Creative 2009 Annual Report Download - page 59

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59
CREATIVE฀TECHNOLOGY฀LTD฀AND฀ITS฀SUBSIDIARIES
In June 2008, the Group sold its headquarters office building to an unrelated third party at a sales price of US$181,447,000
which was derived on an arms length basis, supported by a valuation of the property carried out by an independent assessor.
Under the terms of the sale and purchase agreement, the Group also agreed to leaseback the property for a period of five years
with an option for additional periods of three and two years. The Group also placed a security deposit of US$52,935,000
and paid an advance rental of US$938,000 to the purchaser.
The sale was completed in June 2008, legal title was transferred to the buyer and sale proceeds were received. However,
under US GAAP, the transaction did not meet certain criteria of sale-leaseback accounting. Accordingly, under US GAAP
accounting, the building remained recorded as property and equipment and the sale proceeds received, net of security deposit
and rental prepayment, was presented as “Advance payments from sale of building”. The gain on the sale equalled to the
difference between the net book value of the building and the balance of the “Advance payments from sale of building”
will be recognised at the end of the initial five year lease term.
Under the accounting treatment of FRS, as substantial risks and rewards were transferred to the buyer and the lease qualified
as an operating lease, the Group may derecognise the property and recognise an immediate gain on disposal. Accordingly,
under FRS, a gain of US$147,912,000 on disposal of building was recognised in the financial year ended 30 June 2008,
and the security deposit and advance payment were included in the Balance Sheet as “other current assets” for the current
portion and “other non-current assets” for the non-current portion.
There is no significant impact on beginning retained earnings as at 1 July 2007 as a result of transition to FRS. However,
there was a reclassification of US$15,702,000 from current income tax liabilities to deferred income tax liabilities at 1 July
2007.
(c) The Company’s affected Balance Sheet items as at 30 June 2008
฀ ฀ ฀ Effect฀of฀฀ ฀
฀ ฀ transition฀ ฀
฀ US฀GAAP฀ to฀FRS฀ FRS฀
฀ US$’000฀ US$’000฀ US$’000
฀As฀at฀30฀June฀2008
฀ Amounts฀due฀from฀subsidiaries฀-฀current฀ 95,818฀ (45,905)฀ 49,913
฀ Amounts฀due฀from฀subsidiaries฀-฀non-current฀ –฀ 185,607฀ 185,607
฀ Investments฀in฀subsidiaries฀ 79,851฀ (34,325)฀ 45,526
฀ Amounts฀due฀to฀subsidiaries฀-฀current฀ 21,661฀ 102฀ 21,763
฀ Fair฀value฀reserve฀ 3,377฀ (3,377)฀ –
฀ Retained฀earnings฀ 26,496฀ 108,652฀ 135,148
฀ Total฀equity฀ 329,683฀ 105,275฀ 434,958
฀As฀at฀1฀July฀2007฀ ฀ ฀
฀ Retained฀earnings฀ 57,759฀ 83,685฀ 141,444
Under US GAAP, the Company equity accounted for the results of its subsidiaries. With the transition to FRS, the non-
financial assets of the Company, including its investments in subsidiaries are reviewed and adjusted for any impairment in
value. The difference between the carrying and recoverable amount of the non-financial assets is recognised as an impairment
loss in the income statement and the amount is adjusted retrospectively to the financial year in which these assets may be
impaired.
AR09 pg1-64_Final.indd 59 10/2/2009 10:38:11 AM