HUTCHISON PORT HOLDINGS TRUST 146 NOTES TO THE FINANCIAL STATEMENTS 2 Basis of preparation and material accounting policy information (Continued) (b) Subsidiary companies (Continued) The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of subsidiary companies are the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On the acquisition by acquisition basis, the Group recognises a non-controlling interest in the acquiree either at fair value or at noncontrolling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifi able net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the diff erence is recognised directly in the income statement. (c) Associated companies An associated company is an entity, other than a subsidiary company or a joint venture, in which the Group has a long-term equity interest and over which the Group is in a position to exercise signifi cant infl uence over its management, which includes participation in the fi nancial and operating policy decisions. The Group’s interest in an associated company is the carrying amount of the investment in the associate under the equity method together with any long-term interests that, in substance, form part of the investor’s net investment in the associate. Long-term interests include long-term receivables or loans for which settlement is neither planned nor likely to occur in the foreseeable future. The results and assets and liabilities of associated companies are incorporated in these fi nancial statements using the equity method of accounting, except when the investment is classifi ed as held for sale, in which case it is accounted for under HKFRS 5 “Non-current assets held for sale and discontinued operations”. Losses recognised under the equity method in excess of the investor’s investment in ordinary shares are applied to the other components of the Group’s interest in an associated company. After the interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associated company. The total carrying amount of such investments is reduced to recognise any identifi ed impairment loss in the value of individual investments. (d) Joint arrangements A joint arrangement is an arrangement of which two or more parties have joint control and over which none of the participating parties has unilateral control. Investments in joint arrangements are classifi ed either as joint operations or joint ventures, depending on the contractual rights and obligations each investor has. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement. The results and net assets of joint ventures are incorporated in these fi nancial statements using the equity method of accounting, except when the investment is classifi ed as held for sale, in which case it is accounted for under HKFRS 5 “Non-current assets held for sale and discontinued operations”. The total carrying amount of such investments is reduced to recognise any identifi ed impairment loss in the value of individual investments.
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