Page 131 - Urban Renewal Authority 2023-24 Annual Report

2. Material accounting policies (Continued)

(j) Leased assets (Continued)
(ii) As a lessor
When the company acts as a lessor, it determines at lease inception whether each lease is a
finance lease or an operating lease. A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to the ownership of an underlying assets to the
lessee. If this is not the case, the lease is classified as an operating lease.

When a contract contains lease and non-lease components, the company allocates the
consideration in the contract to each component on a relative stand-alone selling price basis.
The rental income from operating leases is recognised in accordance with note 2(e)(v).

(k) Properties under development
Properties under development represent all costs incurred by the Group in connection with property
development, and include mainly acquisition costs, cost of development, borrowing costs, costs of
rehousing units (see Note 2(m)) and other direct costs incurred in connection with the development,
less any provisions for impairment losses (see Note 2(h)). For preservation properties and retained
properties, the properties are transferred to property, plant and equipment at cost upon completion.

Upon disposal of the development properties, the relevant cost of the properties will be apportioned
between the part to be retained and the part to be sold on an appropriate basis.
The relevant cost for the part to be sold will be charged as “direct costs” to profit or loss at the
inception of the joint development agreement.

(l) Properties held for sale and properties under development for sale
Properties held for sale and properties under development for sale at the end of the reporting period
are stated at the lower of cost and net realisable value.

(m) Costs of rehousing units provided by the Hong Kong Housing Authority and the Hong Kong
Housing Society
The Hong Kong Housing Authority and the Hong Kong Housing Society have agreed to provide
certain rehousing units to the Group. In return, the Group will pay for the reservation fees until a
tenant is moved into the unit and the allocation costs of the rehousing unit. These costs are
recognised as part of the cost of properties under development referred to in Note 2(k).

(n) Provisions, contingencies and onerous contracts
(i) Provisions and contingencies
Provisions are recognised when the Group has a present legal or constructive obligation as a
result of past events; it is more likely than not that an outflow of economic benefits will be
required to settle the obligation; and the amount can be reliably estimated. Provisions are not
recognised for future operating losses, except for those cases where the Group has a present
obligation as a result of committed events.

Where there are a number of similar obligations, the likelihood that an outflow will be required
in settlement is determined by considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow of economic benefits with respect to any one
item included in the same class of obligations may be small.

URA ANNUAL REPORT 2023-24 129