Investor Presentaiton
HKAS 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.
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