Investor Presentaiton

HKAS 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.

View entire presentation