Financial Statements for the Year Ended 30 June 2007

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CONTENTS

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1

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3 Treasurer's Report

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4 - 5

Independent Auditor's Report

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...

6

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7 Consolidated Income and Expenditure Statement

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8

-

9 University Income and Expenditure Statement

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10

-

11 Consolidated Balance Sheet

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...

12

-

13 University Balance sheet

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...

14 - 15 Consolidated Statement of Changes in Fund Balances

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...

16

-

17 University Statement of Changes in Fund Balances

&

...

18

-

19 Consolidated Cash Flow Statement

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...

20

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67 Notes to the Financial Statements

(3)

THE HONG KONG

UNIVERSITY

OF SCIENCE AND TECHNOLOGY FINANCIAL STATEMENTS FOR THE YEAR ENDED 30

JUNE

2007

(4)

3BSS

TREASURER'S REPORT

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Operating Results for the Year

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After having achieved a record-high surplus of $802.2 802,200,000 ZBB

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%H2006107 million in the last financial year, the University

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BE R S @ ~ 4 8 7 , 6 0 O y 0 O 0 3 ~ ~ ~ P B continued to produce a handsome surplus of $487.6

million for 2006107 as a result of the UGC Matching Grant Schemes.

#&!!&A Consolidated Income

Consolidated income for the year was $2,721.1 million ($3,040.6 million in 2005106), comprising $1,647.7 million (60.6%) from government subventions, $537.6 million (19.8%) fiom tuition and program fees, $141.5 million (5.2%) fiom interest and investment income, $194.6 million (7.1%) from donations, $136.8 million (5.0%) from auxiliary services and other income of $62.9 million (2.3%). The decline in consolidated income in 2006107 was mainly attributable to the decrease in donations and related matching grants received under the third Matching Grant Scheme.

2

With the continuous expansion in self-financing

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_{education programs and activities, additional revenue} ~ 2 F 4 @ t ? l B b P 2 0 0 5 1 0 6 F & ~

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pro- fees. B a m r $ G

,

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Investment and interest income has also increased due to a higher average bank interest rate than that of 2005106 and the growth in surplus cash balance.

kQE2006F2fl EJ%%E%ZBEH#@J&% Shortly after the successful completion of the second

11

(2005/06&B

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kb#~%TW700,000,00O _{Matching Grant Scheme in February 2006 (a total}_of ZWEBililbBRIRfflgi)

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~ o o , o o o , o o o ~ ~ ~ ~ R ~ ~ E ~ ~ ~ & grants had been received for 2005/06), the University secured further donations and related matching grants

of some $300 million under the third Matching Grant Scheme for 2006/07.

~~~~

Consolidated Expenditure

~ ~ ~ ~ ~ ~ ~ (2005/06FB ~ 2 , 2 _{Consolidated expenditure for the year was $2,237.6}3 7 y 6 ~ ~ y ~ ~ ~ ~ 232414l,goo,ooo 3 )

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_{million ($2,241.9 million in 2005/06), comprising} (74.2%)&@lR@fBgIQ

,

114,6009OOO~(5.1%)

1,659 million (74.2%) for learning and research

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334,400,0003(14.9%)&~

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129,600,000 z(5,8%)

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activities, $1 14.6 million (5.1%) for management and

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general expenditure, $334.4 million (14.9%) for

premises and related expenses, and $129.6 million (5.8%) for other items.

(5)

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While the total expenditure was maintained at a steady

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ffgE!$i&#j# level, there was a decrease in salaries expense which

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was offset by an increase in operating expenditwe for learning and research, as well as student activities.

m % s s % N B H m B 3 a m - 3 B % a * 8 s A one-off voluntary redundancy (VR) payment was 2 0 0 5 / ~ &

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,Q made in 2005106 resulting in the unusually high level 2 0 0 5 / ~ &

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~ ! B ~ % R ~ ~ U % ~ H % B # O 2005106 VR Scheme, it was partly offset by an upward cost of living salary adjustment made in line with that for the civil servants effective April 2007.

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UGC-funded Activities

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UGC grants accounted for $1,611.5 million or 97.8%

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of government subventions. This included recurrent

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% @ # ~ ~ ~ ~ @ * _{block grant of $1,2 16.4 million; earmarked grants for} ' J t m ~ ~ @ 3 E 2 7 9 9 0 0 0 ~ o o 0 ~

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_{housing, research, capital works and rates and} ~ ~ 1 1 6 , 1 0 0 , 0 0 0 ~ 0

government rent r e h d s of $279.0 million; and extra matching grants of $1 16.1 million.

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8t ff!! rtk A % %J The recurrent block grant together with tuition fees and 17601,900,000

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_{other income totalled $1,601.9 million for the year, and}

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related expenditure amounted to $1,503.2 million. The

9 8 , 7 0 0 , 0 0 0 ~ ( 2 0 0 5 / 0 6 ~ ~ ~ ~ , ~ ~ ~ , ~ ~ ~ ~ ) ~ ~ ~ _{surplus of $98.7 million ($47.7 million in 2005/06) was}

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,

transferred to the General and Development Reserve in ~#~@%Jl,019,600,000

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0

accordance with University Grants Committee's guidelines. As at 30 June 2007, the reserve balance stood at $1,019.6 million.

@%dl3 Capital Projects

To facilitate the University's planned development, a number of capital projects are in the pipeline. New student halls and academic extensions will be constructed to cope with the anticipated increasing demand for on-campus residence and academic space as a result of the change in the tertiary education system to a 4-year UG-program. Other on-campus development projects include the Institute for Advanced Study (IAS) Building and Residences as well as the Lee Shau Kee Business Building. Across the border in the Mainland, the Fok Ying Tung Graduate School in Nansha and the HKUST IER (Industry- Education-Research) Building in Shenzhen are also underway.

(6)

Outlook

The capital projects for the development of the campus physical infrastructure in preparation for the 4-year UG-program in 2012 is part of the University Strategic Plan 2005-2020 to ensure our teaching and research goals are met. To m e r support the University ' s pursuit of excellence in teaching and research, an efficient and effective administration supported by a state-of-the-art information infrastructure is also very important. The University has been assessing commercial Enterprise Resources Planning

(ERP)

system packages as part of its Information System (IS) Strategy roll-out. The implementation of the strategy will enable the University to provide better and faster services to students and staff, and enhance the quality of management information for senior management's decision making.

These physical and information hhstructure developments are made possible by capital grants to be provided by UGC under the 4-year UG-program system. The University will also draw on its non-UGC resources as well as its UGC reserves to supplement the development. To facilitate the University to make continuous improvement on its internal resources allocation for recurrent grants to be received under the 4-year UG-program, a taskforce has been established recently to review and make recommendations on budgetary methodologies and models. The University will also continue to strengthen its fund-raising capability and uphold a prudent financial management approach to ensure a healthy financial position in its transition to the 4-year UG-program system and beyond.

SIGNED

David Tak-Kei SUN Treasurer of the University 9 November 2007

(7)

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INDEPENDENT AUDITOR'S REPORT

Deloitte.

To : The Council of The Hong Kong University of Science and Technology

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We have audited the financial statements of The Hong

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_{Kong University of Science and Technology (the}

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_{"University") and its subsidiaries (collectively referred to}

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as the "Group") set out on pages 6 to 67, which comprise

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f$&2jg&~&$@~!!$lg&&~ij&sgJ4 the consolidated and University balance sheets as at 30

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June 2007, and the consolidated and University income

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o and expenditure statements, the consolidated and University statements of changes in f h d balances and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

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Council's responsibility for the fmancial statements

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The Council of the University is responsible for the

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preparation and the true and fair presentation of these

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financial statements in accordance with Hong Kong

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Financial Reporting Standards issued by the Hong Kong

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Institute of Certified Public Accountants (the "HKICPA").

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This responsibility includes designing, implementing and

maintaining internal control relevant to the preparation and the true and fair presentation of the fmancial statements that are free fiom material misstatement, whether due to fiaud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. .

(8)

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

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 and true and fair presentation 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 Council, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the state of affairs of the University and of the Group as at 30 June 2007 and of the results of the University and the Group and the Group's cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards.

SIGNED

Deloitte Touche Tohmatsu Certified Public Accountants HONG KONG

(9)

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CONSOLIDATED INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 30 JUNE 2007

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2007 2006

Notes $'OOO $'OOO

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Income

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Government Subventions

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Tuition, Programmes and Other Fees

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Interest and Investment Income

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Donations and Benefactions

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Auxiliary Services

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Other Income

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Expenditure

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Learning and Research

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Instruction and Research

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Library

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Central Computing Facilities

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Other Academic Services

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Institutional Support

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Management and General

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Premises and Related Expenses

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Student and General Education Services

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Other Activities

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CONSOLIDATED INCOME AND EXPENDITURE STATEMENT (Cont'd) FOR

THE

YEAR ENDED 30

JUNE

2007

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2007 2006

Notes $'OOO $'OOO

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Share of Result of a Jointly Controlled Entity ~ 4 ~

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Share of Result of an Associate

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Surplus for the year before transfers

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Restricted Funds

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Other Funds

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UNIVERSITY INCOME

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EXPENDITURE STATEMENT FOR THE YEAR ENDED 30

JUNE

2007

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2007 Notes 5'000 RA Income istlfj*m Government Subventions

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Learning and Research

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Other Activities

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UNIVERSITY INCOME AND EXPENDITURE

STATEMENT

(Cont'd) FOR THE YEAR ENDED 30

JUNE

2007

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2007 2006 Notes S'OOO $ ' 000

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CONSOLIDATED BALANCE SHEET AS

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JUNE

2007

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2006

Notes $'OOO $'OOO

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Non-Current Assets

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Property and Equipment

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Held-to-Maturity Financial Assets

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Available-for-Sale Financial Assets

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Interest in an Associate

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Interest in a Joint Venture

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Bank Deposits

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Bank and Cash

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Accounts Payable and Accruals

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Provision of Staff Benefits

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Deferred Income

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Net Current Assets

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CONSOLIDATED BALANCE SHEET (Cont'd) AS AT 30 JUNE 2007

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2007 2006

Notes $'OOO $'OOO

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Non-Current Liabilities

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NET ASSETS

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Other Funds

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TOTAL FUNDS ~ s m 2 0 0 7 ~ 1 la9

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Approved by the Council on 9 November 2007

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SIGNED

David T.K. SUN

Treasurer of the University

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SIGNED Paul C.W. CHU President

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SIGNED Philip S.P. WONG Director of Finance

(15)

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Non-Current Assets

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Property and Equipment

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UNIVERSITY BALANCE SHEET AS AT 30 JUNE 2007

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2007 2006

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Held-to-Maturity Financial Assets

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Available-for-Sale Financial Assets

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Investment in an Associate

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Bank Deposits

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Accounts Receivable and Prepayments

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Deferred Income

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Net Current Assets

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UNIVERSITY BALANCE SHEET (Cont'd) AS AT 30

JUNE

2007

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2007 2006

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Non-Current Liabilities

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NET ASSETS

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Deferred Capital Funds

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Other Funds

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TOTAL FUNDS

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CONSOLIDATED STATEMENT OF CHANGES IN FUND BALANCES

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Balance as at 1 July 2005 *%EB@

Surplus for the year

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Endowment Funds received

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Unrealised gain on Available-for-Sale Financial Assets

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Recognition of unrealised gain on disposal of Available-for-Sale Financial Assets transferred to income and expenditure

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122,899

Subventions and donations received and receivable during the year for Property and Equipment

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Amount transferred to income and expenditure statement representing the depreciation charge on Property and Equipment funded by subventions and donations

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Change in share of statutory reserves of an Associate

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Change in exchange reserve

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CONSOLIDATED STATEMENT OF CHANGES

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FUND BALANCES (Conttd)

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Balance as at 30 June 2006

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Endowment Funds received

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Capital Restricted Other Total Funds Funds Funds Funds

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Financial Assets transferred to income and expenditure

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UNIVERSITY STATEMENT OF CHANGES IN FUND BALANCES

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Balance as at 1 July 2005

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Endowment Funds received

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year for Property and Equipment

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UNIVERSITY STATEMENT OF CHANGES IN FUND BALANCES (Cont'd)

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Deferred

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Endowment Funds received

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(21)

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CONSOLIDATED CASH

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STATEMENT FOR THE

YEAR

ENDED 30 JITNE 2007

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Operating Activities

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Net Surplus for the year

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Depreciation

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Bad debt written off

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Share of results of an Associate / a Jointly Controlled Entity

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Transfer from Deferred Capital Fund

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Increase 1 (Decrease) in Deferred Income

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Decrease in Provision of StafFBenefits

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CONSOLIDATED CASH FLOW STATEMENT (Cont'd) FOR THE YEAR ENDED 30

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2007 2006 S'OOO S'OOO

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Investing Activities

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Increase in Bank Deposits maturing after three months

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Proceeds from disposal of Property and Equipment

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Interest and investment income received

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Net Cash Used in Investing Activities

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Financing Activities

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Endowments received

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Subventions and donations received for purchase of Property and Equipment

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Net Cash from Financing Activities

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Net Increase in Cash and Cash Equivalents

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Cash and Cash Equivalents at the Beginning of the Year

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Effect of Foreign Exchange Rate Changes

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Cash and Cash Equivalents at the End of the Year

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Bank and Cash

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Less

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Bank Deposits maturing after one year

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(23)

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NOTES TO

THE

FINANCIAL

STATEMENTS 30

JUNE

2007

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o 1. PRINCIPAL ACTIVITIES

The principal activities of the University are offering programmes leading to the award of first degrees and postgraduate qualifications particularly in science, technology, engineering, management and business studies; and collaborating closely with government, business, industry as well as other higher education institutions to assist the economic and social development of Hong Kong. The principal activities and other particulars of the subsidiaries are set out in note 15.

The registered address and principal place of operation is Clear Water Bay, Hong Kong.

The financial statements are presented in Hong Kong dollars, which is the same as the functional currency of the University.

2. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared on the historical cost basis except for available-for- sale financial assets which are measured at fair value. The financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). The principal accounting policies adopted are as follows:

2.1 Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the University and entities controlled by the University made up to 30 June each year. Control is achieved where the University has the power to govern the financial and operating policies of an entity so as to obtain benefits fiom its activities.

(24)

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income and expenditure statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All significant transactions and balances between group entity are eliminated on consolidation.

Investments in Subsidiaries

Investments in subsidiaries are included in the University's balance sheet at cost less any identified impairment loss.

Interest in an Associate

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of an associate are incorporated in the consolidated financial statements using the equity method of accounting. Interest in an associate is carried in the consolidated balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associate, less any impairment loss.

Where a group entity transacts with an associate of the Group, unrealized profits or losses are eliminated to the extent of the Group's interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognized.

Interest in a Joint Venture

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

(25)

A joint venture arrangement that involves the establishment of a separate entity in which each venturer has an interest are referred to as a jointly controlled entity. The results and assets and liabilities of a jointly controlled entity are incorporated in the consolidated financial statements using the equity method of accounting. Interest in a jointly controlled entity is carried in the consolidated balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the profit or loss and of changes in equity of the jointly controlled entity, less any impairment loss.

Where the Group transacts with its jointly controlled entity, unrealised profits or losses are eliminated to the extent of the Group's interest in the jointly controlled entity, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognized.

2.5 Property and Equipment

Property and equipment, other than construction in progress, are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of property and equipment, other than construction in progress, over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method.

Construction in progress is stated at cost less any identified impairment loss and is not depreciated until completion of construction. Cost of completed construction works is transferred to appropriate categories of property, plant and equipment.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise ftom the continued use of the asset. The gain or loss arising fiom disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income and expenditure statement.

(26)

E ~ B R # @ R B Z M % ~ H & B ~ R

Expenses on property and equipment funded by

~QY!JBB$?EIH

7

ifii#Blff9&%@

-

government subventions and s~ecific donations

% A % B S Q S & ~ O % W G I ~ S

_{are capitalised and credited to Deferred Capital}

**R%Q2@BBMrn&%R@*&%**

**@%#S&@SR%%S*o**

Funds. Each year, an amount equal to the

depreciation charges for the respective property and equipment is transferred fiom Deferred Capital Funds and credited to the income and expenditure statement.

2.6

& ~ I B

2.6 Financial Instruments

**B%~&B&RIRe&@*2BR**

%@Y!!!!M~B@R%M~BBBH

Financial assets and financial liabilities are

%~%@B%B%BBEBBBBoB

recognised on the Group's balance sheet when the

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Group becomes a party to the contractual

&fifE~fi%fOR~gb%fiH%

provisions of the instrument. Financial assets and

B&mHBRBrnB@2aRMBB

$HiE%R#ABBBS2&fiBbE

financial liabilities are initially measured at fair

BBBHrn&&B+aR(BM%BM

value. Transaction costs that are directly

532)

_.._-,0 attributable to the acquisition or issue of financial

assets and financial liabilities are added to or deducted fiom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

2.6 (a)

ERMBWEfJIIfi4IHRd

2.6 (a) Accounts receivable and amounts due from subsidiaries

Accounts receivable and amounts due from subsidiaries are measured at initial recognition at fair value, and are subsequently measured at mortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in income and expenditure statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

2.6 @)

wf

2.6 (b) Investments

BBm~B&fiBmJ=BBRa%a

Investments are recognised and derecognised on a

&$4E@2%HSb@%RMR@1

trade date basis where the purchase or sale of an

7 J % H ~ % % @ $ % ~ & 2 2 R ~ ~

investment is under a contract which terms

ZT&&Rk

o require delivery of the investment within the

timeframe established by the market concerned,

and are initially measured at fair value, plus directly attributable transaction costs.

(27)

At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in income and expenditure statement when there is objective evidence that the asset is impaired, and is measured as the difference between the investment's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment's recoverable amount can be related objectively to an event occurring after the recognition of the impairment loss, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising fiom changes in fair value are included in income and expenditure statement for the period. For available-for-sale investments, gains and losses arising £rom changes in fair value are recognised directly in fund balances, until the security is disposed of or is determined to be impaired, at which time the cumulative gains or losses previously recognised in f h d balances are included in the income and expenditure statement for the period.

(28)

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in income and expenditure statement when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not be reversed in subsequent periods.

Impairment losses recognised in income and expenditure statement for equity investments classified as available-for-sale are not subsequently reversed through income and expenditure statement. Impairment losses recognised in income and expenditure statement for debt instruments classified as available-for- sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

2.6 (c)

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.

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2.6 (c) Accounts payable and accruals, deferred

MmmfC%d

income and amounts due to subsidiaries

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Accounts payable and accruals, deferred income

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and amounts due to subsidiaries are initially

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measured at fair value, and are subsequently

B ~ F " @

o measured at mortised cost, using the effective

interest rate method.

2.6 (dl

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2.6 (d) Cash and cash equivalents

B & & % H s & a B e R s f i 2 * s

Cash and cash equivalents comprise cash on hand

@B&B~B.f~H%~@lfli%MTL%

and demand deposits with an original maturity of

Bfiili@$J$2%rnBR

three months or less at prevailing market rate.

(29)

2.6 (e) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the management's best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Stocks

Stocks held for resale in respect of self-financing operations are valued at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Income

Government subventions and designated donations are recognised as income over the periods necessary to match them with the related expenditure. Any Recurrent Block Grant in excess of related expenditure is recognised as income and transferred to the General and Development Reserve Fund in accordance with the prevailing University Grant Committee ' s guidelines.

(30)

Subventions and donations for depreciable property and equipment are recognised as Deferred Capital Funds and are mortised over the estimated useful lives of the related assets in accordance with the policies as stated in notes 2.5

and 11.

General donations are recognised as income when the amounts have been received or are receivable fiom the donors.

Tuition fees, auxiliary services and rental income are recognised when services are provided. Interest income fiom a financial asset is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable, which is the rate that exactly discount the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Endowments are credited to restricted funds in the year in which they are received. Income generated fiom endowments are recognised in the income and expenditure statement. Endowments are transferred fiom restricted funds and credited to the income and expenditure statement when the condition for maintenance of the principal amounts has expired or been waived by donors. Income fiom contract research is recognized on a percentage of completion basis when the fee notes are issued.

2.10 Operating Leases 2.10 (a) The Group as lessor

Rental income fiom operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incmed in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

2.10 (b) The Group as lessee

Rentals payable under operating leases are charged to income and expenditure statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

(31)

Retirement Benefits Costs

Payments to defined contribution retirement benefit plans are charged as an expense when employees have rendered service entitling them to the contribution.

Foreign Currencies

The individual financial statements of each member of the Group are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Hong Kong Dollars, which is the functional currency of the University and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entity, transactions in currencies other

than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income and expenditure statement for the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income and expenditure statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in fund balances. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in fund balances.

(32)

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's operations outside Hong Kong are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year. Exchange differences arising, if any, are recognized as a separate component of fund balances (the translation reserve). Such exchange differences are recognized in the income and expenditure statement in the period in which the foreign operation is disposed of.

(33)

2-13

**mHfj;s&in'mY'dsMIIsM["ssHaIs*ntl]**

APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARD ("HKFRSsbt)

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations ("new HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") that are effective for the Group's financial year beginning 1 July 2006. The adoption of the new HKFRSs had no material effect on how the Group's results and financial position for the current or prior accounting years have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new and revised standards, amendments and interpretations that have been issued by the Hong Kong Institute of Certified Public Accountants, but are not yet effective. The Group anticipates that the application of these new and revised standards, amendments and interpretations will have no material impact on the financial position of the Group:

B S @ 8 5 M % l S

(Ern

HKAS 1 (Amendment) %B@#VM%23S ( I m HKAS 23 (Revised) B*BS1 Capital disclosures'

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Borrowing

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:

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Financial instruments: ~isclosures'

8 1 B 1 2

Operating segments2 + i w m e ~ % 9 6 t % ~ w ~ a r z ~ e ) -

amo

~ B H % # % R S @ ~

HK(IFRIC)

-

INTlO Interim Financial Reporting and impairment3 B%($RH%B%@MBRSR@) - S R l l f BHBB%@Rl%2#

-

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HK(IFRIC)

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INT 11 HKFRS 2 - Group and Treasury Share rans sac ti on$

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HK(IFRIC) - INT 12 Service Concession ~rran~ements' %B(HIBa%%%%*MB~SBC) - B e 1 3 % p s # B # a 6

HK(IFRIC)

-

INT 13 Customer Loyalty ~ r o g r a m n ~ e s ~

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-

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HK(IFRIC)

-

INT 14 HKAS 19

-

The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their Interaction5

R2007+181 E l S N & M E f F B M W & B

Effetive for accounting periods beginning on or after January 1,2007.

*

R2009FlH 1 E l S N & A I 2 + B M W & B

Effective for accounting periods beginning on or after January 1,2009. ~ 2 0 0 6 + 1 1 ~ 1 a s H ~ n M x & B t 9 s m &

Effetive for accounting periods beginning on or after November 1,2006.

.I

R2007&3H 1 E l 1 N ~ A @ X $ B B I % B

Effective for accounting periods beginning on or after March 1,2007. R2008&1H 1 E I S N & l E X ~ B M I & B

Effective for accounting periods beginning on or after January 1,2008. R2008+7H 1 E l S N & A l 2 + d M W & B

(34)

3-

aR#a

GOVERNMENT SUBVENTIONS

Et3

Consolidated

@Be#@

Subventions fiom University Grants Committee (UGC)

**!!I!!S@RB% m*B%**

Recurrent Block Grant 1 Supplementary Grants

RZ@%

Earmarked Grants ;raf% Research

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Housing Benefits

sft!l

Others

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Rates and Government Rent Refunds

BSB%&@%&@

-

~ U B & ~ ~ 1 ~ 2 ~ 3 @ ~

Capital Grants and Alterations, Additions & Improvements Block Allocation

E%B%

Matching Grants

@RGRSlB%

(35)

3-

igtR#B(B)

GOVERNMENT SUBVENTIONS (Cont'd)

A S

University

alcum

Subventions fiom University Grants Committee (UGC)

B%t%B%

1

#uB%

Recurrent Block Grant / Supplementary Grants

BZR%

Earmarked Grants

W%

Research

BBB@J

Housing Benefits

sf@

Others

BBsMRaa

Rates and Government Rent Refunds

BBB%R@%BB-;baBRRB71@2~SB%

Capital Grants and Alterations, Additions & Improvements Block Allocation

E%R%

Matching Grants

i!B@+ilB#B%

(36)

4.

-

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TUITION, PROGRAMMES

AND

OTHER FEES

Be

Consolidated

8lClrn%S

UGC-Funded Programmes

9 B

Tuition Fees

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Application and Other Fees

*SBCBrn%S

Non UGC-Funded Programmes

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UGC-Funded Programmes

9 B

Tuition Fees

h 9 ~ 1 E S M @ B

Application and Other Fees

*8BClrn%S

Non UGC-Funded Programmes

A*

University

(37)

5-

@JB&BSJRA

INTEREST

AND

INVESTMENT INCOME

ee

Consolidated

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h

Interest Income

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Realized gains and investment income on Available-for-Sale Financial Assets

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Dividend received fiom an Associate

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h

Interest Income

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Realized gains and investment income on Available-for-Sale Financial Assets

~R@Be32E4e.@h

Dividend received from an Associate

A49

University

(38)

6 .

%B#%

DONATIONS

AND

BENEFACTIONS

S&&A*

Consolidated and Universitv

B3aH

Capital Projects

%9&&@9&

Scholarships and Bursaries

smztwzga(tws)

Learning and Research Activities (Note)

Note :

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HSS%F'IbBSE%PP&HS#2lZOWZ(2W

: %#433695Z)#.iR 0 I#&&% 9

S%S

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&I#36 l93,859Z(2W :

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RA?#

E?Rd9$Sb26428,723Z(2W : %#24 026032Z) 7 A Q # ~ B i o ~ o 1 o g y ~ e s a i r h

Copzition L i m i t e d ( B R c ) ~ # ~ ~ ~ ~ H % X ~ ~ B # . d i E # A Q 2 @ A o

The amount included a donation of $217,000 (2006: $943.695) JLom the Hong Kong Jockey Club Chananties Trust. Apart fiom this, the Hong Kong Jockey Club Charities Trust donated $36,193,859 (2006: $14,637,395) for construction of the University's Enterprise Center, which amount was recognised in d e f i e d income; and a total sum of $26,428,723 (2006: $20,026,032) through the University to the Biotechnology Research Corporation Limited (BRC) for conduction of biotechnology research activities, which amount was not recognised as income of the University.

(39)

7-

BClimms

AUXILIARY SERVICES 2007 2006 $'OOO $

'

000

Be

Consolidated

S%@%

Residence Halls

BBBB

Catering Services

E&a%

Souvenir Shop

B&@A

Rental Income

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Rental Contribution from Staff

BB

Others

~ * % *

Residence Halls

BBB%

Catering Services

,%&la%

Souvenir Shop

#H&Jl?lA

Rental Income

3!kBRBB2B&

Rental Contribution from Staff

BB

Others

A*

University

(40)

8-

S.ttfr#c;r,

OTHER INCOME

ee

Consolidated

R%em

Contract Research

S M

Others

HRem

Contract Research

sffh

Others

A!@

University 9,064 15,500

(41)

9-

m3i

EXPENDITURE

8#2&H%

Learning and Research

asEH%

DIP1

Library

~RIBBLI'$#

#i I! eSM%

f.\%

Subtotal

es3a

Institutional Support

B@R--#S%

B-$EftMIR

e w i - m t a M B

#m!ab

Other Activities

fJ\%

Subtotal 2007W&BM3

Total Expenditure for Year 2007 2006~ES!W3i

Total Expenditure for Year 2006

1Rzsl2&aa

Salaries and Benefits $'OOO

SB3ctr

Operating Expenses $

'

000

ss

Depreciation $'OOO gre Consolidated 2007

a*

Total $'OOO 2006

a*

Total $'OOO tHEtfl~%S%8HQH+B;I;bI#&3IJBiXflX#R~l16,300,000Z(2006 : 118,800,000Z)

Included in Salaries and Benefits was a total sum of $1 16.3 million (2006: $1 18.8 million) representing the Group's contributions towards retirement benefits schemes for the respective accounting period.

(42)

9.

rnS(#)

EXPENDITURE (Cont'd)

m~taa

~l~~~ 2007 2006

Salaries and Operating

%i%

#tit

mf

Benefits Expenses Depreciation Total Total

$ ' 000 S'OOO S'OOO $'OOO S'OOO

k8

University

3#mF%

@@RW%

la%@

Library

'i!'*SB%#

#M89B%

f j m

Subtotal

@%3%l

Institutional Support

BBRd19StT%

**@*RGrag%rn**

@!kR--B%B1161%

RL%@

Other Activities

fJ\#

Subtotal 2 0 0 7 ~ B B M 3

Total Expenditure for Year 2007 2 0 0 6 ~ E @ H 3

(43)

9-1

BJRAHI

REMUNERATION OF

HIGHER

PAID STAFF

a@ABI@aRHFaNm:

The remunerations of higher paid staff were within the following bands

Number of Employees

2007 2006

&&Wkb

Consolidated and University

35 31 14 12 15 14 9 8 6 2 4 1 1 0 0 1 1 1 1 0 0 1 1 0 9.2

Bs3mB#

ANALYSIS OF OPERATING EXPENSES

2007 2006 $lo00 $'OOO

&*

Consolidated

w m H %

-B#&S

1

a9RRwBM

1 %#

General Office I Teaching and Research Expenses I Equipment

m+flElssWflrJPJ

Library Books and Periodicals

ff%%rnb&

Postgraduate Studentships

Management and General

~ 4 e c t @ l &

Auditors' Remuneration

MBSM

Financial Charges

-#Him

General Insurance

-B#&S%M

1

B#

General Ofice Expenses I Equipment

%BBM

(44)

9.2 BB%rnB#(rn

ANALYSIS OF OPERATING EXPENSES (Cont'd)

2007 2006 S'OOO $

'

000

m

Consolidated

**B*E~BROBW**

Premises and Related Expenses

-B#&SB83 I%#

General Office Expenses / Equipment

@%#a

Property Insurance Bllml!!a

Rates and Government Rent

E@RRB

1

fJe.t!!IB

Repair and Maintenance / Minor Works

&%S%-SSRR%3ffl

Utilities, Cleaning and Security Services Expenses

4LE-B#4?8MZ!8

Student and General Education Services

-B#&SRM

1

B#

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Medical and Dental Care for Students

@*

Residence Halls

%4!%3&&6S

Scholarships and Bursary

b*%@

Student Activities

Riel3%3ib

Other Activities

(45)

9-2

_{Bf[ii3f453gi(Q}

A@

University

-B#&S

1

$vfwm$fBM

1 233,276

General Office / Teaching and Research Expenses / Equipment

n

MS%f

SRBPJ

Library Books and Periodicals

**laf%*MS&**

Postgraduate Studentships

~ E - l a t F ~

Management and General

B#!m!in&

Auditors' Remuneration

WBBar

Financial Charges

-BR@

General Insurance

-B#&SSH13@

%#BM

Legal Fee

(46)

9.2

BB3BIB#f(#)

S'OOO 5'000

kb

University

**B*ERIROIM**

Premises and Related Expenses

-R#2SBM

/ %#a

B%RR

Property Insurance

SrnR%%

Rates and Government Rent

BBRRB

1 fJ\@I@

Repair and Maintenance / Minor Works

~ % s % - s s E R % 3 a

Utilities, Cleaning and Security Services Expenses

**E-aZtftBma

Student and General Education Services

-B#%SBM

/ %#a

**b*B@R%HRB**

Medical and Dental Care for Students

i'Bs

Residence Halls

%@&Rltbb&

Scholarships and Bursary

**4*%@**

Student Activities

~ft!lSrn Other Activities

(47)

TRANSFERS TO RESTRICTED 1 OTHER FUNDS

* & ~ ~ @ A ~ ~ ~ B J ~ ~ & R Z M @ I ~ ~ - B W B ~ ~ ~ ; ~ ~ ~ B ~ B A R Z S & ~ M B ~ R ~ B A ~ M ~ & O

Income and expenditure for the year are categorised between specific use and general use. Any surplus &om the former category is

transferred to Restricted Funds and the latter to Other Funds.

Restricted Other Restricted Other Funds Funds Funds Funds

S'OOO S'OOO S'OOO S'OOO

#!e

Consolidated

Jim

Income im3sBb Government Subventions 9R*%QB#fl!l@l

Tuition, Programmes and Other Fees

jBJQIltBB@A

Interest and Investment Income *%#Hikt

Donations and Benefactions

Sam% Auxiliary Services #M@A Other Income

mx

Expenditure @#iEH%

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@@EH%

Instruction and Research

mtllll

Library '+'*BllsllSt#

#Magma

@BXS

eP%E--WBSI

Management and General

@%BQBBeH

Premises and Related Expenses

9*B--WBaa@B

Student and General Education Services

#fl!l%lb

Other Activities

* B t C I m

Surplus from operation for the year

HGIB5i3 1 BRB@bEBRa

Share of Results of an Associate 1 a Jointly Controlled Entity

emJmE2aB