Pe Illustrative Financial Statement

Example Directors' Report,
Auditor's Report and

Illustrative Financial
Statements for Private Entities
prepared in accordance with
the HKFRS for Private Entities
(with Hong Kong Companies
Ordinance disclosures)
EXAMPLE DIRECTORS' REPORT, AUDITOR'S REPORT AND ILLUSTRATIVE FINANCIAL STATEMENTS
FOR PRIVATE ENTITIES PREPARED IN ACCORDANCE WITH THE HKFRS FOR PRIVATE ENTITIES
(WITH HONG KONG COMPANIES ORDINANCE DISCLOSURES)
COPYRIGHT
© Copyright 2010 Hong Kong Institute of Certified Public Accountants
The Illustrative Financial Statements for Private Entities prepared in accordance with the Hong
Kong Financial Reporting Standard for Private Entities in this document contain International
Accounting Standards Committee Foundation copyright material. Reproduction within Hong Kong in
unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to
the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction
and rights for commercial purposes within Hong Kong should be addressed to the Director,
Operation and Finance, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung
House, 213 Queen's Road East, Wanchai, Hong Kong.
All rights in this material outside of Hong Kong are reserved by the International Accounting
Standards Committee Foundation. Reproduction of the Hong Kong Financial Reporting Standard
for Private Entities outside of Hong Kong in unaltered form (retaining this notice) is permitted for
personal and non-commercial use only. Further information and requests for authorisation to
reproduce for commercial purposes outside of Hong Kong should be addressed to the International
Accounting Standards Committee Foundation at www.iasb.org.
REFERENCES TO THE HONG KONG COMPANIES ORDINANCE
S49 Section 49 "Power to issue redeemable shares"
S123 Section 123 "General provisions as to contents and form of accounts"
S125 Section 125 "Form of group accounts"
S126 Section 126 "Contents of group accounts"
S128 Section 128 "Particulars to be shown in company's accounts in relation to subsidiaries"
S129 Section 129 "Particulars to be shown in company's accounts in relation to companies not
being subsidiaries whose shares it holds"
S157 Section 157 "Validity of acts of directors"
S161 Section 161 "Particulars in accounts of directors' emoluments, pensions, etc."
10SCH Tenth Schedule "Accounts"
© Copyright 1
EXAMPLE DIRECTORS' REPORT, AUDITOR'S REPORT AND ILLUSTRATIVE FINANCIAL STATEMENTS
FOR PRIVATE ENTITIES PREPARED IN ACCORDANCE WITH THE HKFRS FOR PRIVATE ENTITIES
(WITH HONG KONG COMPANIES ORDINANCE DISCLOSURES)
Page
Example Directors' Report, Auditor's Report and Illustrative Financial
Statements for Private Entities prepared in accordance with the HKFRS
for Private Entities (with Hong Kong Companies Ordinance
disclosures)
CONTENTS
PREFACE P-1
Section
1 Example Directors' Report D-1~D-2
2 Example Auditor's Report A-1~A-8

For single entity financial statements
 Example 1 A-1~A-2
Example unmodified auditor's report on financial statements prepared in

accordance with the HKFRS for Private Entities based on HKSA 700 "The
Independent Auditor's Report on a Complete Set of General Purpose
Financial Statements" – effective for auditor's reports dated on or after 31
December 2006 but prior to the audits of financial statements for periods
beginning on or after 15 December 2009.
Example unmodified auditor's report on financial statements prepared in

accordance with the HKFRS for Private Entities based on HKSA 700
(Clarified) "Forming an Opinion and Reporting on Financial Statements" –
effective for audits of financial statements for periods beginning on or after
15 December 2009.
For consolidated financial statements
Example unmodified auditor's report on consolidated financial statements
prepared in accordance with the HKFRS for Private Entities based on
HKSA 700 "The Independent Auditor's Report on a Complete Set of
General Purpose Financial Statements" – effective for auditor's reports
dated on or after 31 December 2006 but prior to the audits of consolidated
financial statements for periods beginning on or after 15 December 2009.
Example unmodified auditor's report on consolidated financial statements
prepared in accordance with the HKFRS for Private Entities based on
HKSA 700 (Clarified) "Forming an Opinion and Reporting on Financial
Statements" – effective for audits of consolidated financial statements for
periods beginning on or after 15 December 2009
3 Illustrative Financial Statements for Private Entities prepared in 3~30

accordance with the HKFRS for Private Entities
© Copyright 2
PREFACE
Example Directors' Report, Auditor's Report and Illustrative Financial

Statements for Private Entities prepared in accordance with the Hong Kong
Financial Reporting Standard for Private Entities (with Hong Kong
Companies Ordinance disclosures)
Preface
P1 This document consists of three parts: (i) example directors' report, (ii) example auditor's
report on financial statements prepared in accordance with the HKFRS for Private Entities
and (iii) illustrative financial statements for Private Entities prepared in accordance with the
HKFRS for Private Entities, with Hong Kong Companies Ordinance disclosures.
Example Auditor's Reports on Financial Statements Prepared in accordance

with the HKFRS for Private Entities
P2 The example auditor's reports on financial statements prepared in accordance with the
HKFRS for Private Entities are prepared by the Hong Kong Institute of Certified Public
Accountants (the Institute), as a source of reference by practicing members.
P3 Auditors may require to tailor their auditor's report to cater for entity-specific facts and
circumstances and hence the example reports should not be regarded as templates
appropriate for all entities. Members are advised to refer to the relevant Hong Kong
Standards on Auditing for guidance.
Example Directors' Report and Illustrative Financial Statements for Private

Entities prepared in accordance with the HKFRS for Private Entities (with
Hong Kong Companies Ordinance disclosures)
P4 These example directors' report and illustrative financial statements are not part of the
HKFRS for Private Entities but are issued by the Institute as a source of reference for
preparers that adopt the standard.
P5 Section 3 "Financial Statement Presentation" of the HKFRS for Private Entities defines a
complete set of financial statements and prescribes the general standard of financial
statement presentation. Sections 4-8 prescribe the format and content of the individual
financial statements and notes. Other sections of the HKFRS for Private Entities establish
additional presentation and disclosure requirements. These financial statements illustrate
how those presentation and disclosure requirements might be met by a typical Private
Entity. An entity however, will need to consider the content, sequencing and format of
presentation and the descriptions used for line items to achieve a fair presentation for that
entity's particular circumstances, when preparing its financial statements. These example
directors' report and illustrative financial statements should not be regarded as a template
appropriate for all entities.
P6 These illustrative financial statements are mainly based on the illustrative financial
statements accompanying the International Financial Reporting Standard for Small and
Medium-sized Entities (IFRS for SMEs), published by the International Accounting
Standards Board (IASB) on 9 July 2009, and modified by including disclosures required for
the first-time adoption of the HKFRS for Private Entities and disclosures required by the
Hong Kong Companies Ordinance applicable for a Private Entity. They are not intended to
illustrate all aspects of the HKFRS for Private Entities and the Hong Kong Companies
Ordinance or necessarily the only way that the information may be presented. Depending
on an entity's specific facts and circumstances, there may be additional disclosures that
need to be made under the requirements of the HKFRS for Private Entities or the Hong
Kong Companies Ordinance. Preparers are advised to refer to the relevant literature for
further guidance.
© Copyright P-1
EXAMPLE DIRECTORS' REPORT
XYZ (Holdings) Limited

Year ended 31 December 20X2
Directors' report
The Directors present their annual report and the audited financial statements for the year ended
31 December 20X2.
Principal activities
XYZ (Holdings) Limited (the Company) is a company incorporated and domiciled in Hong Kong and
has its registered office and principal place of business at [ ]. The principal activities of the
Company are the manufacture and sale of [ ]. The activities of its subsidiary are set out in note 16
to the financial statements.
Results and appropriations

The [profit][loss] of the Company and its subsidiary (the Group) for the year ended 31 December
20X2 and the state of the Company's and the Group's affairs as at that date are set out in the
Company's financial statements on pages 3 to 30.
An interim dividend of HK$5 per ordinary share (20X1: HK$3.3 per ordinary share) was paid during
the year ended 31 December 20X2. The directors recommend the payment of a final dividend of
HK$1 per ordinary share (20X1: nil) in respect of the year ended 31 December 20X2.
Fixed assets
Details of the movements during the year in the property, plant and equipment and the investment
property of the Group and of the Company are set out in notes 18 and 19 to the financial
statements respectively.
Share capital and reserves
Details of share capital of the Company are set out in note 28 to the Company's financial
statements. There were no movements during the year.
There were no movements in reserves except for changes to retained earnings which arose from
profit or loss and payment of dividends.
Directors
The directors of the Company during the year and up to the date of this report were:
Kwok Keung Lee

Steve Wong
Wing Yi Mok
Yat Chit Wong
There being no provision in the Company's articles of association in connection with the retirement
of directors by rotation, all existing directors continue in office for the following year.
The Company did not enter into any contract, other than the contracts of service with the directors
or any person engaged in the full-time employment of the Company, whereby any individual, firm or
body corporate undertakes the management and administration of the whole, or any substantial
part of any business of the Company.
© Copyright D-1
EXAMPLE DIRECTORS' REPORT
Arrangements to purchase shares or debentures
At no time during the year was the Company, its holding company, or its subsidiary a party to any
arrangements to enable the directors of the Company to acquire benefits by means of the
acquisition of shares in, or debentures of, the Company or any other body corporate.
Directors' interests in contracts of significance
No contract of significance to which the Company, its holding company, or its subsidiary was a
party and in which a director of the Company had a material interest, whether directly or indirectly,
subsisted at the end of the year or at any time during the year.
Charitable donations
During the year, the Group and the Company made charitable donations amounting to HK$5,000
(20X1: HK$5,000).
Events after the reporting date
Details of significant events occurring after the reporting date are set out in note 31 to the
consolidated financial statements.
Auditor
A resolution will be submitted to the annual general meeting to re-appoint [Name of audit firm] as
auditor of the Company.
On behalf of the Board
(signed)
Chairman
[Date]
© Copyright D-2
EXAMPLE AUDITOR'S REPORT
Example 1
Example Unmodified Auditor’s Report on Financial Statements prepared

in accordance with the HKFRS for Private Entities based on HKSA 700 “The Independent
Auditor's Report on a Complete Set of General Purpose Financial Statements” – effective for
auditor's reports dated on or after 31 December 2006 but prior to the audits of financial
statements for periods beginning on or after 15 December 2009
Circumstances include the following:
 Audit of a complete set of financial statements.
 The financial statements are prepared for a general purpose by directors of the entity
in accordance with the HKFRS for Private Entities.
 The terms of the audit engagement reflect the description of directors' responsibility
1
for the financial statements in HKSA 210.
INDEPENDENT AUDITOR‟S REPORT
TO THE SHAREHOLDERS OF ABC LIMITED
(incorporated in Hong Kong with limited liability)2
We have audited the financial statements of ABC Limited ("the Company") set out on pages ........ to
........, which comprise the [balance sheet][statement of financial position] 3 as at 31 December
200X, and the [[income statement][statement of comprehensive income]3, statement of changes in
equity][statement of income and retained earnings]4 and [cash flow statement][statement of cash
flows]3 for the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Directors’ Responsibility for the Financial Statements
The directors are responsible for the preparation and the true and fair presentation of these
financial statements in accordance with the Hong Kong Financial Reporting Standard for Private
Entities issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong
Companies Ordinance. This responsibility includes designing, implementing and maintaining
internal control relevant to the preparation and the true and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
1
HKSA 210 "Terms of Audit Engagements".
2
In Hong Kong, it is a common practice to disclose the place of incorporation of the company.
3
Delete as appropriate, different terms may be used as long as they are consistent with the titles of the corresponding
statements.
4
According to paragraph 3.18 of the HKFRS for Private Entities, the entity may present a single statement of income and
retained earnings in place of the statement of comprehensive income and statement of changes in equity.
© Copyright A-1
Auditor’s Responsibility
5
Our responsibility is to express an opinion on these financial statements based on our audit . We
conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong
Kong Institute of Certified Public Accountants. 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 directors, 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 the Company‟s
affairs as at 31 December 200X and of its [profit][loss] and cash flows for the year then ended in
accordance with the Hong Kong Financial Reporting Standard for Private Entities and have been
properly prepared in accordance with the Hong Kong Companies Ordinance.
AAA & Co.
Certified Public Accountants (Practising) [or Certified Public Accountants]
[Auditor's address]
[Date of auditor's report]
5
Auditors may consider it appropriate to clarify to whom they are responsible here or elsewhere in the report in
accordance with their risk management policies and with reference to Professional Risk Management Bulletin No. 2
“Auditors‟ Duty of Care To Third Parties and The Audit Report”.
© Copyright A-2
Example 2
Example Unmodified Auditor’s Report on Financial Statements prepared

in accordance with the HKFRS for Private Entities based on HKSA 700 (Clarified) “Forming
an Opinion and Reporting on Financial Statements” – effective for audits of financial
statements for periods beginning on or after 15 December 2009
 Audit of a complete set of financial statements.
 The financial statements are prepared for a general purpose by directors of the entity in
accordance with the HKFRS for Private Entities.
 The terms of the audit engagement reflect the description of directors’ responsibility for
the financial statements in HKSA 210 (Clarified)1.
 In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law in addition to the Hong Kong Companies
Ordinance.

2
(incorporated in Hong Kong with limited liability)
[Report on the Financial Statements]3
We have audited the financial statements of ABC Limited (“the Company”) set out on pages …… to
……, which comprise the [balance sheet][statement of financial position]4 as at 31 December 20X1,
and the [income statement][statement of comprehensive income] 4, statement of changes in
5
equity][statement of income and retained earnings] and [cash flow statement][statement of cash
4
flows] for the year then ended, and a summary of significant accounting policies and other
explanatory information.
6
The directors are responsible for the preparation of financial statements that give a true and fair
view in accordance with the Hong Kong Financial Reporting Standard for Private Entities issued by
the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance,
and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
1
HKSA 210 (Clarified) "Agreeing the Terms of Audit Engagements".
2
3
The sub-title “Report on the Financial Statements” is unnecessary in circumstances when the second sub-title “Report
on Other Legal and Regulatory Requirements” is not applicable.
4
statements.
5
6
Or other term that is appropriate in the context of the legal framework in the particular jurisdiction.
© Copyright A-3
Our responsibility is to express an opinion on these financial statements based on our audit7. We
requirements and plan and perform the audit to obtain reasonable assurance about whether the
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 financial statements that give a true and fair view 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.8 An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the financial statements.
Opinion
In our opinion, the financial statements give a true and fair view of the state of the Company‟s
affairs as at 31 December 20X1, and of its [profit][loss] and cash flows for the year then ended in
accordance with the Hong Kong Financial Reporting Standard for Private Entities and have been
properly prepared in accordance with the Hong Kong Companies Ordinance.
[Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor‟s report will vary depending on the nature of the
auditor‟s other reporting responsibilities.]]3
AAA & Co.
[Auditor‟s address]
[Date of the auditor‟s report]
7
“Auditor's Duty of Care To Third Parties and The Audit Report”.
8
In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control
in conjunction with the audit of the financial statements, this sentence would be worded as follows: “In making those
risk assessments, the auditor considers internal control relevant to the entity‟s preparation of financial statements that
give a true and fair view in order to design audit procedures that are appropriate in the circumstances.”
© Copyright A-4
Example 3
Example Unmodified Auditor’s Report on Consolidated Financial Statements prepared in

accordance with the HKFRS for Private Entities based on HKSA 700 “The Independent
Auditor's Report on a Complete Set of General Purpose Financial Statements” – effective for
auditor's reports dated on or after 31 December 2006 but prior to the audits of consolidated
financial statements for periods beginning on or after 15 December 2009
 Audit of consolidated financial statements prepared for a general purpose by directors

of the parent in accordance with the HKFRS for Private Entities.
 The terms of the group audit engagement reflect the description of directors'
1
responsibility for the financial statements in HKSA 210.
(incorporated in Hong Kong with limited liability)2
We have audited the consolidated financial statements of ABC Limited ("the Company") set out on
pages ........ to........ , which comprise the consolidated and company [balance sheets][statements of
financial position]3 as at 31 December 200X, and the consolidated [income statement][statement of
comprehensive income]3, the consolidated statement of changes in equity][statement of income
and retained earnings] 4 and the consolidated [cash flow statement][statement of cash flows]3 for the
year then ended, and a summary of significant accounting policies and other explanatory notes.
The directors of the Company are responsible for the preparation and the true and fair presentation
of these financial statements in accordance with the Hong Kong Financial Reporting Standard for
Private Entities issued by the Hong Kong Institute of Certified Public Accountants and the Hong
Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining
internal control relevant to the preparation and the true and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
1
HKSA 210 "Terms of Audit Engagements".
2
3
statements.
4
© Copyright A-5
5
Our responsibility is to express an opinion on these financial statements based on our audit . We
requirements and plan and perform the audit to obtain reasonable assurance as to whether the
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 directors, as well as evaluating the overall presentation of the financial
statements.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs
of the Company and of the group as at 31 December 200X and of the group's [profit][loss] and cash
flows for the year then ended in accordance with the Hong Kong Financial Reporting Standard for
Private Entities and have been properly prepared in accordance with the Hong Kong Companies
Ordinance.
AAA & Co.
[Auditor's address]
[Date of auditor's report]
5
“Auditors‟ Duty of Care To Third Parties and The Audit Report”.
© Copyright A-6
Example 4
Example Unmodified Auditor’s Report on Consolidated Financial Statements prepared in

accordance with the HKFRS for Private Entities based on HKSA 700 (Clarified) “Forming an
Opinion and Reporting on Financial Statements” – effective for audits of consolidated
financial statements for periods beginning on or after 15 December 2009
 Audit of consolidated financial statements prepared for a general purpose by directors of

the parent in accordance with the HKFRS for Private Entities.
 The terms of the group audit engagement reflect the description of directors’ responsibility
for the financial statements in HKSA 210 (Clarified)1.
 In addition to the audit of the group financial statements, the auditor has other reporting
responsibilities required under local law in addition to the Hong Kong Companies
Ordinance.

2
(incorporated in Hong Kong with limited liability)
[Report on the Consolidated Financial Statements]3
We have audited the consolidated financial statements of ABC Limited (“the Company”) and its
subsidiaries (together "the Group") set out on pages …… to ……, which comprise the consolidated
and company [balance sheets][statements of financial position]4 as at 31 December 20X1, and the
4
consolidated [[income statement][statement of comprehensive income] , the consolidated
5
statement of changes in equity][statement of income and retained earnings] and the consolidated
[cash flow statement][statement of cash flows] 4 for the year then ended, and a summary of
significant accounting policies and other explanatory information.
6
Directors’ Responsibility for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with the Hong Kong Financial Reporting
Standard for Private Entities issued by the Hong Kong Institute of Certified Public Accountants and
the Hong Kong Companies Ordinance, and for such internal control as the directors determine is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
1
HKSA 210 (Clarified) "Agreeing the Terms of Audit Engagements".
2
3
The sub-title “Report on the Consolidated Financial Statements” is unnecessary in circumstances when the second
sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.
4
Delete as appropriate, different terms may be used as long as they are consistent with the titles of the correspon ding
statements.
5
6
Or other term that is appropriate in the context of the legal framework in the particular jurisdiction.
© Copyright A-7
Our responsibility is to express an opinion on these consolidated financial statements based on our
7
audit . We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the
Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor‟s judgment,
including the assessment of the risks of material misstatement of the consolidated 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 consolidated financial statements that give a
true and fair view 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.8 An
audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs
of the Company and of the Group as at 31 December 20X1, and of the Group's [profit][loss] and
cash flows for the year then ended in accordance with the Hong Kong Financial Reporting Standard
for Private Entities and have been properly prepared in accordance with the Hong Kong Companies
Ordinance.
[Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor‟s report will vary depending on the nature of the
auditor‟s other reporting responsibilities.]]3
AAA & Co.
[Auditor‟s address]
[Date of the auditor‟s report]
7
“Auditor's Duty of Care To Third Parties and The Audit Report”.
8
In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control
in conjunction with the audit of the consolidated financial statements, this sentence would be worded as follows: “In
making those risk assessments, the auditor considers internal control relevant to the entity‟s preparation of
consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate
in the circumstances.”
© Copyright A-8
ILLUSTRATIVE FINANCIAL STATEMENTS FOR PRIVATE ENTITIES
PREPARED IN ACCORDANCE WITH THE HKFRS FOR PRIVATE ENTITIES

S125(1)
Consolidated statement of income and retained earnings for the year
ended 31 December 20X2
(Alternative 1 – illustrating the classification of expenses by function)
Notes 20X2 20X1

HK$ HK$
Revenue 6 6,863,545 5,808,653
Cost of sales (5,346,537) (4,591,375)
Gross profit 1,517,008 1,217,278
Other income 7 388,850 225,000
Distribution costs (175,550) (156,800)
Administrative expenses (824,210) (659,823)
Other expenses (106,763) (100,030)
Finance costs 8 (26,366) (36,712)
Profit before tax 9 772,969 488,913
Income tax expense 10 (100,290) (71,875)
Profit for the year 672,679 417,038
Retained earnings at start of year 6,303,540 5,986,502
Dividends 29 (150,000) (100,000)
Retained earnings at end of year 6,826,219 6,303,540
10SCH(13(1)(j)) The notes on pages 11 to 30 form part of these financial statements. Details of dividends payable
to equity shardholders of the company attributable to the profit for the year are set out in note 29.
Note: The format illustrated above aggregates expenses according to their function (cost of
sales, distribution, administrative etc). As the only changes to XYZ Group‟s equity during the year
arose from profit or loss and payment of dividends, it has elected to present a single statement of
income and retained earnings instead of separate statements of comprehensive income and
changes in equity.
© Copyright 3

S125(1)
Consolidated statement of income and retained earnings for the year
ended 31 December 20X2
(Alternative 2 – illustrating the classification of expenses by nature)
Notes 20X2 20X1

HK$ HK$
Revenue 6 6,863,545 5,808,653
Other income 7 388,850 225,000
Changes in inventories of finished goods
and work in progress 3,310 (1,360)
Raw materials and consumables used (4,785,906) (4,086,839)
Employee salaries and benefits (936,142) (879,900)
Depreciation and amortisation expense (454,840) (394,827)
Impairment of property, plant and
equipment (30,000) ―
Other expenses (249,482) (145,102)
Finance costs 8 (26,366) (36,712)
Profit before tax 9 772,969 488,913
Income tax expense 10 (100,290) (71,875)
Profit for the year 672,679 417,038
Retained earnings at start of year 6,303,540 5,986,502
Dividends 29 (150,000) (100,000)
Retained earnings at end of year 6,826,219 6,303,540
10SCH(13(1)(j)) The notes on pages 11 to 30 form part of these financial statements. Details of dividends payable
to equity shareholders of the company attributable to the profit for the year are set out in note 29.
Note: The format illustrated above aggregates expenses according to their nature (raw materials
and consumables, employee salaries and benefits, depreciation and amortisation, impairment
etc). As the only changes to XYZ Group‟s equity during the year arose from profit or loss and
payment of dividends, it has elected to present a single statement of income and retained
earnings instead of separate statements of comprehensive income and changes in equity.
© Copyright 4

S125(1) Consolidated statement of financial position at 31 December 20X2
Notes 20X2 20X1

HK$ HK$
ASSETS
10SCH(4(2)) Current assets
Cash and cash equivalents 12 329,444 247,548
Amounts due from directors 13 1,500 1,500
Trade and other receivables 14 585,548 452,862
Inventories 15 57,381 47,920
973,873 749,830
10SCH(4(2)) Non-current assets

Investment in an associate 17 107,500 107,500
Property, plant and equipment 18 4,681,945 4,711,455
Investment property 19 1,800,000 1,600,000
10SCH(9(1)(b)) Intangible assets 20 19,443 25,923
6,608,888 6,444,878
Total assets 7,582,761 7,194,708
LIABILITIES AND EQUITY

Current liabilities
Borrowings 21 83,600 115,507
Trade payables 22 431,480 420,520
Interest payable 2,000 1,200
Current tax liability 107,595 100,116
10SCH(6) Provision for warranty obligations 23 4,200 5,040
Current portion of obligations under
finance leases 25 21,461 19,884
650,336 662,267
© Copyright 5

Consolidated statement of financial position at 31 December 20X2
(continued)
Notes 20X2 20X1

HK$ HK$
Non-current liabilities
Borrowings 21 50,000 150,000
Obligations under finance leases 25 23,163 44,624
10SCH(8) Deferred tax liability 26 3,043 4,277
76,206 198,901
Total liabilities 726,542 861,168
Equity
Share capital 28 30,000 30,000
10SCH(6) Retained earnings 5
- Proposed final dividend 29 30,000 ―
- Others 6,796,219 6,303,540
6,856,219 6,333,540
Total liabilities and equity 7,582,761 7,194,708
S129B(1) The financial statements on pages 3 to 30 were approved and authorised for issue by the Board
of Directors on [Date] and are signed on its behalf by:
(Name, Director) (Name, Director)
The notes on pages 11 to 30 form part of these financial statements.
10SCH(9(1)(e))
According to S129B(1), every balance sheet of a company shall be approved by the board of
directors of the company and signed on behalf of the board by 2 of the directors or, in the case of
a private company having only one director, by the sole director.
© Copyright 6

S122
Statement of financial position at 31 December 20X2
Notes 20X2 20X1

HK$ HK$
ASSETS
10SCH(4(2)) Current assets
Cash and cash equivalents 12 319,444 237,548
Amounts due from directors 13 1,500 1,500
Trade and other receivables 14 585,548 452,862
Inventories 15 57,381 47,920
963,873 739,830
10SCH(4(2)) Non-current assets

Investment in a subsidiary 16 10,000 10,000
Investment in an associate 17 107,500 107,500
Property, plant and equipment 18 4,681,945 4,711,455
Investment property 19 1,800,000 1,600,000
10SCH(9(1)(b)) Intangible assets 20 19,443 25,923
6,618,888 6,454,878
Total assets 7,582,761 7,194,708
LIABILITIES AND EQUITY

Current liabilities
Borrowings 21 83,600 115,507
Trade payables 22 431,480 420,520
Interest payable 2,000 1,200
Current tax liability 107,595 100,116
Provision for warranty obligations 23 4,200 5,040
10SCH(6) Current portion of obligations under
finance leases 25 21,461 19,884
650,336 662,267
© Copyright 7

Statement of financial position at 31 December 20X2 (continued)
Notes 20X2 20X1

HK$ HK$
Non-current liabilities
Borrowings 21 50,000 150,000
Obligations under finance leases 25 23,163 44,624
10SCH(8) Deferred tax liability 26 3,043 4,277
76,206 198,901
Total liabilities 726,542 861,168
Equity
Share capital 28 30,000 30,000
10SCH(6) Retained earnings 5
- Proposed final dividend 29 30,000 ―
- Others 6,796,219 6,303,540
6,856,219 6,333,540
Total liabilities and equity 7,582,761 7,194,708
S129B(1) The financial statements on pages 3 to 30 were approved and authorised for issue by the Board
of Directors on [Date] and are signed on its behalf by:
(Name, Director) (Name, Director)
10SCH(9(1)(e)) According to S129B(1), every balance sheet of a company shall be approved by the board of
directors of the company and signed on behalf of the board by 2 of the directors or, in the case
of a private company having only one director, by the sole director.
© Copyright 8

Consolidated statement of cash flows for the year ended 31 December 20X2
Notes 20X2 20X1

HK$ HK$ HK$ HK$
Operating activities
Profit before tax 772,969 483,567
Adjustments for:
- Fair value gain on the investment 7 (200,000) (100,000)
property
- Depreciation of property, plant and 9 448,360 388,347
equipment
- Impairment loss on property, plant 9 30,000 ―
and equipment
- Finance costs 8 26,366 36,712
- Gain on disposal of property, plant and 7 (63,850) ―
equipment
- Amortisation of intangibles 9 6,480 6,480
- Dividend from the associate 7 (25,000) (25,000)
Operating profit before changes in
working capital 995,325 790,106
Increase in inventories (9,461) (2,870)
Increase in trade and other receivables (132,686) (14,628)
Increase in trade payables 10,960 11,370
Decrease in provision for warranty (840) (500)
obligations
Cash generated from operations 863,298 783,478
Tax paid
Hong Kong profits tax paid (94,045) (85,545)
Net cash generated from operating 769,253 697,933
activities
© Copyright 9

Consolidated statement of cash flows for the year ended 31 December 20X2
(Continued)
Notes 20X2 20X1

HK$ HK$ HK$ HK$
Investing activities
Payment for the purchase of equipment (485,000) (435,000)
Proceeds from sale of equipment 100,000 ―
Dividend from the associate 25,000 25,000
Net cash used in investing activities (360,000) (410,000)
Financing activities
Payment of finance lease liabilities (19,884) (18,423)
Repayment of bank loan (100,000) ―
Interest element of finance lease 8 (5,116) (6,577)
rentals paid
Other borrowing costs paid (20,450) (28,935)
Dividends paid to equity shareholders 29 (150,000) (100,000)
of the company
Net cash used in financing activities (295,450) (153,935)
Net increase in cash, cash 113,803 133,998

equivalents and bank overdraft
Cash, cash equivalents and bank 12 132,041 (1,957)
overdraft at 1 January
Cash, cash equivalents and bank 12
overdraft at 31 December 245,844 132,041
© Copyright 10

Accounting policies and explanatory notes to the consolidated financial
statements for the year ended 31 December 20X2
1. General information
XYZ (Holdings) Limited (the Company) is a limited company incorporated in Hong Kong. The
address of its registered office and principal place of business is ____________. The Group
consists of the Company and its wholly-owned subsidiary XYZ (Trading) Limited (note 16). The
Group's principal activities are the manufacture and sale of [ ].
2. Basis of preparation and accounting policies

These consolidated financial statements have been prepared in accordance with the Hong Kong
Financial Reporting Standard for Private Entities (HKFRS for Private Entities) issued by the Hong
Kong Institute of Certified Public Accountants and the requirements of the Hong Kong Companies
Ordinance. They have been prepared under the historical cost convention, as modified by the
revaluation of investment property at fair value.
Basis of consolidation
These consolidated financial statements incorporate the financial statements of the Company and
its subsidiary. A subsidiary is an entity (including special purpose entity) over which the Group has
the power to govern the financial and operating policies so as to obtain benefits from its activities,
generally but not necessarily accompanying a shareholding of more than half of the voting power.
The subsidiary is fully consolidated from the date on which control is transferred to the Group and is
de-consolidated from the date that control ceases.
All intragroup transactions, balances, income and expenses are eliminated. Accounting policies of
the subsidiary have been changed where necessary to ensure consistency with the policies
adopted by the Group. There is no difference in the reporting date of the financial statements of the
Company and its subsidiary used in the preparation of the consolidated financial statements.
In the Company's statement of financial position, the investment in a subsidiary is stated at cost
less provision for impairment loss. The results of the subsidiary are accounted for by the Company
on the basis of dividends received and receivable.
10SCH(12(14)) Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the group entities are measured using the
currency of the primary economic environment in which the entity operates (the functional
currency). These consolidated financial statements are presented in Hong Kong Dollars, which
is the Company's functional and the Group's presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognised in profit or
loss.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents
are presented in profit or loss within "finance costs". All other foreign exchange gains and
losses are presented in profit or loss within "other income" or "other expenses".
© Copyright 11
2. Basis of preparation and accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, demand deposits and other short-term highly
liquid investments with original maturities of three months or less. Bank overdraft is shown within
borrowings in current liabilities on the statement of financial position.
Trade receivables
Trade receivables are recognised initially at the transaction price. They are subsequently measured
at amortised cost using the effective interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is objective evidence that the group will
not be able to collect all amounts due according to the original terms of the receivables.
10SCH(12(13)) Inventories
Inventories are stated at the lower of cost and selling price less costs to complete and sell. Cost is
calculated using the first-in, first-out (FIFO) method. The cost of finished goods and work in
progress comprises packaging costs, raw materials, direct labour, other direct costs and related
production overheads (based on normal operating capacity). At each reporting date, inventories are
assessed for impairment and the carrying amount is reduced to its selling price less costs to
complete and sell with the impairment loss recognised immediately in profit or loss.
Investment in an associate
An associate is an entity, including an unincorporated entity such as a partnership, over which the
Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.
The Group has elected to account for its investment in an associate at cost less any accumulated
impairment losses and there is no published price quotation available for the Group's associate.
Dividend income from the investment in an associate is recognised when the Group's right to
receive payment has been established and is included in "other income".
10SCH(4(3)) Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and
any accumulated impairment losses.
Where the Group acquires leasehold land for own use under a finance lease, the prepaid cost
included in property, plant and equipment on initial recognition represents the fair value of the
leasehold land, or if lower, the present value of the minimum lease payments, determined at the
inception of the lease and any initial direct costs of the lessee (incremental costs that are directly
attributable to negotiating and arranging a lease).
The other cost of such items of property, plant and equipment comprises the following:
 the purchase price, including legal and brokerage fees, import duties and non-refundable
purchase taxes, after deducting trade discounts and rebates;
 any costs directly attributable to bringing the asset to the location and condition necessary
for them to be capable of operating in the manner intended by management;
 the initial estimate of the costs of dismantling and removing the item and restoring the site
on which it is located, the obligation for which an entity incurs either when the item is
acquired or as a consequence of having used the item during a particular period for
purposes other than to produce inventories during that period.
© Copyright 12

Property, plant and equipment (continued)
Depreciation is charged so as to allocate the cost of assets less their residual values over their
estimated useful lives, using the straight-line method. Assets held under finance leases, for which
there is no reasonable certainty that the Group will obtain ownership at the end of the lease term,
are depreciated over their expected useful lives on the same basis as owned assets, or where
shorter, the terms of the relevant lease. The following annual rates are used for the depreciation of
property, plant and equipment:
 Leasehold land held for own use under a finance lease Over the leased term
 Buildings held for own use 5 percent
 Fixtures and equipment 10-30 percent
If there is an indication that there has been a significant change in the depreciation rate, useful life
or residual value of an asset, the depreciation of that asset is revised prospectively to reflect the
new expectations.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's
carrying amount is greater than its estimated recoverable amount.
Investment property
Investment property is a property held by the Group as an owner, or as a lessee under a finance
lease, to earn rental or for capital appreciation or both, rather than for (i) use in the production or
supply of goods or services or for administrative purposes, or (ii) sale in the ordinary course of
business. It also includes a property interest held by a lessee under an operating lease which
otherwise meets the definition of an investment property and can be measured at fair value without
undue cost and effort on an ongoing basis.
On initial recognition, the cost of a purchased investment property comprises its purchase price and
any directly attributable expenditure. The initial cost of a property interest held under a lease and
classified as an investment property is measured at amounts equal to the fair value of the leased
property or, if lower, the present value of the minimum lease payments, determined at the inception
of the lease and any initial direct costs of the lessee (incremental costs that are directly attributable
to negotiating and arranging a lease).
Subsequent to initial recognition, investment property is carried at fair value, derived from the
current market prices for comparable real estate determined annually by independent firm of
surveyors. Changes in fair value are recognised in profit or loss.
Intangible assets
Intangible assets are purchased computer software that is stated at cost less accumulated
amortisation and any accumulated impairment losses. It is amortised over its estimated life of five
years using the straight-line method. If there is an indication that there has been a significant
change in the amortisation rate, useful life or residual value of an intangible asset, the amortisation
is revised prospectively to reflect the new expectations.
Borrowings
Borrowings are recognised initially at the transaction price and are subsequently stated at
amortised cost. Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least twelve months after the reporting
date.
Interest expense is recognised on the basis of the effective interest method and is included in
finance costs.
Trade payables
Trade payables are recognised initially at the transaction price and subsequently measured at
amortised cost using the effective interest method.
© Copyright 13
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the statement of income and retained earnings because of items of income or expense
that are taxable or deductible in other years and items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases using in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are generally recognised for all deductible temporary
differences to the extent that is probable that taxable profits will be available against which those
deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial recognition (other than
in business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at the reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which
the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and
liabilities. However, the measurement of deferred tax liabilities associated with an investment
property measured at fair value does not exceed the amount of tax that would be payable on its
sale to an unrelated market participant at fair value at the reporting date. Deferred tax is recognised
in profit or loss, except when it relates to items that are recognised in other comprehensive income
or directly in equity, in which case the deferred tax is also recognised in other comprehensive
income or directly in equity respectively.
Provision for warranty obligations
All goods sold by the Group are warranted to be free of manufacturing defects for a period of one
year. Goods are repaired or replaced at the Group‟s option. When revenue is recognised, a
provision is made for the estimated cost of the warranty obligation.
Employee benefit obligations
Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans
and the cost of non-monetary benefits are accrued in the year in which the associated services are
rendered by employees. Where payment or settlement is deferred and the effect would be material,
these amounts are stated at their present values.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all
the risks and rewards of ownership of the leased asset to the Group. All other leases are classified
as operating leases.
© Copyright 14
Leases (continued)
Rights to assets held under finance leases are recognised as assets of the Group at the fair value
of the leased property (or, if lower, the present value of minimum lease payments) at the inception
of the lease. The corresponding liability to the lessor is included in the consolidated statement of
financial position as a finance lease obligation. Lease payments are apportioned between finance
charges and reduction of the lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are deducted in measuring profit or loss. Assets
held under finance leases are included in property, plant and equipment, and depreciated and
assessed for impairment losses in the same way as owned assets.
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over
the term of the relevant lease.
Impairment of non-financial assets, other than inventories
At each reporting date, property, plant and equipment, intangible assets, and investments in a
subsidiary and an associate are reviewed to determine whether there is any indication that those
assets have suffered an impairment loss. If there is an indication of possible impairment, the
recoverable amount of any affected asset (or group of related assets) is estimated and compared
with its carrying amount. If an estimated recoverable amount is lower, the carrying amount is
reduced to its estimated recoverable amount, and an impairment loss is recognised immediately in
profit or loss.
If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related
assets) is increased to the revised estimate of its recoverable amount, but not in excess of the
amount that would have been determined had no impairment loss been recognised for the asset
(group of related assets) in prior years. A reversal of an impairment loss is recognised immediately
in profit or loss.
10SCH(16(4)) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is shown net
of discounts, rebates, returns, sales-related taxes and after eliminating sales within the Group.
Revenue is recognised in profit or loss provided it is probable that the economic benefits will flow to
the Group and the revenue and costs, if applicable, can be measured reliably, as follows:
(a) Revenue from the sales of goods
Revenue from the sales of goods is recognised when the Group has transferred to the buyer
the significant risks and rewards of ownership of the goods and the Group retains neither
continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold.
(b) Royalty revenue
Revenue from the licensing of patents for use by others is recognised on an accrual basis in
accordance with the substance of the relevant agreement, which is on a straight-line basis
over the license period.
(c) Rental income

Rental income from investment property that is leased to third party under operating leases is
recognised on a straight-line basis over the lease term and is included in "other income".
© Copyright 15

Revenue recognition (continued)
(d) Dividend income
Dividend income from the associate is recognised when the Group's right to receive payment
has been established and is included in "other income".
Borrowing costs
All borrowing costs are recognised in profit or loss in the period in which they are incurred.
Research and development costs
All research and development costs are recognised as an expense unless they form part of the cost
of another asset that meets the recognition criteria.
Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a liability in the period in

which the dividends are approved by the Company's shareholders.
Related parties
For the purpose of these financial statements, related party includes a person and entity as defined
below:
(a) A person or a close member of that person's family is related to the Group and the Company if
that person:
(i) is a member of the key management personnel of the Group and the Company or of a
parent of the Group and the Company;
(ii) has control over the Group and the Company; or
(iii) has joint control or significant influence over the reporting entity or has significant voting
power in it.
(b) An entity is related to the Group and the Company if any of the following conditions applies:
(i) the entity and the Group and the Company are members of the same group (which
means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) either entity is an associate or joint venture of the other entity (or of a member of a group
of which the other entity is a member).
(iii) both entities are joint ventures of a third entity.
(iv) either entity is a joint venture of a third entity and the other entity is an associate of the
third entity.
(v) the entity is a post-employment benefit plan for the benefit of employees of either the
Group and the Company or an entity related to the Group and the Company. If the
reporting entity is itself such a plan, the sponsoring employers are also related to the plan.
(vi) the entity is controlled or jointly controlled by a person identified in (a).
(vii) a person identified in (a)(i) has significant voting power in the entity.
© Copyright 16
3. Transition to the HKFRS for Private Entities

(a) Application of the HKFRS for Private Entities
The Group's consolidated financial statements for the year ended 31 December 20X2 are its
first annual financial statements prepared under accounting policies that comply with the
HKFRS for Private Entities. The Company applied full Hong Kong Financial Reporting
Standards (HKFRSs) to prepare its consolidated financial statements prior to the application of
the HKFRS for Private Entities.
The Company's date of transition is 1 January 20X1 and the Group prepared its opening
consolidated statement of financial position in compliance with the HKFRS for Private Entities
at that date.
The Group has applied all the mandatory exceptions and certain of the optional exemptions
from full retrospective application of the HKFRS for Private Entities when preparing these
consolidated financial statements in accordance with the HKFRS for Private Entities.
(b) Exemptions from full retrospective application
The Company has elected to apply the following optional exemption from full retrospective
application:
Revaluation of property, plant and equipment as deemed cost
On transition to the HKFRS to Private Entities the Group elected to apply the optional
exemption to use the previous revaluation of property, plant and equipment as deemed cost
under the HKFRS for Private Entities. The revaluation reserve of HK$100,000 at 1 January
20X1 and 31 December 20X1 was reclassified to retained earnings. Except for the
reclassification this had no impact on the financial statements.
(c) Reconciliation
The following reconciliations show the effect on the Group's and the Company's equity of the
transition from using the full HKFRSs to the HKFRS for Private Entities at 1 January 20X1 and
31 December 20X1 and the Group's profit for the year ended 31 December 20X1.
The Group The Company

31 December 1 January 31 December 1 January
20X1 20X1 20X1 20X1
HK$ HK$ HK$ HK$
Total equity under full HKFRSs 6,138,133 5,817,337 6,133,540 5,816,502

Restatement of investment in
an associate to cost, net of
tax (note (i)) (4,593) (835) ― ―
Fair value adjustment to
investment property
(note (ii)) 200,000 100,000 200,000 100,000
Total equity under the HKFRS
for Private Entities 6,333,540 5,916,502 6,333,540 5,916,502
© Copyright 17
3. Transition to the HKFRS for Private Entities (continued)
The Group
20X1
HK$
Results for the year under full HKFRSs 320,796
Restatement of investment in associate to cost, net of tax (note (i)) (3,758)
Fair value adjustment to investment property (note (ii)) 100,000
Results for the year under the HKFRS for Private Entities 417,038
Note: Explanation of transition to the HKFRS for Private Entities

(i) Investment in the associate accounted for at cost
Consistent with the Group's accounting policy, the investment in the associate has been
recognised at cost at the date of transition. Under the full HKFRSs the investment in the
associate was measured using the equity method of accounting.
(ii) Fair value adjustment to the investment property
Consistent with the Group's accounting policy, the investment property has been
recognised, subsequent to initial recognition, at fair value at the date of transition. Under
the full HKFRSs the investment property was measured at cost less accumulated
depreciation and any accumulated impairment losses. This adjustment reflects the uplift of
the Group's investment property to fair value.
(iii) Classification of leases of land and buildings
Consistent with the Group's accounting policy, land held under a lease which transfers to
the Group substantially all the risks and rewards of ownership has been classified as being
held under a finance lease at the date of transition. Under the full HKFRSs, prior to the
adoption of HKFRSs (Amendments) "Improvements to HKFRSs 2009" - Hong Kong
Accounting Standard 17 "Leases" - Classification of lease of land and buildings which is
effective for annual periods on or after 1 January 2010, land held under a lease is classified
as an operating lease unless title to the land is expected to pass at the end of the lease
term.
The Group has made a reassessment of the existing land lease arrangement and
concluded that such arrangement has substantially transferred all risks and rewards
incidental to ownership of the leased land to the Group notwithstanding that at the end of
the lease term, title will not be passed to the Group. As a result, a prepaid land lease
payments of the Group and the Company has been reclassified to property, plant and
equipment and the amortisation of the prepaid land lease payments has been reclassified
to depreciation retrospectively upon adoption of the HKFRS for Private Entities. Such
reclassification had no effect on the total equity or results of the Group and the Company.
There is no material difference between the consolidated statement of cash flows prepared under
the HKFRS for Private Entities and that under the full HKFRSs.
© Copyright 18
4. Key sources of estimation uncertainty
Fair value of investment property
The fair value of investment property is derived from the current market prices of comparable real
estate (note 2). The fair value is based on a valuation made by an independent firm of surveyors,
[Name of firm], which has among their staff Fellows of the Hong Kong Institute of Surveyors with
recent experience in the location and category of property being valued. The valuer uses
observable market prices, adjusted if necessary for any difference in the nature, location or
condition of the specific asset.
5. Restriction on payment of dividends
Under the terms of the bank loan and bank overdraft agreements, dividends cannot be paid to the
extent that they would reduce the balance of retained earnings below the sum of the outstanding
balance of the bank loan and the bank overdraft.
6. Revenue
10SCH(16(2) Revenue, which is also the Group's turnover, represents the net invoiced value of goods sold, after
&(4))
allowances for returns and trade discounts; and royalties received and receivable from licences
during the year.
20X2 20X1
HK$ HK$
Sale of goods 6,743,545 5,688,653

Royalties – licensing of patents 120,000 120,000
6,863,545 5,808,653
7. Other income
20X2 20X1
HK$ HK$
10SCH(13(1)(g)) Dividend received from the unlisted associate (note 17) 25,000 25,000
Gain on disposal of property, plant and equipment 63,850 ―
Gross rental from the investment property 100,000 100,000
Fair value gain on the investment property (note 19) 200,000 100,000
388,850 225,000
8. Finance costs
20X2 20X1
HK$ HK$
10SCH(13(1)(b)) Interest on bank loan and overdraft wholly repayable within five
years 21,250 30,135
Interest on finance leases 5,116 6,577
26,366 36,712
© Copyright 19
9. Profit before tax
The following items have been recognised as expenses / (income) in determining profit before tax:
20X2 20X1
HK$ HK$
Amortisation of intangibles 6,480 6,480
10SCH(15) Auditor's remuneration 10,000 10,000
Cost of inventories recognised as an expense 5,346,537 4,591,375
10SCH(13(1)(a)) Depreciation of property, plant and equipment 448,360 388,347
Foreign exchange loss 1,000 ―

Impairment loss on property, plant and equipment 30,000 ―
10SCH(13(1)(i)) Operating lease charges on property rental 26,100 26,100
Research and development costs (included in other expenses) 31,620 ―
10SCH(13(1)(h)) Rentals receivable from investment property less direct
outgoings of HK$25,000 (20X1: HK$23,000) (75,000) (77,000)
Staff costs 936,142 879,900
Comprising:
- Contributions to defined contribution retirement plan 46,407 43,995
- Salaries, wages and other benefits 889,735 835,905
Warranty expenses (included in cost of sales*) 5,260 7,340
* If the entity classifies its expenses by nature in its income statement, this would say „included in raw materials and
consumables used‟.
10. Income tax expense
Taxation in the consolidated statement of income and retained earnings represents:
20X2 20X1
HK$ HK$
Current tax – Hong Kong Profits Tax
10SCH(13(1)(c)) Provision for the year 101,519 67,593
10SCH(17(4)) Under-provision in respect of prior years 5 5
101,524 67,598
Deferred tax
Origination and reversal of temporary differences (1,234) 4,277
100,290 71,875
The provision for Hong Kong Profits Tax is calculated at 16.5% (20X1: 16.5%) of the estimated
assessable profit for the year.
10SCH(12(15) Income tax expense for the year of HK$100,290 (20X1: HK$71,875) differs from the amount that
&17(3)) would result from applying the tax rate of 16.5% (both 20X2 and 20X1) to profit before tax mainly
because the Group has not recognised deferred taxation on the revaluation of its investment
property as the Group considers the revaluation difference is not taxable under the Hong Kong tax
laws and certain employee compensation expenses (20X2: HK$20,670 and 20X1: HK$16,750) that
are recognised in measuring profit before tax are not tax-deductible under Hong Kong tax laws.
© Copyright 20
S161 11. Directors' remuneration

Directors' remuneration disclosed pursuant to Section 161 of the Hong Kong Companies Ordinance
is as follows
20X2 20X1
HK$ HK$
Fees 124,518 98,880

Other emoluments 29,400 13,380
153,918 112,260
12. Cash and cash equivalents
The Group The Company

20X2 20X1 20X2 20X1
HK$ HK$ HK$ HK$
Cash at bank and on hand 329,444 247,548 319,444 237,548
Cash, cash equivalents and bank overdraft include the following for the purpose of the consolidated
statement of cash flows:
The Group
20X2 20X1
HK$ HK$
Cash and cash equivalents 329,444 247,548

Bank overdraft (note 21) (83,600) (115,507)
245,844 132,041
13. Amounts due from directors

S161B(1)[2003] Directors' current accounts/loans to officers disclosed pursuant to Section 161B of the Hong Kong
Companies Ordinance are as follows:
The Group and the Company

Maximum
Balance Balance at amount
at end beginning outstanding
Director Terms of loan of year of year during the year
HK$ HK$ HK$
Kwok Keung Lee Secured on property,
repayable within one
year, interest-free (Note) 1,000 1,000 1,000
Steve Wong Unsecured, repayable

within one year, interest-
free 500 500 500
1,500 1,500
Note: The loan is secured over a property owned by Kwok Keung Lee. The Group is not permitted
to sell or repledge the collateral in the absence of default by that director.
© Copyright 21
14. Trade and other receivables
20X2 20X1
HK$ HK$
Trade debtors 528,788 407,384
Prepayments 56,760 45,478
585,548 452,862
15. Inventories
20X2 20X1
HK$ HK$
Raw materials 42,601 36,450

Work in progress 1,140 900
Finished goods 13,640 10,570
57,381 47,920
16. Investment in a subsidiary
The Company
20X2 20X1
HK$ HK$
10SCH(9(1)(a) Unlisted shares, at cost 10,000 10,000

&31(a))
At 31 December 20X2, the Company had an interest in the following subsidiary:
Proportion of
Particulars
ownership interest
Place of of issued
incorporation shares and Held by the Held by a Principal
S128 Name of company Company subsidiary
and operation paid up capital activity
10,000 shares
XYZ (Trading) Limited Hong Kong of HK$1 each 100% ― Dormant
© Copyright 22
17. Investment in an associate
Details of the interest in an associate of the Group and the Company are as follows:
20X2 20X1
HK$ HK$
10SCH(9(1)(a) Unlisted shares, at cost 107,500 107,500

&31(a))
During the year the Group and the Company have received a dividend of HK$25,000 from the
associate, which was paid out of the associate's current year's profit, and is included in other
income in 20X2 (20X1: HK$25,000).
S129 At 31 December 20X2 and 20X1, the Group and the Company had an interest in the following
associate:
Proportion of
ownership interest
Name of Place of
associate Form of incorporation Class of Held by
business and shares the Held by a Principal
structure operation held Company subsidiary activity
XYZ Service
Company Limited Incorporated Hong Kong Ordinary 35% ― Sale of [ ]
© Copyright 23
18. Property, plant and equipment
(a) The Group and the Company
Leasehold
land held for
own use Buildings Fixtures
under a held for and
finance lease own use equipment Total
HK$ HK$ HK$ HK$
Cost
10SCH(12(8)) 1 January 20X2 5,500,000 1,960,000 1,102,045 8,562,045
10SCH(12(8)) Additions ― ― 485,000 485,000
10SCH(5(3)(a)) Disposals ― ― (241,000) (241,000)
31 December 20X2 5,500,000 1,960,000 1,346,045 8,806,045
Accumulated depreciation
and impairment
1 January 20X2 3,190,000 390,000 270,590 3,850,590
Annual depreciation 110,000 98,000 240,360 448,360
Impairment ― ― 30,000 30,000
Less accumulated
10SCH(5(3)(b)) depreciation on assets
disposed of ― ― (204,850) (204,850)
31 December 20X2 3,300,000 488,000 336,100 4,124,100
Carrying amount
31 December 20X2 2,200,000 1,472,000 1,009,945 4,681,945
At 31 December 20X2 and 20X1, certain property, plant and equipment has been pledged as
security for a bank overdraft and a bank loan (note 21).
During 20X2 the Group and the Company noticed a significant decline in the efficiency of a major
piece of equipment and so carried out a review of its recoverable amount. The review led to the
recognition of an impairment loss of HK$30,000 (20X1: nil).
The carrying amount of the fixtures and equipment of the Group and the Company includes an
amount of HK$40,000 (20X1: HK$60,000) in respect of assets held under finance leases.
On 10 December 20X2 the directors resolved to dispose of a machine. The machine's carrying
amount of HK$1,472 is included in fixtures and equipment at 31 December 20X2, and trade
payables include the remaining obligation of the Group and the Company of HK$1,550 on the
acquisition of this machine. Because the proceeds on disposal are expected to exceed the net
carrying amount of the asset and related liability, no impairment loss has been recognised.
© Copyright 24
18. Property, plant and equipment (continued)
(b) The analysis of the net book value of leasehold land held for own use under finance lease is
as follows:

20X2 20X1
HK$ HK$
10SCH In Hong Kong
(12(9)(a)
&31(c)) - long leases 2,200,000 2,310,000
19. Investment property
(a) The Group and the Company
20X2
HK$
Opening carrying amount 1,600,000
Net gain from fair value adjustment (note 7) 200,000
Closing carrying amount 1,800,000
The fair value of the investment property is derived from the current market prices for comparable
real estate determined annually by an independent firm of surveyors, [Name of firm], which has
among their staff Fellows of the Hong Kong Institute of Surveyors with recent experience in the
location and category of property being valued. The valuer uses observable market prices, adjusted
if necessary for any difference in the nature, location or condition of the specific asset.
(b) The analysis of the carrying value of investment property is as follows:

20X2 20X1
HK$ HK$
In Hong Kong
- long leases 1,800,000 1,600,000
© Copyright 25
10SCH(9(1)(b)) 20. Intangible assets

Software: HK$
Cost
1 January 20X2 32,403
Additions ―
Disposals ―
31 December 20X2 32,403
Accumulated amortisation and impairment

1 January 20X2 6,480
Annual amortisation (included in administrative expenses*) 6,480
31 December 20X2 12,960
Carrying amount
31 December 20X2 19,443
* If the entity classifies its expenses by nature in its income statement, this would say 'included in depreciation and
amortisation expense'.
21. Borrowings

20X2 20X1
HK$ HK$
Non-current
10SCH(10)
Bank loan, secured – fully repayable in 20X4, prepayable
without penalty 50,000 150,000
Current
10SCH Bank overdraft, secured (note 12) 83,600 115,507
(9(1)(d))
&10SCH(10) 133,600 265,507
10SCH(9(1)(d)) The entire balance of the bank loan of the Group and the Company as of 31 December 20X2 and
20X1 is fully repayable in 20X4 and prepayable without penalty. The Group and the Company had
no bank loan repayable more than five years as of 31 December 20X2 and 20X1.
10SCH(12(4)) The bank overdraft and bank loan are secured by a floating lien over land and buildings owned by
the Group and the Company with a carrying amount of HK$266,000 at 31 December 20X2 (31
December 20X1: HK$412,000) (note 18). The Group and the Company had no unsecured bank
overdrafts and loans as of 31 December 20X2 and 20X1.
Interest is payable on the secured bank overdraft at 200 points above the Hong Kong Interbank
Borrowing Rate (HIBOR). Interest is payable on the four-year bank loan at a fixed rate of 5 percent
of the principal amount.
© Copyright 26
22. Trade payables
Trade payables at 31 December 20X2 include HK$42,600 denominated in foreign currencies (31
December 20X1: nil).
23. Provision for warranty obligations

Changes in the provision for warranty obligations during 20X2 were:

20X2
HK$
1 January 20X2 5,040
Additional accrual during the year 5,260
Cost of warranty repairs and replacement during the year (6,100)
31 December 20X2 4,200
The obligation is classified as a current liability because the warranty is limited to twelve months.
24. Employee benefit obligations

The Group operates a Mandatory Provident Fund Scheme (the MPF scheme) under the Hong
Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the
jurisdiction of the Hong Kong Employment Ordinance and not previously covered by the defined
benefit retirement plan. The MPF scheme is a defined contribution retirement plan administered by
independent trustees. Under the MPF scheme, the employer and its employees are each required
to make contributions to the plan at 5% of the employees' relevant income, subject to a cap of
monthly relevant income of HK$20,000. Contributions to the plan vest immediately.
25. Obligations under finance leases
The Group and the Company hold an item of specialised machinery with an estimated useful life of
five years under a five-year finance lease. The future minimum lease payments are as follows:

20X2 20X1
HK$ HK$
Within one year 25,000 25,000

Later than one year but within five years 25,000 50,000
Later than five years ― ―
50,000 75,000
The obligation is classified as:

20X2 20X1
HK$ HK$
Current liability 21,461 19,884

Non-current liability 23,163 44,624
44,624 64,508
© Copyright 27
26. Deferred tax
The deferred tax assets are the tax effects of expected future income tax benefits relating to the
foreign exchange loss on trade payables, which will not be tax-deductible until the payables are
settled but has already been recognised as an expense in measuring the profit of the Group and
the Company for the year.
The following are recognised deferred tax liabilities (assets):

Foreign
Software exchange loss Total
HK$ HK$ HK$
1 January 20X1 ― ― ―
Credit to profit or loss for the year 4,277 ― 4,277
1 January 20X2 4,277 ― 4,277
Credit to profit or loss for the year (1,069) (165) (1,234)
31 December 20X2 3,208 (165) 3,043
The deferred tax assets for the foreign exchange loss and the deferred tax liability for software
relate to income tax in the same jurisdiction, and the law allows net settlement. Therefore, they
have been offset in the consolidated statement of financial position as follows:

20X2 20X1
HK$ HK$
Deferred tax liability 3,208 4,277
Deferred tax assets (165) ―
3,043 4,277
At 31 December 20X2 and 20X1, there was no temporary difference associated with investments in
a subsidiary and an associate for which deferred tax liabilities have not been recognised.
27. Commitments
10SCH(12(6)) (a) Capital commitments
Capital commitments outstanding at 31 December 20X2 not provided for in the financial statements
are as follows:

20X2 20X1
HK$ HK$
Contracted for 50,000 20,000

Authorised, but not contracted for 100,000 50,000
150,000 70,000
27. Commitments (continued)
© Copyright 28
(b) Commitments under operating leases
The Group and the Company rent several sales offices under operating leases. The leases are for
an average period of three years, with fixed rentals over the same period.

20X2 20X1
HK$ HK$
Minimum lease payments under operating leases recognised as
an expense during the year 26,100 26,100
At the year-end, the Group and the Company had outstanding commitments under non-cancellable
operating leases that fall due as follows:
20X2 20X1
HK$ HK$
Within one year 13,050 26,100
Later than one year but within five years ― 13,050
Later than five years ― ―
13,050 39,150
10SCH(2(c), 28. Share capital and profit attributable to equity shareholders

4(1), 6&7)
The balance of HK$30,000 as at 31 December 20X2 and 20X1 comprised 30,000 ordinary shares
with par value HK$1.00 fully paid, issued and outstanding. An additional 70,000 shares are legally
authorised but unissued.
The consolidated profit attributable to equity shareholders of the Company includes a profit of
S123(5)(b)(ii)
HK$672,679 (20X1: HK$417,038) which has been dealt with in the Company's financial statements.
10SCH(13(1)(j)) 29. Dividends
Dividends payable to equity shareholders of the Company attributable to the year:

20X2 20X1
HK$ HK$
10SCH(13(1)(j)) Interim dividend declared and paid of HK$5 per ordinary share
(20X1: HK$3.3 per ordinary share) 150,000 100,000
10SCH(9(1)(e)) Final dividend proposed after the reporting date of HK$1 per
ordinary share (20X1: nil) 30,000 ―
180,000 100,000
Final dividends proposed after the reporting date are not recognised as a liability at the reporting
date (note 31).
© Copyright 29
10SCH(12(5)) 30. Contingent liabilities
During 20X2 a customer initiated proceedings against the subsidiary of the Company, XYZ (Trading)
Limited, for a fire caused by a faulty [ ]. The customer asserts that its total losses are HK$50,000
and has initiated litigation claiming this amount.
The Group‟s legal counsel does not consider that the claim has merit, and the Company intends to
contest it. No provision has been recognised in these financial statements as the Group‟s
management does not consider it probable that a loss will arise.
31. Events after the reporting date
On 25 January 20X3 there was a flood in one of the [ ] storage rooms. The cost of refurbishment
is expected to be HK$36,000. The reimbursements from insurance policies are estimated to be
HK$16,000.
On 14 February 20X3 the directors voted to declare a final dividend of HK$1.00 per share
(HK$30,000 in total) payable on 15 April 20X3 to shareholders registered on 31 March 20X3.
Because the obligation arose in 20X3, a liability is not shown in the statement of financial position
at 31 December 20X2.
32. Related party transactions
The Group had sold goods to its associate (note 17), which is a related party, as follows:
Amounts owed to the Group by

the related party and included
Sales of goods in trade receivables at year-end
20X2 20X1 20X2 20X1

HK$ HK$ HK$ HK$
Associate 10,000 8,000 800 400
The payments under the finance lease (note 25) are personally guaranteed by a principal
shareholder of the Company. No charge has been requested for this guarantee.
The total remuneration of directors and other members of key management in 20X2 (including
salaries and benefits) was HK$249,918 (20X1: HK$208,260).
S129A 33. Immediate parent and ultimate controlling party
At 31 December 20X2, the directors consider the immediate parent and ultimate controlling party of
the Group to be XYZ Investment Company Limited, which is incorporated in Hong Kong. This entity
does not produce financial statements available for public use.
**********
© Copyright 30

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© Copyright 2010 Hong Kong Institute of Certified Public Accountants

REFERENCES TO THE HONG KONG COMPANIES ORDINANCE

S49 Section 49 "Power to issue redeemable shares"

S123 Section 123 "General provisions as to contents and form of accounts"

S125 Section 125 "Form of group accounts"

S126 Section 126 "Contents of group accounts"

S128 Section 128 "Particulars to be shown in company's accounts in relation to subsidiaries"

S157 Section 157 "Validity of acts of directors"

S161 Section 161 "Particulars in accounts of directors' emoluments, pensions, etc."

10SCH Tenth Schedule "Accounts"

2 Example Auditor's Report A-1~A-8

Example unmodified auditor's report on financial statements prepared in

Example unmodified auditor's report on financial statements prepared in

3 Illustrative Financial Statements for Private Entities prepared in 3~30

Example Directors' Report, Auditor's Report and Illustrative Financial

Example Auditor's Reports on Financial Statements Prepared in accordance

Example Directors' Report and Illustrative Financial Statements for Private

XYZ (Holdings) Limited

Results and appropriations

Share capital and reserves

Kwok Keung Lee

Arrangements to purchase shares or debentures

Directors' interests in contracts of significance

Events after the reporting date

On behalf of the Board

Example Unmodified Auditor’s Report on Financial Statements prepared

Circumstances include the following:

 Audit of a complete set of financial statements.

INDEPENDENT AUDITOR‟S REPORT

TO THE SHAREHOLDERS OF ABC LIMITED

(incorporated in Hong Kong with limited liability)2

Directors’ Responsibility for the Financial Statements

AAA & Co.

Certified Public Accountants (Practising) [or Certified Public Accountants]

[Date of auditor's report]

Example Unmodified Auditor’s Report on Financial Statements prepared

Circumstances include the following:

 Audit of a complete set of financial statements.

INDEPENDENT AUDITOR‟S REPORT

TO THE SHAREHOLDERS OF ABC LIMITED

[Report on the Financial Statements]3

[Report on Other Legal and Regulatory Requirements

AAA & Co.

Certified Public Accountants (Practising) [or Certified Public Accountants]

[Date of the auditor‟s report]

Example Unmodified Auditor’s Report on Consolidated Financial Statements prepared in

Circumstances include the following:

 Audit of consolidated financial statements prepared for a general purpose by directors

INDEPENDENT AUDITOR‟S REPORT

TO THE SHAREHOLDERS OF ABC LIMITED

(incorporated in Hong Kong with limited liability)2

Directors’ Responsibility for the Financial Statements

AAA & Co.

Certified Public Accountants (Practising) [or Certified Public Accountants]

[Date of auditor's report]

Example Unmodified Auditor’s Report on Consolidated Financial Statements prepared in

Circumstances include the following:

 Audit of consolidated financial statements prepared for a general purpose by directors of