Land Registry Annual Report 2004/05
 
 
 
 
Certified Financial Statements

NOTES ON THE ACCOUNTS
 
For the year ended 31 March 2005
Expressed in HK$'000

1.

Status of the Land Registry Trading Fund

     

The Land Registry Trading Fund was established on 1 August 1993 under the Legislative Council Resolution passed on 30 June 1993 pursuant to sections 3, 4 and 6 of the Trading Funds Ordinance (Cap. 430). The Land Registry administers a land registration system by maintaining an up-to-date Land Register and provides its customers with services and facilities for searches of the Land Register and related land records. The Land Registry also processes applications for the incorporation of owners.


2.

Accounting policies

     

(a)

Basis of accounting

   
The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong.
   

(b)

Fixed assets

   
(i)

Fixed assets appropriated to the Land Registry Trading Fund on 1 August 1993 are stated at the value contained in the Legislative Council Resolution for the setting up of the Land Registry Trading Fund. Fixed assets acquired since 1 August 1993 and up to 31 March 2004 and costing more than $100,000 on an individual basis are stated at their costs of acquisition. For items acquired since 1 April 2004 with cost more than $150,000, they are reported as fixed assets in the accounts.

   
(ii)

For capital projects under development, the costs include the actual direct expenditure and staff costs for planning, design and supervision during the development period.

   
(c) Depreciation and amortisation
   
Depreciation
   
(i)

Depreciation is provided on a straight-line basis calculated to write off the cost of assets less residual value over their estimated useful lives. The annual rates of depreciation used are :

       
  Buildings   3.3%
     
  Computer systems   20%
     
  Equipment, furniture and fittings   20%
     
(ii) Land is regarded as a non-depreciating asset.
   
Amortisation
   

Capital projects are amortised over a period of five years. Full year amortisation is charged if a project starts commissioning on or before 30 September of the year, while half-year amortisation is charged for a project commissioned after 30 September.

   
(d) Income tax
   
(i)

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Income tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

   
(ii)

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

   
(iii)

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

   
 

All deferred tax liabilities, and all deferred tax assets, to the extent that it is probable that future taxable profits will be available against which the assets can be utilised, are recognised.

   
 

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

   
 

The carrying amount of a deferred tax asset is reviewed at the balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such deduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

   
(iv)

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if, and only if, the Land Registry Trading Fund has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met :

   
  - in the case of current tax assets and liabilities, the Land Registry Trading Fund intends to settle them on a net basis; or
   
  - in the case of deferred tax assets and liabilities,if they relate to income taxes levied by the same taxation authority.
   
(e) Revenue recognition

 

Revenue is recognised as services are provided. Interest income is recognised on an accrual basis.

 

(f) Employee benefits

 

Salaries and annual leave are accrued and recognised as an expense in the year in which the associated services are rendered by the staff. Staff oncosts including pensions, housing and non-monetary benefits provided to the staff by the Government of the Hong Kong Special Administrative Region (the Government) are charged to the Land Registry Trading Fund and recognised as an expense in the year in which the associated services are rendered.

 

(g) Related parties

 

The Land Registry Trading Fund is a separate accounting entity within the Government established under the Trading Funds Ordinance (Cap. 430). During the year, the Land Registry Trading Fund has entered into transactions with various related parties, including government bureaux and departments, trading funds and financially autonomous bodies controlled or significantly influenced by the Government, in the ordinary course of its business.

 

(h) Cash equivalents

 

Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, with a maturity of three months or less from the date of acquisition.

 

3.

Turnover

     

2005

2004

Registration of documents

233,720

181,402

Search

85,297

72,005

Copying

66,958

53,173

Reports on title

38,235

45,013

Owners incorporation

5,761

6,296

Others

5,320

4,427

435,291

362,316

 

4.

Operating costs

 

2005

2004

         

Staff costs

189,117

202,105

General operating expenses

20,815

19,332

Computer service charges

17,372

16,372

Rental and management charges

19,828

20,682

Central administrative overheads

1,783

1,546

Depreciation and amortisation

23,665

10,420

Audit fees

393

396

272,973

270,853

 

5.

Other income

   

2005

2004

         
Bank deposits interest

3,763

4,037

 

6.

Finance cost
     
     

2005

2004

           

Interest on Government loans

-

395

 

7.

Taxation

(i)

Notional profits tax is provided at 17.5% (2004: 17.5%) of the estimated assessable profits for the year. A payment in lieu of profits tax calculated on the basis of the provisions of the Inland Revenue Ordinance (Cap. 112) will be made to the Government. The amount of taxation charged/(credited) to the profit and loss account represents :


 

 

 

2005

2004

Current tax

 

Notional profits tax

23,948

8,957

 

Over-provision in previous year

(452)

(10,309)

 

23,496

(1,352)

 

Deferred tax

 

Origination and reversal of
temporary differences

4,458

6,913

 

Total income tax expense

27,954

5,561

 

(ii)

Reconciliation between tax expense and accounting profit at applicable tax rates :


 

 

 

2005

2004

 

 

 

Profit before tax

166,081
95,105
 

 

 

Notional tax on profit before tax

29,064

16,643

Over-provision in previous year

(452)

(10,309)

Recognition of a previously
unrecognised deferred tax asset


-
(66)

Tax effect of non-taxable revenue

(658)

(707)

Actual tax expense

27,954

5,561

 

8.

Dividend

A dividend of $69.064 million being 50% of the profit after tax is proposed for the year ended 31 March 2005 ( 2004: $44.772 million ).

 

9.

Rate of return on fixed assets

This is calculated as a percentage of operating profit and interest income after taxation to Average Net Fixed Assets (ANFA). The Land Registry Trading Fund is expected to meet a target return of 10% per annum on ANFA as determined by the Financial Secretary.

 

10.

Fixed assets
 
Land and Buildings
Computer Systems
Equipment,
Furniture and Fittings
Set-up Costs
Total
Cost or Valuation
At 1 April 2004
350,000

466,276

15,103

3,800

835,179

Additions
-

40,329

1,776

-

42,105

Disposal
-

-

(6,011)

-

(6,011)

At 31 March 2005
350,000

506,605

10,868

3,800

871,273

Aggregate
Depreciation/
Amortisation

At 1 April 2004

41,078

352,834

14,948

3,800

412,660

Charge for the year

3,851

19,418

396

-

23,665

Disposal

-

-

(6,011)

-

(6,011)

At 31 March 2005

44,929

372,252

9,333

3,800

430,314

Net Book Value

           

At 31 March 2005

305,071

134,353

1,535

-

440,959

At 31 March 2004

308,922

113,442

155

-

422,519

 

11.

Deferred revenue

This represents outstanding search tickets and subscription fees/other service charges received in advance of which services have not yet been rendered.


 

 

 

2005

2004

 

Search tickets

416

700

Subscription fees/other service
charges

1,172
1,020

Balance at 31 March

1,588

1,720

 

12.

Customers' deposits

     
     

2005

2004

     

Online Services Subscribers/

 

Direct Access Services customers

21,477

20,115

Government departments

1,256
1,156

Balance at 31 March

22,733

21,271

 

13.

Deferred tax

Major components of deferred tax recognised in the balance sheet and the movements during the year are as follows :


   
Depreciation allowances in excess of the related depreciation
Other temporary differences
Total
 

Balance at 1 April 2004

17,986
(107)
17,879
  Charged/(Credited) to profit and
loss account
4,418
40
4,458
 

Balance at 31 March 2005

22,404

(67)

22,337

 

Balance at 1 April 2003

10,966

-

10,966

  Charged/(Credited) to profit and
loss account
7,020

(107)

6,913

 

Balance at 31 March 2004

17,986
(107)
17,879

 

14.

Trading fund capital

This represents the Government's investment in the Land Registry Trading Fund .

 

15.

Retained earnings

   
     

2005

2004

   

Balance at 1 April

553,761
508,989
 

Profit for the year

138,127

89,544

 

 

691,888

598,533

 
Proposed dividend

(69,064)

(44,772)

 
Balance at 31 March

622,824

553,761

 

16.

Analysis of the balances of cash and cash equivalents at end of year

 

 

2005

2004

Cash and bank balances

90,624

3,925

 

 

 

 

Placements with banks
(cash equivalents portion)

4,500

-

   

95,124

3,925

 

17.

Related party transactions

Apart from those separately disclosed in the accounts, the other material related party transactions for the year are summarised as follows :

  (i)

Services provided to related parties included registration of land documents, search of land registers and records, supply of copies of land records and reports on title. The total revenue derived from these services amounted to $68 million (2004: $77 million). This amount is included in Turnover under note 3.

  (ii)

Services received from related parties included computer services, accommodation, central administration and auditing. The total cost incurred on these services amounted to $29 million (2004 : $35 million). This amount is included in Operating Costs under note 4.

 

Charging for services rendered to or received from related parties was on the same basis, that is, at the rates payable by the general public for services which were also available to the public or on a full cost recovery basis for services which were available only to related parties.

 

18.

Capital commitments

At 31 March 2005, the Land Registry Trading Fund had capital commitments, so far as not provided for in the financial statements, as follows :


 

 


   
     

2005

2004

     

Contracted for

70,100

91,000

Authorised but not contracted for

45,850

37,300

   

115,950

128,300

19.

Operating lease commitments

At 31 March 2005, the total future minimum lease payments under operating leases of the Land Registry Trading Fund are payable as follows :


.

 

 

2005

2004

.

 

 

Land and Buildings

.

 

 

Operating leases which expire :

 

 

within one year

4,230

5,867

in the second to fifth years
inclusive

6,245

9,897

   

10,475

15,764

 

20.

New accounting standards in Hong Kong

The Hong Kong Institute of Certified Public Accountants has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs") which are effective for accounting periods beginning on or after 1 January 2005. The Land Registry has not early adopted these new HKFRSs in the financial statements for the year ended 31 March 2005. The Land Registry has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.


 
 
 
 

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