20(a) 10,551 23,338 HKFRS 15.105 HKAS 1.54(h) Trade and other receivables 21(a) 76,196 59,074 HKFRS 7.8(f) HKAS 1.55 HKAS 1.54(i) HKAS 1.54(d) HKAS 1.60 & 69 HKAS 1.54(k) HKFRS 7.8(g) HKAS 1.55 HKFRS 15.105 HKAS 1.54(m) HKFRS 7.8(g) HKAS 1.54(m) HKFRS 16.47(b) HKAS 1.54(m) & 55 Prepayments Trading securities Cash and cash equivalents Current liabilities Trade and other payables 65 Contract liabilities68 21(b) 714 190 17(b) 58,331 58,020 22 76,580 105,088 482,844 466,182 24 24 160,613 143,207 20(b) 13,227 7,173 Bank loans and overdrafts 26 33,218 40,314 Lease liabilities66 27 21,329 15,271 Derivative financial instruments 18 234 200 HKAS 1.54(m) & 55. Other current liabilities 106 108 HKAS 1.54(n) HKAS 1.54(1) Current taxation 30(a) 6,750 7,244 Provisions 31 10,900 9,410 246,377 222,927 CP CP 236,467 243,255 719,496 641,480 Net current assets64 Total assets less current liabilities64 HKAS 1.60 & 69 HKAS 1.54(m) Non-current liabilities Interest-bearing borrowings 25 74,802 72,251 HKFRS 7.8(g) HKAS 1.54(m) HKFRS 16.47(b) Lease liabilities66 27 48,963 53,202 HKAS 1.54(m) & 55 Derivative financial instruments 18 106 43 Defined benefit plan obligations 67 28 3,884 3,210 HKAS 1.54(o) & 56 Deferred tax liabilities 30(b) 19,194 13,850 HKAS 1.54(1) Provisions 31 12,100 11,251 159,049 153,807 NET ASSETS 560,447 487,673 36 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#43HKAS 1.51(a) HKAS 1.49 HKAS 1.113 HKAS 1.51(e) HKAS 1.54(r) CAPITAL AND RESERVES Share capital Reserves HKAS 1.54(q) HKFRS 10.22 HKAS 10.17 Total equity attributable to equity shareholders of the company Non-controlling interests TOTAL EQUITY HK Listco Ltd Financial statements for the year ended 31 December 2023 Note 31 December 2023 $'000 31 December 2022 $'000 (restated) 32(c) 181,400 175,000 296,783 240,678 478,183 415,678 82,264 71,995 560,447 487,673 Approved and authorised for issue by the board of directors on 28 March 2024. S387 Hon WS Tan69 SK Ho69 Directors The notes on pages 41 to 197 form part of these financial statements. S387(2) 69 Section 387(2) of the CO requires the financial statements to state the names of the persons who signed the statement of financial position on the directors' behalf. HKAS 1.IN13 & 106-106A 70 HKAS 1.113 71 HKAS 1.54(q) & 106(a) Under HKAS 1, the statement of changes in equity focuses on owner changes in equity. Specifically, the standard requires the following items to be included in the statement of changes in equity, analysed by each component of equity: • • total comprehensive income for the period, with profit or loss and other comprehensive income separately disclosed; the amounts of transactions with equity holders in their capacity as such (such as equity contributions, re-acquisitions of the entity's own equity instruments, dividends and transaction costs directly related to such transactions); and the effects of retrospective application of changes in policies or retrospective restatements recognised in accordance with HKAS 8. Entities are required to present an analysis of other comprehensive income by item either in the statement of changes in equity or in the notes. HK Listco has chosen to present this analysis in the notes (note 9). Each item on the face of the statement of changes in equity shall be cross-referenced to any related information in the notes. 72 As non-controlling interests in the equity of a subsidiary are presented as part of equity, and not as a deduction from net assets (see policy note 1(d)), they should be included in the statement of changes in equity as one of the components of total equity. 37 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#44HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 1.10(c) & 51 HKAS 1.113 HKAS 1.51(e) Financial statements for the year ended 31 December 2023 70, 71 Consolidated statement of changes in equity7 for the year ended 31 December 2023 (Expressed in Hong Kong dollars) Attributable to equity shareholders of the company Capital Exchange Property revaluation Hedging Fair value reserve (non- Non-controlling Note Share capital $'000 reserve reserve reserve reserve recycling) 60 Retained profits Total interests72 Total equity $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 2022 175,000 134 946 2,251 2,823 85 201,971 383,210 61,755 444,965 HKAS 1.106(d) Changes in equity for 2022: Profit for the year (restated) Other comprehensive income (restated) 9 755 6,312 (264) 50 96,181 (10) 96,181 10,167 106,348 HKAS 1.106(a) Total comprehensive income (restated) 755 6,312 (264) 50 96,171 6,843 103,024 73 10,240 6,916 113,264 HKAS 1.106(d)(iii) Amounts transferred from hedging reserve 58 to initial carrying amount of hedged items Dividends approved in respect of the 33(d)(i) (181) (181) (181) previous year 32(b) (45,000) (45,000) (45,000) Equity settled share-based transactions 1,625 Dividends declared in respect of the current year Balance at 31 December 2022 and 1 January 2023 (restated) 32(b) (27,000) 1,625 (27,000) 1,625 (27,000) 175,000 1,759 1,701 8,563 2,378 135 226,142 415,678 71,995 487,673 HKAS 1.106(d) Changes in equity for 2023: Profit for the year 114,367 114,367 10,416 124,783 Other comprehensive income 9 HKAS 1.106(a) Total comprehensive income (1,532) (1,532) 25,152 (286) 90 (9) 23,415 (147) 23,268 25,152 (286) 90 114,358 137,782 10,269 148,051 Amounts transferred from hedging reserve 58 to initial carrying amount of hedged items 33(d)(i) (195) (195) (195) HKAS 1.106(d)(iii) Dividends approved in respect of the previous year 32(b) Purchase of own shares 32(c)(iii) (49,500) (3,390) (49,500) (49,500) (3,390) (3,390) Shares issued under share option scheme Equity settled share-based transactions. 32(c)(iv) 6,400 (400) 1,658 6,000 6,000 1,658 1,658 Dividends declared in respect of the current year 32(b) Balance at 31 December 2023 181,400 3,017 169 33,715 1,897 225 (29,850) 257,760 (29,850) 478,183 (29,850) 82,264 560,447 The notes on pages 41 to 197 form part of these financial statements. 38 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#45HKAS 1.51(a) HKAS 1.49 HKAS 1.10(d) & 51 HKAS 1.113 HKAS 1.51(e) Consolidated cash flow statement73 for the year ended 31 December 2023 (Expressed in Hong Kong dollars) HKAS 7.35 Operating activities Cash generated from operations Tax paid: - Hong Kong profits tax paid HKAS 7.10 HKAS 7.21 - Overseas tax paid Net cash generated from operating activities Investing activities Payment for the purchase of property, plant and equipment74 Proceeds from sale of property, plant and equipment HK Listco Ltd Financial statements for the year ended 31 December 2023 Note 2023 2022 $'000 $'000 $'000 $'000 22(b) 145,966 119,339 (13,555) (7,150) (11,112) (6,950) 125,261 101,277 (21,822) 749 (20,760) 1,008 Expenditure on development project75 (1,500) (2,400) HKAS 7.39 Acquisition of subsidiary, net of cash acquired 22(e) (1,955) HKAS 7.37 New loans to associates (20,707) (3,921) HKAS 7.37 Loans repaid by associates 11,000 Payment for purchase of: units in bond funds (500) equity securities (719) (100) Proceeds from sale of equity securities 2,500 HKAS 7.31 Interest received 76 1,065 824 HKAS 7.31 & 37 Dividends received from associates76 3,000 HKAS 7.31 Dividends received from investments in securities 76 610 572 HKAS 7.10 Net cash used in investing activities (28,279) (24,777) HKAS 7.21 Financing activities HKAS 7.17(e) Capital element of lease rentals paid74 22(c) (17,611) (14,145) Payment for repurchase of shares (3,390) Proceeds from new bank loans 22(c) 6,100 Repayment of bank loans 22(c) (10,480) 6,390 (4,919) HKAS 7.37 Proceeds from new loans from fellow subsidiaries 22(c) 1,759 906 Proceeds from shares issued under share option scheme Proceeds from the issue of redeemable preference shares 32 6,000 22(c) Proceeds from settlement of derivatives 22(c) 98 4,000 80 Payment of transaction costs on issue of redeemable preference shares 22(c) (88) HKAS 7.31 Interest element of lease rentals paid 74 76 22(c) (4,587) (3,967) HKAS 7.31 Other borrowing costs paid 76 22(c) (19,718) (15,179) HKAS 7.31 HKAS 7.31 Dividends paid on redeemable preference shares 76 Dividends paid to equity shareholders of the company76 22(c) & 32 (200) (200) 32 (79,350) (72,000) HKAS 7.10 Net cash used in financing activities (121,379) (99,122) HKAS 7(App) Net decrease in cash and cash equivalents (24,397) (22,622) Cash and cash equivalents at 1 January 22(a) 102,299 122,650 HKAS 7.28 Effect of foreign exchange rate changes (2,588) 2,271 Cash and cash equivalents at 31 December 22(a) 75,314 102,299 The notes on pages 41 to 197 form part of these financial statements. 39 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#46HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.113 73 Each item on the face of the cash flow statement shall be cross-referenced to any related information in the notes. HKFRS 16.50, HKAS 7.16(a) 74 HKAS 7.16 HKAS 7.33-34, HKFRS 16.50(b) 75 76 Most lease-related cash payments are split into (i) capital element classified within financing activities and (ii) interest element classified in accordance with the accounting policy chosen for interest paid (see footnote 76 below). Certain exceptions are as follows: • • Variable lease payments that do not depend on an index or rate (such as turnover rent), rentals under short term leases and/or for low value assets which are expensed on a systematic basis under the recognition exemptions in paragraphs 5 and 6 of HKFRS 16: these payments are classified as operating cash outflows; and Cash outflows to acquire right-of-use assets where the lessor is not providing any financing benefit to the lessee: HKFRS 16 and HKAS 7 are silent on how to classify such payments in the cash flow statement. However, in our experience such cash outflows are normally classified as investing activities, consistent with purchases of other items of property, plant and equipment. A common example of "cash outflows to acquire right-of-use assets where the lessor is not providing any financing benefit to the lessee" is the purchase of leasehold property in China. Commonly, the entity would pay an upfront lump sum to become the registered owner of the property interest, including the undivided interest in the underlying land use right. During the term of the lease no other payments would be required in respect of the leasehold interest, other than variable payments based on the property's rateable value, or other property taxes, as assessed by and payable to the relevant government authorities from time to time. In this illustration, HK Listco purchases a leasehold property during the year and hence aggregates the relevant cash flows with "Payment for the purchase of property, plant and equipment" under investing activities. In this illustration, including this cash out flow under "investing activities" is appropriate for HK Listco as the expenditure relates to the creation of an intangible asset (see note 12). However, when the expenditure on development activities fails to meet the criteria in HKAS 38 for recognition as an asset, then the cash flows are classified as operating. In accordance with paragraphs 33 and 34 of HKAS 7, interest and dividends received and paid may also be classified as operating cash flows. If these cash flows are classified as arising from operating activities, they could be presented after "Cash generated from operations" and before "Net cash flows generated from operating activities”, i.e., similar to the "Tax paid" caption. 40 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#47HKAS 1.51(a) HKAS 1.49 HKAS 1.10(e), 51(d), 112 & 113 HK Listco Ltd Financial statements for the year ended 31 December 2023 Notes to the financial statements" (Expressed in Hong Kong dollars unless otherwise indicated) 78, 79 HKAS 1.117-117E Sch 4, Part 1, Section 4(a) HKAS 1.16 A16(5) 1 MATERIAL ACCOUNTING POLICIES 80 (a) Statement of compliance These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSS"), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASS") and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and the requirements of the Hong Kong Companies Ordinance 81. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Material accounting policies adopted by the group are disclosed below. The HKICPA has issued certain amendments to HKFRSS that are first effective or available for early adoption for the current accounting period of the group. Note 1(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the group for the current accounting period reflected in these financial statements. HKAS 1.113 HKAS 1.114 77 HKAS 21.53-57 78 HKAS 1.51(e) & 53 79 HKAS 1 requires that notes shall, as far as practicable, be presented in a systematic manner. In determining a systematic manner, an entity should consider the effect on the understandability and comparability of its financial statements. HKAS 1 provides the following examples of systematic ordering or grouping of the notes: (a) giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities; grouping together information about items measured similarly such as assets measured at fair value; or (b) (c) following the order of the line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position. In this illustration, HK Listco generally follows approach (c) by presenting notes following the order of the line items in the primary statements. If the consolidated financial statements are presented in a currency different from the parent entity's functional currency, the entity should disclose that fact, its functional currency and the reason for using a different presentation currency. In addition, if an entity includes financial information in a presentation currency other than its functional currency, without complying with the requirements of paragraph 55 of HKAS 21 (for example, where the entity translates only selected items of information, such as on the face of the primary statements, for the convenience of the users of the financial statements), then it should clearly identify the information as supplementary and should make the disclosures as required by paragraph 57 of HKAS 21 concerning this supplementary information. Paragraph 51(e) of HKAS 1 requires the level of rounding used in presenting amounts in the financial statements to be displayed prominently and repeated where it is necessary for a proper understanding of the information presented. Paragraph 53 of HKAS 1 also notes that often financial statements may be made more understandable by presenting information in thousands or millions of units of the presentation currency, and that this is acceptable, provided the level of rounding is disclosed and material information is not omitted. Generally, the financial statements should be prepared using a consistent level of precision throughout. That is, if the primary statements are presented, for example, to the nearest 1,000, then any note disclosures which support the primary statements, such as further analyses of income statement or balance sheet captions, would also generally be presented in round thousand amounts, so as to exactly reconcile to the amounts disclosed in the primary statements. However, occasionally it may be appropriate to present specific items of information in the financial statements using different levels of precision from that used generally. For example, although HK Listco generally presents its financial statements in $'000, some note disclosures are presented in a lower level of precision, due to the uncertainty surrounding the measurement of that item. For example, as illustrated in note 35(a) and (b), when HK Listco is disclosing the estimated financial effect of pending law suits which are regarded as contingent assets/liabilities, it has disclosed the estimate in $millions due to the uncertainties involved in estimating the outcome. The level of precision used in such cases should be clearly disclosed in accordance with paragraph 51(e) of HKAS 1 and care should be taken to ensure that material information is not omitted. 41 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#48HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.117-117E 80 Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies, which are effective for annual periods beginning on or after 1 January 2023, clarify that an entity is required to disclose its "material" rather than "significant" accounting policy and provides guidance on applying the concept of materiality to accounting policy disclosure. Accounting policy information is material if, when considered together with other information included in the entity's financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. Paragraph 117B of HKAS 1 further explains that accounting policy information is likely to be material if that information relates to material transactions, other events or conditions and: (a) the entity changed its accounting policy during the reporting period which resulted in material change to the information in the financial statements; (b) the entity chose the accounting policy from one or more options permitted by HKFRSS; (c) (d) (e) accounting policy was developed in accordance with HKAS 8 in the absence of a HKFRS that specifically applies; the accounting policy related to an area for which the entity is required to make significant judgements or assumptions in applying an accounting policy, and the entity discloses those judgements or assumption in accordance with paragraphs 122 and 125 of HKAS 1; or the accounting required for them is complex and users of the entity's financial statements would otherwise not understand those material transactions, other events or conditions, for example if the entity applies more than one HKFRS to a class of material transactions. In addition, paragraph 117C of HKAS 1 states that accounting policy information that focuses on how an entity has applied the requirements of the HKFRSS to its own circumstances provides entity-specific information that is more useful to users of financial statements than standardised information, or information that only duplicates or summarises the requirements of HKFRSS. To assist users of this Guide, we have included accounting policy notes that cover a wide range of transactions and circumstances. Not all of these policies will be material to an individual entity's circumstances. Conversely, there may be other policies which an entity needs to disclose as a result of transactions it has entered into, or policy choices it has made, which are not illustrated here. Care should be taken to meet the requirements of HKAS 1 to disclose material accounting policy information. In addition, when other HKFRSS specifically require the policy for the topic in question to be disclosed, we have given the references to the disclosure requirements in the left hand column (see, for example, policy note 1(o) which has a reference to paragraph 36(a) of HKAS 2). See Appendix A to this Guide for a full index of the accounting policies illustrated here. For additional guidance of this amendment, please refer to the talkbook produced by KPMG's International Standards Group. 81 For listed companies that are not incorporated under the CO, the word "disclosure" is normally inserted before the words "requirements of the Hong Kong Companies Ordinance". 42 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#49HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.51(b) HKAS 1.122 & 125 (b) Basis of preparation of the financial statements The consolidated financial statements for the year ended 31 December 2023 comprise the company and its subsidiaries (together referred to as the "group") and the group's interest in associates and a joint venture. The measurement basis used in the preparation of the financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below: - investment property, including interests in leasehold land and buildings held as investment property where the group is the registered owner of the property interest (see note 1(j); other freehold land and buildings, including interests in leasehold land and buildings where the group is the registered owner of the property interest (see note 1(k)); investments in debt and equity securities (see note 1(g)); and derivative financial instruments (see note 1(h)). Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell (see note 1(dd)). The preparation of financial statements in conformity with HKFRSS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of HKFRSS that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in note 2. [If there are material uncertainties that cast significant doubt upon the entity's ability to continue as a going concern, then these should be disclosed in accordance with paragraphs 25 to 26 of HKAS 1. In addition, as noted in an agenda decision published by the IFRS Interpretations Committee in July 2014, it may also be necessary to apply the requirements of paragraph 122 of HKAS 1 and disclose the judgements made in concluding that there are no such material uncertainties. This may apply in so- called "close call" cases.] 43 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#50HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 8.28 Financial statements for the year ended 31 December 2023 (c) Changes in accounting policies 82, 83 (i) New and amended HKFRSS The group has applied the following new and amended HKFRSS issued by the HKICPA to these financial statements for the current accounting period: • • HKFRS 17, Insurance contracts Amendments to HKAS 8, Accounting policies, changes in accounting estimates and errors: Definition of accounting estimates Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies Amendments to HKAS 12, Income taxes: Deferred tax related to assets and liabilities arising from a single transaction Amendments to HKAS 12, Income taxes: International tax reform - Pillar Two model rules The group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Impacts of the adoption of the new and amended HKFRSS are discussed below: 82 83 Paragraph 28 of HKAS 8 requires certain disclosures to be made when the initial application of a Standard or Interpretation has an effect on the current period or any prior period (or would have such an effect except that it is impracticable to determine the amount of the adjustment), or might have an effect on future periods. The disclosures required are both qualitative and quantitative, and include, to the extent practicable, the adjustments for the current period and each prior period presented for each financial statement line item affected, including earnings per share, if disclosed. As with all HKFRSS, these requirements in HKAS 8 apply only to the extent that the effect would be material. It is important that care is taken to tailor the disclosures to suit the entity's circumstances, as there may be changes in accounting policies which an entity needs to disclose but which have not been illustrated. A full list of the recent HKFRS developments is included in Appendix B to this Guide and care should be taken to check whether any of these could have a material impact on the entity. As explained in footnote 62, HKAS 1 requires an entity to present statement of financial position information as at the beginning of the preceding period (i.e. 1 January 2022 for HK Listco) whenever an accounting policy has been adopted retrospectively, an error has been corrected retrospectively or comparatives have been restated for any other reason and this retrospective application, restatement or reclassification has a material effect on the information in the opening statement of financial position for the comparative period. Care should be taken to ensure this additional statement is given whenever an accounting policy change has material effect on the opening statement of financial position for the comparative period. A range of changes relevant to HK Listco has been disclosed in this illustration. The extent of impact of these changes may vary from one entity to another. In addition, there may be other changes in accounting policies which an entity needs to disclose, but have not been illustrated. Care should be taken to tailor the disclosures to suit the entity's own circumstances. There is no requirement to disclose details of any changes in HKFRS requirements which have no material impact on the group's accounting policies, such as changes which relate only to certain business activities in which the group is not involved. Also, even if changes in the HKFRS requirements may be broadly relevant to the group's accounting policies, the impact on the reported net assets and performance may be immaterial at the time of the change, for example, because the change relates only to certain types of transactions that the group has not entered into recently. Therefore, the extent of information that an entity may disclose in respect of recent developments in HKFRS which do not result in restatements may vary from one entity to the next. For example, if none of the HKFRS developments is relevant to an entity, the entity may consider simplifying note 1(c)(i) as follows: "The HKICPA has issued a new HKFRS and a number of amendments to HKFRSS that are first effective for the current accounting period. None of these developments are relevant to the group. The group has not applied any new standard or interpretation that is not yet effective for the current accounting period." Alternatively, an entity may limit note 1(c)(i) to an identification of the new and amended HKFRSS without including further details as follows: "The HKICPA has issued the following new and amended HKFRSS that are first effective for the current accounting period of the group. Of these, the following developments are relevant to the group's financial statements: HKFRS 17, Insurance contracts None of these developments have had a material effect on how the group's results and financial position for the current or prior periods have been prepared or presented. The group has not applied any new standard or interpretation that is not yet effective for the current accounting period." 44 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#51HKAS 1.51(a) HKAS 1.49 84 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 17, Insurance contracts84 HKFRS 17, which replaces HKFRS 4, sets out the recognition, measurement, presentation and disclosure requirements applicable to issuers of insurance contracts. [The standard does not have a material impact on these financial statements as the group does not have contracts within the scope of HKFRS 17.] [Or disclose the effect if HKFRS 17 has a material impact on the entity.] Amendments to HKAS 8, Accounting policies, changes in accounting estimates and errors: Definition of accounting estimates The amendments provide further guidance on the distinction between changes in accounting policies and changes in accounting estimates. [The amendments do not have a material impact on these financial statements as the group's approach in distinguishing changes in accounting policies and changes in accounting estimates is consistent with the amendments.] [Or disclose the effect if the amendments have material impact on the entity.] Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies⁹0 The amendments require entities to disclose material accounting policy information and provide guidance on applying the concept of materiality to accounting policy disclosure. [The group has revisited the accounting policy information it has been disclosing and considered it is consistent with the amendments.] [Or describe any impacts on the entity's accounting policy disclosure e.g. removing or reducing the immaterial accounting policies, rearranging the location of policy note disclosures such that immaterial policy information does not obscure the material information.] Amendments to HKAS 12, Income taxes: Deferred tax related to assets and liabilities arising from a single transaction The amendments narrow the scope of the initial recognition exemption such that it does not apply to transactions that give rise to equal and offsetting temporary differences on initial recognition such as leases and decommissioning liabilities. For leases and decommissioning liabilities, the associated deferred tax assets and liabilities are required to be recognised from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments are applied to those transactions that occur after the beginning of the earliest period presented. Prior to the amendments, the group did not apply the initial recognition exemption to lease transactions and had recognised the related deferred tax, except that the group previously determined the temporary difference arising from a right-of-use asset and the related lease liability on a net basis on the basis they arise from a single transaction. Following the amendments, the group has determined the temporary differences in relation to right-of-use assets and lease liabilities separately. The change primarily impacts disclosures of components of deferred tax assets and liabilities in note 30(b), but does not impact the overall deferred tax balances presented in the consolidated statement of financial position as the related deferred tax balances qualify for offsetting under HKAS 12. Amendments to HKAS 12, Income taxes: International tax reform - Pillar Two model rules85 The amendments introduce a temporary mandatory exception from deferred tax accounting for the income tax arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development ("OECD") (income tax arising from such tax laws is hereafter referred to as "Pillar Two income taxes"), including tax laws that implement qualified domestic minimum top-up taxes described in those rules. The amendments also introduce disclosure requirements about such tax including the estimated tax exposure to Pillar Two income taxes. The amendments are immediately effective upon issuance and require retrospective application. The group provided the additional disclosures in note 6(c). In this illustration, HK Listco does not have contracts within the scope of HKFRS 17. For additional illustrative IFRS disclosures on IFRS 17, please refer to Illustrative disclosures for insurers - Guide to annual financial statements (September 2020) produced by KPMG's International Standards Group. 45 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#52HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) New HKICPA guidance on the accounting implications of the abolition of the MPF-LSP offsetting mechanism As disclosed in note 28(c), in June 2022 the Hong Kong SAR Government (the "Government") gazetted the Hong Kong Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022 (the "Amendment Ordinance"), which will come into effect from 1 May 2025 (the "Transition Date"). Once the Amendment Ordinance takes effect, an employer can no longer use any of the accrued benefits derived from its mandatory contributions to mandatory provident fund ("MPF") scheme to reduce the long service payment ("LSP") in respect of an employee's service from the Transition Date (the abolition of the "offsetting mechanism"). In addition, the LSP in respect of the service before the Transition Date will be calculated based on the employee's monthly salary immediately before the Transition Date and the years of service up to that date. In July 2023, the HKICPA published "Accounting implications of the abolition of the MPF-LSP offsetting mechanism in Hong Kong" that provides accounting guidance relating to the offsetting mechanism and the abolition of the mechanism. In particular, the guidance indicates that entities may account for the accrued benefits derived from mandatory MPF contributions that are expected to be used to reduce the LSP payable to an employee as deemed contributions by that employee towards the LSP. However, applying this approach, upon the enactment of the Amendment Ordinance in June 2022, it is no longer permissible to apply the practical expedient in paragraph 93(b) of HKAS 19 that previously allowed such deemed contributions to be recognised as reduction of service cost (negative service cost) in the period the contributions were made; instead these deemed contributions should be attributed to periods of service in the same manner as the gross LSP benefit. To better reflect the substance of the abolition of the offsetting mechanism, the group has changed its accounting policy in connection with its LSP liability and has applied the above HKICPA guidance retrospectively. The cessation of applying the practical expedient in paragraph 93(b) of HKAS 19 in conjunction with the enactment of the Amendment Ordinance resulted in a catch-up profit or loss adjustment in June 2022 for the service cost up to that date and consequential impacts on current service cost, interest expense and remeasurement effects from changes in actuarial assumptions for the rest of 2022 (see note 28(c)), with the corresponding adjustment to the comparative carrying amount of the LSP liability. This change in accounting policy did not have any impact on the opening balance of equity at 1 January 2022, and the cash flows and earnings per share amounts for the year ended 31 December 2022. It also did not have a material impact on the company-level statement of financial position as at 31 December 2022 and 31 December 2023. HKAS 12.88A, 88C-88D 85 CP In this illustration, it is assumed that certain relevant new tax laws implementing the Pillar Two model rules have been enacted or substantively enacted by 31 December 2023 in at least one of the jurisdictions in which HK Listco operates, and HK Listco expects to be impacted by these new tax laws. Accordingly, HK Listco has disclosed the impacts of the amendments to HKAS 12 in the change in accounting policy note and provided further disclosures in note 6(c). If none of the jurisdictions in which an entity operates has enacted or substantively enacted the tax laws to implement the Pillar Two model rules by the reporting date, but the entity expects that it will be impacted by the new or forthcoming tax laws, it is a best practice to nevertheless disclose information about the estimated exposure and/or progress in assessing the exposure. See note 6(c) and footnote 147 for further details of the disclosure requirements introduced by the amendments. 46 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#53HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 The following table summarises the impacts of the adoption of the HKICPA guidance on the comparatives presented in the group's consolidated statement of profit or loss and statement of financial position: As previously Effect of adoption of the HKICPA reported $'000 guidance $'000 As restated $'000 Consolidated statement of profit or loss for year ended 31 December 2022: Distribution costs Administrative expenses (57,058) (270) (57,328) (81,190) (806) (81,996) Profit from operations 122,145 (1,076) 121,069 Profit before taxation 128,759 (1,076) 127,683 Income tax (21,513) 178 (21,335) Profit for the year 107,246 (898) 106,348 Profit attributable to equity shareholders of the company 97,079 (898) 96,181 Earnings per share Basic $0.98 $(0.01) $0.97 Diluted $0.98 $(0.01) $0.97 Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2022: Remeasurement of defined benefit plan obligations (8) (2) (10) Other comprehensive income for the year 6,918 (2) 6,916 Total comprehensive income for the year 114,164 (900) 113,264 Total comprehensive income attributable to equity shareholders of the company 103,924 (900) 103,024 Consolidated statement of financial position as at 31 December 2022: Deferred tax assets 3,317 178 3,495 Total non-current assets 398,047 178 398,225 Total assets less current liabilities 641,302 178 641,480 Defined benefit plan obligations 2,132 1,078 3,210 Total non-current liabilities 152,729 1,078 153,807 Net assets 488,573 (900) 487,673 Reserves 241,578 (900) 240,678 Total equity attributable to equity shareholders of the company 416,578 (900) 415,678 Total equity 488,573 (900) 487,673 Reconciliation of profit before taxation to cash generated from operations for year ended 31 December 2022 (note 22(b)) Profit before taxation (Decrease)/increase in defined benefit plan obligations 128,759 (1,076) 127,683 (786) 1,076 290 47 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#54HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 8.29(c) 86 The following table illustrates the amounts that would have been in the group's consolidated statement of profit or loss for the year ended 31 December 2023 and the consolidated statement of financial position as at that date, if the group had not changed its accounting policy as noted above and had continued to apply the practical expedient in paragraph 93(b) of HKAS 1986. As reported Backing out effect of adoption of the HKICPA guidance $'000 $'000 If accounting policy had not been changed $'000 Consolidated statement of profit or loss for year ended 31 December 2023: Distribution costs Administrative expenses Profit from operations Profit before taxation Income tax Profit for the year Profit attributable to equity shareholders of the company Consolidated statement of profit or loss and other comprehensive income for the year ended 31 (62,919) 35 (62,884) (86,689) 107 (86,582) 145,376 142 145,518 149,258 142 149,400 (24,475) (23) (24,498) 124,783 119 124,902 114,367 119 114,486 December 2023: Remeasurement of defined benefit plan obligations (9) 5 (4) Other comprehensive income for the year 23,268 5 23,273 Total comprehensive income for the year 148,051 124 148,175 Total comprehensive income attributable to equity shareholders of the company 137,782 124 137,906 Consolidated statement of financial position as at 31 December 2023: Deferred tax assets 2,539 (201) 2,338 Total non-current assets 483,029 (201) 482,828 Total assets less current liabilities 719,496 (201) 719,295 Defined benefit plan obligations 3,884 (1,220) 2,664 Total non-current liabilities 159,049 (1,220) 157,829 Net assets 560,447 1,019 561,466 Reserves 296,783 1,019 297,802 Total equity attributable to equity shareholders of the company 478,183 1,019 479,202 Total equity 560,447 1,019 561,466 Reconciliation of profit before taxation to cash generated from operations for year ended 31 December 2023 (note 22(b)) Profit before taxation 149,258 142 149,400 Increase in defined benefit plan obligations 665 (142) 523 An entity discloses information required by paragraph 29(c) of HKAS 8 when it changes in accounting policy voluntarily. This includes the amounts of adjustments for each financial statement line item affected and, if HKAS 33 applies to the entity, adjustments for basic and diluted earnings per share. Such disclosures cover not only each prior period presented but also the current period. The financial effects of the voluntary change in accounting policy on the current period are determined by comparing the amounts as reported after applying the HKICPA guidance with the hypothetical amounts that would have been recognised if the entity had continued to apply the practical expedient in paragraph 93(b) of HKAS 19 to account for the amendments made to the LSP benefit formula as a result of the Amendment Ordinance. 48 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#55HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 27.17(c) (d) [Or describe any other effects of adopting the HKICPA guidance as appropriate, for example, if applying the alternative approach set out in the guidance, the recognition of reimbursement right assets and LSP liabilities would also affect the information in the statement of financial position as at the beginning of the comparative period, i.e. 1 January 2022, and as a result, a third statement of financial position has to be presented in the annual financial statements for the year ended 31 December 2023 following the voluntary change in accounting policy.] Subsidiaries and non-controlling interests Subsidiaries are entities controlled by the group. The group controls an entity when it 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. For each business combination, the group can elect to measure any non-controlling interests ("NCI") either at fair value or at the NCI's proportionate share of the subsidiary's net identifiable assets. NCI are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the company. NCI in the results of the group are presented on the face of the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income 87 as an allocation of the total profit or loss and total comprehensive income for the year between NCI and the equity shareholders of the company. Loans from holders of NCI and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with notes 1(t), (u), (v) or (w) depending on the nature of the liability. Changes in the group's interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions. When the group loses control of a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in that former subsidiary is measured at fair value when control is lost. In the company's statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see note 1(n)), unless it is classified as held for sale (or included in a disposal group classified as held for sale) (see note 1(dd)) 88. 87 88 As HK Listco has opted for the two-statement approach to the presentation of income and expenses (see footnote 47) and uses the titles "statement of profit or loss" and "statement of profit or loss and other comprehensive income" (see footnote 46), these terms continue to be used throughout the notes to this illustration. Where entities adopt instead the single-statement format and/or the other titles for the statements (e.g. "income statement" and "statement of comprehensive income"), the references to the relevant statements are to be tailored accordingly. As further discussed in footnote 292, under the CO the company-level statement of financial position is required to be disclosed as a note to the consolidated financial statements. Nevertheless, users may find the accounting policies in respect of investments in subsidiaries, joint ventures and associates useful information in understanding how these investments are accounted for in the company's statement of financial position. Therefore entities are recommended to disclose those accounting policies to the extent that they are relevant to the company-level statement of financial position. 49 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#56HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 27.17(c) Financial statements for the year ended 31 December 2023 (e) Associates and joint ventures An associate is an entity in which the group or the company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the group or the company has joint control, whereby the group or the company has the rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. An interest in an associate or a joint venture is accounted for using the equity method, unless it is classified as held for sale (or included in a disposal group classified as held for sale) (see note 1(dd)). They are initially recognised at cost, which includes transaction costs. Subsequently, the consolidated financial statements include the group's share of the profit or loss and other comprehensive income ("OCI") of those investees, until the date on which significant influence or joint control ceases. When the group's share of losses exceeds its interest in the associate or the joint venture, the group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the group's interest is the carrying amount of the investment under the equity method, together with any other long-term interests that in substance form part of the group's net investment in the associate or the joint venture, after applying the ECL model to such other long-term interests where applicable 89 (see note 1(n)(i)). Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent there is no evidence of impairment. In the company's statement of financial position, an investment in an associate or a joint venture is stated at cost less impairment losses (see note 1(n)), unless it is classified as held for sale (or included in a disposal group classified as held for sale) (see note 1(dd)).88 (f) Goodwill Goodwill arising on acquisition of businesses is measured at cost less accumulated impairment losses and is tested annually for impairment (see note 1(n)). (g) Other investments in securities HKFRS 7.21 HKFRS 7.21, B5(c) (i) The group's policies for investments in securities, other than investments in subsidiaries, associates and joint ventures, are set out below. Investments in securities are recognised/derecognised on the date the group commits to purchase/sell the investment. The investments are initially stated at fair value plus directly attributable transaction costs, except for those investments measured at FVPL for which transaction costs are recognised directly in profit or loss. For an explanation of how the group determines fair value of financial instruments, see note 33(f). These investments are subsequently accounted for as follows, depending on their classification. Non-equity investments Non-equity investments are classified into one of the following measurement categories: amortised cost, if the investment is held for the collection of contractual cash flows which represent solely payments of principal and interest. Expected credit losses, interest income calculated using the effective interest method (see note 1(aa)(ii)(c)), foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. 89 Paragraph 14A of HKAS 28 requires an entity to apply HKFRS 9 to other financial instruments in an associate and joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity's net investment in an associate or joint venture. Therefore, long-term interests are in the scope of both HKFRS 9 and HKAS 28 and paragraph 14A sets out the annual sequence in which both standards are to be applied. An example of long-term interests given in paragraph 38 of HKAS 28 is an item for which settlement is neither planned nor likely to occur in the foreseeable future which is, in substance, an extension of the entity's investment in that associate or joint venture. Such items may include preference shares and long-term receivables or loans. 50 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#57HKAS 1.51(a) HKAS 1.49 HKFRS 7.B5(e) HK Listco Ltd Financial statements for the year ended 31 December 2023 FVOCI - recycling, if the contractual cash flows of the investment comprise solely payments of principal and interest and the investment is held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. Expected credit losses, interest income (calculated using the effective interest method) and foreign exchange gains and losses are recognised in profit or loss and computed in the same manner as if the financial asset was measured at amortised cost. The difference between the fair value and the amortised cost is recognised in OCI. When the investment is derecognised, the amount accumulated in OCI is recycled from equity to profit or loss. FVPL if the investment does not meet the criteria for being measured at amortised cost or FVOCI (recycling). Changes in the fair value of the investment (including interest) are recognised in profit or loss. (ii) Equity investments An investment in equity securities is classified as FVPL, unless the investment is not held for trading purposes and on initial recognition the group makes an irrevocable election to designate the investment at FVOCI (non-recycling) such that subsequent changes in fair value are recognised in OCI. Such elections are made on an instrument-by-instrument basis, but may only be made if the investment meets the definition of equity from the issuer's perspective. If such election is made for a particular investment, at the time of disposal, the amount accumulated in the fair value reserve (non-recycling) is transferred to retained earnings and not recycled through profit or loss. Dividends from an investment in equity securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income (see note 1(aa)(ii)(b)). HKFRS 7.21 HKFRS 7.B5(e) HKFRS 7.21 (h) (i) (i) Derivative financial instruments The group holds derivative financial instruments to manage its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met. Derivatives are initially measured at fair value. Subsequently, they are measured at fair value with changes therein recognised in profit or loss, except where the derivatives qualify for cash flow hedge accounting or hedges of net investment in a foreign operation (see note 1(i)). Hedging⁹0 The group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and variable rate borrowings. Some borrowings are designated as hedges of the foreign exchange risk of a net investment in a foreign operation. Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve within equity. The effective portion that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion is recognised immediately in profit or loss. HKFRS 9.7.2.21, 22 & 26 90 Until the IASB completes its project on accounting for dynamic risk management and the resulting pronouncements are adopted by the HKICPA as part of HKFRSS, entities have an accounting policy choice to apply the hedge accounting requirements under HKFRS 9 or to continue applying HKAS 39 hedge accounting. This policy choice should be applied to all (including both existing and new) hedging relationships. If an entity decides to apply HKFRS 9 hedge accounting requirements, it may either apply the requirements upon the initial application of HKFRS 9 or in subsequent periods as a change in accounting policy. Regardless of whether the entity applies HKFRS 9 hedge accounting requirements upon the initial adoption of HKFRS 9 or in subsequent periods, in the first year of adoption it should follow the hedge accounting transition requirements in HKFRS 9 and provide the transitional disclosures in accordance with HKAS 8. In this illustration, HK Listco applied HKFRS 9 hedge accounting requirements upon the initial adoption of HKFRS 9 in 2018. For an illustration of the transitional disclosures, please refer to the December 2018 edition of the illustrative financial statements. 51 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#58HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 40.75(a) HKAS 16.73(a) HKAS 16.73(a) Financial statements for the year ended 31 December 2023 HKAS 16.73(b) & (c) When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve is removed from the reserve and is included directly in the initial cost of the non-financial item when it is recognised. For all other hedged forecast transactions, the amount accumulated in the hedging reserve is reclassified through OCI to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss. If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until the transaction occurs and it is recognised in accordance with the above policy. If the hedged future cash flows are is no longer expected to occur, then the amounts that have been accumulated in the hedging reserve is immediately reclassified through OCI to profit or loss. (ii) Hedge of net investments in foreign operations The effective portion of any foreign exchange gains or losses on the borrowings is recognised in OCI and presented in the exchange reserve within equity. Any ineffective portion is recognised immediately in profit or loss. The amount accumulated in the exchange reserve is fully or partially reclassified through OCI to profit or loss as a reclassification adjustment on disposal or partial disposal of the foreign operation, respectively. (j) Investment property (k) Investment property is initially measured at cost, and subsequently at fair value with changes therein recognised in profit or loss. Any gain or loss on disposal of investment property is recognised in profit or loss. Rental income from investment properties is recognised in accordance with note 1(aa)(ii)(a). Property, plant and equipment The following properties held for own use are stated at their revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation: - freehold land and buildings; and interests in leasehold land and buildings where the group is the registered owner of the property interest (see note 1(m)). The following items of property, plant and equipment are stated at cost, which includes capitalised borrowing costs, less accumulated depreciation and any accumulated impairment losses (see note 1(n)): right-of-use assets arising from leases over freehold or leasehold properties where the group is not the registered owner of the property interest; and items of plant and equipment, including right-of-use assets arising from leases of underlying plant and equipment (see note 1(m)). If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components). Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. Any related revaluation surplus is transferred from the revaluation reserve to retained profits and is not reclassified to profit or loss. Depreciation is calculated to write off the cost or valuation of items of property, plant and equipment less their estimated residual values, if any, using the straight line method over their estimated useful lives, and is generally recognised in profit or loss. 52 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#59HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 The estimated useful lives for the current and comparative periods are as follows: Freehold land is not depreciated. Buildings situated on freehold land are depreciated over their estimated useful life, being no more than 50 years after the date of completion. Leasehold land is depreciated over the unexpired term of lease. The group's interests in buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and the buildings' estimated useful lives, being no more than 50 years after the date of completion. Plant and machinery Others 10 years 3-5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (I) Intangible assets (other than goodwill) HKAS 38.118(a) & (b) Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the group intends to and has sufficient resources to complete development and to use or sell the resulting asset. Otherwise, it is recognised in profit or loss as incurred. Capitalised development expenditure is subsequently measured at cost less accumulated amortisation and any accumulated impairment losses⁹1. Other intangible assets, including patents and trademarks, that are acquired by the group and have finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses (see note 1(n)). Expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, if any, and is generally recognised in profit or loss. The estimated useful lives for the current and comparative periods are as follows: Capitalised development costs Patents and trademarks 5 years 5 to 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. 91 Due to the restrictive conditions for the recognition of development expenditure, some entities may consider that the following wording for the accounting policy would be more appropriate to their circumstances: "Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of the group's research and development activities, the criteria for the recognition of such costs as an asset are generally not met until late in the development stage of the project when the remaining development costs are immaterial. Hence both research costs and development costs are generally recognised as expenses in the period in which they are incurred." 53 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#60HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 16.12-13 & 15 HKFRS 16.12-13 & 15 (m) Leased assets (i) At inception of a contract, the group assesses whether the contract is, or contains, a lease. This is the case if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use. As a lessee Where the contract contains lease component(s) and non-lease component(s), the group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases [other than ... name any specific class of underlying asset to which this practical expedient does not apply] 92. 92 Paragraph 12 of HKFRS 16 states that an entity shall account for each lease component within the contract as a lease separately from any non-lease components of the contract, unless it applies the practical expedient in paragraph 15 of HKFRS 16. This practical expedient is available only to lessees (not lessors). It allows a lessee to elect on a class-by-class basis not to separate the components, and instead to account for each lease component and any associated non-lease components as a single lease component. However, embedded derivatives that meet the criteria in paragraph 4.3.3 of HKFRS 9 are explicitly excluded from this practical expedient and have to be separated if required by HKFRS 9. Examples of "non-lease components" would be if a contract included payments for regular maintenance activities carried out by the lessor for the benefit of the lessee, or for other goods or services such as consumable spare parts for an underlying asset or the provision of security and cleaning staff e.g. for a leased property. Non-lease components could also include payments relating to the lessee's right to access to certain physical assets but such rights fail the definition of a lease as set out in paragraphs B13-B20 of HKFRS 16, which would be the case where the lessor has a substantive substitution right, or the portion of the asset made available to the lessee is not physically distinct. For example, an arrangement may cover both the rental of a specific floor in an office building, and the right for a limited number of cars to park in the basement car park in spaces to be assigned by the landlord from time to time. In this example, the rental of the specific office floor will typically be a lease component, while the car-parking rights would be a non-lease component unless the rights were sufficient for the lessee to occupy substantially all the spaces in the car park. In some cases, taking the practical expedient will simplify the lessee's accounting. This will typically be when the lease is for a relatively short period and the difference between (i) capitalising all of the consideration and depreciating the right-of-use asset, and (ii) expensing some of the consideration as incurred and depreciating the rest, will not be worth the effort of allocating the consideration to each lease component on the basis of relative stand-alone price of the lease components and the aggregate stand-alone price of the non-lease components (as required by paragraph 13 of HKFRS 16). It could also be the case when the payments for both components are fixed for the duration of the lease term, or are subject to review on the same dates as each other. This approach could also simplify the record-keeping by the entity for the terms of the lease. In other cases, however, separating the lease component at the inception of the lease may overall be the simpler accounting, as well as giving better information to users of financial statements. This will typically be the case for longer-term leases with material non-lease components, where the amount payable for the non-lease components may be subject to change on a more frequent basis than the lease components. In such cases, if the components are not separated, then it may result in the need to apply lease modification accounting more often, which can be complex. Instead, if the components are separated, then the consideration for the non-lease components can continue to be expensed as incurred. Additionally, separating the components will result in smaller lease liabilities and right-of-use assets than if the practical expedient is used, which may be a relevant consideration for some entities, for example, those subject to gearing ratio covenants. Entities should therefore consider carefully the impact of taking or not taking advantage of the practical expedient on a class-by- class basis when determining their accounting policies. As this is a class-by-class election, it is best practice to explain in the policy note the situations in which the entity would or would not take advantage of the practical expedient. As noted above, this practical expedient is not available to lessors. Instead, paragraph 17 of HKFRS 16 states that lessors should apply paragraphs 73 to 90 of HKFRS 15 to allocate the consideration under the contract to the components. 54 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#61HKAS 1.51(a) HKAS 1.49 HKFRS 16.60 HKFRS 16.5-8, 60 93 HKFRS 16.B3-B4 HKFRS 16.53(c)-(d) HK Listco Ltd Financial statements for the year ended 31 December 2023 At the lease commencement date, the group recognises a right-of-use asset and a lease liability, except for leases that have a short lease term of 12 months or less, and leases of low-value items such as laptops and office furniture 93. When the group enters into a lease in respect of a low-value item, the group decides whether to capitalise the lease on a lease-by-lease basis. If not capitalised, the associated lease payments are recognised in profit or loss on a systematic basis over the lease term. Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is recognised using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability, and are charged to profit or loss as incurred. HKFRS 16 provides recognition exemptions under which an entity can decide not to apply the on-balance sheet lessee accounting model to leases where the lease term is 12 months or less and/or the underlying asset is of low value. If these recognition exemptions have been applied, the entity is required to disclose this fact. In this illustration, HK Listco includes the disclosure in its policy note to indicate that it is its general policy not to capitalise short-term leases and leases of low-value assets. The exemption categories relate to the length of the lease term and the nature of the underlying item. A "short-term lease" is a lease that, at the commencement date, has a lease term of 12 months or less, and does not contain a purchase option. The election for the short-term lease exemption shall be made by class of underlying asset to which the right of use relates. Under paragraph 7 of HKFRS 16, if a lease which has been classified as a short-term lease is extended, then the remaining period of the extended lease will only qualify for the short-term exemption if the new lease term, when measured as from the effective date of the modification, does not exceed 12 months. The "effective date of the modification" is defined in Appendix A to HKFRS 16 as the date when both parties agree to the modification. For example, on 1 November 2023 an entity agrees with the lessor to extend a 12 month lease, which was due to expire on 31 December 2023, for a further 6 months to 30 June 2024. In this case, the relevant period for assessing the modified lease is 8 months (1 November 2023 to 30 June 2024), and the lease can continue to qualify for the short-term exemption. However, if this same lease was extended instead for a further 12 months such that it expires on 31 December 2024, then this extended lease would fail to qualify for the exemption as from 1 November 2023, as the relevant period of time would be 14 months, counted as from that date. The term "low-value asset" is not explicitly defined in HKFRS 16. However, in the Basis for Conclusions the IASB indicated that as of the time of writing (which was in 2015) they had in mind items costing USD5,000 or less when new. This refers to the value of the item being leased when new, and not to the value of the right-of-use asset. For example, a car would not be "low-value" as it typically costs more than USD5,000 when purchased new. The assessment of whether an underlying asset is of "low value" is performed on an absolute basis. It is not affected by the size, nature or circumstances of the lessee, and an item may be assessed as "low value" regardless of whether the low-value assets in aggregate are material. Accordingly, the IASB expected different lessees to reach the same conclusions about whether a particular underlying asset is of low value. This recognition exemption can be elected on a lease-by-lease basis. Entities need to keep track of these leases in order to: determine whether the exemption still applies, e.g. when there is a lease modification or any change in lease term; and be able to disclose the amounts of these lease expenses recognised in profit or loss, if material. Specifically, paragraphs 53(c) and (d) of HKFRS 16 require entities who have applied the short-term leases and/or low value assets exemption to separately disclose the following amounts: (a) the amount of expenses relating to short-term leases that have been expensed systematically rather than capitalised, by applying paragraph 6 of HKFRS 16. In accordance with paragraph 53(d) of HKFRS 16 this amount need not include the expenses relating to leases with a lease term of one month or less; and (b) the amount of expenses relating to leases of low-value assets that have been expensed systematically rather than capitalised, by applying paragraph 6 of HKFRS 16, unless the amount is already disclosed as part of (a) i.e. as a short-term lease. In this illustration, HK Listco has disclosed these amounts in Note 11(c). 55 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#62HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 16.34-35 The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 1(k) and 1(n)(iii)), except for the following types of right-of-use asset⁹4: right-of-use assets that meet the definition of investment property are carried at fair value (see note 1(j)); and right-of-use assets related to leasehold land and buildings where the group is the registered owner of the leasehold interest are carried at fair value (see note 1(k)); and right-of-use assets related to interests in leasehold land where the interest in the land is held as inventory are carried at the lower of cost and net realisable value (see note 1(o)). Refundable rental deposits are accounted for separately from the right-of-use assets in accordance with the accounting policy applicable to investments in non-equity securities carried at amortised cost (see notes 1(g)(i), 1(aa)(ii)(c) and 1(n)(i)). Any excess of the nominal value over the initial fair value of the deposits is accounted for as additional lease payments made and is included in the cost of right-of- use assets. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the group's estimate of the amount expected to be payable under a residual value guarantee, or if the group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The lease liability is also remeasured when there is a lease modification, which means a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract, if such modification is not accounted for as a separate lease. In this case, the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification. The only exceptions are rent concessions that occurred as a direct consequence of the COVID-19 pandemic and met the conditions set out in paragraph 46B of HKFRS 16 Leases. In such cases, the group has taken advantage of the practical expedient not to assess whether the rent concessions are lease modifications, and recognised the change in consideration as negative variable lease payments in profit or loss in the period in which the event or condition that triggers the rent concessions occurred. In the consolidated statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period. 230 HKFRS 16.34-35 94 Paragraphs 34 to 35 of HKFRS 16 state that a lessee applies an alternative measurement basis in the following circumstances: (a) when the entity has elected the fair value model for measuring investment properties under HKAS 40, then the entity must measure any right-of-use asset that meets the definition of investment property at fair value; or (b) when the entity applies the revaluation model to a class of property, plant or equipment under HKAS 16, then the entity may elect to apply that revaluation model to all of the right-of-use assets that relate to same class of property, plant or equipment. HKFRS 16 does not explicitly refer to the situation when the leased asset is being held as inventory, such as in the case of leasehold land held by a property developer in Hong Kong. Consistent with the approach taken to the subsequent measurement of other right-of-use assets with reference to their use in the business, when leased assets are held as part of inventory for sale in the ordinary course of business, one of the acceptable policies for subsequent measurement would be to recognise any consumption of the lease by reference to the net realisable value of the property in accordance with HKAS 2. Alternatively, the leased assets may be depreciated from the commencement date on a straight-line basis and the depreciation charge would be expensed unless construction activities are in progress (in which case the charge would be capitalised as part of the cost of the inventory). Whichever policy is adopted, it should be applied consistently to all such leased assets held as part of inventory and from one period to the next. 56 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#63HKAS 1.51(a) HKAS 1.49 HKFRS 7.21 HKFRS 7.35F HKFRS 9.BCZ2.2 HKFRS 9.B5.5.48 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) As a lessor The group determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. Otherwise, the lease is classified as an operating lease. When a contract contains lease and non-lease components, the group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. The rental income from operating leases is recognised in accordance with note 1(aa)(ii)(a). When the group is an intermediate lessor, the sub-leases are classified as a finance lease or as an operating lease with reference to the right-of-use asset arising from the head lease. If the head lease is a short-term lease to which the group applies the exemption described in note 1(m)(i), then the group classifies the sub-lease as an operating lease. (n) Credit losses and impairment of assets (i) Credit losses from financial instruments, contract assets and lease receivables The group recognises a loss allowance for expected credit losses ("ECL"s) on: financial assets measured at amortised cost (including cash and cash equivalents, trade receivables and other receivables, including those loans to associates and joint ventures that are held for the collection of contractual cash flows which represent solely payments of principal and interest); contract assets (see note 1(p)); non-equity securities measured at FVOCI (recycling) (see note 1(g)(i)); lease receivables; and loan commitments issued, which are not measured at FVPL95. Measurement of ECLS ECLs are a probability-weighted estimate of credit losses. Generally, credit losses are measured as the present value of all expected cash shortfalls between the contractual and expected amounts. For undrawn loan commitments, expected cash shortfalls are measured as the difference between (i) the contractual cash flows that would be due to the group if the holder of the loan commitment draws down on the loan and (ii) the cash flows that the group expects to receive if the loan is drawn down. The expected cash shortfalls are discounted using the following rates if the effect is material: fixed-rate financial assets, trade and other receivables and contract assets: effective interest rate determined at initial recognition or an approximation thereof; - variable-rate financial assets: current effective interest rate; lease receivables: discount rate used in the measurement of the lease receivable; loan commitments: current risk-free rate adjusted for risks specific to the cash flows⁹6. The maximum period considered when estimating ECLs is the maximum contractual period over which the group is exposed to credit risk. 95 A loan commitment is a firm commitment to provide credit under pre-specified terms and conditions. For example, a loan commitment arises when an entity commits itself to invest further loan capital into a capital project of another entity at a pre- determined interest rate. 96 An entity can reflect risks specific to the cash flows in either the discount rate or the cash shortfalls being discounted. 57 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#64HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.35F(a) & (b) ECLs are measured on either of the following bases: 12-month ECLs: these are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months); and lifetime ECLs: these are the ECLs that result from all possible default events over the expected lives of the items to which the ECL model applies. The group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-months ECLs: financial instruments that are determined to have low credit risk at the reporting date; and other financial instruments (including loan commitments issued) for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs97. Significant increases in credit risk When determining whether the credit risk of a financial instrument (including a loan commitment) has increased significantly since initial recognition and when measuring ECLs, the group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the group's historical experience and informed credit assessment, that includes forward-looking information. The group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due 98. For loan commitments, the date of initial recognition for the purpose of assessing ECLs is considered to be the date that the group becomes a party to the irrevocable commitment. In assessing whether there has been a significant increase in credit risk since initial recognition of a loan commitment, the group considers changes in the risk of default occurring on the loan to which the loan commitment relates. The group considers a financial asset to be in default when: the debtor is unlikely to pay its credit obligations to the group in full, without recourse by the group to actions such as realising security (if any is held); or the financial asset is 90 days past due⁹9. HKFRS 9.5.5.15 97 HKFRS 9.5.5.11 98 For trade receivables and contract assets under HKFRS 15 without a significant financing component and those to which the practical expedient in paragraph 63 of HKFRS 15 has been applied, an entity is required to measure the loss allowance at an amount equal to lifetime ECLs. For trade receivables and contract assets under HKFRS 15 with a significant financing component and for lease receivables, an entity can choose as an accounting policy either to always measure the loss allowance at an amount equal to lifetime ECLS (i.e. the simplified model) or to apply the "general" model. The general model in HKFRS 9 involves recognising a loss allowance equal to 12-month ECLS unless there has been a significant increase in credit risk since initial recognition, in which case lifetime ECLS are recognised. The accounting policy chosen should be applied to all such trade receivables, contract assets and lease receivables. Paragraph 5.5.11 of HKFRS 9 includes a rebuttable presumption that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due. Unless this presumption is rebutted, lifetime ECLs should be recognised whenever contractual payments are more than 30 days past due. Lifetime ECLS should also be recognised whenever significant increase in credit risk arises, even if contractual payments are less than 30 days past due. Paragraph 35F(b) of HKFRS 7 requires an entity to disclose its definitions of default, including the reasons for selecting those definitions. Default is not defined in HKFRS 9. An entity should apply a default definition that is consistent with the definition used for internal credit risk management purposes for the relevant financial instruments. However, there is a rebuttable presumption that when a financial asset is 90 days past due it is in default unless an entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. HKFRS 7.35F(b) HKFRS 9.B5.5.37 99 58 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#65HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.35F(c) HKFRS 7.35F(d) The group considers a financial instrument to have low credit risk when its credit risk rating is equivalent to the globally understood definition of 'investment grade'. The group considers this to be or higher per [rating agency ✗] or [●] or higher per [rating agency Y]. ECLs are remeasured at each reporting date to reflect changes in the financial instrument's credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in non-equity securities that are measured at FVOCI (recycling), for which the loss allowance is recognised in OCI and accumulated in the fair value reserve (recycling) does not reduce the carrying amount of the financial asset in the statement of financial position (see note 1(i)). Credit-impaired financial assets At each reporting date, the group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable events: - significant financial difficulties of the debtor; HKFRS 7.35F(e) - a breach of contract, such as a default or being more than 90 days past due; the restructuring of a loan or advance by the group on terms that the group would not consider otherwise; it is probable that the debtor will enter bankruptcy or other financial reorganisation; or the disappearance of an active market for a security because of financial difficulties of the issuer. Write-off policy The gross carrying amount of a financial asset, lease receivable or contract asset is written off to the extent that there is no realistic prospect of recovery. This is generally the case when the asset becomes [•] days past due or when the group otherwise determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs. 59 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#66HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.B8E (ii) Credit losses from financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the "holder") for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees issued are initially recognised at fair value, which is determined by reference to fees charged in an arm's length transaction for similar services, when such information is obtainable, or to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the group's policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss 100. The amount initially recognised as deferred income is subsequently amortised in profit or loss over the term of the guarantee as income (see note 1(aa)(ii)(e)). The group monitors the risk that the specified debtor will default on the contract and remeasures the above liability at a higher amount when ECLs on the financial guarantees are determined to be higher than the carrying amount in respect of the guarantees. A 12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit risk as described in note 1(n)(i) apply. As the group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current risk-free rate adjusted for risks specific to the cash flows⁹6. 100 HKFRS 9 does not contain any specific guidance as to where the debit entry arising from the initial recognition of a financial guarantee contract should be recorded. In the absence of any cash consideration or promise to pay cash or other financial assets, the debit would generally be recorded as a day-one expense unless recognition as another form of asset can be justified. For example: (a) In the case of the guarantee issued in respect of a loan to a director, which is conditional on the director remaining with the company, the asset identified could be a prepayment of employee benefits-in-kind as illustrated in note 23. This asset is amortised over the same period as the deferred income from issuing the guarantee. (b) In the case of the guarantee issued by the company in respect of a loan to its wholly owned subsidiary, the asset identified could be a form of capital contribution i.e. an addition to the cost of the investment in the subsidiary. This is on the basis that, all other things being equal, the subsidiary will earn enhanced profits as a result of the financial guarantee from having secured borrowings at a lower rate than it would have done without the guarantee, and these profits will eventually flow to the company by way of dividends or enhanced disposal proceeds. The increased aggregate cost of investment would then be subject to the normal rules applied to investments in subsidiaries, in particular concerning the calculation of impairment losses. 60 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#67HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (iii) Impairment of other non-current assets At each reporting date, the group reviews the carrying amounts of its non-financial assets (other than property carried at revalued amounts, investment property, inventories and other contract costs, contract assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units ("CGU"s). Goodwill arising from a business combination is allocated to CGUS or groups of CGUS that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the resulting carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (iv) Interim financial reporting and impairment Under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see notes 1(n)(i) and (ii)). Impairment losses recognised in an interim period in respect of goodwill are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates. (o) Inventories and other contract costs HKAS 2.36(a) (i) Inventories Inventories are measured at the lower of cost and net realisable value as follows: Electronic manufacturing Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 61 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#68HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Property development Cost of properties comprises specifically identified cost, including the acquisition cost of interests in freehold and leasehold land 94, aggregate cost of development, materials and supplies, wages and other direct expenses, an appropriate proportion of overheads and borrowing costs capitalised (see note 1(cc)) and any other costs incurred in bringing the properties to their present location and condition. In the case of properties developed by the group which comprise of multiple units to be sold individually, the cost of each unit is determined by apportionment of the total development costs for that development project to each unit on a per square foot basis, unless another basis is more representative of the cost of the specific unit. Net realisable value represents the estimated selling price less any estimated costs of completion and costs to be incurred in selling the property. (ii) Other contract costs Other contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalised as inventory (see note 1(o)(i)), property, plant and equipment (see note 1(k)) or intangible assets (see note 1(I)). Incremental costs of obtaining a contract, e.g. sales commissions, are capitalised if the costs relate to revenue which will be recognised in a future reporting period and the costs are expected to be recovered 101. Other costs of obtaining a contract are expensed when incurred. Costs to fulfil a contract are capitalised if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered. Otherwise, costs of fulfilling a contract, which are not capitalised as inventory, property, plant and equipment or intangible assets, are expensed as incurred. Capitalised contract costs are stated at cost less accumulated amortisation and impairment losses. Amortisation of capitalised contract costs is recognised in profit or loss when the revenue to which the asset relates is recognised (see note 1(aa)(i)). 62 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#69HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 15.3, 94, BC297 101 Paragraph 94 of HKFRS 15 states that as a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity would otherwise have recognised is one year or less. Paragraph BC297 of the Basis of Conclusions to HKFRS 15 states that the IASB allowed this practical expedient as the IASB acknowledged that in some cases the entity's efforts to recognise an asset from incremental acquisition costs might exceed the financial reporting benefits. As with other practical expedients in HKFRS 15, an entity should apply the practical expedient consistently to similar contracts in similar circumstances. In this illustration, HK Listco applies the practical expedient to costs of obtaining contracts that would be fully amortised in the period they arise if they had been capitalised. For contract costs relating to goods or services that will be transferred to the customers in the next reporting period(s), HK Listco capitalises such costs in order to match the timing of recognising the costs in profit or loss with the timing of transfer of the related goods or services. For example, HK Listco has capitalised sales commissions incurred when customers entered into sale & purchase agreements for properties which are expected to be still under construction at 31 December 2023. These sales commissions may have been incurred in 2023 or in previous years as pre-completion sales programmes for multi-unit property developments can begin up to 30 months before expected completion of the properties. Regardless of when the commissions were incurred, the recognition of the related revenue on such multi-unit property development projects will generally occur within a short period of time as and when the construction of the apartment block is completed and the units are legally assigned to the buyers. In such a case, taking advantage of the practical expedient could materially distort the pattern of profit recognition and add to record-keeping complexity for the developer, as some of the earlier commissions incurred under the pre-completion sales programme would need to be capitalised, while those relating to sales contracts entered into within 12 months of the expected completion date of the property could be expensed as incurred under the practical expedient. HK Listco has therefore decided not to take advantage of the practical expedient for costs related to these types of pre-completion sales contracts, and therefore capitalises all such commissions. These capitalised selling commissions will need to be disclosed in accordance with paragraph 128 of HKFRS 15, as illustrated in note 19(c). As HK Listco asserts that it has taken advantage of the practical expedient for other selling costs, this fact will need to be disclosed in accordance with paragraph 129 of HKFRS 15. This is also illustrated in note 19(c). If an entity considers that it is more cost effective to apply the practical expedient to all contracts and therefore only capitalises the costs of obtaining contracts with amortisation period longer than one year, the following is an example wording for describing such policy: "Other contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer....... Incremental costs of obtaining a contract, e.g. sales commissions, are capitalised if the costs are expected to be recovered, unless the expected amortisation period is one year or less from the date of initial recognition of the asset, in which case the costs are expensed when incurred. Other costs of obtaining a contract are expensed when incurred. Capitalised contract costs are stated at........ " 63 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#70HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (d) Contract assets and contract liabilities 102 A contract asset is recognised when the group recognises revenue (see note 1(aa)(i)) before being unconditionally entitled to the consideration under the terms in the contract. Contract assets are assessed for ECLs (see note 1(n)(i)) and are reclassified to receivables when the right to the consideration becomes unconditional (see note 1(q)). A contract liability is recognised when the customer pays non-refundable consideration before the group recognises the related revenue (see note 1(aa)(i)). A contract liability is also recognised if the group has an unconditional right to receive non-refundable consideration before the group recognises the related revenue. In such latter cases, a corresponding receivable is also recognised (see note 1(q)). When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see note 1(aa)(i)). HKFRS 7.21 (q) Trade and other receivables HKFRS 15.105- 109 102 (r) A receivable is recognised when the group has an unconditional right to receive consideration and only the passage of time is required before payment of that consideration is due. Trade receivables that do not contain a significant financing component are initially measured at their transaction price. Trade receivables that contain a significant financing component and other receivables are initially measured at fair value plus transaction costs. All receivables are subsequently stated at amortised cost (see note 1(n)(i)). Insurance reimbursement is recognised and measured in accordance with note 1(z). Software-as-a-service (SaaS) arrangement costs A SaaS arrangement is a service arrangement where the group has a right to access to the supplier's application software running on the supplier's cloud infrastructure during the term of the arrangement, but not control over the underlying software asset. Costs to implement a SaaS arrangement, including those incurred in configuring or customising the access to the supplier's application software, are evaluated to determine if they give rise to a separate asset that the group controls. Any resulting asset is recognised and accounted for in accordance with the policy for intangible assets as set out in note 1(I). Implementation costs that do not give rise to an asset are recognised in profit or loss as incurred, which may be over the period the configuration or customisation services are received to the extent that such services are distinct from the SaaS, or over the term of the SaaS arrangement to the extent the configuration or customisation services are not distinct from the SaaS. Payment made in advance of receiving the related services is recognised as prepayment. The descriptions "contract asset", "contract liability" and "receivable" are based on the specific requirements in paragraphs 105 to 109 of HKFRS 15. According to paragraph 109 of HKFRS 15, an entity is not prohibited from using alternative descriptions for these items provided that sufficient information is given to users of financial statements to enable them to distinguish between the items. See also footnote 208 for a discussion about the differences between these items. 64 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#71HKAS 1.51(a) HKAS 1.49 HKAS 7.46 HKFRS 7.21 (s) Cash and cash equivalents HKFRS 7.21 (t) HKFRS 7.21 HK Listco Ltd Financial statements for the year ended 31 December 2023 (u) Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, property pre-sale proceeds held by solicitors that are held for meeting short-term cash commitments, and other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. 103 Bank overdrafts that are repayable on demand and form an integral part of the group's cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Cash and cash equivalents are assessed for ECL (see note 1(n)(i)). Trade and other payables (other than refund labilities) Trade and other payables are initially recognised at fair value. Subsequent to initial recognition, trade and other payables are stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at invoice amounts. Preference share capital The group's redeemable preference shares are classified as financial liabilities, because they bear non-discretionary dividends and are redeemable in cash by the holders. Non-discretionary dividends thereon are recognised as interest expense in profit or loss as accrued. Non-redeemable preference shares are classified as equity, because they bear discretionary dividends, do not contain any obligations to deliver cash or other financial assets and do not require settlement in a variable number of the group's equity instruments. Discretionary dividends thereon are recognised as equity distributions on approval by the company's shareholders. Interest-bearing borrowings Interest-bearing borrowings are measured initially at fair value less transaction costs. Subsequently, these borrowings are stated at amortised cost using the effective interest method. Interest expense is recognised in accordance with note 1(cc). HKFRS 7.21 (v) 103 In order for instruments, such as wealth management products, to be included as "cash equivalents" for the purposes of the cash flow statement, it is necessary for the instruments to satisfy both of the following criteria: i. ii. The instrument needs to be a "short-term, highly liquid investment that is readily convertible into known amounts of cash and which is subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition"; and The instrument needs to be held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. This cash flow statement classification is not dependent on whether the instruments pass or fail the "solely payments of principal and interest" test. Therefore, instruments included in "cash and cash equivalents" could be measured at either amortised cost or FVPL and similarly, instruments excluded from "cash and cash equivalents" could also be measured at either amortised cost or FVPL, depending on the characteristics of the instrument and the reason for holding it. 65 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#72HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.21 (w) Convertible notes (i) Convertible notes that contain an equity component (ii) Compound financial instruments issued by the group comprise convertible notes denominated in HKD that can be converted to ordinary shares at the option of the holder, when the number of shares to be issued is fixed and does not vary with changes in fair value. The liability component of compound financial instruments is initially recognised at the fair value of a similar liability that does not have an equity conversion option. The equity component is initially recognised at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component is measured at amortised cost using the effective interest method. Interest is recognised in profit or loss. The equity component is not remeasured and is recognised in the capital reserve until the notes are converted. If the notes are converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. Other convertible notes For convertible notes which do not contain an equity component, at initial recognition the derivative component is measured at fair value and presented as part of derivative financial instruments (see note 1(h)). Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the host liability component. Any directly attributable transaction costs are allocated to the host liability and derivative components in proportion to their initial carrying amounts. The portion of the transaction costs relating to the host liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in profit or loss. The derivative component is subsequently remeasured in accordance with note 1(h). The host liability component is subsequently carried at amortised cost using effective interest method. Interest related to the host liability component is recognised in profit or loss. If the notes are converted, the shares issued are measured at fair value and any difference between the fair value of shares issued and the carrying amounts of the derivative and liability components are recognised in profit or loss. If the notes are redeemed, any difference between the amount paid and the carrying amounts of both components is recognised in profit or loss. 66 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#73HKAS 1.51(a) HKAS 1.49 (x) (i) HK Listco Ltd Financial statements for the year ended 31 December 2023 Employee benefits Short term employee benefits and contributions to defined contribution retirement plans Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Obligations for contributions to defined contribution retirement plans are expensed as the related service is provided. (ii) Defined benefit plan obligations The group has the following two categories of defined benefit plans: defined benefit retirement plans registered under the Hong Kong Occupational Retirement Schemes Ordinance (the "ORSO plans") LSP under the Hong Kong Employment Ordinance. The group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods and discounting that amount. For ORSO plans, the net obligation is after deducting the fair value of plan assets. For LSP obligations, the estimated amount of future benefit is determined after deducting the negative service cost arising from the accrued benefits derived from the group's MPF contributions that have been vested with employees, which are deemed to be contributions from the relevant employees. The calculation of defined benefit obligation is performed by a qualified actuary using the projected unit credit method. For ORSO plans, when the calculation results in a benefit to the group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. Remeasurements arising from defined benefit plans, which comprise actuarial gains and losses, the return on plan assets in ORSO plans (excluding interest) and the effect of any asset ceiling (excluding interest), are recognised immediately in OCI. Net interest expense for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the then net defined benefit liability, taking into account any changes in the net defined benefit liability during the period. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss. 67 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#74HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 R17.07(1)(c) (iii) (iv) Share-based payments The grant-date fair value of equity-settled share-based payments granted to employees is measured using the binomial lattice model. The amount is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service conditions at the vesting date. Termination benefits Termination benefits are expensed at the earlier of when the group can no longer withdraw the offer of those benefits and when the group recognises costs for a restructuring. (y) Income tax Income tax expense comprises current tax and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI. Current tax comprises the estimated tax payable or receivable on the taxable income or loss for the year and any adjustments to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects any uncertainty related to income taxes. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences; temporary differences related to investment in subsidiaries, associates and joint venture to the extent that the group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; taxable temporary differences arising on the initial recognition of goodwill; and those related to the income taxes arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development.104 The group recognised deferred tax assets and deferred tax liabilities separately in relation to its lease liabilities and right-of-use assets. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. HKAS 12.88A-88D 104 Paragraph 4A of HKAS 12 requires a temporary mandatory exception from deferred tax accounting for the income tax arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the OECD, including tax laws that implement qualified domestic minimum top-up taxes described in those rules. If an entity expects to be impacted by these new tax laws, paragraphs 88A to 88D of HKAS 12 contain specific disclosure requirements. See note 6(c) and footnote 147 for further details of the disclosure requirements. 68 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#75HKAS 1.51(a) HKAS 1.49 (z) HK Listco Ltd Financial statements for the year ended 31 December 2023 Where investment properties are carried at their fair value in accordance with note 1(j), the amount of deferred tax recognised is measured using the tax rates that would apply on sale of those assets at their carrying value at the reporting date, unless the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the measurement of deferred tax reflects the tax consequences that would follow from the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Provisions and contingent liabilities Generally provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. A provision for warranties is recognised when the underlying products or services are sold, based on historical warranty data and a weighting of possible outcomes against their associated probabilities. A provision for onerous contracts is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract, which is determined based on the incremental costs of fulfilling the obligation under that contract and an allocation of other costs directly related to fulfilling that contract. Before a provision is established, the group recognises any impairment loss on the assets associated with that contract (see note 1(n)(iii)). Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, a separate asset is recognised for any expected reimbursement that would be virtually certain. The amount recognised for the reimbursement is limited to the carrying amount of the provision. (aa) Revenue and other income (i) HKFRS 15.119(c) HKFRS 15.126(a) HKFRS 15.119(c) 105 Income is classified by the group as revenue when it arises from the sale of goods, the provision of services or the use by others of the group's assets under leases in the ordinary course of the group's business. Further details of the group's revenue and other income recognition policies are as follows: Revenue from contracts with customers The group is the principal for its revenue transactions and recognises revenue on a gross basis, including the sale of electronic products that are sourced externally. In determining whether the group acts as a principal or as an agent, it considers whether it obtains control of the products before they are transferred to the customers. Control refers to the group's ability to direct the use of and obtain substantially all of the remaining benefits from the products 105. Revenue is recognised when control over a product or service is transferred to the customer at the amount of promised consideration to which the group is expected to be entitled, excluding those amounts collected on behalf of third parties such as value added tax or other sales taxes. In disclosing the nature of goods or services that an entity has promised to transfer, where relevant paragraph 119(c) of HKFRS 15 also require the entity to highlight any performance obligations to arrange for another party to transfer goods or services (i.e. where the entity is acting as an agent). 69 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#76HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (a) Sale of electronics products HKFRS 15.119(c) HKFRS 15.126(a) HKFRS 15.119(b) HKFRS 15.129 HKFRS 15.119(a) HKFRS 15.124 HKFRS 15.119(e) HKFRS 15.119(a) HKFRS 15.119(b) HKFRS 15.129 HKFRS 15.119(e). HKFRS 15.119(d) HKFRS 15.126(a) & (b) HKFRS 15.126(d) Sales of the group's electronics products are recognised as follows: Made-to-order manufacturing arrangements The group classifies contracts as made-to-order manufacturing arrangements when the group manufactures the products in accordance with the customer's specification and under the contract the group has the right to be paid for work done to date if the customer was to cancel the contract before the order was fully completed. Made-to-order manufacturing arrangements generally involve fixed price contracts. Customers are required to provide upfront deposits to the group to secure an order, based on 10% of the agreed consideration, and the amounts are included in contract liabilities. The remainder of the consideration is payable ratably as and when the products are delivered, or in full if the customer cancels the contract. The group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component as the period of financing is 12 months or less 106. Revenue arising from made-to-order manufacturing arrangements, and a corresponding contract asset (see note 1(p)), are recognised progressively over time during the manufacturing process using the cost-to-cost method. Under the cost-to-cost method, revenue is recognised based on the proportion of the actual costs incurred relative to the estimated total costs to provide a faithful depiction of the transfer of those services. The contract asset (either partially or in full) is reclassified to receivables when the entitlement to payment for that amount has become unconditional (see note 1(q)). The group o offers warranties for its made-to-order products for up to two years from the date of sale. A related provision is recognised in accordance with note 1(z). Sales of other electronic products Revenue is recognised when the customer takes possession of and accepts the products. Payment terms and conditions vary by customers and are based on the billing schedule established in the contracts or purchase orders with customers, but the group generally provides credit terms to customers within six months upon customer acceptance. The group takes advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component as the period of financing is 12 months or less 106. The group offers warranties for its products for up to six months from the date of sale. A related provision is recognised in accordance with note 1(z). The group typically offers customers of electronic products that are not made-to-order rights of return for a period of 14 days upon customer acceptance. It also offers retrospective volume rebates to certain major customers of electronic products when their purchases reach an agreed threshold. Such rights of return and volume rebates give rise to variable consideration. The group uses an expected value approach to estimate variable consideration based on the group's current and future performance expectations and all information that is reasonably available. This estimated amount is included in the transaction price to the extent it is highly probable that a significant reversal of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is resolved. At the time of sale of electronic products, the group recognises revenue after taking into account adjustment to transaction price arising from returns and rebates as mentioned above. A refund liability is recognised for the expected returns and rebates, and is included in other payables (see note 24). A right to recover returned goods (included in inventories, see note 19) and corresponding adjustment to cost of sales are also recognised for the right to recover products from customers. This right to recover returned goods is measured at the former carrying amount of HKFRS 15.63 &129 106 Paragraph 63 of HKFRS 15 gives a practical expedient such that an entity need not adjust the amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between the transfer of goods or services and customer payment will be one year or less. If this practical expedient has been applied, the entity is required to disclose this fact. In this illustration HK Listco includes the disclosure in its policy note to indicate the practical expedient is applied in which products or service lines. 70 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#77HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 15.126(c) HKFRS 15.119(a) & (c) HKFRS 15.119(b). HKFRS 15.119(b), 126(a) HKFRS 15.119(c) HKFRS 15.119(a), 124. HKFRS 15.126(a) & (b) (b) (c) the inventory less any expected costs to recover goods (including potential decreases in the value of the returned goods). If the products are a partial fulfilment of a contract covering other goods and/or services, then the amount of revenue recognised is an appropriate proportion of the total transaction price under the contract, allocated between all the goods and services promised under the contract on a relative stand-alone selling price basis except when a variable consideration is allocated to a specific performance obligation in the contract. Generally, the group establishes standalone selling prices with reference to the observable prices of products or services sold separately in comparable circumstances to similar customers. Sale of properties 107 Revenue arising from the sale of properties developed for sale in the ordinary course of business is recognised when legal assignment is completed, which is the point in time when the customer has the ability to direct the use of the property and obtain substantially all of the remaining benefits of the property. When residential properties are marketed by the group while the property is still under construction, the group may offer a discount compared to the listed sales price, provided the customer agrees to pay the balance of the consideration early. Otherwise, the customer is required to pay 10% of the contract value as a deposit upon signing the sale and purchase agreement ("SPA") with the rest of the consideration being paid no later than on completion of the SPA. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the statement of financial position under contract liabilities (see note 1(p)). To the extent that the advance payments from customers are regarded as providing a significant financing benefit to the group, revenue recognised under that contract includes the interest accreted on the contract liability under the effective interest method during the period between the payment date and the completion date of legal assignment. The discount rate applied is reflective of the rate in a separate financing transaction between the group and the customer at contract inception. The interest is expensed as accrued unless it is eligible to be capitalised under HKAS 23, Borrowing costs, in accordance with note 1(cc). Construction contracts The group's construction activities under construction contracts with customers for office premises and residential buildings create or enhance real estate assets controlled by the customers. When the outcome of a construction contract can be reasonably measured, revenue from the contract is recognised over time during the construction process using the cost-to-cost method. Under the cost-to-cost method, revenue is recognised based on the proportion of the actual costs incurred relative to the estimated total costs to provide a faithful depiction of the transfer of those services. The likelihood of the group earning contractual bonuses for early completion or suffering contractual penalties for late completion are taken into account in making these estimates, such that revenue is only recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The group applies the most likely amount approach to estimate such variable consideration by considering the single most likely amount in a limited range of possible consideration amounts, taking into account the group's current progress and future performance expectations compared to the agreed completion timeline. When the outcome of the contract cannot be reasonably measured, revenue is recognised only to the extent of contract costs incurred that are expected to be recovered. 107 The wording of this accounting policy is only relevant where the nature of the entity's property development activities is such that revenue is only recognised on the activity at a single point in time, rather than continuously as construction progresses, even when the entity has entered into a pre-completion sales agreement. The wording should be tailored when the nature of an entity's property development activities and contracts with customers indicate that a different recognition policy would be appropriate for some or all of the property development activities. In addition, disclosure of the judgements made by the entity in applying such different policies may be appropriate under paragraph 122 of HKAS 1 (for example, in the entity's equivalent of note 2(a)). 71 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#78HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 15.119(b) HKFRS 15.129 Financial statements for the year ended 31 December 2023 HKFRS 15.121-122 HKFRS 15.129 The group's construction contracts include payment schedules which require stage payments over the construction period once milestones are reached. Starting from 2023, the group has introduced new contract terms whereby a 20% deposit is payable upfront. The group also typically agrees to a one year retention period for 5% of the contract value which the group's entitlement to this final payment is conditional on the group's work satisfactorily passing inspection. To the extent that the difference in timing arises for reasons other than the provision of finance, no financing component is deemed to exist. Otherwise, the group has taken advantage of the practical expedient in paragraph 63 of HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is 12 months or less 106. If at any time the costs to complete the contract are estimated to exceed the remaining amount of the consideration under the contract, then a provision is recognised in accordance with note 1(z). (d) Other practical expedients applied (ii) In addition, the group has applied the following practical expedients: For sales contracts for electronic products that had an original expected duration of one year or less, the group has not disclosed the information related to the aggregated amount of the transaction price allocated to the remaining performance obligations in accordance with paragraph 121(a) of HKFRS 15. The group has recognised the incremental costs of obtaining contracts relating to the sale of completed properties and services as an expense when incurred in accordance with paragraph 94 of HKFRS 15, as the amortisation period of the assets that the group otherwise would have recognised is within the same reporting period as the date of entering into the contract. Revenue from other sources and other income (a) Rental income from operating leases HKFRS 16.81 (b) (c) HKAS 20.39(a) (d) Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Variable lease payments that do not depend on an index or a rate are recognised as income in the accounting period in which they are earned. Dividends Dividend income is recognised in profit or loss on the date on which the group's right to receive payment is established. Interest income Interest income is recognised using the effective interest method. The "effective interest rate" is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. In calculating interest income, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired). However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. Government grants Government grants are recognised in the statement of financial position initially when there is reasonable assurance that they will be received and that the group will comply with the conditions attaching to them. Grants that compensate the group for expenses incurred are recognised as income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense. 72 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#79HKAS 1.51(a) HKAS 1.49 (e) Income from financial guarantees issued HK Listco Ltd Financial statements for the year ended 31 December 2023 Income from financial guarantees issued is recognised over the term of the guarantees (see note 1(n)(ii)). (bb) Translation of foreign currencies Transactions in foreign currencies are translated into the respective functional currencies of group companies at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss. - However, foreign currency differences arising from the translation of the following items are recognised in OCI: an investment in equity securities designated as at FVOCI; a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective (see note 1(i)(ii)); and qualifying cash flow hedges to the extent that the hedges are effective (see note 1(i)). The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Hong Kong dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Hong Kong dollars at the exchange rates at the dates of the transactions. Foreign currency differences are recognised in OCI and accumulated in the exchange reserve, except to the extent that the translation difference is allocated to NCI. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the exchange reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. On disposal of a subsidiary that includes a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation that have been attributed to the NCI shall be derecognised, but shall not be reclassified to profit or loss. If the group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. (cc) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred. 73 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#80HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (dd) Non-current assets held for sale and discontinued operations (i) Non-current assets held for sale (ii) Non-current assets, or disposal group comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to deferred tax assets, employee benefits assets, financial assets (other than investments in subsidiaries, associates and joint ventures) and investment properties, which continue to be measured in accordance with the group's other accounting policies 108. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. Discontinued operations A discontinued operation is a component of the group's business, the operations and cash flows of which can be clearly distinguished from the rest of the group and which: - represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale. Where an operation is classified as discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year. 108 Paragraph 5 of HKFRS 5 contains the full list of the assets which are not subject to the measurement requirements of HKFRS 5, even though they are subject to the disclosure requirements if they meet the held for sale criteria either individually or as part of a disposal group. For the purposes of describing the significant aspects of this accounting policy, the wording here takes an approach of listing only those assets in the paragraph 5 of HKFRS 5 which the group currently has on its statement of financial position. This wording is illustrative only and other approaches may also be acceptable, provided the disclosure is factually accurate to the entity's circumstances. 74 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#81HKAS 1.51(a) HKAS 1.49 HKAS 24.9, BC 51 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ee) Asset acquisition Groups of assets acquired and liabilities assumed are assessed to determine if they are business or asset acquisitions. On an acquisition-by-acquisition basis, the group chooses to apply a simplified assessment of whether an acquired set of activities and assets is an asset rather than business acquisition, when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. When a group of assets acquired and liabilities assumed do not constitute a business, the overall acquisition cost is allocated to the individual identifiable assets and liabilities based on their relative fair values at the date of acquisition. An exception is when the sum of the individual fair values of the identifiable assets and liabilities differs from the overall acquisition cost. In such case, any identifiable assets and liabilities that are initially measured at an amount other than cost in accordance with the group's policies are measured accordingly, and the residual acquisition cost is allocated to the remaining identifiable assets and liabilities based on their relative fair values at the date of acquisition 109 (ff) Related parties 110 (a) A person, or a close member of that person's family, is related to the group if that person: (i) has control or joint control over the group; (ii) has significant influence over the group; or (iii) is a member of the key management personnel of the group or the group's parent. (b) An entity is related to the group if any of the following conditions applies: (i) The entity and the group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. 109 Paragraph 2(b) of HKFRS 3 requires an entity to allocate the cost of the acquisition to the individual identifiable assets and liabilities based on their relative fair values at the date of acquisition. However, it does not give specific guidance on how to account for asset acquisition when the sum of the individual fair values of the identifiable assets and liabilities differs from the transaction price and the group includes identifiable assets and liabilities initially measured both at cost and at an amount other than cost (e.g. at fair value). In this illustration, HK Listco measures any identifiable assets and liabilities initially measured at an amount other than cost in accordance with the appliable standards. HK Listco then allocates the residual cost of acquisition to the remaining identifiable assets and liabilities based on their relative fair values at the date of acquisition. Alternatively, the cost of the acquisition is allocated to the individual identifiable assets and liabilities based on their relative fair values at the date of acquisition, and the initial measurement requirements in the applicable standards are then applied to each identifiable asset acquired and liability assumed. Any difference between the amount at which the asset and liability is initially measured and its individual transaction price is accounted for applying the relevant requirements. 110 The principles for identifying related party relationships under HKAS 24 can be summarised as follows: • The definitions are symmetrical, i.e. if A is related to B for the purpose of B's financial statements, then B is related to A in A's financial statements. One exception to this principle is the relationship between an entity and a management entity. A management entity that provides key management personnel (KMP) services to the reporting entity (or parent of the reporting entity) is a related party of the reporting entity. However, the reporting entity is not a related party of the management entity solely as a consequence of being a customer of the management entity. • In respect of indirect relationships involving at least significant influence, presence of control or joint control in at least one leg of an indirect relationship leads to a related party relationship (for example, a subsidiary is related to a fellow subsidiary as both entities are under common control, but an associate is not related to a fellow associate, as the common linkage is only via significant influence on both legs). KMP relationships are treated as being equivalent in strength to significant influence. • There is no distinction between an individual and his/her close family members i.e. if the individual is a related party, then so are his/her close family members. 75 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#82HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (v) The entity is a post-employment benefit plan for the benefit of employees of either the group or an entity related to the group. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the group or to the group's parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. (gg) Segment reporting Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the group's most senior executive management for the purposes of allocating resources to, and assessing the performance of, the group's various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. 76 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#83HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 2 ACCOUNTING JUDGEMENTS AND ESTIMATES HKAS 1.122 (a) Critical accounting judgements in applying the group's accounting policies 111 (i) In the process of applying the group's accounting policies, management has made the following accounting judgements: Determining the lease term As explained in policy note 1(m), the lease liability is initially recognised at the present value of the lease payments payable over the lease term. In determining the lease term at the commencement date for leases that include renewal options exercisable by the group, the group evaluates the likelihood of exercising the renewal options taking into account all relevant facts and circumstances that create an economic incentive for the group to exercise the option, including favourable terms, leasehold improvements undertaken and the importance of that underlying asset to the group's operation. The lease term is reassessed when there is a significant event or significant change in circumstance that is within the group's control. Any increase or decrease in the lease term would affect the amount of lease liabilities and right-of-use assets recognised in future years. HKAS 1.122- 124 HKFRS 12.7-9 HKFRS 15.123-126 HKFRS 16.35 111 HKAS 1 requires an entity to disclose, in the material accounting policy information or other notes, the judgements, apart from those involving estimations (see footnote 112), that management has made in the process of applying the entity's accounting policies and that have the most significant effect on the amounts recognised in the financial statements. As illustrated here, this disclosure extends the more generic policy descriptions that are found in note 1 to explain, how, in particular circumstances, those policies were applied during the period. Management will need to exercise judgement in determining which such circumstances warrant additional disclosure as being those "that have the most significant effect on the amounts recognised in the financial statements" and may need to update the disclosure from one year to the next. Further examples, depending on the significance to the entity, might include decisions made during the period as to whether or not certain circumstances during the period indicated that it was appropriate to suspend interest capitalisation on a development project that had been delayed or whether the entity was acting as an agent or a principal in an arrangement. In addition to the above general disclosure requirement about significant judgements in HKAS 1, HKFRS 12 requires an entity to disclose information about significant judgements and assumptions it has made (and changes to those judgements and assumptions) in determining: that it has control of another entity; ⚫that it has joint control of an arrangement or significant influence over another entity; and ⚫ the type of joint arrangement (i.e. joint operation or joint venture) when the arrangement has been structured through a separate vehicle. To comply with the above, an entity should disclose, for example, significant judgements and assumptions made in determining that: ⚫ it does not control another entity even though it holds more than half of the voting rights of the other entity; ⚫it controls another entity even though it holds less than half of the voting rights of the other entity; ⚫ it is an agent or a principal; ⚫ it does not have significant influence even though it holds 20% or more of the voting rights of another entity; and • it has significant influence even though it holds less than 20% of the voting rights of another entity. HKFRS 15 also contains extensive disclosure requirements about significant judgements and assumptions an entity has made (and changes to those judgements and assumptions) in determining: ⚫the timing of satisfaction of performance obligations; and ⚫ the transaction price and the amounts allocated to performance obligations. Where a particular matter has involved both accounting estimates and other judgements in the application of policies, the reader may find it easier to understand the information being presented if the disclosures to be made under paragraph 122 of HKAS 1 (concerning other judgements made in the application of policies) and paragraph 125 of HKAS 1 (concerning accounting estimates) were combined in one note or cross-referenced to each other. The accounting judgement illustrated here arises from the requirement in paragraph 35 of HKFRS 16 which states that if right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in HKAS 16, a lessee may elect to apply that revaluation model to all of the right-of-use assets that relate to that class of property, plant and equipment. A "class of asset" is defined in paragraph 37 of HKAS 16 as a grouping of assets of a similar nature and use in an entity's operations. 77 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#84HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Classification of interests in leasehold land and buildings held for own use In accordance with HKAS 16, Property, plant and equipment, the group chooses to apply either the cost model or the revaluation model as its accounting policy for items of property, plant and equipment held for own use on a class-by-class basis. In applying this policy, the group has concluded that its registered ownership interests in leasehold properties and the right to use other properties leased under tenancy agreements are two separate groupings of assets which differ significantly in their nature and use. Accordingly, they are regarded by the group as separate classes of asset for subsequent measurement policies in accordance with notes 1(k) and (m). Specifically, registered ownership interests are carried under the revaluation model, while rights to use properties under tenancy agreements are carried at depreciated cost. In making this judgement, the group has taken into account that, as the registered owner of a leasehold property, the group is able to benefit fully from any changes in the valuation of these properties whether as holding gains or by selling the property interest to others, as well as being able to use the properties in its operation free of paying market rents. In contrast, the shorter term tenancy agreements are typically for periods of no more than 10 years and are subject to other restrictions, in particular on transferability of the group's tenancy rights to others. These shorter term tenancy agreements are executed in order to retain operational flexibility and to reduce the group's exposure to the property market fluctuation. They may contain termination or extension clauses, and/or variable rental payment clauses linked to the level of sales generated by the group's use of the premises, and are typically subject to market rent reviews every [•] to [•] years. HKAS 1.125 (b) Sources of estimation uncertainty¹¹² (i) Notes 11(b), 13, 28(b), 28(c), 29 and 33 contain information about the assumptions and their risk factors relating to valuation of investment property, goodwill impairment, ORSO plans liabilities, long service payment liabilities, fair value of share options granted and financial instruments. Other significant sources of estimation uncertainty are as follows: Revenue recognition As explained in policy note 1(aa)(i), revenue from sales of electronic products manufactured under made-to-order arrangements and from construction contracts are recognised over time. Such revenue and profit recognition on uncompleted projects is dependent on estimating the total outcome of the contract, as well as the work done to date. Based on the group's recent experience and the nature of the manufacturing and construction activities undertaken by the group, the group has made estimates of the point at which it considered the work was sufficiently advanced such that the outcome of the contract can be reasonably measured. Until this point is reached the related contract assets disclosed in note 20 do not include profit which the group might eventually realise from the work done to date. In addition, actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the end of the reporting period, which would affect the revenue and profit recognised in future years as an adjustment to the amounts recorded to date. HKAS 1.125-133 112 HKAS 1 requires an entity to disclose in the notes information about the assumptions concerning the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of: (a) their nature; and (b) their carrying amount as at the end of the reporting period. This disclosure can, and often will, be made in amongst other information disclosed relating to those assets and liabilities. For example, disclosures in respect of contingent liabilities relate to possible losses that may occur in the future. Where such disclosure has not been made elsewhere, a separate note on sources of estimation uncertainty would be presented. Further guidance can be found in paragraphs 126 to 133 of HKAS 1. 78 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#85HKAS 1.51(a) HKAS 1.49 HKAS 1.138(b) HKFRS 15.114 (ii) HK Listco Ltd Financial statements for the year ended 31 December 2023 Warranty provisions As explained in note 31, the group makes provisions under the warranties it gives on sale of its electronic products taking into account the group's recent claim experience. As the group is continually upgrading its product designs and launching new models it is possible that the recent claim experience is not indicative of future claims that it will receive in respect of past sales. Any increase or decrease in the provision would affect profit or loss in future years. 3 REVENUE AND SEGMENT REPORTING 113 (a) Revenue 114 (i) The principal activities of the group are the manufacturing and sale of electronic products, property development, property investment and carrying out construction activities for others. Further details regarding the group's principal activities are disclosed in note 3(b). Disaggregation of revenue 114, 115 Disaggregation of revenue from contracts with customers by major products or service lines is as follows: HKFRS 15.113(a) Revenue from contracts with customers within the scope of HKFRS 15116 HKFRS 8.32 Disaggregated by major products or service lines Sales of electronic products Sales of completed properties Revenue from construction contracts 2023 2022 $'000 $'000 945,776 840,437 105,192 120,766 25,392 1,076,360 17,826 979,029 HKFRS 15.113(a) Revenue from other sources 116 HKAS 40.75(f)(i) Gross rentals from investment properties HKFRS 16.90(b) Lease payments that are fixed or depend on an index or a rate Variable lease payments that do not depend on an index or a rate 6,200 4,400 2,335 1,811 8,535 6,211 1,084,895 985,240 HKFRS 8.3 113 HKFRS 8 applies primarily to entities whose debt or equity securities are listed or quoted in a public market. Entities that fall outside the scope of HKFRS 8 may provide information about segments on a voluntary basis. However, if this information does not comply fully with HKFRS 8, then, as per paragraph 3 of HKFRS 8, this information should not be described as "segment information". In this illustration, HK Listco has included the information on its products and services and major customers in note 3(a) "Revenue" (see footnote 114) and the other segmental disclosures in note 3(b) "Segment reporting". Other approaches to disclosing this information are acceptable provided they meet the basic disclosure requirement of paragraph 113 of HKAS 1, to present notes in a systematic manner. 79 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#86HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 15.114, B89 Financial statements for the year ended 31 December 2023 114 115 Revenue, as defined in Appendix A of HKFRS 15, is income that arises in the course of the ordinary activities of an entity. Other income, i.e. income that does not arise in the course of the ordinary activities of the entity, is reported separately from revenue. For this reason, HK Listco has in this illustration included rental income from investment properties within its measure of revenue, as holding properties for rental to others is regarded as one of the group's ordinary activities, while income from other investments is disclosed in note 4 as "Other income". Paragraph 114 of HKFRS 15 requires an entity to disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The extent to which an entity's revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances of the entity's contracts with customers. Some entities may need to use more than one type of category to meet the disaggregation objective in paragraph 114 of HKFRS 15. Examples of categories that might be appropriate include, but are not limited to, the following: type of good or service, i.e. major products or service lines; • geographic region, i.e. countries or regions; market or types of customer, i.e. wholesale or retails, government or non-government; • type of contract, i.e. fixed-price or cost-plus; • contract duration, i.e. short-term or long-term; • timing of revenue recognition, i.e. at a point in time or over time; HKFRS 8.31-34 HKFRS 15.115 HKFRS 15.113(a), HKFRS 16.90(b) • sales channel, i.e. directly to consumers or through intermediaries. Entities who are listed are required to provide certain disaggregated revenue information as HKFRS 8 requires disclosure of certain information about an entity's products and services, geographical areas and major customers, even if the entity has only one reportable segment. These minimum disclosures, referred to as "entity-wide disclosures" in HKFRS 8, should be based on the financial information that is used to produce the entity's financial statements (i.e. the disclosure is not based on the management approach, which is otherwise used in disclosing segment information). The disclosures are required only if they are not provided as part of the reportable segment information required by HKFRS 8. Paragraph 112 of HKFRS 15 states that an entity need not disclose information in accordance with HKFRS 15 if it has provided the information in accordance with another standard. Therefore, it is a question of judgement as to what extent the HKFRS 8 and HKFRS 15 disclosures should be presented together. In this illustration, HK Listco has included information on its products and services and major customers in note 3(a) "Revenue", while additional geographic information has been provided in the segment analysis and additional entity-wide disclosures in note 3(b) "Segment reporting" in order to satisfy HKFRS 8. For the purposes of satisfying HKFRS 15, in the segment disclosure table in note 3(b), HK Listco has provided the analysis of revenue in each segment between those contracts where revenue is recognised at a point in time and those where revenue is recognised over time. Other approaches to disclosing this information are acceptable provided they meet the basic disclosure requirement of paragraph 113 of HKAS 1, to present notes in a systematic manner. In addition, if an entity applies HKFRS 8, paragraph 115 of HKFRS 15 requires sufficient information to be disclosed to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment. In HK Listco's financial statements: • the narrative descriptions of the various segments in note 3(b) help the reader to reconcile the entity-wide disclosures given by product and service in note 3(a) with the segment information in the segment disclosure table in note 3(b); and both the separate line items and totals in the segment disclosure table and the reconciliation in note 3(b)(ii) show the reader that the only differences between segment revenue and reported revenue arise due to the inclusion of inter-segment sales in the segment analysis. As this information is considered sufficient to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue and revenue information that is disclosed for each reportable segment, no additional information has been illustrated to specifically satisfy paragraph 115 of HKFRS 15. 116 Paragraph 113(a) of HKFRS 15 requires revenue recognised from contracts with customers and from other sources to be disclosed separately, either in the statement of comprehensive income or in the notes. In effect, this means that for the purposes of satisfying this disclosure requirement, an entity's revenue should be split between that which falls within the scope of HKFRS 15 and that which falls under other standards. This is illustrated here by disclosing rental income from investment property separately from the group's other revenue, as rental income arising under leases falls within the scope of HKFRS 16 rather than HKFRS 15. The income has been further analysed between variable lease payments that do not depend on an index or a rate and other lease income as required by paragraph 90(b) of HKFRS 16. HKFRS 15.112 117 As allowed by HKFRS 15, an entity need not disclose information in accordance with HKFRS 15 if it has provided the information in accordance with other standards. In this illustration, the information about geographical location of revenue from external customers provided under HKFRS 8 (see note 3(b)(iii)) also satisfies the disclosure requirement in paragraph 114 of HKFRS 15 for disaggregation of revenue. Hence, HK Listco has made cross reference to the corresponding note. 80 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#87HKAS 1.51(a) HKAS 1.49 HKFRS 15.114 HKFRS 8.34 HKFRS 15.120 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Disaggregation of revenue from contracts with customers by the timing of revenue recognition and by geographic markets is disclosed in notes 3(b)(i) and 3(b)(iii) 117 respectively. The group's customer base is diversified and includes two customers with whom transactions have exceeded 10% of the group's revenues. In 2023 revenues from sales of electronic products to each of these two customers, including sales to entities which are known to the group to be under common control with these customers, amounted to approximately $126 million (2022: $108 million) and $110 million (2022: $100 million), respectively, and arose in all three geographical regions in which the electronics division is active 118. Details of concentrations of credit risk arising from these two customers are set out in note 33(a)119. Revenue expected to be recognised in the future arising from contracts with customers in existence at the reporting date As at 31 December 2023, the aggregated amount of the transaction price allocated to the remaining performance obligations under the group's existing contracts is $180,556,000 (2022: $113,333,000). This amount represents revenue expected to be recognised in the future from pre-completion sales contracts for properties under development, made-to-order manufacturing contracts and construction contracts entered into by the customers with the group. This amount includes the interest component of pre-completion properties sales contracts under which the group obtains significant financing benefits from the customers (see note 1(aa)(i)(b)). The group will recognise the expected revenue in future when or as the work is completed or, in the case of the properties under development for sale, when the properties are assigned to the customers, which is expected to occur over the next 12 to 36 months (2022: next 12 to 36 months). 120 HKFRS 8.34 & BC58 118 HKFRS 7.34(c) & B8 HKFRS 15.120 119 HKFRS 8 requires the disclosure of information about revenues from major customers if revenues from transactions with a single external customer amount to 10% or more of an entity's revenues. For the purpose of this requirement, a group of entities known to be under common control should be considered as a single customer. However, entities should apply judgement to assess whether a government and entities known to the reporting entity to be under the control of that government are considered a single customer. In assessing this, the reporting entity should consider the extent of economic integration between those entities. In addition to the disclosure of major customers required by HKFRS 8, paragraph 34(c) of HKFRS 7 requires disclosures about concentration of credit risk arising from financial instruments, which include a description of how management determines concentration, a description of the shared characteristic that identifies each concentration (e.g. counterparty, geographical area, currency or market) and the amount of the risk exposure associated with all financial instruments sharing that characteristic (see note 33(a)). Where information disclosed in other notes is referring to the same major customer or customers as are disclosed in the segment information disclosures, it would be useful to the users to provide cross references. 120 Paragraph 120 of HKFRS 15 requires the amount of the transaction price allocated to the remaining performance obligations to be disclosed. It also requires an explanation to be disclosed of when the entity expects to recognise this revenue. This explanation can be either disclosed quantitatively, using time bands that would be most appropriate for the duration of the remaining performance obligations, or disclosed using qualitative information. In this illustration, HK Listco has provided such explanation by providing a qualitative explanation. An alternative approach would have been to provide a numerical analysis, for example by annual time bands. The information could also be further disaggregated between different categories of revenue to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue and cash flows. 81 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#88HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 15.122 HKFRS 15.121-122 HKFRS 8.20 & 22, HKFRS 15.115 HKFRS 15.121- 122 Financial statements for the year ended 31 December 2023 The above amount does not include any amounts of completion bonuses that the group may earn in the future by meeting the conditions set out in the group's construction contracts with customers, unless at the reporting date it is highly probable that the group will satisfy the conditions for earning those bonuses. The group has also applied the practical expedient in paragraph 121(a) of HKFRS 15 to its sales contracts for electronic products such that the above information does not include information about revenue that the group will be entitled to when it satisfies the remaining performance obligations under the contracts for sales of electronic products that had an original expected duration of one year or less. 121 (b) Segment reporting 122 The group manages its businesses by divisions, which are organised by a mixture of both business lines (products and services) and geography. In a manner consistent with the way in which information is reported internally to the group's most senior executive management for the purposes of resource allocation and performance assessment 122, the group has presented the following six reportable segments 123. No operating segments have been aggregated to form the following reportable segments 124. • Electronics (Hong Kong/South East Asia/Rest of the world): given the importance of the electronics division to the group, the group's electronics business is segregated further into three reportable segments on a geographical basis, as the divisional managers for each of these regions report directly to the senior executive team. All three segments primarily derive their revenue from the sale of household electronic products. These products are either sourced externally or are manufactured in the group's manufacturing facilities located primarily in Hong Kong, with the remainder of the manufacturing facilities being in South East Asia, (specifically Malaysia and Singapore). The "rest of the world" segment covers sales of electronic products to customers in the United States, Germany, France and other European countries, some of which are sourced from within the group. Property leasing: this segment leases office premises to generate rental income and to gain from the appreciation in the properties' values in the long term. Currently the group's investment property portfolio is located in Hong Kong and Chinese Mainland. Property development: this segment develops and sells office premises and residential properties. Currently the group's activities in this regard are carried out in Hong Kong. Construction contracts: this segment constructs office premises and residential buildings for external customers and for group companies. Currently the group's activities in this regard are carried out in Singapore, Malaysia and Chinese Mainland. The activities carried out in Chinese Mainland are through a joint venture. 121 Paragraph 121 of HKFRS 15 states that, as a practical expedient an entity need not disclose the information required by paragraph 120 of HKFRS 15 for a performance obligation if either of the following conditions is met: HKFRS 15.3 (a) the performance obligation is part of a contract that has an original expected duration of one year or less; or (b) the entity applies the practical expedient in paragraph B16 of HKFRS 15 such that it recognises revenue at the amount to which it has a right to invoice, which corresponds directly to the value to the customer of the entity's performance completed to date (e.g. a service contract in which the entity bills a fixed amount for each hour of service provided). An entity should explain qualitatively whether it has applied the practical expedient in paragraph 121 of HKFRS 15 in providing the information required by paragraph 120 of HKFRS 15. As with the other practical expedients in HKFRS 15, this practical expedient should be applied consistently to similar contracts in similar circumstances. In this illustration, HK Listco applies this practical expedient only to its sales contracts for electronic products. 82 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#89HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 8.IN11 HKFRS 8.7 HKFRS 8.1 HKFRS 15.115 HKFRS 8.12 HKFRS 8.25 & 26 HKFRS 8.22(a) HKFRS 8.22(aa) HKFRS 8.27 HKFRS 8.28 122 HKFRS 8 requires a "management approach" to reporting the financial performance of operating segments, i.e. the financial statements should report segment information which is consistent with the segment information as is reviewed by an entity's "chief operating decision maker" (CODM). Identifying an entity's CODM is therefore key to the identification of operating segments under HKFRS 8. Paragraph 7 of HKFRS 8 defines the CODM as a function rather than an individual with a specific title. That function is to allocate resources to and assess the performance of operating segments of an entity. The CODM usually is the highest level of management responsible for the entity's overall resource allocation and performance assessment. In this regard, the standard states that often the CODM of an entity is its chief executive officer or the chief operating officer, but it may be a group consisting of, for example, the entity's executive directors or others. In any event, a key point to note is that each reporting entity can only have one "CODM". For example, when the reporting entity is a group (as is almost always the case for entities within the scope of HKFRS 8), the CODM is the highest level of executive management within the group. 123 Operating segments are identified on the basis of internal reports that an entity's CODM reviews regularly in allocating resources to segments and in assessing their performance, and may include start-up operations, vertically integrated operations and joint ventures and associates. In HK Listco's case, the main division of the group, electronics, is split further into 3 geographical segments, as in HK Listco's assumed circumstances, this is consistent with the way that information is provided internally to the most senior executive management of the group. If an entity discloses information under HKFRS 8, HKFRS 15 requires the entity to disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue disclosed in accordance with HKFRS 15 (i.e. as illustrated in note 3(a)) and the revenue information disclosed for each reportable segment. HK Listco does this by identifying which products and services are included in which segment in this narrative description and by giving numerical break- down of segment revenue from external customers into point in time and over time in the segment analysis table (i.e. as illustrated in note 3(b)(i)). Other approaches may also be sufficient to satisfy this disclosure requirement. 124 Material operating segments that are identified in the internal reports that an entity's CODM reviews may only be aggregated for the purposes of reporting segment information in the financial statements if aggregation is consistent with the core principle in HKFRS 8 (as set out in paragraph 1 of HKFRS 8), the segments have similar economic characteristics and those segments are similar in each of the characteristics set out in paragraph 12 of HKFRS 8. If these criteria are met, then aggregation is allowed but not required i.e. management may choose not to aggregate and could therefore instead present information to users as it is presented internally to the CODM. As also mentioned in footnote 125 below, "whether segments have been aggregated" is identified as one of the items of "general information" about factors used to identify reportable segments that should be disclosed in accordance with paragraph 22 of HKFRS 8. When segments have been aggregated, judgement made by management in applying the aggregation criteria is also required to be disclosed. 125 Consistent with the management approach, HKFRS 8 requires the amounts of each segment item reported to be the measure reported internally to the CODM. This means that segment information disclosed in the financial statements should be prepared using non- HKFRS policies if this is how the information reported to the CODM is prepared. However, where the CODM internally uses more than one segment measure, HKFRS 8 requires the entity to report those measures determined in accordance with measurement principles which management believes are most consistent with those used in measuring the corresponding amount in the entity's financial statements. To help users understand the segment information presented and its limitations in the context of an entity's financial statements, HKFRS 8 requires entities to disclose the following: general information about the factors used to identify the entity's reportable segments and the extent to which operating segments have been aggregated for disclosure purposes; judgements made by management in applying the aggregation criteria in paragraph 12 of HKFRS 8; information about the measurement basis adopted, such as the nature of any differences between the measurements used in reporting segment information and those used in the entity's financial statements, the nature of any changes from prior periods in the measurement methods used, and the nature and effect of any asymmetrical allocations to reportable segments (for example, an entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment); and reconciliations of total reportable segment revenue, total profit or loss and other material amounts disclosed for reportable segments to corresponding consolidated totals in the entity's financial statements with all material reconciling items separately identified and described. Reconciliations of total reportable segment assets to consolidated assets and segment liabilities to consolidated liabilities are also required if segment assets and segment liabilities have been reported under paragraph 23 of HKFRS 8. 83 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#90HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (i) Segment results, assets and liabilities 125 HKFRS 8.27(c) & (d) HKFRS 8.27(b) & (f) HKFRS 8.27(b) HKFRS 8.27(a) For the purposes of assessing segment performance and allocating resources between segments, the group's senior executive management monitors the results, assets and liabilities attributable to each reportable segment on the following bases: Segment assets include all tangible, intangible assets and current assets with the exception of interests in associates, investments in financial assets, deferred tax assets and other corporate assets. Segment liabilities include provision for electronic product warranties, trade creditors, accruals, bills payable and lease liabilities attributable to the manufacturing and sales activities of the individual segments and bank borrowings managed directly by the segments. Revenue and expenses are allocated to the reportable segments with reference to sales generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments. Segment profit includes the group's share of profit arising from the activities of the group's joint venture. However, other than reporting inter-segment sales of electronic products, assistance provided by one segment to another, including sharing of assets and technical know-how, is not measured. In particular, all patents and trademarks relating to the electronics division are allocated to the Hong Kong segment. The measure used for reporting segment profit is "adjusted EBITDA" i.e. "adjusted earnings before interest, taxes, depreciation and amortisation", where "interest" is regarded as including investment income and "depreciation and amortisation" is regarded as including impairment losses on non-current assets. To arrive at adjusted EBITDA the group's earnings are further adjusted for items not specifically attributed to individual segments, such as share of profits less losses of associates, directors' and auditors' remuneration and other head office or corporate administration costs. In addition to receiving segment information concerning adjusted EBITDA, management is provided with segment information concerning inter segment sales, the group's share of the joint venture's profit, interest income and expense from cash balances and borrowings managed directly by the segments, depreciation, amortisation and impairment losses and additions to non-current segment assets used by the segments in their operations. Inter-segment sales are priced with reference to prices charged to external parties for similar orders. 84 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#91HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Disaggregation of revenue from contracts with customers by the timing of revenue recognition, as well as information regarding the group's reportable segments as provided to the group's most senior executive management for the purposes of resource allocation and assessment of segment performance for the years ended 31 December 2023 and 2022 is set out below 126 Electronics – Hong Kong 2023 $'000 2022 $'000 Electronics -South East Asia 2023 $'000 Electronics Construction 2022 $'000 -Rest of the world 2023 $'000 Property development contracts 127 Property leasing Total 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 2022 $'000 2023 $'000 (restated) 2022 $'000 (restated) HKFRS 15.114, 115 Disaggregated by timing of revenue recognition 114, 115, 123 Point in time Over time 531,079 79,357 449,424 119,097 78,953 16,241 95,388 15,062 200,002 201,610 105,192 120,766 25,392 17,826 8,535 HKFRS 8.23(a) Revenue from external customers HKFRS 8.23(b) Inter-segment revenue 610,436 528,377 104,109 103,907 135,338 110,450 200,002 201,610 105,192 120,766 25,392 17,826 8,535 1,251 928 6,211 6,211 1,084,895 105,360 955,370 129,525 867,188 118,052 985,240 104,835 Reportable segment revenue 714,545 632,284 136,589 111,378 200,002 201,610 105,192 120,766 25,392 17,826 8,535 6,211 1,190,255 1,090,075 HKFRS 8.23 Reportable segment profit (adjusted EBITDA) 109,975 97,624 20,897 18,847 19,255 16,385 29,924 28,230 14,982 13,162 25,420 11,694 220,453 185,942 HKFRS 8.23(c) Interest income from bank deposits 128 301 592 61 73 189 264 HKFRS 8.23(d) Interest expense (13,155) (10,540) (2,850) (1,750) (1,076) (1,002) 551 929 (1,250) (1,400) (18,331) (14,692) HKFRS 8.23(e) Depreciation and amortisation for the year (24,409) (19,328) (2,735) (2,148) (5,765) (5,071) (553) (480) (560) (490) (34,022) (27,517) HKAS 36.129 Impairment of non-current assets & HKFRS 8.23(i) - plant and machinery (1,200) - goodwill (184) (1,200) (184) HKFRS 8.23(i) Impairment losses on trade receivables and contract assets (1,520) HKFRS 8.23 HKFRS 8.24(a) Reportable segment assets (including interest in joint venture)129 386,865 (1,030) 354,245 (255) 35,344 (180) 26,900 (510) 44,074 (430) 41,050 (15) (80) (2,300) (1,720) 148,674 140,527 94,288 42,765 88,540 32,095 88,091 69,036 797,336 42,765 720,298 32,095 HKFRS 8.24(b) HKFRS 8.23 Additions to non-current segment assets during the year129 Reportable segment liabilities 35,035 200,154 33,695 187,276 1,700 48,982 44,617 33,470 29,490 6,621 62,854 6,679 65,652 1,371 594 988 1,067 10,154 10,164 44,727 356,208 41,362 338,266 85 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#92HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 8.23 HKAS 7.50(d) HKFRS 8.16 & 6 HKFRS 8.23 HKFRS 8.24 Financial statements for the year ended 31 December 2023 126 HKFRS 8 requires an entity to report a measure of profit or loss for each reportable segment. It also includes the following disclosure requirements: • A measure of assets and/or liabilities for each reportable segment should be disclosed if such amounts are provided regularly to the CODM. • The following should be disclosed about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the CODM or are otherwise provided regularly to the CODM even if not included in that measure of segment profit or loss: revenues from external customers; revenues from transactions with other operating segments of the same entity; interest revenue; interest expense; depreciation and amortisation; material items of income and expense disclosed in accordance with HKAS 1; the entity's interest in the profit or loss of associates and joint ventures accounted for by the equity method; income tax expense or income; and - material non-cash items other than depreciation and amortisation In the fictitious circumstances of HK Listco, although depreciation and amortisation expense is not included in the measure of profit or loss that is reviewed by the group's CODM, such amounts are provided to the CODM who uses this information in evaluating the performance of the entity's segments. Accordingly, disclosure of depreciation and amortisation expense by each reportable segment is disclosed. In addition to the disclosure of segment results required by HKFRS 8, HKAS 7 encourages the disclosure of additional information about the amount of cash flows arising from the operating, investing and financing activities of each reportable segment. Although not explicitly stated in HKAS 7, we presume that such information should only be disclosed on a segment basis if such information is included in the information reported internally to the CODM. 127 In this illustration it is assumed that the construction contracts activity is separately identified as an operating segment in information provided internally to the CODM and that management has decided that it would be useful information to disclose this segment separately. If instead management had decided that the "construction contracts" segment was not sufficiently material to be regarded as a reportable segment, it could have labelled the amounts relating to this segment (and any other immaterial operating segments) as relating to "all other segments" in accordance with paragraph 16 of HKFRS 8. However, given that in HK Listco's assumed circumstances "construction contracts" is separately identified as an operating segment in information provided to HK Listco's CODM, it would not have been acceptable to simply include these amounts in the "unallocated amounts" disclosed in the reconciliation under paragraph 28 of HKFRS 8. Where an "all other segments" category is presented, the sources of revenue in this category should be described (paragraph 16 of HKFRS 8). 128 In respect of the disclosure of segment interest revenue and interest expense, an entity should report interest revenue separately from interest expense for each reportable segment (assuming this information is reported to and used by the CODM) unless a majority of the segment's revenues are from interest and the CODM relies primarily on net interest revenue in making decisions about the segment (e.g. if the segment is a financial services segment). In that situation, the entity may report that segment's interest revenue net of interest expense and disclose that it has done so. 129 An entity should disclose the following about each reportable segment if the specified amounts are included in the measure of segment assets reviewed by the CODM or are otherwise regularly provided to the CODM even if not included in the measure of segment assets: the amount of investment in associates and joint ventures accounted for by the equity method; and the amounts of additions to non-current assets (other than non-current financial instruments, deferred tax assets, post- employment benefit assets and rights arising under insurance contracts). 86 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#93HKAS 1.51(a) HKAS 1.49 HKFRS 8.28(a) HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities Revenue Reportable segment revenue Elimination of inter-segment revenue Consolidated revenue (note 3(a)) 2023 2022 $'000 $'000 1,190,255 1,090,075 (105,360) (104,835) 1,084,895 985,240 2023 2022 HKFRS 8.28(b) Profit $'000 $'000 (restated) Reportable segment profit 220,453 185,942 Elimination of inter-segment profits (26,340) (26,208) Reportable segment profit derived from group's external customers and joint venture 194,113 159,734 Share of profits less losses of associates 13,830 12,645 Other income 11,119 9,190 Depreciation and amortisation (34,128) (27,675) Finance costs (20,618) (16,166) Impairment losses on non-current assets (1,384) Unallocated head office and corporate expenses (13,674) (10,045) Consolidated profit before taxation 149,258 127,683 HKFRS 8.28(c) Assets 2023 2022 $'000 $'000 (restated) Reportable segment assets 797,336 720,298 Elimination of inter-segment receivables (2,260) (1,650) 795,076 718,648 Interests in associates 40,308 29,478 Equity securities designated at FVOCI 5,040 4,950 Financial assets measured at FVPL 24,289 21,886 Financial assets measured at amortised cost 31,601 21,596 Trading securities 58,331 58,020 Deferred tax assets 2,539 3,495 Unallocated head office and corporate assets 8,689 6,334 Consolidated total assets 965,873 864,407 HKFRS 8.28(d) Liabilities 2023 $'000 2022 $'000 (restated) Reportable segment liabilities Elimination of inter-segment payables 356,208 338,266 (2,260) (1,650) 353,948 336,616 Current tax liabilities 6,750 7,244 Deferred tax liabilities 19,194 13,850 Unallocated head office and corporate liabilities 25,534 19,024 Consolidated total liabilities 405,426 376,734 87 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#94HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 8.33 HKFRS 15.114 Financial statements for the year ended 31 December 2023 130 (iii) Geographic information 13 The following table sets out information about the geographical location of (i) the group's revenue from external customers and (ii) the group's investment property, property, plant and equipment, intangible assets, goodwill and interests in associates and joint venture ("specified non-current assets")131. The geographical location of customers is based on the location at which the services were provided or the goods delivered 132. The geographical location of the specified non-current assets is based on the physical location of the asset, in the case of property, plant and equipment, the location of the operation to which they are allocated, in the case of intangible assets and goodwill, and the location of operations, in the case of interests in associates and joint venture132 Revenues from external customers114 2023 2022 Specified non-current assets 2023 2022 $'000 $'000 $'000 $'000 Hong Kong (place of domicile)133 767,083 704,506 273,058 219,210 Chinese Mainland 1,750 1,220 72,765 50,095 United States 129,528 100,600 Singapore 43,468 22,174 30,478 36,472 Malaysia 32,592 15,730 42,366 39,307 Germany France Other countries 35,268 45,450 18,774 29,230 56,432 66,330 317,812 280,734 145,609 125,874 1,084,895 985,240 418,667 345,084 The analysis above includes property rental income from external customers in Hong Kong and in Chinese Mainland of $7,795,000 (2022: $5,595,000) and $740,000 (2022: $616,000) respectively. HKFRS 8.31-34 HKFRS 15.114 HKFRS 8.33 HKFRS 8.33 130 HKFRS 8 requires disclosure of information about an entity's products and services, geographical areas and major customers, regardless of the entity's organisation (i.e. even if the entity has a single reportable segment). These minimum disclosures, referred to as "entity- wide disclosures" in HKFRS 8, should be based on the financial information that is used to produce the entity's financial statements (i.e. not based on the management approach) and are required if they are not provided as part of the reportable segment information required by the standard. In HK Listco's financial statements, we have included the information relating to geographic location of customers and non-current assets here in Note 3(b) "Segment reporting" and included the information on the entity's products and services and major customers in Note 3(a) "Revenue". Other approaches to disclosing this information are also acceptable provided they meet the basic disclosure requirement of paragraph 113 of HKAS 1, to present notes in a systematic manner. Regardless of where disclosed, these entity-wide disclosures are also a form of disaggregated revenue disclosure that may contribute towards satisfying paragraph 114 of HKFRS 15 (see footnote 115). 131 As part of the required entity-wide disclosures, HKFRS 8 requires the disclosure of certain geographic information, unless the necessary information is not available and the cost to develop it would be excessive. The information required to be analysed geographically is (a) revenue from external customers and (b) non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts. In respect of (b), in our view, users may find it helpful if the disclosure identified which of the group's non-current assets are included in this disclosure, rather than simply repeating the words in HKFRS 8.33(b) concerning "non-current assets other than financial instruments, deferred tax ...". This description will therefore vary from one entity to the next, depending on which non-current assets they carry. 132 HKFRS 8 requires the revenue and specified non-current assets to be "attributed" to countries. This is intended to allow flexibility to entities, for example it allows them to decide for themselves how to attribute revenue to countries in situations where the goods are shipped to one country but the invoices are sent to another country (see paragraph 106 of Appendix A to the Basis for conclusions to HKFRS 8). Given this flexibility, entities are required to disclose the attribution basis used. 88 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#95HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 8.33 133 Paragraph 33 of HKFRS 8 states that revenue and non-current asset information is required to be analysed by (a) the entity's country of domicile and (b) all foreign countries in total. To the extent that a foreign operation is material, further disclosure by country is required, and it would not be adequate simply to identify broad geographic areas of contiguous countries (e.g. Europe) (see paragraph 105 of Appendix A to the Basis for conclusions to HKFRS 8). An entity is allowed, however, to provide sub-totals of the geographic information by groups of countries, in addition to the required information by country. There is no further explanation as to the meaning of the entity's "country of domicile" when the disclosures are made on a consolidated basis and the meaning may be particularly unclear when the parent company is an investment holding company incorporated in an off-shore jurisdiction. In our view, in such circumstances, this disclosure may be taken to refer to the country which the group regards as its "home country", for example, where it has the majority of its operations, workforce and/or management headquarters. Furthermore, in our view, given the differences between the economic and legal systems and environment in Hong Kong and Chinese Mainland, it would be useful for users to disclose amounts relating to each of these regions separately, even though they are part of the same country. If in any doubt about the users being confused by a country, or part of a country, being identified as where the entity is domiciled, further disclosure should be given about how the entity has identified its "country of domicile". 89 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#96HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 4 OTHER INCOME¹14 2023 2022 $'000 $'000 HKFRS 7.20(b) Interest income on financial assets measured at amortised cost Dividend income 1,363 1,008 610 572 HKAS 20.39(b) Government grants (note (i)) 134 205 2,800 Rentals receivable from operating leases, other than those relating to investment property 450 500 Financial guarantee issued 2 2 HKFRS 7.24C(b)(ii) A16(4)(1)(a) HKFRS 7.20(a)(i) Changes in fair value of interest rate swaps recognised as hedge ineffectiveness Net loss on sale of property, plant and equipment 135 1 1 (83) Net gain on trading securities 135 4,887 4,307 Net gain on investments not held for trading 3,684 11,119 9,190 HKAS 20.39(b) (i) HKAS 20.29 HKAS 1.34 & 35 135 HKFRS 7.20(a)(i) In 2023, the group successfully applied for funding support from the Commercial Research and Development Fund ("the Fund"), set up by the [•] Government. The purpose of the Fund is to encourage innovation by granting financial assistance to commercial entities whose research and development projects meet certain criteria. In 2022, the group successfully applied for funding support from the Employment Support Scheme under the Anti-epidemic Fund, set up by the [•] Government. The purpose of the funding is to provide financial support to employers to retain their current employees or hire more employees when the business revives. Under the terms of the grant, the group is required to employ a sufficient number of employees with reference to its proposed employee headcounts in each subsidy month. 134 According to paragraph 29 of HKAS 20, government grants relating to income may either be reported as income (as is shown here) or deducted in reporting the related expense. In accordance with HKAS 1, the results of transactions which are incidental to the main revenue generating activities are generally presented on a net basis (for example, the net gain or loss arising from the disposal of a non-current asset). In addition, HKAS 1 states that gains and losses arising from a group of similar transactions (for example, gains and losses arising on financial instruments held for trading during the period) are reported together on a net basis, unless separately material. However, requirements of other more specific HKFRSS may restrict the extent to which amounts may be aggregated. For example, HKFRS 7 requires net gains or losses on financial instruments at fair value through profit or loss to be separately analysed between those arising on financial instruments designated as such upon initial recognition and those arising on instruments which are mandatorily measured at FVPL in accordance with HKFRS 9. 90 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#97HKAS 1.51(a) HKAS 1.49 5 PROFIT BEFORE TAXATION HK Listco Ltd Financial statements for the year ended 31 December 2023 Profit before taxation is arrived at after charging/(crediting): 2023 $'000 2022 $'000 (a) Finance costs Interest on bank loans and other borrowings (note 22(c)) 18,437 14,229 HKFRS 16.53(b) Interest on lease liabilities (note 22(c)) 4,587 3,967 Dividends on redeemable preference shares (note 22(c) & 32(b)) 200 200 Other interest expense (note 22(c)) 1,272 880 HKFRS 7.20(b) Total interest expense on financial liabilities not at fair value through profit or loss 136 24,496 19,276 HKAS 23.26(a) Interest accrued on advance payments from customers (note 20(b)) Less: interest expense capitalised into properties under development* 985 518 (4,765) (3,548) 20,716 16,246 HKFRS 7.24C(b)(iv) Interest-rate swaps: cash flow hedges, reclassified from equity (note 9(b)) (98) (80) 20,618 16,166 HKAS 23.26(b) * The borrowing costs have been capitalised at a rate of ]% per annum (2022: | 1%). 2023 $'000 2022 $'000 (restated) HKAS 1.104 (b) Staff costs #137 HKAS 19.53 HKAS 19.135(b) Contributions to defined contribution retirement plan Expenses recognised in respect of defined benefit plans: 9,972 9,252 - ORSO plans (note 28(b)(v)) 14,877 14,216 Long service payments (note 28(c)) 367 1,294 HKFRS 2.50 & 51(a) Equity-settled share-based payment expenses (note 29) 1,658 1,625 Salaries, wages and other benefits 386,999 413,873 354,525 380,912 HKFRS 7.20(b) HKAS 1.104, HKAS 19.53, 135(b) HKFRS 2.50, 51a 137 136 Paragraph 20(b) of HKFRS 7 requires disclosure of total interest expense calculated using the effective interest method for financial liabilities that are not carried at fair value through profit or loss. This would include, for example, interest expense recognised on payables carried at amortised cost (i.e. due to deferred payment terms), interest on lease liabilities, as well as interest incurred on bank loans. However, it would not include the unwinding of discounts on provisions, as provisions are not a type of financial instrument. Disclosure of staff costs in this note would not normally be required when the analysis of expenses is presented using a classification based on the nature of expenses, rather than their function. However, disclosures of the amounts recognised as an expense for defined contribution plans and for share-based payment transactions are still required under the disclosure requirements of paragraph 53 of HKAS 19 and paragraph 51(a) of HKFRS 2, respectively. Although disclosure of expense recognised for defined benefit plans is not specifically required by HKAS 19, this information may be necessary in order to satisfy the disclosure objective of HKAS 19 - giving information that identifies the amounts in the financial statements arising from defined benefit plans. See footnote 231 for further details of HKAS 19's disclosure objectives. 91 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#98HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 2022 $'000 $'000 (c) Other items HKAS 1.104 Amortisation cost of intangible assets" (note 12) 2,680 1,500 HKAS 1.104 Depreciation charge" (note 11) - owned property, plant and equipment right-of-use assets 10,858 10,042 20,590 16,133 31,448 26,175 Impairment losses on non-financial assets plant and machinery (note 11(a)) goodwill (note 13) 1,200 184 1,384 HKAS 21.52(a) Net foreign exchange loss/(gain) 1,250 (5,251) Net (gain)/loss on forward foreign exchange contracts HKFRS 7.24C(b)(iv) HKFRS 7.20(a)(i) - net gain on cash flow hedging instruments reclassified through OCI (note 9(b)) -net (gain)/loss on other forward foreign exchange contracts (300) (280) (525) 3,580 425 (1,951) CP Auditors' remuneration 138 Sch 4, Part 2, Section 1 audit services 139 CP tax services CP other services 1,062 885 200 188 100 80 1,362 1,153 HKAS 37.84(b) Increase in provisions (note 31) 12,439 12,000 HKAS 40.75(f) Rentals income from investment properties less direct outgoings of $1,375,000 (2022: $1,037,000) 140 (7,160) (5,174) HKAS 2.36(d) Cost of inventories" (note 19(a)) 786,042 719,370 # A14, Part 1(1) A16(34) Sch 4, Part 2 HKAS 40.75(f) CP Cost of inventories includes $315,678,000 (2022: $281,865,000) relating to staff costs, depreciation and amortisation expenses, which amount is also included in the respective total amounts disclosed separately above or in note 5(b) for each of these types of expenses, and net gain on cash flow hedging instruments removed from equity to the initial carrying amount of inventories. 141 138 In accordance with paragraph I under Part 1 of Appendix 14 to the MBLRS, a listed issuer is required to disclose an analysis of auditors' remuneration in respect of both audit and non-audit services in the corporate governance report (CGR) included in its annual report. The analysis must include, in respect of each significant non-audit service assignment, details of the nature of the services and the fees paid. As compared to the requirement under CO to disclose the amount of the remuneration of the auditor (see footnote 139), Appendix 14 to the MBLRS is more prescriptive and includes requirements on disclosures of: • remuneration of non-audit services; and • remuneration of services provided by any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of the audit firm nationally or internationally. When the amounts of auditors' remuneration disclosed in accordance with Appendix 14 to the MBLRs and the CO are different, a reconciliation is recommended to facilitate an understanding of the nature of the difference. Where a listed entity chooses to present such analysis in its annual financial statements, the issuer must make a clear and unambiguous reference to its annual financial statements from the CGR. The CGR must not only contain a cross-reference without any discussion of the matter. 139 Under the CO, companies are required to disclose, under a separate heading, the amount of the remuneration of the auditor. As defined in the CO, "remuneration" includes any sums paid by the company in respect of the auditor's expenses. This disclosure is required to be made in the financial statements. 140 Where the entity has investment properties which were vacant during the period, or otherwise not generating rental income, the entity should analyse direct operating expenses (including repairs and maintenance) between that amount relating to investment properties which generated rental income and that amount relating to investment properties that did not generate rental income. 141 Although there is no requirement for such disclosure, it is best practice to show the extent of duplication in the disclosures made in this note. 92 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#99HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 6 INCOME TAX IN THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS HKAS 12.79 (a) Taxation in the consolidated statement of profit or loss represents: 2023 $'000 2022 $'000 (restated) CP HKAS 12.80(a) Current tax - Hong Kong Profits Tax 142 Provision for the year 13,000 14,849 HKAS 12.80(b) Under/(over)-provision in respect of prior years 61 (300) 13,061 14,549 CP Current tax - Overseas 142 HKAS 12.80(a) Provision for the year HKAS 12.80(b) Over-provision in respect of prior years 7,769 6,950 (619) 7,150 6,950 Deferred tax HKAS 12.80(c) Origination and reversal of temporary differences 4,264 (489) Effect on deferred tax balances at 1 January resulting from a change in tax rate (note 30(b)) 4,264 325 (164) HKAS 12.81(c) 24,475 21,335 The provision for Hong Kong Profits Tax 143 for 2023 is calculated at 16.5% (2022: 16.5%) of the estimated assessable profits for the year, except for one subsidiary of the group which is a qualifying corporation under the two-tiered Profits Tax rate regime 144 For this subsidiary, the first HK$2 million of assessable profits are taxed at 8.25% and the remaining assessable profits are taxed at 16.5%. The provision for Hong Kong Profits Tax for this subsidiary was calculated at the same basis in 2022. 142 143 Under the predecessor Companies Ordinance (Cap. 32) and the previous version of Appendix 16 to the MBLRS, the amounts of tax payable to the Hong Kong tax authorities and overseas tax authorities needed to be separately disclosed. Such separation is no longer required but we expect that it may continue to be a common practice to separately disclose these amounts if the information is considered useful. On 1 January 2023, the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Ordinance 2022 came into effect. This legislation has introduced a new "foreign-sourced income exemption" (FSIE) regime in the Hong Kong SAR. Before the new FSIE regime, the following four types of income had been non-taxable for Hong Kong Profits Tax purposes if sourced offshore. Under the new FSIE regime, with certain exceptions, such income is no longer exempt when received by an entity that carries out a trade, profession or business in the Hong Kong SAR, if that entity is within a multinational group: • interest; • dividend; • • disposal gain from the sale of equity interests in an entity; intellectual property income (e.g. licence fee). 144 Further details about the new FSIE regime including the exceptions can be found in Tax Alerts or from your usual KPMG contact. In this illustration, it is assumed that HK Listco either meets the exception requirements for any of the above offshore-sourced income such that those income is not taxable in the Hong Kong SAR, or does not have the relevant income at all. Accordingly, the new FSIE regime does not impact HK Listco's current tax and deferred tax positions. Under the two-tiered profits tax rate regime enacted by the Inland Revenue (Amendment) (No. 3) Ordinance 2018 (the Ordinance), the first HK$2 million of assessable profits of qualifying corporations is taxed at 8.25% and the remaining assessable profits are taxed at 16.5%. The Ordinance is effective from the year of assessment 2018/2019. For each year of assessment, only one entity in a group is eligible for the two-tiered profits tax rates. Consequently, if a group company (i.e. the parent company, a fellow subsidiary or a subsidiary) of the reporting entity has elected to claim the 8.25% band for a particular year of assessment, the reporting entity will not be eligible for the lower tax rate for that year of assessment. 93 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#100HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 The provision for Hong Kong Profits Tax for 2023 takes into account a reduction granted by the Hong Kong SAR Government of 100% of the tax payable for the year of assessment 2022/23 subject to a maximum reduction of $6,000 for each business (2022: a maximum reduction of $10,000 was granted for the year of assessment 2021/22 and was taken into account in calculating the provision for 2022). Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries. HKAS 12.81(c) (b) Reconciliation between tax expense and accounting profit at applicable tax rates 145. 2023 2022 $'000 $'000 (restated) Profit before taxation 149,258 127,683 Notional tax on profit before taxation, calculated at the rates applicable to profits in the countries concerned Tax effect of non-deductible expenses 26,390 397 22,580 Tax effect of non-taxable income 146 (2,176) Tax effect of unused tax losses not recognised 233 602 (1,940) 150 Effect on deferred tax balances at 1 January resulting from a change in tax rate 325 Statutory tax concession (240) (160) Over-provision in prior years (558) (300) Others 429 78 Actual tax expense 24,475 21,335 HKAS 12.81(c) HKAS 12.85 145 HKAS 12 requires disclosure of one or other of the following: (a) a reconciliation between the actual tax expense (or income) and the notional tax calculated at the applicable tax rate; and/or (b) a reconciliation between the average effective tax rate and the applicable tax rate. The entity is free to choose which approach to adopt or to adopt both. The "applicable tax rate" should be the rate that provides the most meaningful information to users of financial statements. This may be the domestic tax rate in the country in which the entity is domiciled or the tax rates of the various tax jurisdictions concerned, where an entity operates in more than one jurisdiction. 146 Where no further tax will be payable by the group on the distribution of profits from associates and joint ventures (i.e. dividend income is tax free), the share of profit recognised under the equity method will be a form of non-taxable income, which would be included as a reconciling item in the tax reconciliation, either separately or together with other forms of non-taxable income. 94 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#101HKAS 1.51(a) HKAS 1.49 (c) Pillar Two income taxes HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 12.88A HKAS 12.88C-88D The group operates in [country K], which has enacted new tax laws to implement the Pillar Two model rules published by the OECD. The new tax laws will take effect from 1 January 2024. When these laws take effect, the group expects to be subject to a new top-up tax in [country K] in relation to its operations in [country F] and [country G], where the local statutory tax rate is lower than 15% or the additional tax deductions in connection with government support would result in an effective tax rate of lower than 15%. As the new tax laws are not yet effective, the group does not recognise any current tax relating to the Pillar Two model rules for the year ended 31 December 2023. The group has applied the temporary mandatory exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes and would account for the tax as current tax when incurred (see note 1(c)(i)). If the new tax laws had applied in [country K] in 2023, the profits relating to the group's operations in [country F and country G] would be subject to the corresponding Pillar Two income taxes. For the year ended 31 December 2023, such profits amounted to $5,971,000 and the average effective tax rate applicable to those profits was 12%. 147 HKAS 12.88C-88D 147 CP An entity may operate in multiple jurisdictions, some of which have enacted or substantively enacted tax laws to implement the Pillar Two model rules published by the OECD, but those laws are not yet in effect as at the reporting date. In such case, the entity is required to disclose qualitative and quantitative information to help users of financial statement to understand the entity's exposure to the Pillar Two income taxes, to the extent that such information is known or reasonably estimable. Such disclosures do not have to reflect all the specific requirements of the related tax laws and can be provided in the form of an indicative range. To the extent information is not known or reasonably estimable, the entity shall instead disclose a statement to that effect and disclose information about the entity's progress in assessing its exposure. Examples of information an entity could disclose to meet the requirements include: (a) qualitative information such as information about how an entity is affected by the tax law to implement Pillar Two model rules and the main jurisdiction in which exposures to Pillar Two income taxes might exist; and (b) quantitative information such as: (i) an indication of the proportion of an entity's profits that might be subject to Pillar Two income taxes and the average effective tax rate applicable to those profits; or (ii) an indication of how the entity's average effective tax rate would have changed if the tax law to implement Pillar Two model rules had been in effect. In this illustration, it is assumed that new tax laws implementing the Pillar Two model rules have been enacted or substantively enacted by 31 December 2023 in at least one of the jurisdictions in which HK Listco operates and HK Listco expects to be impacted by the new tax laws. Accordingly, HK Listco has disclosed the required information. It may be that none of the jurisdictions in which an entity operates have tax laws enacted or substantively enacted by the reporting date to implement the Pillar Two model rules, but the entity expects to be impacted by the forthcoming tax changes. While HKAS 12 does not require the above-mentioned disclosures about the expected tax exposures, disclosures following the above principles would nevertheless be best practice. 95 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#102HKAS 1.51(a) HK Listco Ltd HKAS 1.49 S383(1), A16(24) HKAS 24.17 Financial statements for the year ended 31 December 2023 7 DIRECTORS' EMOLUMENTS 148, 149 Directors' emoluments disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows 150. Directors' fees Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Share-based Sub-Total payments (note)151 2023 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 Chairman Hon WS Tan 150 150 150 Executive directors SK Ho YK Ng PK Smith 51 551 50 1,210 215 120 1,595 1,595 50 1,180 200 115 1,545 125 1,670 50 1,290 205 125 1,670 200 1,870 CJ Wang (appointed on 18 June 2023) 20 330 55 30 435 435 BC Tong (resigned on 31 March 2023) 10 165 25 25 15 215 (50) 165 Independent non- executive directors TY Sham 100 100 100 YH Li 100 100 100 AC Man 100 100 100 630 4,175 700 405 5,910 275 6,185 C(DIBD)R.4, 5&6 A16(24) 148 149 The requirements about directors' remunerations particularly in respect of elements of a director's package other than basic salary and bonus have been expanded and/or clarified in the C(DIBD)R. For further details about the key changes introduced by the C(DIBD)R in respect of directors' remuneration, please refer to KPMG's Briefing Note 1 "What's new for financial statements?" which can be obtained from your usual KPMG contact. It should be noted that "directors' emoluments" are broadly defined in the C(DIBD)R and include, for example, emoluments in respect of accepting office as director, non cash benefits and amounts paid into a retirement scheme on the directors' behalf (such as MPF contributions paid on behalf of a director). This amount of emoluments should be split into two categories: (1) amounts relating to being a director of the company or of the company's subsidiary (i.e. directors' fees) and (2) amounts relating to other services in connection with the management of the affairs of the company or its subsidiaries. The nature of any non-cash benefit should also be disclosed. In addition to directors' emoluments, the C(DIBD)R requires disclosure of the following types of directors' remuneration: directors' retirement benefits*; payments made, or benefit provided in respect of termination of directors' services; and consideration provided to or receivable by third parties for making available directors' services. * The term "directors' retirement benefits" is referring to amounts arising on or after or in connection with a directors' retirement, and excludes amounts paid out of a scheme if the contributions into the scheme were substantially adequate for the maintenance of the scheme. In this illustration, HK Listco only has directors' emoluments to disclose. When entities have other types of directors' remuneration in addition to directors' emoluments, they should disclose each of them separately. In that case, the note should be labelled as "Directors' remuneration" or any terms as appropriate to suit the content of the note. 150 Unlike section 383(1) of the CO under which the analysis of directors' remuneration can be presented on a no-names basis, paragraph 24 of Appendix 16 to the MBLRS requires listed companies to show details of directors' and past directors' emoluments, by name. References to "director" in that paragraph include a chief executive who is not a director. In the case of an issuer which is duly incorporated in Chinese Mainland as a joint stock limited company, directors or past directors include supervisors and past supervisors (as appropriate) (paragraph 24.4 of Appendix 16). In this illustration, it is assumed that HK Listco does not have any amounts paid or payable to directors as an inducement to join or upon joining the listed issuer or to directors or past directors for the loss of office as a director of any member of the group or of any other office in connection with the management of the affairs of any member of the group. If an entity has such amounts paid or payable to directors or past directors, details should be disclosed in accordance with paragraphs 24(5) and (6) of Appendix 16 to the MBLRs. In addition, it is assumed that HK Listco does not have any arrangement under which a director has waived or agreed to waive any emoluments. If an entity has such arrangement, details should be disclosed in accordance with paragraph 24A of Appendix 16 to the MBLRs. The SEHK has also further clarified in the response to its frequently asked questions No. 77 released on 30 March 2004 under Series 1 "Rule Requirements relating to Listing Criteria Issues and Continuing Obligations", that comparative figures for disclosure of directors' emoluments on a named basis must also be disclosed. The above analysis illustrates one of the possible formats for such disclosure. Paragraph E.1.8 under Part 2 of Appendix 14 to the MBLRs also recommends that issuers disclose details of any remuneration payable to members of senior management, on an individual and named basis, in the annual reports. 96 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#103HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Directors' fees Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Share-based 2022 Sub-Total payments 151 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 Chairman Hon WS Tan 150 150 150 Executive directors SK Ho 50 1,090 150 100 1,390 1,390 YK Ng 50 1,060 125 100 1,335 125 1,460 PK Smith 50 1,160 150 110 1,470 200 1,670 40 600 70 60 770 50 820 BC Tong Independent non- executive directors TY Sham 100 100 100 YH Li 100 100 100 AC Man 100 100 100 640 3,910 495 370 5,415 375 5,790 Note: A16(25) HKAS 24.17 These represent the estimated value of share options granted to the directors under the company's share option scheme. The value of these share options is measured according to the group's accounting policies for share-based payment transactions as set out in note 1(x)(iii) and, in accordance with that policy, includes adjustments to reverse amounts accrued in previous years where grants of equity instruments are forfeited prior to vesting. The details of these benefits in kind, including the principal terms and number of options granted, are disclosed under the paragraph "Share option scheme" in the directors' report and note 29. In addition, the company has given a guarantee on behalf of a director to a finance company. This benefit in kind is disclosed in note 23. INDIVIDUALS WITH HIGHEST EMOLUMENTS Of the five individuals with the highest emoluments, three (2022: three) are directors whose emoluments are disclosed in note 7. The aggregate of the emoluments in respect of the other two (2022: two) individuals are as follows: 2023 2022 $'000 $'000 A16(25)(1) A16(25)(3) Salaries and other emoluments 1,500 1,400 Discretionary bonuses 150 140 Share-based payments 150 150 A16(25)(2) Retirement scheme contributions 140 130 1,940 1,820 C(DIBD)R.4(2)(b) 151 The CO requires entities to disclose the nature of any non-cash benefits included in the total amounts disclosed for emoluments, retirement benefits, compensation or consideration paid to third parties. However, it is not necessary to separately disclose the monetary amounts of those non-cash benefits included in the totals. In the illustration above this requirement is met by separately disclosing share-based payments. Other examples could include allowing the director to live in accommodation owned by the company rent-free. 97 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#104HKAS 1.51(a) HKAS 1.49 HK Listco Ltd A16(25)(6) Financial statements for the year ended 31 December 2023 9 The emoluments of the two (2022: two) individuals with the highest emoluments are within the following bands152 $ Nil 1,000,001 1,000,000 1,500,000 OTHER COMPREHENSIVE INCOME 2023 Number of individuals 2022 Number of individuals 1 1 2 HKAS 1.90 (a) Tax effects relating to each component of other comprehensive income Before-tax amount $'000 benefit $'000 (expense)/ 2023 Tax Net-of-tax amount $'000 Before-tax amount $'000 (restated) 2022 Tax (expense)/ Net-of-tax benefit $'000 amount $'000 (restated) HKAS 1.92-94 (b) Exchange differences on translation of: financial statements of overseas subsidiaries (2,173) - related borrowings 494 (1,679) (2,173) 494 1,047 (219) (1,679) 828 1,047 (219) 828 Surplus on revaluation of land and buildings held for own use 27,290 (2,138) 25,152 7,158 (846) 6,312 Cash flow hedge: net movement in hedging reserve (347) 61 (286) (320) 56 (264) Remeasurement of defined benefit plan obligations Equity investments at FVOCI: net movement in fair value (9) (9) (10) (10) reserve (non-recycling) 90 90 50 50 Other comprehensive income 25,345 (2,077) 23,268 7,706 (790) 6,916 Components of other comprehensive income, including reclassification adjustments 2023 2022 $'000 $'000 Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the period 51 40 HKFRS 7.24C(b)(iv), (v) - Reclassification adjustments for amounts transferred to profit or loss: finance costs (note 5(a)) (98) (80) - cost of sales (note 5(c)) (300) (280) Net deferred tax credited to other comprehensive income 61 56 Net movement in the hedging reserve during the period recognised in other comprehensive income (286) (264) Equity investments measured at FVOCI HKFRS 7.20(a)(vii) Changes in fair value recognised during the period 90 50 Net movement in the fair value reserve (non-recycling) during the period recognised in other comprehensive income 90 50 A16(25)(6) 152 Paragraph 25(6) of Appendix 16 to the MBLRS specifically requires the analysis to be expressed in Hong Kong dollars (regardless of whether the annual report is expressed in Hong Kong dollars or not). Paragraph 25(6) of Appendix 16 also requires the analysis to have the bands from HK$nil up to HK$1,000,000 or higher bands (where the higher limit of the band is an exact multiple of HK$500,000 and the range of the band is HK$499,999). 98 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#105HKAS 1.51(a) HKAS 1.49 10 EARNINGS PER SHARE (a) Basic earnings per share HKAS 33.70(a)&(b) HK Listco Ltd Financial statements for the year ended 31 December 2023 The calculation of basic earnings per share is based on the profit attributable to ordinary equity shareholders of the company of $114,367,000 (2022 (restated): $96,181,000) and the weighted average of 99,531,000 ordinary shares (2022: 99,000,000 shares after adjusting for the bonus issue in 2023) 153 in issue during the year, calculated as follows: HKAS 33.70(b) Weighted average number of ordinary shares Issued ordinary shares at 1 January Effect of bonus issue (note 32(c)(ii)) Effect of shares repurchased (note 32(c)(iii)) Effect of share options exercised (note 32(c)(iv)) Weighted average number of ordinary shares at 31 December (b) Diluted earnings per share HKAS 33.70(a)&(b) 2023 2022 '000 '000 90,000 90,000 9,000 9,000 (386) 917 99,531 99,000 The calculation of diluted earnings per share is based on the profit attributable to ordinary equity shareholders of the company of $114,893,000 (2022 (restated): $96,704,000) and the weighted average number of ordinary shares of 100,470,000 shares (2022: 99,664,000 shares after adjusting for the bonus issue in 2023)153, calculated as follows: HKAS 33.26-27, 64 153 Paragraph 26 of HKAS 33 requires that for the purpose of calculating earnings per share, the weighted average number of ordinary shares outstanding during the period and for all periods presented should be adjusted for events, other than conversion of potential ordinary shares, that have changed the number of ordinary shares outstanding without a corresponding change in resources. Paragraph 27 provides some examples of such events: capitalisation or bonus issue, bonus element in any other issue (e.g. bonus element in a rights issue), share split and reverse share split. Paragraph 64 of HKAS 33 states that the requirement to restate the per share calculations for all periods presented applies even if the change occurs after the end of the reporting period (but before the financial statements are authorised for issue). In that case, the fact that per share calculations reflect the post balance sheet change in the number of shares should be disclosed. In our view, this requirement in paragraph 64 does not apply to a rights issue which occurred after the end of the reporting period. This is because the computation of the bonus element in a rights issue requires information on the market price of the shares immediately before exercise of the rights i.e. relates to circumstances which did not exist at the end of the reporting period. Therefore, the retrospective adjustment for a rights issue would only be made for rights issues that occurred during the reporting period. Any rights issue that occurred after the end of the reporting period but before the financial statements are authorised for issue should be disclosed as a non-adjusting event in accordance with paragraph 70(d) of HKAS 33 and paragraph 22(f) of HKAS 10. 99 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#106HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 33.70(a) (i) Profit attributable to ordinary equity shareholders of the company (diluted) 2023 $'000 2022 $'000 (restated) Profit attributable to ordinary equity shareholders 114,367 96,181 After tax effect of effective interest on the liability component of convertible 525 522 notes After tax effect of losses recognised on the derivative component of convertible notes Profit attributable to ordinary equity shareholders (diluted) 1 1 114,893 96,704 HKAS 33.70(b) (ii) Weighted average number of ordinary shares (diluted) 2023 '000 2022 '000 Weighted average number of ordinary shares at 31 December Effect of conversion of convertible notes (note 25) 99,531 99,000 500 500 Effect of deemed issue of shares under the company's share option scheme for nil consideration (note 29) 439 164 Weighted average number of ordinary shares (diluted) at 31 December 100,470 99,664 100 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#107HKAS 1.51(a) HKAS 1.49 11 INVESTMENT PROPERTY AND PROPERTY, PLANT AND EQUIPMENT 154 (a) Reconciliation of carrying amount Cost or valuation: Ownership interests HK Listco Ltd Financial statements for the year ended 31 December 2023 in land and buildings held for own use Other properties leased for own use $'000 $'000 Plant, machinery and equipment $'000 Investment Sub-total $'000 property $'000 Total $'000 HKAS 16.73(d) HKAS 16.73(e)(viii)) HKAS 16.73(e)(i) HKAS 16.73(e)(ii) At 1 January 2022 Exchange adjustments Additions Disposals 74,323 39,189 140,462 253,974 60,170 236 870 1,106 314,144 1,106 7,927 14,235 16,833 38,995 38,995 (3,845) (3,845) (3,845) HKAS 16.73(e)(iv) Surplus on revaluation 7,158 7,158 7,158 Less: elimination of accumulated depreciation (1,937) (1,937) (1,937) HKAS 40.76 Fair value adjustment 6,520 6,520 HKAS 16.73(d) At 31 December 2022 87,707 53,424 154,320 295,451 66,690 362,141 Representing: Cost Valuation 2022 53,424 154,320 207,744 207,744 87,707 87,707 66,690 154,397 87,707 53,424 154,320 295,451 66,690 362,141 HKAS 16.73(d) At 1 January 2023 87,707 53,424 154,320 295,451 66,690 362,141 HKAS 16.73(e)(viii)) Exchange adjustments (1,171) (1,230) (2,401) (2,401) HKAS 16.73(e)(i) Additions 10,373 14,535 16,344 41,252 41,252 HKAS 16.73(e)(ii) Disposals (4,570) (4,570) (4,570) HKAS 16.73(e)(iv) Surplus on revaluation 27,290 27,290 27,290 Less: elimination of accumulated depreciation (2,649) (2,649) (2,649) HKAS 40.76 Fair value adjustment 18,260 18,260 HKAS 16.73(d) At 31 December 2023 121,550 67,959 164,864 354,373 84,950 439,323 HKAS 1.38 Representing: Cost Valuation 2023 67,959 164,864 232,823 121,550 121,550 121,550 84,950 232,823 206,500 67,959 164,864 354,373 84,950 439,323 154 Comparative information is required for the analysis of the movements, as HKFRSS do not give a specific exemption in this regard. 101 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#108HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 16.73(d) HKAS 16.73(e)(viii) HKAS 16.73(e)(vii) HKAS 16.73(e)(ii) HKAS 16.73(e)(iv) HKAS 16.73(d) Accumulated amortisation and depreciation: At 1 January 2022 Exchange adjustments Charge for the year Written back on disposals Elimination on revaluation At 31 December 2022 HKAS 16.73(d) HKAS 16.73(e)(viii) HKAS 16.73(e)(vii) HKAS 16.73(e)(v) HKAS 16.73(e)(ii) HKAS 16.73(e)(iv) At 1 January 2023 Exchange adjustments Charge for the year Impairment loss Written back on disposals Elimination on revaluation HKAS 16.73(d) At 31 December 2023 Ownership interests in land and buildings held for own use $'000 Other properties leased for own use $'000 Plant, machinery and equipment $'000 Sub-total $'000 Investment property $'000 Total $'000 72,395 72,395 72,395 334 334 334 1,937 9,737 14,501 26,175 26,175 (2,837) (2,837) (2,837) (1,937) (1,937) (1,937) 9,737 84,393 94,130 94,130 9,737 84,393 94,130 94,130 (526) (526) (526) 2,649 12,811 15,988 31,448 31,448 1,200 1,200 1,200 (3,738) (3,738) (3,738) (2,649) (2,649) (2,649) 22,548 97,317 119,865 119,865 HKAS 16.73(e) Net book value: At 31 December 2023 121,550 45,411 67,547 234,508 84,950 319,458 At 31 December 2022 87,707 43,687 69,927 201,321 66,690 268,011 102 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#109HKAS 1.51(a) HKAS 1.49 HKAS 36.126(a) & 130 HK Listco Ltd Financial statements for the year ended 31 December 2023 Impairment loss 155 In June 2023, a number of machines in the property development division 156 were physically damaged. The group assessed the recoverable amounts of those machines and as a result the carrying amount of the machines was written down to their recoverable amount of $6,230,000157. An impairment loss of $1,200,000 was recognised in "Cost of sales" 158. The estimates of recoverable amount were based on the machines' fair values less costs of disposal, using market comparison approach by reference to recent sales price of similar assets within the same industry, adjusted for differences such as remaining useful lives 159. The fair value on which the recoverable amount is based on is categorised as level 3 measurement. The equipment was disposed of before the end of the year at approximately its carrying amount at that time. 160 [Paragraphs 126 to 132 of HKAS 36 contain detailed disclosure requirements that apply whenever an entity recognises an impairment loss/a reversal of an impairment loss. If an impairment loss has been recognised or reversed, care should be taken to comply with these requirements, including disclosing key assumptions. It may be helpful to the reader to include sensitivity analysis for any particularly judgemental assumptions which may be subject to change in an uncertain future.]181 HKFRS 16.96 HKAS 36.130 (c)(ii) HKAS 36.130(e) HKAS 36.126(a). HKFRS 13.7(c) HKAS 36.130(f) HKAS 34.26 155 If the lessor recognises impairment loss on assets subject to operating leases, it needs to provide the disclosure required by HKAS 36 for assets subject to operating lease separately from owned assets held and used by the entity. 156 If an entity reports segment information in accordance with HKFRS 8, it should disclose for an individual asset the reportable segment to which the asset belongs. 157 For an individual asset (including goodwill) or a cash-generating unit for which an impairment loss has been recognised or reversed during the period, the entity is required to disclose the recoverable amount of the asset or CGU and whether the recoverable amount of the asset or CGU is its fair value less costs of disposal or its value in use. If the recoverable amount is fair value less costs of disposal, additional disclosures will be required. See footnote 159 below for details of those additional disclosures. 158 In this illustration, HK Listco presents its expenses by function (see footnote 49) and has therefore allocated the impairment loss of non- financial assets to the appropriate function. In our view, only expenses that cannot be allocated to a specific function are classified as "other operating expenses" (e.g. impairment of goodwill). This is the case even if the asset to which the impairment relates is subsequently disposed of before the end of the same year - in this illustration, HK Listco has kept the impairment loss previously recognised in the published interim financial statements in the same line item (i.e. "Cost of sales") even though the asset to which the impairment relates was subsequently disposed of, and the gain or loss on disposal is included in a different line item (i.e. "Other income" in note 4) in the annual financial statements. 159 As stated in paragraph 7(c) of HKFRS 13, an asset whose recoverable amount is fair value less costs of disposal in accordance with HKAS 36 is outside the scope of HKFRS 13's disclosure requirements. Instead, entities need to provide the following disclosures required by paragraph 130 of HKAS 36 if an impairment loss has been recognised or reversed during the period in respect of the asset whose recoverable amount is fair value less costs of disposal: ⚫ the level of the 3-level fair value hierarchy (as defined in HKFRS 13) within which the fair value measurement is categorised; for Level 2 and Level 3 fair value measurements: • a description of the valuation technique(s) used to measure fair value less costs of disposal; any change in valuation technique used and the reason(s) for making the change; key assumptions used in determining the fair value less costs of disposal; and discount rate used in the measurement if a present value technique is used for measuring fair value less costs of disposal. 160 If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year, paragraph 26 of HKAS 34 requires the nature and amount of the change in estimate to be disclosed in a note to the annual financial statements unless a separate interim financial report is published for that final period. For entities listed on the Stock Exchange of Hong Kong, as typically an interim financial report is only published in respect of the first six months of the period, this disclosure requirement in paragraph 26 of HKAS 34 would apply to the annual financial statements whenever there is a significant change in the second half of the year to an estimate reported in the first half of the year. 103 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#110HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 13.91-93 (b) Fair value measurement of properties 161 HKFRS 13.93(b) (i) Fair value hierarchy164 The following table presents the fair value of the group's properties measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: • Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available Level 3 valuations: Fair value measured using significant unobservable inputs Fair value measurements as at 31 December 2023 categorised into Fair value at 31 December 2023165 $'000 Level 1 $'000 Level 2 $'000 Level 3 $'000 Recurring fair value measurement 162 Investment properties 163. - Residential - Chinese Mainland 32,000 - Commercial - Hong Kong 52,950 Properties held for own use: - Freehold land and buildings South East Asia - 34,000 - Leasehold land and buildings 163_ Hong Kong 87,550 Fair value at 31 December 2022 $'000 32,000 52,950 87,550 Fair value measurements as at 31 December 2022 categorised into Level 1 $'000 Level 2 $'000 34,000 Level 3 $'000 Recurring fair value measurement Investment properties: - Residential - Chinese Mainland 26,500 26,500 - Commercial - Hong Kong 40,190 : 40,190 Properties held for own use: - Freehold land and buildings South East Asia 30,059 - Leasehold land and buildings - Hong Kong 57,648 30,059 57,648 104 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#111HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 13.91 92, 99,C1-C3 HKFRS 13.93(a) 161 162 HKFRS 13 contains a comprehensive disclosure framework for fair value measurement. The objective of the disclosures for assets and liabilities that are measured at fair value after initial recognition is: to provide information that enables users of financial statements to assess the methods and inputs used to develop those measurements; and to assess the effect of the measurements on profit or loss or other comprehensive income of recurring fair value measurements that are based on significant unobservable inputs. Paragraphs 93 to 99 of HKFRS 13 list out the disclosures required by the standard. The disclosure requirements apply only to fair value measurements made after initial recognition and vary depending on whether the fair value measurement is "recurring" or "non-recurring", and depending on which level of the 3-level fair value hierarchy (as further discussed in footnote 164 below) that the assets or liabilities are categorised within. As explained in footnote 162 below, recurring fair value measurements arise from assets or liabilities measured on a fair value basis at each reporting date. All other measurements using fair value after initial recognition are "non-recurring". The most extensive disclosure requirements are for "Level 3" measurements that are recurring. Paragraph 92 of HKFRS 13 explicitly requires that if the disclosures provided in accordance with the standard and other HKFRSS are insufficient to meet the above-mentioned disclosure objectives, entities should disclose additional information necessary to meet those objectives. Unless another format is more appropriate, the quantitative disclosures required by HKFRS 13 should be presented in a tabular format (i.e. instead of being a narrative note). In this illustration, HK Listco provides HKFRS 13 disclosures for its investment properties and properties held for own use in note 11(b), and financial instruments in note 33(f). Recurring fair value measurements arise from assets or liabilities measured on a fair value basis at each reporting date. Examples of recurring fair value measurements include investment properties accounted for using fair value model under HKAS 40, properties held for own use measured at revaluation model under HKAS 16, financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income under HKFRS 9. Non-recurring fair value measurements made after initial recognition are those that are triggered by particular circumstances. Non- recurring fair value measurements include an asset being classified as held for sale and measured at fair value less costs to sell under HKFRS 5. HKAS 40.40A, HKFRS 16.34-35 163 HKFRS 13.93(b), 72-90 164 HKFRS 13.94 The right-of-use assets, and not the underlying property, shall be measured at fair value, when the lessee uses the fair value model to measure an investment property that is held as a right-of-use asset. This also applies to the situations where the lessee measures the right- of-use assets at revalued amounts applying HKAS 16. For recurring and non-recurring fair value measurements, entities are required to disclose the level of the fair value hierarchy within which the fair value measurements are categorised in their entirety. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique for that particular asset or liability as follows: • Level 1 valuations: these are valuations which use only Level 1 inputs i.e. these use unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. • Level 2 valuations: these are valuations that use Level 2 inputs i.e. observable inputs which fail to meet Level 1 (e.g. because the observable inputs are for similar, but not identical assets or liabilities) and do not use significant unobservable inputs. Unobservable inputs are inputs for which market data are not available. • Level 3 valuations: these are valuations which cannot be classified as Level 1 or Level 2. This means that the valuation is estimated using significant unobservable inputs. In some cases, the inputs used to measure the fair value might be categorised within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement (Note: Level 1 is considered as the highest, Level 3 is the lowest). This means that if the valuation technique uses significant unobservable inputs, then the fair value of that asset or liability should be classified as a "Level 3" valuation. 165 For recurring and non-recurring fair value measurements, entities are required to disclose, for each class of assets and liabilities, the fair value measurement at the end of the reporting period, and for non-recurring fair value measurements, the reasons for the measurement. As stated in paragraph 94 of HKFRS 13, "class" is determined based on the nature, characteristics and risks of the asset or liability; and the level of the fair value hierarchy within which the fair value measurement is categorised. When another HKFRS specifies the class for an asset or a liability, entities may use that class in providing the disclosures required by HKFRS 13, if that class meets the requirements in paragraph 94 of HKFRS 13. In this illustration, so far as the fair value disclosures for properties are concerned, HK Listco has taken into account the location and the type of property when identifying separate classes for the purpose of HKFRS 13. As stated in paragraph 94 of HKFRS 13, the number of classes may need to be greater for Level 3 fair value measurements as they have a greater degree of uncertainty and subjectivity. 105 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#112HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 13.93(c), (e)(iv) HKAS 16.77 HKAS 40.75(a), (e) HKFRS 13.93(g) HKFRS 13.93(d) (ii) During the year ended 31 December 2023, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 (2022: nil). The group's policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur. 166 All of the group's investment properties and properties held for own use were revalued as at 31 December 2023167. The valuations were carried out by an independent firm of surveyors, Lang and Associates, who have among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the location and category of property being valued 168. The group's property manager and the chief financial officer have discussion with the surveyors on the valuation assumptions and valuation results when the valuation is performed at each interim and annual reporting date 169. Valuation techniques and inputs used in Level 2 fair value measurements 170 The fair value of investment properties and properties held for own use located in Hong Kong is determined using market comparison approach by reference to recent sales price of comparable properties on a price per square foot basis using market data which is publicly available. HKFRS 13.93(d) (iii) Information about Level 3 fair value measurements 170 Valuation techniques Unobservable input Range 171 Weighted average 171 Investment properties Residential - Chinese Mainland Discounted cash flow Risk-adjusted discount 1% to 1% rate Expected market rental growth Expected occupancy rate (2022: 1% to 1%) ]% (2022: ]%) 1% to []% 1% % (2022: 1% to 1%) (2022: ]%) 1% to 1% (2022: 1% to ]%) 1% (2022: ]%) Properties held for own use Freehold land and buildings South East Asia Market comparison approach Premium (discount) on quality of the buildings 1% to 1% 1% (2022: []% to [●]%) (2022: ]%) HKFRS 13.93(h)(i) HKFRS 13.93(c), 93(e)(iv) & 95. 166 HKFRS 13.27-29, 93(i) 167 The fair value of investment properties located in Chinese Mainland is determined by discounting a projected cash flow series associated with the properties using risk-adjusted discount rates. The valuation takes into account expected market rental growth and occupancy rate of the respective properties. The discount rates used have been adjusted for the quality and location of the buildings and the tenant credit quality. The fair value measurement is positively correlated to the expected market rental growth and the occupancy rate, and negatively correlated to the risk-adjusted discount rates 172. The fair value of properties held for own use located in South East Asia is determined using market comparison approach by reference to recent sales price of comparable properties on a price per square foot basis, adjusted for a premium or a discount specific to the quality of the group's buildings compared to the recent sales. Higher premium for higher quality buildings will result in a higher fair value measurement. Entities are required to disclose the following in respect of recurring fair value measurements: the amounts of any transfers between levels of the fair value hierarchy; the reasons for those transfers; and the policy for determining when transfers between levels are deemed to have occurred (e.g. occurred at the date of the event or change in circumstances that caused the transfer, deemed to have occurred at the beginning of the reporting period, or at the end of the reporting period). Transfers into and out of the levels should be separately disclosed and discussed. Under HKFRS 13, fair value measurement takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. An entity's current use of a non-financial asset is presumed to be its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the asset. If it is determined that the highest and best use of a non-financial asset differs from its current use, the entity is required to disclose this fact and why the non-financial asset is being used in a manner that differs from its highest and best use. This disclosure requirement applies to both recurring and non-recurring fair value measurements. 106 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#113HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 13.93(e), (f) The movements during the period in the balance of these Level 3 fair value measurements are as follows: 173 HKAS 16.77(e) Investment properties - Residential - Chinese Mainland: At 1 January Fair value adjustment At 31 December 2023 2022 $'000 $'000 26,500 24,310 5,500 2,190 32,000 26,500 Fair value adjustment of investment properties is recognised in the line item "net valuation gain on investment property" on the face of the consolidated statement of profit or loss. All the gains recognised in profit or loss for the year arise from the properties held at the end of the reporting period. 2023 2022 $'000 $'000 Properties held for own use - Freehold land and buildings - South East Asia At 1 January 30,059 28,013 Additions 505 1,080 Exchange adjustment (1,171) 236 Depreciation charge for the year (1,020) (745) Surplus on revaluation 5,627 1,475 At 31 December 34,000 30,059 Surplus on revaluation and exchange adjustment of properties held for own use are recognised in other comprehensive income in "property revaluation reserve" and "exchange reserve", respectively. (iv) Depreciated cost of properties held for own use carried at fair value Had the revalued properties held for own use been carried at cost less accumulated depreciation, the carrying amounts would have been: Freehold land and buildings Leasehold land and buildings 2023 2022 $'000 $'000 22,150 24,260 58,390 80,540 47,907 72,167 107 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#114HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 16.77 HKAS 40.75(e) HKFRS 13.93(g), IE65 168 Entities should disclose the extent to which the fair value of investment property is based on a valuation by an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, entities disclose this fact. Similarly, entities should disclose whether an independent valuer was involved in the revaluation of property, plant and equipment. 169 HKFRS 13.93(d) 170 HKFRS 13.93(h)(i) HKFRS 13.93(e), 93(f) 171 For fair value measurements categorised in Level 3 of the fair value hierarchy, entities should provide a description of the valuation processes used. IE65 of HKFRS 13 gives examples of information that the entity might disclose in respect of the valuation processes in order to comply with this requirement. Entities are required to disclose, for recurring and non-recurring fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation technique(s) and the inputs used in the fair value measurement. For fair value measurements categorised within Level 3, information about the significant unobservable inputs used has to be quantitative. If there has been a change in valuation technique, entities should disclose this fact and the reason(s) for making the change. HKFRS 13 does not specify how to summarise the quantitative information about the significant unobservable inputs used for each class of assets or liabilities carried at Level 3 valuations (e.g. whether to disclose the range of values or a weighted average for each significant unobservable input used). Entities should consider the level of detail that is necessary to meet the disclosure objectives. For example, if the range of values for a significant unobservable input used is wide, then the entity may need to disclose both the range and the weighted average of the values in order to provide information about how the inputs are dispersed around that average and distributed within that range. 172 For recurring fair value measurements categorised within Level 3 of the fair value hierarchy, entities should give a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. This narrative description should include, at a minimum, the unobservable inputs that have been disclosed under paragraph 93(d) of HKFRS 13. If there are interrelationships between those inputs, a description of those interrelationships and how they might magnify or mitigate the effect of changes should be disclosed. 173 For recurring fair value measurements categorised within Level 3 of the fair value hierarchy, entities should provide a reconciliation from the opening balances to the closing balances. This reconciliation should separately disclose the changes during the period attributable to: • • total gains or losses (i.e. realised and unrealised) for the period recognised in profit or loss, and the line item(s) in profit or loss in which they are recognised; total gains or losses for the period recognised in other comprehensive income, and the line item(s) in other comprehensive income in which they are recognised; purchases, sales, issues and settlements (each of these types of changes disclosed separately); and • the amounts of any transfers into or out of Level 3 of the fair value hierarchy. Separate disclosure should be made for changes in unrealised gains or losses included in profit or loss relating to assets and liabilities held at the end of the reporting period and the line item(s) in profit or loss in which those unrealised gains or losses are recognised. 108 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#115HKAS 1.51(a) HKAS 1.49 HKFRS 16.52 (c) HKFRS 16.53(j), 59(a). HK Listco Ltd Financial statements for the year ended 31 December 2023 Right-of-use assets The analysis of the net book value of right-of-use assets by class of underlying asset is as follows: Ownership interests in leasehold land and buildings held for - own use, carried at fair value in Hong Kong, with remaining lease term 174 of: 50 years or more - between 10 and 50 years Notes 2023 $'000 2022 $'000 65,610 48,740 21,940 8,908 87,550 57,648 Other properties leased for own use, carried at depreciated cost (ii) 45,411 43,687 Plant, machinery and equipment, carried at depreciated cost (iii) 23,472 24,727 156,433 126,062 Ownership interests in leasehold investment property, carried at fair value, with remaining lease term 174 of: - 50 years or more between 10 and 50 years 52,950 40,190 32,000 26,500 84,950 66,690 241,383 192,752 174 For the purposes of meeting the disclosure requirements of paragraph 59(a) of HKFRS 16, a lessee is required to provide information that helps users of financial statements to assess the nature of the lessee's leasing activities. In this regard, it would be informative to analyse the carrying value of significant ownership interests in leasehold land and buildings by indicating the remaining lease term as illustrated here. 109 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#116HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 The analysis of expense items in relation to leases recognised in profit or loss is as follows: HKFRS 16.53(a) Depreciation charge of right-of-use assets by class of underlying asset: Ownership interests in leasehold land and buildings Other properties leased for own use Plant, machinery and equipment 2023 2022 $'000 $'000 1,629 1,192 12,811 9,737 6,150 5,204 20,590 16,133 HKFRS 16.53(b) Interest on lease liabilities (note 5(a)) 4,587 3,967 HKFRS 16.53(c) Expense relating to short-term leases 175 1,050 850 HKFRS 16.53(d) Expense relating to leases of low-value assets, excluding short- term leases of low-value assets 175 3,300 2,700 HKFRS 16.53(e) Variable lease payments not included in the measurement of lease liabilities 1,560 1,760 HKFRS 16.60A(b) COVID-19-related rent concessions received (380) HKFRS 16.53(h) HKFRS 16.52 HKFRS 16.60A(a) HKFRS 16.59(a) During the year, additions to right-of-use assets were $29,298,000 (2022: 25,082,000). This amount included the purchase of a leasehold property of $9,868,000 (2022: 6,847,000), and the remainder primarily related to the capitalised lease payments payable under new tenancy agreements. Details of land leases included in the carrying amount of inventories, total cash outflow for leases, the maturity analysis of lease liabilities and the future cash outflows arising from leases that are not yet commenced are set out in notes 19(b), 22(d), 33(b) and 34, respectively. The group applied the practical expedient in paragraph 46A of HKFRS 16 to all eligible rent concessions received by the group in 2022. Further details are disclosed in (ii) below. (i) Ownership interests in leasehold land and buildings held for own use The group holds several industrial buildings for its electronics business, where its manufacturing facilities are primarily located. The group is the registered owner of these property interests, including the whole or part of undivided share in the underlying land. Lump sum payments were made upfront to acquire these property interests from their previous registered owners, and there are no ongoing payments to be made under the terms of the land lease, other than payments based on rateable values set by the relevant government authorities. These payments vary from time to time and are payable to the relevant government authorities. HKFRS 16.53(c)&(d) 175 If the lessee has elected to apply the recognition exemption in paragraphs 5 to 6 of HKFRS 16, the expenses relating to short- term leases (which need not include the expense relating to leases with a lease term of one month or less) and the expense relating to leases of low-value assets (which shall not include the expense relating to the short-term leases of low-value assets) shall be disclosed. 110 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#117HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Other properties leased for own use HKFRS 16.59(a) HKFRS 16.59(b)(ii), B50 The group has obtained the right to use other properties as its warehouses and retail stores through tenancy agreements. The leases typically run for an initial period of [●] to [•] years. Lease payments are usually increased every (•) years to reflect market rentals. Some leases include an option to renew the lease for an additional period after the end of the contract term. Where practicable, the group seeks to include such extension options exercisable by the group to provide operational flexibility. The group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. If the group is not reasonably certain to exercise the extension options, the future lease payments during the extension periods are not included in the measurement of lease liabilities. The potential exposure to these future lease payments is summarised below:176 HKFRS 16.59(b)(i), B49 HKFRS 16.59 & B48-B52 176 Warehouses Hong Kong Retail stores Hong Kong Lease liabilities recognised (discounted) Potential future lease payments under extension options not included in lease liabilities (undiscounted) 2023 2022 2023 2022 $'000 $'000 $'000 $'000 7,186 7,929 3,000 1,400 4,535 6,606 4,800 4,800 The group leased a number of retail stores which contain variable lease payment terms that are based on sales generated from the retail stores and minimum annual lease payment terms that are fixed. These payment terms are common in retail stores in Hong Kong where the group operates. In 2022 the group received rent concessions in the form of a discount on fixed payments as a result of severe social distancing and travel restriction measures introduced to contain the spread of COVID- 19. The amount of fixed and variable lease payments for the year is summarised below:176 In addition to the quantitative disclosure as required by paragraphs 53 to 58 of HKFRS 16, paragraph 59 of HKFRS 16 requires a lessee to disclose additional qualitative and quantitative information about its leasing activities necessary to give a basis for users to assess the effect on the financial statements. In determining whether additional information about leasing activities is necessary, paragraph B48 of HKFRS 16 states that the information is likely to be relevant if it helps users of financial statements to understand: the flexibility provided by leases (for example, if the entity can reduce its exposure by exercising termination options or renewing leases with favourable terms and conditions); restrictions imposed by leases (for example, if the lessee requires the entity to maintain particular financial ratio); sensitivity of reported information to key variables (for example, if lease payments are linked to sales or usage volume or other variables); exposure to other risks arising from leases (for example, residual value risk); and deviations from industry practice (for example, unusual lease terms and conditions that affect a lessee's lease portfolio, or sale and leaseback transactions). Paragraph 59 of HKFRS 16 provides examples of information that the entity should consider disclosing, including variable lease payments, extension and termination options, residual value guarantees and sale and leaseback transactions. Paragraphs B49 to B52 of HKFRS 16 expands to give further examples of additional information in respect of these items. In this illustration, HK Listco determines that the information about flexibility provided by the extension options and the variability of turnover rent are relevant to users of financial statements and are not available elsewhere in this illustrative annual report. Entities should use their judgement to determine what additional information is relevant in view of their circumstances and therefore requires disclosure. In addition, the information about the nature of rent concessions (e.g. one-off rent reductions, rent waivers or deferrals of lease payments), if material, would be relevant to users of financial statements regardless of whether a lessee applies the practical expedient relating to COVID-19 in paragraph 46A of HKFRS 16. 111 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#118HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Retail stores - Hong Kong Retail stores Hong Kong 2023 Variable COVID-19 rent Fixed payments payments $'000 $'000 concessions $'000 Total payments $'000 2,400 1,560 3,960 2022 Fixed payments $'000 Variable payments $'000 COVID-19 rent concessions $'000 Total payments $'000 2,400 1,760 (380) 3,780 HKFRS 16.59(a), (b) HKFRS 16.92 HKFRS 16.97 At 31 December 2023, it is estimated that an increase in sales generated from these retail stores by 5% would have increased the lease payments by $198,000 (2022: $208,000). (iii) Other leases The group leases production plant, machinery and office equipment under leases expiring from [•] to [•] years. Some leases include an option to renew the lease when all terms are renegotiated, while some include an option to purchase the leased equipment at the end of the lease term at a price deemed to be a bargain purchase option. None of the leases includes variable lease payments. (d) Investment property The group leases out investment property under operating leases. The leases typically run for an initial period of [●] to [●] years, with an option to renew the lease after that date at which time all terms are renegotiated. Lease payments are usually increased every [•] years to reflect market rentals. Certain leases include variable lease payment terms that are based on the revenue of tenants. Undiscounted lease payments under non-cancellable operating leases in place at the reporting date will be receivable by the group in future periods as follows¹77: HKFRS 16.94 & 97 HKAS 1.113 2023 2022 $'000 $'000 Within 1 year After 1 year but within 2 years 9,780 7,600 8,360 6,280 After 2 years but within 3 years 8,360 6,280 After 3 years but within 4 years 6,800 6,280 After 4 years but within 5 years After 5 years 6,800 4,720 10,250 7,970 50,350 39,130 177 Paragraphs 94 and 97 of HKFRS 16 requires an entity to disclose the maturity analysis of undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years following the reporting date and a total of the amounts for the remaining years. The above disclosure could alternatively be presented together with information about revenue from remaining performance obligations as required by paragraph 120 of HKFRS 15 as both disclosures relate to revenue under contracts existing as at the end of the reporting period that is expected to be recognised in the future. In HK Listco's financial statements, this disclosure may be found in note 3(a). 112 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#119HKAS 1.51(a) HKAS 1.49 HKFRS 16.92, 95 (e) Machinery leased out under operating leases HK Listco Ltd Financial statements for the year ended 31 December 2023 $'000 Cost: At 1 January 2022, 31 December 2022 and 31 December 2023 2,100 Accumulated depreciation: At 1 January 2022 Charge for the year At 31 December 2022 At 1 January 2023 Charge for the year At 31 December 2023 Net book value: At 31 December 2023 At 31 December 2022 HKFRS 16.97 HKAS 16.79(a) (f) The group leases out a number of items of machinery under operating leases. The leases typically run for an initial period of (●) to (●) years, with an option to renew the lease after that date at which time all terms are renegotiated. None of the leases includes variable lease payments. Undiscounted lease payments under non-cancellable operating leases in place at the reporting date will be receivable by the group in future periods are $450,000 per annum in the next two years (2022: $450,000 per annum in the next three years). Where practicable, the group obtains residual value guarantees from the lessee to reduce the residual asset risk. 178 Temporarily idle property, plant and equipment At 31 December 2023, plant and equipment with a carrying amount of $12,450,000 were temporarily idle because of a suspension of a production line. The group plans to introduce new products and operate the assets in 2024. HKFRS 16.92(a)&(b) 210 210 420 420 210 630 1,470 1,680 178 Paragraph 92 of HKFRS 16 requires a lessor to disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in paragraph 89 of HKFRS 16 - disclosing information that gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor. In particular, it requires additional information about how the lessor manages the risk associated with any rights it retains in underlying assets. A lessor needs to disclose its risk management strategy for the rights it retains in underlying asset, including any means by which it reduces that risk (e.g. buy-back agreements, residual value guarantees and variable lease payments). 113 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#120HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 38.118(c)&(e) 12 INTANGIBLE ASSETS 154 Development Patents and costs trademarks Total $'000 $'000 $'000 Cost: At 1 January 2022 15,000 15,000 Addition through internal development 2,400 2,400 At 31 December 2022 2,400 15,000 17,400 At 1 January 2023 2,400 15,000 17,400 Addition through internal development 1,500 1,500 Addition through acquisition of subsidiary 2,000 2,000 At 31 December 2023 3,900 17,000 20,900 Accumulated amortisation: At 1 January 2022 Charge for the year At 31 December 2022 1,500 1,500 1,500 1,500 3,000 3,000 At 1 January 2023 Charge for the year 3,000 3,000 780 1,900 2,680 At 31 December 2023 780 4,900 5,680 Net book value: At 31 December 2023 At 31 December 2022 HKAS 38.118(d) 3,120 12,100 15,220 2,400 12,000 14,400 The amortisation charge for the year is included in "cost of sales" in the consolidated statement of profit or loss87. [Paragraphs 126 to 132 of HKAS 36 contain detailed disclosure requirements that apply whenever an entity recognises an impairment loss or a reversal of an impairment loss. If an impairment loss has been recognised or reversed, care should be taken to comply with these requirements, (and paragraphs 134 to 135 of HKAS 36 for intangible assets with indefinite useful lives 183), including disclosing key assumptions. It may be helpful to the reader to include sensitivity analysis for any particularly judgemental assumptions which may be subject to change in an uncertain future.] 181 Acquisition of subsidiary On 15 January 2023, the group entered into a sale and purchase agreement to acquire 100% equity interest in Best Solutions Limited at a total consideration of $2,000,000 (note 22(e)). The principal activity of Best Solutions Limited is to design integrated lighting control solutions, and its identifiable assets are mainly patents and trademarks. The transaction was completed in March 2023 and recognised as an acquisition of assets, rather than a business combination, given that substantially all of the fair value of the gross assets is concentrated in a group of similar identifiable assets (the patents and trademarks). Further details of the net assets acquired are set out in note 22(e). 114 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#121HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 CP Impairment test for cash-generating units containing development costs 179 In the second half of 2023, the electronics market in Malaysia intensified with the entry of a global industry leader, and as a result the group's operating profits in Malaysia were significantly lower than originally budgeted. The group assessed the recoverable amounts of the assets comprising the CGU in relation to its Malaysia electronics operations, which included the capitalised development costs. The recoverable amount of the CGU that included the development costs is determined based on value-in-use calculation. The group engaged an independent professional valuer to assist with the calculation. The calculation uses cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions used in estimating the recoverable amount are as follows: HKAS 1.125, 129 179 CP Annual revenue growth rate during the forecast period Gross profit margin Growth rate beyond the forecast period (note (i)) 2023 2022 [•]% [•]% [•]% [•]% [•]% [•]% [•] % [•]% Pre-tax discount rate (i) Cash flows beyond the five-year period have been extrapolated using an estimated weighted average growth rate which is consistent with the forecasts included in industry reports and generally in line with 2022. As at 31 December 2023, the recoverable amount of the CGU was $[•] (2022: $[•]), which was higher than its carrying amount by $[•] (2022: $[•]). The group considers that reasonably possible change in the key assumptions above would not cause the CGU's carrying amount at 31 December 2023 to exceed its recoverable amount. Impairment assessment typically involves estimation uncertainties and entities should consider paragraphs 125 and 129 of HKAS 1 in addition to the requirements in HKAS 36 to determine the extent of disclosures needed, including whether a sensitivity analysis is needed. Paragraph 125 of HKAS 1 requires disclosure of information about the assumptions an entity makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Sensitivity analysis is one of the example type of disclosures provided in paragraph 129 of HKAS 1. In any event, if impairment assessments have been performed for material intangible assets, regardless of whether an impairment loss has been recognised, the SEHK recommends listed issuers to provide, in addition to the disclosures required by HKFRSS, the following additional information in the MD&A and financial statements (where appropriate) to help investors understand better those impairment assessments: (a) additional quantitative data of key assumptions (other than discount rate and terminal growth rate, e.g. gross and net margins), comparative information in the previous year and the explanation of significant changes of assumptions; (b) a negative statement indicating that reasonably possible change in the key assumptions on which the management had based its determination of the CGU's recoverable amount would not cause an impairment loss; (c) the recoverable amount of the CGU and the headroom available; (d) highlight whether the impairment assessment is based on a valuation by an independent professional valuer; and (e) details of further development of the CGU or segment, such as business plan and contracts with new customers in the coming year and their impact on the revenue and margins. SEHK's recommendations can be found in its Review of Issuers' Annual Reports 2022. 115 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#122HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 13 GOODWILL 15 154 $'000 Cost: HKFRS 3.B67(d)(i) At 1 January 2022, 31 December 2022 and 31 December 2023 1,100 Accumulated impairment losses: HKFRS 3.B67(d)(i) HKFRS 3.B67(d)(v) At 1 January 2022, 31 December 2022 and 1 January 2023 Impairment loss 184 HKFRS 3.B67(d)(viii) 184 HKAS 36.134(a) HKAS 36.135 At 31 December 2023 Carrying amount: At 31 December 2023 At 31 December 2022 Impairment tests for cash-generating units containing goodwill 181 916 1,100 Goodwill is allocated to the group's CGUS identified according to country of operation and operating segment as follows: 2023 2022 $'000 $'000 Electronics Hong Kong 866 1,050 Multiple units without significant goodwill 180 50 50 916 1,100 180 If some or all of the carrying amount of goodwill or intangible assets with indefinite useful lives is allocated across multiple CGUS (groups of units), and the amount so allocated to each unit (group of units) is not significant in comparison with the entity's total carrying amount of goodwill or intangible assets with indefinite useful lives, that fact shall be disclosed, together with the aggregate carrying amount of goodwill or intangible assets with indefinite useful lives allocated to those units (groups of units). In addition, if this aggregate amount is itself significant in comparison with the total goodwill or intangible assets with indefinite useful lives then further disclosure may be required, in respect of that aggregate amount. These requirements are set out in paragraph 135 of HKAS 36 and apply where: • some or all of the individually insignificant amount of goodwill or intangible assets with indefinite useful lives within that aggregate share the same key assumptions; and • the aggregate of that subset is significant compared to the entity's total carrying amount of goodwill or intangible assets with indefinite useful lives. 116 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#123HKAS 1.51(a) HKAS 1.49 HKAS 36.134(c) & (d) HK Listco Ltd Financial statements for the year ended 31 December 2023 Electronics Hong Kong 181,182 The recoverable amount of the CGU is determined based on value-in-use calculations. The group engaged an independent professional valuer to assist with the calculation. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions used in estimating the recoverable amount are as follows: 2023 2022 Annual revenue growth rate during the forecast period (note (i)): [•]% [•]% Gross profit margin [•]% [•]% Growth rate beyond the forecast period (note (ii)) [•]% [•]% Pre-tax discount rate [•]% [•]% (i) The significant decrease in revenue growth rate is due to the termination of relationship with one of the group's major customers in the fourth quarter of 2023. (ii) Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate which is consistent with the forecasts included in industry reports and generally in line with 2022. HKAS 36.126(a), 130(a) & The impairment loss of $184,000 recognised in "Other operating expenses" 158 during the year solely (e) & 134(f) relates to the group's electronics manufacturing activities based in Hong Kong. As the CGU has been reduced to its recoverable amount of $1,716,501,000157, any adverse change in the assumptions used in the calculation of recoverable amount would result in further impairment losses. [Paragraphs 126 to 132 of HKAS 36 contain detailed disclosure requirements that apply whenever an entity recognises an impairment loss for goodwill. In addition, paragraphs 134 to 135 of HKAS 36 contain specific disclosure requirements which apply to estimates used to measure recoverable amounts of CGUs containing goodwill or intangible assets with indefinite useful lives. Care should be taken to comply with these requirements, including a description of management's approach to determining the values assigned to the key assumptions and the information about the sensitivity of recoverable amount to changes in those key assumptions.] A16(32), CP HKAS 36.134 181 In addition to the discussion in footnote 179, paragraph 32 of Appendix 16 to the MBLRS requires a listed issuer to include in its annual report a discussion and analysis of, among others, material factors underlying its financial results and position and significant events during the year. Where a listed issuer recorded a material impairment on its assets, it should discuss the circumstances that led to impairment. Where the impairment is supported by a valuation, the SEHK recommends dis closure of information about the basis of the valuation, including: (a) details of the value of inputs used for the valuation together with the bases and assumptions; (b) reasons for any significant changes in the value of the inputs and assumptions from those previously adopted; (c) the valuation method and reasons for using that method; and (d) an explanation of any subsequent changes to the valuation method adopted. For additional illustrative IFRS disclosures on impairment, please refer to section 2.2 of the Guide to annual financial statement - COVID-19 supplement (September 2020) ("the COVID-19 supplement") produced by KPMG International Standards Group. 182 Paragraph 134 of HKAS 36 sets out disclosure requirements which are applicable to each CGU for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit is significant in comparison with an entity's total carrying amount of goodwill or intangible assets with indefinite useful lives. The specific disclosures depend on whether the recoverable amount of the CGU is based on value in use or fair value less costs of disposal: • • If the recoverable amount is based on value in use (as is the case for HK Listco), entities need to provide the disclosures regarding cash flow projections used to calculate value in use under paragraph 134(d) of HKAS 36. If the recoverable amount is based on fair value less costs of disposal, then entities need to disclose information about the valuation technique used to measure fair value less costs of disposal under paragraph 134(e) of HKAS 36. If fair value less costs of disposal is not measured using a quoted price for an identical unit, as would generally be the case, entities need to provide the extra information required by paragraphs 134(e)(i)-(iiB) of HKAS 36. 117 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#124HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 36.134(f) Financial statements for the year ended 31 December 2023 HKFRS 12.1&3&C2B 184 HKFRS 12.5A, B17 A16(9)(2), CP A16(9)(1) CP 183 For each CGU for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit is significant in comparison with an entity's total carrying amount of goodwill or intangible assets with indefinite useful lives, disclosure of the following information is required if a reasonably possible change in a key assumption on which management has based its determination of the unit's (group of units') recoverable amount would cause the unit's (group of units') carrying amount to exceed its recoverable amount: • the amount by which the unit's (group of units') recoverable amount exceeds its carrying amount; the value assigned to the key assumption; and the amount by which the value assigned to the key assumption must change, after incorporating any consequential effects of that change on the other variables used to measure recoverable amount, in order for the unit's (group of units') recoverable amount to be equal to its carrying amount. HKFRS 12 requires an entity to disclose information that enables users of its financial statements to evaluate: • • the nature of, and risks associated with, its interests in other entities; and the effects of those interests on its financial position, financial performance and cash flows. The standard contains extensive disclosure requirements in respect of an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Paragraph 3 of HKFRS 12 requires that, if the disclosures required by this standard, together with disclosures required by other HKFRSS, do not meet the above disclosure objective, the entity should disclose additional information necessary to meet the objective. The disclosure requirements of HKFRS 12, other than the requirements to disclose summarised financial information, also apply to an entity's interests in other entities that are classified as held for sale or discontinued operations in accordance with HKFRS 5. 185 Paragraph 9(2) of Appendix 16 to the MBLRs requires listed issuers to disclose particulars of the issued share capital and debt securities of every subsidiary. In this illustration, HK Listco discloses additional information about the amount of registered capital being paid up when it has not been fully paid. In accordance with Note 9.2 to paragraph 9 of Appendix 16, if a listed issuer has an excessive number of subsidiaries, the statement need only include details for subsidiaries which, in the opinion of the directors, materially contribute to the net income of the group or hold a material portion of the assets or liabilities of the group. 186 Paragraph 9(1) of Appendix 16 to the MBLRS requires the disclosure of the subsidiary's principal country of operation and country of incorporation or other establishment. Where the subsidiary is established in Chinese Mainland, disclosure of the type of legal entity it is registered as under applicable law (such as a contractual or cooperative joint venture) is also required. In this illustration, it is assumed that the principal place of operation and the place of incorporation of HK Listco's subsidiaries are the same. If the principal place of operation and the place of incorporation of the subsidiaries are different, the information should be disclosed separately. 187 Although not required, the proportion of voting power held is also commonly shown if different from the proportion of ownership interest. 118 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#125HKAS 1.51(a) HKAS 1.49 HKFRS 12.10 HKAS 24.13 A16(9) HK Listco Ltd Financial statements for the year ended 31 December 2023 14 INVESTMENTS IN SUBSIDIARIES 143, 184 The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the group. The class of shares held is ordinary unless otherwise stated. 185 Place of incorporation Name of company and business186 Particulars of issued and paid up capital and debt securities / registered capital 185 Proportion of ownership interest Group's effective interest Held by the company Held by a subsidiary 187 Principal activity ABC Hong Kong 10,000,000 shares 100% 100% Electronics Manufacture of electronic products Limited BB Trading Limited Hong Kong 1,000,000 shares 67.5% 67.5% Wholesaling and retailing of electronic products #Best Property Chinese Mainland ## RMB 10,000,000 100% 100% Property investment Company Limited Best Solutions Limited Hong Kong 100,000 shares 100% 100% Design of electronic systems Bright Light Limited Hong Kong 2,000,000 shares 100% 100% Construction and trading Bright Hong Kong Property Limited 5,000,000 shares and HK$ 5 million debentures 8% 2024 (Note 25) 100% 100% Property investment Brilliant Hong Kong 1,000,000 shares 100% 100% Property development Property Limited Future Trading Limited Hong Kong 2,000,000 shares 100% 100% Investment holding Smart Singapore Electronics Limited 2,000,000 shares of S$ 1 each 100% 100% Manufacture of electronic products *P.J. USA Enterprise Limited 500,000 shares of US$ 1 each 100% 100% Marketing of electronic products *Solid USA Trading Inc 500,000 shares of US$ 1 each 90% 90% Wholesaling and retailing of electronic products Wilson Industries Sdn Bhd Malaysia 2,000 shares of MYR 70% 70% 1 each PNote 600.1(22)&(24) * A16(9)(1) CP Manufacture of electronic products Companies not audited by KPMG. The financial statements of the subsidiaries not audited by KPMG reflect total net assets and total revenue constituting approximately [●] % and [●] % respectively of the related consolidated totals. # Wholly-owned foreign enterprise in Chinese Mainland 186 ## Out of RMB 10,000,000 registered capital, RMB 8,000,000 is paid up. 119 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#126HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 12.12 HKFRS 12.B10, B11 HKFRS 12.12, B10- B11 The following table lists out the information relating to BB Trading Limited, the only subsidiary of the group which has a material NCI. The summarised financial information presented below represents the amounts before any inter-company elimination 188 NCI percentage Current assets Non-current assets Current liabilities Non-current liabilities Net assets Carrying amount of NCI Revenue Profit for the year 2023 $'000 2022 $'000 32.5% 32.5% 192,688 167,121 88,039 76,462 (30,680) (25,384) (9,574) (8,173) 240,473 210,026 78,154 68,258 370,575 360,338 30,446 29,720 30,446 29,720 9,895 9,659 Total comprehensive income Profit allocated to NCI Dividend paid to NCI Cash flows from operating activities 26,110 21,959 Cash flows from investing activities Cash flows from financing activities (4,937) (3,341) (2,963) (3,614) 188 In order to help users to understand the interest that non-controlling interests have in the group's activities and cash flows, HKFRS 12 requires an entity to disclose the following information for each of its subsidiaries that has non-controlling interests material to the reporting entity: (a) the name of the subsidiary; (b) the principal place of business (and country of incorporation if different from the principal place of business) of the subsidiary; (c) the proportion of ownership interests held by non-controlling interests; (d) the proportion of voting rights held by non-controlling interests, if different from the proportion of ownership interests held; (e) the profit or loss allocated to non-controlling interests of the subsidiary during the reporting period; (f) accumulated non-controlling interests of the subsidiary at the end of the reporting period; and (g) summarised financial information about the subsidiary, including: • dividends paid to non-controlling interests; summarised financial information about the assets, liabilities, profit or loss and cash flows of the subsidiary that enables users to understand the interest that non-controlling interests have in the group's activities and cash flows. That information might include but is not limited to: current assets non-current assets current liabilities non-current liabilities revenue profit or loss total comprehensive income The amounts disclosed should be before inter-company eliminations. 120 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#127HKAS 1.51(a) HKAS 1.49 HKFRS 12.21 15 HK Listco Ltd Financial statements for the year ended 31 December 2023 INTERESTS IN ASSOCIATES 143, 184, 189 The following list contains only the particulars of material associates 189, all of which are unlisted corporate entities whose quoted market price is not available 190. Proportion of ownership interest Name of associate Form of business structure Place of incorporation and business Particulars of issued and paid up capital Group's effective interest Held by the company Held by a subsidiary Principal activity Prospect Incorporated Malaysia Construction Sdn Bhd 1,000 ordinary shares of MYR 1 each 36% 36% Construction (Note 1) MT Incorporated Hong Kong 100,000 ordinary 25% Trading Limited shares 25% Trading of electronic products (Note 2) HKFRS 12.21(a)(ii) Note 1: The investment in Prospect Construction Sdn Bhd, a major property constructor in the Malaysia market, enables the group to have exposure to this market through local expertise. Note 2: MT Trading Limited operates in Hong Kong and is a strategic partner for the group in expanding sales to the education sector where MT Trading has an established customer base. HKFRS 12.21(a) 189 Under paragraph 21 of HKFRS 12, an entity needs to disclose the following information for each of its material joint arrangement and associate: HKFRS 12.21(b)(iii) • the name of the joint arrangement or associate; • the nature of the entity's relationship with the joint arrangement or associate (by, for example, describing the nature of the activities of the joint arrangement or associate and whether they are strategic to the entity's activities); the principal place of business (and country of incorporation, if applicable and different from the principal place of business) of the joint arrangement or associate; and • the proportion of ownership interest or participating share held by the entity and, if different, the proportion of voting rights held (if applicable). 190 For each material joint venture and associate accounted for using the equity method, an entity should disclose the fair value of the investment in the joint venture or associate, if there is a quoted market price for the investment. 121 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#128HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 12.21(b)(i) HKFRS 12.21(b)(ii) HKFRS 12.B12, B14 All of the above associates are accounted for using the equity method in the consolidated financial statements. Summarised financial information of the material associates, adjusted for any differences in accounting policies 191, and reconciled to the carrying amounts in the consolidated financial statements, are disclosed below:192 Prospect Construction Sdn Bhd MT Trading Limited 2023 2022 2023 2022 $'000 $'000 $'000 $'000 Gross amounts of the associates' Current assets 24,687 20,082 76,875 75,222 Non-current assets 50,104 42,766 91,966 70,741 Current liabilities (23,561) (20,981) (40,875) (48,263) Non-current liabilities (14,340) (15,262) (29,366) (26,792) Equity 36,890 26,605 98,600 70,908 Revenue 102,659 102,111 138,276 166,868 Profit from continuing operations 17,700 17,425 28,200 24,050 Post-tax profit or loss from discontinued operations Other comprehensive income Total comprehensive income 17,700 17,425 Dividend received from the associate 28,200 3,000 24,050 Reconciled to the group's interests in the associates Gross amounts of net assets of the associate 36,890 26,605 98,600 70,908 Group's effective interest Group's share of net assets of the associate 36% 13,280 36% 25% 25% 9,578 24,650 17,727 Goodwill Carrying amount in the consolidated financial statements 900 14,180 900 10,478 24,650 17,727 HKFRS 12.21(c) Aggregate information of associates that are not individually material:193 HKFRS 12.B16 Aggregate carrying amount of individually immaterial associates in the consolidated financial statements HKFRS 12.21(b)(ii) & B12 & B14 HKFRS 12.B14(b) HKFRS 12.21(c) & B16 Aggregate amounts of the group's share of those associates' Profit from continuing operations Post-tax profit or loss from discontinued operations Other comprehensive income Total comprehensive income 2023 2022 $'000 $'000 1,478 1,273 408 360 408 191 For each material joint venture and associate, an entity should disclose the following information about the joint venture or associate: dividends received from the joint venture or associate; and • 360 summarised financial information of the joint venture or associate including, but not necessarily limited to: - current assets - non-current assets current liabilities - non-current liabilities. - revenue profit or loss from continuing operations post-tax profit or loss from discontinued operations other comprehensive income - total comprehensive income The summarised financial information presented should be 100% of the amounts included in the financial statements under HKFRS (IFRS Standards) of the joint venture or associate, and not the entity's share of those amounts. 192 For each material joint venture and associate, a reconciliation of the summarised financial information presented to the carrying amount of the entity's interest in the joint venture or associate is required. 193 An entity should disclose, in aggregate, the carrying amount of its interests in all individually immaterial joint ventures or associates that are accounted for using the equity method. An entity should also disclose separately the aggregate amount of its share of those joint ventures' or associates': profit or loss from continuing operations; • . post-tax profit or loss from discontinued operations; other comprehensive income; and . total comprehensive income. The above disclosures should be provided separately for (i) immaterial joint ventures and (ii) immaterial associates. 122 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#129HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 16 INTEREST IN JOINT VENTURE 143, 184, 189 HKFRS 12.21 Details of the group's interest in the joint venture 189, which is accounted for using the equity method in the consolidated financial statements, are as follows: HKFRS 12.21(a)(ii) HKFRS 12.21(b)(iii) HKFRS 12.21(b)(ii) Name of joint venture Form of business structure Place of incorporation and business Particulars of issued and paid up capital Proportion of ownership interest Group's effective interest Held by the company Held by a subsidiary Principal activity Sun Co Ltd Incorporated Chinese Mainland Registered capital RMB 2,000,000 50% 50% Construction (Note 1) Note 1: Sun Co Ltd was established by the company with a major property constructor in Chinese Mainland, the other investor to this joint venture, to carry out the group's construction activity in Chinese Mainland. Sun Co Ltd is mainly engaged in the construction of residential buildings. Sun Co Ltd, the only joint venture in which the group participates, is an unlisted corporate entity whose quoted market price is not available 190. Summarised financial information of Sun Co Ltd, adjusted for any differences in accounting policies 191, and a reconciliation to the carrying amount in the consolidated financial statements, are disclosed below 192 Gross amounts of Sun Co Ltd's HKFRS 12.B12 HKFRS 12.B13 Current assets Non-current assets Current liabilities Non-current liabilities Equity Included in the above assets and liabilities 194: 2023 $'000 2022 $'000 25,136 14,826 110,750 96,500 (37,820) (37,350) (96,136) (72,386) 1,930 1,590 Cash and cash equivalents 12,856 11,950 Current financial liabilities (excluding trade and other payables and provisions) (11,350) (11,750) Non-current financial liabilities (excluding trade and other payables and provisions) (95,250) (74,850) 123 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#130HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 2022 $'000 $'000 HKFRS 12.B12 Revenue 747,858 627,538 Profit from continuing operations 21,340 20,270 Post-tax profit or loss from discontinued operations Other comprehensive income Total comprehensive income 21,340 20,270 Dividend received from Sun Co Ltd HKFRS 12.B13 Included in the above profit: 194 Depreciation and amortisation Interest income Interest expense Income tax expense Reconciled to the group's interest in Sun Co Ltd HKFRS 12.B14(b) Gross amounts of Sun Co Ltd's net assets Group's effective interest Group's share of Sun Co Ltd's net assets Group's share of shareholders' loan (note 2) Carrying amount of the group's interest HKFRS 12.B13 194 (14,556) (12,335) 1,160 1,110 (1,270) (1,160) (7,168) (6,890) 1,930 1,590 50% 50% 965 795 41,800 31,300 42,765 32,095 Note 2: In accordance with the terms of the joint venture agreement, both parties to the joint venture have provided loan capital to the joint venture in proportion to their shareholdings and under equal terms. The loans are unsecured, interest free and subordinated to the other financing obtained by the joint venture. Repayment of any amount of the loan capital requires both venturers' approval and is subject to the joint venture having sufficient assets after taking into account the external financing and accumulated profits. Accordingly, the shareholder's loan forms an integral part of the group's equity investment in the joint venture and is recognised as such 195. In addition to the summarised financial information listed out in footnote 191 above, an entity should disclose for each material joint venture the amount of: cash and cash equivalents; • current financial liabilities (excluding trade and other payables and provisions); . 195 • non-current financial liabilities (excluding trade and other payables and provisions); depreciation and amortisation; interest income; interest expense; and income tax expense or income. In this illustration, HK Listco's loan to a thinly capitalised joint venture has been recognised as an integral part of the group's equity interest in the joint venture, even though the joint venture classifies the loan as a liability given the terms and conditions of the arrangement. It therefore falls outside the scope of HKFRS 9 and is included as a reconciling item in the analysis of the group's interest in the joint venture's net assets. 124 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#131HKAS 1.51(a) HKAS 1.49 17 Other investments in securities 143, 196, 197 (a) Equity securities designated at FVOCI HKFRS 7.8(h), 11A(c) Investments in unlisted equity securities 198 A16(6), A16(32)(4), A16(32)(4A) HKFRS 13.91, 97 HKFRS 9.B5.7.1 HKFRS 7.11A & 11B HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 $'000 2022 $'000 5,040 4,950 196 Paragraph 32(4) of Appendix 16 to the MBLRS requires the directors of a listed issuer to comment on significant investments held, their performance during the financial year and their future prospects in its annual report. Paragraph 32(4A) of Appendix 16 further requires a breakdown of its significant investments (including any investment in an investee company with a value of 5% or more of the issuer's total assets as at the year end date): (a) details of each investment, including the name and principal businesses of the underlying company, the number and percentage of shares held and the investment costs; (b) the fair value of each investment as at the year end date and its size relative to the issuer's total assets; (c) the performance of each investment during the year, including any realised and unrealised gain or loss and any dividends received; and (d) a discussion of the issuer's investment strategy for these significant investments. The financial information may be included outside the financial statements and will therefore be outside the scope of the auditors' report on the financial statements. 197 HK Listco's financial assets disclosed in note 17 include equity securities (both held-for-trading and not held-for-trading) and units in bond funds which are measured at fair value in the statement of financial position on a recurring basis after initial recognition. Therefore, HKFRS 13 disclosures are required for these financial assets. For other financial assets in note 17 that are not measured at fair value i.e. loans to associates, under paragraph 97 of HKFRS 13 they will be subject to certain HKFRS 13 disclosure requirements if their fair value is disclosed in the financial statements e.g. when the carrying amount of the loans is not a reasonable approximation of their fair value and therefore the fair value is disclosed as required by paragraph 25 of HKFRS 7. HKFRS 13 does not require all the information provided under the standard to be disclosed in a single note. Therefore, entities may disclose the information in the respective notes of the individual asset or liability subject to HKFRS 13 disclosures or in a single note. In either case, quantitative data should generally be presented in a tabular format (i.e. instead of in a narrative format). In this illustration, HK Listco provides HKFRS 13 disclosures for financial instruments in a single note in note 33(f), and for properties in note 11(b). 198 The unlisted shares comprise shares in an unlisted entity, and the group has elected to designate all of its shares in this unlisted entity as at FVOCI (non-recycling) as this investment is held for strategic purposes. This election is available on an instrument- by-instrument basis, i.e. it is not an accounting policy that needs to be applied to all similar transactions. 199 If an entity designates an investment in equity instruments at FVOCI (non-recycling), paragraph 11A of HKFRS 7 requires the following information to be disclosed: (a) which investments have been designated; (b) the reason for the designation; (c) the fair value of each such investment at the end of the reporting period; (d) (e) dividends recognised during the period, showing separately those related to investments derecognised during the reporting period and those related to investments held at the end of the reporting period; and any transfer of the cumulative gain or loss within equity during the period including the reason for such transfers. For example, an entity may transfer the amount accumulated in other comprehensive income to another component of equity upon derecognising the equity investments. HKFRS 7 is not explicit as to what information should be disclosed in respect of item HKFRS 7.11A(a) i.e. whether it is necessary to disclose the investee's name and/or any other information which would identify "which investments" have been designated at FVOCI (non-recycling) in a way that provides useful information to the reader. In this illustration HK Listco has designated an investment in an unlisted company at FVOCI (non-recycling) and has decided to disclose the name of this investee, its place of incorporation and some further information about this company's business, which users of the financial statements may find helpful, especially if there is little or no information publicly available about this company. If an entity has designated a large number of individually insignificant investments at FVOCI (non-recycling), the entity may consider aggregating the information, for example by industry sector, for disclosure purposes. In addition, if an entity derecognises an equity investment designated at FVOCI (non-recycling) during the reporting period, paragraph 11B of HKFRS 7 requires an entity to disclose the following information: (a) the reason for disposing of the investments; (b) the fair value of the investments at the date of derecognition; and (c) the cumulative gain or loss on disposal. 125 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#132HKAS 1.51(a) HKAS 1.49 HKFRS 7.11A HKFRS 7. 35K HKFRS 7.15 & 38 HK Listco Ltd Financial statements for the year ended 31 December 2023 (b) The unlisted equity securities are shares in Bright Top (Asia) Ltd, a company incorporated in Hong Kong and engaged in market research. The group designated its investment in Bright Top (Asia) Ltd at FVOCI (non-recycling), as the investment is held for strategic purposes 199. No dividends were received on this investment during the year (2022: nil). Financial assets measured at FVPL Non-current assets 2023 2022 $'000 $'000 Investments not held for trading - Equity securities listed in Hong Kong 7,823 6,710 - Units in bond funds listed in Hong Kong 16,466 15,176 24,289 21,886 Current assets Trading securities - Equity securities listed in Hong Kong Equity securities listed outside Hong Kong 42,800 44,355 15,531 13,665 58,331 58,020 (c) Financial assets measured at amortised cost Notes 2023 2022 $'000 $'000 Loans to associates Refundable rental deposits Notes: == (i) 25,343 15,636 (ii) 6,258 5,960 31,601 21,596 (i) The loans bear interest at HIBOR plus [●] % per annum and will both mature in 2030. The loans are fully secured by properties held by the associates. The group does not have the right to sell or re-pledge the properties held as collateral in the absence of default by the associates. 200 (ii) Rental deposits are typically paid for leased properties, which are refundable after the expiry of the leases. 200 If the entity is permitted to sell or re-pledge the collateral it has accepted in the absence of default by the owner of the collateral, paragraph 15 of HKFRS 7 requires certain specific disclosure in the financial statements, including the fair value of the collateral accepted and the collateral sold or re-pledged as well as other material terms and conditions associated with the use of this collateral. In addition, when an entity recognises financial or non-financial assets during the period as a result of taking possession of collateral it accepted as security or calling on other credit enhancements (for example, guarantees), paragraph 38 of HKFRS 7 requires the entity to disclose the nature and carrying amounts of such assets held at the reporting date. If such assets are not readily convertible into cash, further disclosure needs to be provided regarding the entity's policies for disposing of these assets or for using them in its operations. 126 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#133HKAS 1.51(a) HKAS 1.49 18 DERIVATIVE FINANCIAL INSTRUMENTS HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 2022 $'000 $'000 Derivative financial assets HKFRS 7.8(a) - held as cash flow hedging instruments (notes 33(c), (d) & (f)(i)) - other derivatives (notes 33(d)(ii) & (f)(i)) 2,468 2,954 253 659 2,721 3,613 Less: amount included under "current assets" (1,828) (2,399) 893 1,214 Derivative financial liabilities HKFRS 7.8(e) - held as cash flow hedging instruments (notes 33(c), (d) & (f)(i)) - conversion option embedded in convertible notes (note 33(f)(i)) 168 72 172 171 340 243 Less: amount included under "current liabilities" (234) (200) 106 43 127 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#134HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 19 INVENTORIES AND OTHER CONTRACT COSTS 2023 $'000 2022 $'000 Inventories Electronic products HKAS 2.36(b) - Raw materials - Work in progress - Finished goods - Goods in transit 41,555 44,008 33,675 23,253 43,727 32,166 9,658 3,323 - Right to recover returned goods 1,345 1,125 129,960 103,875 Property development - Land held for future development for sale - Property under development for sale 12,025 10,340 115,943 103,344 127,968 113,684 HKAS 2.36(d) (a) Other contract costs 201 716 514 258,644 218,073 The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows: Carrying amount of inventories sold HKAS 2.36(e) HKAS 2.36(f) Write down of inventories Reversal of write-down of inventories HKAS 2.36(g) HKAS 1.29, 60, 66 201 2023 $'000 2022 $'000 774,748 708,796 12,794 10,574 (1,500) 786,042 719,370 The reversal of write-down of inventories made in prior years arose due to an increase in the estimated net realisable value of certain electronic goods as a result of a change in consumer preferences. HKFRS 15 requires entities to separately recognise contract costs as assets provided that the capitalisation criteria in paragraphs 91 or 95 of HKFRS 15 are met, but does not specify where such assets should be presented in the statement of financial position. Given this, the general HKAS 1 principles should be followed in respect of the current/non-current distinction (paragraph 66 of HKAS 1) and materiality and aggregation (paragraphs 29 to 31 of HKAS 1). In this illustration, HK Listco has presented the capitalised costs as current assets, aggregated in the same line item as inventories on the face of the statement of financial position, with separate analysis in the notes. The capitalised contract costs satisfy the criteria set out in paragraph 66 of HKAS 1 for classification as a current asset, as HK Listco's capitalised costs relate to the sale of specific properties to be recognised during HK Listco's normal operating cycle. The costs are aggregated with inventories, as in both cases the assets represent costs which are expected to be recognised in future periods in the statement of profit and loss as expenses, as and when revenue from the sale of the related goods or services is recognised. Alternatively, the costs could be presented as a separate line item on the face of the statement of financial position within current assets. We would expect that in most cases classification as current assets will be appropriate, as in most cases the amounts will be charged to profit or loss during the entity's normal operating cycle. An exception to this approach may be when the amortisation period for the contract costs is an extended period which reflects the timing of goods or services to be transferred under a specific anticipated contract (for example services to be provided over some extended future period after renewal of an existing contract). In those cases, the contract costs may be closer in nature to intangible assets for customer relationships recognised in a business combination and therefore presentation as a non-current asset may be more appropriate, if the amortisation period is expected to extend beyond both 12 months and the entity's normal operating cycle. The classification as current or non-current may therefore in some cases involves judgements based on an entity's facts and circumstances. 128 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#135HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.61 HKFRS 16.53(j), 54, 59(a) (b) The amount of properties for future development and under development expected to be recovered after more than one year is $12,025,000 and $57,853,000 respectively (2022: $10,340,000 and $50,793,000 respectively). All of the other inventories are expected to be recovered within one year202 The analysis of carrying value of land 203 held for property development for sale is as follows: HKAS 1.61 202 HKFRS 16.53(j)& 54 HKFRS 16.59(a) In Hong Kong, with remaining lease term of: - 50 years or more between 10 and 50 years 2023 $'000 2022 $'000 67,046 58,177 16,760 16,760 83,806 74,937 HKAS 1 requires disclosure of the amount expected to be recovered or settled after more than one year, when any balance combines this with amounts expected to be recovered or settled within one year. For the avoidance of doubt, it is also useful to make a specific statement concerning all other balances (i.e. those expected to be fully recovered or settled within one year and those expected to be fully recovered or settled after one year). However, such disclosure is not required under HKAS 1. 203 Where the entity has included right-of-use assets within inventory on the face of the statement of financial position (as allowed by paragraph 47(a) of HKFRS 16), the lessee shall disclose the amount of these right-of-use assets at the end of the reporting period by class of underlying asset in the notes as required by paragraphs 47(a), 54 and 53(j) of HKFRS 16. In addition, a lessee is required to disclose information that helps users of financial statements to assess the nature of the lessee's leasing activities. In this regard, it would be informative to analyse the carrying value of significant ownership interests in leasehold properties by indicating the remaining lease term as illustrated here. 129 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#136HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 15.128(a), (b) HKFRS 15.94, 129 HKAS 1.61 (c) Contract costs Contract costs capitalised as at 31 December 2023 relate to the incremental sales commissions paid to property agents whose selling activities resulted in customers entering into sale and purchase agreements for the group's properties which are still under construction at the reporting date 204. Contract costs are recognised as part of "distribution costs" 205 in the statement of profit or loss in the period in which revenue from the related property sales is recognised. The amount of capitalised costs recognised in profit or loss during the year was $1,052,000 (2022: $755,000). There was no impairment in relation to the opening balance of capitalised costs or the costs capitalised during the year (2022: Nil). The group applies the practical expedient in paragraph 94 of HKFRS 15 and recognises the incremental costs of obtaining contracts relating to the sale of completed properties and services as an expense when incurred if the amortisation period of the assets that the group otherwise would have recognised is within the same reporting period as the date of entering into the contract.206 The amount of capitalised contract costs that is expected to be recovered after more than one year is $527,000 (2022: $378,000). All of the other capitalised contract costs are expected to be recovered within one year 202 HKFRS 15.128(a). HKAS 1.15 & 99 HKFRS 15.129 204 HKFRS 15 requires analysis of the closing balances of capitalised contract costs by main category of cost (e.g. costs to obtain contracts with customers, pre-contract costs and setup cost). In this illustration, HK Listco only has capitalised contract costs in relation to the sales commission paid to the property agents. 205 Paragraph 99 of HKFRS 15 requires capitalised contract costs to be charged to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. HKFRS 15 describes this systematic charging as "amortisation". However, in practice, when the capitalised cost relates to a good or service for which revenue is recognised at a single point in time, such as in HK Listco's example of a sales commission on a property sale, the contract cost will be recognised in profit or loss at the same point in time as the property revenue, rather than being spread over a period. Given this, users of the financial statements may find it confusing to see this charge described as "amortisation" and it would be advisable to use other terms which they are more familiar with, such as "charge" or "expense". 206 Similarly, judgement is required in determining where to classify the expense in the statement of profit or loss. The appropriate classification will generally depend on the nature of the entity and the industry in which it operates. In this illustration, HK Listco presents its expenses by function (see footnote 49) and includes sales commissions in profit or loss as "distribution costs" because this is the function of these expenses, irrespective of whether they are being capitalised and recognised later when related revenue is recognised or expensed as incurred. If an entity chooses to present its expenses by nature (e.g. depreciation and amortisation, purchase of materials, transport costs, employee benefits, etc), then judgement will be required to determine the nature of the expenses arising from the systematic recognition in profit and loss of capitalised contract costs. In all cases, an entity is subject to the general requirement to ensure that its presentation is not misleading and is relevant to an understanding of its financial statements. Under the disclosure requirement of paragraph 129 of HKFRS 15, if an entity has taken advantage of the practical expedient in relation to capitalisation of costs of obtaining contracts, it needs to disclose this fact. As discussed in footnote 101, in this illustration HK Listco does not take full advantage of the practical expedient as HK Listco only applies the practical expedient to costs of obtaining contracts that would be fully amortised in the period they arise if they had been capitalised. HK Listco's disclosure is therefore tailored to suit its facts and circumstances. If an entity takes full advantage of the practical expedient and therefore only capitalises the costs of obtaining contracts with amortisation period longer than one year, the following example wording could be used to satisfy the disclosure requirement of paragraph 129 of HKFRS 15: "The group applies the practical expedient in paragraph 94 of HKFRS 15 and recognises the incremental costs of obtaining contracts as an expense when incurred if the amortisation period of the asset that the group otherwise would have recognised is one year or less from the initial recognition of the asset." 130 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#137HKAS 1.51(a) HKAS 1.49 HKFRS 15.116(a) HKFRS 15.117-118 HK Listco Ltd Financial statements for the year ended 31 December 2023 20 CONTRACT ASSETS AND CONTRACT LIABILITIES 20 (a) Contract assets HKFRS 15.116(a) 207 HKFRS 15.107-108 208 HKFRS 15.117 HKFRS 15.118 2023 2022207 $'000 $'000 Contract assets 208 Arising from performance under construction contracts Arising from performance under made-to-order manufacturing arrangements 1,478 14,553 9,073 8,785 10,551 23,338 Receivables from contracts with customers within the scope of HKFRS 15, which are included in "Trade and other receivables" (note 21(a))208 69,358 55,287 Typical payment terms which impact on the amount of contract assets recognised are as follows: Construction contracts The group's construction contracts include payment schedules which require stage payments over the construction period once milestones are reached. These payment schedules prevent the build-up of significant contract assets. New contract terms introduced in 2023 which a 20% deposit is payable upfront (see note 1(aa)(i)(c)) has resulted in a contract liability at early stages of the projects and a significant decrease in the contract asset balance at any given time thereafter, compared to previous periods 209. However, the group also typically agrees to a one year retention period for 5% of the contract value. This amount is included in contract assets until the end of the retention period as the group's entitlement to this final payment is conditional on the group's work satisfactorily passing inspection 210 209 HKFRS 15 requires entities to disclose the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers if they are not otherwise separately disclosed or presented. HKFRS 15 makes a distinction between contract assets and receivables based on whether the right to the consideration for the performance completed up to date is unconditional or not. If the right to the consideration is unconditional, then this right should be presented as a receivable. A right to consideration is unconditional if only passage of time is required before payment of that consideration is due. This principle is illustrated in Examples 38 to 40 found in paragraphs IE197 to IE208 in the Illustrative Examples accompanying HKFRS 15. If the right to the consideration is conditional on something other than the passage of time, e.g. an entity's future performance, then such right should be presented as a contract asset. If an entity has an unconditional right to receive consideration from a customer before it has transferred goods and services, then in addition to recognising a receivable the entity would recognise a contract liability to reflect the entity's outstanding obligation to transfer goods or services. A contract liability would also be recognised, rather than a payable, if the entity has received a non- refundable deposit ahead of transferring goods or services. HKFRS 15 requires entities to explain how the timing of satisfaction of their performance obligations relates to the typical timing of payment and the effect that those factors have on the contract asset and contract liability balances. Paragraph 117 of HKFRS 15 states that the explanation provided may use qualitative information. In addition, entities are required to explain, qualitatively and quantitatively, any significant changes in contract assets and liabilities balances during the period. The following non-exhaustive list of items should be disclosed, if significant: . changes due to business combinations; • • • • cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including adjustments arising from a change in the measure of progress; a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable consideration is constrained) or a contract modification; impairment of a contract asset; a change in the time frame for a right to consideration to become unconditional (i.e. for a contract asset to be reclassified to a receivable); and a change in the time frame for a performance obligation to be satisfied (i.e. for the recognition of revenue arising from a contract liability). The approach taken will depend on the fact and circumstances of the entity. For example, in this illustration, HK Listco has provided information explaining the significant fall in the contract asset balance for construction contracts in the narrative notes which explains the link between the payment terms and the contract assets and contract liabilities, as the change arose from a change in HK Listco's typical payment terms. 131 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#138HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 15.116(c) HKAS 1.61 HKFRS 15.116(a) HKFRS 15.117 Financial statements for the year ended 31 December 2023 Made-to-order electronic products The group typically receives a 10% deposit on acceptance of the order (see note 1(aa)(i)(a)). The remainder of the consideration is payable ratably as and when the products are delivered, or in full if the customer cancels the contract. When a contract results in revenue being recognised in excess of the amount the group has the right to invoice to the customer, a contract asset is recognised. The amount of revenue recognised during the year from performance obligations satisfied (or partially satisfied) in previous periods is $1,538,000 (2022: $1,083,000), mainly due to the changes in estimate of the stage of completion of certain construction contracts. The amount of contract assets expected to be recovered after more than one year is $730,000 (2022: $512,000), all of which relates to retentions. All of the other contracts assets are expected to be recovered within one year202. (b) Contract liabilities Contract liabilities Construction contracts 2023 2022207 $'000 $'000 - Billings in advance of performance 3,605 1,039 Made-to-order manufacturing arrangements - Billings in advance of performance 438 567 Property development - Forward sales deposits and instalments received 9,184 5,567 13,227 7,173 Typical payment terms which impact on the amount of contract liabilities recognised are as follows: Construction contracts and made-to-order manufacturing arrangements When the group receives a deposit before the production activity commences this will give rise to contract liabilities at the start of a contract, until the revenue recognised on the project exceeds the amount of the deposit. The group typically receives a 10% deposit on acceptance of manufacturing orders (see note 1(aa)(i)(a)) and 20% deposit on all the group's construction contracts starting from 2023 before work commences (see note 1(aa)(i)(c)). In previous periods the amount of the deposit, if any, was negotiated on a case by case basis with customers. Property development The group receives 10% of the contract value as a deposit from customers when they sign the sale and purchase agreement. This deposit is recognised as a contract liability until the properties are completed and legally assigned to the customer. The rest of the consideration is typically paid when legal assignment is completed. 210 Retention assets are by definition only recognised when the entity has assessed that it is entitled to the consideration and that any remaining uncertainty surrounding this amount is sufficiently low, such that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur (as per paragraph 56 of HKFRS 15). However, HKFRS 15 does not give specific guidance on whether a right to the retention payment should be presented as a receivable or a contract asset. In this illustration, HK Listco has presented the amount as a contract asset until the relevant inspection is passed. This indicates that HK Listco regards retentions as still being subject to conditions other than solely the passage of time. This presentation is consistent with the guidance found in Example 27 (paragraphs IE141 to IE142) of the Illustrative Examples that accompany HKFRS 15, which explains that a contract does not contain a significant financing component simply because a retention clause results in deferred payment, as the contract requires the amount to be retained for reasons other than the provision of finance. 132 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#139HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 However, in cases that the customers agree to pay the balance of the consideration early while the construction is still ongoing, contract liabilities are being recognised throughout the remaining property construction period for the full amount of the contract price. In addition, the contract liability will be increased by the amount of interest expense being accrued by the group which would increase the amount of revenue recognised when control of the completed property is transferred to the customer (see note 1(aa)(i)(b)). Movements in contract liabilities²11 HKFRS 15.116(a) HKFRS 15.116(b) Balance at 1 January HKFRS 15.116(a) HKAS 1.61 HKFRS 15.116-118 211 HKFRS 15.116(b) Decrease in contract liabilities as a result of recognising revenue during the year that was included in the contract liabilities at the beginning of the period 2023 2022 $'000 $'000 7,173 6,298 (3,536) (3,873) Increase in contract liabilities as a result of billing in advance of construction and manufacturing activities 3,689 1,206 Increase in contract liabilities as a result of receiving forward sales deposits and instalments during the year in respect of properties still under construction as at the year end 4,916 3,024 Increase in contract liabilities as a result of accruing interest expense on advances (note 5(a)) Balance at 31 December 985 518 13,227 7,173 The amount of contract liabilities expected to be recognised as income after more than one year is $3,014,000 (2022: $1,774,000). All of the other contract liabilities are expected to be recognised as income within one year 202. As noted in footnotes 207 and 209, HKFRS 15 requires entities to disclose the opening and closing balances of contract assets and liabilities, to explain how the timing of satisfaction of their performance obligations relates to the typical timing of payment and the effect that those factors has on the contract asset and contract liability balances, and to disclose any significant changes in contract assets and liabilities balances during the period. In addition, paragraph 116(b) of HKFRS 15 explicitly requires disclosure of the amount of revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period. For this reason, rather than providing narrative explanation about the significant changes, entities may find it simpler to provide a reconciliation of the opening and closing contract liability balances, as is illustrated here, to satisfy the disclosure requirements. Such reconciliation is not required and other approaches may be acceptable, provided that the required disclosures are provided. 133 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#140HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 21 TRADE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS (a) Trade and other receivables HKAS 1.77 HKAS 1.78(b) HKFRS 7.8(f) Trade debtors and bills receivable, net of loss allowance Other debtors (note 23) Financial assets measured at amortised cost 2023 $'000 2022 $'000 73,638 56,776 400 546 74,038 57,322 Insurance reimbursement (note 31) 2,158 1,752 76,196 59,074 HKAS 1.61 Apart from those mentioned in notes 20 and 31, all of the other trade and other receivables are expected to be recovered or recognised as expense within one year 202. A16(4)(2)(a) HKFRS 7.33(b) A16(4)(2)(a) & A16(4)(2)(b) 212 HKFRS 7.6, 31, 34-38 & B1-B3 Ageing analysis As of the end of the reporting period, the ageing analysis of trade debtors and bills receivable (which are included in trade and other receivables), based on the invoice date and net of loss allowance, is as follows 212 Within 1 month 1 to 2 months 2 to 3 months Over 3 months but within 6 months 2023 $'000 2022 $'000 59,767 44,034 10,403 9,557 2,081 1,911 1,387 1,274 73,638 56,776 Trade debtors and bills receivable are due within [•] days from the date of billing. Further details on the group's credit policy and credit risk arising from trade debtors and bills receivable are set out in note 33(a). For Main Board listed issuers, the MBLRS require disclosure of the group's ageing analysis of accounts receivable and payable. In accordance with Note 4.2 to paragraph 4 to Appendix 16 to the MBLRs, the ageing analysis should normally be presented on the basis of the date of the relevant invoice or demand note and categorised into time-bands based on analysis used by an issuer's management to monitor the issuer's financial position. The basis on which the ageing analysis is presented should be disclosed. As of the time of writing, there is no guidance or recommendation as to whether the ageing of accounts receivable should be before or after recognition of impairment losses. Listed entities are therefore recommended, as a matter of best practice, to clearly state which approach has been adopted in this respect. Both listed and unlisted entities should also note that HKFRS 7 requires summary quantitative data in respect of the entity's exposures to each type of risk arising from financial instruments at the reporting date. This summary quantitative data should be based on information provided internally to key management personnel of the entity. Although this appears to leave it up to management's judgement to decide how much information to disclose. HKFRS 7 requires the following information to be disclosed as a minimum, whether or not such information is included in information provided to key management personnel: • paragraphs 35A to 38 of HKFRS 7 require disclosure of an entity's credit risk management practices, quantitative and qualitative information about amounts arising from expected credit losses and the entity's credit risk exposure (see note 33(a)). • paragraph 39(a) of HKFRS 7 requires disclosure of summary quantitative data about an entity's exposure to liquidity risk in the form of a maturity analysis for financial liabilities that shows the remaining contractual maturities (see note 33(b)). 134 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#141HKAS 1.51(a) HKAS 1.49 HKAS 7.45 HKAS 7.45 (b) Prepayments Prepayments for: - SaaS arrangement 213 - others HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 $'000 2022 $'000 634 80 190 714 190 22 CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (a) Cash and cash equivalents comprise: 2023 2022 $'000 $'000 Deposits with banks and other financial institutions 36,059 49,185 Cash at bank and on hand 34,332 52,029 Property pre-sale proceeds held by solicitor (note (i)) 214 6,189 3,874 Cash and cash equivalents in the consolidated statement of financial position 76,580 105,088 Bank overdrafts (note 26) (1,266) (2,789) Cash and cash equivalents in the consolidated cash flow statement 75,314 102,299 (i) HKAS 7.48 (ii) HKAS 1.60, 66 In accordance with the relevant laws and regulations governing the pre-sale of residential properties in Hong Kong, prepayments by customers are held by firms of solicitors as stakeholders. The amounts can be released to the group for meeting certain prescribed costs associated with the property development or if certain conditions are fulfilled. As at 31 December 2023, cash and cash equivalents situated in Chinese Mainland amounted to $8,521,000 (2022: $7,342,000). Remittance of funds out of Chinese Mainland is subject to relevant rules and regulations of foreign exchange control. 213 Entities apply the general principles in HKAS 1 when classifying and presenting prepayment balances. In this illustration, HK Listco pays the annual SaaS arrangement fees in advance at the beginning of each year. In addition, the implementation services for the SaaS arrangement are distinct from the access to the cloud software, and the implementation services are expected to be received within 12 months from when the associated payments are made. Therefore, the prepayment balance at the reporting date is classified wholly as current. HKAS 7.6-7 214 In this illustration, HK Listco considers that the property pre-sale proceeds held by solicitors meet the definition of cash equivalents in accordance with paragraphs 6 and 7 of HKAS 7, as among other things the amounts are held for meeting short-term cash commitments of settling costs associated with the property development. Whether the definition of "cash equivalents" in HKAS 7 is met depends on an entity's specific facts and circumstances. 135 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#142HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (b) Reconciliation of profit before taxation to cash generated from operations215: Note 2023 $'000 2022 $'000 (restated) 149,258 127,683 HKAS 7.18(b) Profit before taxation Adjustments for: Net valuation gain on investment property 11(a) (18,260) (6,520) Depreciation 5(c) 31,448 26,175 Impairment loss on plant and machinery 5(c) 1,200 Amortisation of intangible assets 5(c) 2,680 1,500 Impairment of goodwill Finance costs Dividend income from investments Interest income Financial guarantee issued Share of profits less losses of associates Share of profits of joint venture 5(c) 184 5(a) 20,618 16,166 4 (610) (572) 4 (1,363) (1,008) 4 (2) (2) 15 164 (13,830) (10,670) (12,645) (10,135) 83 Loss on sale of property, plant and equipment Net realised and unrealised gain on investments not held for trading purposes 4 (3,684) Equity-settled share-based payment expenses COVID-19-related rent concessions received 5(b) 1,658 11(c) 1,625 (380) Changes in fair value of interest rate swaps recognised as hedge ineffectiveness 4 (1) (1) Fair value change of conversion option embedded in convertible notes 33(f) 1 HKAS 7.28 Foreign exchange loss/(gain) 2,392 2 (2,498) Changes in working capital: Increase in inventories and other contract costs HKAS 7.15 Increase in trading securities Decrease in derivative financial instruments (36,791) (311) 406 (30,230) (3,780) 763 Increase in trade and other receivables Increase in prepayments (17,075) (524) (18,900) (78) Decrease/(increase) in contract assets 12,787 (4,421) Increase in trade and other payables 26(c) 17,314 33,630 Increase in contract liabilities 6,054 875 Increase in provision for electronic product warranties Increase in defined benefit plan obligations 2,339 1,800 665 290 Cash generated from operations 145,966 119,339 HKAS 7.18 215 In this illustration, HK Listco has elected to present cash flows from operating activities using the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items of income or expense associated with investing or financing cash flows in order to arrive at "Cash generated from operations". An entity may alternatively present operating cash flows using the direct method, disclosing major classes of gross cash receipts and payments related to operating activities. 136 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#143HKAS 1.51(a) HKAS 1.49 HKAS 7.44A-44E (c) HK Listco Ltd Financial statements for the year ended 31 December 2022 Reconciliation of liabilities arising from financing activities 216, 217 The table below details changes in the group's liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the group's consolidated cash flow statement as cash flows from financing activities. Interest rate swaps held to Interest rate Bank loans and other borrowings Unsecured debentures $'000 (Note) $'000 (Note 25) Convertible notes $'000 (Note 25) Redeemable preference shares $'000 (Note 25) Lease hedge borrowings liabilities (assets)218 $'000 $'000 (Note 27) (Note 33(f)(i)) swaps held to hedge borrowings (liabilities) $'000 (Note 33(f)(i)) Conversion option embedded in convertible notes $'000 (Note 33(f)(i)) Total $'000 91,508 5,000 9,356 3,912 68,473 (1,489) 52 171 176,983 At 1 January 2023 HKAS 7.44B(a) Changes from financing cash flows: Proceeds from new bank loans 6,100 Repayment of bank loans (25,480) 6,100 (25,480) Proceeds from new loans from fellow subsidiaries 1,759 1,759 Capital element of lease rentals paid Interest element of lease rentals paid (17,611) (4,587) (17,611) Other borrowing costs paid (18,768) (400) (550) (4,587) (19,718) 77 21 Proceeds from settlement of derivatives Dividends paid on redeemable preference shares Total changes from financing cash flows (36,389) (400) (550) (200) (200) (22,198) 77 21 98 (200) (59,639) HKAS 7.44B(c) HKAS 7.44B(d) HKAS 7.44B(e) Exchange adjustments Changes in fair value Other changes: (392) (392) (252) 55 (196) Bank loans arising from supplier finance arrangement (note 26(c)) Increase in lease liabilities from entering into new leases during the 15,000 period Interest expenses (note 5(a)) 14,793 400 736 19,430 4,587 Capitalised borrowing costs 3,780 Dividends on redeemable preference shares (note 5(a)) Total other changes 33,573 400 736 200 200 24,017 15,000 19,430 20,516 3,780 200 58,926 At 31 December 2023 88,300 5,000 9,542 3,912 70,292 (1,664) 128 172 175,682 Note: Bank loans and other borrowings consist of bank loans, loans from non-controlling shareholders of a subsidiary and loans from fellow subsidiaries as disclosed in notes 25 and 26. HKAS 7.44A-E 216 HKAS 1.38 217 HKAS 7.44C 218 HKAS 7 requires entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities. HKAS 7 does not prescribe a specific method to fulfil these disclosure requirements. However, HKAS 7 indicates that one way is to provide a reconciliation between the opening and closing balances for liabilities arising from financing activities. In this illustration, HK Listco provides such reconciliation to satisfy the disclosure requirement. Comparative information is required for the reconciliation of liabilities arising from financing activities, as HKAS 7 does not give a specific exemption in this regard. The disclosure requirements by HKAS 7 also apply to changes in financial assets (e.g. assets that hedge liabilities arising from financing activities) if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities. 137 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#144HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Interest rate Bank loans and other borrowings $'000 (Note) swaps held to Interest rate swaps held to Conversion option embedded Unsecured debentures Convertible $'000 (Note 25) notes $'000 (Note 25) Redeemable preference shares. $'000 (Note 25) Lease hedge borrowings hedge borrowings in convertible liabilities $'000 (Note 27) (assets) $'000 (Note 33(f)(i)) (liabilities) $'000 (Note 33(f)(i)) notes Total $'000 $'000 (Note 33(f)(i)) 89,840 5,000 9,170 64,763 (1,397) 40 169 167,585 HKAS 7.44B(a) At 1 January 2022 Changes from financing cash flows: Proceeds from new bank loans Repayment of bank loans Proceeds from new loans from associates Capital element of lease rentals paid 6,390 (18,350) 906 Interest element of lease rentals paid (14,145) (3,967) Other borrowing costs paid (14,229) (400) (550) Proceeds from settlement of derivatives Proceeds from the issue of redeemable preference shares Payment of transaction costs on issue of redeemable preference shares Dividends paid on redeemable preference shares 4,000 (88) (200) Total changes from financing cash flows (25,283) (400) (550) 3,712 (18,112) 72 8 HKAS 7.44B(c) Exchange adjustments (453) HKAS 7.44B(d) HKAS 7.44B(e) Changes in fair value Other changes: 6,390 (18,350) 906 (14,145) (3,967) (15,179) 80 4,000 (88) (200) (40,553) (453) (164) 4 2 (158) Bank loans arising from supplier finance arrangement (note 26(c)) Increase in lease liabilities from entering into new leases during the period 13,431 13,431 COVID-19-related rent concessions received (note 11(c)) Interest expenses (note 5(a)) Capitalised borrowing costs 10,943 400 736 3,030 18,235 (380) 3,967 18,235 (380) 16,046 3,030 Dividends on redeemable preference shares (note 5(a)) Total other changes 27,404 400 736 200 200 21,822 200 50,562 At 31 December 2022 91,508 5,000 9,356 3,912 68,473 Note: Bank loans and other borrowings consist of bank loans, loans from non-controlling shareholders of a subsidiary and loans from fellow subsidiaries as disclosed in notes 25 and 26. (1,489) 52 171 176,983 138 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#145HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 16.53(g) (d) Total cash outflow for leases Amounts included in the cash flow statement for leases comprise the following: 2023 2022 $'000 $'000 Within operating cash flows Within investing cash flows Within financing cash flows 5,910 5,310 9,868 6,847 22,198 18,112 37,976 30,269 These amounts relate to the following: Lease rentals paid Purchase of leasehold property HKAS 7.40 (e) Net cash outflow arising from the acquisition of a subsidiary 2023 $'000 2022 $'000 28,108 23,422 9,868 37,976 6,847 30,269 The recognised amounts of assets acquired and liabilities at the date of acquisition of the subsidiary comprise the following: Patents and trademarks (note 12) Other receivables, deposits and prepayments Cash Other payables and accrued charges Total consideration paid in cash Less: cash of subsidiary acquired $'000 2,000 47 45 (92) 2,000 (45) 1,955 139 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#146HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 23 LOANS TO DIRECTORS AND ENTITIES CONNECTED WITH DIRECTORS 219 C(DIBD)R.15(3) (a) C(DIBD)R.15-18 C(DIBD)R.13(2) Loans to directors 220 of the company and entities connected with directors disclosed pursuant to section 383(1)(d) of the Hong Kong Companies Ordinance and Part 3 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows: Loan made by a third party under a guarantee given by the company Name of borrower Position Particulars of guarantee given Mr PK Smith Director Guarantee given to a finance company in respect of a loan of $3,000,000 Maximum liability under the guarantee - at 1 January 2022 - at 31 December 2022 and 1 January 2023 - at 31 December 2023 $800,000 $500,000 $200,000 Amount paid or liability incurred under the guarantee $Nil (2022: $Nil) The guarantee is given without recourse to the director. The guarantee will expire on 31 December 2026 or when the director ceases to be employed by the company, if earlier. The benefit in kind which arises from providing this guarantee on behalf of the director is recognised over the term of the guarantee as part of directors' emoluments. At 31 December 2023, the carrying amount of this financial guarantee issued of $6,000 (2022: $8,000) is included in the "Other current liabilities". The directors do not consider it probable that a claim will be made against the company under the guarantee. 219 The disclosure requirements regarding directors' loans, quasi-loans and certain other dealings in favour of directors are set out in sections 15-18 of C(DIBD)R. The requirements under the CO mainly restate the disclosure requirements of the predecessor Ordinance. However, the scope of the disclosure requirements has been changed as follows: • . the scope has been expanded to include connected entities of the directors if the reporting entity is a "specified"* company. The definition of "connected entity" can be found in sections 484, 486-488 of the CO and includes both individuals, such as family members and business partners, and business entities, such as investees. "Other officers" (i.e. managers and companies secretaries) have been deleted from the scope, i.e. financing transactions with other officers are no longer required to be disclosed. * For the purpose of providing disclosures under C(DIBD)R, companies are divided into two categories: "specified" companies and non-specified companies. The companies which are "specified" are: a) a public company incorporated under the CO b) a subsidiary incorporated under the CO of a public company incorporated under the CO c) a company not incorporated under the CO but is listed on the Stock Exchange of Hong Kong 220 Non-specified companies are those that are none of the above. As HK Listco is a "specified" company, connected entities of its directors also fall within the scope of the disclosures about financing transactions. For the purpose of the disclosures on loans, quasi-loans, credit transactions and related guarantees provided, "directors" include shadow directors (i.e. a person whose directions or instructions which the directors, or a majority of the directors, of the company are accustomed to act). 140 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#147HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 C(DIBD)R.15(3) (b) Loans made by the company Name of borrower YKN Enterprises Ltd HKFRS 7.36(b) HKFRS 7.15 & 38 HKFRS 7.36(b) Relationship with the company Controlled by Mr YK Ng, director of the company Mr A Brown Director of the ultimate holding company of the company Terms of the loan - duration and repayment terms - loan amount - interest rate Repayable on demand $156,700 1% above company's borrowing rate None Repayable on demand $460,000 []% above company's borrowing rate Property* - security Balance of the loan - at 1 January 2022 - at 31 December 2022 and 1 January 2023 - at 31 December 2023 Nil $ Nil Maximum balance outstanding - during 2023 - during 2022 Nil $106,300 $440,000 $400,000 $106,300 $156,700 $440,000 $460,000 There was no amount due but unpaid, nor any loss allowance made against the principal amount of or interest on these loans at 31 December 2022 and 2023. The company does not have the right to sell or repledge the property held as collateral in the absence of default by the director of the ultimate holding company.2 221 The group considers that the credit risk arising from the loan to the director of the ultimate holding company is significantly mitigated by the property held as collateral, with reference to the estimated market value of the property as at 31 December 2023.222 221 Note that when an entity recognises financial or non-financial assets during the period as a result of taking possession of collateral it accepted as security or calling on other credit enhancements (for example, guarantees), paragraph 38 of HKFRS 7 requires the entity to disclose the nature and carrying amounts of such assets held at the reporting date. If such assets are not readily convertible into cash, further disclosure needs to be provided regarding the entity's policies for disposing of these assets or for using them in its operations. In addition, if the entity is permitted to sell or repledge the collateral it has accepted in the absence of default by the owner of the collateral, paragraph 15 of HKFRS 7 requires certain specific disclosure in the financial statements, including the fair value of the collateral accepted and the collateral sold or repledged as well as other material terms and conditions associated with the use of this collateral. 222 Paragraph 36(b) of HKFRS 7 requires a description of collateral held as a security and other credit enhancements, and their financial effect. An example of disclosure about financial effect given in paragraph 36(b) is a quantification of the extent to which credit risk is mitigated by the collateral and other credit enhancement. 141 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#148HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 24 TRADE AND OTHER PAYABLES223 HKAS 1.77 2023 $'000 2022 $'000 Bills payable Creditors and accrued charges 91,705 73,859 59,708 60,648 HKAS 24.18(b) Amounts due to ultimate holding company 2,000 1,800 HKAS 24.18(b) Amounts due to fellow subsidiaries 3,650 3,780 HKFRS 7.8(g) Financial liabilities measured at amortised cost 157,063 140,087 HKAS 1.61 A16(4)(2)(b) HKAS 1.54, 55 & 57 Refund liabilities 224. arising from right of return arising from volume rebates 1,614 1,350 1,936 1,770 160,613 143,207 Apart from those mentioned in note 20, all trade and other payables (including amounts due to related parties) are expected to be settled or recognised as income within one year or are repayable on demand 202 As of the end of the reporting period, the ageing analysis of trade creditors and bills payable (which are included in trade and other payables), based on the invoice date, is as follows 212: Within 1 month 1 to 3 months Over 3 months but within 6 months 2023 2022 $'000 $'000 96,434 87,435 52,114 45,962 1,543 1,106 150,091 134,503 223 Paragraph 11(a) of HKAS 37 states that trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier. Paragraph 70 of HKAS 1 further indicates that trade payables are part of the working capital used in the entity's normal operating cycle. 224 In the statement of financial position, other payables are aggregated with trade payables and presented as a single line item "trade and other payables" only when those liabilities have a similar nature and function to trade payables - for example, when those liabilities are part of the working capital used in the entity's normal operating cycle. Additionally, paragraph 55 of HKAS 1 indicates that disaggregation of "trade and other payables" may be appropriate if this is relevant to an understanding of the entity's financial position. Paragraphs 54 and 57 of HKAS 1 indicate that "trade and other payables" are sufficiently different in nature or function from other financial liabilities (e.g. bank loans) that warrant separate presentation in the statement of financial position. In this illustration, HK Listco issues bills of exchange to its suppliers to facilitate payment processing and to allow its suppliers sell the bills to banks before the due dates. Although the counterparty of the bills payable may not be the original suppliers by the time HK Listco settles the amounts, HK Listco has considered the amounts, nature and timing of the bills payable and has determined that the bills payable have a similar nature and function to its trade payables - relevant consideration includes the fact that the payment terms have not been substantially changed as compared to the normal credit terms granted by suppliers, and that it did not incur any additional interest towards the bill. Accordingly, HK Listco has included the bills payable as part of "trade and other payables". As is illustrated in note 26(c), HK Listco is involved in a supplier finance arrangement where the nature or function of the liability. which originated from purchase of goods or services (in that case a payable to a bank) is so different from the original trade payable that presenting the liability as part of "bank loans and overdrafts" rather than as part of "trade and other payables" is more appropriate (see footnote 227). In this illustration, HK Listco considers that its refund liabilities arising from sales transactions with the customers are executory in nature as they are dependent on whether the customers return the goods or make additional purchases in future. Therefore the refund liabilities do not meet the definition of a financial liability in HKAS 32. If a refund liability or a liability related to a repurchase agreement meets the definition of a financial liability in HKAS 32, then it is subject to the disclosure requirements in HKFRS 7. 142 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#149HKAS 1.51(a) HKAS 1.49 25 HKFRS 7.7 (a) HK Listco Ltd Financial statements for the year ended 31 December 2023 NON-CURRENT INTEREST-BEARING BORROWINGS The analysis of the carrying amount of non-current interest-bearing borrowings is as follows: 2023 2022 $'000 $'000 Bank loans (note 26) - secured 7,680 9,054 - unsecured 43,003 41,023 50,683 50,077 Sustainability-linked bond (note 25(b)(i)) 5,000 5,000 Non-derivative liabilities from convertible notes (note 25(b)(ii)) Redeemable preference shares 9,542 9,356 (note 25(b)(iii)) 3,912 3,912 Loans from non-controlling shareholders of a subsidiary (note 25(b)(iv)) 3,000 3,000 HKAS 24.18(b) Loans from fellow subsidiaries (note 25(b)(v)). 2,665 906 74,802 72,251 HKFRS 7.8(g) HKAS 1.61 All of the above non-current interest-bearing borrowings are carried at amortised cost. None of the non-current interest-bearing borrowings is expected to be settled within one year 202 HKFRS 7.7 & 31 (b) Significant terms and repayment schedule of non-bank borrowings225 (i) Sustainability-linked bond On 31 December 2021, the group issued a eight-year sustainability-linked bond of HK$5,000,000. The bond is unsecured and bear interest ranging from [●] % to [●] %, depending on the group's sustainability performance in relation to reduction of greenhouse gas emission, energy consumption and hazardous waste. 225 Paragraph 31 of HKFRS 7 contains a general requirement to disclose information that enables users of an entity's financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period. This requirement is then supplemented by requirements concerning qualitative information and quantitative information, as further explained in the footnotes to note 33. None of these requirements in HKFRS 7 specifically require the disclosure of significant terms and conditions of all financial instruments. Nevertheless such information may be pertinent to help users of financial statements understand the risks that arise from the financial instruments held by the entity. For example, the disclosures concerning covenants attaching to borrowings, which would make the borrowings repayable on demand in certain circumstances, may be pertinent to assessing the liquidity risk faced by an entity. Judgement is therefore required to be exercised in determining when it is necessary to make such a disclosure in respect of any given financial instrument, or a class of financial instruments sharing similar risk characteristics, and, if so, how much detail to disclose and whether to disclose it together with the notes to the statement of financial position, or in a separate note dealing with the entity's financial instrument risk management policies and analyses (i.e. as illustrated here in note 33). 143 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#150HKAS 1.51(a) HKAS 1.49 HK Listco Ltd A16(10)(1) A16(10)(3) Financial statements for the year ended 31 December 2023 Convertible notes On 31 December 2020, the company issued 2 tranches, Tranche A and B, of 5,000,000 convertible notes. Each tranche has a face value of HK$5,000,000 and a maturity date of 31 December 2025. The notes bear interest at [•] % per annum and are unsecured. The rights of the noteholders to convert the notes into ordinary shares are as follows: • • • Conversion rights are exercisable at any time up to maturity at the noteholders' option. If a holder of Tranche A notes exercises its conversion rights, the company is required to deliver ordinary shares at a rate of one ordinary share for every 20 notes converted. If a holder of Tranche B notes exercises its conversion rights, the company has the right to choose whether to deliver ordinary shares at a rate of one ordinary share for every 20 notes converted, or whether to settle in cash at an amount equal to the fixed number of shares under the conversion option multiplied by the average closing price of the shares on The Stock Exchange of Hong Kong Limited for the [●] days immediately preceding the date of conversion. Notes of either tranche, in respect of which conversion rights have not been exercised, will be redeemed at face value on 31 December 2025. (iii) Redeemable preference shares On 1 January 2021, the group issued 4,000,000 redeemable preference shares, which are redeemable at face value of $4,000,000 on 31 December 2027. Preference shareholders' rights are described in note 32(c)(i). Dividends are set at 5% of the face value and are payable semi-annually in arrears. (iv) Loans from non-controlling shareholders of a subsidiary The loans from a non-controlling shareholders of a subsidiary bear interest at prime rate plus annum, are unsecured and are repayable on 31 December 2026. 1% per (v) Loans from fellow subsidiaries HKAS 24.18(b) The loans from the fellow subsidiaries bear interest at prime rate plus [●] % per annum, are unsecured and repayable on 31 December 2028. 144 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#151HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.7 & 31 26 BANK LOANS AND OVERDRAFTS A16(22) (a) The analysis of the repayment schedule of bank loans and overdrafts is as follows: HKAS 16.74(a) HKFRS 7.31 Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years After 5 years (b) Assets pledged as security and covenants for bank loans and overdrafts At 31 December 2023, the bank loans and overdrafts were secured as follows: 226 2023 $'000 2022 $'000 33,218 40,314 5,260 3,375 40,423 40,098 5,000 6,604 50,683 50,077 83,901 90,391 2023 2022 $'000 $'000 Unsecured bank overdrafts (note 22) 1,266 2,789 Secured bank loans - supplier finance arrangement (note 26(c)) Other bank loans 9,818 8,768 secured 11,357 28,397 - unsecured 61,460 50,437 83,901 90,391 At 31 December 2023, the banking facilities of the group were secured by mortgages over land and buildings with an aggregate carrying value of $89,255,000 (2022: $75,087,000) and first floating charges over property, plant and equipment with an aggregate value of $13,910,000 (2022: $16,792,000). Such banking facilities amounted to $91,000,000 (2022: $75,000,000). The facilities were utilised to the extent of $33,284,000 (2022: $52,065,000). All of the group's banking facilities are subject to the fulfilment of covenants relating to certain of the group's balance sheet ratios, as are commonly found in lending arrangements with financial institutions. If the group were to breach the covenants the drawn down facilities would become payable on demand. Among those banking facilities, in 2023 the group entered into a five-year revolving loan facility amounted to $5,000,000. The facility was fully drawn down in May 2023 as a one-year loan and will mature in April 2024. The group has the right to roll-over the loan for another year subject to the fulfilment of a specified debt to equity ratio on each maturity date. The group regularly monitors its compliance with these covenants. Further details of the group's management of liquidity risk are set out in note 33(b). As at 31 December 2023, none of the covenants relating to drawn down facilities had been breached (2022: $ nil). 225, 226 [Note that as per paragraphs 74 to 75 of HKAS 1, if a covenant is breached before the reporting date with the effect that a liability becomes repayable on demand, the liability must be classified as a current liability at the reporting date unless the lender has agreed to provide a grace period ending at least twelve months after the reporting date, and that agreement was obtained before the reporting date. Close attention should be paid to these requirements if the entity is at risk of breaching its covenants, and disclosures should be updated to be consistent with the facts of the entity's circumstances] If there have been any breaches of loan agreements during the period further disclosure may be required by paragraphs 18 and 19 of HKFRS 7. 145 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#152HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (c) HKAS 1.112 HKAS 7.43 Bank loans arising from supplier finance arrangements 227, 228, 229 The group has entered into certain reverse factoring arrangements with banks, under which the group obtained extended credit in respect of the invoice amounts owed to certain suppliers of household electronic materials. Under these arrangements, the banks pay suppliers the amounts owed by the group on the original due dates, and then the group settles the banks between 120 - 180 days later than the original due dates with the suppliers, with interest. In the consolidated statement of financial position, the group has presented payables to the banks under these arrangements as "bank loans and overdrafts", having compared the nature and function of such liabilities with trade payables to suppliers. In the consolidated statement of cash flows, payments to the banks are included within financing cash flows based on the nature of the arrangements, and payments to the suppliers by the banks amounting to $15,000,000 (2022: 13,431,000) are non-cash transactions. HKAS 1.54, 55 & 57 HKAS 7.43 & 44A HKFRS 7.31 & 33- 34 HKAS 1.112, 117- 122 227 As discussed in footnote 223, entities need to exercise judgement in determining whether certain trade-related liabilities should be presented within "trade and other payables", within other financial liabilities, or as a line item separate from other items in the statement of financial position. In the context of liabilities related to a reverse factoring arrangement, attention should be given to whether the nature or function of the original trade payable to suppliers have been modified by the arrangement. Relevant consideration in this regard includes, for example: a) whether additional security or guarantee is provided as part of the arrangement that would not be provided without the arrangement; and b) the extent to which the terms of liabilities that are part of the arrangement differ from the terms of the entity's trade payables that are not part of the arrangement. In this illustration, HK Listco has entered into certain reverse factoring arrangements under which banks agree to pay certain suppliers amounts owed by HK Listco and receive settlement from HK Listco later. The principal business purpose of the arrangements is to provide funding to HK Listco, rather than to its suppliers. As such, the arrangements significantly extend the payment terms beyond the normal terms agreed with suppliers, and HK Listco is required to pay interest. HK Listco has determined that the nature and function of the payables to banks are no longer consistent with the working capital used in the HK Listco's normal operating cycle, and are so different from the original trade payables that presentation within "bank loans and overdrafts", rather than "trade and other payables", would be more appropriate. 228 The entity's assessment of the nature of the payable in the above balance sheet assessment may help determine whether the related cash flows arise from operating or financing activities. On the one hand, if the nature of the liability is consistent with that of a trade payable that is part of the working capital used in the entity's principal revenue-producing activities, classifying the cash outflows to the factor as operating would be appropriate. On the other hand, if the nature of the liability is not a trade or other payable but a borrowing, then classifying the related cash outflow to the factor as financing would be appropriate. If a cash inflow and cash outflow occur for the entity when an invoice is factored as part of a reverse factoring arrangement, then the entity presents those cash flows in its cash flow statement. If no cash inflow or cash outflow occurs for an entity in a financing transaction, the disclosures of non-cash transactions and those that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, shall be provided elsewhere in the financial statements. In this illustration, HK Listco included payments to suppliers by the banks as one of the non- cash changes from the financing activities in note 22(c) to these financial statements. In addition, disclosures about an entity's exposure to liquidity risk associated with supplier finance arrangements are required when it has a material effect on an entity's financial statements. For example, such disclosures could be particularly relevant for an entity (especially one under financial distress) that has become reliant on extended payment terms under supplier finance arrangements and is exposed to significant liquidity risk if the credit market dries up unexpectedly. 229 If an entity has extensive involvement in supplier finance or similar arrangements, consideration should be given to whether additional disclosures about such arrangements are relevant to the understanding of the entity's financial statements, and whether any judgements applied in balance sheet presentation and cash flow classification are among those that have the most significant effect on the financial statements. For example, such disclosures could be relevant if the judgements around balance sheet presentation or cash flow presentation could materially impact key balance sheet or cash flow metrics. 146 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#153HKAS 1.51(a) HKAS 1.49 27 LEASE LIABILITIES A16(22) HKFRS 16.58 230 HKFRS 7.39(a) A16(22) HKAS 1.71 A16(26)(2) HKAS 19.135 HKAS 19.139 HK Listco Ltd Financial statements for the year ended 31 December 2023 At 31 December 2023, the lease liabilities were repayable as follows 230. Within 1 year After 1 year but within 2 years After 2 years but within 5 years After 5 years 2023 2022 $'000 $'000 21,329 15,271 20,974 15,289 24,166 34,501 3,823 3,412 48,963 53,202 70,292 68,473 Under HKFRS 16, entities need to disclose a maturity analysis of lease liabilities by applying paragraphs 39 and B11 of HKFRS 7 separately from the maturity analysis of other financial liabilities (see note 33(b)). Similar to other disclosure requirements under HKFRS 7, the standard does not specify the format of the information required, for example, the number of time bands to be used in the maturity analysis (although suggested time bands are set out in paragraph B11 of HKFRS 7). Entities should use their judgement to determine what is appropriate in view of their circumstances and with due regard to the information provided internally to key management personnel. However, listed entities are required by paragraph 22 of Appendix 16 to analyse their lease liabilities between amounts payable in the next year, amounts payable after one year but within two years, amounts payable after two years but within five years and aggregate amounts payable after five years, from the end of the reporting period, at a minimum. Under paragraph 71 of HKAS 1, a long-term financial liability is split into current and non-current portions. For financial liabilities that require periodic payments that are applied against both the principal and interest (sometimes referred to as 'amortising loans') like lease liabilities, HKFRS does not provide specific guidance on splitting the current and non-current portions. In our view, an acceptable policy is to determine the current portion as the present value of contractual payments that are due to be settled within twelve months after the reporting period, as is illustrated here. Alternatively, the current portion could be determined as the principal portion of contractual payments that are due to be settled within twelve months after the reporting period. Whichever policy is adopted, it should be applied consistently for all financial liabilities and from one period to the next, to the extent that the effect would be material. 231 In accordance with paragraph 26(2) of Appendix 16 to the MBLRS, a listed issuer is required to provide the following information in the case of defined contribution schemes: • details of whether forfeited contributions may be used by the employer to reduce the existing level of contribution; and • if so, the amounts so utilised in the course of the year and available at the date of statement of financial position for such use. Common examples of defined contribution schemes in China include the MPF schemes under the Hong Kong Mandatory Provident Fund Schemes Ordinance and the social insurance and housing funds operated by the relevant government authorities in Chinese Mainland. Usually, contributions to these schemes vest immediately, and there would not be forfeited contributions that may be used by the employer to reduce the existing level of contribution. If an entity operates a defined contribution scheme with forfeitable contributions, further details of the forfeited contributions should be disclosed. 232 HKAS 19 sets out the following objectives for disclosures about defined benefit plans of an entity: to explain the characteristics of its defined benefit plans and risks associated with them; • to identify and explain the amounts in its financial statements arising from its defined benefit plans; and . to describe how its defined benefit plans may affect the amount, timing and uncertainty of the entity's future cash flows. Paragraphs 139 to 150 of HKAS 19 lists out the disclosures required by the standard. However, paragraph 137 of HKAS 19 explicitly requires that if the disclosures provided in accordance with the requirements in the standard and other HKFRSS are insufficient to meet the above disclosure objectives, the entity should disclose additional information necessary to meet them. 233 Paragraph 139 of HKAS 19 lists out the disclosures required in respect of the characteristics of defined benefit plans and risks associated with them, including: • the nature of the benefits provided by the plan; . a description of the regulatory framework in which the plan operates; . a description of any other entity's responsibilities for the governance of the plan, e.g. responsibilities of trustees or board members of the plans; • a description of the risks to which the plan exposes the entity; and • a description of any plan amendments, curtailments and settlements. Entities should consider the level of detail necessary to satisfy the disclosure requirements. 147 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#154HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 1.77 Financial statements for the year ended 31 December 2023 28 POST-EMPLOYMENT BENEFITS The group operates a MPF scheme for the employees and two other retirement plans registered under the Occupational Retirement Schemes Ordinance (Chapter 426 of the Laws of Hong Kong) for the senior management team in Hong Kong. In addition, the employees employed under the Hong Kong Employment Ordinance are also entitled to long service payment if the eligibility criteria are met. The ORSO plans and LSP are defined benefit plans. The analysis of the carrying amount of defined benefit plan obligations is as follows: ORSO plan liabilities (note 28(b)) Long service payment liabilities (note 28(c)) (a) MPF scheme 2023 $'000 2022 $'000 (restated) 1,997 1,702 1,887 1,508 3,884 3,210 A16(26)(1) A16(26)(2) HKAS 19.139(a) A16(26)(1) HKAS 19.147(a) A16(26)(3)(c) & (d) (b) The group operates a MPF scheme under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance and not previously covered by the group's ORSO plans. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees' relevant income, subject to a cap of monthly relevant income of HK$30,000. Contributions to the plan vest immediately, there is no forfeited contributions that may be used by the group to reduce the existing level of contribution 231 ORSO plan liabilities 232, 233 The ORSO plans of the group are administered by trustees, the majority of which are independent, with their assets held separately from those of the group. The trustees are required by the Trust Deed to act in the best interest of the plan participants and are responsible for setting investment policies of the plans. Under the plans, a retired employee is entitled to an annual pension payment equal to final salary for each year of service that the employee provided. of The plans are funded by contributions from the group in accordance with an independent actuary's recommendation based on annual actuarial valuations. The latest independent actuarial valuations of the plans were at 31 December 2023 and were prepared by qualified staff of ABC Company Limited, who are members of the Society of Actuaries of the United States of America, using the projected unit credit method. The actuarial valuations indicate that the group's obligations under these defined benefit retirement plans are []% (2022: 1%) covered by the plan assets held by the trustees. 148 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#155HKAS 1.51(a) HKAS 1.49 HKAS 19.139(b). (i) HK Listco Ltd Financial statements for the year ended 31 December 2023 The plans expose the group to actuarial risks, such as interest rate risk, investment risk and longevity risk. Since the two retirement plans have similar risks and features, information about the two plans is aggregated and disclosed below: 234 The amounts recognised in the consolidated statement of financial position are as follows: Present value of wholly or partly funded obligations Fair value of plan assets 235 2023 2022 $'000 122,997 (121,000) 1,997 $'000 108,298 (106,596) 1,702 HKAS 1.61 HKAS 19.147(b) HKAS 19.142-143 (ii) A portion of the above liability is expected to be settled after more than one year. 236 However, it is not practicable to segregate this amount from the amounts payable in the next twelve months, as future contributions will also relate to future services rendered and future changes in actuarial assumptions and market conditions. The group expects to pay $[●] in contributions to defined benefit retirement plans in 2024. Plan assets consist of the following: 237 HKAS 19.146 Equity securities: - Consumer markets - Financial institutions - Telecommunication Government bonds Company's own ordinary shares 2023 2022 $'000 $'000 21,852 18,584 31,452 27,185 16,600 14,820 69,904 60,589 50,493 45,467 603 540 121,000 106,596 All of the equity securities and government bonds and the company's own ordinary shares have quoted prices in active markets. The government bonds have a credit rating of [●] to [●]. At the end of each reporting period, an Asset-Liability Matching study is performed by the trustees to analyse the outcome of the strategic investment policies. The investment portfolio targets a mix of ]-[]% in equity securities across a range of industries, [●]-[●] % in government bonds, and [●]- 1% in other investments. Interest rate risk is managed with the objective of reducing the risk by 1% by investing in government bonds. 238 HKAS 19.138 HKFRS 13.7(a) HKAS 1.61 HKAS 19.142 234 If an entity has more than one defined benefit plan, it should assess whether all or some disclosures should be disaggregated to distinguish plans or groups of plans with materially different risks. 235 Plan assets measured at fair value under HKAS 19 are subject to HKFRS 13's measurement requirements, but are scoped out from HKFRS 13's disclosure requirements as HKAS 19 contains specific disclosure requirements relating to the fair value of plan assets. 236 HKAS 1 requires disclosure of the amount expected to be recovered or settled after more than one year, when any balance combines this with amounts expected to be recovered or settled within one year. In our view, where it is not practicable to make such a distinction, it is sufficient if the financial statements state this fact and explain why. See also footnote 67. 237 HKAS 19 requires entities to disaggregate the fair value of the plan assets into classes that distinguish the nature and risks of those assets, subdividing each class of plan asset into those that have a quoted market price in an active market and those that do not. Paragraph 142 of HKAS 19 includes examples of how the plan assets may be distinguished. 149 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#156HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 19.146 238 Some plans or entities may use an asset-liability matching strategy to match the amount and timing of cash inflows from plan assets with those of cash outflow from the defined benefit obligation. If such matching strategy has been used by the plans or by the entities, paragraph 146 of HKAS 19 requires the entities to provide information about the strategy, including the use of annuities or other techniques, such as longevity swaps, to manage risk. HKAS 19.141(c)(ii)&(iii) 239 Actuarial gains and losses arising from changes in demographic assumptions are required to be disclosed separately from those arising from changes in financial assumptions. HKAS 19.141(f) 240 Contributions to the plan by employer should be separately disclosed from contributions by plan participants. In this illustration, the contributions are wholly made by HK Listco (i.e. the employer). HKAS 19.123-126 241 Net interest on the net defined benefit liability (asset) comprises of interest income on plan assets, interest cost on the defined benefit obligation and interest on the effect of the asset ceiling. HKAS 19.144 HKAS 19 does not specify where net interest and service cost should be presented in profit or loss. It also does not specify whether they should be presented separately or as components of a single item of income or expense. An entity should therefore choose an accounting policy, to be applied consistently, to the presentation of net interest and service cost. To help identify amounts in the financial statements arising from defined benefit plans, entities should also disclose how and where the costs have been recognised in profit or loss. 242 Paragraph 144 of HKAS 19 requires entities to disclose the significant actuarial assumptions used to determine the present value of the defined benefit obligation. Entities should apply judgement to determine which actuarial assumptions are significant to the valuation and therefore require disclosure. The disclosure of significant actuarial assumptions should be in absolute terms, e.g. as an absolute percentage. When an entity has more than one defined benefit plan and provides disclosures in total, it should disclose the significant actuarial assumptions in the form of weighted averages or relatively narrow ranges. 150 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#157HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (iii) Movements in the present value of the defined benefit obligation HKAS 19.140(a)(ii) At 1 January: HKAS 19.141(c)(ii) HKAS 19.141(c)(iii) Remeasurements: Actuarial losses arising from changes in demographic assumptions 239 Actuarial losses arising from changes in financial assumptions HKAS 19.141(g) Benefits paid by the plans HKAS 19.141(a) Current service cost HKAS 19.141(b) Interest cost At 31 December 2023 2022 $'000 $'000 108,298 94,290 35 18 13 24 48 42 (5,976) (5,500) 13,834 13,286 6,793 6,180 122,997 108,298 HKAS 19.147(c) The weighted average duration of the defined benefit obligation is [ years (2022: years). HKAS 19.140(a)(i) (iv) Movements in plan assets At 1 January: HKAS 19.141(f) Group's contributions paid to the plans 240 HKAS 19.141(g) Benefits paid by the plans HKAS 19.141(b) Interest income HKAS 19.141(c)(i) Return on plan assets, excluding interest income At 31 December HKAS 19.145 and 173(b) (v) 2023 2022 $'000 $'000 106,596 93,086 14,579 13,720 (5,976) (5,500) 5,750 5,250 51 40 121,000 106,596 Amounts recognised in the consolidated statement of profit or loss and other comprehensive income are as follows: Current service cost Net interest on net defined benefit liability 241 Total amounts recognised in profit or loss 2023 2022 $'000 $'000 13,834 13,286 1,043 930 14,877 14,216 Actuarial losses 48 42 Return on plan assets, excluding interest income (51) (40) Total amounts recognised in other comprehensive income (3) 2 Total defined benefit costs 14,874 14,218 243 Entities are required to disclose a sensitivity analysis for significant actuarial assumptions. In accordance with paragraph 145 of HKAS 19, an entity should disclose: a sensitivity analysis for each significant actuarial assumption as disclosed under paragraph 144 of HKAS 19 as of the end of the reporting period, showing how the defined benefit obligation would have been affected by changes in the relevant actuarial assumption that were reasonably possible at that date; the methods and assumptions used in preparing the sensitivity analyses and the limitations of those methods; and changes from the previous period in the methods and assumptions used in preparing the sensitivity analyses, and the reasons for such changes. 151 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#158HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (vi) The current service cost and the net interest on net defined benefit liability are recognised in the following line items in the consolidated statement of profit or loss: 241 Cost of sales Distribution costs Administrative expenses 2023 2022 $'000 $'000 11,680 10,978 1,353 1,370 1,844 1,868 14,877 14,216 Significant actuarial assumptions 242 (expressed as weighted averages) and sensitivity analysis 243 are as follows: A(16)(26)(3)(a), HKAS 19.144 Discount rate 2023 2022 Future salary increases [●]% 1% ]% 1% HKAS 19.145 The below analysis shows how the defined benefit obligation would have increased (decreased) as a result of []% change in the significant actuarial assumptions: HKAS 19.145(a) HKAS 19.145(b) Discount rate Future salary increases Increase in 1% Decrease in ]% 2023 2022 $'000 $'000 2023 $'000 2022 $'000 ([●]) ([●]) The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take into account the correlations between the actuarial assumptions. 152 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#159HKAS 1.51(a) HKAS 1.49 (c) HK Listco Ltd Financial statements for the year ended 31 December 2023 Long service payment liabilities Hong Kong employees that have been employed continuously for at least five years are entitled to long service payments in accordance with the Hong Kong Employment Ordinance under certain circumstances. These circumstances include where an employee is dismissed for reasons other than serious misconduct or redundancy, that employee resigns at the age of 65 or above, or the employment contract is of fixed term and expires without renewal. The amount of LSP payable is determined with reference to the employee's final salary (capped at $22,500) and the years of service, reduced by the amount of any accrued benefits derived from the group's contributions to MPF scheme (see note 28(a)) or ORSO plans (see note 28(b)), with an overall cap of $390,000 per employee. Currently, the group does not have any separate funding arrangement in place to meet its LSP obligation. In June 2022, the Government gazetted the Amendment Ordinance, which will eventually abolish the statutory right of an employer to reduce its LSP payable to a Hong Kong employee by drawing on its mandatory contributions to the MPF scheme. The Government has subsequently announced that the Amendment Ordinance will come into effect from the Transition Date. Separately, the Government is also expected to introduce a subsidy scheme to assist employers after the abolition 244. Among other things, once the abolition of the offsetting mechanism takes effect, an employer can no longer use any of the accrued benefits derived from its mandatory MPF contributions (irrespective of the contributions made before, on or after the Transition Date) to reduce the LSP in respect of an employee's service from the Transition Date. However, where an employee's employment commenced before the Transition Date, the employer can continue to use the above accrued benefits to reduce the LSP in respect of the employee's service up to that date; in addition, the LSP in respect of the service before the Transition Date will be calculated based on the employee's monthly salary immediately before the Transition Date and the years of service up to that date. The group has accounted for the offsetting mechanism and its abolition as disclosed in notes 1(c)(ii) and 1(x)(ii). The group has determined that the Amendment Ordinance primarily impacts the group's LSP liability with respect to Hong Kong employees that do not participate in the group's ORSO plans. The Amendment Ordinance has no material impact on the group's LSP liability with respect to employees that participate in the group's ORSO plans. 244 The HKICPA guidance "Accounting implications of the abolition of the MPF-LSP offsetting mechanism in Hong Kong" notes that the expected government subsidy does not yet meet the recognition criteria of any element of the financial statements based on an assessment of relevant facts and circumstances at the time the guidance was published. Entities should consider the latest developments in this respect and evaluate the impact of those developments on their annual financial statements. This includes the need to provide any relevant subsequent event disclosures about the government subsidy based on relevant facts and circumstances up to the time the annual financial statement is authorised for issue. 153 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#160HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 19.140(a)(ii) Financial statements for the year ended 31 December 2023 The present value of unfunded obligations and its movements are as follows: 2023 $'000 2022 $'000 (restated) At 1 January: 1,508 206 HKAS 19.141(c)(iii) Remeasurements recognised in other comprehensive income: Actuarial losses arising from changes in financial assumptions Expenses recognised in profit or loss: 122 12 8 HKAS 19.141(a) Current service cost Interest cost HKAS 19.141(b) HKAS 19.141(d) Past service cost HKAS 19.147(c) 322 278 45 36 980 367 1,294 At 31 December 1,887 1,508 years (2022: | years). The weighted average duration of the defined benefit obligation is The above expenses are recognised in the following line items in the consolidated statement of profit or loss: 241 Distribution costs Administrative expenses 2023 $'000 2022 $'000 (restated) 92 370 275 924 367 1,294 Significant actuarial assumptions 242 (expressed as weighted averages) and sensitivity analysis 243 are as follows: HKAS 19.144 2023 2022 Discount rate ]% 1% Future salary increases [❤]% 1% Expected investment return on offsettable MPF accrued benefits 1% 1% HKAS 19.145 The below analysis shows how the defined benefit obligation would have increased/decreased as a result of []% change in the significant actuarial assumptions: HKAS 19.145(a) HKAS 19.145(b) Discount rate Future salary increases Increase in 1% Decrease in 1% 2023 2022 2023 2022 $'000 $'000 $'000 $'000 ([●]) ([●]) The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take into account the correlations between the actuarial assumptions. 154 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#161HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 29 EQUITY SETTLED SHARE-BASED TRANSACTIONS HKFRS 2.45 HKFRS 2.45(a) (a) (b) HKFRS 2.45(b) & (c) HKFRS 2.45(c) The company has a share option scheme which was adopted on 1 March 2019 whereby the directors of the company are authorised, at their discretion, to invite employees of the group, including directors of any company in the group, to take up options at nil consideration to subscribe for shares of the company 245. The options vest after one year from the date of grant and are then exercisable within a period of two years. Each option gives the holder the right to subscribe for one ordinary share in the company and is settled gross in shares. The terms and conditions of the grants are as follows: Number of instruments Vesting conditions Contractual life of options Options granted to directors: - on 1 November 2020 - on 1 July 2022 200,000 One year from the date of grant 1,500,000 One year from the date of grant 3 years 3 years Options granted to employees: - on 1 July 2022 -on 1 May 2023 3 years 5,000,000 One year from the date of grant 500,000 One year from the date of grant 7,200,000 3 years Total share options granted The number and weighted average exercise prices of share options are as follows: 2023 2022 Weighted average exercise Number of Weighted average options exercise price Number of options price '000 '000 Outstanding at the beginning of the period $6.00 6,700 $6.00 200 Exercised during the period $6.00 (1,000) Forfeited during the period 246 $6.00 (200) Granted during the period $6.50 500 $6.00 6,500 Outstanding at the end of the period $6.04 6,000 $6.00 6,700 Exercisable at the end of the period $6.00 5,500 $6.00 200 The weighted average share price at the date of exercise for shares options exercised during the year was $6.60 (2022: not applicable). 24 247 HKFRS 2.45(d) The options outstanding at 31 December 2023 had an exercise price of $6.00 or $6.50 (2022: $6.00) and a weighted average remaining contractual life of 1.6 years (2022: 2.5 years). 248 R17.09(8) 245 Chapter 17 of the MBLRs also requires the disclosure of the basis of determining the exercise price of options granted or the purchase price of shares awarded, if any, of each share scheme. This information may be disclosed in the annual financial statements or in the directors' report as illustrated in this annual report (see page 17). HKFRS 2.45(b) HKFRS 2.45(c) 246 Grants which expired during the period should also be disclosed separately, if applicable. 247 248 HKFRS 2.45(d) If options were exercised on a regular basis throughout the period, the weighted average share price during the period may be disclosed as an alternative. If the range of exercise prices is wide, the outstanding options could be divided into ranges that are meaningful for assessing the number and timing of additional shares that may be issued and the cash that may be received upon the exercise of those options. 155 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#162HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 2.47 R17.07(1)(c) Financial statements for the year ended 31 December 2023 (c) Fair value249 of share options and assumptions The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of the fair value of the share options granted is measured based on a binomial lattice model. The contractual life of the share option is used as an input into this model. Expectations of early exercise are incorporated into the binomial lattice model. Fair value of share options and assumptions 2023 2022 HKFRS 2.47(a)(i) R17.07(1)(c) Fair value at measurement date $0.40 $0.50 Share price $6.50 $6.00 Exercise price $6.50 $6.00 Expected volatility (expressed as weighted average volatility used in the modelling under binomial lattice model) 1% 1% Option life (expressed as weighted average life used in the modelling under binomial lattice model) HKFRS 2.47(a)(ii) HKFRS 2.47(a)(iii) Expected dividends Risk-free interest rate (based on Exchange Fund Notes) years years 1% 1% 1% 1% The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on publicly available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate. Share options were granted under a service condition. This condition has not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share option grants. 30 INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 143 (a) Current taxation in the consolidated statement of financial position represents: HKAS 1.77 2023 2022 $'000 $'000 Provision for Hong Kong Profits Tax for the year Provisional Profits Tax paid 13,000 14,849 (6,250) (8,639) 6,750 6,210 Balance of Profits Tax provision relating to prior years 1,034 6,750 7,244 HKFRS 13.6(a) 249 Share-based payment transactions accounted for under HKFRS 2 are scoped out from both the measurement and disclosure requirements of HKFRS 13. The fair value of share-based payments therefore continues to be measured and disclosed in accordance with HKFRS 2. 156 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#163HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (b) (i) Deferred tax assets and liabilities recognised: Movement of each component of deferred tax assets and liabilities HKAS 12.81(g)(i) The components of deferred tax (assets)/liabilities recognised in the consolidated statement of financial position and the movements during the year are as follows: Revaluation Depreciation allowances in of investment excess of the related Deferred tax arising from: property $'000 depreciation $'000 Right-of-use assets 250 $'000 Lease liabilities 250 $'000 Revaluation of other properties $'000 Amortisation of capitalised contract costs 251 $'000 Amortisation of other intangibles $'000 Credit loss allowance 252 Defined benefit plan obligations 253,254 $'000 $'000 (restated) Undistributed Provision for product warranties $'000 Convertible notes $'000 Cash flow hedges $'000 profits of foreign joint venture $'000 Total $'000 At 1 January 2022 1,645 9,041 10,374 (10,274) 256 136 2,363 (655) (303) (3,486) 72 599 HKAS 12.81(d) Effect on deferred tax balances resulting from a change in tax rate (note 6(a)) 325 HKAS 12.81(g)(ii) Charged/(credited) to profit or loss (restated) 1,141 (806) 251 (451) (339) (54) 157 (12) (231) (137) (16) HKAS 12.81(a) Charged/(credited) to 846 (95) reserves 9,768 325 8 (489) 751 At 31 December 2022 and 1 January 2023 (restated) 2,786 8,560 10,625 (10,725) 763 82 2,520 (667) (534) (3,623) 56 504 8 10,355 HKAS 12.81(g)(ii) HKAS 12.81(a) Charged/(credited) to profit or loss Charged/(credited) to 1,650 3,618 550 (660) (464) (62) 144 (8) (119) (402) (16) reserves 2,138 (102) 33 4,264 2,036 At 31 December 2023 4,436 12,178 11,175 (11,385) 2,437 20 2,664 (675) (653) (4,025) 40 40 402 41 16,655 157 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#164HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 250 Subject to certain conditions, Hong Kong Inland Revenue Department ("IRD") allows lessees to claim tax deduction for the purposes of Hong Kong profits tax on the basis of either contractual lease payments (i.e. cash basis) or lease expenses recognised in profit or loss in accordance with HKFRS 16 (i.e. interest on lease liability and depreciation on right-of-use asset). In this illustration, it is assumed that HK Listco claims the tax deductions based on the contractual lease payments, and the deductions are attributed to its lease liabilities when determining the tax base for the purposes of HKAS 12. Accordingly, HK Listco recognises deferred tax on the temporary differences associated with its right-of-use assets and lease liabilities. 251 Under HKFRS 15, certain costs that were expensed as incurred may be eligible for capitalisation. In this illustration, it is assumed that under the relevant tax jurisdictions these costs are allowed for tax deductions on a cash basis and the group had already claimed tax deductions for the sales commissions in previous periods (see note 19). It has also been assumed that the eventual amortisation charge of this specific amount would not be tax deductible a second time around. The difference therefore results in recognition of a deferred tax asset. 252 In this illustration, it is assumed that under the relevant tax jurisdictions credit losses on financial instruments and contract assets are allowed for tax deductions only when they are actually "incurred" from a tax perspective and that additional credit losses recognised upon the initial application of HKFRS 9's ECL model are not allowed for immediate tax deduction. The recognition of these additional ECL therefore results in recognition of a deferred tax asset. 253 In accordance with paragraph 61A of HKAS 12, current and deferred tax should be recognised outside profit or loss if the tax relates to items that are recognised outside profit or loss. Under HKAS 19, remeasurements of the net defined benefit liability (asset) are recognised in other comprehensive income, and net interest on the net defined benefit liability (asset) and service cost are recognised in profit or loss. In cases of cash contributions to funded post-employment benefit plans, it may be difficult to determine how the related current income taxes should be allocated between profit or loss and OCI because the cash contribution itself does not affect the profit or loss or OCI and it may not be clear what the cash contribution is funding. In our view, the allocation of the current income tax effect to profit or loss and OCI should reflect the nature of the cash contribution, unless it is impracticable to identify whether the cost, to which the funding relates, affects profit or loss or OCI. We believe that a number of allocation approaches are acceptable if the nature of the cash contribution is unclear, including the following: • Approach A: allocate current income taxes first to profit or loss, to the extent of the tax effects of the total service cost and net interest recognised in profit or loss in the current period, and then allocate any residual amount to OCI; Approach B: allocate the entire amount of current income tax related to contributions to profit or loss; and . Approach C: allocate the entire amount of income tax related to contributions to OCI. 254 In this illustration, HK Listco adopts approach B and allocates the entire amount of current income tax related to contributions to profit or loss. IRD generally allows an entity to claim tax deduction on LSP for the purpose of Hong Kong profits tax when the entity becomes obliged to pay under the statutory requirements, and this could be later than when the LSP obligation is recognised in the financial statements under HKAS 19. On this basis, HK Listco recognised deferred tax asset on the additional deductible temporary difference arising from the increase in the LSP obligation upon the abolition of the MPF-LSP offsetting mechanism on 16 June 2022, assuming that taxable profit will be available against which the additional deductible temporary difference can be utilised. 158 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#165HKAS 1.51(a) HKAS 1.49 HKAS 1.77 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Reconciliation to the consolidated statement of financial position Net deferred tax asset in the consolidated statement of financial position Net deferred tax liability in the consolidated statement of financial position 2023 $'000 2022 $'000 (restated) (2,539) (3,495) 19,194 13,850 16,655 10,355 HKAS 12.81(e) HKAS 12.81(f) & 87 (c) (d) Deferred tax assets not recognised In accordance with the accounting policy set out in note 1(y), the group has not recognised deferred tax assets in respect of cumulative tax losses of $3,560,000 (2022: $2,480,000) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax losses do not expire under current tax legislation. Deferred tax liabilities not recognised At 31 December 2023, temporary differences relating to the undistributed profits of subsidiaries amounted to $793,000 (2022: $640,000). Deferred tax liabilities of $238,000 (2022: $192,000) have not been recognised in respect of the tax that would be payable on the distribution of these retained profits as the company controls the dividend policy of these subsidiaries and it has been determined that it is probable that these profits will not be distributed in the foreseeable future. 159 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#166HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 37.84(a) Financial statements for the year ended 31 December 2023 31 PROVISIONS Provision for electronic product warranties255 At 1 January 2023256 HKAS 37.84(b) HKAS 37.84(c) Additional provisions made 257 Provisions utilised HKAS 37.84(a) At 31 December 2023 Less: amount included under "current liabilities" HKAS 37.85 HKAS 1.61 $'000 20,661 12,439 (10,100) 23,000 (10,900) 12,100 Under the terms of the group's sales agreements, the group offers warranties for its electronic products (see note 1(aa)(i)(a)). Provision is therefore made for the best estimate of the expected settlement under these agreements in respect of sales made within the warranty periods prior to the end of the reporting period. The amount of provision takes into account the group's recent claim experience and is only made where a warranty claim is probable. Where the group has the benefit of product liability insurance, a separate asset is recognised for any expected reimbursement that would be virtually certain if a warranty claim were to be made. As at the end of the reporting period $2,158,000 (2022: $1,752,000) is included within trade and other receivables in current assets in respect of such expected reimbursements (note 21(a)), of which an amount of $1,200,000 (2022: $960,000) is expected to be recovered after more than one year. HKFRS 15.B29-B30 255 HKAS 37.84 HKAS 37.84(e) HKFRS 15 requires an entity to account for a warranty in accordance with HKAS 37 if the warranty is simply a promise to the customer that the product complies with agreed-upon specifications, and it is a standard promise given to customers, whether they ask for it or not. Such warranties are common and are often required by consumer protection legislation. If, on the other hand, the customer has the option of whether or not to purchase the warranty, or the warranty provides the customer with a distinct service in addition to the assurance that the product complies with the agreed-upon specifications, then HKFRS 15 requires the warranty service to be accounted for as a separate performance obligation. In such cases, an entity needs to allocate part of the promised consideration to the warranty service (in accordance with paragraphs 73 to 86 of HKFRS 15) and recognise the related revenue only when it performs the warranty services, i.e. generally over the warranty period. In this illustration, the product warranties are simply a promise to the customer that the product complies with agreed-upon specifications and hence the estimated costs of meeting any obligations under the warranties continue to be accounted for as a provision in accordance with HKAS 37. 256 Comparative information is not required for the analysis of the movements in the provision, as HKAS 37 gives a specific exemption in this regard. 257 It is assumed that the provision has not been discounted on the grounds of materiality. If the provision has been discounted, the increase in the provision arising from the discount unwinding should be separately disclosed. 160 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#167HKAS 1.51(a) HKAS 1.49 Sch 4, Part 1, 32 CAPITAL, RESERVES AND DIVIDENDS Section 2(1)(b) HKAS 1.79(b), 106(d)) & 108 HKAS 16.77(f) HKAS 21.52(b) (a) Movements in components of equity HK Listco Ltd Financial statements for the year ended 31 December 2023 The reconciliation between the opening and closing balances of each component of the group's consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the company's individual components of equity between the beginning and the end of the year are set out below 258: 258 Company Balance at 1 January 2022 Note Share capital Capital Property revaluation Fair value reserve $'000 $'000 reserve $'000 Hedging reserve reserve (non- Retained $'000 recycling) $'000 profits Total $'000 $'000 175,000 134 751 869 85 142,022 318,861 Changes in equity for 2022: Total comprehensive income for the year 966 (99) 50 98,572 99,489 Dividends approved in respect of the previous year Equity settled share-based transactions 32(b) (45,000) (45,000) 1,625 1,625 Dividends declared in respect of the current year 32(b) (27,000) (27,000) Balance at 31 December 2022 and 1 January 2023 37 175,000 1,759 1,717 770 135 168,594 347,975 Changes in equity for 2023: Total comprehensive income for the year 1,405 (128) 90 117,867 119,234 Dividends approved in respect of the previous year 32(b) (49,500) (49,500) Purchase of own shares 32(c)(iii) (3,390) (3,390) Shares issued under share option scheme 32(c)(iv) 6,400 (400) 6,000 Equity settled share-based transactions 1,658 1,658 Dividends declared in respect of the current year 32(b) (29,850) (29,850) Balance at 31 December 2023 37 181,400 3,017 3,122 642 225 203,721 392,127 As specifically required by section 2(1)(b) of Part 1 of Schedule 4 to the CO, when a company prepares consolidated financial statements, those financial statements should include a note disclosing the movement of the company's reserves. 161 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#168HKAS 1.51(a) HKAS 1.49 HK Listco Ltd A16(4)(3) Financial statements for the year ended 31 December 2023 (b) Dividends259 HKAS 1.107 (i) Dividends payable to equity shareholders of the company attributable to the year 2023 $'000 2022 $'000 Interim dividend declared and paid of 30 cents per ordinary share (2022: 30 cents per ordinary share) 29,850 27,000 HKAS 1.137(a) HKAS 10.13 Final dividend proposed after the end of the reporting period of 60 cents per ordinary share (2022: 55 cents per ordinary share) 59,700 49,500 89,550 76,500 HKAS 1.79(a) The final dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period. (ii) Dividends payable to equity shareholders of the company attributable to the previous financial year, approved and paid during the year 2023 $'000 2022 $'000 Final dividend in respect of the previous financial year, approved and paid during the year, of 55 cents per share (2022: 50 cents per share) 49,500 45,000 (iii) Dividends on redeemable preference shares issued by the company Dividends on redeemable preference shares are paid semi-annually in arrears at a rate of 5% per annum of the shares' face value on 30 June and 31 December each year as from their issue date of 1 January 2022. Dividends of $100,000 (2022: $100,000) were paid during the period and unpaid dividends of $100,000 (2022: $100,000) were accrued and presented in "Other current liabilities" as at 31 December 2023. Dividends on redeemable preference shares are included in finance costs (note 5(a)). HKAS 1.107 & 113 259 Paragraph 107 of HKAS 1 requires entities to disclose either in the statement of changes in equity, or in the notes, the amount of dividends recognised as distributions to owners during the period and the related amount per share. 162 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#169OP CP C(DR)R.5 HKAS 1.51(a) HKAS 1.49 (c) Share capital (i) Issued share capital HK Listco Ltd Financial statements for the year ended 31 December 2023 2023 2022 No. of No. of shares shares ('000) $'000 ('000) $'000 HKAS 1.79(a)(ii) & (iv) Ordinary shares, issued and fully paid: At 1 January 90,000 175,000 90,000 175,000 Bonus issue 9,000 Shares repurchased 260 (500) Shares issued under share option scheme 1,000 Transfer from capital reserve 6,000 400 At 31 December 99,500 181,400 90,000 175,000 HKAS 1.79(a)(iii) CP In accordance with section 135 of the Hong Kong Companies Ordinance, the ordinary shares of the company do not have a par value. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company. All ordinary shares rank equally with regard to the company's residual assets. 2023 2022 No. of shares ('000) No. of shares $'000 ('000) $'000 Redeemable preference shares, issued and fully paid: At 1 January 4,000 4,000 Shares issued 4,000 4,000 At 31 December 4,000 4,000 4,000 4,000 Redeemable preference shares do not carry the right to vote. On liquidation of the company the redeemable preference shareholders would participate only to the extent of the face value of the shares adjusted for any dividends in arrears. Based on their terms and conditions, the redeemable preference shares have been presented as liabilities in the statement of financial position. Further details of these terms are set out in note 25(b)(iii). (ii) Bonus issue On 8 January 2023, the company made a bonus issue on the basis of 1 bonus share for every 10 existing shares held by shareholders in recognition of their continual support. A total of 9,000 ordinary shares were issued pursuant to the bonus issue. 163 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#170HKAS 1.51(a) HKAS 1.49 HK Listco Ltd A16(10)(4) R10.06(4)(b) Financial statements for the year ended 31 December 2023 (iii) Purchase of own shares During the year, the company repurchased its own ordinary shares on The Stock Exchange of Hong Kong Limited as follows: Month/year February 2023 May 2023 Number of shares repurchased Highest price paid Lowest price paid Aggregate price per share per share paid $ $ $'000 300,000 200,000 6.85 6.80 6.75 2,040 6.70 1,350 3,390 A16(10)(2) HKAS 1.79(b) The repurchase was governed by section 257 of the Hong Kong Companies Ordinance. The total amount paid on the repurchased shares of $3,390,000 was paid wholly out of retained profits.260 (iv) Shares issued under share option scheme On 1 February 2023, options were exercised to subscribe for 1,000,000 ordinary shares in the company at a consideration of $6,000,000, all of which was credited to share capital. $400,000 was transferred from the capital reserve to the share capital account in accordance with policy set out in note 1(x)(iii). (d) Nature and purpose of reserves (i) Capital reserve The capital reserve comprises the following: the portion of the grant date fair value of unexercised share options granted to employees of the company that has been recognised in accordance with the accounting policy adopted for share- based payments in note 1(x)(iii); and the amount allocated to the unexercised equity component of convertible notes issued by the company recognised in accordance with the accounting policy adopted for convertible notes in note 1(w)(i). (ii) Exchange reserve The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations as well as the effective portion of any foreign exchange differences arising from hedges of the net investment in these foreign operations. The reserve is dealt with in accordance with the accounting policies set out in notes 1(i)(ii) and 1(bb). 260 When a company repurchases the shares out of distributable profits under section 257 of the CO, it should record the debit entry to its "retained profits" and reduce the number of shares in issue for the shares cancelled under section 269 of the CO. For overseas incorporated companies, the relevant overseas legislation in relation to repurchase of shares would need to be followed. 164 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#171HKAS 1.51(a) HKAS 1.49 HKAS 16.77(f) HKAS 1.134 & 135 (e) HK Listco Ltd Financial statements for the year ended 31 December 2023 (iii) Property revaluation reserve The property revaluation reserve has been set up and is dealt with in accordance with the accounting policies adopted for land and buildings held for own use in note 1(k). The property revaluation reserve of the company is distributable to the extent of $567,000 (2022: $250,000) 261 (iv) Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedges in note 1(i)(i). (v) Fair value reserve (non-recycling) The fair value reserve (non-recycling) comprises the cumulative net change in the fair value of equity investments designated at FVOCI under HKFRS 9 that are held at the end of the reporting period (see note 1(g)). Capital management262 The group's primary objectives when managing capital are to safeguard the group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost. The group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The group monitors its capital structure on the basis of an adjusted net debt-to-capital ratio. For this purpose, adjusted net debt is defined as total debt (which includes interest-bearing loans and borrowings, and lease liabilities but excludes redeemable preference shares) plus unaccrued proposed dividends, less cash and cash equivalents. Adjusted capital comprises all components of equity and redeemable preference shares, other than amounts recognised in equity relating to cash flow hedges, less unaccrued proposed dividends. During 2023, the group's strategy, which was unchanged from 2022, was to maintain the adjusted net debt-to-capital ratio at the lower end of the range 1% to ]%. In order to maintain or adjust the ratio, the group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt. HKAS 1.134 & 135 261 As discussed in footnote 15, Part 6 of the CO "Distribution of profits and assets" contains provisions that deal with distribution of profits and assets by a company incorporated under the CO to its members. The provisions of Part 6 are closely based on the equivalent requirements of the predecessor Companies Ordinance (Cap. 32). For example, under section 292(5) of the CO, property revaluation reserve can be treated as realised to the extent that depreciation charged to the statement of profit or loss/the statement of profit or loss and other comprehensive income on revalued assets exceeds the amount that would have been charged based on the historical cost of those assets. This is consistent with the previous requirements in section 79K(2) of the predecessor Companies Ordinance. 262 Paragraphs 134 and 135 of HKAS 1 require an entity to disclose information that enables users of its financial statements to evaluate an entity's objectives, policies and processes for managing "capital", based on the information provided internally to the entity's key management personnel. Because of this "management focus", the extent and level of disclosures will vary from one entity to another. As acknowledged in paragraph 135(b) of HKAS 1, the "capital" that an entity manages may not necessarily be equal to equity as defined in HKFRSS and might also include or exclude some other components. For example, it might include some financial instruments, such as preference shares, which are presented as liabilities in the financial statements, and exclude some items, such as components of equity arising from cash flow hedges. To facilitate comparison across different entities, paragraph 135(a)(i) of HKAS 1 requires an entity to provide a description of what it manages as "capital". Paragraphs 134 and 135 of HKAS 1 do not prescribe the format of the information required to be disclosed and entities should exercise judgement in deciding the appropriate way to satisfy these requirements. In this regard, paragraphs IG10 to IG11 of HKAS 1 provide two examples, one for an entity that is not a regulated financial institution and the other for an entity that is subject to externally imposed capital requirements (see footnote 263). These examples serve as a starting point for entities to consider what information to disclose to reflect their individual circumstances. 165 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#172HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.135 & 136 263 The group's adjusted net debt-to-capital ratio at 31 December 2023 and 2022 was as follows: Current liabilities: Bank loans and overdrafts Lease liabilities Note 2023 $'000 2022 $'000 (restated) 225 26 33,218 40,314 27 21,329 15,271 54,547 55,585 Non-current liabilities: Interest-bearing borrowings Lease liabilities Total debt Add: Proposed dividends Less: Cash and cash equivalents Redeemable preference shares Adjusted net debt 225 25 74,802 72,251 27 48,963 53,202 178,312 181,038 32(b) 225 59,700 (76,580) 49,500 (105,088) (3,912) (3,912) 157,520 121,538 Total equity 560,447 487,673 Add: Redeemable preference shares 25 3,912 3,912 Less: Hedging reserve 32(d) (1,897) (2,378) Proposed dividends 32(b) (59,700) (49,500) Adjusted capital 502,762 439,707 Adjusted net debt-to-capital ratio 31% 28% Neither the company nor any of its subsidiaries are subject to externally imposed capital requirements 263 When an entity is subject to externally imposed capital requirements (for example, a bank that is subject to the maintenance of a specified capital adequacy ratio imposed by the relevant banking regulator), paragraph 135 of HKAS 1 requires disclosure of the nature of those requirements and how those requirements are incorporated into the management of capital. If the entity has not complied with these requirements, the consequences of such non-compliance should also be disclosed. An entity may be subject to a number of different externally imposed capital requirements (for example, a conglomerate may include entities that undertake insurance activities and banking activities) and may manage capital in a number of ways. Where an aggregate disclosure of these capital requirements and how capital is managed would not provide useful information or would distort a financial statement user's understanding of the entity's capital resources, the entity should disclose separate information for each capital requirement to which the entity is subject. 166 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#173HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 33 FINANCIAL RISK MANAGEMENT 264 AND FAIR VALUES OF FINANCIAL INSTRUMENTS265 Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the group's business. The group is also exposed to equity price risk arising from its equity investments in other entities and movements in its own equity share price. HKFRS 7.1 264 HKFRS 7.7, 31, & B3 HKFRS 7.32A HKFRS 7.B6 HKFRS 13.91 HKFRS 7 sets out disclosure requirements relating to an entity's exposure to risks arising from financial instruments and is applicable to all entities that hold financial instruments. The objective of HKFRS 7 is to require entities to provide information that enables users of financial statements to evaluate: the significance of financial instruments for an entity's financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. In order to meet this objective HKFRS 7 sets out both qualitative and quantitative minimum disclosure requirements. However, HKFRS 7 does not prescribe either the format of the information required to be disclosed or its location within the financial statements and/or other reports. Instead, the standard states that it is necessary to strike a balance between overburdening financial statements with excessive detail that may not assist users and obscuring important information as a result of too much aggregation (see paragraph B3 of HKFRS 7). An entity should therefore decide, in light of its circumstances, how much detail it needs to provide to satisfy the requirements of the standard, including how much emphasis it places on different aspects of the requirements and how it aggregates information to display the overall picture without combining information with different characteristics. It should also be noted that HKFRS 7 introduces the concept of looking first to information provided internally to key management personnel (as defined in HKAS 24, Related party disclosures), for example the entity's board of directors or chief executive officer, as a source of quantitative data on the entity's exposure to financial risks. Basing disclosures on information used by key management personnel provides information about how management views and manages its risk, as well as about the risks themselves, which the IASB considered was useful information for users (as discussed in paragraph BC47 of HKFRS 7). The IASB also considered this approach has practical advantages for preparers because it allows them to use the data they use in managing risk. The requirements of HKFRS 7 in this regard are discussed further in footnote 267. In practice, the requirements of HKFRS 7 will be met by a combination of narrative descriptions and quantitative data, as appropriate to the nature of the instruments and their relative significance to the entity. This information may be either included in the various notes that refer to the specific financial instruments and/or included in a separate note. A mixed approach is illustrated here, as can be seen from the references to HKFRS 7 throughout the notes to the illustrative financial statements and the specific note 33 which provides the additional risk and fair value disclosures required by the standard. Paragraph 32A of HKFRS 7 emphasises the interaction between qualitative and quantitative disclosures by stating that providing qualitative disclosures in the context of quantitative disclosures enables users to link related disclosures and hence form an overall picture of the nature and extent of risks arising from financial instruments. Additionally, paragraph B6 of HKFRS 7 explicitly provides for the financial risk disclosures, as set out in paragraphs 31 to 42 of HKFRS 7, to be given either in the financial statements or incorporated by cross-reference from the financial statements to some other statement that is not part of the financial statements, such as a management commentary, provided it is available to users of financial statements on the same terms as the financial statements and at the same time. Including all disclosures required by HKFRS within the financial statements themselves helps users in differentiating between disclosures that are required by HKFRS and other information. However, if such information is presented outside the financial statements, then in our view it should be marked clearly as being part of the disclosures required by HKFRS and cross-referenced to the financial statements. An entity could identify such information as, for example, "information that is an integral part of the audited financial statements" or "disclosures that are required by HKFRS". 265 As mentioned in footnote 161, the disclosure objectives of HKFRS 13 are: • to provide information that enables users of financial statements to assess the methods and inputs used to develop those measurements, and • to assess the effect on profit or loss or other comprehensive income of recurring fair value measurements that are based on significant unobservable inputs. As indicated in these disclosure objectives, HKFRS 13 disclosures aim at helping users understand how the entity determines the fair values of assets and liabilities (both financial and non-financial) recognised in the statement of financial position; and how its financial performance is impacted by the measurement uncertainty and subjectivity involved in determining the fair values as a result of using significant unobservable inputs in the valuations. On the other hand, HKFRS 7's disclosure objectives, as introduced in footnote 264 above, focus on helping users understand the entity's risk exposure associated with financial instruments and how the entity manages the risk. 167 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#174HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 The group's exposure to these risks and the financial risk management policies and practices used by the group to manage these risks are described below. 266 HKFRS 7.31-35 (a) Credit risk 266, 267, 268 HKFRS 7.31 & 33 HKFRS 7.32-33 Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the group. The group's credit risk is primarily attributable to trade receivables and contract assets. The group's exposure to credit risk arising from cash and cash equivalents, bills receivable and derivative financial assets is limited because the counterparties are banks and financial institutions with a minimum credit rating of [●] assigned by [rating agency X], which the group considers to represent low credit risk. The group's exposure to credit risk arising from refundable rental deposits is considered to be low, taking into account (i) the landlords' credit rating and (ii) the remaining lease term and the period covered by the rental deposits. 266 HKFRS 7 requires disclosure of qualitative information concerning risks arising from financial instruments and how the entity manages the risks. In particular, HKFRS 7 requires the following to be disclosed for each type of risk arising from financial instruments: . the exposures to risk and how they arise; . • the entity's objectives, policies and processes for managing the risk and the methods used to measure the risk; and any changes in either of the above from the previous period. HKFRS 7.34-42 & B6- B28 HKFRS 7.35B-35D 267 268 Risks that typically arise from financial instruments are identified in paragraph 32 of HKFRS 7 as including, but not being limited to, credit risk, liquidity risk and market risk (which in turn comprises currency risk, interest rate risk and other price risk). Paragraphs IG15 tolG16 of HKFRS 7 list examples of information that an entity might consider disclosing in this regard. Paragraph 34 of HKFRS 7 requires disclosure of summary quantitative data about an entity's exposure to each type of risk arising from financial instruments at the end of the reporting period. This disclosure should be given based on the information provided internally to key management personnel of the entity, for example, the board of directors or chief executive officer, and is therefore expected to vary from one entity to another. It should, however, be noted that certain minimum disclosures (as set out in paragraphs 35A to 42 of HKFRS 7) are also required to the extent that they are not covered by the disclosures made under the above management approach, and if the risk concerned is material. These include sensitivity analyses, as required by paragraph 40, as discussed further in footnote 278. In addition, concentrations of risk that arise from financial instruments having similar characteristics (for example, counterparty, geographical area, currency or market) are also required to be disclosed if such concentrations are not apparent from the above information. If the above quantitative disclosures of exposures at the end of the reporting period are unrepresentative of an entity's exposure to risk during the period, the entity should provide additional information that is representative. For example, paragraph IG20 of HKFRS 7 indicates that if the entity typically has a large exposure to a particular currency, but at year-end unwinds the position, the entity might disclose the highest, lowest and average amount of risk to which it was exposed during the year. HKFRS 7 as amended by HKFRS 9 requires more granular credit risk disclosures. Specifically, HKFRS 7 requires an entity to disclose: • • • information about the entity's credit risk management practices and how they relate to the recognition and measurement of ECL (paragraphs 35F and 35G); quantitative and qualitative information that allows users of financial statements to evaluate the amount in the financial statements arising from ECL (paragraphs 35H to 35L); and information about the entity's exposure to credit risk, including significant concentrations of credit risk (paragraphs 35M and 35N). Entities do not need to duplicate information that is already presented elsewhere, provided that the information is incorporated by cross-reference from the financial statements to other statements where the information is disclosed, and those statements are available to the financial statement users on the same terms as the financial statements and at the same time. Entities should consider the level of detail that is necessary to meet the disclosure objectives. 168 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#175HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.35K(a) & 36(a) HKFRS 7.33(a), (b), 35B(a) & 35B(c) HKFRS 7.35B(a) & 35F(c) Except for the financial guarantee given by the group as set out in note 23(a), the group does not provide any other guarantees which would expose the group to credit risk. The maximum exposure to credit risk in respect of this financial guarantee at the end of the reporting period is disclosed in note 23(a).269 Trade receivables and contract assets The group has established a credit risk management policy under which individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer's past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within [•] days from the date of billing. Debtors with balances that are more than [●] months past due are requested to settle all outstanding balances before any further credit is granted. Normally, the group does not obtain collateral from customers. The group has no significant concentration of credit risk in industries or countries in which the customers operate. Significant concentrations of credit risk primarily arise when the group has significant exposure to individual customers. At the end of the reporting period, []% (2022: [●]%), | 1% (2022: []%) and [●] % (2022: []%) of the total trade receivables and contract assets was due from the group's largest customer, the second largest customer and the five largest customers respectively within the electronics business segment. The group measures loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs, which is calculated using a provision matrix. The group segments its trade receivables and contract assets based on geographic regions, due to different loss patterns experienced in the different regions 270 HKFRS 7.36(a) 269 Paragraph 36(a) of HKFRS 7 requires disclosure of the amount, by class of financial instrument, that best represents the entity's maximum exposure to credit risk at the end of the reporting period without taking account of any collateral held or other credit enhancements. This disclosure is only required for financial instruments whose carrying amount does not best represent the maximum exposure to credit risk, for example financial guarantees and loan commitments. HKFRS 9.B5.5.5 270 If the historical credit loss experience shows significantly different loss patterns for different customer segments, the trade receivables and contract assets should be further segmented based on shared credit risk characteristics. These segments could be based on geographic region, product type, customer rating, type of customers (e.g. retail or wholesale) etc. In this illustration, HK Listco segments the trade receivables and contract assets based on geographic regions. 169 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#176HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.35G(a)(i), 35M(iii), 35N & B81 The following table provides information about the group's exposure to credit risk and ECLs for trade receivables and contract assets: 2. 271 HKFRS 7.35M, 35N & B81 2023 Expected loss rate Gross carrying amount Loss allowance % $'000 $'000 Hong Kong Current (not past due) 0.5% 36,509 (183) 1-30 days past due 2.7% 9,990 (270) 31-60 days past due 5.1% 7,666 (391) 61-90 days past due 20.8% 2,012 (418) More than 90 days past due 43.7% 2,248 (982) 58,425 (2,244) South East Asia Current (not past due) 0.4% 6,636 (26) 1-30 days past due 1.8% 1,404 (25) 31-60 days past due 3.1% 801 (25) 61-90 days past due 14.6% 287 (42) More than 90 days past due 30.8% 253 (78) 9,381 (196) Rest of the world Current (not past due) 0.7% 7,691 (54) 1-30 days past due 1.5% 2,161 (32) 31-60 days past due 7.6% 3,003 (228) 61-90 days past due 17.6% 1,588 (279) More than 90 days past due 53.8% 1,500 (807) 15,943 (1,400) 271 Paragraph 35M of HKFRS 7 requires the disclosure about an entity's credit risk exposure to be by credit risk rating grades. Credit risk rating grades are defined in the Appendix A to HKFRS 7 as the rating of credit risk based on the risk of a default occurring on the financial instrument. Credit risk rating grades used for disclosure should be consistent with those the entity reports to key management personnel for credit risk management purposes. For example, an entity may manage and report to key management personnel about information on its listed debt securities by external credit ratings provided by rating agencies. In that case, the entity would disclose its credit risk exposure to those listed debt securities based on the external credit ratings. Alternatively, an entity may have developed an internal credit rating system whereby each of its financial asset is assigned a rating representing the risk of default, in which case the disclosure of credit risk exposure would be based on the internal credit ratings developed. However, if delinquency and past due information is the only borrower-specific information available without undue cost or effort and this information is used to assess whether credit risk has significantly increased since initial recognition, then in such cases, an entity should provide the analysis by "past due" status rather than by credit risk rating grades. Paragraph 35N of HKFRS 7 provides an exception to the general disclosure requirements in paragraph 35M for trade receivables, contract assets and lease receivables to which the simplified approach applies (i.e. the loss allowance is always measured at an amount equal to lifetime ELCs). Paragraph 35N allows an entity to disclose its credit risk exposure to those assets based on a provision matrix. We have illustrated here an example of disclosure based on a provision matrix. Other presentations may be appropriate. 170 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#177HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 2022 Expected loss rate Gross carrying amount Loss allowance % $'000 $'000 Hong Kong Current (not past due) 1-30 days past due 0.5% 29,705 (149) 2.8% 4,916 (138) 31-60 days past due 5.0% 5,030 (252) 61-90 days past due 26.9% 1,373 (369) More than 90 days past due 47.3% 1,451 (687) 42,475 (1,595) South East Asia Current (not past due) 0.6% 19,814 (119) 1-30 days past due 2.5% 1,407 (35) 31-60 days past due 4.6% 824 (38) 61-90 days past due 14.9% 301 (45) More than 90 days past due 32.8% 269 (88) 22,615 (325) Rest of the world Current (not past due) 1-30 days past due 31-60 days past due 61-90 days past due More than 90 days past due 0.5% 7,866 (39) 3.1% 2,319 (72) 8.3% 3,271 (271) 23.6% 1,994 (471) 54.2% 1,873 (1,015) 17,323 (1,868) O] months. These rates are Expected loss rates are based on actual loss experience over the past adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the group's view of economic conditions over the expected lives of the receivables. 171 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#178HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.35B(b) & 35H Movement in the loss allowance account in respect of trade receivables and contract assets during the year is as follows: Balance at 1 January 2022 South East Rest of the Hong Kong $'000 Asia world Total $'000 $'000 $'000 1,378 280 2,060 3,718 Amounts written off (713) (107) (830) (1,650) HKFRS 15.113(b) Impairment losses recognised Impairment losses reversed 1,595 325 1,868 3,788 (665) (173) (1,230) (2,068) Balance at 31 December 2022 1,595 325 1,868 3,788 Balance at 1 January 2023 Amounts written off HKFRS 15.113(b) Impairment losses recognised Impairment losses reversed HKFRS 7.351 & B8D HKFRS 7.35K Balance at 31 December 2023 1,595 325 1,868 3,788 (871) (399) (978) (2,248) 2,244 382 1,400 4,026 (724) (112) (890) (1,726) 2,244 196 1,400 3,840 The following significant changes in the gross carrying amounts of trade receivables and contract assets contributed to the increase in the loss allowance: origination of new trade receivables net of those settled resulted in an increase in loss allowance of $[•] (2022: $[•]); increase in days past due over 30 days resulted in an increase in loss allowance of $[•] (2022: $[•]); and a write-off of trade receivables with a gross carrying amount of $[•] (2022: $[•]) resulted in a decrease in loss allowance of $2,248,000 (2022: $1,650,000). Credit risk arising from loans to associates The loans to associates are fully secured by properties held by the associates. The maximum exposure to credit risk in respect of the loans at the end of the reporting period, without taking into account the collateral, and the key terms of the loans are disclosed in note 17. The group considers that the credit risk arising from the loans is significantly mitigated by the properties held as collateral, with reference to the estimated market value of the properties at 31 December 2023 which gave rise to a headroom of $[•] over the gross carrying amount of the loans (2022: a headroom of $[•]). 172 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#179HKAS 1.51(a) HKAS 1.49 HKFRS 7.31-35 HKFRS 7.39(c) HK Listco Ltd Financial statements for the year ended 31 December 2023 (b) Liquidity risk 266, 267, 272 Individual operating entities within the group are responsible for their own cash management, including the short term investment of cash surpluses, participation in supplier finance arrangements with banks and the raising of loans to cover expected cash demands, subject to approval by the parent company's board when the borrowings exceed certain predetermined levels of authority. The group's policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.274 HKFRS 7.39 & B10A-11F 272 In respect of minimum quantitative disclosures concerning liquidity risk, paragraph 39 of HKFRS 7 requires disclosure of a maturity analysis for financial liabilities and a description of how an entity manages the liquidity risk inherent in the analysis. This maturity analysis should show the remaining contractual maturities for non-derivative liabilities and for those derivative liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows. For other derivatives, it appears that in accordance with paragraph 34(a), the maturity analysis should be based on the information provided internally to key management personnel, even if this is based on expected cash flows and their expected timing. Similar to other disclosure requirements under HKFRS 7, the standard does not specify the format of the information required, for example, the number of time bands to be used in the maturity analysis (although suggested time bands are set out in paragraph B11 of HKFRS 7). Entities should use their judgement to determine what is appropriate in view of their circumstances and with due regard to the information provided internally to key management personnel. Paragraphs B11A to 11F of HKFRS 7 contain further specific requirements concerning how any maturity analysis of contractual cash flows should be presented. In particular: It is clear from paragraph B11D that any contractual cash flows to be disclosed in the analysis should be the gross (i.e. undiscounted) cash flows. These contractual amounts will be different from the amounts recognised in the statement of financial position if the amounts are not due within the short term or payable on demand, as the contractual cash flows will include interest charges, if any, which are payable over the period until the principal is contractually repayable as well as the gross amounts of any principal repayments. Paragraph B11C(a) further states that when a counterparty can ask for payment at different dates, the liability should be included on the basis of the earliest date on which the entity can contractually be required to pay. This means that the disclosure shows a "worst case scenario" for the possible timing of these gross outflows. It is clear from paragraph B11A that embedded derivatives (such as conversion options) should not be separated from hybrid financial instruments when disclosing contractual maturities. Instead the contractual cash flows for the instrument as a whole should be disclosed. Where a variable amount is contractually payable, paragraph B11D requires that the amount disclosed in the maturity analysis should be determined by reference to the conditions existing at the end of the reporting period. For example, when interest charges are contractually determined by reference to a floating rate of interest, the amount disclosed in the maturity analysis would be based on the level of the index at the end of the reporting period. Where the entity has issued a financial guarantee, paragraph B11C(c) states that the maximum amount that could be payable under the guarantee should be allocated to the earliest period in which the guarantee could be called. This disclosure is not dependent on whether it is probable that the entity will be required to make payments under the contract. However, HKFRS 7 does not include any specific guidance which deals with the question of how to analyse gross cash flows arising under perpetual debt. In this regard, whilst the principal amount of the debt does not give rise to liquidity risk for the entity (as the timing of repayment is neither contractually fixed nor under the control of the holder), any contractual periodic payments of interest would generally give rise to liquidity risk and should be included in the maturity analysis in the discrete time bands of, for example, "within one year" and "more than one year but less than two years" and so on. However, as there is, by definition, no fixed end date to the stream of periodic interest payments on perpetual debt, the gross cash flows to be included in the final non-discrete time band (being here defined as "more than five years") generally cannot be properly determined. To deal with this issue where the effect is material, in our view, the entity should include a footnote disclosure which highlights the existence of these gross payments to perpetuity and explains the extent to which they have been dealt with in the analysis. 173 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#180HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 7.39(a) & (b) Financial statements for the year ended 31 December 2023 The following tables show the remaining contractual maturities at the end of the reporting period of the group's non-derivative financial liabilities and derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the group can be required to pay: 272,273 2022 Contractual undiscounted cash outflow 2023 Contractual undiscounted cash outflow More than More than More than More than Within 1 year 1 year but 2 years but or on demand less than less than More than $'000 2 years $'000 5 years 5 years Total $'000 $'000 $'000 Carrying amount at 31 Dec $'000 1 year but 2 years but Carrying Within 1 year less than less than More than or on demand 2 years 5 years 5 years Total amount at 31 Dec $'000 $'000 $'000 $'000 $'000 $'000 Sustainability-linked bond. 400 400 1,200 5,400 7,400 5,000 400 400 1,200 5,800 7,800 5,000 Convertible notes 550 10,550 11,100 9,542 550 550 10,550 11,650 9,356 Redeemable preference shares and dividends payable 200 Bank loans 34,878 200 5,964 4,400 4,800 4,012 200 200 4,600 5,000 4,012 55,087 7,365 103,294 82,635 43,483 3,715 56,718 9,967 113,883 87,602 HKFRS 16.58 Lease liabilities 22,010 23,105 29,360 6,205 80,680 70,292 15,766 16,880 42,674 6,414 81,734 68,473 Loans from fellow subsidiaries 251 242 3,145 3,638 2,665 106 136 150 1,161 1,553 906 Loans from non-controlling shareholders of a subsidiary. 338 360 3,480 Bills payable, creditors and accrued charges Amounts due to ultimate holding company 151,413 4,178 151,413 3,000 338 360 3,880 4,578 3,000 151,413 134,507 134,507 134,507 2,000 2,000 2,000 1,800 1,800 1,800 Bank overdrafts Amounts due to fellow subsidiaries Interest rate swaps (net settled) 3,650 3,650 3,650 3,780 3,780 3,780 1,266 1,266 1,266 2,789 2,789 2,789 23 29 116 168 128 9 15 51 75 52 216,979 40,850 96,788 18,970 373,587 335,603 203,728 22,256 119,823 23,342 369,149 321,277 Financial guarantee issued: Maximum amount guaranteed (note 23(a)) 200 HKFRS 7.B10A 273 HKFRS 7.B11E-11F 200 6 500 500 8 274 Where quantitative data about exposure to liquidity risk is based on information provided internally to key management personnel (i.e. in accordance with paragraph 34(a) of HKFRS 7) rather than contractual maturities, paragraph B10A requires an entity to explain how the liquidity risk data are determined. In addition, if the outflows of cash (or another financial asset) included in this liquidity risk data could either: • occur significantly earlier than indicated in the data (for example if repayable on demand); or be for significantly different amounts from those indicated in the data (for example, if a counter-party could demand gross settlement for a derivative that is included in the data on a net settlement basis) then the entity should state that fact and provide quantitative information that enables users of its financial statements to evaluate the extent of this risk (unless the information has already been provided in the contractual maturity analysis required by paragraph 39 of HKFRS 7). Paragraph 39(c) of HKFRS 7 requires an entity to describe how it manages the liquidity risk inherent in the items disclosed in the quantitative liquidity risk disclosures. In this regard, paragraph B11E requires an entity to disclose a maturity analysis of the financial assets it holds for managing the liquidity risk, if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. Paragraph B11F lists out other factors that an entity might consider including in this disclosure. 174 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#181HKAS 1.51(a) HKAS 1.49 Derivatives settled gross: Forward foreign exchange contracts held as cash flow hedging instruments (note 33(d)(i)): - outflow Within 1 year or on demand $'000 2023 Contractual undiscounted cash inflow/(outflow) More than 1 year but less than 2 years $'000 More than 2 years but G less than 5 years $'000 More than 5 years $'000 - inflow (158,040) 157,176 Other forward foreign exchange contracts (note 33(d)(ii)): outflow inflow (15,384) 15,129 HK Listco Ltd Financial statements for the year ended 31 December 2023 2022 Contractual undiscounted cash inflow/(outflow) More than More than 1 year but Within 1 year Total $'000 or on demand $'000 $'000 less than 2 years 5 years $'000 2 years but less than More than 5 years $'000 Total $'000 (158,040) 157,176 (142,260) 143,315 (15,384) 15,129 (3,618) 3,589 (142,260) 143,315 (3,618) 3,589 HKFRS 7.39(c) As shown in the above analysis, bank loans amounting to $34,878,000 were due to be repaid during 2024. The short-term liquidity risk inherent in this contractual maturity date has been addressed after the end of the reporting period by re-financing $10,000,000 of the loan, as disclosed in note 38(c). 175 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#182HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 7.31-35 Financial statements for the year ended 31 December 2023 & 40-42 (c) Interest rate risk 266, 267 HKFRS 7.22A (i) HKFRS7.22B(a) & 24A HKFRS 7.23A & 23B HKFRS 7.22B & 23D HKFRS 7.21A, 21B & 21D Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The group's interest rate risk arises primarily from long-term borrowings. Borrowings issued at variable rates and fixed rates expose the group to cash flow interest rate risk and fair value interest rate risk respectively. The group has a policy of ensuring that between [•] % and [•] % of its borrowings are effectively on a fixed rate basis, either through the contractual terms of the interest-bearing financial liabilities or through the use of interest rate swaps. The group's interest rate risk profile as monitored by management is set out in (ii) below. Hedges of interest rate risk 275 Interest rate swaps, denominated in Hong Kong dollars, have been entered into to achieve an appropriate mix of fixed and floating rate exposure consistent with the group's policy. The following table provides information on the interest rate swaps which have been designated as cash flow hedges of the interest rate risk inherent in the group's variable rate bank borrowings at the end of the reporting period: Notional amount Carrying amount (note) -Asset - Liability Note: 2023 2022 $'000 $'000 40,000 40,000 1,664 (128) 1,489 (52) Interest rate swap assets and liabilities are included in the "Derivative financial instruments" (note 18). The swaps mature over the next [•] years matching the maturity of the related loans (see note 33(b)) and have fixed swap rates ranging from [•] % to [•]% (2022: []% to [•] %). The group seeks to hedge the benchmark interest rate component only and applies a hedge ratio of 1:1. The existence of an economic relationship between the interest rate swaps and the variable rate borrowings is determined by matching their critical contract terms, including the reference interest rates, tenors, interest repricing dates, maturity dates, interest payment and/or receipt dates, the notional amounts of the swaps and the outstanding principal amounts of the loans. The main source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the group's own credit risk on the fair value of the swaps which is not reflected in the fair value of the hedged cash flows attributable to the change in interest rates. 275 HKFRS 7 includes additional information to be disclosed when hedge accounting is applied. The disclosure requirements apply irrespective of whether HKAS 39 or HKFRS 9 hedge accounting is used (at the initial application of HKFRS 9, an entity had a choice to continue to apply the hedge accounting requirements under HKAS 39). The objective of the hedge accounting disclosures is that entities shall disclose information about: • the risk management strategy and how it is applied to manage risks (paragraphs 22A to 22C); • how risk management activities may affect the amount, timing and uncertainty of future cash flows (paragraphs 23A to 23F); and . the effect of hedge accounting has had on the statement of financial position, the statement of comprehensive income and the statement of changes in equity (paragraphs 24A to 24G). Entities do not need to duplicate information that is already presented elsewhere, provided that the information is incorporated by cross-reference from the financial statements to other statements where the information is disclosed, and those statements are available to the financial statement users on the same terms as the financial statements and at the same time. In applying this objective, entities need to consider the necessary level of detail, the balance between different disclosure requirements, the appropriate level of disaggregation and whether additional explanations are necessary to meet the objective. 176 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#183HKAS 1.51(a) HKAS 1.49 HKFRS 7.24B(b)(i), (ii) 24C(b), 24E & 24F HK Listco Ltd Financial statements for the year ended 31 December 2023 The following table provides a reconciliation of the hedging reserve in respect of interest rate risk and shows the effectiveness of the hedging relationships: 2023 2022 $'000 $'000 Balance at 1 January 951 858 Effective portion of the cash flow hedge recognised in other comprehensive income 196 159 Amounts reclassified to profit or loss (note (i)) (98) (80) Related tax (17) 14 Balance at 31 December (note (ii)) 1,032 951 Change in fair value of the interest rate swaps during the year Hedge ineffectiveness recognised in profit or loss (note (iii)) 197 160 (1) (1) Effective portion of the cash flow hedge recognised in other comprehensive income 196 159 Notes: (i) Amounts reclassified to profit or loss are recognised in the "Finance costs" line item in the consolidated statement of profit or loss (see note 5(a)). (ii) The entire balance in the hedging reserve relates to continuing hedges 276. (iii) Hedge ineffectiveness is recognised in the "Other income" line item in the consolidated statement of profit or loss (see note 4). HKFRS 7.24B(b)(iii) 276 Paragraph 6.5.12 of HKFRS 9 provides that when an entity discontinues hedge accounting for a cash flow hedge, but the hedged future cash flows are still expected to occur, the amount that has been accumulated in the hedging reserve remains in the reserve until the future cash flows occur. Paragraph 24B(b)(iii) of HKFRS 7 requires an entity to disclose balances remaining in the cash flow hedge reserve from any hedging relationships for which hedge accounting is no longer applied. 177 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#184HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (ii) Interest rate risk profile 277 HKFRS 7.34 & 35 The following table, as reported to the management of the group, details the interest rate risk profile of the group's borrowings at the end of the reporting period: Fixed rate borrowings: Lease liabilities Bank loans Unsecured debentures Interest rate swap Notional amount 2023 2022 $'000 $'000 70,292 68,473 40,986 46,432 5,000 5,000 116,278 119,905 40,000 156,278 40,000 159,905 Variable rate borrowings: Bank overdrafts 1,266 2,789 Bank loans 43,054 43,483 Loans from fellow subsidiaries 2,665 906 Loans from non-controlling shareholders of a subsidiary 3,000 3,000 49,985 50,178 Interest rate swap Net exposure HKFRS 7.40 (iii) Sensitivity analysis 278 HKFRS 7.40(a) HKFRS 7.40(b) HKFRS 7.40(c) HKFRS 7.34 & 35 (40,000) 9,985 (40,000) 10,178 At 31 December 2023, it is estimated that a general increase/decrease of [•] basis points in interest rates, with all other variables held constant, would have decreased/increased the group's profit after tax and retained profits by approximately $[•] (2022: $[•]). Other components of consolidated equity would have increased/decreased by approximately $[•] (2022: $[•]) in response to the general increase/decrease in interest rates. The sensitivity analysis above indicates the instantaneous change in the group's profit after tax (and retained profits) and other components of consolidated equity that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re- measure those financial instruments held by the group which expose the group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the group at the end of the reporting period, the impact on the group's profit after tax (and retained profits) and other components of consolidated equity is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis as 2022. 277 As explained above in footnote 267, HKFRS 7 takes primarily a management approach to the disclosure of quantitative risk information. Therefore, the extent and format of disclosure may vary from one entity to the next, depending on what information is used internally by key management personnel to monitor interest rate risk. 178 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#185HKAS 1.51(a) HKAS 1.49 HKFRS 7.31-35 & 40-42 (d) HKFRS 7.31 & 33 HKFRS 7.40-42 & B17-28 HKFRS 7.41 HKFRS 7.42 HK Listco Ltd Financial statements for the year ended 31 December 2023 Currency risk 266, 267 The group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily Euros, United States dollars, Japanese Yen and Australian dollars. The group manages this risk as follows: 278 Paragraph 40 of HKFRS 7 requires a forward-looking sensitivity analysis to be disclosed for each type of market risk (which includes interest rate risk, currency risk and other price risk) to which an entity is exposed at the end of the reporting period, showing how profit or loss and equity would have been affected by changes in the relevant risk variable (for example, prevailing market interest rates, currency rates, equity prices or commodity prices) that were "reasonably possible" at that date. In addition, the entity is required to disclose the methods and assumptions used in preparing the sensitivity analysis and any changes from the previous period in these methods and assumptions used, and the reasons for such changes. This requirement applies unless an entity prepares a sensitivity analysis, such as value-at-risk, that reflects interdependencies between risk variables and uses it to manage financial risk. If this is the case then the entity may choose instead to disclose that analysis instead of the sensitivity analysis described in paragraph 40 of HKFRS 7. HKFRS 7 does not prescribe a format in which a sensitivity analysis should be presented, although paragraph B17 of HKFRS 7 notes that exposures to risks from significantly different economic environments should not be combined. Further guidance in this respect can be found in paragraph B17 of HKFRS 7 and paragraph IG36 of HKFRS 7 contains an illustrative example of a narrative approach to the requirement. Entities should consider their individual circumstances in determining how they should prepare and present the information and care should be taken to ensure that clear descriptions of the methods and assumptions used to arrive at the amounts disclosed are provided. In addition, the following points should be noted when preparing the sensitivity analysis: • • Paragraph B19(b) of HKFRS 7 limits the assessment of what a future "reasonably possible change" in the relevant risk variable might be, to be an assessment of what changes are thought to be reasonably possible in the period until the entity next presents these disclosures. Paragraph B19(b) of HKFRS 7 notes that this is usually the next annual reporting period. According to paragraph B19(a) of HKFRS 7, a "reasonably possible change" should not include "worst case" scenarios or "stress tests". Instead, the economic environments in which the entity operates should be considered to identify an appropriate measure. In this respect it should be noted that paragraph B18 of HKFRS 7 indicates that the disclosure would consider changes at the limits of a reasonably possible range (i.e. rather than an arbitrary amount, for example, "1 percentage point change" in all variables). This particularly needs to be remembered where the impact of a greater or smaller change than the change used in the sensitivity analysis would not be directly proportional, for example where an entity has entered into interest rate caps or collars. When computing how profit or loss and equity would have been affected by changes in the relevant risk variable, it should be assumed that the "reasonably possible change" in the risk variable had occurred at the end of the reporting period and had been applied to the risk exposures in existence at that date. Further guidance on this is given in paragraphs B18 and IG34 to IG36 of HKFRS 7. In particular, entities are not required to determine what profit or loss for the past period would have been if relevant risk variables had been different. Instead, sensitivity analyses should be prepared based on financial instruments that are recognised at the end of the reporting period even where those exposures did not exist for the entire period, or where the exposures are expected to change significantly during the next period. Some financial instruments, although subject to market risk, are not re-measured in the financial statements in response to changes in market risk variables and therefore these changes in market risk variables would not affect profit or loss or equity in such cases. An example is a fixed rate debt instrument denominated in an entity's functional currency and measured at amortised cost. Such instruments would therefore be excluded from the sensitivity analysis calculation. If an entity considers that the sensitivity analyses required to be disclosed by HKFRS 7 are unrepresentative of a risk inherent in a financial instrument (for example because the year-end exposure does not reflect the exposure during the year), the entity should disclose that fact and the reason it believes the analyses are unrepresentative. Further guidance in this respect can be found in paragraphs IG37 to IG40 of HKFRS 7. 179 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#186HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.22A HKFRS 7.22B (i) Hedges of foreign currency risk in forecast transactions 275 At any point in time the group hedges up to [•]% of its estimated foreign currency exposure in respect of highly probable forecast sales and purchases, excluding those transactions denominated in United States dollars which are expected to be entered into by operations with a functional currency of Hong Kong dollars. Such transactions are currently not hedged under the group's foreign currency risk management strategy as the group currently considers the risk of movements in exchange rates between the Hong Kong dollar and the United States dollar to be insignificant. The group uses forward exchange contracts to manage its currency risk until the settlement date of foreign currency receivables or payables. The group designates those forward exchange contracts as hedging instruments in cash flow hedges and does not separate the forward and spot element of a forward exchange contract but instead designates the forward exchange contract in its entirety279 in a hedging relationship. Correspondingly, the hedged item is measured based on the forward exchange rate. The group applies a hedge ratio of 1:1 and determines the existence of an economic relationship between the forward exchange contracts and the highly probable forecast transactions based on their currency amounts and the timing of their respective cash flows. The main sources of ineffectiveness in these hedging relationships are: (i) the effect of the counterparty's and the group's own credit risk on the fair value of the forward exchange contracts which is not reflected in the change in the value of the hedged cash flows attributable to the forward rate; and HKFRS 7.23A & 23B HKFRS 9.6.2.4(b) 279 (ii) changes in the timing of the hedged transactions. The following table details the forward exchange contracts that have been designated as cash flow hedges of the group's highly probable forecast transactions at the end of the reporting period: 2023 2022 Foreign currency Hong Kong '000 dollar $'000 Foreign currency Hong Kong dollar '000 $'000 Notional amount - Buy [foreign currency X] [●] [♥] [●] Carrying amount (note) -Asset - Liability Note: 2023 2022 $'000 $'000 804 1,465 (40) (20) Forward exchange contract assets and liabilities are included in the "Derivative financial instruments" (note 18). The forward exchange contracts have a maturity of less than one year from the reporting date and have an average exchange rate of [●] between [foreign currency X) and Hong Kong dollar (2022: [●]). Entities may also choose to separate the spot and forward element of a forward contract and designate only the change in the value of the spot element as the hedging instrument. 180 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#187HKAS 1.51(a) HKAS 1.49 HKFRS 7.24B(b)(i), (ii) 24C(b), 24E & 24F HK Listco Ltd Financial statements for the year ended 31 December 2023 The following table provides a reconciliation of the hedging reserve in respect of foreign currency risk and shows the effectiveness of the hedging relationships: 2023 2022 $'000 $'000 Balance at 1 January 1,427 1,965 Effective portion of the cash flow hedge recognised in other comprehensive income (145) (119) Amounts reclassified to profit or loss (note (i)) (300) (280) Amounts transferred to the initial carrying amount of the hedged items (note (ii)) (236) (220) Related tax 119 81 Balance at 31 December (note (iii)) 865 1,427 Change in fair value of the forward exchange contracts during the year (145) (119) Hedge ineffectiveness recognised in profit or loss Effective portion of the cash flow hedge recognised in other comprehensive income (145) (119) Notes: HKFRS 7.31 & 33 HKFRS 7.22A & 22B (i) Amounts reclassified to profit or loss are recognised in the "Cost of sales" line item in the consolidated statement of profit or loss (see note 5(c)). (ii) Amounts removed from the hedging reserve are recognised in the "Inventory" line item in the consolidated statement of financial position and will be recognised in profit or loss when the inventory is sold (see note 5(c)). (iii) The entire balance in the hedging reserve relates to continuing hedges276 (ii) Recognised assets and liabilities Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss (see note 5(c)). The net fair value of forward exchange contracts used by the group as economic hedges of monetary assets and liabilities denominated in foreign currencies at 31 December 2023 was $253,000 (2022: $659,000), recognised as derivative financial instruments. In respect of other trade receivables and payables denominated in foreign currencies, the group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. Except for the borrowings designated to hedge a net investment in a subsidiary (as described below), all of the group's borrowings are denominated in the functional currency of the entity taking out the loan or, in the case of group entities whose functional currency is Hong Kong dollars, in either Hong Kong dollars or United States dollars. Given this, management does not expect that there will be any significant currency risk associated with the group's borrowings. (iii) Hedge of net investment in a foreign subsidiary275 A foreign currency exposure arises from the group's net investment in its Singaporean subsidiary (see note 14) that has Singapore dollar as its functional currency. The risk arises from the fluctuation in spot exchange rates between the Singapore dollar and the Hong Kong dollar, which causes the carrying amount of the net investment to vary. The company's Singapore dollar denominated secured bank loan is designated as a hedging instrument for the changes in the value of the net investment that is attributable to changes in the HKD/SGD spot rate. It is the group's policy to hedge the net assets of the Singaporean subsidiary up to an amount of SGD [•]. This policy is reviewed every [•] years in light of the subsidiary's performance and dividend policy. 181 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#188HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.34 & 35 The carrying amount of the loan at 31 December 2023 was $13,950,000 (2022: $14,400,000). A foreign exchange gain of $494,000 (2022: loss of $219,000) was recognised in the group's other comprehensive income for the period on translation of the loan to Hong Kong dollars. (iv) Exposure to currency risk 280 The following table details the group's exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in Hong Kong dollars, translated using the spot rate at the year end date. Differences resulting from the translation of the financial statements of foreign operations into the group's presentation currency and the exposure arising from the secured bank loan that is designated as a hedge of the group's net investment in its subsidiary in Singapore (see (iii) above) are excluded. Exposure to foreign currencies (expressed in Hong Kong dollars) HKFRS 7.34 & 35 280 HKFRS 7.B23 HKAS 21.45 281 2023 2022 United States Australian United States Australian Dollars Euros $'000 $'000 Japanese Yen $'000 Dollars Dollars $'000 $'000 Euros $'000 Japanese Yen Dollars $'000 $'000 Trade and other receivables Intercompany receivables 281 11,144 6,831 8,648 3,762 1,935 1,143 Cash and cash equivalents Trade and other payables 15,628 (27,741) 13,440 (10,540) 21,436 (20,362) 10,675 (15,250) Gross exposure arising from recognised assets and liabilities 13,079 6,831 (12,113) 2,900 9,791 3,762 1,074 (4,575) Notional amounts of forward exchange contracts used as economic hedges Net exposure arising from recognised assets and liabilities (5,500) 10,714 (4,400) 13,079 1,331 (1,399) 2,900 9,791 (638) 1,074 (4,575) Other than the requirements for sensitivity analyses for market risk (see footnote 278), HKFRS 7 does not specify the minimum information required to be disclosed in respect of an entity's exposure to currency risk. The currency risk table illustrated above provides an example of summary quantitative data about the exposure to that risk at the end of the reporting period that an entity may provide internally to key management personnel. In this connection, it should be noted that for the purposes of HKFRS 7 currency risk arises on financial instruments that are denominated in a foreign currency (i.e. are denominated in a currency other than the functional currency in which they are measured). However, currency risk does not arise from non-monetary items or from financial instruments denominated in the functional currency of the entity to which they relate. For the purposes of disclosure under HKFRS 7, currency risk for the group arises if, for example, a subsidiary with a functional currency RMB lends in US dollars, even if the group presentation currency is also US dollars. Currency risk does not arise if that same subsidiary lends instead in RMB. This applies whether or not the counterparty to the borrowing is a third party or another entity within the group. This is because, although intra-group balances are eliminated on consolidation, any related foreign exchange gains or losses will not be eliminated. It follows that the information about exposure to currency risk at each group company level needs to be collated when different companies within the group have different functional currencies. Each group company needs to assess its own exposure to currencies other than its own functional currency, with the group's exposure to currency risk disclosed under HKFRS 7 being an aggregation of this information. 182 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#189HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.40 & B24 HKFRS 7.40(a) (v) Sensitivity analysis 278, 280 The following table indicates the instantaneous change in the group's profit after tax (and retained profits) and other components of consolidated equity that would arise if foreign exchange rates to which the group has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies. HKFRS 7.40(b) HKFRS 7.40(c) 2023 2022 Increase / (decrease) in Effect Effect foreign exchange rates on profit after tax and retained profits $'000 on other components of Increase / (decrease) in foreign exchange Effect Effect equity rates $'000 on profit after tax and retained profits $'000 on other components of equity $'000 United States Dollars 1% ([❤])% Euros 1% ([●])% Japanese Yen ]% ([❤])% Australian Dollars 1% ([●])% 1% ([●])% 1% ([❤])% 1% ([❤])% 1% ([●])% Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the group entities' profit after tax and equity measured in the respective functional currencies, and then translated into Hong Kong dollars at the exchange rate ruling at the end of the reporting period for presentation purposes. The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re- measure those financial instruments held by the group which expose the group to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the group's presentation currency and the secured bank loan that is designated as a hedge of the group's net investment in its subsidiary in Singapore (see (iii) above). The analysis is performed on the same basis for 2022. 183 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#190HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 7.31-35 Financial statements for the year ended 31 December 2023 40-42 & B25-28 (e) Equity price risk 266, 267 HKFRS 7.40(a) HKFRS 7.40(b)-(c) The group is exposed to equity price changes arising from equity investments held for trading and non- trading purposes (see note 17). Other than unquoted securities held for strategic purposes, all of these investments are listed. The group's listed investments are listed on the Stock Exchange of Hong Kong and are included in the Hang Seng Index. Decisions to buy or sell trading securities are based on daily monitoring of the performance of individual securities compared to that of the Index and other industry indicators, as well as the group's liquidity needs. Listed investments that are not held for trading purposes have been chosen based on their longer term growth potential and are monitored regularly for performance against expectations. The portfolio is diversified in terms of industry distribution, in accordance with the limits set by the group. All of the group's unquoted investments are held for long term strategic purposes. Their performance is assessed at least bi-annually against performance of similar listed entities, based on the limited information available to the group, together with an assessment of their relevance to the group's long term strategic plans. The group is also exposed to equity price risk arising from changes in the company's own share price to the extent that the company's own equity instruments underlie the fair values of derivatives or other financial liabilities of the group. As at the end of the reporting period the group is exposed to this risk through the conversion rights attached to Tranche B of the convertible notes issued by the company as disclosed in note 25(b)(ii). At 31 December 2023, it is estimated that an increase/(decrease) of [•] % (2022: []%) in the relevant stock market index (for listed investments), the price/earning ratios of comparable listed companies (for unquoted investments) or the company's own share price (for the conversion option of certain convertible bonds) as applicable, with all other variables held constant, would have increased/decreased the group's profit after tax (and retained profits) and other components of consolidated equity as follows:278 Change in the relevant equity price risk variable: Increase Decrease [❤]% ([❤])% 2023 2022 Effect on profit after tax and retained profits $'000 Effect Effect on other components of equity $'000 on profit after tax and retained profits $'000 1% 1)% Effect on other components of equity $'000 The sensitivity analysis indicates the instantaneous change in the group's profit after tax (and retained profits) and other components of consolidated equity that would arise assuming that the changes in the stock market index or other relevant risk variables had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the group which expose the group to equity price risk at the end of the reporting period. It is also assumed that the fair values of the group's equity investments would change in accordance with the historical correlation with the relevant stock market index or the relevant risk variables, and that all other variables remain constant. The analysis is performed on the same basis for 2022. 184 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#191HKAS 1.51(a) HKAS 1.49 HKFRS 13.91-92 (f) Fair value measurement 265 HKFRS 13.93 (i) HKFRS 13.93(b) Financial assets and liabilities measured at fair value283 Fair value hierarchy164 HKFRS 13.93(g) HK Listco Ltd Financial statements for the year ended 31 December 2023 The following table presents the fair value of the group's financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available. Level 3 valuations: Fair value measured using significant unobservable inputs The group has a team headed by the finance manager performing valuations for the financial instruments, including unlisted equity securities and conversion option embedded in convertible notes which are categorised into Level 3 of the fair value hierarchy. The team reports directly to the chief financial officer and the audit committee. A valuation report with analysis of changes in fair value measurement is prepared by the team at each interim and annual reporting date, and is reviewed and approved by the chief financial officer. Discussion of the valuation process and results with the chief financial officer and the audit committee is held twice a year, to coincide with the reporting dates. 169 283 As mentioned in footnote 165, for recurring and non-recurring fair value measurements, entities are required to disclose, for each class of assets and liabilities, the fair value measurement at the end of the reporting period, and for non-recurring fair value measurements, the reasons for the measurement. Class is determined based on the nature, characteristics and risks of the asset or liability, and the level of the fair value hierarchy within which the fair value measurement is categorised. As far as financial instruments are concerned, "classes" would be determined at a lower level than the measurement categories (i.e. amortised cost, FVPL and FVOCI-recycling and non-recycling) in HKFRS 9 when the financial instruments within the same category have significantly different nature, characteristics or risks. For example, in this illustration, the category "measured at fair value through profit or loss" is subdivided into trading and non-trading securities. 185 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#192HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKFRS 13.93(b) HKFRS 13.93(c), 93(e)(iv) Financial statements for the year ended 31 December 2023 Recurring fair value measurements162 Fair value at 31 December 2023 $'000 Fair value measurements as at 31 December 2023 categorised into Level 1 $'000 Level 2 $'000 Assets: Trading securities 58,331 58,331 Non-trading listed securities 7,823 7,823 Units in bond funds 16,466 16,466 Unlisted equity securities 5,040 Derivative financial instruments: - Interest rate swaps 1,664 - Forward exchange contracts 1,057 253 1,664 804 Liabilities: Derivative financial instruments: - Interest rate swaps - Forward exchange contracts - Conversion option embedded in convertible notes 128 40 172 128 40 Fair value measurements as at 31 December 2022 categorised into Level 3 $'000 Fair value at 31 December 2022 $'000 Level 1 $'000 58,020 6,710 58,020 6,710 15,176 15,176 5,040 4,950 172 Level 2 $'000 1,489 2,124 659 1,489 1,465 52 20 171 Level 3 $'000 4,950 20 52 2522 171 During the years ended 31 December 2022 and 2023, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The group's policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur. 166 186 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#193HKAS 1.51(a) HKAS 1.49 HKFRS 13.93(d) HKFRS 13.93(h) HK Listco Ltd Financial statements for the year ended 31 December 2023 Valuation techniques and inputs used in Level 2 fair value measurements170 The fair value of forward exchange contracts in Level 2 is determined by discounting the difference between the contractual forward price and the current forward price. The discount rate used is derived from the relevant government yield curve as at the end of the reporting period plus an adequate constant credit spread. The fair value of interest rate swaps is the estimated amount that the group would receive or pay to transfer the swap at the end of the reporting period, taking into account current interest rates and the current creditworthiness of the swap counterparties. Information about Level 3 fair value measurements 170 Significant unobservable Valuation techniques inputs Range 171 Weighted average171 Unlisted equity instruments Market comparable companies Discount for lack of marketability 1% to | 1% ]% (2022: | 1% to 1%) (2022: | ]%) Conversion option embedded in convertible notes 1% 1% Binomial lattice model Expected volatility (2022: 1%) (2022: []%) The fair value of unlisted equity instruments is determined using the price/earning ratios of comparable listed companies adjusted for lack of marketability discount. The fair value measurement is negatively correlated to the discount for lack of marketability. As at 31 December 2023, it is estimated that with all other variables held constant, a decrease/increase in discount for lack of marketability by [●] % would have increased/decreased the group's other comprehensive income by $[●] (2022: $[●]). The fair value of conversion option embedded in the convertible notes is determined using the binomial lattice model and the significant unobservable input used in the fair value measurement is expected volatility. The fair value measurement is positively correlated to the expected volatility. As at 31 December 2023, it is estimated that with all other variables held constant, an increase/decrease in the expected volatility by [●]% would have decreased/increased the group's profit by $[●] (2022: $[●]).284 HKFRS 13.93(e)&(f) The movements during the period in the balance of these Level 3 fair value measurements are as follows: 173 2023 2022 $'000 $'000 Unlisted equity securities: At 1 January Payment for purchases Net unrealised gains or losses recognised in other comprehensive income during the period At 31 December Conversion option embedded in convertible notes: At 1 January Changes in fair value recognised in profit or loss during the period At 31 December 4,950 4,800 100 90 50 5,040 4,950 171 169 1 2 172 171 Total gains or losses for the period included in profit or loss for assets held at the end of the reporting period 1 2 HKFRS 13.93(h) 284 As mentioned in footnote 172, for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, entities should give a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. For financial instruments measured at fair value on a recurring basis and categorised within Level 3, a quantitative sensitivity analysis is required in addition to the narrative description. 187 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#194HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKFRS 7.25, HKFRS 13.97 Any gain or loss arising from the remeasurement of the group's unlisted equity securities held for strategic purposes are recognised in the fair value reserve (non-recycling) in other comprehensive income. Upon disposal of the equity securities, the amount accumulated in other comprehensive income is transferred directly to retained earnings. The gains arising from the remeasurement of the conversion option embedded in the convertible notes are presented in the "Other income" line item in the consolidated statement of profit or loss. (ii) Fair value of financial assets and liabilities carried at other than fair value285 The carrying amounts of the group's financial instruments carried at amortised cost were not materially different from their fair values as at 31 December 2022 and 2023 except for the following financial instruments, for which their carrying amounts and fair value and the level of fair value hierarchy are disclosed below: Convertible notes Redeemable preference shares Convertible notes Redeemable preference shares Carrying amounts at 31 December 2023 Fair value at 31 December 2023 $'000 $'000 (9,542) (8,580) (3,912) (2,878) Carrying amounts at 31 December 2022 Fair value at 31 December 2022 $'000 $'000 (9,356) (8,450) (3,912) (2,628) Fair value measurements as at 31 December 2023 categorised into Level 1 $'000 Level 2 $'000 Level 3 $'000 (8,580) (2,878) Fair value measurements as at 31 December 2022 categorised into Level 1 $'000 Level 2 $'000 Level 3 $'000 (8,450) (2,628) Valuation techniques and inputs used in Level 3 fair value measurements The fair values of the convertible notes and redeemable preference shares are estimated as being the present values of future cash flows, discounted at interest rates based on the government yield curve as at the end of the reporting period plus an adequate constant credit spread, adjusted for the group's own credit risk. HKFRS 7.25-26, 29 HKFRS 13.97 285 In this illustration, we have illustrated the disclosures required by paragraphs 25 and 26 of HKFRS 7, i.e. the fair values for each class of financial assets and financial liabilities that are not carried at fair value. As stated in paragraph 29 of HKFRS 7, such disclosure is not required: ⚫ when the carrying amount of a financial instrument is a reasonable approximation of fair value; or ⚫ for lease liabilities. In addition, paragraph 97 of HKFRS 13 requires entities to disclose the following information for each class of assets and liabilities not measured at fair value in the statement of financial position but for which the fair value is disclosed: ⚫ level of the fair value hierarchy within which the fair value measurements are categorised in their entirety; ⚫ for fair value measurements categorised within Level 2 and Level 3: a description of the valuation technique(s); a description of the inputs used in the fair value measurement; any change in valuation technique and the reason(s) for making the change; and ⚫ for any non-financial asset whose highest and best use differs from its current use, this fact and the reason why it is being used in a manner that differs from its highest and best use. For such assets and liabilities, entities need not provide the other disclosures required by HKFRS 13. 188 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#195HKAS 1.51(a) HKAS 1.49 HKAS 16.74(c), HKAS 38.122(e), HKAS 40.75(h) 34 COMMITMENTS 286 HK Listco Ltd Financial statements for the year ended 31 December 2023 Commitments outstanding at 31 December 2023 not provided for in the financial statements were as follows: 2023 2022 $'000 $'000 HKAS 16.74(c) Contracted for acquisition of property, machinery and equipment 1,539 6,376 CP Authorised but not contracted for: acquisition of investment property - acquisition of property, machinery and equipment 23,000 24,539 - 660 7,036 HKFRS 16.59(b)(iv) HKAS 37.89 HKAS 37.86 35 (a) (b) years In addition, the group was committed at 31 December 2023 to enter into a new lease287 of [ that is not yet commenced, the lease payments under which amounted to $[●] per annum (2022: a lease of O] years with lease payments amounted to $[●] per annum). CONTINGENT ASSETS AND LIABILITIES Contingent compensation receivable In September 2023, the company commenced litigation against a supplier for non-performance of a contract. According to legal advice it is probable that the company will win the case, in which case, the monetary compensation is expected to amount to approximately $3 million 79. No asset is recognised in respect of this claim. Contingent liability in respect of legal claim In June 2023, a subsidiary of the group received notice that it is being sued by a former employee in respect of a personal injury purported to have been suffered during his employment with that company. If the company is found to be liable, the total expected monetary compensation may amount to approximately $10 million 79. Under the subsidiary's employer's liability insurance policy, it is probable that in such circumstances the subsidiary could recover approximately $2 million from the insurer. The subsidiary continues to deny any liability in respect of the injury and, based on legal advice, the directors do not believe it probable that the court will find against them. No provision has therefore been made in respect of this claim. HKFRS 16.55 286 287 Generally, a lessee is no longer required to disclose its lease commitments at the reporting date because the amounts are now recognised as lease liabilities in the statement of financial position and further details are disclosed in the note to the financial statements. However, if the portfolio of short-term leases to which the lessee is committed at the end of the reporting period is dissimilar to the portfolio of short-term leases to which the short-term lease expense disclosed relates, a lessee is required to disclose the amount of its lease commitments for short-term leases that are accounted for applying the recognition exemptions in paragraph 6 of HKFRS 16. In accordance with paragraphs 44 to 45 of HKFRS 16, if a lessee signs a new agreement to extend an original lease for the same underlying asset, it should be accounted for as a lease modification at the effective date of the modification (i.e. at the date when the new agreement is signed) and therefore the future payments under that new lease should be included in the revised estimate of the lease liability included in the statement of financial position as at the reporting date. Consequently, such amounts should not be included in the amounts disclosed as commitments. 189 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#196HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 24.18 36 MATERIAL RELATED PARTY TRANSACTIONS 288, 289 (a) Key management personnel remuneration HKAS 24.17 Remuneration for key management personnel of the group, including amounts paid to the company's directors as disclosed in note 7 and certain of the highest paid employees as disclosed in note 8, is as follows:290 Short-term employee benefits Post-employment benefits Equity compensation benefits Total remuneration is included in "staff costs" (see note 5(b)). 2023 2022 $'000 $'000 8,624 7,755 853 781 485 585 9,962 9,121 HKAS 24.18-24 288 HKAS 24.25 -27 289 Paragraph 18 of HKAS 24 states that if there have been transactions between related parties, an entity shall disclose the nature of the related party relationships as well as information about the transactions and outstanding balances, including commitments, necessary for an understanding of the potential effect of the relationship on the financial statements. Paragraph 18 of HKAS 24 specifies certain information that the disclosures should include as a minimum. This list includes the amount of the transactions, the outstanding balances and commitments and their terms and conditions, and loss allowances. Pricing policies are not required to be disclosed and paragraph 23 of HKAS 24 warns that disclosures that related party transactions were made on terms equivalent to those that prevail in arm's length transactions are only made if such terms can be substantiated. The disclosures are generally made in amongst other notes (for example, loans to related parties are often disclosed in the notes relating to non-current financial assets) or in a separate note on related party transactions. As with all HKFRSS, HKAS 24's requirements apply where the effect would be material. Judgement is therefore required in deciding the extent to which transactions are disclosed and, if the transactions are disclosed, whether those disclosures are made individually or on an aggregated basis. Paragraph 19 of HKAS 24 specifies that the disclosures should be at least disaggregated by type of related party i.e. transactions with parents should be shown separately from transactions with associates or key management personnel, for example. Where applicable, listed issuers should also take care to follow the requirements of Chapter 14A of the MBLRS concerning approval and disclosure of connected transactions. See also footnote 291. HKAS 24 provides relief to government-related entities from the general disclosure requirements for related party disclosures in respect of transactions with the government to which they are related or with parties related to the same government. If entities take advantage of this relief, they need to provide alternative disclosures as set out in paragraph 26 of HKAS 24. These alternative disclosures require entities to apply judgement to assess whether a transaction with these other government-related entities is individually or collectively significant enough to be disclosed in the financial statements and if so, whether the disclosure should be quantitative or qualitative. In applying judgement, the entities should consider the closeness of the related party relationship and other factors relevant in establishing the level of significance of the transaction, such as whether it is significant in terms of size, carried out on non-market terms and/or outside normal day-to-day business operations. Government-related entities are not exempt from the general disclosure requirements in HKAS 24 so far as transactions with other related parties are concerned. For example, they are still required to disclose details of key management personnel compensation (see footnote 290). Please talk to your usual KPMG contact if you would like further guidance in this respect. 190 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#197HKAS 1.51(a) HKAS 1.49 HKAS 24.18-20 (b) Financing arrangements 288 HKAS 24.17 290 Amounts due to ultimate holding HK Listco Ltd Financial statements for the year ended 31 December 2023 Amounts owed to the group by related parties Amounts owed by the group to related parties Related interest (expense)/ income Year ended 31 As at 31 December As at 31 December December Notes 2023 2022 2023 2022 2023 2022 $'000 $'000 $'000 $'000 $'000 $'000 company 2,000 1,800 Amounts due to fellow subsidiaries Loans from fellow subsidiaries (i) (ii) 3,650 3,780 2,665 906 (262) (89) Loans to associates (iii), (iv) 31,601 21,596 Loans to members of key management personnel and entities controlled by members of key management personnel Lease liabilities due to fellow subsidiary (iv), (v) (vi) 400 546 29 32 1,168 2,268 (100) (165) Notes: (i) (ii) (iii) The outstanding balances with these related parties are trading balances included in "Trade and other payables" (note 24). The loans from fellow subsidiaries bear interest at a prime rate plus [●] % per annum, are unsecured and repayable on 31 December 2028. The loans are included in "Non-current interest-bearing borrowings" (note 25). The loans to the associates bear interest at HIBOR plus []% per annum and will both mature in 2030. The loans are fully secured by properties held by the associates. The loans are included in "Equity and debt investments" (note 17). (iv) No loss allowances have been made in respect of these loans. (v) Further details of the loans and guarantees given on behalf of directors of the company are disclosed in note 23. (vi) The outstanding balances arising from the leasing arrangement with the fellow subsidiary are included in "Lease liabilities" (note 27). Further details of the lease arrangement is set out in note (c) below. Details of new loans and loans repaid during the period are disclosed in the consolidated cash flow statement. HKAS 24 requires disclosure of key management personnel compensation in total and for each of (i) short-term employee benefits; (ii) post-employment benefits; (iii) other long-term benefits; (iv) termination benefits; and (v) share-based payments. HKAS 24 defines key management personnel as being those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. For some entities all members of key management personnel will also be directors of that entity and therefore these requirements of HKAS 24 will usually be met by giving more details in respect of the amounts to be disclosed under section 383(1) of the CO (see note 7). However, where consolidated financial statements are prepared, the reporting entity is the group and therefore the disclosure of key management personnel compensation may need to be extended to include amounts payable to individuals who are not directors of the holding company but nevertheless should be regarded as part of the key management of the group, for example executive directors of major subsidiaries. These persons may, or may not, also be included in the disclosure of "highest paid employees" required by paragraph A16(25) of the Listing Rules (see note 8) depending on the nature of their duties and the amount of their compensation package. 191 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#198HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 (c) Leasing arrangement 288, 291 A16(8)(2) (d) In January 2022, the group entered into a three-year lease in respect of certain leasehold properties from a fellow subsidiary of the group for storage of electronic goods. The amount of rent payable by the group under the lease is $100,000 per month, which was determined with reference to amounts charged by the fellow subsidiary to third parties. At the commencement date of the lease, the group recognised a right-of-use asset and a lease liability of $3,303,000. Applicability of the Listing Rules relating to connected transactions [The related party transactions in respect of ... and ... above constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section [...] of the Directors' Report.] OR [The related party transactions in respect of ... and... above constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. However those transactions are exempt from the disclosure requirements in Chapter 14A of the Listing Rules as they are [below the de minimis threshold under Rule 14A.76(1)][or describe other exemption applicable to the transactions]] OR [None of the above related party transactions falls under the definition of connected transaction or continuing connected transaction as defined in Chapter 14A of the Listing Rules.] 291 A16(8)(2) 291 In accordance with paragraph 8(2) of Appendix 16 to the MBLRs, where a listed issuer includes in its annual report particulars of a related party transaction or continuing related party transaction (as the case may be) in accordance with applicable accounting standards adopted for the preparation of its annual financial statements, it must specify whether or not the transaction falls under the definition of "connected transaction" or "continuing connected transaction" (as the case may be) in Chapter 14A of the MBLRs. The listed issuer must also confirm whether or not it has complied with the disclosure requirements in accordance with Chapter 14A of the MBLRs. In this regard, it would be helpful to the readers to provide a cross reference to where in the Annual Report such disclosures have been made, where applicable. According to the response to question 23 in FAQ Series 20 "Rule requirements relating to notifiable transactions, connected transactions, mineral companies, issues of securities and corporate governance code" released by the Listing Division of the SEHK on 28 February 2013, when the related party transaction is a connected transaction but is exempt from the disclosure requirements of Chapter 14A of the MBLRS, the listed issuer should specify this fact and describe the exemption applicable to the transaction. In addition, according to the responses to FAQs on notifiable and connected transactions rules relating to lease transactions of listed issuers adopting HKFRS/IFRS 16 "Leases" (or similar accounting standards in other jurisdictions) released by the Listing Division of the SEHK (last update on 17 April 2020), • where the lease is subject to an agreement with fixed lease payments, the transaction is treated as a one-off connected transaction and the recognition of a right-of-use asset is regarded as an acquisition of capital asset under the definition of transaction set out in Main Board Rule 14.04(1)(a); and where the lease is subject to an agreement with variable lease payments (such as turnover rent), these payments are treated as continuing connected transaction under Main Board Rule 14A.31. The listed issuer is required to set annual caps on the variable lease payments to be made each year under the agreement. 192 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#199HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 Sch 4, Part 1, Section 2(1)(a) 37 COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION 292 HKAS 1.113 HKAS 1.51(e) HKAS 1.60 & 66 HKAS 1.54(a) HKAS 1.54(d) Non-current assets Property, plant and equipment Investments in subsidiaries Other financial assets 2023 $'000 2022 $'000 $'000 $'000 94,667 86,865 74,395 69,395 31,726 27,289 200,788 183,549 HKAS 1.60 & 66 HKAS 1.54(d) Current assets HKFRS 7.8(a)(ii) HKAS 1.54(g) Trading securities 58,331 58,020 Inventories 50,368 59,134 HKAS 1.54(h) HKFRS 7.8(f) HKAS 1.54(i) Trade and other receivables 230,947 246,903 Cash and cash equivalents 55,185 32,451 394,831 396,508 HKAS 1.60 & 69 Current liabilities HKAS 1.54(k) Trade and other payables 76,062 103,369 HKAS 1.54(m) HKFRS 7.8(g) HKAS 1.54(m) HKFRS 16.47(b) HKAS 1.54(n) Bank loans 19,441 17,208 Lease liabilities 21,329 15,271 Current taxation 2,475 2,440 119,307 138,288 HKAS 1.60 & 69 HKAS 1.54(m) HKFRS 7.8(g) HKAS 1.54(m) HKFRS 16.47(b) HKAS 1.54(o) & 56 Sch 4, Part 292 1, Section 2(1)(a), (3) HKAS 1.113-114 Net current assets Total assets less current liabilities Non-current liabilities Interest-bearing borrowings Lease liabilities Deferred tax liabilities NET ASSETS 275,524 476,312 258,220 441,769 32,119 38,174 48,963 3,103 53,202 2,418 84,185 392,127 93,794 347,975 In accordance with Schedule 4 to the CO when a company prepares consolidated financial statements, a company-level statement of financial position is required to be disclosed as a note to the consolidated financial statements. Schedule 4 specifically requires that the company-level statement of financial position must be in the format in which that statement would have been prepared if the holding company had not been required to prepare any annual consolidated financial statements for the financial year. This means that the company should apply the general requirements of HKAS 1 to prepare the company-level statement of financial position as if the statement were presented as a primary statement. The CO is not explicit as to where in the notes the company-level statement of financial position should be placed. If the directors wish to draw attention to this statement and yet comply with a literal interpretation of Schedule 4, they would be advised to include the statement as note 1 or otherwise in a prominent position in the notes to the consolidated financial statements. In this illustration, the company-level statement of financial position is disclosed as a separate note at the end of the notes relating to the financial year (i.e. immediately before the note on non-adjusting events after the reporting period). However, the statement can be located in any place in the notes to the consolidated financial statements which is considered sensible, in accordance with HKAS 1's general principle that notes should be presented in a systematic manner. 193 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#200HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.54(r) CAPITAL AND RESERVES 32(a) Share capital Reserves TOTAL EQUITY S387 HKAS 10.19 38 (a) 2023 2022 $'000 $'000 $'000 $'000 181,400 210,727 392,127 Approved and authorised for issue by the board of directors on 28 March 2024. 293 Hon WS Tan SK Ho ) Directors 175,000 172,975 347,975 (b) NON-ADJUSTING EVENTS AFTER THE REPORTING PERIOD Subsequent to the end of the reporting period, one of the group's major trade debtors went into liquidation following a serious fire at their main production facilities in January 2024. Of the $1,150,000 owed by the debtor, the group expects to recover less than $100,000. No adjustment has been made in these financial statements in this regard. After the end of the reporting period the directors proposed a final dividend. Further details are disclosed in note 32(b). After the end of the reporting period the group reached an agreement with its bankers to re-finance a loan of $10,000,000 originally due within 12 months of the end of the reporting period. The loan is now repayable in March 2026 and bears interest at 1% per annum. No adjustments have been made to these financial statements as a result of this re-financing and therefore the loan is presented as a current liability as at the end of the reporting period. HKAS 1.76(a) (c) S387 293 Section 387 of the CO states that the directors must sign a statement of financial position that "forms part of any financial statements". As confirmed by the Companies Registry in its response to Q14 of FAQ series on the CO (under the category "Accounts and Audit"), this requirement also applies to the company-level statement of financial position disclosed as a note to the consolidated financial statements. The statement must therefore be approved by the directors and signed on their behalf by 2 directors (or in the case of a company having only one director, by that director). The names of the directors who signed the statement of financial position on the directors' behalf should be stated. The Companies Registry's FAQ series on the CO can be found in the Companies Registry's website. So far as issuers that are not incorporated under the CO are concerned, as section 387 is not part of the SEHK's level playing field principle, they are not required to sign the company-level statement of financial position disclosed as a note to the consolidated financial statements, unless required by, for example, the Companies Law in their country of incorporation. 194 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#201HKAS 1.51(a) HKAS 1.49 HK Listco Ltd Financial statements for the year ended 31 December 2023 HKAS 1.41 Sch 4, Part 1, Section 3 HKAS 1.138(c) HKAS 24.13 [39 40 COMPARATIVE FIGURES 294 • As a result of the application of [• •] certain comparative figures have been adjusted to conform to current year's presentation and to provide comparative amounts in respect of items disclosed for the first time in 2023. Further details of the changes in accounting policies are disclosed in note 1(c).] IMMEDIATE AND ULTIMATE CONTROLLING PARTY 295, 296 At 31 December 2023, the directors consider the immediate parent and ultimate controlling party of the group to be HK (Holding) Co. Ltd, which is incorporated in Hong Kong. This entity does not produce financial statements available for public use. HKAS 1.41 294 HKAS 24.13 24.16 Sch 4, Part 1, Section 3 295 296 When the presentation or classification of items in the financial statements is amended, paragraph 41 of HKAS 1 requires the comparative amounts to be reclassified unless it is impracticable to do so. It also requires the disclosure of the reason for and a description of the nature of material reclassifications as well as the amount of each item or class of items that is reclassified. Note also that where the reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period (i.e. here: 1 January 2022), this would trigger the requirement to present an opening statement of financial position as per footnote 62. It is not necessary to make a negative statement if no comparatives have been adjusted. HKAS 24 requires disclosure of both the immediate parent of the reporting entity and, if different, the ultimate controlling party. The ultimate controlling party may be a body corporate, or could be an unincorporated entity or an individual. If neither the immediate parent nor the ultimate controlling party produces financial statements available for public use, HKAS 24 requires the name of the next most senior parent that does so to be disclosed. The standard does not require a negative statement to be given if there are no such entities. However, users may find such a statement informative. Part 1 of Schedule 4 to the CO requires disclosure of the name of the "ultimate parent undertaking", i.e., the most senior parent of the reporting entity. This entity could be a body corporate, a partnership or an unincorporated association carrying on a trade or business, whether for profit or not, in accordance with the definition of "undertaking" in Schedule 1 to the CO. If the ultimate parent undertaking is a body corporate, then the country of its incorporation should be disclosed, whereas if it is not a body corporate, then the address of its principal place of business should be disclosed. Although the disclosure requirements under Part 1 of Schedule 4 to the CO and paragraph 13 of HKAS 24 (see previous note) are similar, it should be noted that where the ultimate parent undertaking is controlled by an individual, additional disclosure will be required to meet both the requirements of the CO (in respect of disclosure of the "ultimate parent undertaking") and HKAS 24 (in respect of disclosure of the "ultimate controlling party"). 195 © 2023KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#202HKAS 1.51(a) HKAS 1.49 HK Listco Ltd HKAS 8.30 Financial statements for the year ended 31 December 2023 41 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE YEAR ENDED 31 DECEMBER 2023297 Up to the date of issue of these financial statements 298, the HKICPA has issued a number of new or amended standards, which are not yet effective for the year ended 31 December 2023 and which have not been adopted in these financial statements. These developments include the following which may be relevant to the group. Effective for accounting periods beginning on or after Amendments to HKAS 1, Presentation of financial statements: Classification of liabilities as current or non-current ("2020 amendments") Amendments to HKAS 1, Presentation of financial statements: Non- current liabilities with covenants ("2022 amendments") Amendments to HKFRS 16, Leases: Lease liability in a sale and leaseback Amendments to HKAS 7, Statement of cash flows and HKFRS 7, Financial Instruments: Disclosures: Supplier finance arrangements Amendments to HKAS 21, The effects of changes in foreign exchange rates: Lack of exchangeability299 1 January 2024 1 January 2024 1 January 2024 1 January 2024 1 January 2025 The group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements except for the following: Amendments to HKAS 1, Presentation of financial statements (2020 and 2022 amendments) 300 The 2020 and 2022 amendments impact the classification of a liability as current or non-current, and are to be applied retrospectively as a package. The 2020 amendments primarily clarify the classification of a liability that can be settled in its own equity instruments. If the terms of a liability could, at the option of the counterparty, result in its settlement by the transfer of the entity's own equity instruments and that conversion option is accounted for as an equity instrument, these terms do not affect the classification of the liability as current or non-current. Otherwise, the transfer of equity instruments would constitute settlement of the liability and impact classification. The 2022 amendments specify that conditions with which an entity must comply after the reporting date do not affect the classification of a liability as current or non-current. However, the entity is required to disclose information about non-current liabilities subject to such conditions. 196 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#203HKAS 1.51(a) HKAS 1.49 HKAS 8.30-31 297 HK Listco Ltd Financial statements for the year ended 31 December 2023 Based on the assessment completed to date, the group has identified the following liabilities which are expected to be impacted by the amendments: (a) Tranche B of convertible notes As at 31 December 2023, the non-derivative liabilities from Tranche B convertible notes amounted to $4,598,000 and with a maturity date of 31 December 2025 (note 25(b)(ii)) was classified as non- current. Under the above amendments, such liabilities would be classified as current as seen from 31 December 2023, as the conversion rights of the Tranche B convertible notes do not meet the definition of an equity instrument and are exercisable at any time at the noteholders' option. (b) Bank loan drawn under revolving loan facility As at 31 December 2023, a bank loan of $5,000,000 drawn under a five-year revolving loan facility was classified as a current liability as it would mature in April 2024 and the group's right to roll-over the loan for another year would be subject to the fulfilment of a specified debt to equity ratio on the maturity date. Under the above amendments, the loan would be classified as non-current as seen from 31 December 2023, as covenants to be fulfilled after the reporting period would not affect the classification of a liability as current or non-current and hence the group has the right to roll-over the loan and to defer settlement of the loan for at least twelve months after the reporting date under the revolving loan facility. [Disclose the impacts (if any) of other developments in accordance with paragraphs 30-31 of HKAS 8]. Paragraph 30 of HKAS 8 requires entities to disclose known or reasonably estimable information relevant to assessing the possible impact that application of a new Standard or Interpretation will have on the entity's financial statements in the period of initial application. Paragraph 31 of HKAS 8 lists certain items in this respect which an entity "considers disclosing". These items are: the Standard or Interpretation's title; the nature of the impending change and its effective date; • the date at which it plans to apply the HKFRS initially; and HKAS 8.30 298 299 300 either a discussion of the impact that initial application is expected to have on the entity's financial statements or, if that impact is not known or reasonably estimable, a statement to that effect. It is evident from the words "relevant to assessing" and "considers disclosing" in these paragraphs, that management has a certain degree of flexibility in determining how much disclosure is necessary in the circumstances of the entity as regards naming the amendments, new Standards or Interpretations that are currently in issue but not yet adopted, and, if they do name any or all of the amendments, how much information is disclosed about the possible impact. There is no "one-size-fits-all" wording to meet this requirement. Care must therefore be taken to prepare disclosures which reflect that current state of the entity's own assessment and expectations about the impact of the new amendments/interpretations on the entity's own financial statements. Paragraph 30 of HKAS 8 does not explicitly state whether the cut-off for this disclosure should be the end of the financial reporting period or the date of approval of the financial statements. In our view, given the requirements in HKAS 10 to disclose non-adjusting events after the reporting period, the cut-off for the disclosure under paragraph 30 of HKAS 8 should be as near as practicable to the date of approval of the financial statements. The amendments to IAS 21, The effects of changes in foreign exchange rates: Lack of exchangeability were issued by the IASB in August 2023. The equivalent HKFRS amendments have not been issued as at 31 August 2023, but we expect that HKICPA will issue in due course. In June 2023, the HKICPA issued an educational material on the amendments to HKAS 1 which discusses key changes and provides examples to illustrate the application of the amendments in classifying some common loan arrangements, including revolving loan facility and convertible bond. Consistent with the HKICPA's example on revolving loan facility, in this illustration we assume that the roll-over of the loan drawn under revolving loan facility is subject a financial covenant. In practice, revolving loan facility may have different terms and additional analysis may be needed to determine the impacts of the amendments to HKAS 1 on an entity's bank loans drawn under revolving loan facility. Please talk to your usual KPMG contact if you would like further guidance in this respect. 197 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#204HKAS 1.51(a) HKAS 1.49 HK Listco Ltd A16(23)(1) 1 Financial statements for the year ended 31 December 2023 Group properties Major properties under development Expected Gross Stage of Location Intended use completion date of completion Site floor Group's area area interest (sq m) (sq m) (%) 16 Main Avenue Commercial Tsim Sha Tsui Foundations completed Dec 2024 1,955 27,881 100 Hong Kong 100 Richard Street Commercial 80% Apr 2024 4,093 41,223 100 Tsim Sha Tsui Hong Kong 201 Pink Road Residential 70% Aug 2024 917 25,340 100 Tsueng Kwan O Hong Kong A16(23)(1) 2 Major properties held for resale Location Existing use Gross floor area (sq m) Group's interest (%) Hope House 796-802 Green Road, Central, Hong Kong Office 733 100 Wood Mansion 100 Black Hill Road, Tsueng Kwan O, Hong Kong A16(23)(2) 3 Major properties held for investment Location Overseas Building 1112-1120 Millers Road, Happy Valley, Hong Kong 12/F Deville House 122 House Street, Central, Hong Kong Residential 1,826 100 Existing use Term of lease Commercial Long Office Long Level 2, Good Fortune Building, No. 383 Hu Nan Road Xuhui District, Shanghai, China Residential Medium 198 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#205A16(19) Five year summary (Expressed in Hong Kong dollars) Results Revenue Profit from operations Finance costs Share of profits less losses of associates Share of profits of joint venture Profit before taxation Taxation Profit for the year HK Listco Ltd Note 2023 2022 2021 2020 2019 $'M $'M $'M $'M $'M (restated) 1,084.9 985.2 939.4 752.5 665.7 1 145.4 121.1 113.8 98.2 76.6 (20.6) (16.2) (9.9) (7.9) (7.0) 13.8 12.6 10.9 1.4 10.7 10.1 7.0 149.3 127.6 121.8 91.7 69.6 1 (24.5) (21.3) (18.4) (11.2) (8.9) 124.8 106.3 103.4 80.5 60.7 Attributable to: Equity shareholders of the company 114.4 96.2 95.3 75.5 57.7 Non-controlling interests 10.4 10.1 8.1 5.0 3.0 Profit for the year 124.8 106.3 103.4 80.5 60.7 Assets and liabilities Fixed assets Intangible assets Goodwill Interest in associates Interest in joint venture 319.5 268.0 186.9 142.8 114.8 15.2 14.4 13.5 0.9 1.1 1.1 2.2 2.8 40.3 29.5 16.8 8.7 8.5 42.8 32.1 22.0 Equity and debt investments 60.9 48.4 34.7 36.6 32.0 Derivative financial instruments 0.9 1.2 1.5 1.8 2.1 Deferred tax assets 1 2.5 3.5 3.5 4.5 Net current assets 236.5 243.3 268.1 283.9 270.4 Total assets less current liabilities Deferred tax liabilities Other non-current liabilities NET ASSETS Capital and reserves Share capital and other statutory capital reserves Other reserves Total equity attributable to equity shareholders of the company Non-controlling interests TOTAL EQUITY 719.5 641.5 548.1 480.5 430.6 (19.2) (13.8) (13.3) (6.7) (4.3) 1 (139.9) (140.0) (91.2) (53.1) (49.7) 560.4 487.7 443.6 420.7 376.6 181.4 175.0 175.0 135.0 135.0 1 296.7 240.8 206.9 227.5 198.1 478.1 415.8 381.9 362.5 333.1 82.3 71.9 61.7 58.2 43.5 560.4 487.7 443.6 420.7 376.6 Earnings per share 2 Basic $1.15 $0.97 $0.93 $0.81 $0.61 Diluted $1.14 $0.97 $0.93 199 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#206HK Listco Ltd Note to the five year summary 301. 1 2 In 2023, the group changed its accounting policy in relation to its long service payment ("LSP") liability following the HKICPA guidance on the accounting implications of the abolition of the mandatory provident fund ("MPF")- LSP offsetting mechanism issued in July 2023. The policy was applied retrospectively as from June 2022 by recognising a catch-up adjustment on the group's LSP liability. That was the time when the Hong Kong SAR Government gazetted the Hong Kong Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022, which will eventually abolish the statutory right of an employer to reduce its LSP and severance payment payable to a Hong Kong employee by drawing on its mandatory contributions to the MPF scheme. The policy change does not have any effect on earlier periods before the legislative changes. As a result of the sub-division of ordinary shares and bonus issue in 2020 and 2023 respectively, figures for the years from 2019 to 2022 have been adjusted for comparison purposes. A16(19) 301 Where the published results and statement of assets and liabilities have not been prepared on a consistent basis, the inconsistency should be explained in the summary. 200 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#207Empty#208Appendix A Index of policies illustrated in note 1 to the illustrative annual financial statements (a) Statement of compliance (b) Basis of preparation of the financial statements (c) Changes in accounting policies (d) Subsidiaries and non-controlling interests (e) Associates and joint ventures (f) Goodwill (g) Other investments in securities (h) Derivative financial instruments (i) Hedging (j) Investment property (k) Property, plant and equipment (1) Intangible assets (other than goodwill) (m) (n) Leased assets Credit losses and impairment of assets (o) Inventories and other contract costs (d) Contract assets and contract liabilities (q) Trade and other receivables Software-as-a-service (SaaS) arrangement costs (r) (s) Cash and cash equivalents (t) (u) (v) Trade and other payables (other than refund liabilities) Preference share capital Interest-bearing borrowings (w) Convertible notes (x) Employee benefits (y) Income tax (z) Provisions and contingent liabilities (aa) Revenue and other income (bb) Translation of foreign currencies (cc) Borrowing costs (dd) Non-current assets held for sale and discontinued operations (ee) Asset acquisition (ff) Related parties (gg) Segment reporting A1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#209Empty#210Appendix B New and amended HKFRSS This appendix lists the new Standards, amendments to, and Interpretations of, HKFRSS in issue as at 31 August 2023 which were not yet effective for the periods beginning on or after 1 January 2022 and therefore may need to be considered for the first time in the preparation of the 2023 financial statements. The appendix contains two tables: • • Table B1 lists those new standards and amendments to HKFRSS which are required to be adopted in annual accounting periods beginning on or after 1 January 2023 or are immediately effective upon issuance. Table B2 lists other amendments to HKFRSS which are available for early adoption in that period, but are not yet mandatory. The appendix includes a brief overview of these new and amended HKFRSS, focusing particularly on those which are likely to be of interest or concern. All of these new and amended HKFRSS are as a direct consequence of amendments and revisions to IFRS Accounting Standards made by the IASB and adopted by the HKICPA word-for-word and with the same effective dates. More information on these developments can be obtained from your usual KPMG contact. *All of the effective dates given below refer to the start of an annual accounting period, unless otherwise noted. Effective date* 1 January 2023 Table B1: Amendments to HKFRSS first effective for annual periods beginning 1 January 2023, or are immediately effective upon issuance HKFRS 17, Insurance contracts Amendments to HKFRS 17, Insurance contracts (issued in October 2020) Amendment to HKFRS 17, Insurance contracts (issued in February 2022) "Initial application of HKFRS 17 and HKFRS 9 - Comparative information" HKFRS 17, which replaces HKFRS 4, sets out the recognition, measurement, presentation and disclosure requirements applicable to issuers of insurance contracts. In October 2020, the HKICPA issued amendments to HKFRS 17 ("2020 HKFRS 17 amendments") to defer the effective date of HKFRS 17 to annual reporting periods beginning on or after 1 January 2023 and introduce other changes to: simplify some of the requirements; make financial performance easier to explain; and ease transition by providing additional transition reliefs. Entities are required to apply the 2020 HKFRS 17 amendments when it applies HKFRS 17. An amendment to the previous insurance contracts standard, HKFRS 4, has also been issued by the HKICPA to extend the temporary exemption that permits the insurer to apply HKAS 39 rather than HKFRS 9 to annual periods before 1 January 2023. In February 2022, the HKICPA issued another amendment to HKFRS 17 ("2022 HKFRS 17 amendment") to introduce a transition option relating to comparative information about financial assets presented on initial application of HKFRS 17. The 2022 HKFRS 17 amendment is aimed at helping entities to avoid temporary accounting mismatches between financial assets and insurance contract liabilities, and therefore improve the usefulness of comparative information for users of financial statements. Entities are required to apply the 2022 HKFRS 17 amendment on initial application of HKFRS 17. HKFRS 17 is generally required to be applied retrospectively unless this is impracticable, in which case entities may apply the modified retrospective approach or the fair value approach on transition. B1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#211Appendix B New and amended HKFRSS Effective date* 1 January 2023 1 January 2023 1 January 2023 Effective immediately upon issuance Table B1: Amendments to HKFRSS first effective for annual periods beginning 1 January 2023 or are immediately effective upon issuance Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements "Disclosure of accounting policies" Amendments to HKAS 8, Accounting policies, changes in accounting estimates and errors "Definition of accounting estimates" Amendments to HKAS 12, Income taxes "Deferred tax related to assets and liabilities arising from a single transaction" Amendments to HKAS 12, Income taxes "International tax reform - Pillar Two model rules" The amendments seek to promote improved accounting policy disclosures that provide useful information to investors and other primary users of the financial statements. Apart from clarifying that entities are required to disclose their "material" rather than "significant" accounting policy, the amendments provide guidance on applying the concept of materiality to accounting policy disclosures. The amendments provide further guidance on the distinction between changes in accounting policies and changes in accounting estimates. Among other things, the amendments now define accounting estimates as "monetary amounts in financial statements that are subject to measurement uncertainty", and clarify that the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates unless they result from the correction of prior period errors. Entities are required to apply the amendments prospectively to changes in accounting estimates and changes in accounting policies occurring on or after the beginning of the first annual reporting period in which the entity applies the amendments. The amendments narrow the scope of the initial recognition exemption in paragraphs 15 and 24 of HKAS 12 such that it does not apply to transactions that give rise to equal and offsetting temporary differences on initial recognition, such as leases and decommissioning liabilities. When the amendments are initially adopted, for leases and decommissioning liabilities, the associated deferred tax assets and liabilities are required to be recognised from the beginning of the earliest comparative period presented, with any cumulative effect recognised as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments are applied to those transactions that occur after the beginning of the earliest period presented. The amendments introduce a temporary mandatory exception from deferred tax accounting for the income tax arising from tax laws enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD), including tax laws that implement qualified domestic minimum top-up taxes described in those rules. The amendments also introduce disclosures requirements about such tax, including the estimated exposure to Pillar Two income tax. The recognition exception and disclosure about such exception are effective immediately upon issuance of the amendments. The other disclosure requirements are applicable to the annual periods beginning on or after 1 January 2023, but those disclosures are not required in interim reports for periods ending on or before 31 December 2023. B2 62 [End of Table B1] © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#212Effective date* Table B2: Appendix B New and amended HKFRSS 1 January 2024 1 January 2024 1 January 2024 1 January 2025 To be determined Amendments to HKFRSS which are not yet mandatory for annual periods beginning 1 January 2023 but may be adopted early Amendments to HKAS 1, Presentation of financial statements (issued in August 2020) "Classification of liabilities as current or non-current" Amendments to HKAS 1, Presentation of financial statements (issued in December 2022) "Non-current liabilities with covenants" Amendments to HKFRS 16, Leases "Lease liability in a sale and leaseback" Amendments to HKAS 7, Statement of cash flows and HKFRS 7, Financial instruments: disclosures "Supplier finance arrangements" Amendments to IAS 21, The effects of changes in foreign exchange rates "Lack of exchangeability"¹ Amendments to HKFRS 10, Consolidated financial statements and HKAS 28, Investments in associates and joint ventures "Sale or contribution of assets between an investor and its associate or joint venture" In August 2020, the HKICPA issued amendments to HKAS 1 ("2020 HKAS 1 amendments") to clarify the requirements on determining if a liability is current or non-current, in particular the determination over whether an entity has the right to defer settlement of the liability for at least 12 months after the reporting period. The amendments: • specify that an entity's right to defer settlement must exist at the end of the reporting period; clarify that classification is unaffected by management's intentions or expectations about whether the entity will exercise its right to defer settlement; clarify how lending conditions affect classification; and clarify the classification of liabilities that will or may be settled by issuing an entity's own equity instruments. In December 2022, the HKICPA published further amendments to HKAS 1 ("2022 HKAS 1 amendments") to clarify how an entity determines the current/non- current classification of a liability when its right to defer the settlement is subject to compliance with covenants. The 2020 and 2022 HKAS 1 amendments are to be applied as a package on a retrospective basis for annual reporting periods beginning on after 1 January 2024. The amendments clarify how an entity accounts for a sale and leaseback after the date of the transaction. The amendments require the seller-lessee applies the general requirements for subsequent accounting of the lease liability in such a way that it does not recognise any gain or loss relating to the right of use it retains. The amendments introduce disclosure requirements to enhance transparency of supplier finance arrangements and their effects on an entity's liabilities, cash flows and exposure to liquidity risk. The amendments specify when a currency is exchangeable into another currency and when it is not, and how an entity determines a spot rate when a currency lacks exchangeability. Under the amendments, entities are required to provide additional disclosures to help users evaluate how a currency's lack of exchangeability affects, or is expected to affect, its financial performance, financial position and cash flows. The amendments introduce new requirements on loss of control over assets in a transaction with an associate or joint venture. These requirements require the full gain to be recognised when the assets transferred meet the definition of a "business" under HKFRS 3, Business combinations. The amendments as originally issued had an effective date of annual periods beginning on or after 1 January 2016. In December 2015, the IASB decided to remove the effective date of the equivalent amendments to IFRS 10 and IAS 28 and indicated that the effective date will be determined when its research project on equity accounting is completed. The HKICPA followed the IASB's decision and indefinitely deferred the effective date of the equivalent amendments to HKFRS 10 and HKAS 28 accordingly. [End of Table B2] 1 The amendments to IAS 21, Lack of exchangeability were issued by the IASB in August 2023. The equivalent HKFRS amendments have not been issued as at 31 August 2023, but they are expected to be issued by the HKICPA in due course. B3 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#213Appendix C Recent IFRIC agenda decisions IFRIC agenda decisions relate to financial reporting issues which have been brought to the attention of the IFRS Interpretations Committee (the Committee), where the Committee has decided not to add the issue to its work programme for further deliberation. Often the reason for this is because the Committee believes that existing IFRS requirements provide enough information to determine the accounting, and an agenda decision is published to explain how the applicable principles and requirements of the IFRS Accounting Standards apply to the question submitted. Although agenda decisions are technically non-authoritative as they reflect existing requirements of the Standards, the decisions are viewed as in-substance mandatory by major accounting firms and many regulators. The IFRS Foundations' Due Process Handbook notes that entities should be entitled to "sufficient time" to implement changes in accounting policy that result from an agenda decision published by the Committee. Although "sufficient time" depends on an entity's particular facts and circumstances, the IASB's expectation is that "companies need to consider agenda decisions and implement any necessary accounting policy changes on a timely basis - in other words, as soon and as quickly as possible". This appendix includes a summary of the IFRIC agenda decisions issued from January 2022 to August 2023, starting with the most recent decisions as of the time of writing. These decisions are published in IFRS Foundation's newsletter "IFRIC Update", which is published shortly after they are considered by the IASB and the IASB does not object to the agenda decision. The IFRS Foundation website also contains a compilation of past agenda decisions and recordings of the Committee's meetings. Considering that HKFRSS are derived from IFRS Accounting Standards word-for-word, entities preparing financial statements under HKFRSS or IFRS Accounting Standards are expected to change their accounting policies to align with the guidance in the final agenda decisions, to the extent their existing accounting policies materially differ from those described in the agenda decisions, and any such changes in accounting policies will be implemented in a timely manner. More information on these developments can be obtained from your usual KPMG contact. Meeting date Issue discussed by the Committee March 2023 IFRS 16 Leases - Definition of a lease - Substitution right: At which level should an entity assess whether a contract contains a lease? How to evaluate whether the supplier's substitution right is substantive? Summary of the Committee's conclusion on the issue The Committee concluded that, in the fact pattern described in the request, lease definition is evaluated at the level of each battery, and the supplier's substitution right is not substantive throughout the period of use. In particular, determining whether a supplier's substitution right is substantive throughout the period of use, as required by paragraph B14 of IFRS 16, may require judgement. While the term 'throughout the period of use' does not mean at all times within that period, in the fact pattern considered, the Committee observed that, because the supplier is not expected to benefit economically from exercising its substitution right for at least the first three years of the 10-year contract, the condition in paragraph B14(b) does not exist throughout the period of use. Therefore, the supplier does not have a substantive right to substitute a battery throughout the period of use. To assess whether the contract contains a lease, the customer would then apply the requirements in paragraphs B21-B30 of IFRS 16 to assess whether, throughout the period of use, it has the right to obtain substantially all the economic benefits from use, and direct the use, of each battery. If the customer concludes that the contract contains a lease, it would apply the requirements in paragraphs 18-21 of IFRS 16 to determine the lease term. 2 "Agenda decisions - Time is of the essence", an article written by the then vice-Chair of the IASB and published on the IFRS Foundation's website. C1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#214Appendix C Recent IFRIC agenda decisions Meeting date September 2022 Issue discussed by the Committee IFRS 17 and IAS 21 - Multi-currency groups of insurance contracts: Does an entity consider currency exchange rate risks when identifying portfolios of insurance contracts? How does an entity measure a group of insurance contracts that generate cash flows in more than one currency? Summary of the Committee's conclusion on the issue Identifying portfolios of insurance contracts A portfolio of insurance contracts comprises contracts subject to similar risks and managed together. When identifying portfolios, the Committee concluded that an entity is required to consider all risks, including currency exchange rate risks, because IFRS 17 does not specify any particular types of risk when referring to "similar risks". However, a portfolio could include contracts subject to different currency exchange rate risks because "similar risks" does not mean "identical risks". Measuring a multi-currency group of insurance contracts When measuring a group of insurance contracts, the Committee observed that the entity would: (a) apply all the measurement requirements in IFRS 17 to the group, including the requirement to treat the group (including the contractual service margin ("CSM")) as a monetary item; (b) apply IAS 21 and translate at the end of the reporting period the carrying amount of the group (including the CSM) at the closing rate(s); and (c) use its judgement to develop and apply an accounting policy that determines on initial recognition the currency or currencies in which the group (including the CSM) is denominated. The entity develops an accounting policy on currency denomination that results in information that is relevant and reliable and is applied consistently, based on its specific circumstances and the terms of the contracts in the group. It cannot simply presume that the CSM is denominated in its functional currency. The entity's accounting policy determines which effects of changes in exchange rates are accounted for applying IAS 21 and which are accounted for applying IFRS 17. A single-currency denomination treats: (a) changes in exchange rates between the currency of the cash flows and the currency of the group of contracts as changes in financial risk under IFRS 17; and (b) changes in exchange rates between the currency of the group of contracts and the functional currency as exchange differences under IAS 21. A multi-currency denomination treats all changes in exchange rates as exchange differences under IAS 21. As there is a single CSM for the group of contracts in applying IFRS 17, under a multi-currency denomination, the entity would: (a) assess whether the group is onerous considering the CSM as a single amount; (b) prevent the carrying amount of the CSM being negative by recognising a loss when necessary; and (c) determine the amount of the CSM to recognise in profit or loss by applying a single method of determining the coverage units provided in the current period and expected to be provided in the future to the amounts denominated in the multiple currencies. C2 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#215Appendix C Recent IFRIC agenda decisions Meeting date September 2022 Issue discussed by the Committee Special purpose acquisition companies ("SPAC"): Accounting for warrants at acquisition: How does an entity account for warrants on acquiring a SPAC? Summary of the Committee's conclusion on the issue In the fact pattern described, the acquisition of the SPAC is the acquisition of a group of assets that does not constitute a business. Therefore, the entity identifies and recognises the individual identifiable assets acquired and liabilities assumed as part of the acquisition. In assessing whether it assumes the SPAC warrants as part of the acquisition, the entity considers the specific facts and circumstances of the transaction, including the terms and conditions of all agreements associated with the acquisition, and might conclude: (a) the entity assumes the SPAC warrants as part of the acquisition - in this case, the entity issues ordinary shares to acquire the SPAC and then issues new warrants to replace the SPAC warrants it has assumed. In the fact pattern described, the SPAC's founder shareholders and public investors hold the SPAC warrants solely in their capacity as owners of the SPAC. Therefore the entity applies IAS 32 to determine whether the SPAC warrants are financial liabilities or equity instruments. The entity then applies IAS 32 and IFRS 9 to account for the replacement of the SPAC warrants with new warrants. However, because the entity negotiated the replacement of the SPAC warrants as part of the SPAC acquisition, it determines whether - and to what extent - it accounts for new warrants it issues as part of that acquisition. As no IFRS specifically applies in making this determination, the entity applies paragraphs 10-11 of IAS 8 in developing and applying an accounting policy that results in information that is relevant and reliable. (b) the entity does not assume the SPAC warrants as part of the acquisition - in this case, the entity issues both ordinary shares and new warrants to acquire the SPAC. In the fact pattern described, the SPAC's stock exchange listing does not meet the definition of an intangible asset because it is not identifiable, and the fair value of the instruments the entity issues to acquire the SPAC exceeds the fair value of the identifiable net assets acquired. Therefore, in applying paragraphs 2 and 13A of IFRS 2, the Committee concluded that the entity receives a stock exchange listing service for which it has issued equity instruments as part of a share-based payment transaction, and measures this service received as the difference between the fair values of the instruments issued to acquire the SPAC and identifiable net assets acquired. For the instruments issued, the Committee concluded that the entity applies: (a) IFRS 2 in accounting for instruments issued to acquire the stock exchange listing service; and (b) IAS 32 in accounting for instruments issued to acquire cash and assume any liability related to the SPAC warrants. (to be continued) 33 C3 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#216Appendix C Recent IFRIC agenda decisions Meeting date September 2022 (continued) September 2022 Issue discussed by the Committee Special purpose acquisition companies ("SPAC"): Accounting for warrants at acquisition: How does an entity account for warrants on acquiring a SPAC? (continued) IFRS 9 and IFRS 16 - Lessor forgiveness of lease payments: How does a lessor apply the expected credit loss ("ECL") model to the operating lease receivable before a rent concession is granted if it expects to forgive payments due from the lessee under lease contract? Does a lessor apply the derecognition requirements in IFRS 9 or lease modification requirements in IFRS 16 in accounting for the rent concession? Summary of the Committee's conclusion on the issue If the entity concludes that it does not assume the SPAC warrants as part of the acquisition, it determines to what extent it issued each type of instrument to acquire the cash and the stock listing exchange service. As no IFRS specifically applies in making this determination, the entity applies paragraphs 10-11 of IAS 8 in developing and applying an accounting policy that results in information that is relevant and reliable. The Committee observed that the entity could: (a) allocate the shares and new warrants to the acquisition of cash and the stock exchange listing service on the basis of the relative fair values of the instruments issued. (b) use other allocation methods if they meet the requirement of paragraphs 10-11 of IAS 8. However, an accounting policy that results in the entity allocating all the new warrants issued to the acquisition of the stock exchange listing service solely to avoid the new warrants being classified as financial liabilities applying IAS 32 would not meet these requirements. Operating lease receivables recognised by a lessor under IFRS 16 are subject to the derecognition and impairment requirements in IFRS 9. Before a rent concession is granted, the Committee concluded that the lessor measures ECLs on the operating lease receivable as required by paragraph 5.5.17 of IFRS 9, i.e. in a way that reflects an unbiased and probability-weighted amount, the time value of money and reasonable and supportable information. This measurement of ECLs includes the lessor considering its expectations of forgiving lease payments recognised as part of that receivable. When the rent concession in granted, the Committee concluded that the lessor should: (a) remeasure ECL on the operating lease receivable; (b) apply the derecognition requirements in IFRS 9 to forgiven lease payments that have been recognised as operating lease receivables; and (c) apply the lease modification requirements in IFRS 16 to forgiven lease payments that have not been recognised as operating lease receivables. C4 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#217Appendix C Recent IFRIC agenda decisions Meeting date June 2022 June 2022 Issue discussed by the Committee IAS 37 - Negative low emission vehicle credits: An entity has produced or imported vehicles with average fuel emissions higher than the government target. Does it have a liability if the government requires the entity to eliminate the resulting negative emission credits? IAS 32-Special purpose acquisition company ("SPAC"): Classification of public shares as financial liabilities or equity: Is a decision by shareholders to extend a SPAC's life one within the control of the SPAC? Summary of the Committee's conclusion on the issue The Committee observed that the entity would consider: (a) whether settling an obligation to eliminate negative credits would result in an outflow of resources embodying economic benefits; (b) which event creates a present obligation; and (c) whether it has a realistic alternative to settling the obligation. The Committee concluded, in the fact pattern described, that the settlement of an obligation to eliminate negative credits would result in an outflow of resources embodying economic benefits, including outflow in the form of surrendering any positive credits that the entity would generate in the next year. In addition, the activity that triggers a requirement to eliminate negative credits is the production or import of vehicles whose average fuel emissions are higher than the government targets, and not the government's assessment of the entity's position at the end of the calendar year. As such, a present obligation could exist at any date on the basis of the entity's cumulative production/import activities to that date, not only at the end of the calendar year. Third, the measures in the fact pattern could give rise to a legal obligation - the measures derive from an operation of law, and the sanctions are the means by which settlement is enforced. An entity would not have a legal obligation that is enforceable by law if accepting the possible sanctions for non-settlement is a realistic alternative for that entity. This is a judgement that depends on the nature of the sanctions and the entity's specific circumstances. If an entity concludes it does not have a legal obligation to eliminate the negative credits, it nevertheless would then need to consider whether it has a constructive obligation to do so, considering whether it has taken an action that creates valid expectations in other parties that it will eliminate the resulting negative credits - e.g. made a sufficiently specific current statement that it will do so. In the fact pattern described, a SPAC issues two classes of shares (Class A and Class B). Class B shareholders individually have the contractual right to demand a reimbursement of their shares under certain circumstances, including upon a pre-determined liquidation of the SPAC if no target entity is found within a specified period. In addition, these shareholders along with the Class A shareholders have the contractual right to extend the SPAC's life beyond that specified period. The Committee observed that, in determining whether the decision of shareholders to extend the SPAC's life is considered to be within the control of the SPAC and the impact on the classification of the Class B shares as financial liabilities or equity, IAS 32 contains no requirements on how to assess whether a decision of shareholders is treated as a decision of the entity. The Committee concluded that the matter described in the request is, in isolation, too narrow for the IASB or the Committee to address in a cost- effective manner. Instead, the IASB should consider the matter as part of its broader discussions on its Financial Instruments with Characteristics of Equity project. C5 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#218Appendix C Recent IFRIC agenda decisions Meeting date Issue discussed by the Committee June 2022 April 2022 IFRS 17 Transfer of insurance coverage under a group of annuity contracts: How does an entity determine the amount of the contractual service margin to recognise in profit or loss in a period because of the transfer of insurance coverage for survival in that period? IFRS 15 - Principal versus agent: Software reseller: Is a reseller of software licences a principal or agent? Summary of the Committee's conclusion on the issue The request sets out two methods of determining, for each annuity contract in the group, the quantity of the benefits of insurance coverage provided in the current period and expected to be provided in the future. The Committee concluded that, in applying IFRS 17 to determine the quantity of the benefits of insurance coverage provided under each annuity contract: (a) A method based on the amount of the annuity payment the policyholder can validly claim (method 1) meets the principle in paragraph B119 of IFRS 17 of reflecting the insurance coverage provided in each period by: i. assigning a quantity of the benefits only to periods in which an insured event (survival of the policyholder) can occur, resulting in a policyholder having a right to make a valid claim; and ii. aligning the quantity of the benefits provided in a period with the amount the policyholder can validly claim if an insured event occurs in that period. (b) A method based on the present value of expected future annuity payments (method 2) does not meet the principle in paragraph B119 of IFRS 17 of reflecting the insurance coverage provided in each period because it would: i. assign a quantity of the benefits to periods in which no insured event occurs; and ii. misrepresent the quantity of the benefits provided in a period by considering amounts the policyholder can claim and benefit from only in future periods. In the fact pattern described, the promised goods in the reseller's contract with the customer are the standard software licences rather than the pre- sales advice the reseller provides, as the reseller has already provided the advice at the time of entering into the contract. Those licences are therefore the specified goods to be provided to the customer as described in paragraph B34A(a) of IFRS 15. The reseller assesses whether it obtains control, in accordance with paragraph 33 of IFRS 15, of the standard software licences from the software manufacturer before they are transferred to the customer. If-after applying the principles and requirements on control in IFRS 15-it is unclear whether the reseller is a principal or agent, the reseller considers the indicators in paragraph B37 of IFRS 15. The Committee observed that the conclusion as to whether the reseller is a principal or agent depends on the specific facts and circumstances, including the terms and conditions of the relevant contracts. The reseller would apply judgement in making its overall assessment-including considering the relevance of the indicators and the degree to which they provide evidence of control-within the context of the framework and requirements set out in paragraphs B34-B38 of IFRS 15. The Committee also observed that the reseller would disclose material accounting policy information in accordance with IAS 1 and information required by IFRS 15, including information about its performance obligations (paragraph 119) and the significant judgements made (paragraph 123). C6 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#219Appendix C Recent IFRIC agenda decisions Meeting date March 2022 February 2022 Issue discussed by the Committee IAS 7 - Demand deposits with restrictions on use arising from a contract with a third party: Should an entity include demand deposits with restrictions on use as part of cash and cash equivalents in its statement of cash flows and statement of financial position? IFRS 9 & IAS 20 - ECB's TLTRO III transactions: . Do the TLTRO III tranches represent loans with a below- market interest rate? If so, is the bank required to apply IFRS 9 or IAS 20 to account for that benefit? If IAS 20 is applied, then how would the bank determine period(s) in which it recognises that benefit? Where is the benefit presented? How does the bank calculate the applicable effective interest rate? How does the bank account for changes in estimated cash flows resulting from revised assessments of whether conditions attached to the liability have been met? How does the bank account for changes in cash flows related to the prior period that result from the bank's lending behaviour or from changes the ECB makes to the TLTRO III conditions? * TLTRO - targeted longer-term refinancing operations ECB European Central Bank Summary of the Committee's conclusion on the issue The Committee concluded that, in the fact pattern described, the restrictions on the use of the deposit imposed by a contract with a third party do not change the nature of the deposit in such a way that would make the deposit no longer a demand deposit. Therefore, the demand deposit meets the definition of "cash" in paragraph 6 of IAS 7, and is included as part of cash and cash equivalents in the statement of cash flows and the statement of financial position. When relevant to an understanding of its financial position, the entity disaggregates the "cash and cash equivalents" line item and presents the demand deposit subject to contractual restrictions on use separately in an additional line item in accordance with paragraph 55 of IAS 1. An entity that presents assets as current or non-current classifies the demand deposit as current applying paragraph 66(d) of IAS 1, unless the demand deposit is "restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period". In addition, the entity needs to consider whether to provide disclosures about liquidity risk arising from this cash balance and how it manages that risk in the context of the requirements in IFRS 7, and other relevant additional information to enable users of the financial statements to understand the impact on the entity's financial position in accordance with paragraph 31 of IAS 1. The TLTROS link the amount a participating bank can borrow and the interest rate the bank pays on each tranche of the operation to the volume and amount of loans it makes to non-financial corporations and households. The Committee observed that IFRS 9 is the starting point for the bank to decide how to account for TLTRO III transactions, as each liability arising from the bank's participation in a tranche is a financial liability. The bank would assess whether it would separate any embedded derivatives from the host contract and, for a financial liability not measured at fair value through profit or loss, initially recognise and measure the financial liability at fair value plus or minus transaction costs, accounting for any difference between fair value and transaction price and applying the effective interest method. Applying paragraph B5.1.1 of IFRS 9, if the initial fair value differs from the transaction price, the bank determines whether a part of the consideration received is for something other than the financial liability - e.g. the difference may represent the benefit of a government loan at a below- market rate of interest. The Committee noted that the bank should use judgement to decide whether TLTROS contain a benefit of a government loan at a below-market rate of interest or a forgivable loan in the scope of IAS 20, and apply IAS 20 to the difference accordingly. This difference is only assessed at initial recognition. The bank applies IFRS 9 to account for the financial liability, both on initial recognition and subsequently. The Committee observed that the question arises as to how to reflect the uncertainty that arises from conditionality related to the contractual interest rate in the estimates of expected future cash flows when applying the effective interest method and that this affects both initial and subsequent measurement. However, it concluded that this is a broader matter that is also relevant for fact patterns other than that described in the request, which should be considered by the IASB as part of the IFRS 9's Post- implementation Review. C7 [End of Table C] © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#220Appendix D Notable HKICPA financial reporting guidance From time to time, the HKICPA issues educational materials on the application of HKFRSS to cater for local needs and issues and to promote consistent application. This appendix highlights a notable piece of HKICPA guidance issued in July 2023 that may have pervasive impact on entities reporting under HKFRSS. While the guidance is technically non-authoritative, it provides additional insights that might change an entity's understanding of the principles and requirements in HKFRSS and, because of this, an entity might determine that it needs to change its related accounting policies. Specifically, the HKICPA notes in the guidance its expectations that entities have to determine whether their existing accounting policies on the related issues remain appropriate and, if their existing accounting policies are materially different from those described in the guidance, consider implementing a voluntary accounting policy change to conform with the guidance. Similar to an accounting change that results from an agenda decision published by the Committee (see Appendix C), the HKICPA guidance notes that entities should also be entitled to "sufficient time" to implement changes in accounting policies that result from the guidance, but any such changes should be implemented in a timely manner. More information on the HKICPA guidance can be obtained from your usual KPMG contact. Issue date Title of the publication 4 July 2023 Accounting implications of the abolition of the MPF-LSP offsetting mechanism in Hong Kong Summary of the guidance The guidance sets out the accounting considerations relating to: (a) the Mandatory Provident Fund ("MPF")-Long Service Payment ("LSP") offsetting mechanism in Hong Kong SAR, and (b) the abolition of such mechanism, which was gazetted by the Government of the Hong Kong SAR on 9 June 2022 in the form of the Hong Kong Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022 (the "Amendment Ordinance"). The HKICPA guidance outlines the following two acceptable accounting approaches, which characterise the nature of an employer's right to the accrued benefits arising from its MPF contributions differently, with different recognition, measurement, as well as presentation and disclosure outcomes in an entity's financial statements: (a) account for the accrued benefits derived from an employer's mandatory MPF contributions that are expected to be used to reduce the LSP payable to an employee as deemed contributions by that employee towards his LSP benefits (b) account for an employer's MPF contributions as the employer's funding mechanism which gives rise to a right of reimbursement for its LSP obligation. From a financial reporting perspective, however, the above guidance is likely to be an immediate impact on the financial statements of entities with a significant employee base in Hong Kong SAR, even though from a legal point of view the Amendment Ordinance has a prospective application as from May 2025. At the time of finalising the Amendment Ordinance, the Government of the Hong Kong SAR indicated that it would launch a scheme to subsidise employers for a period of 25 years after the transition date on the LSP payable by employers up to a certain amount per employee per year. The HKICPA guidance notes that this expected government subsidy does not yet meet the recognition criteria of any element of the financial statements based on an assessment of relevant facts and circumstances at the time the guidance was issued. [End of Table D] D1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#221Appendix E HKFRSS in issue at 31 August 2023 This appendix lists all the Standards in issue at 31 August 2023 in numerical order, with cross-references to any related Interpretations. In the tables below "*" and "#" have the following meanings: • "*" indicates that the Standard (or an amendment to it) is first effective for annual periods beginning 1 January 2023 or are immediately effective upon issuance. Table B1 of Appendix B contains further details of these new standards and amendments to HKFRSS. "#" indicates that the Standard (or an amendment to it) is not yet mandatory in annual periods beginning 1 January 2023, but is available for early adoption. Table B2 of Appendix B contains further details of these amendments to HKFRSS. Table E: HKFRSS and HKASS in issue at 31 August 2023 Related Interpretations HKFRS 1 First-time adoption of Hong Kong HK(IFRIC) 12 Service concession arrangements Financial Reporting Standards HKFRS 2 Share-based payment HK(IFRIC) 19 Extinguishing financial liabilities with equity instruments HKFRS 3 Business combinations HK(IFRIC) 17 Distributions of non-cash assets to owners HK(IFRIC) 19 Extinguishing financial liabilities with equity instruments HKFRS 4 Insurance contracts HK(SIC) 32 Nil Intangible assets - Web site costs HKFRS 5 Non-current assets held for sale and discontinued operations HK(IFRIC) 17 Distributions of non-cash assets to owners HKFRS 6 Exploration for and evaluation of mineral resources Nil HKFRS 7 Financial instruments: Disclosures Amendments to HKAS 7 and HKFRS 7# Supplier finance arrangements HK(IFRIC) 12 HK(IFRIC) 17 HK(INT) 5 Service concession arrangements Distributions of non-cash assets to owners Presentation of financial statements - Classification by the borrower of a term loan that contains a repayment on demand clause HKFRS 8 Operating segments Nil E1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#222Table E (continued): HKFRSS and HKASS in issue at 31 August 2023 HKFRS 9 Financial instruments Appendix E HKFRSS in issue at 31 August 2023 HK(IFRIC) 2 Members' shares in co-operative entities and similar instruments HK(IFRIC) 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds HK(IFRIC) 10 HK(IFRIC) 12 Interim financial reporting and impairment Service concession arrangements HK(IFRIC) 16 Hedges of a net investment in a foreign operation HK(IFRIC) 19 Extinguishing financial liabilities with equity instruments HKFRS 10 Consolidated financial statements HK(IFRIC) 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds Amendments to HKFRS 10 and HKAS 28# Sale or contribution of assets between an investor and its associate or joint venture HK(IFRIC) 17 Distributions of non-cash assets to owners HKFRS 11 Joint arrangements HK(IFRIC) 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds HKFRS 12 Disclosure of interests in other entities Nil HKFRS 13 Fair value measurement HK(IFRIC) 2 Members' shares in co-operative entities and similar instruments HK(IFRIC) 17 Distributions of non-cash assets to owners HK(IFRIC) 19 Extinguishing financial liabilities with equity instruments HKFRS 14 Regulatory deferral accounts Nil HKFRS 15 Revenue from contracts with customers HK(IFRIC) 12 Service concession arrangements HK(SIC) 32 Intangible assets - Web site costs HKFRS 16 Leases HK(IFRIC) 1 Amendments to Lease liability in a sale and leaseback HK(IFRIC) 12 Changes in existing decommissioning, restoration and similar liabilities Service concession arrangements HKFRS 16# HKFRS 17* Insurance contracts HK(SIC) 29 HK(SIC) 32 Nil Service concession arrangements: Disclosures Intangible assets - Web site costs Amendments to HKFRS 17 (issued in October 2020) * Amendment to HKFRS 17 (issued in February 2022) * Initial application of HKFRS 17 and HKFRS 9 - Comparative information E2 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#223Table E (continued): HKFRSS and HKASS in issue at 31 August 2023 Appendix E HKFRSS in issue at 31 August 2023 HKAS 1 Presentation of financial statements HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities Amendments to Disclosure of accounting policies HKAS 1 and HKFRS Practice Statement 2* Amendments to HKAS 1 (issued in August 2020)# Classification of liabilities as current or non-current HK(IFRIC) 14 Amendments to Non-current liabilities with covenants HK(IFRIC) 17 HKAS 1 (issued HK(IFRIC) 19 in December 2022)# HKAS 19- The limit on a defined benefit asset, minimum funding requirements and their interaction Distributions of non-cash assets to owners Extinguishing financial liabilities with equity instruments Stripping costs in the production phase of a surface mine HK(IFRIC) 20 HK(IFRIC) 21 Levies HK(IFRIC) 23 Uncertainty over income tax treatments HK(SIC) 25 Income taxes - Changes in the tax status of an entity or its shareholders HK(SIC) 29 Service concession arrangements: Disclosures HK(SIC) 32 Intangible assets - Web site costs HK(INT) 5 HKAS 2 Inventories HK(IFRIC) 20 Presentation of financial statements - Classification by the borrower of a term loan that contains a repayment on demand clause Stripping costs in the production phase of a surface mine HK(SIC) 32 Intangible assets - Web site costs HKAS 7 Amendments to Statement of cash flows Supplier finance arrangements Nil HKAS 7 and HKFRS 7# HKAS 8 Amendments to HKAS 8* Accounting policies, changes in accounting estimates and errors Definition of accounting estimates HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities HK(IFRIC) 5 E3 HK(IFRIC) 6 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds Liabilities arising from participating in a specific market - Waste electrical and electronic equipment HK(IFRIC) 12 Service concession arrangements HK(IFRIC) 14 HKAS 19- The limit on a defined benefit asset, minimum funding requirements and their interaction HK(IFRIC) 16 HK(IFRIC) 19 Hedges of a net investment in a foreign operation Extinguishing financial liabilities with equity instruments HK(IFRIC) 21 Levies HK(IFRIC) 22 Foreign currency transactions and advance consideration © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#224Appendix E HKFRSS in issue at 31 August 2023 Table E (continued): HKFRSS and HKASS in issue at 31 August 2023 HK(IFRIC) 23 HK(SIC) 10 Uncertainty over income tax treatments Government assistance - No specific relation to operating activities HK(SIC) 25 Income taxes - Changes in the tax status of an entity or its shareholders HKAS 10 Events after the reporting period HK(IFRIC) 17 HK(IFRIC) 23 Distributions of non-cash assets to owners Uncertainty over income tax treatments HKAS 12 Income taxes HK(IFRIC) 7 Applying the restatement approach under HKAS 29 Financial reporting in hyperinflationary economies Amendments to HKAS 12* Deferred tax related to assets and liabilities arising from a single transaction HK(IFRIC) 21 Levies Amendments to HKAS 12* International tax reform - Pillar Two model rules HK(IFRIC) 23 Uncertainty over income tax treatments HK(SIC) 25 Income taxes - Changes in the tax status of an entity or its shareholders HKAS 16 Property, plant and equipment HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities HK(IFRIC) 12 Service concession arrangements HK(IFRIC) 20 Stripping costs in the production phase of a surface mine HK(SIC) 29 Service concession arrangements: Disclosures HK(SIC) 32 Intangible assets - Web site costs HKAS 19 Employee benefits HK(IFRIC) 14 HKAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction Service concession arrangements HKAS 20 Accounting for government grants and disclosure of government assistance HK(IFRIC) 12 HK(IFRIC) 21 Levies HK(SIC) 10 HKAS 21 The effects of changes in foreign exchange rates HK(IFRIC) 16 Government assistance - No specific relation to operating activities Hedges of a net investment in a foreign operation Amendments to IAS 21#1 Lack of exchangeability HK(IFRIC) 22 Foreign currency transactions and advance consideration HKAS 23 Borrowing costs HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities HKAS 24 Related party disclosures HK(IFRIC) 12 HK(IFRIC) 21 Service concession arrangements Levies HKAS 26 Accounting and reporting by Nil retirement benefit plans HKAS 27 Separate financial statements Nil HKAS 28 Investments in associates and joint ventures HK(IFRIC) 5 E4 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#225Table E (continued): HKFRSS and HKASS in issue at 31 August 2023 Amendments to HKFRS 10 and HKAS 28# Sale or contribution of assets between an investor and its associate or joint venture HKAS 29 Financial reporting in hyperinflationary economies HK(IFRIC) 7 Appendix E HKFRSS in issue at 31 August 2023 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds Applying the restatement approach under HKAS 29 Financial reporting in hyperinflationary economies HKAS 32 Financial instruments: Presentation HK(IFRIC) 2 Members' shares in co-operative entities and similar instruments HK(IFRIC) 12 Service concession arrangements HK(IFRIC) 19 Extinguishing financial liabilities with equity instruments HKAS 33 Earnings per share Nil HKAS 34 Interim financial reporting HK(IFRIC) 10 HK(IFRIC) 21 Interim financial reporting and impairment Levies HKAS 36 Impairment of assets HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities HK(IFRIC) 10 Interim financial reporting and impairment HK(IFRIC) 12 Service concession arrangements HK(SIC) 32 Intangible assets - Web site costs HKAS 37 Provisions, contingent liabilities and contingent assets HK(IFRIC) 1 Changes in existing decommissioning, restoration and similar liabilities HK(IFRIC) 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds HK(IFRIC) 6 Liabilities arising from participating in a specific market - Waste electrical and electronic equipment HK(IFRIC) 12 Service concession arrangements HK(IFRIC) 14 HKAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction Levies HK(IFRIC) 21 HK(SIC) 29 Service concession arrangements: Disclosures HKAS 38 Intangible assets HK(IFRIC) 12 Service concession arrangements HK(IFRIC) 20 Stripping costs in the production phase of a surface mine HK(SIC) 29 HK(SIC) 32 Service concession arrangements: Disclosures Intangible assets - Web site costs E5 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#226Table E (continued): HKFRSS and HKASS in issue at 31 August 2023 HKAS 39 HKAS 40 Financial instruments: Recognition and Nil measurement (Note: Entities are allowed, as an accounting policy choice, to continue to apply the hedge accounting requirements in HKAS 39 instead of HKFRS 9.) Investment property HKAS 41 Agriculture Nil Nil Appendix E HKFRSS in issue at 31 August 2023 E6 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#227Appendix F Exposure drafts in issue at 31 August 2023 Exposure drafts (EDs) are discussion documents issued for comment and are not mandatory. The proposals are an indication with respect to the detailed content of future accounting pronouncements, but they cannot be adopted early to the extent that they contradict existing requirements. Therefore, particular care should be taken if intending to follow any of the proposals or guidance in the EDs that propose changes to existing HKFRSS. The HKICPA has adopted a practice of inviting comments on EDs issued by the IASB during the comment period, for the HKICPA to consider and pass on to the IASB as part of its submission. In such cases, the HKICPA has stated it will not issue a specific Hong Kong ED on the same subject unless any changes made by the IASB are so significant as to warrant, in the opinion of the HKICPA, seeking further comment. If the HKICPA does not consider it necessary to seek further comment it will generally adopt the Standard or Interpretation, once finalised by the IASB. Exposure drafts EDs not yet finalised by the IASB at 31 August 2023 Exposure Draft, Amendments to the classification and measurement of financial instruments (Proposed amendments to IFRS 9 and IFRS 7) Exposure Draft, Subsidiaries without public accountability: disclosures Exposure Draft, Management commentary Exposure Draft, Regulatory assets and regulatory liabilities Exposure Draft, General presentation and disclosures Expiry date of comment period 19 July 2023 31 January 2022 23 November 2021 30 July 2021 30 September 2020 F1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#228Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong In general, overseas issuers incorporated in the common law jurisdictions of Bermuda and Cayman Islands may list on the Stock Exchange of Hong Kong Limited (Exchange) and the Listing Rules apply as much to them as to issuers incorporated under the Hong Kong Companies Ordinance, subject to the additional requirements set out or referred to in Chapter 19 of the Main Board Listing Rules (MBLRS) (or Chapter 24 of the GEM Listing Rules in the case of listing on GEM). An issuer which is duly incorporated in Chinese Mainland as a joint stock limited company (defined as "PRC issuers" in Chapter 19A.04 of the MBLRs) may also list on the Exchange and the Listing Rules apply as much to them as to issuers incorporated under the Hong Kong Companies Ordinance, subject to additional requirements, modifications and exceptions set out or referred to in Chapter 19A of the MBLRs (or Chapter 25 of the GEM Listing Rules in the case of listing on GEM). This Appendix lists out areas where Chinese Mainland/overseas incorporated entities listed on the Exchange should take particular care, so far as financial reporting is concerned, with a focus on the differences compared to issuers incorporated under the Hong Kong Companies Ordinance. I. Auditor's report This Guide includes an illustrative audit report on the financial statements of an issuer incorporated under the Hong Kong Companies Ordinance prepared under Hong Kong Standard on Auditing 700 (Revised) on pages 23 - 27. The differences between this report and the reports to be issued by auditors when the listed issuer is not incorporated under the Hong Kong Companies Ordinance are summarised below. The full wording of the auditor's report applicable for Chinese Mainland, Cayman Islands or Bermuda incorporated issuers is included at the end of this Appendix: Elements of auditor's report Issuers incorporated under the Hong Kong Companies Ordinance Chinese Mainland or Cayman Islands incorporated issuers Bermuda incorporated issuers 1. Place of incorporation 2. Opinion 3. 4. Responsibilities of the directors for the consolidated financial statements Auditor's responsibilities for the audit of the consolidated financial statements Although it is not a requirement in HKSA 700 or ISA 700, in Hong Kong it is common practice to disclose the place of incorporation of the company below the title and the addressee of the auditor's report. • The auditor's opinion is referenced to the applicable financial reporting • framework and the Hong Kong . Companies Ordinance. The terms "financial position" and "financial performance" are specifically required to be used in the statement of the auditor's opinion by the Hong Kong Companies Ordinance. The description of the directors' responsibilities is referenced to the applicable financial reporting framework and the Hong Kong Companies Ordinance. The description of the auditor's responsibilities is referenced to section 405 of the Hong Kong Companies Ordinance. The auditor's opinion is referenced to the applicable financial reporting framework and the disclosure requirements of the Hong Kong Companies Ordinance. Any terms used in the statement of the auditor's opinion should follow the company law of the country of incorporation. If there is no specific term required by the relevant company law, then the terms "financial position" and "financial performance" may be used to be in line with the Hong Kong market. The description of the directors' responsibilities is referenced to the applicable financial reporting framework and the disclosure requirements of the Hong Kong Companies Ordinance. The description of the auditor's responsibilities is not referenced to any ordinance or legislation. The description of the auditor's responsibilities is referenced to Section 90 of the Bermuda Companies Act 1981. II. Disclosures of financial information under the Listing Rules Appendix 16 to the MBLRs and Chapter 18 of the GEM Listing Rules set out the minimum financial information that listed issuers should include in their financial reports, preliminary announcements, circulars etc. These apply equally to issuers incorporated under the Hong Kong Companies Ordinance and issuers not incorporated under the Hong Kong Companies Ordinance. However, both Appendix 16 and Chapter 18 also contain disclosure requirements concerning annual reports which are applicable only to overseas issuers and PRC issuers. These are summarised below: overseas issuers or PRC issuers shall include a statement, where applicable, that no pre-emptive rights exist in the jurisdictions in which the listed issuers are incorporated or otherwise established (ref: A16.20); G1 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#229Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong overseas issuers or PRC issuers shall include the information necessary to enable holders of their listed securities to obtain any relief from taxation to which they are entitled by reason of their holding of such securities (ref: A16.21 / GEM Rules 24.19 & 25. 31); for overseas issuers or PRC issuers, the statement of reserves available for distribution to shareholders required by paragraph 29 of Appendix 16 to the MBLRS or GEM Rule 18.37 should be calculated in accordance with any statutory provisions applicable in the issuer's place of incorporation or, in the absence of such provisions, with generally accepted accounting principles (ref: A16.29(2) / GEM Rules 24.21 & 25.33); and for PRC issuers, disclosures required by paragraphs 12-15 and 24 of Appendix 16 to the MBLRs relating to directors' biographical details, interests and short positions in shares, underlying shares and debentures, interests in transactions, arrangements or contracts, service contracts and emoluments also apply to the supervisors of the PRC issuers (similar requirements in GEM Rule 18.28). III. Applicability of the Hong Kong Companies Ordinance Paragraph 28 of Appendix 16 to the MBLRS specifically requires listed issuers, whether or not they are incorporated under the Hong Kong Companies Ordinance, to include disclosures required under the following provisions of the Hong Kong Companies Ordinance (Cap. 622) and subsidiary legislation (similar requirements in GEM Rules 24.20 and 25.32): In financial statements: (a) Section 383 - Notes to financial statements to contain information on directors' emoluments etc (b) Schedule 4 - Accounting Disclosures relating to . Part 1(1) Aggregate amount of authorized loans Part 1(2) Statement of financial position to be contained in notes to annual consolidated financial statements • Part 1(3) Subsidiary's financial statements must contain particulars of ultimate parent undertaking Part 2(1) Remuneration of auditor; and (c) Companies (Disclosure of Information about Benefits of Directors) Regulation In directors' report: (a) Section 390 - Contents of directors' report: general# (b) Section 470 - Permitted indemnity provision to be disclosed in directors' report (c) Section 543 - Disclosure of management contract (d) Schedule 5 - Content of Directors' Report: Business Review; and (e) Companies (Directors' Report) Regulation # Section 390(3)(b) of the Hong Kong Companies Ordinance (Cap. 622) as originally issued requires a company to disclose the names of the directors of its subsidiaries when the directors' report accompanies consolidated financial statements. However, this requirement was explicitly excluded from the level playing field requirements in the MBLRs and therefore issuers not incorporated under the Hong Kong Companies Ordinance were only required to disclose the names of directors of the holding company (Source: A16: Note 28.2) With effect from 1 February 2019, Section 390 has been amended such that there is no longer a requirement for a company incorporated under the Hong Kong Companies Ordinance to disclose the names of the directors of its subsidiaries in the directors' report, provided the list of names is available at the company's registered office or its website. Therefore, with effect from 1 February 2019, there is no longer a difference between issuers incorporated under the Hong Kong Companies Ordinance and issuers not incorporated under the Hong Kong Companies Ordinance in this regard, so far as disclosure in the directors' report is concerned. As a result of the above, in the "Statement of compliance" note in the financial statements of issuers not incorporated under the Hong Kong Companies Ordinance, the word "disclosure" is normally inserted before the words "requirements of the Hong Kong Companies Ordinance", in order to specify that the financial statements have complied with the disclosure aspects of the Hong Kong Companies Ordinance. G2 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#230Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong Example auditor's report for Chinese Mainland or Cayman Islands incorporated issuers Independent auditor's report to the shareholders of [name of company] (Incorporated in the [People's Republic of China] [Cayman Islands] with limited liability) Opinion We have audited the consolidated financial statements of [name of company] ("the company") and its subsidiaries ("the group") set out on pages to ....., which comprise the consolidated statement of financial position as at 31 December 2023, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and notes, comprising material accounting policy information³ and other explanatory information. In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSS") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. Basis for opinion We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAS") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code") together with any ethical requirements that are relevant to our audit of the consolidated financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Heading: name the specific key audit matter] Refer to notes [...] to the consolidated financial statements and the accounting policies on page [...]. The Key Audit Matter [description] We identified [name of specific key audit matter] as a key audit matter because [...] How the matter was addressed in our audit Our audit procedures to [...] included the following: Information other than the consolidated financial statements and auditor's report thereon The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. 3 Amendments to HKAS 1, Presentation of financial statements and HKFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies, effective for annual periods beginning on or after 1 January 2023, clarify that an entity is required to disclose their "material" rather than "significant" accounting policy (see note 1(c) and footnote 85 in the main body of this Guide). The opinion paragraph in the example auditor's reports has been updated to align with the amendments. G3 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#231Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSS issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the group's financial reporting process. Auditor's responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAS, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. G4 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#232Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor's report is [partner's name as appearing on his/her Practising Certificate]. KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 28 March 2024 G5 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#233Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong Example auditor's report for Bermuda incorporated issuers Independent auditor's report to the shareholders of [name of company] (Incorporated in Bermuda with limited liability) Opinion We have audited the consolidated financial statements of [name of company] ("the company") and its subsidiaries ("the group") set out on pages to ....., which comprise the consolidated statement of financial position as at 31 December 2023, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and notes, comprising material accounting policy information³ and other explanatory information. In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSS") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. Basis for opinion We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAS") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code") together with any ethical requirements that are relevant to our audit of the consolidated financial statements in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Heading: name the specific key audit matter] Refer to notes [...] to the consolidated financial statements and the accounting policies on page [...]. The Key Audit Matter [description] We identified [name of specific key audit matter] as a key audit matter because [...] How the matter was addressed in our audit Our audit procedures to [...] included the following: Information other than the consolidated financial statements and auditor's report thereon The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. G6 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#234Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSS issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the group's financial reporting process. Auditor's responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. This report is made solely to you, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with HKSAS, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • • • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. G7 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#235Appendix G Requirements applicable to entities not incorporated under the Hong Kong Companies Ordinance and listed on the Stock Exchange of Hong Kong We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor's report is [partner's name as appearing on his/her Practising Certificate]. KPMG Certified Public Accountants 8th Floor, Prince's Building 10 Chater Road Central, Hong Kong 28 March 2024 99 G8 © 2023 KPMG, a Hong Kong partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. All rights reserved.#236Empty#237kpmg.com/cn/socialmedia in For a list of KPMG China offices, please scan the QR code or visit our website: https://home.kpmg.com/cn/en/home/about/offices.html The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. © 2023 KPMG, a Hong Kong (SAR) partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Printed in Hong Kong (SAR). The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. This publication contains copyright material of the IFRS® Foundation. All rights reserved. Reproduced by KPMG, a Hong Kong (SAR) partnership, with the permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation and rights to use its material please visit www.ifrs.org. Disclaimer: To the extent permitted by applicable law, the IASB, the ISSB and the IFRS Foundation expressly disclaims all liability howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to, liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect, incidental or consequential loss, punitive damages, penalties or costs. Information contained in this publication does not constitute advice and should not be substituted for the services of an appropriately qualified professional. 'ISSBTM is a Trade Mark and 'IFRS, IASB, 'IFRIC®, 'IFRS for SMEs, 'IAS' and 'SIC® are registered Trade Marks of the IFRS Foundation and are used by KPMG, a Hong Kong (SAR) partnership, under licence subject to the terms and conditions contained therein. Please contact the IFRS Foundation for details of countries where its Trade Marks are in use and/or have been registered. Publication date: September 2023