IAS 40, certain disclosures, revenue, operating expenses, commitments, IFRS 16, certain lessor disclosures

Swire Properties Limited – Annual report – 31 December 2019

Industry: investment property

4. Revenue (extract)

5. Cost of Sales (extract)

39. Capital Commitments

* of which the Group is committed to funding HK$483 million (2018: HK$464 million).

At 31st December 2019, the Group had unprovided contractual obligations for future repairs and maintenance on investment properties of HK$256 million (2018: HK$219 million).

41. Lease Commitments

Accounting Policy

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Receipts from operating leases (net of any incentives paid to lessees) are recognised as income in the statement of profit or loss on a straight-line basis over the period of the lease.

For all types of leases undertaken by the Group, right-of-use assets and the corresponding lease liabilities are recognized in the financial statements at the date when the leased assets become available for use by the Group. Therefore, commitments in respect of leases payable by the Group represent the total future lease payments for committed leases which have not yet commenced at the year-end date.

The Group acts as both lessor and lessee under operating leases. Details of the Group’s commitments under non-cancellable operating leases are set out as follows:

(a) Lessor – lease receivables

The Group leases out investment properties under operating leases. The leases for investment properties typically run for periods of three to six years. The retail turnover-related rental income received from investment properties during the year amounted to HK$547 million (2018: HK$526 million).

At 31st December, the future aggregate minimum lease receipts under non-cancellable operating leases receivable by the Group were as follows:

Assets held for deployment on operating leases at 31st December were as follows:

(b) Lessee – lease payable under committed leases not commenced

At 31st December 2019, there are no future lease payments under leases committed but not yet commenced by the Group.

1. Changes in Accounting Policies and Disclosures (extract)

HKFRS 16 Leases (extract)

HKFRS 16 replaces HKAS 17 “Leases” and related interpretations where the distinction between operating and finance leases is removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised in the statement of financial position for all leases by lessees, except for leases that have a lease term of twelve months or less and leases of low-value assets. HKFRS 16 also amends the definition of investment property under HKAS 40 to include property held by a lessee as right-of-use assets to earn rentals or for capital appreciation or both and requires the Group to account for such right-of-use assets at their fair value. The standard does not significantly change the accounting of lessors.

The Group has adopted HKFRS 16 retrospectively from 1st January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules for lessees are therefore recognised in the opening statement of financial position on 1st January 2019.

Adjustment recognised on adoption of HKFRS 16

On adoption of HKFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of HKAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate of the lessees at 1st January 2019. The weighted average incremental borrowing rate of the lessees applied to the lease liabilities on 1st January 2019 was 3.4%. A reconciliation between (i) commitments under operating leases for future periods at 31st December 2018 and (ii) lease liabilities recognised at 1st January 2019 under HKFRS 16 is provided below:

The associated right-of-use assets for leases were measured on a modified retrospective basis as if the new rules had always been applied. Other right-of-use assets were measured at amounts equal to the lease liabilities, adjusted by the amounts of any prepaid or accrued lease payments relating to the leases recognised in the financial statements at 31st December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

The change in accounting policy affected the following items in the statement of financial position at 1st January 2019: