Hong Kong Housing Authority

Hong Kong Housing Authority

Financial statements for the year ended 31 March 2011

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Contents

Page

Report of the Director of Audit 1-2

Financial Statements

Statement of Comprehensive Income 3

Statement of Financial Position 4-5

Statement of Changes in Net Assets 6

Statement of Cash Flows 7-8

Notes to the Financial Statements

1 Financial arrangements with the Government 9-11

2 Significant accounting policies 12-24

3 Critical accounting estimates and judgements 24-25

4 Change in presentation of financial statements 25 5 Income 26

6 Expenditure on home ownership schemes 27

7 Net non-operating income / (expenditure) 27

8 Property, plant and equipment 28-29

9 Capital works / projects in progress 30

10 Intangible assets 31

11 Placement with the Exchange Fund 31

12 Investments in securities and bank deposits 32

13 Home Purchase / Assistance Loans 33-34

14 Other assets 35

15 Inventories 35

16 Debtors, deposits and prepayments 36

17 Cash and cash equivalents 36

18 Creditors, deposits and other payables 36

19 Provisions and other liabilities 37

20 Government’s contribution 38-39

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21 Housing Capital Works Fund 40

22 Development Fund 41

23 Divestment of retail and carparking facilities 41

24 Related party transactions 42

25 Contingent liabilities 43-44

26 Capital commitments 45

27 Derivative financial instruments 46

28 Financial risk management 46-52

29 Fair values of financial instruments 53-54

30 Comparative figures 54

31 Supplemental information required under the financial arrangements with the Government

(a) Consolidated Appropriation Account 55

(b) Rental Housing Operating Account 56

(c) Commercial Operating Account 57

(d) Home Ownership Assistance Operating Account 58

(e) Funds Management Account 59

(f) Agency Account 60

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Report of the Director of Audit

Independent Audit Report I have audited the financial statements of the Hong Kong Housing Authority set out on pages 3 to 60, which comprise the statement of financial position as at 31 March 2011, and the statement of comprehensive income, statement of changes in net assets and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Hong Kong Housing Authority’s Responsibility for the Financial Statements The Hong Kong Housing Authority is responsible for the preparation of these financial statements in accordance with section 14(1) of the Housing Ordinance (Cap. 283), the 1988 Financial Arrangements with the Hong Kong Government (as amended by the 1994 Supplemental Agreement) and the accounting policies approved by the Hong Kong Housing Authority, the important features of which are set out in Notes 1 and 2 to the financial statements, and for such internal control as the Hong Kong Housing Authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with section 14(2) of the Housing Ordinance and the Audit Commission auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Hong Kong Housing Authority, as well as evaluating the presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements of the Hong Kong Housing Authority for the year ended 31 March 2011 are prepared, in all material respects, in accordance with the 1988 Financial Arrangements with the Hong Kong Government (as amended by the 1994 Supplemental Agreement) and the accounting policies approved by the Hong Kong Housing Authority, the important features of which are set out in Notes 1 and 2 to the financial statements, and have been properly prepared in accordance with section 14(1) of the Housing Ordinance. Benjamin Tang Audit Commission Director of Audit 26th Floor Immigration Tower 7 Gloucester Road 16 September 2011 Wanchai, Hong Kong

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HONG KONG HOUSING AUTHORITYSTATEMENT OF COMPREHENSIVE INCOME

Note 2011 2010

IncomeRental income 5(a) 10,866 11,213 Sales and premium income 5(b) 7,457 3,895 Investment income 5(c) 4,236 6,263 Other income 5(d) 159 139 22,718 21,510

ExpenditurePersonal emoluments 2,711 2,628 Government rent and rates 173 166 Maintenance and improvements 2,497 2,474 Depreciation and amortisation 2,613 3,823 Expenditure on home ownership schemes 6 2,889 1,099 Other expenditure 3,720 3,609 14,603 13,799

Operating surplus 8,115 7,711

Net non-operating income / (expenditure) 7 72 (57)

8,187 7,654

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8,187 7,654 Total comprehensive income for the year

Surplus for the year

FOR THE YEAR ENDED 31 MARCH 2011(Expressed in millions of Hong Kong dollars)

Other comprehensive income

The notes on pages 9 to 60 form part of these financial statements.


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AS AT 31 MARCH 2011(Expressed in millions of Hong Kong dollars)

Note 2011 2010(restated)

Non-current assetsProperty, plant and equipment 8 98,226 97,444 Capital works / projects in progress 9 15,161 11,881 Intangible assets 10 154 161 Placement with the Exchange Fund 11 21,620 20,339 Amount due from the Government 24(b) 800 1,200 Home Purchase / Assistance Loans 13 406 570 Other assets 14 158 214

136,525 131,809

Current assetsInventories 15 752 3,164 Debtors, deposits and prepayments 16 3,363 1,556 Amount due from the Government 24(b) 38 364 Investments in securities and bank deposits 12 48,398 43,046 Bank balances and cash 17 1,558 387

54,109 48,517

Current liabilitiesCreditors, deposits and other payables 18 10,420 7,909 Amount due to the Government 24(c) 576 471 Provisions and other liabilities 19 328 478

11,324 8,858

Net current assets 42,785 39,659

Total assets less current liabilities 179,310 171,468

Non-current liabilitiesProvisions and other liabilities 19 964 1,027

Net assets 178,346 170,441

HONG KONG HOUSING AUTHORITYSTATEMENT OF FINANCIAL POSITION



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AS AT 31 MARCH 2011 (Continued)(Expressed in millions of Hong Kong dollars)


Representing:Government's investments 1(a) 13,489 13,489 Government's contribution 20(a) 5,454 5,454 Capital reserve 12 12 Accumulated surplus 81,282 85,480 Housing Capital Works Fund 21 20,237 16,841 Development Fund 22 57,872 49,165

178,346 170,441- -

Hong Kong Housing Authority

HONG KONG HOUSING AUTHORITYSTATEMENT OF FINANCIAL POSITION

16 September 2011


Eva ChengChairman


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HONG KONG HOUSING AUTHORITYSTATEMENT OF CHANGES IN NET ASSETS



Balance at 1 April 2009 13,489 5,454 12 78,921 18,669 46,473 163,018

Total comprehensive income - - - 7,654 - - 7,654 for the year

Dividend to Government - - - (231) - - (231) for the year

Transfer from accumulated - - - (2,692) - 2,692 - surplus

Transfer to accumulated - - - 1,828 (1,828) - - surplus

Balance at 31 March 2010 13,489 5,454 12 85,480 16,841 49,165 170,441 - - - - - - -

Balance at 1 April 2010 13,489 5,454 12 85,480 16,841 49,165 170,441

Total comprehensive income - - - 8,187 - - 8,187 for the year

Dividend to Government - - - (282) - - (282) for the year

Transfer from accumulated - - - (12,103) 3,396 8,707 - surplus

Balance at 31 March 2011 13,489 5,454 12 81,282 20,237 57,872 178,346 - - - - - - -

Government'sinvestments

Government'scontribution Capital reserve Total

Accumulatedsurplus

HousingCapital Works

FundDevelopment

Fund


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Cash flows from operating activitiesSurplus for the year 8,187 7,654 Adjustments for:

Investment income 5(c) (4,236) (6,263) (Reversal of expenditure) / expenditure on divestment of retail and carparking facilities 7 (59) 65 Depreciation of property, plant and equipment 2,535 3,744 Amortisation of intangible assets 102 97 Written down value of Tenants Purchase Scheme flats sold 62 45 Written down value of rental estates demolished - 6 Adjustment of capital expenditure 16 6 Decrease in Home Purchase / Assistance Loans 185 230 Decrease in impairment allowance for Home Purchase / Assistance Loans (7) (18) Decrease in other assets 78 88 Increase in Home Ownership Scheme (Domestic) properties under development (22) (16) Decrease in inventories 2,432 1,194 Reversal of write-down of stock of flats 6 (20) (152) (Increase) / Decrease in securities at fair value (4,362) 5,843 (Increase) / Decrease in debtors, prepayments and other receivables (1,470) 931 Increase / (Decrease) in creditors, accruals and other payables 2,949 (682) Decrease in provisions and other liabilities (105) (308)

Net cash from operating activities 6,265 12,464 - -

HONG KONG HOUSING AUTHORITYSTATEMENT OF CASH FLOWS




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HONG KONG HOUSING AUTHORITYSTATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2011 (Continued)

2011 2010(restated)

Cash flows from investing activities

Proceeds from redemption of held-to-maturity securities 44 13 Increase in placement with the Exchange Fund (1,281) (20,339) Decrease in bank deposits with original 6,657 9,182 maturity over 3 monthsPayments relating to divestment of retail and carparking facilities (25) (110) Payments relating to capital works / projects in progress -New public rental housing (4,026) (4,109) -Redeveloped public rental housing (2,137) (1,441) -Home Ownership Scheme (Commercial) (3) (3) -Computer systems (176) (128) -Improvement works (473) (383) Interest received 2,121 1,552 Dividends received 235 166

Net cash from / (used in) investing activities 936 (15,600)

Cash flows from financing activitiesDividend paid to Government (281) (222)

Net cash used in financing activities (281) (222)

Net increase / (decrease) in cash and cash equivalents 6,920 (3,358)

Cash and cash equivalents at beginning of year 6,031 9,389

Cash and cash equivalents at end of year 17 12,951 6,031 - -

Note


(Expressed in millions of Hong Kong dollars)


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HONG KONG HOUSING AUTHORITY

NOTES TO THE FINANCIAL STATEMENTS

1 FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT

The Hong Kong Housing Authority (the Authority) was established as a statutory body in

April 1973 under the Housing Ordinance (Cap. 283). It exercises its powers and

discharges its duties under the Ordinance so as to secure the provision of housing and

such amenities ancillary thereto as it thinks fit. Following enactment of the Housing

(Amendment) Ordinance 1988 and implementation of the Authority's re-organisation, the

financial arrangements between the Government and the Authority came into effect on

1 April 1988. A Supplemental Agreement to the 1988 Financial Arrangements was

effective from 1 October 1994. The salient features of the financial arrangements are as

follows:

(a) Government's non-interest bearing permanent capital

A sum of HK$13,489 million representing that element of the permanent capital

originating from the capitalisation of loans from the former Development Loan

Fund has been converted into non-interest bearing permanent capital with effect

from 1 October 1994.

(b) Government’s contribution

The Government’s contribution to domestic housing and non-domestic equity

included in the accounts is shown in Note 20(a).

The land value for the domestic element of public rental housing, the excess of

the full market value of land over the land cost charged by the Government for the

domestic element of the Home Ownership Scheme (HOS) and the land value for

the non-domestic elements in rental estates and Home Ownership courts (i.e.

carparks and commercial facilities) are included in Note 20(b).


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(c) Dividend to Government for the year

The overall surplus arising from the operation of non-domestic facilities in rental

estates and Home Ownership courts are to be shared equally between the

Authority and the Government and distributed to the Government in the form

of dividend.

(d) Contingent liabilities for the Home Ownership Scheme and the Private

Sector Participation Scheme

The Authority took over from the Government the contingent liabilities for

mortgage default guarantees in respect of flats built under the HOS and the

Private Sector Participation Scheme (PSPS) (Note 25(a)), and for unsold flats and

the shortfall in selling price under the PSPS.

(e) Construction and management of temporary housing and cottage areas

With effect from 1 April 1988, the Housing Authority has :

(i) become responsible for meeting expenditure arising from the development,

construction and management of temporary housing areas and transit

centres, and the management of cottage areas; and

(ii) continued to undertake clearance, squatter control and maintenance

of facilities provided under Squatter Area Improvement Programmes, on

an agency basis, for the Government which remains responsible for the

funding of these activities.

All temporary housing areas had been demolished by August 2001. Effective from

April 2006, except for the activity on rehousing of occupants upon clearance, the

squatter control and clearance functions were transferred to the Lands

Department.


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(f) Housing Capital Works Fund

The Housing Capital Works Fund, established on 1 April 1993 to separate the

funding for the acquisition and/or construction of all the Authority's fixed assets

and developments of the HOS, has been expanded to finance the capital costs

of major improvement works. Accordingly, it is split into two accounts, viz. the

Construction Account to cover the construction of housing estates and

developments of the HOS, and the Improvement Account to provide funds for

improving the standard of existing estates and implementing better community

services in the estates.

Each of these two accounts is required to maintain an adequate level of operating

funds - the Construction Account at a level equivalent to six months’ estimated

expenditure, and the Improvement Account at an annual balance of HK$2 billion.

(g) Development Fund

The Development Fund was established with effect from 1 October 1994 to

finance the development of housing and housing-related projects and

infrastructure that would further the policy of providing adequate and affordable

housing for those in need of housing provision.

With the prior agreement of the Authority, the Government has the right to pay

into the Development Fund such additional sum of money that might be needed to

support the purposes of the Fund.


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2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation of financial statements

The financial statements have been prepared in accordance with the Housing

Ordinance, the 1988 Financial Arrangements and the 1994 Supplemental

Agreement with the Government, and the accounting policies approved by the

Authority.

(i) Measurement basis

The measurement basis used in the preparation of the financial statements is

the historical cost basis except for securities managed by external fund

managers, securities acquired for trading purpose and derivative financial

instruments, which are stated at their fair value as explained in the accounting

policies set out at Notes 2(i) and 2(l)

(ii) Management judgements and estimates

The preparation of the financial statements 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 the Authority’s

accounting policies that have significant effect on the financial statements and


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estimates with a significant risk of material adjustment in the next year are

explained in Note 3.

(b) Income recognition

Income is recognised when it is probable that the economic benefits will flow to

the Authority and the income and costs, if applicable, can be measured reliably.

The income for the year is accounted for in accordance with the following

accounting policies:

(i) Rental income

Rental income from properties is brought into account in the period to which

it relates;

(ii) Sales and premium income

This includes:

- income from the sale of HOS/PSPS flats which is recognised upon signing

of the sale and purchase agreement;

- income from the sale of flats under the Tenants Purchase Scheme (TPS)

which is recognised upon signing of the Deed of Assignment;

- proceeds from the resale of HOS/PSPS/TPS flats which are recognised

when these flats are re-sold; and

- premium payments from HOS/PSPS/TPS flat owners which are recognised

as income when the alienation restrictions on the flats are removed;

(iii) Interest income

Interest income is recognised as it accrues on a time basis using the effective

interest method;

(iv) Dividend income

Dividend income is recognised on the ex-dividend date;

(v) Fees and charges

Fees and charges arising from the provision of services are recognised upon

the delivery of services; and


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(vi) Income from agency functions and services

Income generated from the agency functions and services of the Authority is

brought into account in the period to which it relates.

(c) Property, plant and equipment

Property, plant and equipment are stated in the statement of financial position at

cost less accumulated depreciation. The following items of property, plant and

equipment are utilised in the provision of public housing services and ancillary

commercial facilities:

(i) Buildings and improvement works

Buildings are classified into three categories:

Rental Premises (excluding Interim Housing)

'HKHA' Estates of the present as well as the former Hong Kong

Housing Authority plus additions thereto since

1 April 1973, including the estates taken over from the

Hong Kong Model Housing Society.

'GLCH' Estates of the former Government Low Cost Housing

Scheme plus additions thereto since 1 April 1973.

'HOS(ND)' Non-domestic premises of the Home Ownership Scheme.

'RD' Estates of the former Resettlement Department including

flatted factories plus additions thereto since 1 April 1973.

Interim Housing

'IH' Accommodation of transitional nature but the structures

may be permanent.

Others

'HO' Head Office buildings.

'SQ' Staff quarters.


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Buildings and improvement works costing HK$500,000 or more each are

recognised as assets on the following bases:

'HKHA', 'HOS(ND)', 'HO' and 'IH' - At cost to the Authority;

'GLCH' - For those completed before 1 April 1973, at deemed cost

equal to written down value at 31 March 1973; and for those completed

after 31 March 1973, at cost to the Authority;

'RD' - For those formerly classified as Marks I, II and III estates and

factories (other than factories completed after 31 March 1973), at nil

value; for other estates completed before 1 April 1973, at deemed cost

equal to written down value at 31 March 1973; and for estates

completed after 31 March 1973, at cost to the Authority; and

'SQ' - At deemed cost equal to written down value at 31 March 1976 to

the Authority.

(ii) Computer equipment and electronic equipment

Computer systems (including both hardware and software) and electronic

equipment costing HK$500,000 or more each are recognised as assets at cost.

For computer systems, the costs of the hardware (including its integrated

software) and software are segregated and recognised under “property, plant

and equipment” and “intangible assets” (Note 2(f)) respectively.

While each subsequent expenditure item of HK$500,000 or more for

improvement of an existing item of plant and equipment is added to the carrying

amount of the asset if future economic benefits will flow to the Authority,

computer system enhancement costs are not subject to the HK$500,000

capitalisation threshold.

Gains or losses arising from the retirement or disposal of an item of property,

plant and equipment are determined as the difference between the net disposal


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proceeds and its carrying amount and are recognised in the statement

of comprehensive income on the date of retirement or disposal.

(d) Depreciation

Depreciation is calculated to write off the cost of an item of property, plant and

equipment, less its estimated residual value, if any, using the straight-line basis

over its estimated useful life as follows:

Expected useful life (i) Buildings (including site formation,

integral mechanical plant & equipment, electrical equipment, electronic equipment, tele-communication equipment and lighting & ventilation funded by the approved project budget)

- Low-rise prefabricated IH blocks

- Estates and other buildings (excluding those in the above)

10 years 50 years

(ii) All building improvements and other improvement works

The remaining life of the building upon completion of the improvement works.

(iii) Computer equipment and electronic equipment

5 years

(e) Capital works / projects in progress

This includes expenditure incurred on properties or computer systems under

development, improvement works and acquisition of property, plant and

equipment, and financed by the Housing Capital Works Fund and the

Development Fund. When the capital works are completed, the costs are

reclassified as items of “property, plant and equipment” or “intangible assets”.

When the HOS (Domestic) projects are completed, the related costs are

transferred to “inventories”. Expenditure on improvement works costing less than

HK$500,000 each is expensed to the statement of comprehensive income when

incurred.


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(f) Intangible assets

Intangible assets include acquired computer software licences and capitalised

development costs of computer software programmes. Expenditure on

development of computer software programmes is capitalised if the programmes

are technically feasible and the Authority has sufficient resources and the

intention to complete development. The expenditure capitalised includes the

direct labour costs and costs of materials. Intangible assets are stated at cost less

accumulated amortisation.

Amortisation of intangible assets is charged to the statement of comprehensive

income on a straight-line basis over the assets’ estimated useful lives of 5 years.

(g) Land

(i) Land under lease

The Authority has proper legal title to land in all the Home Ownership (non-

domestic) properties, rental flats of TPS estates, certain rental housing estates,

rental blocks in some courts, two Head Office buildings at Fat Kwong Street,

the customer service centre at Wang Tau Hom and the office at Chun Wah

Court, either by way of Crown/Government Lease, or under Conditions

of Grant or Exchange.

Leasehold land premiums are up-front payments to acquire leasehold land or

land use right. The premiums are stated at cost and are depreciated over the

period of the lease on a straight-line basis (Note 4).

(ii) Land under vesting order

For land not under lease, vesting orders have been made by the Director

of Lands, acting on delegated authority from the Chief Executive, under

Section 5 of the Housing Ordinance. Such vesting orders confer on the

Authority full powers of control and management of the land.


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(iii) Land value

The value of land included in Note 20(b) in accordance with the financial

arrangements with the Government Note 1(b) is determined on the

following bases:

'HKHA', 'GLCH', 'IH' and 'RD' 1 - The land value is based on the assessments

made by the Commissioner of Rating and Valuation using the residual

method of valuation, being either at 1976 levels or at the time of handover for

management where the estate was completed after 1976. Where the

Commissioner of Rating and Valuation has not been able to provide a

valuation, a provisional land valuation is made by applying a multiplier to the

provisional rateable value of the estate.

'HOS(Domestic)' - The land value associated with the domestic element

of the Home Ownership Scheme is the excess of the full market value of land

over the land cost.

'HOS(ND)' 1 - Prior to 1 April 1988, the land for commercial facilities was

valued at the full market value at the date the land was purchased, and the

land for carparks completed before that date was assessed at nil value. With

effect from 1 April 1988, the land value for non-domestic facilities including

commercial facilities and carparks is based on the assessments made by the

Commissioner of Rating and Valuation at the date of completion of the

facilities using the residual method of valuation.

'HO' 1 - For one of the Head Office buildings at Fat Kwong Street, the

customer service centre at Wang Tau Hom and the office building in upper

Wong Tai Sin, the land value is based on assessment made by the Lands

Department at the date of completion of the buildings.

'SQ' 1 - Land value is based on assessments made by the Commissioner

of Rating and Valuation using the residual method of valuation at 1976 level.

1 Abbreviations of the building types are shown in Note 2(c). 1 Abbreviations of the building types are shown in Note 2(c).


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(h) Placement with the Exchange Fund

Placement with the Exchange Fund for investment purpose includes the original

placement and any interest credited but not yet withdrawn at the end of the

reporting period. The balance is stated at amortised cost.

(i) Investments in securities

Securities that the Authority has the positive ability and intention to hold to

maturity are classified as held-to-maturity securities. Held-to-maturity securities

are initially recognised in the statement of financial position at fair value plus

transaction costs. Subsequently, they are stated in the statement of financial

position at amortised cost using the effective interest method less impairment

losses (Note 2(k)).

Securities managed by external fund managers are designated at fair value. They

are managed, evaluated and reported internally on a fair value basis. Investments

in these securities and those acquired for trading purpose are initially stated at fair

value. At the end of each reporting period, the fair value is remeasured and any

change in fair value is recognised in the statement of comprehensive income.

Upon disposal, the difference between the net sale proceeds and the carrying value

is included in the statement of comprehensive income.

Purchases and sales of investments in securities are accounted for at trade date.

(j) Loans and receivables

Loans and receivables are initially recognised at fair value and thereafter stated at

amortised cost less impairment losses (Note 2(k)), except for the interest-free

amount due from the Government and the interest-free loans made under

subsidised home ownership schemes or where the effect of discounting would be

immaterial. In those cases, they are stated at cost less impairment losses

(Note 2(k)).


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(k) Impairment of investments in securities, loans and receivables

Investments in held-to-maturity securities, loans and receivables are reviewed at

the end of each reporting period to determine whether there is objective evidence

of impairment. If any such evidence exists, an impairment loss is determined and

recognised in the statement of comprehensive income as follows:

(i) for financial assets carried at cost, the impairment loss is measured as the

difference between the carrying amount of the financial asset and the

present value of estimated future cash flows discounted at the current

market rate of return for a similar financial asset. Impairment losses for

these financial assets are reversed if in a subsequent period the amount

of the impairment loss decreases; and

(ii) for financial assets carried at amortised cost, the impairment loss is

measured as the difference between the asset’s carrying amount and the

present value of estimated future cash flows discounted at the financial

asset’s original effective interest rate (i.e. the effective interest rate

computed at initial recognition of the asset). If in a subsequent period the

amount of an impairment loss decreases and the decrease can be linked

objectively to an event occurring after the impairment loss was

recognised, the impairment loss is reversed in the statement

of comprehensive income. A reversal of an impairment loss shall not

result in the asset’s carrying amount exceeding that which would have

been determined had no impairment loss been recognised in prior years.

(l) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At the end

of each reporting period, the fair value is remeasured and any change in fair value

is recognised in the statement of comprehensive income.


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(m) Inventories

Inventories consist of flats, stores and spares. They are carried at the lower

of cost and net realisable value.

The net realisable value of repurchased and unsold new flats represents the

estimated selling price less costs to be incurred in selling the flats. When flats are

sold, the carrying amount of those flats is recognised as an expense in the year in

which the related sales income is recognised.

The cost of stores and spares is mainly determined by the weighted average cost

method. Obsolete stores and spares are written off to the statement of

comprehensive income. When stores and spares are consumed, the carrying

amount of those stores and spares is recognised as an expense in the year in which

the consumption occurs.

(n) Other assets

Other assets represent the Authority’s contributions to the maintenance funds

of individual TPS estates. For each TPS estate, the Authority has made a

one-off contribution to the estate’s maintenance fund in accordance with the

estate’s Deed of Mutual Covenant.

Other assets are carried at cost less accumulated amortisation. Amortisation

of other assets is charged to the statement of comprehensive income on a

straight-line basis over 10 years.

When flats in TPS estates are sold, the carrying amount of other assets

attributable to those flats is recognised as an expense in the year in which the

related sales income is recognised.

(o) Cash and cash equivalents

Cash and cash equivalents consist of bank balances and cash, and short-term

highly liquid investments that are readily convertible to known amounts of cash


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and subject to an insignificant risk of changes in value, normally having a

maturity of three months or less from the date of acquisition.

(p) Creditors and other financial liabilities

Creditors and other financial liabilities are stated at amortised cost except for the

interest-free amount due to the Government or where the effect of discounting

would be immaterial. In those cases, they are stated at cost.

(q) Employee benefits

Employee benefits such as wages, salaries and bonuses are recognised as an

expense when the employee has rendered the service. Obligations on contract-end

gratuities payable to contract staff for services rendered during the year are

provided for in the financial statements.

Employee entitlements to annual leave are recognised when they accrue to

employees. Employee entitlements to sick leave and maternity leave are not

recognised until the time of leave.

Contributions to the Mandatory Provident Fund for contract staff are expensed as

incurred. Pension liabilities for civil servants are discharged by reimbursement to

the Government as part of the civil servants’ staff costs charged by the

Government to the Authority on a monthly basis.

(r) Foreign currency translation

Foreign currency transactions during the year are translated into Hong Kong

dollars using the spot exchange rates at the transaction dates. Monetary assets

and liabilities denominated in currencies other than Hong Kong dollars are

translated into Hong Kong dollars using the closing exchange rates at the end of

the reporting period. Exchange gains and losses are recognised in the statement

of comprehensive income.


- 23 -

(s) Financial guarantees issued, provisions and contingent liabilities

(i) Financial guarantees issued

Financial guarantees are contracts that require the issuer to make specified

payments to reimburse 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. The mortgage default guarantees issued by the

Authority in connection with the sale of HOS/PSPS/TPS flats and in respect

of mortgage loans made by banks and other authorised financial institutions

are a form of financial guarantees.

No deferred income is recognised as the mortgage default guarantees are

issued at nil consideration and their fair value cannot be reliably measured.

Provisions for mortgage default guarantee payments are recognised if and

when it becomes probable that the holder of a guarantee will call upon the

Authority under the guarantee and a reliable estimate can be made of the

amount. For guarantees without such provisions recognised, the Authority’s

present obligations under the guarantees are disclosed as contingent

liabilities.

(ii) Other provisions and contingent liabilities

Provisions are recognised for other liabilities (including maintenance and

minor improvements) when the Authority has a present obligation as a result

of a past event, when it is probable that an outflow of economic benefits will

be required to settle the obligation, and when a reliable estimate can be made

of the amount of the obligation. Where the time value of money is material,

the provision is stated at the present value of the expenditure expected to

settle the obligation. Provisions are reviewed at the end of each reporting

period and adjusted to reflect the current best estimate.

Where it is not probable that an outflow of economic benefits will be required,

or the amount cannot be estimated reliably, the present obligation is disclosed

as a contingent liability, unless the probability of the outflow of economic

benefits is remote. Possible obligations, whose existence will only be


- 24 -

confirmed by the occurrence or non-occurrence of one or more future events,

are also disclosed as contingent liabilities unless the probability of an outflow

of economic benefits is remote.

(t) Related parties

A party is considered to be related to the Authority if the Authority has the ability,

directly or indirectly, to control the party or exercise significant influence over the

party in making financial and operating decisions, or vice versa, or where the

Authority and the party are subject to common control or common significant

influence.

(u) Taxation

According to Section 34(1) of the Housing Ordinance, the Authority shall, for the

purpose of this Ordinance, be exempt from the Inland Revenue Ordinance

(Cap. 112).

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

(a) Key sources of estimation uncertainty

The estimates and assumptions that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next

financial year are as follows:

Interest payable on Home Purchase Loan Scheme (HPLS) loans sold

As shown in Notes 13(d) and 19, interest payable on the outstanding balance

of the loan portfolio sold as at 31 March 2011 was stated at HK$178 million

(2010: HK$298 million). In determining this carrying amount, management made

assumptions concerning the future market interest rates and the amount and

timing of early repayments. Adjustments to the carrying amount will be required

if the actual market interest rates and early repayments are different from the

estimates.


- 25 -

(b) Critical accounting judgements in applying the Authority’s accounting policies

Certain critical accounting judgements in applying the Authority’s accounting

policies are described below.

Rental premises

In management’s view, the Authority uses rental premises for providing

subsidised public housing rather than earning rentals. As a result, they are

accounted for as items of property, plant and equipment instead of investment

properties. For the same reason, management considers that it is inappropriate to

recognise any impairment loss of rental premises based on their recoverable

amount.

(c) Change in accounting policy on Property, Plant and Equipment

Following the review on the Authority’s assets in 2009, the Authority approved to

change the expected useful life of buildings (except those for low-rise

prefabricated IH blocks for which the expected useful life remains at 10 years)

from the range of 25 - 40 years to 50 years to better reflect the expected usage to

the Authority with effect from 1 April 2010.

As a result, the overall depreciation was largely decreased by HK$1,210 million

in this year.

4 CHANGE IN PRESENTATION OF FINANCIAL STATEMENTS

To follow the best practice in the presentation of the financial statements, the Authority

has made a change in the classification of the lease premiums for land as set out below.

In prior years, the lease premiums for land were stated at cost and amortised over the

period of the lease on a straight-line basis and were presented at net book value separately

in the statement of financial position and in the notes to the financial statements. In the

current year, the lease premiums for land have been reclassified as property, plant and

equipment (Note 8) and the amortisation of the land element has been reclassified as

depreciation. Such reclassification has no implication on the statement of comprehensive

income.


- 26 -

5 INCOME

2011HK$M

(a) Rental incomeRental housing 9,480 Commercial properties 1,386

10,866 -

(b) Sales and premium incomeSales of flats 5,590 Premium on removal of alienation restriction 1,867

7,457 -

(c) Investment income Interest income from - placement with the Exchange Fund 1,285- securities at fair value 692- bank deposits 77- held-to-maturity securities 1

2,055

Net realised and revaluation gains onsecurities designated at fair value 1,420

Net exchange gains onsecurities at fair value 500- others 22

522

Dividend income from securities at fair value 238

Other investment income 1

4,236-

(d) Other incomeFees and charges 29 Miscellaneous income 130

159 -

Total income 22,718

2010HK$M

9,889 1,324

11,213

2,120 1,775 3,895

655 864199

31,721

3,731

62215

637

172

2

6,263

27 112 139

21,510


- 27 -

6 EXPENDITURE ON HOME OWNERSHIP SCHEMES2011 2010

HK$M HK$MCost of flats sold

- Construction cost and overheads 1,057 243 - Government land cost 381 97 - Cost of repurchased flats 1,466 1,033

2,904 1,373

Adjustments to the interest payable on HPLS loanssold (Note 3(a)) (62) (219)

Reversal of write-down of stock of HOS/PSPS flats (20) (152)

Other expenditure (e.g. building maintenance) 67 97

2,889 1,099

- - 7 NET NON-OPERATING INCOME / (EXPENDITURE)

2011 2010HK$M HK$M

Reversal of expenditure / (Expenditure) on divestment of retail and carparking facilities (Note 23) 59 (65)

Reimbursement from Urban Renewal Authority forthe costs of the allocated rental flats for affectedclearees 24 12

Adjustment of costs of flats and carparking facilitiessold to the Government 2 (1)

Other expenditure (e.g. land clearance and formation, servicing and associated infrastructural works) (13) (3)

72 (57)


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PROPERTY, PLANT AND EQUIPMENT

Rental Premises Rental Premises(excluding Interim Interim (excluding Interim Interim

Housing) Housing Others Total Housing) Housing Others TotalHK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M

(a) Lease premiums for landCost at beginning of year 105 - 57 162 108 - 57 165 Disposal - - - - (3) - - (3) Cost at end of year 105 - 57 162 105 - 57 162 Accumulated depreciation at beginning of year (92) - (21) (113) (95) - (19) (114) Charge for the year - - (2) (2) - - (2) (2) Written back on disposal - - - - 3 - - 3 Accumulated depreciation at end of year (92) - (23) (115) (92) - (21) (113) Net book value at end of year 13 - 34 47 13 - 36 49

(b) Site formationCost at beginning of year 2,430 1 9 2,440 2,306 1 9 2,316 Additions 1 - - 1 127 - - 127 Disposals (6) - - (6) (3) - - (3) Cost at end of year 2,425 1 9 2,435 2,430 1 9 2,440 Accumulated depreciation at beginning of year (1,007) (1) (6) (1,014) (947) - (6) (953) Charge for the year (36) - - (36) (62) (1) - (63) Written back on disposals 3 - - 3 2 - - 2 Accumulated depreciation at end of year (1,040) (1) (6) (1,047) (1,007) (1) (6) (1,014) Net book value at end of year 1,385 - 3 1,388 1,423 - 3 1,426

(c) BuildingsCost at beginning of year 133,450 525 1,823 135,798 126,925 569 1,823 129,317 Additions 2,928 - - 2,928 6,627 - - 6,627 Transfers (8) (14) 22 - 44 (44) - - Disposals / demolition (130) (4) - (134) (146) - - (146) Cost at end of year 136,240 507 1,845 138,592 133,450 525 1,823 135,798 Accumulated depreciation at beginning of year (39,374) (304) (686) (40,364) (36,174) (307) (634) (37,115) Charge for the year (2,397) (5) (31) (2,433) (3,288) (7) (52) (3,347) Transfers 2 3 (5) - (10) 10 - - Written back on disposals / demolition 73 4 - 77 98 - - 98 Accumulated depreciation at end of year (41,696) (302) (722) (42,720) (39,374) (304) (686) (40,364) Net book value at end of year 94,544 205 1,123 95,872 94,076 221 1,137 95,434

2011 2010 (restated)PROPERTY, PLANT AND EQUIPMENT8

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8 PROPERTY, PLANT AND EQUIPMENT (Continued)

Rental Premises Rental Premises(excluding Interim Interim (excluding Interim Interim

Housing) Housing Others Total Housing) Housing Others TotalHK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M

(d) Improvement worksCost at beginning of year 2,293 - 98 2,391 1,961 - 89 2,050 Additions 402 - 2 404 378 - 9 387 Transfers - - - - - - - - Disposals (4) - - (4) (46) - - (46) Cost at end of year 2,691 - 100 2,791 2,293 - 98 2,391 Accumulated depreciation at beginning of year (1,790) - (91) (1,881) (1,527) - (89) (1,616) Charge for the year (45) - (3) (48) (307) - (2) (309) Transfers - - - - - - - - Written back on disposals 1 - - 1 44 - - 44 Accumulated depreciation at end of year (1,834) - (94) (1,928) (1,790) - (91) (1,881) Net book value at end of year 857 - 6 863 503 - 7 510

(e) Computer equipmentCost at beginning of year - - 172 172 - - 164 164 Additions - - 50 50 - - 8 8 Cost at end of year - - 222 222 - - 172 172 Accumulated depreciation at beginning of year - - (147) (147) - - (125) (125) Charge for the year - - (19) (19) - - (22) (22) Accumulated depreciation at end of year - - (166) (166) - - (147) (147) Net book value at end of year - - 56 56 - - 25 25

(f) Electronic equipmentCost at beginning of year 570 - 7 577 571 - 7 578 Additions - - - - 10 - - 10 Disposals (2) - - (2) (11) - - (11) Cost at end of year 568 - 7 575 570 - 7 577 Accumulated depreciation at beginning of year (570) - (7) (577) (570) - (7) (577) Charge for the year - - - - (11) - - (11) Written back on disposals 2 - - 2 11 - - 11 Accumulated depreciation at end of year (568) - (7) (575) (570) - (7) (577) Net book value at end of year - - - - - - - -

Total net book value at end of year 1 96,799 205 1,222 98,226 96,015 221 1,208 97,444 - -

1 Represented by assets of Domestic rental housing 91,894 205 - 92,099 91,526 221 - 91,747 Non-domestic facilities 4,905 - - 4,905 4,489 - - 4,489 Housing Authority office buildings and others - - 1,222 1,222 - - 1,208 1,208

96,799 205 1,222 98,226 96,015 221 1,208 97,444

2011 2010 (restated)

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9 CAPITAL WORKS / PROJECTS IN PROGRESSTransfer to Transfer toother asset other asset

1 April categories or 31 March 1 April categories or 31 MarchNote 2010 Additions expenditure 2011 2009 Additions expenditure 2010

HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M(a) Housing Capital Works Fund - Construction Account

(i) Properties under development:New public rental housing

Site formation 50 3 5 58 51 - (1) 50 Buildings 7,713 4,060 (2,745) 9,028 5,875 4,054 (2,216) 7,713

7,763 4,063 (2,740) 9,086 5,926 4,054 (2,217) 7,763 Redeveloped public rental housing

Site formation 246 78 (6) 318 357 15 (126) 246 Buildings 3,321 2,097 (181) 5,237 6,352 1,402 (4,433) 3,321

3,567 2,175 (187) 5,555 6,709 1,417 (4,559) 3,567 HOS (Domestic)

Site formation 1 12 (2) - 10 12 - - 12 Buildings 1 177 (96) (27) 54 177 37 (37) 177

189 (98) (27) 64 189 37 (37) 189 HOS (Commercial)

Site formation 5 - - 5 5 - - 5 Buildings 1 27 (2) (4) 21 27 3 (3) 27

32 (2) (4) 26 32 3 (3) 32

Sub-total 11,551 6,138 (2,958) 14,731 12,856 5,511 (6,816) 11,551

(ii) Computer equipment 147 177 (145) 179 79 127 (59) 147

Total (21) 11,698 6,315 (3,103) 14,910 12,935 5,638 (6,875) 11,698

(b) Housing Capital Works Fund - Improvement AccountImprovement works

Buildings 166 471 (403) 234 170 384 (388) 166 Electronic Equipment - - - - 10 - (10) - Total (21) 166 471 (403) 234 180 384 (398) 166

(c) Development FundHousing projects under Development Fund (22) 17 - - 17 17 - - 17

Total capital works / projects in progress 11,881 6,786 (3,506) 15,161 13,132 6,022 (7,273) 11,881 - - 1.00 - -

1 Additions included adjustments for reclassification among project types.

ESSTransfer to Transfer toother asset other asset

1 April categories or 31 March 1 April categories or 31 MarchNote 2010 Additions expenditure 2011 2009 Additions expenditure 2010

HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M

50 3 5 58 51 - (1) 50 7,713 4,060 (2,745) 9,028 5,875 4,054 (2,216) 7,713 7,763 4,063 (2,740) 9,086 5,926 4,054 (2,217) 7,763

246 78 (6) 318 357 15 (126) 246 3,321 2,097 (181) 5,237 6,352 1,402 (4,433) 3,321 3,567 2,175 (187) 5,555 6,709 1,417 (4,559) 3,567

12 (2) - 10 12 - - 12 177 (96) (27) 54 177 37 (37) 177 189 (98) (27) 64 189 37 (37) 189

5 - - 5 5 - - 5 27 (2) (4) 21 27 3 (3) 27 32 (2) (4) 26 32 3 (3) 32

11,551 6,138 (2,958) 14,731 12,856 5,511 (6,816) 11,551

147 177 (145) 179 79 127 (59) 147

(21) 11,698 6,315 (3,103) 14,910 12,935 5,638 (6,875) 11,698

166 471 (403) 234 170 384 (388) 166 - - - - 10 - (10) -

(21) 166 471 (403) 234 180 384 (398) 166

(22) 17 - - 17 17 - - 17

11,881 6,786 (3,506) 15,161 13,132 6,022 (7,273) 11,881 - - 1.00 - -

types

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10 INTANGIBLE ASSETS2011 2010

HK$M HK$MComputer software licences and system development costs

Cost:At beginning of year 1,016 966 Additions 95 51 Disposals - (1) At end of year 1,111 1,016

Accumulated amortisation:At beginning of year (855) (759) Charge for the year (102) (97) Written back on disposals - 1 At end of year (957) (855)

Net book value at end of year 154 161 - -

11 PLACEMENT WITH THE EXCHANGE FUND

The balance of the placement with the Exchange Fund amounted to HK$21,620.4 million(2010: HK$20,339 million), being the original placement of HK$20,000 million plusHK$1,620.4 million interest credited but not yet withdrawn at the end of the reportingperiod.

Interest on the placement is payable at a fixed rate determined every January. The rate is theaverage annual investment return of the Exchange Fund’s Investment Portfolio for the pastsix years or the average annual yield of three-year Exchange Fund Notes for the previousyear subject to a minimum of zero percent, whichever is the higher. The interest rate hasbeen fixed at 6.3% per annum for 2010 and at 6.0% per annum for 2011.


- 32 -

12 INVESTMENTS IN SECURITIES AND BANK DEPOSITS2011 2010

HK$M HK$MInvestments classified as current assets

Bank deposits at amortised cost, with original maturity- not more than 3 months (Note 17) 10,316 4,196 - over 3 months but not more than 1 year 1,282 7,917

11,598 12,113

Held-to-maturity securities at amortised cost, with remainingmaturity not more than 1 year

Hong Kong Exchange Fund Notes - 44

Securities at fair valueDebt securities designated at fair value with maturity- not more than 3 months from date of

acquisition (Note 17) 572 511 - over 3 months from date of acquisition 23,010 19,332

23,582 19,843

Equity securities designated at fair value 12,713 10,109 Money market funds designated at fair value (Note 17) 505 937

36,800 30,889

Total investments 48,398 43,046 - -


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13 HOME PURCHASE / ASSISTANCE LOANS

HK$M HK$M HK$M HK$M HK$M HK$M HK$MGross carrying amount:

At beginning of year 258 38 570 866 309 44 743 Loan repayments (27) (4) (148) (179) (36) (4) (173) Loans written off (5) (1) - (6) (15) (2) - At end of year 226 33 422 681 258 38 570

Impairment allowance for doubtful loans:At beginning of year (169) (29) (2) (200) (184) (32) (2) Impairment loss recognised - - - - (1) - - Impairment loss reversed 1 - - 1 1 - - Loans written off 4 2 - 6 15 3 - At end of year (164) (27) (2) (193) (169) (29) (2)

Carrying amount at end of year 62 6 420 488 89 9 568

Portion classified as current assets (Note 16) (15) (1) (66) (82) (18) (2) (76)

Non-current portion 47 5 354 406 71 7 492 -

HomePurchase Loan

Scheme(Notes 13a & d)

EnhancedHome

Purchase LoanScheme

(Notes 13b & d)

HomeAssistance

Loan Scheme(Note 13c)

Total

HomeAssistance

Loan Scheme

2011

HomePurchase

Loan Scheme(Notes 13a & d)

EnhancedHome

PurchaseLoan Scheme

(Notes 13b & d) (Note 13c)

2010

HK$M

1,096 (213)

(17) 866

(218) (1) 1

18 (200)

666

(96)

570

-

Total

HK$M HK$M HK$M HK$M

HomePurchase

Loan Scheme(Notes 13a & d)

EnhancedHome

PurchaseLoan Scheme

(Notes 13b & d)

HomeAssistance

Loan Scheme(Note 13c)

Total

2011

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Notes:

(a) Home Purchase Loan Scheme

The HPLS provides interest-free loans to assist sitting tenants of the Authority

and the Housing Society, and prospective tenants with established eligibility for

public housing to purchase flats in the private sector as well as those under the

Secondary Market Scheme. The loans are repayable over a period of a maximum

of 20 years. The HPLS was terminated on 31 December 2002.

(b) Enhanced Home Purchase Loan Scheme

The enhanced HPLS was approved in June 1995 to provide interest-free loans and

subsidies funded by the Development Fund to the green form applicants who

could apply for assistance under the Scheme during 1995-96 and 1996-97, with a

view to encouraging them to purchase flats and give up their rental flats for re-

allocation. The loan is repayable over the same period as the bank mortgage

taken out on the property, up to a maximum of 20 years.

(c) Home Assistance Loan Scheme (HALS)

The HALS was implemented from 2 January 2003 to replace the HPLS. The

HALS was terminated on 14 July 2004. The interest-free loan is repayable over a

period of up to a maximum of 20 years.

(d) Sale of Home Purchase Loans

The Authority entered into an agreement with The Hong Kong Mortgage

Corporation Limited (HKMC) in 2000-01 whereby home purchase loans were

sold to the HKMC in tranches. The last tranch of loan sale was completed in

November 2003. The loans were sold at par and a monthly interest is payable at

rates based on Hong Kong Interbank Offered Rate (HIBOR) on the balance of the

portfolio sold after repayment of principal by the borrowers of home purchase

loans. The present value of the estimated future interest payments was recognised

as an expense and a liability when the loans were sold. As at 31 March 2011, as

disclosed in Note 19, the remaining liability amounted to HK$178 million

(2010: HK$298 million).


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14 OTHER ASSETS2011 2010

HK$M HK$M

Contributions to the maintenance funds of individual TPS estates

Carrying amount at beginning of year 298 386 Amortisation for the year (73) (85) Transfer to cost of sales for sold TPS flats (5) (3) Carrying amount at end of year 220 298

Portion classified as current assets (Note 16) (62) (84)

Non-current portion 158 214 - -

15 INVENTORIES2011 2010

HK$M HK$MStock of unsold new HOS/PSPS flats 604 1,566 Stock of repurchased HOS/PSPS flats 147 1,597

751 3,163

Stores and spares 1 1

752 3,164 - -

During the year, 3,245 units (2010: 1,389 units) of HOS/PSPS flats were sold. As at31 March 2011, the stock balance consisted of 832 units (2010: 4,077 units). The saleof these remaining units will be launched in subsequent phases.


- 36 -

16 DEBTORS, DEPOSITS AND PREPAYMENTS 2011 2010

HK$M HK$M(restated)

Debtors 100 75 Receivable from sales of HOS/PSPS flats - 6 Interest receivable 569 634 Dividends receivable 25 21 Unsettled sales and redemption of securities 2,335 395 Home Purchase / Assistance Loans (Note 13) 82 96 Deposits 106 120 Contributions to the maintenance funds of individual TPS estates (Note 14) 62 84 Prepayments 2 2 Derivative financial instruments (Note 27) 82 123

3,363 1,556 - -

17 CASH AND CASH EQUIVALENTS2011 2010

HK$M HK$MBank balances and cash 1,558 387 Bank deposits with original maturity not more than 3 months (Note 12) 10,316 4,196 Money market funds (Note 12) 505 937 Debt securities designated at fair value with maturity not more than 3 months from date of acquisition (Note 12) 572 511 Cash and cash equivalents in the statement of cash flows 12,951 6,031

- -

18 CREDITORS, DEPOSITS AND OTHER PAYABLES2011 2010

HK$M HK$MCreditors and accruals 4,113 3,985 Unsettled purchases of securities 4,237 2,096 Payable for custodian’s and fund managers’ fees 25 22 Tenants’ deposits 1,068 1,048 Other deposits 47 47 Retention money 424 432 Liquidated damages deductions 197 241 Other payables 1 1 Derivative financial instruments (Note 27) 308 37

10,420 7,909 - -


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19 PROVISIONS AND OTHER LIABILITIES

Currentportion

Non-currentportion Total

Currentportion

Non-currentportion Total

HK$M HK$M HK$M HK$M HK$M HK$M

5 538 543 5 471 476

- 230 230 - 303 303

187 - 187 178 - 178

68 110 178 102 196 298

14 86 100 14 57 71

26 - 26 56 - 56

9 - 9 9 - 9

6 - 6 6 - 6

5 - 5 11 - 11

2 - 2 91 - 91

6 - 6 6 - 6

328 964 1,292 478 1,027 1,505 - - - -

2011 2010

loans sold (Note 13(d))Interest payable on HPLS

Provision for maintenance and minor improvements

divested properties

to sold HOS flats

divested properties

default guarantee payments

divestment

Others

Provision for audit fees

Management Limited for

expenditure relating to

Residual construction payment relating to sold and

Land cost provisions relating

Rent received in advance

Unamortised income relating to liquefied petroleum gas

committed works for

Provision for mortgage

Provision for residual

Payable to the Link


- 38 -

20 GOVERNMENT'S CONTRIBUTION

(a) Amount included in the accounts (Note 1(b))

Domestichousing

Non-domestic

equity TotalDomestichousing

Non-domestic

equity TotalHK$M HK$M HK$M HK$M HK$M HK$M

(i) Borrowings from the former Development Loan Fund- Cumulative interest-free loans up to 31.3.1976 254 46 300 254 46 300 - Interest foregone by Government on loans related to

domestic and non-domestic premises in public rental housing during the period 1.4.1976 to 31.3.1988 2,505 447 2,952 2,505 447 2,952

(ii) Transfer value of Government built estates and staff quarters 1,226 149 1,375 1,226 149 1,375

(iii) Home Ownership SchemeUnsold stock of flats and construction in progress at 31.3.1988 transferred from Government 827 - 827 827 - 827

4,812 642 5,454 4,812 642 5,454

2011 2010

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20 GOVERNMENT'S CONTRIBUTION (Continued)

(b) Amount not included in the accounts (Note 1(b))

Domestichousing

Non-domestic

equity TotalDomestichousing

Non-domestic

equity TotalHK$M HK$M HK$M HK$M HK$M HK$M

(i) Land revaluation surplus up to 31.3.1973pertaining to the predecessor Authority 107 9 116 107 9 116

(ii) Value of land provided by Government- since 1.4.1973 pertaining to public rental

housing estates and staff quarters 181,240 19,685 200,925 175,136 19,047 194,183 - for offices of the Authority - 140 140 - 140 140

(iii) Home Ownership Scheme- excess of full market value of land

over land cost 1 137,890 - 137,890 138,302 - 138,302 - land value for non-domestic elements - 2,693 2,693 - 2,694 2,694 - premium on removal of alienation restriction 6,360 - 6,360 6,126 - 6,126

(iv) Tenants Purchase Schemeexcess of full market value of land at completion of the buildings over land cost 23,028 - 23,028 22,805 - 22,805

(v) Buy or Rent Option Scheme- excess of full market value of land over land cost 1,818 - 1,818 1,818 - 1,818 - land value for non-domestic elements - 10 10 - 10 10

350,443 22,537 372,980 344,294 21,900 366,194 - -

1 This included HK$27.0 million (2010: HK$1.6 billion) relating to 645 units (2010: 2,474 units) of unsold new HOS flats as at 31 March 2011.

2011 2010

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21 HOUSING CAPITAL WORKS FUND

HK$M HK$M HK$M HK$M HK$M HK$MBalance at beginning of year

Projects in progress (Notes 9(a) and (b)) 11,698 166 11,864 12,935 180 13,115 Cash and others 1 2,977 2,000 4,977 3,554 2,000 5,554

14,675 2,166 16,841 16,489 2,180 18,669

Transfer from / (to) accumulated surplus 3,328 68 3,396 (1,814) (14) (1,828)

Balance at end of yearProjects in progress (Notes 9(a) and (b)) 14,910 234 15,144 11,698 166 11,864 Cash and others 1 3,093 2,000 5,093 2,977 2,000 4,977

18,003 2,234 20,237 14,675 2,166 16,841 - - -

1

TotalConstruction

AccountImprovement

Account

Under the 1994 Supplemental Agreement with the Government, the operating balance of Construction Account is to be maintained at a levelequivalent to six months' estimated expenditure and the operating balance of the Improvement Account is to be maintained at HK$2 billion.

2011 2010Construction

AccountImprovement

Account TotalHK$M HK$M HK$M HK$M HK$M HK$M

11,698 166 11,864 12,935 180 13,115 2,977 2,000 4,977 3,554 2,000 5,554

14,675 2,166 16,841 16,489 2,180 18,669

3,328 68 3,396 (1,814) (14) (1,828)

14,910 234 15,144 11,698 166 11,864 3,093 2,000 5,093 2,977 2,000 4,977

18,003 2,234 20,237 14,675 2,166 16,841 - - -

TotalConstruction

AccountImprovement

Account

2011 2010Construction

AccountImprovement

Account Total

1 Under the 1994 Supplemental Agreement with the Government, the operating balance of Construction Account is to be maintained at a levelequivalent to six months' estimated expenditure and the operating balance of the Improvement Account is to be maintained at HK$2 billion.

pp g p gequivalent to six months' estimated expenditure and the operating balance of the Improvement Account is to be maintained at HK$2 billion.

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- 41 -

22 DEVELOPMENT FUND

2011 2010HK$M HK$M

Balance at beginning of yearProjects in progress (Note 9(c)) 17 17 Cash and others 49,148 46,456

49,165 46,473 Transfer from accumulated surplus 8,707 2,692 Balance at end of year

Projects in progress (Note 9(c)) 17 17 Cash and others 57,855 49,148

57,872 49,165

23 DIVESTMENT OF RETAIL AND CARPARKING FACILITIES

To enable the Authority to focus its resources on its core function as a provider of

subsidised public housing, the Authority divested its retail and carparking facilities by

selling the concerned facilities through an initial public offering of units in The Link

Real Estate Investment Trust (Link REIT) in November 2005. The Authority

recognised a net surplus of HK$14,096 million as a result of the divestment in the year

2005-06. In determining the surplus, management made provisions concerning the

divestment expenditure (e.g. legal fees) based on estimated work requirements.

Adjustments to the expenditure will be required if the divestment work requirements

are different from the estimates. During the year, the Authority adjusted downward

the expenditure (e.g. legal fees and staff costs) on the divestment by HK$59 million

(2010: upward adjustment of HK$65 million).


- 42 -

1

of the Authority.

2

It included the rent of HK$1,630 million (2010: HK$1,607 million) pa

It represented the outstanding proceeds from the sale of 4,304 units of sur

Government to the Authority on behalf of tenants living in the public renta

flats and 538 carparking spaces to the Government for reprovisioning depquarters of disciplined services. The sale was made at a conof HK$2,750 million in the year 2005-06.

aid by the

rplus HOS

al housing

partmentalnsideration

(c) Amount due to the Government

Land cost 163 Advance from Government for rental payment 343 Payable for Government rent and rates 2 Over-recovery on Government funded agency functions 3 Dividend payable 38 Others (e.g. company and land searches) 27

576

142 259

3 6

37 24

471

(b) Amount due from the Government

Classified as current assets:Receivable for Government-funded construction projects 17 Receivable for Lotteries Fund projects 14 On-costs accrual for entrusted projects 1 Deposits and others 6

38

Classified as non-current assets:Receivable from sale of surplus HOS flats 2 800

838

337 14

2 11

364

1,200

1,564

2011HK$M

(a) Income received from the Government

Rental Income 1 1,666 Reimbursement of costs of services provided to the Government 134 Supervision on-costs in respect of Government reimbursable projects 6 Other income 33

1,839

2010HK$M

1,642

129

15 19

1,805

2011HK$M

(a) Income received from the Government

Rental Income 1 1,666 Reimbursement of costs of services provided to the Government 134 Supervision on-costs in respect of Government reimbursable projects 6 Other income 33

1,839

2010HK$M

1,642

129

15 19

1,805

24 RELATED PARTY TRANSACTIONS

In addition to those disclosed elsewhere in these financial statements, the Authorifollowin transactions and outstandin s with the Government.

ity had theg material g balance


- 43 -

25 CONTINGENT LIABILITIES

(a) Financial guarantees issued

As at 31 March 2011, the Authority had outstanding mortgage default guarantees

issued in respect of mortgage loans made by banks and other authorised financial

institutions on HOS/PSPS/TPS flats sold as follows:

(i) HOS/PSPS flats sold

Default guarantees for flats built and sold under HOS and PSPS amounted to

HK$34,587 million (2010: HK$37,631 million) for the primary market and

HK$7,459 million (2010: HK$7,115 million) for the secondary market.

However, it is the Authority's view that it will have a financial exposure only if

the outstanding indebtedness of mortgages to banks and other financial

institutions cannot be covered by proceeds from resale of the flats concerned.

The Authority estimates its financial exposure to be HK$170 million

(2010: HK$163 million) for the primary market and HK$24 million

(2010: HK$70 million) for the secondary market.

(ii) TPS flats sold

Default guarantees for flats sold under TPS amounted to HK$2,541 million

(2010: HK$2,822 million) for the primary market and HK$328 million

(2010: HK$253 million) for the secondary market. However, following the

rationale in (i) above and assuming that the properties can be re-sold at the

original selling price for flats within the first 2 years of the alienation

restriction period, at the prevailing TPS price for flats from the 3rd to the 5th

year of such period (less the actual amount of special credit for primary market

flats) and at the prevailing market price less premium payable after the

alienation restriction period, the Authority estimates it has no financial

exposure (2010: Nil) for the primary market and its financial exposure for the

secondary market is HK$5 million (2010: HK$15 million).


- 44 -

(b) Contingent liabilities in respect of legal claims

Writ of summons on the Authority and the Secretary for Justice were served by

developers of two PSPS development projects claiming for damages to be assessed

as a result of the alleged breach of the land grant conditions by the Authority and the

Government. Both the Authority and the Government would defend their case. The

financial implications to the Authority could not be reasonably ascertained at this

stage.

(c) Structural Safety Guarantee

Structural Safety Guarantee (SSG) covers all newly completed HOS and PSPS

developments for a period of 10 years (20 years for Tin Shui Wai area) from the date

of completion, including those existing developments which were within the relevant

SSG period as at 13 April 2000. Pursuant to the sale of surplus HOS and PSPS flats

in 2007, a SSG for a period of 10 years (20 years for Tin Shui Wai area) is also

offered to cover each unsold block of these flats from the commencement date of flat

selection period of the first sale phase. As at 31 March 2011, there were 48,042 units

(2010: 65,601 units) of HOS and PSPS flats covered by the SSG. However, the

Authority’s liabilities under the SSG could not be reasonably ascertained and have

not been recognised in the financial statements, except for the actual repair costs

incurred under the SSG. During the year, such repair costs amounted to

HK$2.5 million (2010: HK$2.7 million).


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26 CAPITAL COMMITMENTS

The Authority had the following capital commitments outstanding at 31 March 2011 not

provided for in the financial statements:

2011

2010

HK$M HK$M

Capital Works/Projects

Contracted for:

- Public rental housing construction projects 7,613 6,692

- HOS construction projects 4 20

- Other projects 1,149 826

8,766 7,538

Authorised but not yet contracted for:

- Public rental housing construction projects 4,594 5,545

- Other projects 41 66

4,635 5,611

13,401 13,149


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27 DERIVATIVE FINANCIAL INSTRUMENTS

2011 2010 Assets Liabilities Assets Liabilities HK$M HK$M HK$M HK$M Forward currency exchange contracts, at fair value 82 308 123 37

(Note 16) (Note 18) (Note 16) (Note 18)

The forward currency exchange contracts are used for managing the Authority’s currency

exposure and are carried at fair value. Their carrying values have been included in

“Debtors, deposits and prepayments” and “Creditors, deposits and other payables”.

These contracts have a remaining life of 3 months or less and a total notional amount of

HK$22 billion (2010: HK$13 billion). The notional amounts of these contracts indicate

the volume of outstanding transactions and do not represent the amounts at risk.

28 FINANCIAL RISK MANAGEMENT

Risk management is an integral part of the Authority’s financial policies and processes.

The Authority’s Finance Committee advises on financial policies and oversees the

management of funds of the Authority. The Finance Committee has established a Funds

Management Sub-committee to advise on the Authority’s fund management policies,

strategies, guidelines, and the appointment and monitoring of external fund managers.

The key financial risk management practices are highlighted below:

(a) Liquidity risk

The Authority’s budgets and forecasts are compiled annually for the Authority’s

approval after endorsement by the Finance Committee and relevant business

Committees. Income and expenditure are actively monitored during the year. The

Authority’s cash flows are monitored on a daily basis and its investments are

managed with the primary objective of ensuring that sufficient funds are available to

meet capital expenditure and operational needs. As the Authority has a strong

liquidity position, it has a very low level of liquidity risk.


- 47 -

(b) Market and credit risks

The Authority’s financial instruments are subject to interest rate risk, currency risk,

equity price risk and credit risk. Comprehensive funds management policy and

investment guidelines are in place to ensure that the exposures to these risks are

monitored and managed prudently on an ongoing basis.

(i) Interest rate risk

The Authority’s interest-bearing assets include mainly bank deposits, securities

at fair value and held-to-maturity debt securities. Most of these assets bear

interest at fixed rates. The Authority is exposed to fair value interest rate risk

because their fair values will normally fall when market interest rates increase.

The Authority monitors its interest rate risk with reference to the approved

strategies and benchmark. As regards bank deposits and held-to-maturity debt

securities, since they are all stated at amortised cost, their carrying amounts and

the Authority’s income and accumulated surplus will not be affected by changes

in market interest rates.

The table below sets out the Authority’s exposure to interest rate risk at the end

of the reporting period, based on the interest-bearing assets stated at carrying

amounts and categorised by the remaining maturity for each group of assets.


- 48 -

3 months

or less

More than 3 months but not

more than 1 year

More than 1 year but not

more than 2 years

More than 2 years but not

more than 5 years

More than 5 years but not

more than 10 years

More than 10 years Total

HK$M HK$M HK$M HK$M HK$M HK$M HK$M

2011

Bank deposits 10,647 951 - - - - 11,598 Securities at fair value: - Debt securities designated at fair value 1,737 1,172 1,380 6,221 7,022 6,050 23,582 - Money market funds designated at fair value 505 - - - - - 505 Held-to-maturity debt securities - - - - - - -

12,889 2,123 1,380 6,221 7,022 6,050 35,685

2010

Bank deposits 7,586 4,527 - - - - 12,113 Securities at fair value: - Debt securities designated at fair value 744 622 1,999 4,664 7,422 4,392 19,843 - Money market funds designated at fair value 937 - - - - - 937 Held-to-maturity debt securities - 44 - - - - 44

9,267 5,193 1,999 4,664 7,422 4,392 32,937

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The Authority’s interest payable on home purchase loans sold (Note 13(d)) is at

HIBOR-based rates. The Authority is exposed to cash flow interest rate risk

since future interest payments will fluctuate with changes in market interest

rates. However, such interest rate risk is not material as it is naturally hedged by

short-term interest-bearing assets (with maturity of 1 year or less) in the

Authority’s investment portfolio. As at 31 March 2011, the outstanding

principal balance of the home purchase loans sold was HK$3,358 million

(2010: HK$4,751 million) and their average remaining maturity was 50 months

(2010: 61 months).

Sensitivity analysis based on a 50 basis points (2010: 50 basis points) increase /

decrease in market interest rates, which may be reasonably possible, shows that

the revaluation gains on debt securities at fair value and surplus for the year

would have decreased / increased by HK$638 million (2010: HK$538 million).

This sensitivity analysis has been prepared assuming that the change in interest

rates had been applied to the debt securities at fair value in existence at the end

of the reporting period, with all other variables being held constant.

(ii) Currency risk

On currency risk management, the investment guidelines set limits on currency

exposure. Forward currency exchange contracts are also used for managing the

Authority’s currency exposure (Note 27).

Apart from Renminbi, the Authority’s investment assets in currencies other than

Hong Kong dollars are denominated mainly in US dollars with the remaining in

other freely convertible major international currencies. When the exchange rates

of the relevant currencies against the Hong Kong dollar fluctuate, the value of

these investment assets expressed in Hong Kong dollar will vary accordingly.

The table below summarises the Authority’s US dollars, Renminbi and other

currency exposures at the end of the reporting period after taking into account

the effect of forward currency exchange contracts:


- 50 -

2011 2010 Assets Liabilities Assets Liabilities HK$M HK$M HK$M HK$M

US dollars 39,447 8,058 34,395 2,647

Renminbi 2,023 - - -

Other currencies

- Euro 11,567 9,878 7,545 6,094

- Others 13,057 8,969 9,733 6,167

66,094 26,905 51,673 14,908

Other currencies include mainly currencies of major developed countries. The

major part of the currency risk arising from these currencies is mainly hedged

through the use of forward currency exchange contracts.

Sensitivity analysis based on a 0.5% (2010: 0.5%) increase / decrease in the

exchange rate of the US dollar against the Hong Kong dollar, which may be

reasonably possible, shows that the exchange gains and surplus for the year

would have increased / decreased by HK$157 million (2010: HK$159 million).

Sensitivity analysis based on a 5% (2010: nil Renminbi exposure) increase /

decrease in the exchange rate of the Renminbi against the Hong Kong dollar,

which may be reasonably possible, shows that the exchange gains and surplus

for the year would have increased / decreased by HK$101 million

(2010: not applicable).

Sensitivity analysis based on a 5% (2010: 5%) increase / decrease in the

exchange rates of the other currencies against the Hong Kong dollar, which may

be reasonably possible, shows that the exchange gains and surplus for the year

would have increased / decreased by HK$289 million (2010: HK$251 million).

The above sensitivity analyses have been prepared assuming that the change in

exchange rates had been applied to the financial instruments in existence at the

end of the reporting period, with all other variables being held constant.


- 51 -

(iii) Equity price risk

Equity price risk is the risk of loss arising from changes in equity prices. The

Authority’s equity investments are subject to equity price risk since the value of

these investments will decline if equity prices fall. As at 31 March 2011, all

equity investments were designated at fair value as shown in Note 12.

Sensitivity analysis based on a 10% (2010: 10%) increase / decrease in equity

prices, which may be reasonably possible, shows that the revaluation gains on

equity investments and surplus for the year would have increased / decreased by

HK$1,271 million (2010: HK$1,011 million). This sensitivity analysis has been

prepared assuming that the change in equity prices had been applied to the

equity investments in existence at the end of the reporting period, with all other

variables being held constant.

(iv) Credit risk

The Authority does not have significant concentrations of credit risk that result

in a significant exposure to loss. The maximum exposure to credit risk at the end

of the reporting period without taking into account any collateral held or other

credit enhancements is shown below:

2011 2010 HK$M HK$M

Placement with the Exchange Fund 21,620 20,339

Bank balances 1,524 349

Bank deposits 11,598 12,113

Amount due from the Government 838 1,564

Debtors and deposits 3,217 1,374

Held-to-maturity debt securities - 44

Debt securities at fair value 24,087 20,780

Home Purchase / Assistance Loans 488 666

Mortgage default guarantees 44,915 47,821

108,287 105,050


- 52 -

Debtors and deposits mainly include debtors, interest receivable, unsettled sales

and redemption of securities, deposits and derivative financial instruments. The

associated credit risk is minimal.

Home Purchase / Assistance Loans are secured by mortgages on properties.

Mortgage default guarantees are issued in respect of mortgage loans made by

banks and other authorised financial institutions on HOS/PSPS/TPS flats. Those

loans are secured by mortgages on the flats concerned. As at 31 March 2011,

provision for mortgage default guarantee payments amounted to HK$5 million

(2010: HK$11 million, Note 19), and the financial exposure not provided for in

the financial statements amounted to HK$199 million (2010: HK$248 million,

Note 25(a)).

With respect to the credit risk of the Authority’s investments, the Authority’s

investment guidelines set limits on credit rating, individual counterparty

exposure and overall concentration of exposure.

An analysis of the credit quality of placement with the Exchange Fund, bank

balances, bank deposits and investments in debt securities, based on ratings

designated by Moody’s or their equivalents, is as follows:

2011 2010 HK$M HK$M

Placement with the Exchange Fund (Aa1) Bank balances, bank deposits and debt securities by credit rating

21,620 20,339

Aaa 12,776 12,180

Aa3 to Aa1 7,606 7,027

A3 to A1 14,709 13,087

Lower than A3 774 759

P-1 1,344 233

58,829 53,625


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29 FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair value of financial instruments traded in active markets is based on quoted market

prices at the end of the reporting period. In the absence of such quoted market prices, fair

values are estimated using present value or other valuation techniques, using inputs based

on market conditions existing at the end of the reporting period.

(a) The fair values of held-to-maturity securities at the end of the reporting period are

as follows:

2011 2010 Carrying

amount Fair

value Carrying

amount Fair

value

HK$M

HK$M

HK$M

HK$M

Held-to-maturity securities - - 44 45

Other financial instruments are stated in the statement of financial position at fair

values or carried at amounts not materially different from their fair values.

(b) The following table shows the carrying value of financial instruments measured at

fair value at the end of the reporting period according to the fair value hierarchy:

As at 31 March 2011 Level 1 Level 2 Total HK$M HK$M HK$M

Assets

Securities at fair value 23,808 12,992 36,800Derivative financial instruments - 82 82 23,808 13,074 36,882Liabilities Derivative financial instruments - 308 308

As at 31 March 2010 Level 1 Level 2 Total HK$M HK$M HK$M

Assets

Securities at fair value 11,046 19,843 30,889Derivative financial instruments - 123 123 11,046 19,966 31,012Liabilities Derivative financial instruments - 37 37

No financial assets or liabilities were classified under Level 3.


- 54 -

During the year, there were transfers of financial instruments between Level 1 and

Level 2 of the fair value hierarchy because observable market data became

available for the securities.

The three levels of the fair value hierarchy are:

Level 1: Fair values of financial instruments are quoted prices (unadjusted) in

active markets for identical assets or liabilities;

Level 2: Fair values of financial instruments are determined involving inputs other

than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (as prices) or indirectly (derived from prices); and

Level 3: Fair values of financial instruments are determined with inputs that are

not based on observable market data (unobservable inputs).

30 COMPARATIVE FIGURES

As a result of the reclassification of the lease premiums for land, see Note 4, certain

comparative figures have been reclassified and restated in the statement of financial

position and the statement of cash flows to conform with the change in presentation in the

current year.


- 55 -

31

(a) CONSOLIDATED APPROPRIATION ACCOUNT

Note 2011 2010HK$M HK$M

Consolidated Operating Account surplus / (deficit) Rental Housing 31(b) (924) (1,464) Commercial 31(c) 565 461 Home Ownership Assistance 31(d) 4,347 2,589 Sub-total 3,988 1,586

Net non-operating income / (expenditure) 7 72 (57)

4,060 1,529

Funds Management Account surplus 31(e) 4,109 6,138

Agency Account surplus / (deficit) 31(f) 18 (13)

Surplus for the year 8,187 7,654

Distribution Dividend to Government for the year (282) (231)

Total comprehensive income after distribution 7,905 7,423 -

SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIALARRANGEMENTS WITH THE GOVERNMENT


- 56 -

31 SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT (Continued)(b) RENTAL HOUSING OPERATING ACCOUNT

HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$MINCOME

Rental 9,467 13 - 9,480 9,873 16 - 9,889 Other income 37 - - 37 37 - - 37

TOTAL INCOME 9,504 13 - 9,517 9,910 16 - 9,926

EXPENDITURE

Personal emoluments 2,229 13 2 2,244 2,191 13 2 2,206 Government rent and rates 108 - - 108 105 - - 105 Maintenance and improvements 2,397 14 - 2,411 2,358 15 - 2,373 Other expenditure 3,008 19 3 3,030 2,887 19 1 2,907 Depreciation and amortisation 2,469 6 - 2,475 3,620 8 - 3,628 Share of corporate supervision and support services expenses 172 1 - 173 170 1 - 171

TOTAL EXPENDITURE 10,383 53 5 10,441 11,331 56 3 11,390

Operating deficit for the year (879) (40) (5) (924) (1,421) (40) (3) (1,464) - - (1) - - (1)

(excluding (excludingTotal

Rental Housing

2010

Allowance TotalHousingRent

Rental HousingInterim

Interim Housing)

2011

Interim Housing)InterimHousing

Rent Allowance

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31 SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT (Continued)(c) COMMERCIAL OPERATING ACCOUNT

HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M

INCOME

Rental 624 233 119 410 1,386 602 198 118 406 1,324 Other income 21 1 - 20 42 20 1 - 21 42

TOTAL INCOME 645 234 119 430 1,428 622 199 118 427 1,366

EXPENDITURE

Personal emoluments 109 26 32 58 225 89 25 27 45 186 Government rent and rates 18 11 - 36 65 18 10 - 33 61 Maintenance and improvements 39 14 20 6 79 42 17 25 8 92 Other expenditure 125 37 28 65 255 112 39 29 57 237 Depreciation and amortisation 37 49 4 35 125 47 67 13 54 181 Share of corporate supervision and support services expenses 8 2 2 4 16 7 2 2 4 15

TOTAL EXPENDITURE 336 139 86 204 765 315 160 96 201 772

Operating surplus before exceptional items 309 95 33 226 663 307 39 22 226 594

Exceptional items 1 (82) - (15) (1) (98) (101) - (31) (1) (133)

Operating surplus / (deficit) for the year 227 95 18 225 565 206 39 (9) 225 461 - - - - - - - - - -

1 These represent demolition and clearance costs, and expenditure incurred on Government Infrastructure and Community facilities funded by the Authority.

Welfare

2010

Commercial

2011

CommercialTotal TotalComplex Car Park Factory WelfareComplex Car Park Factory

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31 SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT (Continued)(d) HOME OWNERSHIP ASSISTANCE OPERATING ACCOUNT

Sales 4,481 604 505 - 5,590 1,783 59 278 - 2,120 Premium on removal of alienation restriction 1,160 537 170 - 1,867 1,105 564 106 - 1,775 Other income 39 5 4 14 62 54 12 4 3 73

TOTAL INCOME 5,680 1,146 679 14 7,519 2,942 635 388 3 3,968

EXPENDITURE

Personal emoluments 137 29 46 19 231 137 25 45 19 226 Maintenance and improvements 4 1 2 - 7 5 1 2 1 9 Other expenditure 13 2 3 2 20 12 2 4 2 20 Depreciation and amortisation 8 1 2 2 13 9 1 2 2 14 Share of corporate supervision and support services expenses 7 2 2 1 12 7 1 2 1 11

Sub-total 169 35 55 24 283 170 30 55 25 280

Expenditure on home ownership schemes Construction cost and overheads 999 - 58 - 1,057 202 - 41 - 243 Government land cost 338 - 43 - 381 68 - 29 - 97 Cost of repurchased flats sold 1,099 363 4 - 1,466 994 35 4 - 1,033 Interest payments on HPLS loans sold - - - 58 58 - - - 73 73 Other expenditure 52 4 12 (1) 67 78 4 15 - 97

Sub-total 2,488 367 117 57 3,029 1,342 39 89 73 1,543

TOTAL EXPENDITURE 2,657 402 172 81 3,312 1,512 69 144 98 1,823

Operating surplus / (deficit) before exceptional items 3,023 744 507 (67) 4,207 1,430 566 244 (95) 2,145

Exceptional items 1 20 - - 120 140 152 - - 292 444

Operating surplus for the year 3,043 744 507 53 4,347 1,582 566 244 197 2,589 -

1 These mainly represent (i) (write-down) / reversal of write-down of stock of repurchased and unsold new HOS/PSPS flats; (ii) adjustments of future interest liability on the outstanding balance of the HPLS loan portfoliosold; and (iii) adjustments of future liabilities on subsidies under Mortgage Subsidy Scheme and HPLS/HALS.

HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M HK$M

2011

HOS

2010

HOS PSPS TPSHPLS/HALS TotalPSPS TPS

HPLS/HALS Total

INCOME

Expenditure on home ownership schemes Construction cost and overheads 999 - 58 - 1,057 202 - 41 - 243 Government land cost 338 - 43 - 381 68 - 29 - 97 Cost of repurchased flats sold 1,099 363 4 - 1,466 994 35 4 - 1,033 Interest payments on HPLS loans sold - - - 58 58 - - - 73 73 Other expenditure 52 4 12 (1) 67 78 4 15 - 97

Sub-total 2,488 367 117 57 3,029 1,342 39 89 73 1,543

TOTAL EXPENDITURE 2,657 402 172 81 3,312 1,512 69 144 98 1,823

Operating surplus / (deficit) before exceptional items 3,023 744 507 (67) 4,207 1,430 566 244 (95) 2,145

Exceptional items 1 20 - - 120 140 152 - - 292 444

Operating surplus for the year 3,043 744 507 53 4,347 1,582 566 244 197 2,589 -

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31 SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT (Continued)(e) FUNDS MANAGEMENT ACCOUNT


Interest income 77 1,285 694 2,056 201 655 867 1,723 Dividend income - - 238 238 - - 172 172 Net realised and revaluation gains - - 1,420 1,420 - - 3,731 3,731 Net exchange gains 22 - 500 522 15 - 622 637

TOTAL INCOME 99 1,285 2,852 4,236 216 655 5,392 6,263

EXPENDITURE

Investment expenditureFund managers’ fees - - 84 84 - - 84 84 Custodian fees - - 12 12 - - 12 12 Other investment expenditure - - 17 17 - - 16 16

Sub-total - - 113 113 - - 112 112

Recurrent expenditurePersonal emoluments 5 - 6 11 5 - 5 10 Other expenditure 2 - 1 3 1 - 2 3

Sub-total 7 - 7 14 6 - 7 13

TOTAL EXPENDITURE 7 - 120 127 6 - 119 125

Surplus for the year 92 1,285 2,732 4,109 210 655 5,273 6,138

1

2

3

Total

Placement withthe Exchange

Fund 2

Main liquidity portfolio comprises bank deposits and investments intended to be held to maturity which are stated at amortised cost less impairment losses. The debt securities, acquired before 1 April 2006 forpurpose and grouped into the main liquidity portfolio in April 2006 when the Authority decided to hold them to maturity, all matured on or before 1 February 2010.

Placement with the Exchange Fund includes the original placement and any interest credited but not yet withdrawn at the end of the reporting period. The balance is stated at amortised cost.

Portfolios managed by external fund managers mainly include securities designated at fair value and initially stated at fair value. At the end of each reporting period, the fair value is remeasured with any resultantrevaluation gains or losses being recognised in the Funds Management Account.

2010

Main liquidityportfolio 1

Portfoliosmanaged byexternal fundmanagers 3 Total

Placement withthe Exchange

Fund 2

2011

Main liquidityportfolio 1

Portfoliosmanaged by

external fundmanagers 3

trading

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- 60 -

31 SUPPLEMENTAL INFORMATION REQUIRED UNDER THE FINANCIAL ARRANGEMENTS WITH THE GOVERNMENT (Continued)(f) AGENCY ACCOUNT


Supervision fee - 141 - 141 - 117 - 117 Supervision on-costs - 60 6 66 - 55 15 70 Amount reimbursed by Government 133 - 1 134 128 - 1 129

TOTAL INCOME 133 201 7 341 128 172 16 316

EXPENDITURE

Personal emoluments 111 99 51 261 102 98 62 262 Maintenance and improvements 1 12 3 16 2 13 4 19 Other expenditure 11 5 5 21 7 8 6 21 Depreciation and amortisation 5 3 1 9 2 3 2 7 Share of corporate supervision and support services expenses 6 5 3 14 6 5 3 14

TOTAL EXPENDITURE 134 124 63 321 119 127 77 323

(1) 77 (56) 20 9 45 (61) (7)

Over recovery brought forward - 1 - 1 - 1 - 1

Over recovery carried forward (2) (1) - (3) (6) (1) - (7)

Surplus / (deficit) for the year (3) 77 (56) 18 3 45 (61) (13) - - - -

1

2

3

Surplus/(deficit) for the year before adjustments

The Authority acts as an agent for the Government for building control, private housing, appeal panel, rehousing of occupants upon clearance and support services.

Functions 1 TotalServices 2

The Authority provides supervision services for building of schools, welfare and other community facilities in new estates, additions, alterations, improvements and external maintenance of Government buildings in rentalestates, as well as management and maintenance of slopes adjacent to estates. The Authority pays the contractors and obtains reimbursement from the Government including full cost of the supervision services.

The Authority manages properties on behalf of other parties and charges a supervision fee for the services rendered. This covers the management of completed Home Ownership courts and the common area of the estateswith properties divested.

2010

Agency

Supervision ofGovernment

ReimbursableProjects 3

AgencyAgencyManagement

Services 2Management

TotalProjects 3Functions 1

2011

Agency

Supervision ofGovernment

Reimbursable

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Documents

Hong Kong Housing Authority