The Land Registry

Land Registry Annual Report 2002/03

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Notes on the Accounts

For the year ended 31 March 2003
Expressed in HK$'000

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.

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 costing more than $100,000 on an individual basis are stated at their costs of acquisition.

(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	10% - 20%
Office car	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)

Deferred tax

Provision is made for deferred tax in respect of all material timing differences attributable to accelerated depreciation allowances on fixed assets except where it is considered that no liability will crystallise in the foreseeable future.

(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 recognized 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 are charged to the Land Registry Trading Fund and recognized 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 of the Hong Kong Special Administrative Region 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.

Turnover	2003	2002
Registration of documents	180,606	215,670
Search	66,719	75,496
Copying	52,306	58,158
Reports on title	56,978	42,867
Owners incorporation	7,490	7,580
Others	3,865	5,870

	367,964	405,641

Operating costs	2003	2002
Staff costs	207,494	223,855
General operating expenses	23,211	21,261
Computer service charges	19,195	22,754
Rental and management charges	22,750	23,809
Central administrative overheads	1,578	1,568
Depreciation and amortisation	11,228	18,036
Audit fees	373	395

	285,829	311,678

Other income	2003	2002
Rental income from Government	548	3,227
Bank deposits interest	7,847	12,718

	8,395	15,945

Finance cost	2003	2002
Interest on Government loans	1,606	*3,467*

Taxation

Notional profits tax is provided at the rate of 16% (2002： 16%). 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. Provision is made for deferred tax in respect of all material timing differences attributable to accelerated depreciation allowances on fixed assets except where it is considered that no liability will crystallise in the foreseeable future.

2003

2002

Notional profits tax

5,490

15,560

Deferred tax for the year

Capital allowances in excess

of /(less than) related depreciation charge

7,798

271

(340)

Adjustment due to a change of profits tax rate

8,069

(340)

Taxation for the year

13,559

15,220

Dividend

A dividend of $37.682 million being 50% of the profit after tax is proposed for the year ended 31 March 2003 (2002 : $27.570 million).

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	Office Car	Set- up Costs	Total

Cost or Valuation
At 1 April 2002	350,000	375,416	23,059	192	3,800	752,467
Additions	-	50,750	-	-	-	50,750

At 31 March 2003	350,000	426,166	23,059	192	3,800	803,217

Aggregate Depreciation/ Amortisation
At 1 April 2002	33,376	339,611	22,434	105	3,800	399,326
Charge for the year	3,851	7,029	310	38	-	11,228

At 31 March 2003	37,227	346,640	22,744	143	3,800	410,554

Net Book Value

At 31 March 2003	312,773	79,526	315	49	-	392,663

At 31 March 2002	316,624	35,805	625	87	-	353,141

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.

	2003	2002
Search tickets	665	604
Subscription fees/other service charges	1,155	1,988

Balance at 31 March 2003	1,820	2,592

12.

Short-term borrowings	2003	2002
Government loan repayable within one year at 31 March 2003 (see also note 15)
Set-up loan	23,660	*23,660*

13.

Customers' deposits	2003	2002
Direct Access Services customers	20,261	21,562
Government departments	1,152	1,152

Balance at 31 March 2003	21,413	22,714

14.

Deferred tax	2003	2002
Balance at 1 April 2002	2,897	3,237
Provision for the year	8,069	(340)

Balance at 31 March 2003	10,966	2,897

15.

Government loan	2003	2002
Government loan repayable after one year at 31 March 2003	-	23,660

A set-up loan of $236.6 million from the Capital Investment Fund was made in accordance with the resolution passed by the Legislative Council on 30 June 1993 to finance part of initial assets valued at $354.9 million appropriated to the Land Registry Trading Fund effective from 1 August 1993. The loan is repayable in ten equal annual instalments of $23.66 million starting from 1 August 1994. The tenth instalment due to be payable on 1 August 2003 is shown under short-term borrowings.

Interests for the loan is paid on the amount outstanding at the average of the best lending rates quoted by the continuing members of the Committee of the Hong Kong Association of Banks.

16.

Trading fund capital

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

	2003	2002
Balance at 1 April 2002	118,300	118,300
Addition	-	-

Balance at 31 March 2003	118,300	118,300

17.

Retained earnings

2003

2002

Balance at 1 April 2002, as previously
reported

537,827

473,497

Change in accounting policy in respect of
employee benefits (see note 22(c))

(66,521)

(65,842)

Balance at 1 April 2002, as restated

471,306

407,655

Profit for the year, as previously reported

91,900

(679)

Change in accounting policy in respect of
employee benefits

Profit for the year (2002 : as restated)

75,365

91,221

Proposed dividend

(37,682)

(27,570)

Balance at 31 March 2003

508,989

471,306

18.

Analysis of the balances of cash and cash equivalents at end of year	2003	2002
Cash and bank balances	1,722	2,185
Placements with banks (cash equivalents portion)	650	820

	2,372	3,005

19.

Related party transactions

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

(a)	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 $89 million (2002 : $78 million). This amount is included in Turnover under note 3.

(b)	Services received from related parties included computer services, accommodation, central administration and auditing. The total cost incurred on these services amounted to $33 million (2002 : $40 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.

20.

Capital commitments

At 31 March 2003, the Land Registry Trading Fund had capital commitments, so far as not provided for in the financial statements, as follows :

	2003	2002
Contracted for	105,600	21,900
Authorised but not contracted for	71,700	149,600

	177,300	171,500

21.

Operating lease commitments

At 31 March 2003, the total future minimum lease payments under operating leases of the Land Registry Trading Fund are payable as follows :

Land and Buildings	2003	2002
Operating leases which expire :
within one year	5,952	454
in the second to fifth years inclusive	2,776	14,738
over five years	-	-

	8,728	15,192

22.

Adoption of new and revised accounting standards in Hong Kong

The following new and revised Statements of Standard Accounting Practice (SSAPs) issued by the Hong Kong Society of Accountants, which became effective for accounting periods beginning on or after 1st January 2002, were adopted for the preparation of these financial statements :

(a)	SSAP 1 (revised) “Presentation of Financial Statements”

	A statement of changes in equity is presented as a separate component of the financial statements in order to comply with the new requirements of SSAP 1 (revised).

(b)	SSAP 15 (revised) “Cash Flow Statements”

	The format of the cash flow statement has been revised to follow the new requirements of SSAP 15 (revised).

(c)	SSAP 34 “Employee Benefits”

	In order to comply with the new requirements of SSAP 34, a provision is made for the estimated liability for annual leave as a result of services rendered by the staff up to the balance sheet date. This represents a change in accounting policy as in previous years no provision was made for this liability. This change in accounting policy has been accounted for retrospectively and the comparative figures have been restated to conform with the changed policy. The provisions for unused annual leave of the staff at 31 March 2003 and 2002 were $64.434 million and $66.521 million respectively. The amount of $2.087 million, being a decrease for the year, was credited to the profit and loss account under the item of staff costs; and the amount of $66.521 million was charged against the retained earnings at 1 April 2002 as prior year adjustment (see note 17).

23.

Comparative figures

Certain comparative figures have been restated and reclassified based on the requirements of the new and revised accounting standards adopted as set out in note 22.