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The Hong Kong University of Science and Technology School
of Business and Management
Part-time MBA Program (Shen Zhen intake 2011)

ACCT5100- Financial Accounting Foundations

Sun Hung Kai 2006 Case Assignment- L6G3

Professor Name: Ping-Sheng Koh|
Date of Submission: December 04, 2011|
20023539| Eric| Liu Yike|
20023838| Harry| Zheng Jun|
20023735| Jacky| Yan Chao|
20023541| Janice| Luo Zhihang|
20023606| Elfin| Tang Juanjuan|

Sun Hung Kai 2006 Case Questions & Answer
Question 1
a) Identify three accounts on the balance sheet of Sun Hung Kai that represent tangible assets? Fixed assets, Investment properties, Properties for sale.
b) What are the differences among these accounts?
Fixed assets: Known as a non-current asset or as property, plant, and equipment, is a term used in accounting for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed. Investment properties: Investment properties are land and/or buildings held under a leasehold interest to earn long-term rental income and/or for capital appreciation. These include completed properties and land under development for future use as investment properties. Investment properties are stated in the balance sheet at fair value and are valued at least annually by independent valuer. Increase or decrease in fair value of investment properties is recognized in the profit and loss account. Upon disposal of an investment property, any gain or loss on disposal is recognized in the profit and loss account. Properties for sale: It belongs to the commodity, be treated as an inventory account for real estate industry. It can bring sales revenue after be sold.

Question 2
a) What is purpose of amortization / depreciation? What is the difference between depreciation and amortization? Amortization: Amortization is the process of decreasing, or accounting for, an amount over a period. Amortization is generally known as depreciation of intangible assets of a firm. Depreciation: Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years. Difference between depreciation and amortization:

* Depreciation is used for fixed assets and last for more than one year. * Amortization is used for intangible assets and expenses, normally last less than one year.

b) According to note 36, what is the total amount of depreciation and amortization for 2006? =1035 million c) According to note 16, what is the depreciation expense for the year? =4517-3679=838 million

What is your best guess of the amortization expense?
=1035-838=197 million

Question 3
What is the amount of fixed assets reported on the balance sheet? On note 16, it is net book value at 30 Jun 2006 which is 17,173M which is in line with that amount on balance sheet =17173 How do you reconcile this with note 16?

=Hotel properties + Property under development + other properties + Network Equipment + Toll Road + Other fixed assets =2090+5950+1618+1783+4882+850=17173 million

Question 4
a) What was the amount of fixed assets acquired in 2006?
2005 fixed assets – depreciation in 2006 + acquired assets in 2006= 2006 fixed assets, hence acquired assets= 2006 fixed assets- 2005 fixed assets+ depreciation in 2006 =17173-15447+838=2564 million

What was the amount of cash paid to acquire these fixed assets? From statement of cash flow:
=1839 million
b) Are properties under development depreciated?---No
c) Assume that the rest of the newly acquired fixed assets have a useful life of 5 years and a residual value of 2 million HKD. Prepare a table showing the depreciation expense and net book value of these assets over its expected life assuming that a full year of depreciation is taken in fiscal year...
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