Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
This announcement is not for distribution in the United States. This announcement is for information purposes only and does not constitute or form a part of any offer of securities for sale in the United States or elsewhere. The securities have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. There will be no public offering of securities in Hong Kong or the United States.
Beijing Jingneng Clean Energy Co., Limited
北京京能清潔能源電力股份有限公司
(A joint stock company incorporated in the People’s Republic of China with limited liability)
(Stock Code: 00579)
PROPOSED ISSUE OF CNY DENOMINATED SENIOR GUARANTEED BONDS
BY JINGNENG CLEAN ENERGY INVESTMENT HOLDINGS LIMITED AND
GUARANTEED BY BEIJING JINGNENG CLEAN ENERGY (HONG KONG) CO.,
LIMITED
AND
UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF BEIJING JINGNENG
CLEAN ENERGY (HONG KONG) CO., LIMITED
AS AT AND FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2014
This announcement is made by the Company pursuant to Rule 13.09(2) of the Listing Rules and
Part XIVA of the SFO.
A.
PROPOSED ISSUE OF CNY DENOMINATED SENIOR GUARANTEED BONDS BY THE
ISSUER AND GUARANTEED BY THE GUARANTOR
The Board wishes to announce that the Issuer, a wholly-owned subsidiary of the Company,
proposes to carry out the offer and issuance of the Senior Guaranteed Bonds to professional
and institutional investors in transactions exempt from the registration requirements under
the Securities Act and to professional investors as defined under the SFO. The Senior
Guaranteed Bonds will be denominated in CNY and will be irrevocably and unconditionally
guaranteed by the Guarantor, another wholly-owned subsidiary of the Company. The Issuer,
the Guarantor and the Parent will enter into the Keepwell Deed in favour of the Trustee.
The Issuer, the Guarantor and the Parent will enter into the EIPU to assist the Issuer and the
Guarantor in meeting their respective obligations under the Senior Guaranteed Bonds. Each
of the Issuer and the Guarantor is an indirect 62.41% owned subsidiary of the Parent. There
The Issuer has appointed Citigroup Global Markets Limited ( “
Citi
”) and Deutsche Bank
AG, Singapore Branch ( “
Deutsche Bank
”) as the joint global coordinators and Citi,
Deutsche Bank , ABCI Capital Limited ( “
ABCI
”), Barclays Bank PLC ( “
Barclays
”),
China Merchants Securities (HK) Co., Limited ( “
CMS
”), CITIC Securities Corporate
Finance (HK) Limited ( “
CSCF
”), Daiwa Capital Markets Hong Kong Limited ( “
Daiwa
”)
and Ping An of China Securities (Hong Kong) Company Limited ( “
Ping An
” ) as the Joint
Lead Managers for the Proposed Issue. It is proposed that the Issuer, the Parent and the
Guarantor enter into a Subscription Agreement with the Joint Lead Managers upon the
pricing of the Senior Guaranteed Bonds.
As no binding agreement in relation to the Proposed Issue has been entered into as
at the date of this announcement, the Proposed Issue may or may not materialise. As
the Issuer may or may not proceed with the Proposed Issue and the completion of
the Proposed Issue is subject to, inter alia, market conditions and investors’ interest,
shareholders of the Company and prospective investors are advised to exercise caution
when dealing in the securities of the Company.
B.
UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GUARANTOR AS
AT AND FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2014
The unaudited consolidated financial information of the Guarantor as at and for the
nine months ended 30 September 2014, together with the review report issued by the
independent auditor of the Guarantor, Ruihua Certified Public Accountants, are contained in
the attachment to this announcement.
This announcement is made by the Company pursuant to Rule 13.09(2) of the Listing Rules and
Part XIVA of the SFO.
A.
PROPOSED ISSUE OF CNY DENOMINATED SENIOR GUARANTEED BONDS BY THE
ISSUER AND GUARANTEED BY THE GUARANTOR
Proposed Issue of the Senior Guaranteed Bonds
The Board wishes to announce that the Issuer, an indirect wholly-owned subsidiary of the
Company, proposes to carry out the offer and issuance of the Senior Guaranteed Bonds
to professional and institutional investors in transactions exempt from the registration
requirements under the Securities Act and to professional investors as defined under the SFO.
There will be no public offering of the Senior Guaranteed Bonds in Hong Kong, the United
States or elsewhere. If the Proposed Issue proceeds, it is intended that the Senior Guaranteed
Bonds will be listed and traded on the Stock Exchange as debt issues to professional investors
Keepwell Deed and EIPU
The Issuer, the Guarantor and the Parent will enter into the Keepwell Deed in favour of the
Trustee and pursuant to which the Parent will undertake to the Issuer, the Guarantor and the
Trustee that (i) it or any of its subsidiaries shall directly or indirectly own and hold more than
50% of the outstanding shares of the Guarantor; (ii) the Guarantor shall directly or indirectly
own and control 100% of the issued share capital of the Issuer, during the term of the Senior
Guaranteed Bonds. In both cases, the Parent will not, subject to certain exceptions, directly
or indirectly pledge or in any way encumber or otherwise dispose of any shares of the Issuer
and the Guarantor. The Parent will also undertake to the Issuer, the Guarantor and the Trustee
that it shall cause (i) each of the Issuer and the Guarantor to have a consolidated net worth of
at least US$1.00 at all times and (ii) each of the Issuer and the Guarantor to have sufficient
liquidity to ensure timely payment by the Issuer of any amounts payable in respect of the
Senior Guaranteed Bonds and the related transaction documents.
The Issuer, the Guarantor and the Parent will enter into the EIPU pursuant to which the
Parent will undertake to the Trustee that upon receipt of a written notice from the Trustee
following the occurrence of an Event of Default and subject to obtaining all Regulatory
Purchase Approvals (each as defined in the EIPU), purchase for consideration following
each occurrence (either by itself or through a PRC-incorporated subsidiary of the Parent as
designated by it) the equity interest held by the Issuer, the Guarantor or any one or more
subsidiary of the Company incorporated outside the PRC as designated by the Parent. The
purchase price for any proposed acquisition is subject to be determined at the relevant time
of entering into a specific purchase agreement, in accordance with any applicable PRC laws
and regulations then effective, provided that such purchase price should be sufficient to enable
the Issuer and the Guarantor to, among others, discharge in full their respective obligations
under the Senior Guaranteed Bonds, the Guarantee, the Trust Deed, the Agency Agreement,
the Keepwell Deed and the EIPU, plus certain provisions. Any purchase made pursuant to the
EIPU is subject to compliance with applicable laws and requirements under the Listing Rules.
The Parent is the controlling shareholder of the Company which directly held 62.41% of the
total issued share capital of the Company as of the date of this announcement. The Parent
is entering into the Keepwell Deed and EIPU to facilitate the Proposed Issue and the Parent
will not obtain any security over the assets of the Group in relation to the entering into of the
Keepwell Deed and the EIPU.
The Issuer has appointed Citi and Deutsche Bank as the joint global coordinators and
Citi, Deutsche Bank, ABCI, Barclays, CMS, CSCP, Daiwa and Ping An as the Joint Lead
Managers for the Proposed Issue. An offering circular which will be distributed to prospective
investors of the Senior Guaranteed Bonds will contain, amongst other things, details of the
Proposed Issue, the terms and conditions of the Senior Guaranteed Bonds, and the unaudited
consolidated financial information of the Guarantor as at and for the nine months ended 30
September 2014, together with the review report issued by the independent auditor of the
Guarantor, Ruihua Certified Public Accountants.
Proposed Subscription Agreement
In connection with the Proposed Issue, it is proposed that the Issuer, the Parent and the
Guarantor shall enter into the Subscription Agreement with the Joint Lead Managers, as initial
purchasers, for the distribution and sale of the Senior Guaranteed Bonds by the Joint Lead
Managers severally (but not jointly) on behalf of the Issuer. It is proposed that the Subscription
Agreement will be entered into between the parties upon the pricing of the Senior Guaranteed
Bonds.
As no binding agreement in relation to the Proposed Issue has been entered into as at the
date of this announcement, the Proposed Issue may or may not materialise. As the Issuer
may or may not proceed with the Proposed Issue and the completion of the Proposed
Issue is subject to, inter alia, market conditions and investors’ interest, shareholders of
the Company and prospective investors are advised to exercise caution when dealing in
the securities of the Company.
Further announcement(s) in respect of the Proposed Issue will be made by the Company
should the Subscription Agreement be signed between the Issuer, the Guarantor, the Parent
and the Joint Lead Managers; the Keepwell Deed be signed between the Issuer, the Guarantor,
the Parent and the Trustee; and the EIPU be signed between the Issuer, the Guarantor, the
Parent and the Trustee.
Reasons for the Proposed Issue and proposed use of proceeds
The Company considers that the creation of a new type of listed securities will help the Issuer
and the Company to broaden its investor base and provide an alternative for investment
in its securities. The Proposed Issue will also establish a market benchmark to enable the
Group to tap the debt market as an alternative source of future funding for their growth and
development. As the Proposed Issue will be offered and marketed to institutional investors in
Hong Kong, the United States and globally, the Company believes that it would diversify the
Group’s funding channels and increase its international profile.
It is currently intended that the net proceeds from the Proposed Issue will be used for
refinancing certain existing indebtedness and general corporate purposes.
B.
UNAUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GUARANTOR FOR
THE NINE MONTHS AS AT AND ENDED 30 SEPTEMBER 2014
The unaudited consolidated financial information of the Guarantor for the nine months as
at and ended 30 September 2014, together with the review report issued by the independent
DEFINITIONS
In this announcement, the following terms have the meanings set forth below unless the context
requires otherwise:
“Board”
the board of Directors or a duly authorised committee thereof
“CNY”
Chinese Yuan Renminbi, the lawful currency of the PRC
“Company”
Beijing Jingneng Clean Energy Co., Limited (
北 京 京 能 清 潔 能 源
電 力 股 份 有 限 公 司), a joint stock limited company incorporated in
the PRC with limited liability, whose H shares are listed on the Stock
Exchange
“controlling shareholder”
has the meaning ascribed to it under the Listing Rules
“Directors”
the directors of the Company
“EIPU”
the deed of equity interest purchase and liquidity support undertaking
to be entered into by the Issuer, the Guarantor, the Parent and the
Trustee for and on behalf of the holders of the Secured Guaranteed
Bonds
“Group”
the Issuer, the Guarantor, the Company and their respective
subsidiaries
“Guarantor”
Beijing Jingneng Clean Energy (Hong Kong) Co., Limited, a company
incorporated in Hong Kong with limited liability and a wholly-owned
subsidiary of the Company
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Issuer”
Jingneng Clean Energy Investment Holdings Limited, a company
incorporated under the laws of the British Virgin Islands with limited
liability and an indirect wholly-owned subsidiary of the Company,
bei ng the issuer of the Senior Guaranteed Bonds
“Joint Lead Managers”
Citigroup Global Markets Limited, Deutsche Bank AG, Singapore
Branch, ABCI Capital Limited, Barclays Bank PLC, China Merchants
Securities (HK) Co., Limited, CITIC Securities Corporate Finance
(HK) Limited, Daiwa Capital Markets Hong Kong Limited and Ping
An of China Securities (Hong Kong) Company Limited
“Keepwell Deed”
the keepwell deed to be entered into by the Issuer, the Guarantor and
the Company in favour of the Trustee for and on behalf of the holders
of the Senior Guaranteed Bonds
“Listing Rules”
The Rules Governing the Listing of Securities on the Stock Exchange
“Parent”
Beijing Energy Investment Holding Co., Ltd., a company incorporated
in the PRC with limited liability and the controlling shareholder of the
Company
“PRC”
the People’s Republic of China, for the purposes of this announcement,
excludes Hong Kong, the Macau Special Administrative Region of the
PRC and Taiwan
“Proposed Issue”
the proposed issue and offering of the Senior Guaranteed Bonds by the
Issuer
“Securities Act”
the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder
“Senior Guaranteed
Bonds”
senior guaranteed bonds denominated in CNY to be issued by
the Issuer to professional and institutional investors and will be
unconditionally and irrevocably guaranteed by the Guarantor and
supported by the Keepwell Deed and the EIPU
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the laws of
Hong Kong)
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Subscription Agreement”
the subscription agreement proposed to be entered into between the
Issuer, the the Guarantor, the Company and the Joint Lead Managers
to provide for the terms and conditions for the distribution of the
Senior Guaranteed Bonds by the Joint Lead Managers on behalf of the
Issuer
“Trustee”
Citicorp International Limited, the trustee of the holders of the Senior
Guaranteed Bonds
“United States”
the United States of America
By order of the Board
Beijing Jingneng Clean Energy Co., Limited
Lu
Haijun
Chairman of the Board
Beijing, the PRC
10 December 2014
As at the date of this announcement, the non-executive directors of the Company are Mr. Lu Haijun, Mr. Guo Mingxing, Mr. Xu Jingfu, Mr. Liu Guochen, Mr. Yu Zhongfu and Mr. Jin Yudan; the executive director of the Company is Mr. Chen
Beijing Jingneng Clean Energy (Hong Kong) Co., Limited
Review Report
CONTENTS
CONTENT PAGE
I. Review Report F-108
II. Reviewed Financial Statements
1. Consolidated Balance Sheet F-111
2. Consolidated Income Statement F-113
3. Consolidated Statement of Cash Flow F-114
通 訊 地 址:
北 京 市 東 城 區 永 定 門 西 濱 河 路8號 院7樓 中 海 地 產 廣 場 西 塔5-11層 Postal Address: 5-11/F,West Tower of China Overseas Property Plaza, Building 7, NO.8,Yongdingmen Xibinhe Road, Dongcheng District, Beijing
郵 政 編 碼: Post Code: 100077
電 話(Tel): +86(10)88095588 傳 真(Fax):+86(10)88091199
Review Report
RH YZ 2014NO. 02080001 To Beijing Jingneng Clean Energy (Hong Kong) Co., Limited,
We have reviewed the attached financial statements of Beijing Jingneng Clean Energy (Hong Kong) Co., Limited (hereinafter referred to as “Clean Energy (Hong Kong) Co., Limited”), including the consolidated balance sheet as of September 30, 2014, the consolidated income statement, the consolidated statement of cash flow and notes to the financial statements for the period from January 2014 to September 2014. The management of Clean Energy (Hong Kong) Co., Limited is responsible for the preparation of these financial statements and our responsibility is to issue a review report of these financial statements based on our audit.
We conducted our audit in accordance with Standard on Review for Certified Public Accountants Registered in the PRC No. 2101—Engagement to Review Financial Statements”. These Standards require that we plan and perform the audit to obtain limited assurance about whether the financial statements are free from material misstatement. The audit is mainly limited to inquiring relevant personnel of the Company and implementing financial data analysis, the assurance level of which is lower than auditing. We have not conducted an audit, and accordingly, we do not express an audit opinion.
Based on our review, we are not aware of any matters which causes us to believe that the consolidated financial statements has not been prepared in accordance with the requirements of ASBE and failed to give, in all material respects, a fair view of the financial position of Clean Energy (Hong Kong) Co., Limited as at September 30, 2014 and the results of operation and cash flows for the period from January 2014 to September 2014.
Ruihua Certified Public Accountants China Certified Public Accountants: (Special General Partnership)
Beijing, China China Certified Public Accountants:
Consolidated balance sheet
Sept. 30, 2014
Prepared by: Beijing Jingneng Clean Energy (Hong Kong) Co., Limited Unit: HKD
Item Sep. 30, 2014 Dec. 31, 2013 Note No.
Current assets: — —
Cash and cash equivalents 371,633,867.35 VII.1 Deposit reservation for balance
Lending funds
Financial assets at fair value through profit or loss Derivative financial assets
Bills receivable
Accounts receivable 8,967,043.22 VII.2
Prepayment 3,896,809.60 VII.3
Premium receivable
Reinsurance accounts receivable Provision of cession receivable Interest receivable
Dividend receivable Other receivables
Redemptory monetary capital for sale Inventories
Available-for-sale financial assets Non-current assets due within one year
Other current assets 6,288,666.11 VII.4
Total current assets 390,786,386.28 -
Non-current assets: — —
Disbursement of Entrusted loans and advances Available-for-sale financial assets
Held-to-maturity investment Long-term receivables Long-term equity investment Investment real estate Fixed assets-cost
Less: Accumulated depreciation
Net fixed asset - -
Less: Fixed assets depreciation reserves
Net fixed asset - -
Construction in Progress 2,262,247,212.33 VII.5 Project material
Disposal of fixed asset Productive biological asset Oil-and-gas assets Intangible assets Development expenditure Goodwill
Long-term deferred expense Deferred income tax assets Other non-current assets
Total non-current assets 2,262,247,212.33 -
Total assets 2,653,033,598.61 -
Consolidated balance sheet (Continued)
Sept. 30, 2014
Prepared by: Beijing Jingneng Clean Energy (Hong Kong) Co., Limited Unit: HKD
Item Sep. 30, 2014 Dec. 31, 2013 Note No.
Current liabilities: — —
Short-term loans
Borrowings from central bank Deposits from customers and interbank Borrowing funds
Financial assets at fair value through profit or loss
Derivative financial liabilities 34,559,689.86 VII.6 Bills payable
Accounts payab1e 133,602,782.17 VII.7 Accounts received in advance
Financial assets sold for repurchase Fees and commissions payable Employee benefits payable Taxes payable
Accrued interest payable 2,015,154.11 VII.8 Dividend payable
Other payables 218,823,090.58 VII.9 Dividend payable for reinsurance
Reserve fund for insurance contracts Acting trading securities
Acting underwriting securities Helod-for-sale liabilities
Non-current liabilities due within one year Other current liabilities
Total current liabilities 389,000,716.72 -
Non-current liabilities: — —
Long-term loans 2,120,435,442.53 VII.10 Bonds payable
Long-term accounts payable Long-term benefits due to employee Special accounts payable
Estimated liabilities Deferred income
Deferred income tax liabilities Other non-current liabilities
Total non-current liabilities 2,120,435,442.53 -
Total liabilities 2,509,436,159.25 -
Owner’s equity: — —
Paid-up capital 77,657,000.00 VII.11 Less: Investment returned
Net paid-up capital 77,657,000.00 Other equity instruments
Capital surplus Less: Treasury stock
Other comprehensive income -62,016,408.22 VII.12 Special reserve
Surplus reserve General risk reserve
Retained profit 3,953,233.66 VII.13 Total equity attributable to the owners of
the parent company 19,593,825.44 - Minority interests 124,003,613.92
Total owners’ equity 143,597,439.36 -
Total liabilities and owner's equity 2,653,033,598.61 -
Consolidated Income Statement
From Jan. 1, 2014 to Sept. 30, 2014
Prepared by: Beijing Jingneng Clean Energy (Hong Kong) Co., Limited Unit: HKD
Item Jan. to Sept, 2014 Jan. to Sept, 2013 Notes
I. Gross revenue - -
Including: operating income Interest income
Earned premium
Fee and commission income
II. Total operating costs -3,953,233.66 - Including: Operating costs
Interest expense
Fee and commission expense Surrender value
Net payment for insurance claims Net withdrawal amount
of reserve fund for insurance contracts Bond insurance expenses
Reinsurance costs Business tax and surcharges Selling expenses
Administrative expenses 501,290.70 Financial expenses -4,454,524.36 Assets impairment loss
Others
Plus: Income from fair value change (Loss by “-”) Income from investment (Loss by “-”)
Exchange gains(Loss by “-”)
III. Operating profit (Loss by “-”) 3,953,233.66 - Plus: Non-operating income
Less: Non-operating expenditure
IV. Total profit (Total loss by “”) 3,953,233.66 - Less: Income tax expense
V. Net profit (Loss by “-”) 3,953,233.66 - Net profits attributed to the owner of parent company 3,953,233.66
Profit or loss attributable to minority interests
VI. Other comprehensive income (net of tax) -62,016,408.22 — (1) Other comprehensive income not subsequently
reclassified to profit or loss"
(2) Other comprehensive income subsequently reclassified to profit or loss"
VII. Other comprehensive income -58,063,174.56 Total comprehensive income
attributed to the owner of parent company -43,547,380.92 Total comprehensive income attributed minority
shareholders -14,515,793.64
VIII Earning per share:
Basic EPS Diluted EPS
Consolidated Statement of Cash Flow
From Jan. 1, 2014 to Sept. 30, 2014
Prepared by: Beijing Jingneng Clean Energy (Hong Kong) Co., Limited Unit: HKD
Item Jan. to Sept, 2014 Jan. to Sept, 2013 Notes I. Cash Flows from Operating Activities: — —
Cash received from sales of goods or rendering of services Net increase of deposits from customers and interbank Net increase of borrowings from central bank
Net increase of funds borrowing from other financial institutions Cash from direct insurance contract premium
Net cash from reinsurance
Net increase of deposit of insured and investment Net increase from disposal of
financial assets at fair value throug profit and loss Cash from interests, fee and commissions
Net increase of borrowing funds Net increase of business fund repurchase Refund of taxes
Other cash received relating to operating activities 1,211,869.45
Sub-total of cash inflows from operating activities 1,211,869.45 Cash paid for goods and services
Net increase of customer loan and advance Net increase of deposit in central bank and interbank Cash paid for direct insurance contract compensation Cash paid for interest, fee and commissions Cash paid for policy dividend
Cash paid to and on behalf of employees Taxes paid
Other cash paid relating to operating activities 271,272.76
Sub-total of cash outflows from operating activities 271,272.76 -
Net cash flows from operating activities 940,596.69 -
II. Cash Flows from Investing Activities: — — Cash received from return of investments
Cash received from investment profits
Net cash received from disposal of fixed assets, intangible Net cash received from disposal of subsidiary and other
Other cash received relating to investing activities 287,228,648.03
Sub-total of cash inflows from investing activities 287,228,648.03 - Cash paid to acquire fixed assets,
intangible assets and other long-term assets 861,439,186.33 Cash paid to acquire investments
Net increase of hypothecated loan
Net cash paid to acquire subsidiary and other operating units
Other cash paid relating to investing activities 300,230,942.59
Sub-total of cash outflows from investing activities 1,161,670,128.92 -
Net cash flows from investing activities -874,441,480.90 -
III. Cash Flows from Financing Activities: — — Cash from investments 216,526,372.26
Cash from borrowings 913,589,584.80 Cash from issuing bonds
Other cash relating to financing activities 136,557,506.07
Sub-total of cash inflows 1,266,673,463.14 - Cash repayments of amounts borrowed
Cash payments for distribution of dividends or profits 5,009,518.16 Other cash payments relating to financing activities 9,432,999.19
Sub-total of cash outflows 14,442,517.35 -
Net cash flows from financing activities 1,252,230,945.79 -
IV. Effect of Foreign Exchange Rate Changes on Cash 30,297,880.97
V. Net Increase in Cash and Cash Equivalents 409,027,942.55 - Plus: cash and cash equivalents balance in the beginning of the
term
VI Cash and cash equivalents balance in the end of the term 409,027,942.55 -
Beijing Jingneng Clean Energy (Hong Kong) Co., Limited Notes to the Consolidated Financial Statements of
for the period from 4 January to 30 September 2014
I. BASIC INFORMATION OF THE COMPANY
Beijing Jingneng Clean Energy (Hong Kong) Co., Limited (the “Company”) was incorporated by Beijing Jingneng Clean Energy Co., Limited on 4 January 2013 with its address at LEVEL 54, HOPEWELL CENTRE, 183 QUEEN’S ROAD EAST, HONG KONG, and a registered capital of USD10 million. The legal representative of the Company is Lu Haijun.
The parent of the Company is Beijing Jingneng Clean Energy Co., Limited, whose parent is Beijing Energy Investment (Group) Company.
The business scope of the Company is mainly investment.
II. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The Financial Statements of the Company have been prepared on a going concern and actual transaction and event basis in accordance with the Basic Standard (promulgated by MOF Order No. 33, amended by MOF Order No. 76) and 41 specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006, and the Application Guidance for Accounting Standard for Business Enterprises, Interpretations of Accounting Standards for Business Enterprises and other relevant regulations issued and revised thereafter (hereafter collectively referred to as “the Accounting Standards for Business Enterprises”) and disclosure requirements under the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15 - General Provisions on Financial Reporting (amended in 2010) issued by the China Securities Regulatory Commission (CSRC).
According to the relevant requirements under the Accounting Standards for Business Enterprises, the Company has adopted the accrual basis as its basis of accounting. Except for certain financial instruments, historical costs have been adopted as the basis of measurement in these Financial Statements. Provisions of corresponding impairment losses are recognised in respect of any impairment of assets. The Financial Statements as of 30 September 2014 of the Company have been prepared on a going concern basis.
III. STATEMENT OF COMPLIANCE WITH THE ACCORDING STANDARDS FOR BUSINESS ENTERPRISES
These Financial Statements, in compliance with the According Standards for Business Enterprises, give a true and fair view of information related to the Company, including its financial position as at 30 September 2014 and results of operations and cash flows for the period from 1 January 2014 to 30 September 2014.
IV. EXPLANATION OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
(1) Accounting period
The accounting periods of the Company are classified as year and interim. Accounting interim refers to a reporting period less than a full accounting year. The Company adopts the Gregorian calendar year as its accounting year, commencing from 1 January to 31 December each year.
(4) Criteria for determination of cash and cash equivalents
Cash and cash equivalents of the Company comprise cash on hand, deposits readily available for payment, and short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired.
(5) Financial assets and financial liabilities
1. Determination of the fair value of financial assets and financial liabilities
Fair value refers to the price receivable from the disposal of an asset or payable for the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value of financial instruments where there is an active market is determined based on the quoted price in such market, which refers to the price regularly available from exchanges, brokers, trade associations and pricing service agencies that represents the price adopted in an arm’s length transaction actually occurred in the market. For financial instruments where there is no active market, the fair value is determined using valuation techniques. Such techniques include reference to prices used in recent market transactions between knowledgeable and willing counterparties, reference to the current fair value of another instrument which is substantially the same, discounted cash flow analysis and option pricing models or other valuation models.
2. Classification, recognition and measurement of financial assets
All regular way purchases and sales of financial assets are recognised and derecognised on the trade date. Financial assets are classified into financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables, and available-for-sale financial assets at initial recognition. Financial assets are measured at fair value upon initial recognition. Related transaction costs are recorded directly in current profit or loss for financial assets at fair value through profit or loss, or included in the amount recognised initially for other financial assets.
(1) Financial assets at fair value through profit or loss
They include financial assets held for trading and financial assets designated as at fair value through profit or loss.
Financial assets may be classified as financial assets held for trading if one of the following conditions is met: A. The financial asset is acquired principally for the purpose of sale or repurchase in the near term; B. The financial asset is part of a portfolio of identified financial instruments that are managed together and for which there is objective evidence of a recent pattern of short-term profit-taking; or C. The financial asset is a derivative, excluding the derivatives designated as effective hedging instruments, the derivatives classified as financial guarantee contract, and the derivatives linked to an equity instrument investment, which has no quoted price in an active market nor a reliably measured fair value, and required to be settled through delivery of that equity instrument.
A financial asset may be designated as at fair value through profit or loss upon initial recognition only when one of the following conditions is satisfied: A. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise result from measuring assets or recognising the gains or losses on them on different bases; or B. The financial asset forms part of a group of financial assets or a group of financial assets and financial liabilities, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is reported to key management personnel on that basis.
A financial asset at fair value through profit or loss is subsequently measured at fair value. Any gains or losses arising from changes in the fair value and any dividend or interest income earned on the financial asset are recognised in profit or loss in the current period.
(2) Held-to-maturity investments
They are non-derivative financial assets with fixed maturity dates and fixed or determinable payments that the Company has positive intent and ability to hold to maturity.
Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. Gain or loss on derecognition, impairment or amortisation is recognised through profit or loss for the current period.
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income or expense over each period based on the effective interest of a financial asset or a financial liability (including a group of financial assets or financial liabilities). The effective interest rate is the rate that discounts future cash flows from the financial asset or financial liability over its expected life or (where appropriate) a shorter period to the carrying amount of the financial asset or financial liability.
In calculating the effective interest rate, the Company will estimate the future cash flows (excluding future credit losses) by taking into account all contract terms relating to the financial assets or financial liabilities whilst considering various fees, transaction costs and discounts or premiums which are part of the effective interest rate paid or received between the parties to the financial assets or financial liabilities contracts.
(3) Loans and receivables
They are non-derivative financial assets with fixed or determinable payments that are not quoted in active market. Financial assets, including bills receivable, accounts receivable, interest receivable, dividends receivable and other receivables are classified as loans and receivables by the Company.
Loans and receivables are subsequently measured at amortised cost using the effective interest method. Gain or loss on derecognition, impairment or amortisation is recognised through profit or loss for the current period.
(4) Available-for-sale financial assets
They include non-derivative financial assets designated as available-for-sale at initial recognition, and the financial assets other than financial assets at fair value through profit or loss, loans and receivables, and held-to-maturity investments.
The closing cost of available-for-sale debt instruments are determined based on amortised cost method, which means the amount of initial recognition less the amount of principle already repaid, add or less the accumulated amortised amount arising from the difference between the amount due on maturity and the amount initially recognised using effective interest rate method, and less the amount of impairment losses recognised. The closing cost of available-for-sale equity instruments is equal to its initial acquisition cost.
Available-for-sale financial assets are subsequently measured at fair value, the gains or losses arising from changes in fair value, except for impairment losses and exchange difference related to monetary financial assets and amortised cost which are recognised in profit or loss, are recognised in other comprehensive income and reclassified to profit or loss when the financial assets are derecognised. However, an equity instrument investment which has no quoted price in an active market nor a reliably measured fair value, and a derivative financial asset linked to such equity
3. Impairment of financial assets
The Company assesses the carrying amounts of financial assets other than those at fair value through profit or loss at each balance sheet date. If there is objective evidence that a financial asset is impaired, an impairment loss is provided for.
When the amount of a financial asset is material, the financial asset will be assessed for impairment losses on individual basis, for the amount of a financial asset which is individually not material; the financial asset will be assessed for impairment losses on individual basis or assessed for impairment losses collectively together with a portfolio of financial assets which has similar credit risks characteristics. The financial asset which is not considered as impaired when assessed on individual basis (included financial asset which the individual amount is immaterial or not), will be assessed for impairment losses again on collective group basis together with a portfolio of financial assets which has similar credit risk characteristics. The financial assets which are considered as individual impaired will not be assessed for impairment losses ton collective group basis together with a portfolio of financial assets which has similar credit risk characteristics.
(1) Impairment losses on held-to-maturity investments and loans and receivables
Impairment loss is recognised in profit or loss according to the differences between the carrying amounts based on cost or amortised cost and present value of estimated future cash flow. When a financial asset is impaired, if there are objective evidences showing the value of this financial asset is recovered and it is objectively related to the matters happened after the impairment loss recognition, the impairment loss recognised shall be reversed. However the reversal shall not result in a carrying amount of the financial asset that exceeds the amortised cost that would have been if the impairment had not been recognised at the date when the impairment is reversed.
(2) Impairment losses on available-for-sale financial assets
If there are objective evidences that the fair value of available-for-sale equity instrument has a significant decline and this decline is not temporary, impairment loss shall be recognised.
If an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value that had been recognised directly in other comprehensive income is reclassified to profit or loss. The cumulative loss reclassified is the difference between its acquisition cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss.
If there are objective evidences that the value of that financial asset is recovered and it can be objectively related to an event occurred after the impairment loss recognition, the impairment loss recognised shall be reversed, impairment losses recognised for equity instruments classified as available-for-sale are reversed through other comprehensive income, while impairment losses recognised for debt instruments classified as available-for-sale are reversed through current profit or loss.
Impairment loss on an investment in equity instrument which has no quoted price in an active market nor a reliably measured fair value or a derivative financial asset which is linked to that equity instrument and required to be settled through delivery of that equity instrument is not be reversed.
4. Recognition and measurement of transfers of financial asset
Financial asset that satisfied any of the following criteria shall be derecognised: (1) the contract right to recover the cash flows of the financial asset has terminated; (2) the financial asset, along with substantially all the risk and return arising from the ownership of the financial asset, has been transferred to the transferee; and (3) the financial asset has been transferred to the transferee, and the transferor has given up the control on such financial asset, though it does not assign or maintain substantially all the risk and return arising from the ownership of the financial asset.
When the entity does not either assign or maintain substantially all the risk and rewards of ownership of the financial asset and does not give up the control on such financial asset, to the extent of its continuous involvement in the financial asset, the entity recognises it as a related financial asset and recognises the relevant liability accordingly. The extent of the continuous involvement is the extent to which the entity exposes to changes in the value of such financial assets.
On derecognition of a financial asset, the difference between the following amounts is recognised in profit or loss for the current period: the carrying amount and the sum of the consideration received and any accumulated gain or loss that had been recognised directly in equity.
If a part of the financial assets qualifies for derecognition, the carrying amount of the financial asset is allocated between the part that continues to be recognised and the part that qualifies for derecognition, based on the fair values of the respective parts. The difference between the following amounts is recognised in profit or loss for the period: the sum of the consideration received and the carrying amount of the part that qualifies for derecognition and the aforementioned carrying amount.
For financial assets that are transferred with recourse or endorsement, the Company needs to determined whether the risk and rewards of ownership of the financial asset have been substantially transferred. If the risk and rewards of ownership of the financial asset have been substantially transferred, the financial assets shall be derecognised. If the risk and rewards of ownership of the financial assets have been retained, the financial assets shall not be derecognised. If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial assets, the Company shall assess whether the control over the financial assets is retained, and the financial assets shall be accounted for according to the above paragraphs.
5. Classification and measurement of financial liabilities
Financial liabilities are classified as financial liabilities at fair value through profit or loss and other financial liabilities at initial recognition. Financial liabilities are initially recognised at fair value. Related transaction costs are recorded directly in profit or loss for financial liabilities at fair value through profit or loss, or included in the amount recognised initially for other financial liabilities.
(1) Financial liabilities at fair value through profit or loss
The conditions on which financial liabilities are classified as held for trading and designated as at fair value through profit or loss at initial recognition are the same as the conditions on which financial assets are classified as held for trading and designated as at fair value through profit or loss at initial recognition.
Financial liabilities at fair value through profit or loss are subsequently measured at fair value. The gain or loss arising from changes in fair value and dividend and interest incomes arising from such financial assets are recognised in profit or loss for the current period.
6. Derecognition of financial liabilities
A financial liability shall be derecognised or partly derecognised when the current obligation is discharged or partly discharged. When the Company (debtor) and the creditor have signed a contract which use a new financial liability to replace the existing financial liability, and the contract terms of the new financial liability are substantially different with the existing financial liability, the existing financial liability shall be derecognised, and the new financial liability shall be recognised at the same time.
If a financial liability is fully or partially derecognised, the difference between the book value of derecognised portion and the consideration paid (including non-cash assets transferred out or new financial liability assumed) is recognised in profit or loss.
7. Offsetting financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is currently an enforceable legal right to offset the recognised financial assets and financial liabilities and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Otherwise, financial assets and financial liabilities are presented separately in the balance sheet without being offset.
(6) Provision for bad debts of receivables
Bad debts are recognised in the event that: the debtor is bankrupt or dead and the debts cannot be recovered from its liquidated assets or estates; or the debtor fails to fulfill its obligation to repay its debt when the debt becomes due and there is substantial evidence showing that the debt cannot be recovered.
On each balance sheet date, the Company perform impairment tests on individually significant receivables on an individual basis. If there is objective evidence indicating that the accounts receivable are impaired, then impairment loss will be recognised and bad debts will be provided according to the difference when the present value of future cash flow is lower than its carrying amounts. Individually insignificant receivables and receivables individually assessed to be unimpaired are divided into certain groups based on the age, then impairment loss will be recognised and bad debts will be provided based on a certain percentage of the balance of the group of receivables. The percentage of provision for bad debts is generally as follows:
Age Percentage of provision (%)
Within 1 year (inclusive) 0
1-2 years 5
2-3 years 15
3-4 years 25
4-5 years 50
Over 5 years 100
(7) Long-term equity investments
Long-term equity investments mainly comprise equity investments held by the Company that give it control, joint control or significant influence over the investee.
Long-term equity investments where the Company does not exercise control, joint control or significant influence over the investee are accounted for as available-for-sale financial assets or financial assets at fair value through profit or loss. For relevant accounting policies, see Note IV 5 “Financial instruments”.
1. Determination of investment cost
For a long-term equity investment acquired through a business combination involving enterprises under common control, the initial investment cost of the long-term equity investment is the attributable share of the carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controller at the date of combination. For a long-term equity investment acquired through business combination not involving enterprises under common control, the cost of business combination is the aggregate of the fair value of assets transferred, liabilities incurred or assumed and equity securities issued.
Transaction costs such as audit fee, legal service fee, consultancy fee and other relevant administration costs incurred in a business combination are recognised in profit or loss as incurred; the transaction costs for the issuance of equity securities or debt securities by the acquirer as consideration for the purpose of business combination shall be recorded in the initial recognised amount of the equity securities or debt securities.
For long-term equity investments acquired other than through a business combination, the investment shall be initially recognised at cost, the cost of investment varies between different ways of acquisition, which is recognised based on the actual amount of cash consideration paid by the Company, fair value of equity instruments issued by the Company, value of investment contracts or agreement made, fair value or original carrying amount of non-monetary assets transferred or the fair value of the long-term equity investments, etc. The costs directly attributable to the acquisition of long-term equity investments, taxes or other necessary expenses are also included in the cost of investment.
2. Subsequent measurement and recognition of profit or loss
Long-term equity investments where the Company exercises joint control or significant influence over the investee are accounted for using the equity method.
In addition, long-term equity investments where the Company exercises control over the investee are accounted for using the cost method in the financial statements.
(1) Long-term equity investment accounted for using the cost method
Under the cost method, a long-term equity investment is measured at initial investment cost. Except for cash dividends or profits already declared but not yet paid that are included in the price or consideration actually paid upon acquisition of the long-term equity investment, investment income is recognised in the period in accordance with the attributable share of cash dividends or profit distributions declared by the investee.
(2) Long-term equity investment accounted for using the equity method
Under the equity method, where the initial investment cost of a long-term equity investment exceeds the Company’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, no adjustment is made to the initial investment cost. Where the initial investment cost is less than the Company’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is recognised in profit or loss for the period, and the cost of the long-term equity investment is adjusted accordingly.
Under the equity method, investment gain or loss represents the Group’s share of the net profits or losses made by the investee for the current period. The Group shall recognise its share of the investee’s net profits or losses based on the fair values of the investee’s individual separately identifiable assets at the time of acquisition, after making appropriate adjustments thereto in conformity with the accounting policies and accounting periods of the Group. The unrealised gain or loss from internal transactions entered into between the Group and its associated enterprises and joint ventures is set off according to the shareholding attributable to the Group and accounted for as investment income and loss based such basis. However, the unrealised loss from internal transactions entered into between the Group and its investee is not set off if it constitutes an impairment loss on assets transferred according to regulations such as Accounting Standards for Business Enterprises No. 8 “Assets impairment”. In respect of other comprehensive income of investees, the carrying amount of long-term equity investments is accordingly adjusted and recognised as other consolidated income. In respect of other changes in shareholders’ equity of investees other than changes in net profit or loss, other comprehensive income and profit distribution, the carrying amount of long-term equity investments is accordingly adjusted and recognised in shareholders’ equity. Upon subsequent disposal of that long-term equity investment, the amount previously recognised in shareholders’ equity is transferred to investment income in proportion or in full.
The Company’s share of net losses of the investee shall be recognised to the extent that the carrying amount of the long-term equity investment together with any long-term interests that in substance form part of the investor’s net investment in the investee are reduced to zero. If the Company has to assume additional obligations, the estimated obligation assumed shall be provided for and charged to the profit or loss as investment loss for the period. Where the investee is making profits in subsequent periods, the Company shall resume recognising its share of profits after setting off against the share of unrecognised losses.
(3) Acquisition of minority interest
When preparing consolidated financial statements, the difference between the increased in long-term equity investment due to acquisition of minority interest of a subsidiary and the share of net asset of the subsidiary since the acquisition date (or combination date) calculated under the new ownership ratio shall be adjusted to the capital surplus, when capital surplus is insufficient, the excess shall be adjusted to retained profits.
(4) Disposal of long-term equity investments
When preparing consolidated financial statements, when the parent company disposes a portion of the long-term equity investments in a subsidiary without loss of control, the difference between the consideration received and the share of net asset attributable to the disposed portion of long-term equity investment is recognised in shareholders’ equity; when the parent company disposes a portion of the long-term equity investments in a subsidiary with loss of control, the accounting treatment should be in accordance with the accounting policies stated under Note IV 16 (2) “Preparation of consolidated financial statements”.
For disposal of long-term equity investment in other situations, the difference between the considerations received and the carrying amount of the disposed investment is recognised in profit or loss; for long-term equity investment accounted for using the equity method, the other comprehensive income recognised in shareholders’ equity is reclassified to profit or loss on pro rata basis upon disposal in the same way as the relevant assets or liabilities are disposed of directly by the investee. The retained interest is recognised at its carrying amount as long-term equity investment or other relevant financial assets, and subsequently measured in accordance with the accounting policies on long-term equity investment or financial assets previously stated. When the retained interest which is originally accounted for under the cost method changed to be accounted for under the equity method, restatement shall be made in accordance with relevant standards.
3. Basis for determining the existence of joint control and significant influence
Control refers to the power to govern the financial and operating policies of an investee, so as to obtain benefits from its operating activities. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. Significant influence refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not the power to control, or jointly control, the formulation of such policies with other parties. When assessing whether the investor has control or significant influence over investee, potential voting rights of the investee such as convertible bonds and outstanding warrants held by the investor and other parties have been taken into consideration.
(8) Joint arrangement
A joint arrangement refers to an arrangement jointly controlled by two or more parties. In accordance with the Company’s rights and obligations under a joint arrangement, the Company classifies joint arrangements into: joint ventures and joint operations. Joint operations refer to a joint arrangement during which the Company is entitled to relevant assets and obligations of this arrangement. Joint ventures refer to a joint arrangement during which the Company only is entitled to net assets of this arrangement.
Investment in joint venture is accounted for using the equity method accounting to the accounting policies referred to under 7. (2)②“Long-term equity investment accounted for using the equity method” of
this Note IV.
The Company shall, as a joint venture, recognise the assets held and obligations assumed solely by the Company, and recognise assets held and obligations assumed jointly by the Company in appropriation to the share of the Company; recognise revenue from disposal of the share of joint operations of the Company; recognise fees solely occurred by Company and recognise fees from joint operations in appropriation to the share of the Company.
When the Company, as a joint venture, invests or sells assets to or purchase assets (the assets dose not constitute a business, the same below) from joint operations, the Company shall only recognise the part of profit or lost from this transaction attributable to other parties of joint operations before these assets are sold to a third party. In case of an impairment loss incurred on these assets which meets the requirements as set out in “Accounting Standards for Business Enterprises No. 8 – Asset Impairment”, the Company shall recognise the full amount of this loss in relation to its investment in or sale of assets to joint operations, or recognise the loss according to the Company’s share of commitment in relation to the its purchase of assets from joint operations.
(9) Construction in progress
1. Construction in progress is accounted for by individual projects and measured at its actual costs, including various construction expenditures required during the construction period, borrowing costs capitalised before it is ready for intended use and other relevant costs.
2. Time for the reclassification of construction in progress to fixed assets
A construction in progress is reclassified to fixed assets based on its actual costs when it is ready for intended use. When construction in progress is ready for its intended use but the actual cost is not yet determined, the estimated cost according to the construction budget or actual costs incurred up to the date when the construction in progress is ready for its intended use should be transferred into fixed
(10) Borrowing costs
Borrowing costs refer to interest and other related costs incurred by the Company for borrowings, including interests on borrowings, amortisation of discounts or premiums, supplementary costs, and foreign exchange differences arising from borrowings in foreign currencies. Borrowing costs incurred by the Company directly attributable to the acquisition or construction of a qualifying asset is capitalised as part of the cost of the asset. Other borrowing costs are recognised in current profit or loss as incurred.
1. Recognition of capitalisation of borrowing costs Borrowing costs may be capitalised only when: (1) expenditures for the asset have been incurred; (2) borrowing costs have been incurred; and
(3) the activities relating to the acquisition or construction that are necessary to prepare the asset for its intended use have commenced.
2. Capitalisation period of borrowing costs
capitalisation period refers to the period from the commencement to the cessation of capitalisation of borrowing costs, excluding the periods in which capitalisation of borrowing costs is suspended.
capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a qualifying asset is interrupted abnormally and the interruption lasts for more than 3 months. Borrowing costs incurred during interruption are recognised as cost in profit or loss for the current period, until the acquisition or construction is resumed. capitalisation of borrowing costs shall continue if the interruption is necessary for the qualifying asset being acquired or constructed to be ready for its intended use or at a state that is saleable.
The capitalisation of borrowing costs ceases when the qualifying asset is ready for its intended use or at a state that is saleable. Borrowing costs incurred after the qualifying asset is ready for its intended use or at a state that is saleable are recognised in profit or loss as incurred.
3. Calculation of capitalisation of borrowing costs
During the capitalisation period, the capitalised interest amount (including amortisation of discounts or premiums) for each accounting period is determined according to the following requirements:
(1) When specific borrowings are borrowed for acquisition or construction of a qualifying asset, by deducting any interest income earned from depositing the unused specific borrowings in the banks or any investment income arising on the temporary investment of those borrowings from the interest expenses actually incurred on the specific borrowings in the current period.
(2) When general borrowings are used for acquisition or construction of a qualifying asset, by applying the capitalisation rate of used general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings. The capitalisation rate is calculated based on the weighted average effective interest rate of the general borrowings.
(11) Staff costs
Staff costs of the Company mainly comprise expenses related to services rendered by employees, such as salaries, bonuses, subsidies and allowances, employee benefits, social security contributions, housing provident fund contributions, trade union funds and employee education funds, benefits in kind, and compensations for termination of employment and early retirement.
Expenditures paid by the Company for the social security system set up by the government, such as basic pension insurance, medical insurance, housing funds and others, are recognised in the costs of related assets or the current profit or loss.
When the Company terminates the employment relationship with employees before the end of the employment contracts or provides compensation as an offer to encourage employees to accept voluntary redundancy, the Company shall recognise accrued liabilities arising from compensation for staff dismissal in profit or loss for the current period, if the Company has formally established any plan for termination of employment or employee redundant proposal which will be implemented and cannot be unilaterally revoked by it.
The early retirement plan shall be accounted for in accordance with the accounting principles for compensation for termination of employment. The salaries or wages and the social contributions to be paid for the employees who retire before schedule from the date on which the employees stop rendering services to the Company to the scheduled retirement date, shall be recognised (as compensation for termination of employment) in the current profit or loss if the recognition principles for provisions are satisfied.
(12) Accrued liabilities
Obligations pertinent to the contingencies which satisfy the following conditions are recognised as accrued liabilities: (1) The obligation is a current obligation borne by the Company; (2) it is likely that an outflow of economic benefits will be resulted from the performance of the obligation; and (3) the amount of the obligation can be reliably measured.
At the balance sheet date, accrued liabilities shall be measured at the best estimate of the necessary expenses required for the performance of existing obligations, after taking into account relevant risks, uncertainties, time value of money and other factors pertinent to the contingencies.
If all or some expenses incurred for settlement of accrued liabilities are expected to be borne by the third party, the compensation amount shall, on a recoverable basis, be recognised as asset separately, and compensation amount recognised shall not be more than the carrying amount of accrued liabilities.
Key matters and causes for the accrued liabilities of the Company 1. Loss making contracts
Loss making contract is a contract under which the costs for performing the contractual obligations will inevitably exceed the expected economic benefits. If a pending contract becomes a loss making contract, and the obligations thereof satisfy the above conditions for recognising accrued liabilities, the excess of expected loss on the contract over the identified impairment loss of the underlying assets under the contract is recognised as accrued liabilities.
2. Pending litigation 3. Product warranties 4. Restructuring obligations
For a detailed and formal restructure plan with published announcement, subject to the above conditions for recognising accrued liabilities, direct expenses related to the restructure are recognised as accrued liabilities. For restructuring obligations for the sale of certain business, obligations related to the
(13) Revenue
1. Revenue from sales of goods
Revenue from sales of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer, the Company maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, the amount of revenue can be measured reliably, related economic benefits are likely to flow into the Company, and related costs incurred or to be incurred can be measured reliably.
2. Revenue from rendering of services
when transaction result of the rendering of services could be measured reliably, related revenue from rendering of services is recognized according to the percentage of completion at the balance sheet date. The percentage of completion is based on the measurement completed/ the percentage of services rendered relative to the total volume of services to be rendered/the percentage of the service cost incurred relative to the total estimated cost.
Transaction result of the rendering of services could be measured reliably, which means (i) the amount of revenue can be measured reliably; (ii) the relevant economic benefits will probably flow into the Company; (iii) the percentage of completion of the transaction can be measured reliably; (iv) the cost incurred or to be incurred can be measured reliably.
When transaction result of the rendering of services could not be measured reliably, revenue from rendering of services is recognized as the amount of the service cost which has been incurred and is expected to be compensated, and the service cost incurred is recognized as current expense. If the service cost incurred is expected to be not compensated, revenue is not recognized.
3. Income from usage fee
Income from usage fee is recognized in accordance with the accrual basis as agreed under relevant contracts or agreements.
4. Interest income
Interest income is recognized according to the length of time for which the Company’s monetary funds are used by others and the effective interest rate.
(14) Leases
1. Classifications of leases
The Company classifies the lease into finance lease and operating lease on the lease beginning date. 2. Recognition criteria for finance leases
Where a lease satisfies one or more of the following criteria, it shall be recognized as finance lease: (i) The ownership of the leased asset is transferred to the lessee when the term of lease expires. (ii) The lessee has the option to buy the leased asset at a price which is expected to be far lower
than the fair value of the leased asset at the date when the option is exercised. Thus, on the lease beginning date, it can be reasonably determined that the option will be exercised by the Company.
(iii) Even if the ownership of the asset is not transferred, the lease term covers the major part of the use life of the leased asset (generally refers to 75% or above).
