BOETechnologyGroupCo.,Ltd.31December2025

ENGLISHTRANSLATIONOFCONSOLIDATEDFINANCIALSTATEMENTS

FORTHEYEAR1JANUARY2025TO31DECEMBER2025IFTHEREISANYCONFLICTBETWEENTHECHINESEVERSIONANDITSENGLISH

TRANSLATION,THECHINESEVERSIONWILLPREVAIL

BOETechnologyGroupCo.,Ltd.

CONTENTS

PagesI.AUDITOR’SREPORT1-6II.AUDITEDFINANCIALSTATEMENTS

Consolidatedbalancesheet7-9Consolidatedincomestatement10-11Consolidatedstatementofchangesinequity12-15Consolidatedstatementofcashflows16-17Companybalancesheet18-19Companyincomestatement20Companystatementofchangesinequity21-24Companystatementofcashflows25-26Notestofinancialstatements27-139SUPPLEMENTARYINFORMATIONNon-recurringGainsandLosses:ItemsandAmounts1Returnonnetassetsandearningspershare1

AUDITOR’SREPORTErnst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.TotheshareholdersofBOETechnologyGroupCo.,Ltd.:

(I)Opinion

WehaveauditedthefinancialstatementsofBOETechnologyGroupCo.,Ltd.(the“Company”),whichcomprisetheconsolidatedandcompanybalancesheetsasat31December2025,andtheconsolidatedandcompanyincomestatements,theconsolidatedandcompanystatementsofchangesinequityandtheconsolidatedandcompanystatementsofcashflowsfortheyearthenended,andnotestothefinancialstatements.Inouropinion,theaccompanyingfinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedandtheCompany’sfinancialpositionasat31December2025,andtheconsolidatedandtheCompany’sfinancialperformanceandcashflowsfortheyearthenendedinaccordancewithAccountingStandardsforBusinessEnterprises(“ASBEs”).(II)BasisforopinionWeconductedourauditinaccordancewithChinaStandardsonAuditing(“CSAs”).OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.WeareindependentoftheCompanyinaccordancewithChinaIndependenceStandardNo.1-IndependenceRequirementsforFinancialStatementAuditandReviewEngagementsandChinaCodeofEthicsforCertifiedPublicAccountants(the“Code”).WehavealsofulfilledourotherethicalresponsibilitiesinaccordancewiththeCode.Wehavecompliedwiththeindependencerequirementsrelevanttotheauditofpublicinterestentities.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.(III)KeyAuditMatters

Keyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsforthecurrentperiod.Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.Foreachmatterbelow,ourdescriptionofhowourauditaddressedthematterisprovidedinthatcontext.Wehavefulfilledtheresponsibilitiesdescribedinthefinancialstatementssectionofourreport,includinginrelationtothesematters.Accordingly,ourauditincludedtheperformanceofproceduresdesignedtorespondtoourassessmentoftherisksofmaterialmisstatementofthefinancialstatements.Theresultsofourauditprocedures,includingtheproceduresperformedtoaddressthemattersbelow,providethebasisforourauditopinionontheaccompanyingfinancialstatements.

AUDITOR’SREPORT(continued)

Ernst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.(III)KeyAuditMatters(continued)

AUDITOR’SREPORT(continued)

Ernst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.(III)KeyAuditMatters(continued)

AUDITOR’SREPORT(continued)

Ernst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.(IV)OtherinformationincludedintheAnnualReportBOEGroup‘smanagementareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.Inconnectionwithourauditoftheconsolidatedfinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedfinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportinthisregard.(V)ResponsibilitiesofmanagementandthosechargedwithgovernanceforthefinancialstatementsBOEGroup‘smanagementareresponsibleforthepreparationofthefinancialstatementsthatgiveatrueandfairviewinaccordancewithASBEs,andforsuchinternalcontrolasBOEGroup‘smanagementdetermineisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Inpreparingtheconsolidatedfinancialstatements,BOEGroup‘smanagementareresponsibleforassessingtheGroup’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessBOEGroup‘smanagementeitherintendtoliquidatetheGrouportoceaseoperationsorhavenorealisticalternativebuttodoso.ThosechargedwithgovernanceareresponsibleforoverseeingtheCompany’sfinancialreportingprocess.

AUDITOR’SREPORT(continued)

Ernst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.(VI)Auditor’sresponsibilitiesfortheauditofthefinancialstatementsOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithCSAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandaregenerallyconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.AspartofanauditinaccordancewithCSAs,weexerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:

(1)Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whether

duetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

(2)Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignaudit

proceduresthatareappropriateinthecircumstances.

(3)Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessof

accountingestimatesandrelateddisclosuresmadebythemanagement.

(4)Concludeontheappropriatenessofthemanagement’suseofthegoingconcernbasisof

accountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheCompany’sabilitytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditor’sreporttotherelateddisclosuresinthefinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditionsmaycausetheCompanytoceasetocontinueasagoingconcern.

AUDITOR’SREPORT(continued)

Ernst&YoungHuaMing(2026)ShenZiNo.70008969_A01

BOETechnologyGroupCo.,Ltd.(VI)Auditor’sresponsibilitiesfortheauditofthefinancialstatements(continued)

(5)Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

(6)ObtainsufficientappropriateauditevidenceregardingthefinancialinformationoftheentitiesorbusinessactivitieswithintheCompanytoexpressanopiniononthefinancialstatements.Weareresponsibleforthedirection,supervisionandperformanceofthegroupaudit.Weremainsolelyresponsibleforourauditopinion.Wecommunicatewiththosechargedwithgovernanceregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.Wealsoprovidethosechargedwithgovernancewithastatementthatwehavecompliedwithrelevantethicalrequirementsregardingindependenceandtocommunicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,actionstakentoeliminatethreatsorsafeguardsapplied.Fromthematterscommunicatedwiththosechargedwithgovernance,wedeterminethosemattersthatwereofmostsignificanceintheauditofthefinancialstatementsofthecurrentperiodandarethereforethekeyauditmatters.Wedescribethesemattersinourauditor’sreportunlesslaworregulationprecludespublicdisclosureaboutthematterorwhen,inextremelyrarecircumstances,wedeterminethatamattershouldnotbecommunicatedinourreportbecausetheadverseconsequencesofdoingsowouldreasonablybeexpectedtooutweighthepublicinterestbenefitsofsuchcommunication.

Ernst&YoungHuaMingLLPChineseCertifiedPublicAccountant:XieFeng

(EngagementPartner)

ChineseCertifiedPublicAccountant:WangJingBeijing,thePeople’sRepublicofChina30March2026

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDBALANCESHEET31December2025ExpressedinRenminbiYuan

Currentassets

Totalcurrentassets

Non-currentassets

Totalnon-currentassets

Totalassets

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDBALANCESHEET(CONTINUED)31December2025ExpressedinRenminbiYuan

Currentliabilities

Totalcurrentliabilities

Non-currentliabilities

Totalnon-currentliabilities

Totalliabilities

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDBALANCESHEET(CONTINUED)31December2025ExpressedinRenminbiYuan

Equity

Totalequityattributabletoownersoftheparent

Totalliabilitiesandequity

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDINCOMESTATEMENTFortheyearended31December2025ExpressedinRenminbiYuan

Revenue

Operatingprofit

Profitbeforeincometax

NetProfit

Classifiedbygoingconcern

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDINCOMESTATMENT(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

Classifiedbyownership

Othercomprehensiveincome,netoftax

Othercomprehensiveincome/(loss),netoftax,attributabletoownersoftheparent

Othercomprehensiveincomethatwillnotbereclassifiedtoprofitorloss

Othercomprehensiveincomethatmaybereclassifiedtoprofitorloss

Othercomprehensiveincome,netoftax,

attributabletonon-controllinginterests

Totalcomprehensiveincome

Earningspershare

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCHANGESINEQUITYFortheyearended31December2025ExpressedinRenminbiYuan

2025

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

I.

II.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2025(continued)

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

II.

III

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2024

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

I.

II.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2024(continued)

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

II.

III

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCASHFLOWSFortheyearended31December2025ExpressedinRenminbiYuan

1.

Cashreceiptsfromthesaleofgoodsandthe

renderingofservices

Netcashflowsfromoperatingactivities

2.

Cashreceiptsfromreturnsofinvestments

Cashpaymentstoacquirefixedassets,intangible

assetsandotherlong-termassets

Netcashflowsfrominvestingactivities

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.CONSOLIDATEDSTATEMENTOFCASHFLOWS(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

3.

Cashproceedsfrominvestments

Totalcashinflowsfromfinancingactivities

Cashrepaymentsfordebts

Totalcashoutflowsfromfinancingactivities

Netcashflowsfromfinancingactivities

4.

5.

6.

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.COMPANYBALANCESHEET31December2025ExpressedinRenminbiYuan

Currentassets

Non-currentassets

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.COMPANYBALANCESHEET(CONTINUED)31December2025ExpressedinRenminbiYuan

Currentliabilities

Non-currentliabilities

Totalliabilities

Owners’equity

Totalliabilitiesandequity

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.COMPANYINCOMESTATEMENTFortheyearended31December2025ExpressedinRenminbiYuan

Revenue

Operatingprofit

Profitbeforeincometax

Profit

Othercomprehensiveincome,netoftax

Othercomprehensiveincomethatwillnotbereclassifiedtoprofitorloss

Totalcomprehensiveincome

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCHANGESINEQUITYFortheyearended31December2025ExpressedinRenminbiYuan

2025

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

I.

II.

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2025(continued)

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements

II.

III

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2024

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

I.

II.

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCHANGESINEQUITY(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

2024(continued)

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

II.

III.

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCASHFLOWSFortheyearended31December2025ExpressedinRenminbiYuan

1.

Cashreceiptsfromthesaleofgoodsandtherenderingofservices

Cashpaymentsforgoodsandservices

Netcashflowsfromoperatingactivities

2.

Cashreceiptsfromreturnsofinvestments

Cashpaymentstoacquirefixedassets,intangible

assetsandotherlong-termassets

Netcashflowsfrominvestingactivities

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

BOETechnologyGroupCo.,Ltd.COMPANYSTATEMENTOFCASHFLOWS(CONTINUED)Fortheyearended31December2025ExpressedinRenminbiYuan

3.

Cashreceiptsfromborrowings

Totalcashinflowsfromfinancingactivities

Cashrepaymentsfordebts

Totalcashoutflowsfromfinancingactivities

Netcashflowsfromfinancingactivities

4.

5.

6.

ChenYanshunChairmanoftheBoard

Theaccompanyingnotestothefinancialstatementsformanintegralpartofthesefinancialstatements.

I.GeneralinformationBOETechnologyGroupCompanyLimited(the“Company”)isacompanylimitedbysharesestablishedon9April1993inBeijing,withitsheadofficelocatedatBeijing.TheparentoftheCompanyandtheCompany’sultimateholdingcompanyisBeijingElectronicsHoldingsCo.,Ltd.(“BeijingElectronicsHoldings”).TheCompanyanditssubsidiaries(referredtoasthe“Group”)comprisefivemainbusinesssegments:

displaybusiness,InternetofThings(IoT)innovationbusiness,sensorbusiness,MLEDbusinessandsmartmedicine&engineeringbusiness.ForinformationaboutthesubsidiariesoftheCompany,refertoNoteVIII.ThefinancialstatementswereapprovedandauthorisedforissuebytheboardofdirectorsonMarch30,2026.II.Basisofpreparationofthefinancialstatements

1.BasisofpreparationThefinancialstatementshavebeenpreparedinaccordancewiththeAccountingStandardsforBusinessEnterprises-BasicStandardandthespecificaccountingstandards,interpretations,andotherrelevantprovisionsissuedandsubsequentlyrevisedbytheMinistryofFinance(collectivelyreferredtoasthe"AccountingStandardsforBusinessEnterprises").Inaddition,thesefinancialstatementsalsopresenttherelevantfinancialinformationinaccordancewiththeRulesforthePreparationofInformationDisclosurebyCompaniesOfferingSecuritiestothePublicNo.15–GeneralProvisionsforFinancialReports.

2.GoingconcernThefinancialstatementshavebeenpreparedonagoingconcernbasis.III.Materialaccountingpoliciesandsignificantestimates

1.StatementofcomplianceThefinancialstatementshavebeenpreparedinaccordancewiththerequirementsofAccountingStandardsforBusinessEnterprises,whicharealsoreferredtoasChinaAccountingStandards(“CAS”),issuedbytheMinistryofFinance(“MOF”)ofthePeople’sRepublicofChina.ThesefinancialstatementspresenttrulyandcompletelytheconsolidatedandcompanyfinancialpositionoftheCompanyasat31December2025,andtheconsolidatedandcompanyfinancialperformanceandcashflowsoftheCompanyfortheyearthenended.

2.AccountingyearTheaccountingperiodisfrom1Januaryto31December.

3.OperatingcycleTheCompanytakestheperiodfromtheacquisitionofassetsforprocessingtountiltheultimaterealisationofcashorcashequivalentsasanormaloperatingcycle.TheoperatingcycleoftheCompanyisusuallylessthan12months.

III.Materialaccountingpoliciesandsignificantestimates(continued)

4.FunctionalcurrencyTheCompany’sfunctionalcurrencyisRenminbiandthesefinancialstatementsarepresentedinRenminbi.FunctionalcurrencyisdeterminedbytheCompanyanditssubsidiariesonthebasisofthecurrencyinwhichmajorincomeandcostsaredenominatedandsettled.SomeoftheCompany’ssubsidiarieshavefunctionalcurrenciesthataredifferentfromtheCompany’sfunctionalcurrency.TheirfinancialstatementshavebeentranslatedbasedontheaccountingpolicysetoutinNoteIII.9.

5.Methodusedtodeterminethematerialitythresholdandthebasisforselection

Significantreceivablesforwhichprovisionsforbadanddoubtfulareindividuallyassessedrecoveriesorreversalsandwritten-offs

6.BusinesscombinationsAtransactionoreventconstitutesabusinesscombinationwhentheGroupobtainscontrolofoneormoreentities(oragroupofassetsornetassets)whichmeetthedefinitionofabusiness.Businesscombinationsareclassifiedaseitherbusinesscombinationsinvolvingenterprisesundercommoncontrolorbusinesscombinationsnotinvolvingenterprisesundercommoncontrol.Foratransactionnotinvolvingenterprisesundercommoncontrol,theacquirerdetermineswhetheranacquiredsetofassetsconstitutesabusiness.TheGroupmayelecttoapplythesimplifiedassessmentmethod,theconcentrationtest,todeterminewhetheranacquiredsetofassetsisabusiness.Iftheconcentrationtestismet,thesetofassetsisdeterminednottobeabusiness,nofurtherassessmentisneeded.Iftheconcentrationtestisnotmet,theGroupshouldperformtheassessmentaccordingtotheguidanceonthedeterminationofabusiness.?WhenthesetofassetstheGroupacquireddoesnotconstituteabusiness,acquisitioncostsshouldbeallocatedtoeachidentifiableassetandliabilityonthebasisoftheirrelativefairvaluesatthedateofacquisition.Theaccountingtreatmentsforbusinesscombinationsdescribedbelowarenotapplied.

III.Materialaccountingpoliciesandsignificantestimates(continued)

6.Businesscombinations(continued)

(1)BusinesscombinationsinvolvingentitiesundercommoncontrolAbusinesscombinationinvolvingentitiesundercommoncontrolisabusinesscombinationinwhichallofthecombiningentitiesareultimatelycontrolledbythesamepartyorpartiesbothbeforeandafterthebusinesscombination,andthatcontrolisnottransitory.Theassetsacquiredandliabilitiesassumedaremeasuredbasedontheircarryingamountsintheconsolidatedfinancialstatementsoftheultimatecontrollingpartyatthecombinationdate.Thedifferencebetweentheshareofcarryingamountofthenetassetsacquiredandtheconsiderationpaidforthecombination(orthetotalparvalueofsharesissued)isadjustedagainstsharepremiuminthecapitalreserve,withanyexcessdeductedfromsurplusreserveandretainedearningssequentially.Anycostsdirectlyattributabletothecombinationarerecognisedinprofitorlosswhenincurred.Thecombinationdateisthedateonwhichonecombiningentityobtainscontrolofothercombiningentities.

(2)BusinesscombinationsinvolvingentitiesnotundercommoncontrolAbusinesscombinationinvolvingentitiesnotundercommoncontrolisabusinesscombinationinwhichallofthecombiningentitiesarenotultimatelycontrolledbythesamepartyorpartiesbothbeforeandafterthebusinesscombination.TheGroup,astheacquirer,thesumofthefairvalueoftheassetspaid(includingtheequityoftheacquireeheldbeforetheacquisitiondate),liabilitiesincurredorassumed,andequitysecuritiesissuedontheacquisitiondate,minusthefairvalueshareoftheidentifiablenetassetsoftheacquireeacquiredinthemergerontheacquisitiondate,afterconsideringtheimpactofrelevantdeferredincometax,ifitispositive,itwillberecognizedasgoodwill(seeNoteIII.18).Ifitisnegative,itwillberecognisedinprofitorlossforthecurrentperiod.Thecostsofissuingequityordebtsecuritiesasapartoftheconsiderationfortheacquisitionareincludedinthecarryingamountsoftheseequityordebtsecuritiesuponinitialrecognition.Otheracquisition-relatedcostsareexpensedwhenincurred.Anydifferencebetweenthefairvalueandthecarryingamountoftheassetstransferredasconsiderationisrecognisedinprofitorloss.Theacquiree’sidentifiableassets,liabilitiesandcontingentliabilities,iftherecognitioncriteriaaremet,arerecognisedbytheGroupattheiracquisition-datefairvalues.Theacquisitiondateisthedateonwhichtheacquirerobtainscontroloftheacquiree.

7.Consolidatedfinancialstatements

(1)GeneralprinciplesThescopeofconsolidatedfinancialstatementsisbasedoncontrolandtheconsolidatedfinancialstatementscomprisetheCompanyanditssubsidiaries.Controlexistswhentheinvestorhasallofthefollowing:powerovertheinvestee;exposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee;andtheabilitytoaffectthosereturnsthroughitspowerovertheinvestee.Thefinancialposition,financialperformanceandcashflowsofsubsidiariesareincludedintheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.Intra-groupbalancesandtransactions,andanyunrealisedprofitorlossarisingfromintra-grouptransactions,areeliminatedwhenpreparingtheconsolidatedfinancialstatements.Unrealisedlossesresultingfromintra-grouptransactionsareeliminatedinthesamewayasunrealisedgains,unlesstheyrepresentimpairmentlossesthatarerecognisedinfullinthefinancialstatements.

III.Materialaccountingpoliciesandsignificantestimates(continued)

7.Consolidatedfinancialstatements(continued)

(2)SubsidiariesacquiredthroughabusinesscombinationWhereasubsidiarywasacquiredduringthereportingperiodthroughabusinesscombinationinvolvingentitiesundercommoncontrol,thefinancialstatementsofthesubsidiaryareincludedintheconsolidatedfinancialstatementsbasedonthecarryingamountsoftheassetsandliabilitiesofthesubsidiaryinthefinancialstatementsoftheultimatecontrollingpartyasifthecombinationhadoccurredatthedatethattheultimatecontrollingpartyfirstobtainedcontrol.Theopeningbalancesandthecomparativefiguresoftheconsolidatedfinancialstatementsarealsorestated.Whereasubsidiarywasacquiredduringthereportingperiodthroughabusinesscombinationinvolvingentitiesnotundercommoncontrol,theidentifiableassetsandliabilitiesoftheacquiredsubsidiariesareincludedinthescopeofconsolidationfromthedatethatcontrolcommences,basedonthefairvaluesofthoseidentifiableassetsandliabilitiesattheacquisitiondate.

(3)DisposalofsubsidiariesWhentheGrouplosescontroloverasubsidiary,anyresultingdisposalgainsorlossesarerecognisedasinvestmentincomeforthecurrentperiod.Theremainingequityinvestmentisre-measuredatitsfairvalueatthedatewhencontrolislost,andanyresultinggainsorlossesarealsorecognisedasinvestmentincomeforthecurrentperiod.

(4)Changesinnon-controllinginterestsWheretheCompanyacquiresmoreinterestinasubsidiaryfromthesubsidiary’snon-controllingshareholdersordisposesofaportionofaninterestinasubsidiarywithoutlosingcontrol,thedifferencebetweentheportionoftheinterestinthesubsidiary’snetassetsbeingacquiredordisposedofandtheamountoftheconsiderationpaidorreceivedisadjustedtothecapitalreserve(sharepremium)intheconsolidatedbalancesheet,withanyexcessdeductedfromsurplusreserveandretainedearningssequentially.

8.CashandcashequivalentsCashandcashequivalentscomprisecashonhand,depositsthatcanbereadilywithdrawnondemand,andshort-term,highlyliquidinvestmentsthatarereadilyconvertibleintoknownamountsofcashandaresubjecttoaninsignificantriskofchangeinvalue.

9.ForeigncurrencytransactionsandforeigncurrencytranslationWhentheGroupreceivescapitalinforeigncurrenciesfrominvestors,thecapitalistranslatedtoRenminbiatthespotexchangerateatthedateofthereceipt.Otherforeigncurrencytransactionsare,oninitialrecognition,translatedtoRenminbiatthespotexchangeratesonthedatesofthetransactions.MonetaryitemsdenominatedinforeigncurrenciesaretranslatedtoRenminbiatthespotexchangerateatthebalancesheetdate.Theresultingexchangedifferencesaregenerallyrecognisedinprofitorloss,unlesstheyarisefromthere-translationoftheprincipalandinterestofspecificborrowingsfortheacquisitionandconstructionofqualifyingassets(seeNoteIII.16).Non-monetaryitemsthataremeasuredathistoricalcostinforeigncurrenciesaretranslatedtoRenminbiusingtheexchangerateatthetransactiondate.Non-monetaryitemsthataremeasuredatfairvalueinforeigncurrenciesaretranslatedusingtheexchangerateatthedatethefairvalueisdetermined.Theresultingexchangedifferencesarerecognisedinprofitorloss,exceptforthedifferencesarisingfromthere-translationofequityinvestmentsatfairvaluethroughothercomprehensiveincome,whicharerecognisedinothercomprehensiveincome.

III.Materialaccountingpoliciesandsignificantestimates(continued)

9.Foreigncurrencytransactionsandforeigncurrencytranslation(continued)Intranslatingthefinancialstatementsofaforeignoperation,assetsandliabilitiesofforeignoperationaretranslatedtoRenminbiatthespotexchangerateatthebalancesheetdate.Equityitems,excludingretainedearningsandthetranslationdifferencesinothercomprehensiveincome,aretranslatedtoRenminbiatthespotexchangeratesatthetransactiondates.IncomeandexpensesofforeignoperationaretranslatedtoRenminbiatratesthatapproximatethespotexchangeratesatthetransactiondates.Theresultingtranslationdifferencesarerecognisedinothercomprehensiveincome.Atthetimeofdisposalofoverseasoperations,therelevanttranslationdifferencesarisingfromtranslationofforeigncurrencyfinancialstatementsistransferredfromshareholders’equitytothecurrentprofitandlossofdisposal.ForeigncurrencycashflowsandcashflowsofoverseassubsidiariesaretranslatedtoRenminbiatratesthatapproximatethespotexchangeratesatthedatethecashflowsoccur.Theeffectofexchangeratechangesoncashispresentedseparatelyasareconcilingiteminthestatementofcashflows.

10.FinancialinstrumentsFinancialinstrumentsincludecashatbankandonhand,investmentsindebtandequitysecuritiesotherthanthoseclassifiedaslong-termequityinvestments(seeNoteIII.12),receivables,payables,loansandborrowings,debenturespayableandsharecapital.

(1)RecognitionandinitialmeasurementoffinancialassetsandfinancialliabilitiesAfinancialassetorfinancialliabilityisrecognisedinthebalancesheetwhentheGroupbecomesapartytothecontractualprovisionsofafinancialinstrument.Financialassetsandfinancialliabilitiesaremeasuredinitiallyatfairvalue.Forfinancialassetsandfinancialliabilitiesmeasuredatfairvaluethroughprofitorloss,anyrelateddirectlyattributabletransactioncostsarechargedtoprofitorloss;forothercategoriesoffinancialassetsandfinancialliabilities,anyrelateddirectlyattributabletransactioncostsareincludedintheirinitialcosts.Tradereceivablesthatdonothaveasignificantfinancingcomponentordonotaccountforthesignificantfinancingcomponentinone-year-or-lesscontractsunderthepracticalexpedientareinitiallymeasuredatthetransactionpriceinaccordancewithNoteIII.24.

(2)Classificationandsubsequentmeasurementoffinancialassets(a)ClassificationoffinancialassetsTheclassificationoffinancialassetsisgenerallybasedonthebusinessmodelunderwhichafinancialassetismanagedanditscontractualcashflowcharacteristics.Oninitialrecognition,afinancialassetisclassifiedasmeasuredatamortisedcost,atfairvaluethroughothercomprehensiveincome(“FVOCI”),oratfairvaluethroughprofitorloss(“FVTPL”).FinancialassetsarenotreclassifiedsubsequenttotheirinitialrecognitionunlesstheGroupchangesitsbusinessmodelformanagingfinancialassets,inwhichcaseallaffectedfinancialassetsarereclassifiedonthefirstdayofthefirstreportingperiodfollowingthechangeinthebusinessmodel.AfinancialassetismeasuredatamortisedcostifitmeetsbothofthefollowingconditionsandisnotdesignatedasatFVTPL:

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(2)Classificationandsubsequentmeasurementoffinancialassets(continued)(a)Classificationoffinancialassets(continued)-itisheldunderabusinessmodelwhoseobjectiveistoholdassetstocollectcontractualcashflows;and-itscontractualtermsgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding.AfinancialassetismeasuredatFVOCIifitmeetsbothofthefollowingconditionsandisnotdesignatedasatFVTPL:

-itisheldunderabusinessmodelwhoseobjectiveisachievedbybothcollectingcontractualcashflowsandsellingfinancialassets;and-itscontractualtermsgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding.Oninitialrecognitionofanequityinvestmentthatisnotheldfortrading,theGroupmayirrevocablyelecttopresentsubsequentchangesintheinvestment’sfairvalueinothercomprehensiveincome.Thiselectionismadeonaninvestment-by-investmentbasis,andtheinstrumentmeetsthedefinitionofequityfromtheperspectiveoftheissuer.AllfinancialassetsnotclassifiedasmeasuredatamortisedcostorFVOCIasdescribedabovearemeasuredatFVTPL.ThebusinessmodelreferstohowtheGroupmanagesitsfinancialassetsinordertogeneratecashflows.Thatis,theGroup’sbusinessmodeldetermineswhethercashflowswillresultfromcollectingcontractualcashflows,sellingfinancialassetsorboth.TheGroupdeterminesthebusinessmodelformanagingthefinancialassetsaccordingtothefactsandbasedonthespecificbusinessobjectiveformanagingthefinancialassetsdeterminedbytheGroup’skeymanagementpersonnel.Inassessingwhetherthecontractualcashflowsaresolelypaymentsofprincipalandinterest,theGroupconsidersthecontractualtermsoftheinstrument.Forthepurposesofthisassessment,‘principal’isdefinedasthefairvalueofthefinancialassetoninitialrecognition.‘Interest’isdefinedasconsiderationforthetimevalueofmoneyandforthecreditriskassociatedwiththeprincipalamountoutstandingduringaparticularperiodoftimeandforotherbasiclendingrisksandcosts,aswellasaprofitmargin.TheGroupalsoassesseswhetherthefinancialassetcontainsacontractualtermthatcouldchangethetimingoramountofcontractualcashflowssuchthatitwouldnotmeetthiscondition.(b)Subsequentmeasurementoffinancialassets-FinancialassetsatFVTPLThesefinancialassetsaresubsequentlymeasuredatfairvalue.Netgainsandlosses,includinganyinterestordividendincome,arerecognisedinprofitorlossunlessthefinancialassetsarepartofahedgingrelationship.-Financialassetsatamortisedcost

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(2)Classificationandsubsequentmeasurementoffinancialassets(continued)(b)Subsequentmeasurementoffinancialassets(continued)Theseassetsaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.Againorlossonafinancialassetthatismeasuredatamortisedcostandthatisnotpartofahedgingrelationshipshouldberecognisedinprofitorlosswhenthefinancialassetisderecognised,reclassified,amortisedundertheeffectiveinterestmethodorwhenanimpairmentgainorlossisrecognised.-DebtinvestmentsatFVOCITheseassetsaresubsequentlymeasuredatfairvalue.Interestincomecalculatedusingtheeffectiveinterestmethod,andimpairmentandforeignexchangegainsandlossesarerecognisedinprofitorloss.Othernetgainsandlossesarerecognisedinothercomprehensiveincome.Onderecognition,gainsandlossesaccumulatedinothercomprehensiveincomearereclassifiedtoprofitorloss.-EquityinvestmentsatFVOCITheseassetsaresubsequentlymeasuredatfairvalue.Dividendsarerecognisedasincomeinprofitorloss.Othernetgainsandlossesarerecognisedinothercomprehensiveincome.Onderecognition,gainsandlossesaccumulatedinothercomprehensiveincomearereclassifiedtoretainedearnings.

(3)ClassificationandsubsequentmeasurementoffinancialliabilitiesFinancialliabilitiesareclassifiedasmeasuredatFVTPLorasfinancialliabilitiesmeasuredatamortisedcost.-FinancialliabilitiesatFVTPLAfinancialliabilityisclassifiedasatFVTPLifitisclassifiedasheld-for-trading(includingderivativefinancialliabilities)orifitisdesignatedassuchoninitialrecognition.FinancialliabilitiesatFVTPLaresubsequentlymeasuredatfairvalueandnetgainsandlosses,includinganyinterestexpense,arerecognisedinprofitorloss,unlessthefinancialliabilitiesarepartofahedgingrelationship.-FinancialliabilitiesatamortisedcostThesefinancialliabilitiesaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(4)OffsettingFinancialassetsandfinancialliabilitiesaregenerallypresentedseparatelyinthebalancesheet,andarenotoffset.However,afinancialassetandafinancialliabilityareoffsetandthenetamountispresentedinthebalancesheetwhenbothofthefollowingconditionsaresatisfied:

-theGroupcurrentlyhasalegallyenforceablerighttosetofftherecognisedamounts;-theGroupintendseithertosettleonanetbasis,ortorealisethefinancialassetandsettlethefinancialliabilitysimultaneously.

(5)DerecognitionoffinancialassetsandfinancialliabilitiesAfinancialassetisderecognisedwhenoneofthefollowingconditionsismet:

-theGroup’scontractualrightstothecashflowsfromthefinancialassetexpire;-thefinancialassethasbeentransferredandtheGrouptransferssubstantiallyalloftherisksandrewardsofownershipofthefinancialasset;or-thefinancialassethasbeentransferred;andalthoughtheGroupneithertransfersnorretainssubstantiallyalloftherisksandrewardsofownershipofthefinancialasset,itdoesnotretaincontroloverthetransferredasset.Whereatransferofafinancialassetinitsentiretymeetsthecriteriaforderecognition,thedifferencebetweenthetwoamountsbelowisrecognisedinprofitorloss:

-thecarryingamountofthefinancialassettransferredmeasuredatthedateofderecognition;-thesumoftheconsiderationreceivedfromthetransferand,whenthetransferredfinancialassetisadebtinvestmentatFVOCI,anycumulativegainorlossthathasbeenrecogniseddirectlyinothercomprehensiveincomeforthefinancialassetderecognised.TheGroupderecognisesafinancialliability(orpartofit)onlywhenitscontractualobligation(orpartofit)isextinguished.

(6)ImpairmentTheGrouprecogniseslossallowancesforexpectedcreditloss(ECL)on:

-financialassetsmeasuredatamortisedcost;-contractassets;-debtinvestmentsmeasuredatFVOCI;-leasereceivablesFinancialassetsmeasuredatfairvalue,includingdebtinvestmentsorequitysecuritiesatFVTPL,equitysecuritiesdesignatedatFVOCIandderivativefinancialassets,arenotsubjecttotheECLassessment.

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(6)Impairment(continued)MeasurementofECLsECLsareaprobability-weightedestimateofcreditlosses.Creditlossesaremeasuredasthepresentvalueofallcashshortfalls(i.e.thedifferencebetweenthecashflowsduetotheGroupinaccordancewiththecontractandthecashflowsthattheGroupexpectstoreceive).ThemaximumperiodconsideredwhenestimatingECLsisthemaximumcontractualperiod(includingextensionoptions)overwhichtheGroupisexposedtocreditrisk.LifetimeECLsaretheECLsthatresultfromallpossibledefaulteventsovertheexpectedlifeofafinancialinstrument.12-monthECLsaretheportionofECLsthatresultfromdefaulteventsthatarepossiblewithinthe12monthsafterthebalancesheetdate(orashorterperiodiftheexpectedlifeoftheinstrumentislessthan12months).Lossallowancesfornotesreceivable,accountsreceivable,receivablesfinancingandcontractassetsarisingfromordinarybusinessactivitiessuchassaleofgoodsandprovisionofservices,aswellasleasereceivablesarisingfromleasetransactionsarealwaysmeasuredatanamountequaltolifetimeECLs.ECLsonthesefinancialassetsareestimatedusingaprovisionmatrixbasedontheGroup’shistoricalcreditlossexperience,adjustedforfactorsthatarespecifictothedebtorsandanassessmentofboththecurrentandforecastgeneraleconomicconditionsatthebalancesheetdate.Exceptfornotesreceivable,accountsreceivable,receivablesfinancing,contractassets,andleasereceivables,theGroupmeasureslossallowancesatanamountequalto12-monthECLsforthefollowingfinancialinstruments,andatanamountequaltolifetimeECLsforallotherfinancialinstruments:

-Financialinstrumentsthathavebeendeterminedtohavelowcreditriskatthebalancesheetdate;or-Financialinstrumentsforwhichcreditriskhasnotincreasedsignificantlysinceinitialrecognition.

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(6)Impairment(continued)ProvisionsforbadanddoubtfuldebtsarisingfromreceivablesCategoriesofgroupsforcollectiveassessmentbasedoncreditriskcharacteristicsandbasisfordetermination

FinancialinstrumentsthathavelowcreditriskThecreditriskonafinancialinstrumentisconsideredlowifthefinancialinstrumenthasalowriskofdefault,theborrowerhasastrongcapacitytomeetitscontractualcashflowobligationsinthenearterm,andadversechangesineconomicandbusinessconditionsinthelongertermmay,butwillnotnecessarily,reducetheabilityoftheborrowertofulfilitscontractualcashflowobligations.SignificantincreasesincreditriskInassessingwhetherthecreditriskofafinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,theGroupcomparestheriskofdefaultoccurringonthefinancialinstrumentassessedatthebalancesheetdatewiththatassessedatthedateofinitialrecognition.

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(6)Impairment(continued)Significantincreasesincreditrisk(continued)Whendeterminingwhetherthecreditriskofafinancialassethasincreasedsignificantlysinceinitialrecognition,theGroupconsidersreasonableandsupportableinformationthatisrelevantandavailablewithoutunduecostoreffort,includingforward-lookinginformation.Inparticular,thefollowinginformationistakenintoaccount:

-failuretomakepaymentsofprincipalorinterestontheircontractualduedates;-anactualorexpectedsignificantdeteriorationinafinancialinstrument’sexternalorinternalcreditrating(ifavailable);-anactualorexpectedsignificantdeteriorationintheoperatingresultsofthedebtor;-existingorforecastchangesinthetechnological,market,economicorlegalenvironmentthathaveasignificantadverseeffectonthedebtor’sabilitytomeetitsobligationtotheGroup.TheGroupdeterminesthatthecreditriskonafinancialassethasincreasedsignificantlyifitismorethan30dayspastdue.Credit-impairedfinancialassetsAteachbalancesheetdate,theGroupassesseswhetherfinancialassetscarriedatamortisedcostanddebtinvestmentsatFVOCIarecredit-impaired.Afinancialassetis‘credit-impaired’whenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthefinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesthefollowingobservabledata:

-significantfinancialdifficultiesoftheissuerordebtor;-abreachofcontract,suchasadefaultordelinquencyininterestorprincipalpayments;-foreconomicorcontractualreasonsrelatingtothedebtor’sfinancialdifficulties,theGrouphavinggrantedtothedebtoraconcessionthatitwouldnototherwiseconsider;-itisprobablethatthedebtorwillenterbankruptcyorotherfinancialreorganisation;-thedisappearanceofanactivemarketforthefinancialassetbecauseoffinancialdifficultiesoftheissuerordebtor.PresentationofallowanceforECLECLsareremeasuredateachbalancesheetdatetoreflectchangesinthefinancialinstrument’screditrisksinceinitialrecognition.AnychangeintheECLamountisrecognisedasanimpairmentgainorlossinprofitorloss.Lossallowancesforfinancialassetsmeasuredatamortisedcostaredeductedfromthegrosscarryingamountoftheassets.FordebtinvestmentsthataremeasuredatFVOCI,thelossallowanceisrecognisedinothercomprehensiveincomeandnotdeductedfromthecarryingamountoftheassets.

III.Materialaccountingpoliciesandsignificantestimates(continued)

10.Financialinstruments(continued)

(6)Impairment(continued)Write-offThegrosscarryingamountofafinancialassetiswrittenoff(eitherpartiallyorinfull)totheextentthatthereisnorealisticprospectofrecovery.Awrite-offconstitutesaderecognitionevent.ThisgenerallyoccurswhentheGroupdeterminesthatthedebtordoesnothaveassetsorsourcesofincomethatcouldgeneratesufficientcashflowstorepaytheamountssubjecttothewrite-off.However,financialassetsthatarewrittenoffcouldstillbesubjecttoenforcementactivitiesinordertocomplywiththeGroup’sproceduresforrecoveryofamountsdue.Subsequentrecoveriesofanassetthatwaspreviouslywrittenoffarerecognisedasareversalofimpairmentinprofitorlossintheperiodinwhichtherecoveryoccurs.

(7)EquityinstrumentsTheissuanceofequityinstrumentsisrecognisedattheactualissuepriceinshareholders’equity,relevanttransactioncostsaredeductedfromshareholders’equity(capitalreserve),withanyexcessdeductedfromsurplusreserveandretainedearningssequentially.ConsiderationandtransactioncostspaidbytheCompanyforrepurchasingself-issuedequityinstrumentsaredeductedfromshareholders’equity.WhentheCompanyrepurchasesitsownshares,thosesharesaretreatedastreasuryshares.Theentirerepurchaseexpenditureisrecordedasthecostofthetreasurysharesinthereferenceregister.Treasurysharesareexcludedfromprofitdistributionsandarepresentedasadeductionfromshareholders’equityonthebalancesheet.Whentreasurysharesarecancelled,thesharecapitalshouldbereducedtotheextentofthetotalparvalueofthetreasurysharescancelled.Wherethecostofthetreasurysharescancelledexceedsthetotalparvalue,theexcessisdeductedfromcapitalreserve(sharepremium),surplusreserveandretainedearningssequentially.Ifthecostoftreasurysharescancelledislessthanthetotalparvalue,thedifferenceiscreditedtothecapitalreserve(sharepremium).Whentreasurysharesaredisposedof,anyexcessofproceedsabovecostisrecognisedincapitalreserve(sharepremium);otherwise,theshortfallisdeductedagainstcapitalreserve(sharepremium),surplusreserveandretainedearningssequentially.

(8)PerpetualbondsAtinitialrecognition,perpetualbondsissuedbytheGrouportheircomponentsareclassifiedasfinancialassets,financialliabilitiesorequityinstrumentsbasedontheircontractualtermsandeconomicsubstancewithreferencetothedefinitionoffinancialassets,financialliabilitiesandequityinstruments.PerpetualbondsissuedbytheGroupthatshouldbeclassifiedasequityinstrumentsarerecognisedinequitybasedontheactualproceedsreceived.Anydistributionofdividendsorinterestsduringtheinstruments’durationistreatedasprofitappropriation.Whentheperpetualbondsareredeemedaccordingtothecontractualterms,theredemptionamountisrecognisedasadeductionfromequity.

III.Materialaccountingpoliciesandsignificantestimates(continued)

11.Inventories

(1)CategoriesInventoriesincluderawmaterials,workinprogress,finishedgoodsandreusablematerials.Reusablematerialsincludelow-valueconsumables,packagingmaterialsandothermaterialswhichcanbeusedrepeatedlybutwhichdonotmeetthedefinitionoffixedassets.Contractfulfillmentcostsclassifiedascurrentassetsaredisclosedatinventory.Inadditiontothepurchasecostofrawmaterials,workinprogressandfinishedgoodsincludedirectlabourcostsandanappropriateallocationofproductionoverheadsbasedonnormalcapacity.

(2)MeasurementmethodofcostofinventoriesCostofinventoriesiscalculatedusingtheweightedaveragemethod.

(3)InventorycountsystemTheGroupmaintainsaperpetualinventorysystem.

(4)Amortisationmethodforlow-valueconsumablesandpackagingmaterialsConsumablesincludinglow-valueconsumablesandpackagingmaterialsareamortizedbyone-offwriteoffmethod.Theamortisationchargeisincludedinthecostoftherelatedassetsorrecognisedinprofitorlossforthecurrentperiod.

(5)CriteriaandmethodforprovisionforobsoleteinventoriesAtthebalancesheetdate,inventoriesarecarriedatthelowerofcostandnetrealisablevalue.Anyexcessofthecostoverthenetrealisablevalueofeachcategoryofinventoriesisrecognisedasaprovisionforobsoleteinventories,andisrecognisedinprofitorloss.Thenetrealisablevalueofmaterialsheldforuseinproductionismeasuredbasedonthenetrealisablevalueofthefinishedgoodsinwhichtheywillbeincorporated.Thenetrealisablevalueofinventoryheldtosatisfysalesorservicecontractsismeasuredbasedonthecontractprice.IfthequantitiesofinventoriesheldbytheGroupexceedthequantitiesspecifiedinsalescontracts,thenetrealisablevalueoftheexcessportionofinventoriesisbasedongeneralsellingprices.12．Long-termequityinvestments

(1)Investmentcostoflong-termequityinvestments(a)Long-termequityinvestmentsacquiredthroughabusinesscombinationTheinitialcostofalong-termequityinvestmentacquiredthroughabusinesscombinationinvolvingentitiesundercommoncontrolistheCompany’sshareofthecarryingamountofthesubsidiary’sequityintheconsolidatedfinancialstatementsoftheultimatecontrollingpartyatthecombinationdate.Thedifferencebetweentheinitialinvestmentcostandthecarryingamountoftheconsiderationgivenisadjustedtothesharepremiuminthecapitalreserve,withanyexcessdeductedfromsurplusreserveandretainedearningssequentially.

III.Materialaccountingpoliciesandsignificantestimates(continued)

12.Long-termequityinvestments(continued)

(1)Investmentcostoflong-termequityinvestments(continued)(a)Long-termequityinvestmentsacquiredthroughabusinesscombination(continued)Foralong-termequityinvestmentobtainedthroughabusinesscombinationnotinvolvingentitiesundercommoncontrol,theinitialcostcomprisestheaggregateofthefairvalueofassetstransferred,liabilitiesincurredorassumed,andequitysecuritiesissuedbytheCompany,inexchangeforcontroloftheacquiree.(b)Long-termequityinvestmentsacquiredotherthanthroughabusinesscombinationAlong-termequityinvestmentacquiredotherthanthroughabusinesscombinationisinitiallyrecognisedattheamountofcashpaidiftheGroupacquirestheinvestmentbycash,oratthefairvalueoftheequitysecuritiesissuedifaninvestmentisacquiredbyissuingequitysecurities.Wheretheinitialinvestmentcostofalong-termequityinvestmentexceedstheinvestor’sproportionateshareoftheinvestee’sidentifiablenetassetsatfairvalueatthetimeofinvestment,suchexcessshallbeincludedintheinitialinvestmentcost.Wheretheinitialinvestmentcostislessthantheinvestor’sproportionateshareoftheinvestee’sidentifiablenetassetsatfairvalueatthetimeofinvestment,thedifferenceshallberecognizedinprofitorlossforthecurrentperiod,andthecostofthelong-termequityinvestmentshallbeadjustedaccordingly.

(2)Subsequentmeasurementoflong-termequityinvestment(a)InvestmentsinsubsidiariesIntheCompany’sseparatefinancialstatements,long-termequityinvestmentsinsubsidiariesareaccountedforusingthecostmethodforsubsequentmeasurement.Foranyadditionalinvestmentorrecoveryofinvestment,adjustthecostoflong-termequityinvestment.TheCompanyrecognisesitsshareofthecashdividendsorprofitdistributionsdeclaredbytheinvesteeasinvestmentincomeforthecurrentperiod.(b)InvestmentinjointventuresandassociatesAjointventureisanarrangementwherebytheGroupandotherpartieshavejointcontrol(seeNoteIII.12(3))andrightstothenetassetsofthearrangement.AnassociateisanentityoverwhichtheGrouphassignificantinfluence(seeNoteIII.12(3)).Aninvestmentinajointventureoranassociateisaccountedforusingtheequitymethodforsubsequentmeasurement,unlesstheinvestmentisclassifiedasheldforsale(seeNoteIII.31).

III.Materialaccountingpoliciesandsignificantestimates(continued)

12.Long-termequityinvestments(continued)

(2)Subsequentmeasurementoflong-termequityinvestment(continued)(b)Investmentinjointventuresandassociates(continued)Afteracquiringtheinvestment,theGrouprecognisesitsshareoftheinvestee’sprofitorlossandothercomprehensiveincomeasinvestmentincomeorlossesandothercomprehensiveincomerespectively,andadjuststhecarryingamountoftheinvestmentaccordingly.Whenrecognizingitsshareofthenetprofitorlossoftheinvestee,theGroupcalculatessuchshareonthebasisofthefairvalueoftheinvestee'sidentifiableassetsattheacquisitiondate,applyingtheGroup'saccountingpoliciesandfiscalperiod.Therecognitionamountisdeterminedafteradjustingtheinvestee'snetprofittoreflecttheelimination,totheextentoftheGroup'sproportionateinterest,ofintra-grouptransactiongainsorlossesarisingfromdealingswithassociatesandjointventures(exceptthatlossesfromintra-grouptransactionsthatrepresentanimpairmentlossonassetsarerecognizedinfull).Nosuchadjustmentismade,however,wheretheinvestmentinvolvesthecontributionorsaleofassetsthatconstituteabusiness.Oncetheinvesteedeclaresanycashdividendsorprofitdistributions,thecarryingamountoftheinvestmentisreducedbytheamountattributabletotheGroup.ChangesintheGroup’sshareoftheinvestee’sowners’equity,otherthanthosearisingfromtheinvestee’snetprofitorloss,othercomprehensiveincomeorprofitdistribution(referredtoas“otherchangesinowners’equity”),arerecogniseddirectlyintheGroup’sequity,andthecarryingamountoftheinvestmentisadjustedaccordingly.TheGroupdiscontinuesrecognisingitsshareoffurtherlossesoftheinvesteeafterthecarryingamountofthelong-termequityinvestmentandanylong-terminterestthatinsubstanceformspartoftheGroup’snetinvestmentinthejointventureorassociateisreducedtozero,excepttotheextentthattheGrouphasanobligationtoassumeadditionallosses.Ifthejointventureorassociatesubsequentlyreportsnetprofits,theGroupresumesrecognisingitsshareofthoseprofitsonlyafteritsshareoftheprofitshasfullycoveredtheshareoflossesnotrecognised.

(3)Criteriafordeterminingtheexistenceofjointcontrolorsignificantinfluenceoveran

investeeJointcontrolisthecontractuallyagreedsharingofcontrolofanarrangement,whichexistsonlywhendecisionsabouttherelevantactivities(activitieswithsignificantimpactonthereturnsofthearrangement)requiretheunanimousconsentofthepartiessharingcontrol.ThefollowingfactorsareusuallyconsideredwhenassessingwhethertheGroupcanexercisejointcontroloveraninvestee:

-Whethernosingleparticipantpartyisinapositiontocontroltheinvestee’srelevantactivitiesunilaterally;-Whetherdecisionsrelatingtotheinvestee’srelevantactivitiesrequiretheunanimousconsentofallparticipantpartiesthatsharecontrol.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsofaninvesteebutisnotcontrolorjointcontrolofthosepolicies.

III.Materialaccountingpoliciesandsignificantestimates(continued)13．InvestmentpropertiesInvestmentpropertiesarepropertiesheldeithertoearnrentalincomeorforcapitalappreciationorboth.Investmentpropertiesareinitiallymeasuredatcost.SubsequentexpendituresrelatedtoaninvestmentpropertyarerecognizedaspartofthecostoftheinvestmentpropertywhenitisprobablethattheeconomicbenefitsassociatedwiththeassetwillflowtotheGroupandthecostcanbereliablymeasured.Otherwise,suchexpendituresarerecognizedinprofitorlossasincurred.Investmentpropertiesareaccountedforusingthecostmodelandstatedinthebalancesheetatcostlessaccumulateddepreciation,amortisationandimpairmentlosses.Thecostofinvestmentproperty,lessitsestimatedresidualvalueandaccumulatedimpairmentlosses,isdepreciatedoramortisedusingthestraight-linemethodoveritsestimatedusefullife,unlesstheinvestmentpropertyisclassifiedasheldforsale(seeNoteIII.31).Theestimatedusefullives,residualvalueratesanddepreciationratesofeachclassofinvestmentpropertiesareasfollows:

14．Fixedassets

(1)RecognitionoffixedassetsProperty,plantandequipmentarerecognizedonlyifitisprobablethattheeconomicbenefitsassociatedwiththeassetwillflowtotheGroupandthecostoftheassetcanbereliablymeasured.AnysubsequentcostsincludingthecostofreplacingpartofanitemoffixedassetsarerecognisedasassetswhenitisprobablethattheeconomicbenefitsassociatedwiththecostswillflowtotheGroup,andthefacevalueofthereplacedpartisderecognised.Thecostsoftheday-to-daymaintenanceoffixedassetsarerecognisedinprofitorlossasincurred.Thecostofapurchasedfixedassetcomprisesthepurchaseprice,relatedtaxes,andanydirectlyattributableexpenditureforbringingtheassettoworkingconditionforitsintendeduse.Thecostofself-constructedassetsismeasuredinaccordancewiththepolicysetoutinNoteIII.15.WherethepartsofanitemoffixedassetshavedifferentusefullivesorprovidebenefitstotheGroupinadifferentpattern,thusnecessitatinguseofdifferentdepreciationratesormethods,eachpartisrecognisedasaseparatefixedasset.

III.Materialaccountingpoliciesandsignificantestimates(continued)14．Fixedassets(continued)

(2)DepreciationoffixedassetsThecostofafixedasset,lessitsestimatedresidualvalueandaccumulatedimpairmentlosses,isdepreciatedusingthestraight-linemethodoveritsestimatedusefullife,unlessthefixedassetisclassifiedasheldforsale(seeNoteIII.31).Theestimatedusefullives,residualvalueratesanddepreciationratesofeachclassoffixedassetsareasfollows:

Usefullives,estimatedresidualvaluesanddepreciationmethodsarereviewedatleastateachyear-end,andareadjustedifnecessary.

15.ConstructioninprogressThecostofself-constructedassetsincludesthecostofmaterials,directlabour,capitalisedborrowingcosts(seeNoteIII.16),andanyothercostsdirectlyattributabletobringingtheassettoworkingconditionforitsintendeduse.Aself-constructedassetisclassifiedasconstructioninprogressandtransferredtofixedassetswhenitisreadyforitsintendeduse.Nodepreciationisrecordedagainstconstructioninprogress.Thecriteriaaccordingtowhich,constructionprojectsinprogressaretransferredtofixedassets:

Whenanenterprisesellsproductsorby-productsproducedbeforeafixedassetisavailableforitsintendeduse,theproceedsandrelatedcostareaccountedforinaccordancewithCAS14–RevenueandCAS1–Inventoriesrespectively,andrecognisedinprofitorlossforthecurrentperiod.

III.Materialaccountingpoliciesandsignificantestimates(continued)

16.BorrowingcostsBorrowingcostsincurredthataredirectlyattributabletotheacquisitionandconstructionofaqualifyingassetarecapitalisedaspartofthecostoftheasset.Otherborrowingcostsarerecognisedasfinancialexpenseswhenincurred.Duringthecapitalisationperiod,theamountofinterest(includingamortisationofanydiscountorpremiumonborrowing)tobecapitalisedineachaccountingperiodisdeterminedasfollows:

-Wherefundsareborrowedspecificallyfortheacquisitionandconstructionofaqualifyingasset,theamountofinteresttobecapitalisedistheinterestexpensecalculatedusingeffectiveinterestratesduringtheperiodlessanyinterestincomeearnedfromdepositingtheborrowedfundsoranyinvestmentincomeonthetemporaryinvestmentofthosefundsbeforetheyareusedontheasset.-TotheextentthattheGroupborrowsfundsgenerallyandusesthemfortheacquisitionandconstructionofaqualifyingasset,theamountofborrowingcostseligibleforcapitalisationisdeterminedbyapplyingacapitalisationratetotheweightedaverageoftheexcessamountsofcumulativeexpenditureontheassetovertheaboveamountsofspecificborrowings.Thecapitalisationrateistheweightedaverageoftheinterestratesapplicabletothegeneral-purposeborrowings.Theeffectiveinterestrateisdeterminedastheratethatexactlydiscountsestimatedfuturecashflowthroughtheexpectedlifeoftheborrowingor,whenappropriate,ashorterperiodtotheinitiallyrecognisedamountoftheborrowings.Duringthecapitalisationperiod,exchangedifferencesrelatedtotheprincipalandinterestonaspecific-purposeborrowingdenominatedinforeigncurrencyarecapitalisedaspartofthecostofthequalifyingasset.Theexchangedifferencesrelatedtotheprincipalandinterestonforeigncurrencyborrowingsotherthanaspecific-purposeborrowingarerecognisedasafinancialexpensewhenincurred.Capitalisationofborrowingcostsissuspendedduringabnormalinterruptionsintheacquisitionorconstructionofaqualifyingassetthatlastforacontinuousperiodofmorethanthreemonths,providedthatsuchinterruptionsarenotnecessarytopreparetheassetforitsintendeduseorsale.Borrowingcostsincurredduringsuchinterruptionsarerecognisedasfinancialexpensesinprofitorlossuntiltheacquisitionorconstructionactivitiesresume.

17.Intangibleassets

(1)UsefullifeandamortisationmethodsForanintangibleassetwithfiniteusefullife,itscostlessestimatedresidualvalueandaccumulatedimpairmentlossesisamortisedusingthestraight-linemethodoveritsestimatedusefullife,unlesstheintangibleassetisclassifiedasheldforsale(seeNoteIII.31).

III.Materialaccountingpoliciesandsignificantestimates(continued)

17.Intangibleassets(continued)Theestimatedusefullives,basisfordeterminationandamortisationmethodsofintangibleassetsareasfollows:

Usefullivesandamortisationmethodsofintangibleassetswithfiniteusefullivesarereviewedatleastateachyear-end.AnintangibleassetisregardedashavinganindefiniteusefullifeandisnotamortisedwhenthereisnoforeseeablelimittotheperiodoverwhichtheassetisexpectedtogenerateeconomicbenefitsfortheGroup.Atthebalancesheetdate,theGroupdoesnothaveanyintangibleassetswithindefiniteusefullives.

(2)ThescopeofresearchanddevelopmentexpendituresTheGroupclassifiesallexpensesdirectlyrelatedtotheR&Dactivitiesasresearchanddevelopment(R&D)expenditure,includingtheemployeebenefitsofR&Dpersonnel,directinvestments,depreciationexpensesandlong-termdeferredexpenses,designexpenses,equipmentcommissioningcosts,amortisationexpensesofintangibleassets,developmentcostsincurredbyanentrustedexternalpartyaswellasotherexpenses.Expendituresoninternalresearchanddevelopmentprojectsareclassifiedintoexpendituresincurredduringtheresearchphaseandexpendituresincurredduringthedevelopmentphase.

(3)ThebasisfortheclassificationofinternalR&Dprojectsundertheresearchphaseandthe

developmentphase-Thephaseofplannedinvestigationstoacquirenewtechniquesandknowledgeshouldbeidentifiedastheresearchphase,whichischaracterisedby,amongotherthings,aplannedandexploratoryapproach.-Thephaseofapplyingresearchresultsorotherknowledgetoaplanordesigntoproduceneworsubstantiallyimprovedmaterials,devices,products,etc.,priortocommercialproductionoruse,shallbeidentifiedasthedevelopmentphase,whichischaracterisedbyitsrelevanceandgreaterlikelihoodofgeneratingresults.

III.Materialaccountingpoliciesandsignificantestimates(continued)

17.Intangibleassets(continued)

(4)ExpendituresonresearchanddevelopmentExpendituresoninternalresearchanddevelopmentprojectsareclassifiedintoexpendituresincurredduringtheresearchphaseandexpendituresincurredduringthedevelopmentphase.Expendituresduringtheresearchphaseareexpensedwhenincurred.Expendituresduringthedevelopmentphasearecapitalisedifdevelopmentcostscanbemeasuredreliably,theproductorprocessistechnicallyandcommerciallyfeasible,andtheGroupintendstoandhassufficientresourcestocompletethedevelopment.Otherdevelopmentexpendituresarerecognisedasexpensesintheperiodinwhichitisincurred.Whenanenterprisesellsproductsorby-productsproducedinthecourseofresearchanddevelopment,theproceedsandrelatedcostareaccountedforinaccordancewithCAS14–RevenueandCAS1–Inventoriesrespectively,andrecognisedinprofitorlossforthecurrentperiod.

18.GoodwillTheinitialcostofgoodwillrepresentstheexcessofthecostoftheacquisitionovertheacquirer’sinterestinthefairvalueoftheidentifiablenetassetsoftheacquireeunderabusinesscombinationnotinvolvingentitiesundercommoncontrol.Goodwillisnotamortisedandisstatedinthebalancesheetatcostlessaccumulatedimpairmentlosses(seeNoteIII.20).

19.Long-termdeferredexpensesLong-termdeferredexpensesareamortisedusingthestraight-linemethodwithinthebenefitperiod.Therespectiveamortisationperiodsforsuchexpensesareasfollows:

III.Materialaccountingpoliciesandsignificantestimates(continued)

20.ImpairmentofassetsotherthaninventoriesandfinancialassetsThecarryingamountsofthefollowingassetsarereviewedateachbalancesheetdatebasedoninternalandexternalsourcesofinformationtodeterminewhetherthereisanyindicationofimpairment:

-fixedassets-constructioninprogress-right-of-useassets-intangibleassets-investmentpropertiesmeasuredusingacostmodel-long-termequityinvestments-goodwill-long-termdeferredexpensesIfanyindicationexists,therecoverableamountoftheassetisestimated.Inaddition,theGroupestimatestherecoverableamountsofgoodwillateachyear-end,irrespectiveofwhetherthereisanyindicationofimpairment.Forthepurposesofimpairmenttesting,goodwillisallocatedtoeachassetgroup,orsetofassetgroups,thatisexpectedtobenefitfromthesynergiesofthebusinesscombination.Therecoverableamountofanasset(orassetgrouporsetofassetgroups)isthehigherofitsfairvalue(seeNoteIII.21)lesscostsofdisposalandthepresentvalueofitsexpectedfuturecashflows.Anassetgroupiscomposedofassetsrelatedtocashgenerationandisthesmallestidentifiablegroupofassetsthatgeneratescashinflowsthatarelargelyindependentofthecashinflowsfromotherassetsorassetgroups.Thepresentvalueofanasset’sexpectedfuturecashflowsisdeterminedbydiscountingthefuturecashflows,estimatedtobederivedfromcontinuinguseoftheassetandfromitsultimatedisposal,totheirpresentvalueusinganappropriatepre-taxdiscountrate.Animpairmentlossisrecognisedinprofitorlosswhentherecoverableamountofanassetislessthanitscarryingamount.Aprovisionforimpairmentoftheassetisrecognisedaccordinglytoreducethecarryingamounttotherecoverableamount.Impairmentlossesrelatedtoanassetgrouporasetofassetgroupsareallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheassetgrouporsetofassetgroups,andthentoreducethecarryingamountoftheotherassetsintheassetgrouporsetofassetgroupsonaproratabasis.However,suchallocationswouldnotreducethecarryingamountofanassetbelowthehighestofitsfairvaluelesscostsofdisposal(ifmeasurable),thepresentvalueofitsexpectedfuturecashflows(ifdeterminable)andzero.Onceanimpairmentlossisrecognised,itshouldnotbereversedinasubsequentperiod.

21.FairvaluemeasurementUnlessotherwisespecified,theGroupmeasuresfairvalueasfollows:

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Whenmeasuringfairvalue,theGrouptakesintoaccountthecharacteristicsoftheparticularassetorliability(includingtheconditionandlocationoftheassetandrestrictions,ifany,onthesaleoruseoftheasset)thatmarketparticipantswouldconsiderwhenpricingtheassetorliabilityatthemeasurementdate,andtheGroupusesvaluationtechniquesthatareappropriateinthecircumstancesandforwhichsufficientdataandotherinformationareavailabletomeasurefairvalue.Valuationtechniquesmainlyincludethemarketapproach,theincomeapproachandthecostapproach.

22.ProvisionsAprovisionisrecognisedforanobligationrelatedtoacontingencyiftheGrouphasapresentobligationthatcanbeestimatedreliably,anditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Aprovisionisinitiallymeasuredatthebestestimateoftheexpenditurerequiredtosettletherelatedpresentobligation.Wheretheeffectofthetimevalueofmoneyismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflows.Factorspertainingtoacontingencysuchastherisks,uncertaintiesandtimevalueofmoneyaretakenintoaccountasawholeinreachingthebestestimate.Wherethereisacontinuousrangeofpossibleoutcomesfortheexpenditurerequired,andeachpossibleoutcomeinthatrangeisaslikelyasanyother,thebestestimateisthemid-pointofthatrange.Inothercases,thebestestimateisdeterminedasfollows:

-Wherethecontingencyinvolvesasingleitem,thebestestimateisthemostlikelyoutcome.-Wherethecontingencyinvolvesalargepopulationofitems,thebestestimateisdeterminedbyweightingallpossibleoutcomesbytheirassociatedprobabilities.TheGroupreviewsthecarryingamountsofprovisionsatthebalancesheetdateandadjuststheircarryingamountstothecurrentbestestimates.

23.Share-basedpayments

(1)Classificationofshare-basedpaymentsShare-basedpaymenttransactionsintheGroupareequity-settledshare-basedpayments.Equitysettledshare-basedpaymentsrefertotransactionsinwhichtheGroupsettlesforservicesusingsharesorotherequityinstrumentsasconsideration.

III.Materialaccountingpoliciesandsignificantestimates(continued)

23.Share-basedpayments(continued)

(2)Accountingtreatmentofshare-basedpayments-Equity-settledshare-basedpaymentsWheretheGroupusessharesorotherequityinstrumentsasconsiderationforservicesreceivedfromemployees,thepaymentismeasuredatthefairvalueoftheequityinstrumentsgrantedtoemployeesatthegrantdate.Iftheequityinstrumentsgranteddonotvestuntilthecompletionofservicesforaperiod,oruntiltheachievementofaspecifiedperformancecondition,theGrouprecognisesanamountateachbalancesheetdateduringthevestingperiodbasedonthebestestimateofthenumberofequityinstrumentsexpectedtovestaccordingtonewlyobtainedsubsequentinformationregardingchangesinthenumberofemployeesexpectedtovesttheequityinstruments.TheGroupmeasurestheservicesreceivedatthegrant-datefairvalueoftheequityinstrumentsandrecognisesthecostsorexpensesastheservicesarereceived,withacorrespondingincreaseincapitalreserve.

24.RevenuegeneratedfromcontractswithcustomersRevenueisrecognisedwhentheGroupsatisfiestheperformanceobligationinacontractbytransferringcontroloverrelevantgoodsorservicestothecustomers.Obtainingcontroloverrelevantgoodsorservicesreferstobeingabletodominatetheuseofthegoodsorservicesandobtainalmostalleconomicbenefitsfromthem.Whereacontracthastwoormoreperformanceobligations,theGroupdeterminesthestand-alonesellingpriceatcontractinceptionofthedistinctgoodorserviceunderlyingeachperformanceobligationinthecontractandallocatesthetransactionpriceinproportiontothosestand-alonesellingprices.TheGrouprecognisesasrevenuetheamountofthetransactionpricethatisallocatedtoeachperformanceobligation.Thestand-alonesellingpriceisthepriceatwhichtheGroupwouldsellapromisedgoodorserviceseparatelytoacustomer.Ifastand-alonesellingpriceisnotdirectlyobservable,theGroupconsidersallinformationthatisreasonablyavailabletotheGroupandmaximisestheuseofobservableinputstoestimatethestand-alonesellingprice.ForacontractinwhichtheGroupgrantsacustomertheoptiontoacquireadditionalgoodsorservices(suchasloyaltypoints,discountcouponsforfuturepurchases.),theGroupassesseswhethertheoptionprovidesamaterialrighttothecustomer.Iftheoptionprovidesamaterialright,theGrouprecognisestheoptionasaperformanceobligation,andrecognisesrevenuewhenthosefuturegoodsorservicesaretransferredorwhentheoptionexpires.Ifthestand-alonesellingpriceforacustomer’soptiontoacquireadditionalgoodsorservicesisnotdirectlyobservable,theGroupestimatesit,takingintoaccountallrelevantinformation,includingthedifferenceinthediscountthatthecustomerwouldreceivewhenexercisingtheoptionorwithoutexercisingtheoption,andthelikelihoodthattheoptionwillbeexercised.

III.Materialaccountingpoliciesandsignificantestimates(continued)

24.Revenuegeneratedfromcontractswithcustomers(continued)Foracontractwithawarranty,theGroupanalysesthenatureofthewarrantyprovided,ifthewarrantyprovidesthecustomerwithadistinctserviceinadditiontotheassurancethattheproductcomplieswithagreed-uponspecifications,theGrouprecognisesthepromisedwarrantyasaperformanceobligation.Otherwise,theGroupwillcarryoutaccountingtreatmentinaccordancewiththeprovisionsofNoteIIINO.22.Forcontractswithqualityassuranceclausesthatarenotincludedasindividualservices,theGroupneedstoprovideforwarrantyexpensesbasedontheactualamountincurredinpreviousyearsandtheactualsalessituationofthecurrentperiod,estimatedreasonablyasconsideredbythemanagement.ThetransactionpriceistheamountofconsiderationtowhichtheGroupexpectstobeentitledinexchangefortransferringpromisedgoodsorservicestoacustomer,excludingamountscollectedonbehalfofthirdparties.TheGrouprecognisesthetransactionpriceonlytotheextentthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwillnotoccurwhentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.Todeterminethetransactionpriceforcontractsinwhichacustomerpromisesconsiderationinaformotherthancash,theGroupmeasuresthenon-cashconsiderationatfairvalue.IftheGroupcannotreasonablyestimatethefairvalueofthenon-cashconsideration,theGroupmeasurestheconsiderationindirectlybyreferencetothestand-alonesellingpriceofthegoodsorservicespromisedtothecustomerinexchangefortheconsideration.Wherethecontractcontainsasignificantfinancingcomponent,theGrouprecognisesthetransactionpriceatanamountthatreflectsthepricethatacustomerwouldhavepaidforthepromisedgoodsorservicesifthecustomerhadpaidcashforthosegoodsorserviceswhen(oras)theyaretransferredtothecustomer.Thedifferencebetweentheamountofpromisedconsiderationandthecashsellingpriceisamortisedusinganeffectiveinterestmethodoverthecontractterm.TheGroupdoesnotadjusttheconsiderationforanyeffectsofasignificantfinancingcomponentifitexpects,atcontractinception,thattheperiodbetweenwhentheGrouptransfersapromisedgoodorservicetoacustomerandwhenthecustomerpaysforthatgoodorservicewillbeoneyearorless.TheGroupsatisfiesaperformanceobligationovertimeifoneofthefollowingcriteriaismet;otherwise,theperformanceobligationissatisfiedatapointintime:

-thecustomersimultaneouslyreceivesandconsumesthebenefitsprovidedbytheGroup’sperformanceastheGroupperforms;-thecustomercancontroltheassetcreatedorenhancedduringtheGroup’sperformance;or-theGroup’sperformancedoesnotcreateanassetwithanalternativeusetoitandtheGrouphasanenforceablerighttopaymentforperformancecompletedtodate.Foraperformanceobligationsatisfiedovertime,theGrouprecognisesrevenueovertimebymeasuringtheprogresstowardscompletesatisfactionofthatperformanceobligation.Whentheoutcomeofthatperformanceobligationcannotbemeasuredreasonably,buttheGroupexpectstorecoverthecostsincurredinsatisfyingtheperformanceobligation,theGrouprecognisesrevenueonlytotheextentofthecostsincurreduntilsuchtimethatitcanreasonablymeasuretheoutcomeoftheperformanceobligation.

III.Materialaccountingpoliciesandsignificantestimates(continued)

24.Revenuegeneratedfromcontractswithcustomers(continued)Foraperformanceobligationsatisfiedatapointintime,theGrouprecognisesrevenueatthepointintimeatwhichthecustomerobtainscontroloftherelevantgoodsorservices.Todeterminewhetheracustomerhasobtainedcontrolofgoodsorservices,theGroupconsidersthefollowingindicators:

-theGrouphasapresentrighttopaymentforthegoodsorservices;-theGrouphastransferredthelegalownershipoftheproducttothecustomer;-theGrouphastransferredphysicalpossessionofthegoodstothecustomer;-theGrouphastransferredthelegaltitleofthegoodsorthesignificantrisksandrewardsofownershipofthegoodstothecustomer;and-thecustomerhasacceptedthegoodsorservices.TheGroupdetermineswhetheritisaprincipaloranagent,basedonwhetheritobtainscontrolofthespecifiedgoodorservicebeforethatthegoodorserviceistransferredtoacustomer.TheGroupisaprincipalifitcontrolsthespecifiedgoodorservicebeforethatgoodorserviceistransferredtoacustomer,andrecognisesrevenueinthegrossamountofconsiderationwhichithasreceived(orwhichisreceivable).Otherwise,theGroupisanagent,andrecognisesrevenueintheamountofanyfeeorcommissiontowhichitexpectstobeentitled.ThefeeorcommissionisthenetamountofconsiderationthattheGroupretainsafterpayingtheotherpartytheconsiderationorisdeterminedaccordingtotheestablishedamountorproportion.Forthesaleofaproductwitharightofreturn,theGrouprecognisesrevenuewhenthecustomerobtainscontrolofthatproduct,intheamountofconsiderationtowhichtheGroupexpectstobeentitledinexchangefortheproducttransferred(i.e.excludingtheamountthatisexpectedtobereturned),andrecognisesarefundliabilityfortheproductsexpectedtobereturned.Meanwhile,anassetisrecognisedatanamountequaltothecarryingamountoftheproductexpectedtobereturnedlessanyexpectedcoststorecoverthoseproducts(includingpotentialdecreasesinthevalueofthereturnedproducts),andcarryforwardtocostintheamountofcarryingamountofthetransferredproductslesstheabovecosts.Ateachbalancesheetdate,theGroupupdatesitsassessmentoffuturesalesreturnliability.Ifthereisanychange,itisaccountedforasachangeinaccountingestimate.TheGroupgrantsalicenceofintellectualpropertiestoacustomer,anditdetermineswhetherthelicenceistransferredtothecustomeratapointintimeorovertime.Ifallofthefollowingcriteriaaremet,thelicencerevenueisrecognisedasaperformanceobligationsatisfiedovertime.Otherwise,thelicencerevenueisrecognisedasaperformanceobligationsatisfiedatapointintime.-thecontractrequires,orthecustomerreasonablyexpects,thattheGroupwillundertakeactivitiesthatsignificantlyaffecttheintellectualpropertytowhichthecustomerhasrights;-therightsgrantedbythelicencedirectlyexposethecustomertoanypositiveornegativeeffectsoftheGroup’sactivities;and-thoseactivitiesdonotresultinthetransferofagoodoraservicetothecustomerasthoseactivitiesoccur.TheGrouprecognisesrevenueforasales-basedorusage-basedroyaltypromisedinexchangeforalicencetointellectualpropertyonlywhen(oras)thelaterofthefollowingeventsoccurs:

-thesubsequentsaleorusageoccurs;and-theperformanceobligationhasbeensatisfied(orpartiallysatisfied)

III.Materialaccountingpoliciesandsignificantestimates(continued)

24.Revenuegeneratedfromcontractswithcustomers(continued)Forachangeinthescopeorpriceofacontractthatisapprovedbythepartiestothecontract,theGroupaccountsforthecontractmodificationasfollows:

-Incaseswheretheadditionalpromisedgoodsorservicesaredistinctandthepriceofthecontractincreasesbyanamountofconsiderationthatreflectsthestand-alonesellingpricesoftheadditionalpromisedgoodsorservices,theGroupshouldaccountforthecontractmodificationasaseparatecontract.-Iftheabovecriteriaarenotmet,andtheremaininggoodsorservicesaredistinctfromthegoodsorservicestransferredonorbeforethedateofthecontractmodification,theGroupaccountsforthecontractmodificationasifitwereaterminationoftheexistingcontractandthecreationofanewcontract.-Iftheabovecriteriaarenotmet,andtheremaininggoodsorservicesarenotdistinctfromthegoodsorservicestransferredonorbeforethedateofthecontractmodification,theGroupaccountsforthecontractmodificationasifitwereapartoftheexistingcontract.Theeffectthatthecontractmodificationhasonrevenueisrecognisedasanadjustmenttorevenueinthereportingperiod.AcontractassetistheGroup’srighttoconsiderationinexchangeforgoodsorservicesthatithastransferredtoacustomerwhenthatrightisconditionalonsomethingotherthanthepassageoftime.TheGrouprecogniseslossallowancesforexpectedcreditlossoncontractassets(seeNoteIII.10(6)).AccountsreceivableistheGroup’srighttoconsiderationthatisunconditional(onlythepassageoftimeisrequired).AcontractliabilityistheGroup’sobligationtotransfergoodsorservicestoacustomerforwhichtheGrouphasreceivedconsideration(oranamountofconsiderationisdue)fromthecustomer.ThefollowingisadescriptionofaccountingpoliciesregardingrevenuefromtheGroup’sprincipalactivities:

(1)SaleofgoodsThesalescontracts/orderssignedbetweentheGroupanditscustomersusuallycontainvarioustradingterms.Dependingonthetradingterms,customersobtaincontrolofthegoodswhenthegoodsarereceived,orwhentheyarereceivedbythecarrier.Revenueofsaleofgoodsisrecognisedatthatpointintime.Forthetransferofgoodswitharightofreturn,revenueisrecognisedtotheextentthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwillnotoccur.Therefore,theamountofrevenuerecognisedisadjustedfortheamountexpectedtobereturned,whichareestimatedbasedonthehistoricaldata.TheGrouprecognisesarefundliabilitybasedontheamountexpectedtobereturned.Anassetisinitiallymeasuredbyreferencetotheformercarryingamountoftheproductexpectedtobereturnedlessanyexpectedcoststorecoverthoseproducts(includingpotentialdecreasesinthevalueofreturnedproducts).Ateachbalancesheetdate,theGroupupdatesthemeasurementoftherefundliabilityforchangesinexpectationsabouttheamountofreturns.Theaboveassetsandliabilitiesareadjustedaccordingly.

III.Materialaccountingpoliciesandsignificantestimates(continued)

24.Revenuegeneratedfromcontractswithcustomers(continued)

(2)RenderingofservicesTheGrouprecognisestherevenuefromrenderingofserviceswithinacertainperiodoftimeaccordingtotheprogressoftheperformanceasthecustomersimultaneouslyreceivesandconsumesthebenefitsprovidedbytheGroup’sperformanceastheGroupperforms.Otherwise,forperformanceobligationsatisfiedatapointintime,theGrouprecognisesrevenueatthepointintimeatwhichthecustomerobtainscontrolofrelevantservices.

25.ContractcostsIncrementalcostsofobtainingacontractarethosecoststhattheGroupincurstoobtainacontractwithacustomerthatitwouldnothaveincurredifthecontracthadnotbeenobtained.TheGrouprecognisesasanassettheincrementalcostsofobtainingacontractwithacustomerifitexpectstorecoverthosecosts.Othercostsofobtainingacontractareexpensedwhenincurred.Ifthecoststofulfilacontractwithacustomerarenotwithinthescopeofinventoriesorotheraccountingstandards,theGrouprecognisesanassetfromthecostsincurredtofulfilacontractonlyifthosecostsmeetallofthefollowingcriteria:

-thecostsrelatedirectlytoanexistingcontractortoaspecificallyidentifiableanticipatedcontract,includingdirectlabour,directmaterials,allocationsofoverheads(orsimilarcosts),coststhatareexplicitlychargeabletothecustomerandothercoststhatareincurredonlybecausetheGroupenteredintothecontract;-thecostsgenerateorenhanceresourcesoftheGroupthatwillbeusedinsatisfying(orincontinuingtosatisfy)performanceobligationsinthefuture;-thecostsareexpectedtoberecovered.Assetsrecognisedfortheincrementalcostsofobtainingacontractandassetsrecognisedforthecoststofulfilacontract(the“assetsrelatedtocontractcosts”)areamortisedonasystematicbasisthatisconsistentwiththetransfertothecustomerofthegoodsorservicestowhichtheassetsrelateandrecognisedinprofitorlossforthecurrentperiod.TheGrouprecognisesanimpairmentlossinprofitorlosstotheextentthatthecarryingamountofanassetrelatedtocontractcostsexceeds:

-theremainingamountofconsiderationthattheGroupexpectstoreceiveinexchangeforthegoodsorservicestowhichtheassetrelates;-theestimatedcoststhatrelatedirectlytoprovidingthosegoodsorservicesthathavenotyetbeenrecognisedasexpenses.

26.Employeebenefits

(1)Short-termemployeebenefitsEmployeewagesorsalaries,bonuses,andsocialsecuritycontributionssuchasmedicalinsurance,workinjuryinsurance,maternityinsuranceandhousingfund,measuredattheamountincurredoraccruedattheapplicablebenchmarksandrates,arerecognisedasaliabilityastheemployeeprovidesservices,withacorrespondingchargetoprofitorlossorincludedinthecostofassetswhereappropriate.

III.Materialaccountingpoliciesandsignificantestimates(continued)

26.Employeebenefits(continued)

(2)Post-employmentbenefits–definedcontributionplansThedefinedcontributionplansinwhichtheGroupparticipatesinclude:PursuanttotherelevantlawsandregulationsofthePeople’sRepublicofChina,theGroupparticipatedinadefinedcontributionbasicpensioninsuranceplanandunemploymentinsuranceplaninthesocialinsurancesystemestablishedandmanagedbygovernmentorganisations,andannuityplanestablishedbytheGroupincompliancewiththenationalpolicyofthecorporationannuity.TheGroupmakescontributionstobasicpensionandunemploymentinsuranceplansbasedontheapplicablebenchmarksandratesstipulatedbythegovernment.Annuityisaccruedatacertainproportionofthetotalwagesofemployeeswhovoluntarilyparticipateintheannuityplan.Basicpensioninsurancecontributionspayablearerecognisedasaliabilityastheemployeeprovidesservices,withacorrespondingchargetoprofitorlossorincludedinthecostofassetswhereappropriate.

(3)TerminationbenefitsWhentheGroupterminatesanemployee’semploymentbeforetheemploymentcontractexpires,orprovidescompensationunderanoffertoencourageemployeestoacceptvoluntaryredundancy,aprovisionisrecognisedwithacorrespondingexpenseinprofitorlossattheearlierofthefollowingdates:

-WhentheGroupcannotunilaterallywithdrawtheofferofterminationbenefitsprovidedinanemployeeterminationplanoracurtailmentproposal;-WhentheGrouphasaformaldetailedrestructuringplaninvolvingthepaymentofterminationbenefitsandhasraisedavalidexpectationinthoseaffectedthatitwillcarryouttherestructuringbystartingtoimplementthatplanorannouncingitsmainfeaturestothoseaffectedbyit.

27.GovernmentgrantsAgovernmentgrantisrecognisedwhenthereisreasonableassurancethatthegrantwillbereceivedandthattheGroupwillcomplywiththeconditionsattachedtothegrant.Ifagovernmentgrantisintheformofatransferofamonetaryasset,itismeasuredattheamountreceivedorreceivable.Ifagovernmentgrantisintheformofatransferofanon-monetaryasset,itismeasuredatfairvalue.GovernmentgrantsrelatedtoassetsaregrantswhoseprimaryconditionisthattheGroupqualifyingforthemshouldpurchase,constructorotherwiseacquirelong-termassets.Governmentgrantsrelatedtoincomearegrantsotherthanthoserelatedtoassets.ThoserelatedtodailyactivitiesoftheCompanyareincludedinotherincomeorusedtowriteoffrelatedcostbasedonthenatureofeconomicbusinesses,orincludedinnon-operatingincomeandexpenseinrespectofthosenotrelatedtodailyactivitiesoftheCompany.

III.Materialaccountingpoliciesandsignificantestimates(continued)

27.Governmentgrants(continued)Withrespecttothegovernmentgrantsrelatedtoassets,iftheGroupfirstobtainsgovernmentgrantsrelatedtoassetsandthenrecognisesthelong-termassetspurchasedandconstructed,deferredincomeisincludedinprofitandlossbasedonareasonableandsystematicapproachbystageswhenrelatedassetsareinitiallydepreciatedoramortised;orthedeferredincomeiswrittenoffagainstthecarryingamountoftheassetwhentheassetbecomesreadyforitsintendedstatusorintendeduse.IftheGroupobtainsgovernmentgrantsrelatedtotheassetsafterrelevantlong-termassetsareputintouse,deferredincomeisincludedinprofitandlossbasedonareasonableandsystematicapproachbystageswithintheremainingusefullifeofrelevantassets,orthedeferredincomeiswrittenoffagainstthecarryingamountofrelevantassetwhenthegrantsareobtained;theassetsshallbedepreciatedoramortisedbasedonthecarryingamountafterbeingoffsetandtheremainingusefullifeofrelevantassets.Iftherelevantassetsaresold,transferred,scrappedordamagedbeforetheendoftheirusefullife,theundistributedbalanceofrelateddeferredincomeshallbetransferredtotheprofitorlossofthecurrentperiodofassetdisposals.AgrantthatcompensatestheGroupforexpensesorlossestobeincurredinthefutureisrecognisedasdeferredincome,andincludedincurrentincomeoroffsetagainstrelatedexpensesintheperiodsinwhichtheexpensesorlossesarerecognised.Otherwise,thegrantisincludedincurrentincomeoroffsetagainsttherelatedexpensesdirectly.Inrespectofthepolicy-basedpreferentialloaninterestsubsidyobtainedbytheGroup,iftheinterestsubsidyisappropriatedtothelendingbankwhichshallprovideloanstotheGroupatthepolicy-basedpreferentialinterestrate,theactualloanamountisusedastheentryvalueandrelevantborrowingcostsarecalculatedonthebasisoftheloanprincipalandthepreferentialinterestrate.IftheinterestsubsidyisdirectlyappropriatedtotheGroup,relevantborrowingcostsshallbeoffsetbycorrespondinginterestsubsidy.Ifborrowingcostsarecapitalisedaspartofthecostoftheasset(seeNoteIII.16),theinterestsubsidyshallbeusedtooffsetrelevantassetcosts.

28.SpecificreserveTheGrouprecognisesasafetyfundinthespecificreservepursuanttorelevantgovernmentregulations,withacorrespondingincreaseinthecostsoftherelatedproductsorexpenses.Whenthesafetyfundissubsequentlyusedforrevenueexpenditure,thespecificreserveisreducedaccordingly.Whenthesafetyfundissubsequentlyusedfortheconstructionoracquisitionoffixedassets,theGrouprecognisesthecapitalisedexpenditureincurredasthecostofthefixedassetswhentherelatedassetsarereadyfortheirintendeduse.Insuchcases,thespecificreserveisreducedbytheamountthatcorrespondstothecostofthefixedassetsandthecreditsideisrecognisedintheaccumulateddepreciationwithrespecttotherelatedfixedassets.Consequently,suchfixedassetsarenotdepreciatedinsubsequentperiods.

29.IncometaxCurrenttaxanddeferredtaxarerecognisedinprofitorlossexcepttotheextentthattheyrelatetoabusinesscombinationoritemsrecogniseddirectlyinequity(includingothercomprehensiveincome).Currenttaxistheexpectedtaxpayablecalculatedattheapplicabletaxrateontaxableincomefortheyear,plusanyadjustmenttotaxpayableinrespectofpreviousyears.

III.Materialaccountingpoliciesandsignificantestimates(continued)

29.Incometax(continued)Atthebalancesheetdate,currenttaxassetsandliabilitiesareoffsetonlyiftheGrouphasalegallyenforceablerighttosetthemoffandalsointendseithertosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.Deferredtaxassetsanddeferredtaxliabilitiesarisefromdeductibleandtaxabletemporarydifferencesrespectively,beingthedifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheirtaxbases,whichincludedeductiblelossesandtaxcreditscarriedforwardtosubsequentperiods.Deferredtaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.Varioustaxabletemporarydifferencesarerecognizedasdeferredincometaxliabilities,unless:

(1)Taxabletemporarydifferencesariseinthefollowingtransactions:theinitialrecognitionofgoodwill,ortheinitialrecognitionofassetsorliabilitiesarisingfromasingletransactionwiththefollowingcharacteristics:thetransactionisnotabusinessmerger,anditdoesnotaffectaccountingprofitsortaxableincomeordeductiblelossesatthetimeofthetransactionAndtheinitiallyrecognizedassetsandliabilitiesdidnotresultinequaltaxabletemporarydifferencesanddeductibletemporarydifferences;

(2)Fortaxabletemporarydifferencesrelatedtoinvestmentsinsubsidiaries,jointventures,andassociates,thetimingofthereversalofsuchtemporarydifferencescanbecontrolledanditishighlylikelythattheywillnotbereversedintheforeseeablefuture.Fordeductibletemporarydifferences,deductiblelossesthatcanbecarriedforwardtofutureyears,andtaxdeductions,theGrouprecognizesdeferredincometaxassetsarisingfromthemtotheextentthatitislikelytoobtainfuturetaxableincometooffsetdeductibletemporarydifferences,deductiblelosses,andtaxdeductions,unless:

(1)Deductibletemporarydifferencesariseinthefollowingindividualtransactions:thetransactionisnotabusinessmerger,thetransactiondoesnotaffectaccountingprofitsortaxableincomeordeductiblelossesatthetimeofoccurrence,andtheinitiallyrecognizedassetsandliabilitiesdonotresultinequaltaxabletemporarydifferencesanddeductibletemporarydifferences;

(2)Fordeductibletemporarydifferencesrelatedtoinvestmentsinsubsidiaries,jointventures,andassociates,thetemporarydifferencesarelikelytobereversedintheforeseeablefutureandtaxableincomeusedtooffsetthetemporarydifferencesislikelytobeobtainedinthefuture.Atthebalancesheetdate,deferredtaxismeasuredbasedonthetaxconsequencesthatwouldfollowfromtheexpectedmannerofrecoveryorsettlementofthecarryingamountsoftheassetsandliabilities,usingtaxratesenactedatthebalancesheetdatethatareexpectedtobeappliedintheperiodwhentheassetisrecoveredortheliabilityissettled.Onthebalancesheetdate,theGroupreviewsthebookvalueofdeferredincometaxassets.Ifitislikelythatsufficienttaxableincomewillnotbeavailableinthefuturetooffsetthebenefitsofdeferredincometaxassets,thecarryingamountofthedeferredincometaxassetswillbewrittendown.Onthebalancesheetdate,theGroupreassessesunrecognizeddeferredincometaxassetsandrecognizesthemtotheextentthatsufficienttaxableincomeislikelytobeavailableforthereversalofdeferredincometaxassets.

III.Materialaccountingpoliciesandsignificantestimates(continued)

29.Incometax(continued)Atthebalancesheetdate,deferredtaxassetsanddeferredtaxliabilitiesareoffsetifallofthefollowingconditionsaremet:

-thetaxableentityhasalegallyenforceablerighttooffsetcurrenttaxliabilitiesandcurrenttaxassets;-theyrelatetoincometaxesleviedbythesametaxauthorityoneitherthesametaxableentity;ordifferenttaxableentitieswhichintendeithertosettlethecurrenttaxliabilitiesandcurrenttaxassetsonanetbasis,ortorealisetheassetsandsettletheliabilitiessimultaneously,ineachfutureperiodinwhichsignificantamountsofdeferredtaxliabilitiesordeferredtaxassetsareexpectedtobesettledorrecovered.

30.LeasesAtinceptionofacontract,theGroupassesseswhetheracontractis,orcontains,alease.Acontractis,orcontains,aleaseifthecontractconveystherighttocontroltheuseofanidentifiedassetforaperiodoftimeinexchangeforconsideration.Foracontractthatcontainsmultipleseparateleasecomponents,thelesseeandthelessorseparatetheleasecomponentsandaccountforeachleasecomponentasaleaseseparately.Foracontractthatcontainsleaseandnon-leasecomponents,thelesseeandthelessorseparatetheleasecomponentsfromthenon-leasecomponents.

(1)AsalesseeTheGrouprecognisesaright-of-useassetandaleaseliabilityattheleasecommencementdate,excludingshort-termleasesandlowvalueassetleases.TheGroupdepreciatestherightofuseassetsusingthestraight-linemethod.Ifthelesseeisreasonablycertaintoobtaintheownershipoftheleaseassetbytheendoftheleaseterm,theright-of-useassetisdepreciatedovertheremainingusefullifeoftheunderlyingasset.Otherwise,theright-of-useassetisdepreciatedovertheshorteroftheleasetermortheremainingusefullifeoftheleaseasset.Theleaseliabilityisinitiallymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthecommencementdate,discountedusingtheinterestrateimplicitintheleaseor,ifthatratecannotbereadilydetermined,theGroup’sincrementalborrowingrate.Aconstantperiodicrateisusedtocalculatetheinterestontheleaseliabilityineachperiodduringtheleasetermwithacorrespondingchargetoprofitorlossorincludedinthecostofassetswhereappropriate.Variableleasepaymentsnotincludedinthemeasurementoftheleaseliabilityarechargedtoprofitorlossorincludedinthecostofassetswhereappropriateasincurred.

III.Materialaccountingpoliciesandsignificantestimates(continued)

30.Leases(continued)

(1)Asalessee(continued)Underthefollowingcircumstancesaftertheleasecommencementdate,theGroupremeasuresleaseliabilitiesbasedonthepresentvalueofrevisedleasepayments:

-Changesinthesubstantialfixedpaymentamount;-thereisachangeintheamountsexpectedtobepayableunderaresidualvalueguarantee;-thereisachangeinfutureleasepaymentsresultingfromachangeinanindexorarateusedtodeterminethosepayments;-thereisachangeintheassessmentofwhethertheGroupwillexerciseapurchase,extensionorterminationoption,ortheGrouphasexercisedtheextensionorterminationoptioninadifferentmannerfromtheoriginalassessment.Whentheleaseliabilityisremeasured,acorrespondingadjustmentismadetothecarryingamountoftheright-of-useasset,orisrecordedinprofitorlossifthecarryingamountoftheright-of-useassethasbeenreducedtozero.TheGrouphaselectednottorecogniseright-of-useassetsandleaseliabilitiesforshort-termleasesthathavealeasetermof12monthsorlessandleasesoflow-valueassets(aleasedassetisoflowvalueindividuallywhenitisnew).TheGrouprecognisestheleasepaymentsassociatedwiththeseleasesinprofitorlossorasthecostoftheassetswhereappropriateusingthestraight-linemethodorothersystematicbasisovertheleaseterm.

(2)AsalessorTheGroupdeterminesatleaseinceptionwhethereachleaseisafinanceleaseoranoperatinglease.Aleaseisclassifiedasafinanceleaseifittransferssubstantiallyalltherisksandrewardsincidentaltoownershipofanunderlyingassetirrespectiveofwhetherthelegaltitletotheassetiseventuallytransferred.Anoperatingleaseisaleaseotherthanafinancelease.WhentheGroupisasub-lessor,itassessestheleaseclassificationofasub-leasewithreferencetotheright-of-useassetarisingfromtheheadlease,notwithreferencetotheunderlyingasset.Ifaheadleaseisashort-termleasetowhichtheGroupappliesthepracticalexpedientdescribedabove,thenitclassifiesthesub-leaseasanoperatinglease.Underafinancelease,atthecommencementdate,theGrouprecognisesthefinanceleasereceivableandderecognisestheassetunderfinancelease.TheGrouprecognisesfinanceincomeovertheleasetermwithaconstantperiodicrateofreturn.ThederecognitionandimpairmentofthefinanceleasereceivableareaccountedforinaccordancewiththeaccountingpolicyinNoteIII.10.Variableleasepaymentsnotincludedinthemeasurementofnetinvestmentintheleasearerecognisedasincomeastheyareearned.Leasereceiptsfromoperatingleasesarerecognisedasincomeusingthestraight-linemethodorothersystematicbasisovertheleaseterm.Variableleasepaymentsnotincludedinleasereceiptsarerecognisedasincomeastheyareearned.Theinitialdirectcostcapitalizationisamortizedovertheleasetermonthesamebasisastherecognitionofrentalincome,andisrecognizedinthecurrentperiod'sprofitandlossininstallments.

III.Materialaccountingpoliciesandsignificantestimates(continued)

31.AssetsheldforsaleanddiscontinuedoperationsNon-currentassetsordisposalgroupsheldforsaleTheGroupclassifiesanon-currentassetordisposalgroupasheldforsalewhenthecarryingamountofanon-currentassetordisposalgroupwillberecoveredthroughasaletransactionratherthanthroughcontinuinguse.Anon-currentassetordisposalgroupisclassifiedasheldforsalewhenallthefollowingcriteriaaremet:

-Accordingtothecustomarypracticesofsellingsuchassetsordisposalgroupsinsimilartransactions,thenon-currentassetordisposalgroupisavailableforimmediatesaleinitspresentcondition;-Thesaleishighlyprobabletooccur,thatis,theGrouphasmadearesolutiononasaleplanandenteredintoalegallybindingsales.Thesaleisexpectedtobecompletedwithinoneyear.Non-currentassetsordisposalgroupsheldforsalearestatedatthelowerofcarryingamountandfairvalue(seeNoteIII.21)lesscoststosell(exceptfinancialassets(seenoteIII.10)anddeferredtaxassets(seenoteIII.29))initiallyandsubsequently.Anyexcessofthecarryingamountoverthefairvalue(seeNoteIII.21)lesscoststosellisrecognisedasanimpairmentlossinprofitorloss.DiscontinuedoperationsTheGroupclassifiesaseparatecomponentasadiscontinuedoperationeitherupondisposaloftheoperationorwhentheoperationmeetsthecriteriatobeclassifiedasheldforsaleifitisseparatelyidentifiableandsatisfiesoneofthefollowingconditions:

-Itrepresentsaseparatemajorlineofbusinessoraseparategeographicalareaofoperations;-Itispartofasinglecoordinatedplantodisposeofaseparatemajorlineofbusinessoraseparategeographicalareaofoperations;-Itisasubsidiaryacquiredexclusivelywithaviewtoresale.Whereanoperationisclassifiedasdiscontinuedinthecurrentperiod,profitorlossfromcontinuingoperationsandprofitorlossfromdiscontinuedoperationsareseparatelypresentedintheincomestatementforthecurrentperiod.Thecomparativeinformationforprofitorlossfromdiscontinuedoperations,whichusedtopresentasprofitorlossfromcontinuingoperationsinthepriorperiod,isre-presentedasprofitorlossfromdiscontinuedoperationsinthecomparativeincomestatement.

32.DividendsdistributionsDividendsorprofitdistributionsproposedintheprofitappropriationplan,whichwillbeapprovedafterthebalancesheetdate,arenotrecognisedasaliabilityatthebalancesheetdatebutaredisclosedinthenotesseparately.

III.Materialaccountingpoliciesandsignificantestimates(continued)

33.RelatedpartiesIfapartyhasthepowertocontrol,jointlycontrolorexercisesignificantinfluenceoveranotherparty,orviceversa,orwheretwoormorepartiesaresubjecttocommoncontrolorjointcontrolfromanotherparty,theyareconsideredtoberelatedparties.Relatedpartiesmaybeindividualsorenterprises.EnterpriseswithwhichtheCompanyisundercommoncontrolonlyfromtheStateandthathavenootherrelatedpartyrelationshipsarenotregardedasrelatedparties.Inadditiontotherelatedpartiesstatedabove,theCompanydeterminesrelatedpartiesbasedonthedisclosurerequirementsoftheAdministrativeProceduresontheInformationDisclosuresofListedCompaniesissuedbytheCSRC.

34.SegmentreportingReportablesegmentsareidentifiedbasedonoperatingsegmentswhicharedeterminedbasedonthestructureoftheGroup’sinternalorganisation,managementrequirementsandinternalreportingsystemaftertakingthematerialityprincipleintoaccount.Twoormoreoperatingsegmentsmaybeaggregatedintoasingleoperatingsegmentifthesegmentshavesimilareconomiccharacteristicsandarethesameorsimilarinrespectofthenatureofproductsandservices,thenatureofproductionprocesses,thetypesproductionprocesses,thetypesorclassesofcustomersfortheproductsandservices,themethodsusedtodistributetheproductsorprovidetheservices,andthenatureoftheregulatoryenvironment.Forsegmentreporting,inter-segmentrevenuesaremeasuredonthebasisoftheactualtransactionpricesforsuchtransactions,andsegmentaccountingpoliciesareconsistentwiththoseusedtopreparetheconsolidatedfinancialstatements.

35.SignificantaccountingestimatesandjudgementsWhenpreparingfinancialstatements,themanagementoftheGroupneedstoapplyjudgments,estimates,andassumptions,whichwillhaveanimpactontheapplicationofaccountingpoliciesandtheamountsofassets,liabilities,income,andexpenses.Estimatesaswellastheunderlyingassumptionsanduncertaintiesinvolvedarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisedandinanyfutureperiodsaffected.

(1)UncertaintyofestimationThefollowingarekeyassumptionsregardingthefutureandotherkeysourcesofestimationuncertaintyatthebalancesheetdate:

-Impairmentoffinancialinstrumentsandcontractassets:NoteIII,10(6);NotesV,3,4,5,7,and9;-Impairmentofgoodwill:NoteV,19;-Impairmentofnoncurrentassetsotherthanfinancialassetsandgoodwill:NoteIII,20;NoteV,15,16,17,18;-Fairvaluevaluationoffinancialinstruments:NoteX-Deferredincometaxassets:NoteIII,29;NoteV,21-Productqualityassurance:NoteIII,24;NoteV,32-Share-basedpayment:NoteXII

III.Materialaccountingpoliciesandsignificantestimates(continued)

35.Significantaccountingestimatesandjudgements(continued)

(2)JudgmentsIntheprocessofapplyingtheaccountingpoliciesoftheGroup,themanagementhasmadethefollowingjudgmentsthathaveasignificantimpactontheamountsrecognizedinthefinancialstatements:

-Significantjudgmentsandassumptionsregardingcontroloverotherentities:NoteVIII,1(1)-BusinessModelandContractCashFlowCharacteristics:Note3,10(2)IV.Taxation

1.Maintypesoftaxesandcorrespondingtaxrates

2.CorporateincometaxTheincometaxrateapplicabletotheCompanyfortheyearis15%(2024:15%).PursuanttotheCorporateIncomeTaxLawofthePeople’sRepublicofChinatreatmentNo.28,corporateincometaxforkeyadvancedandhigh-techenterprisessupportedbytheStateisapplicabletoapreferentialtaxrateof15%.On30November2023,theCompanyrenewedtheHigh-techEnterpriseCertificateNo.GR202311004505,whichwasentitledjointlybyBeijingMunicipalScienceandTechnologyCommission,BeijingMunicipalFinancialBureau,BeijingMunicipalTaxService,StateTaxationAdministration.TheCompanyissubjecttocorporateincometaxrateof15%sincethedateofcertificationwiththevalidperiodofthreeyears.

IV.Taxation(continued)

2.Corporateincometax(continued)Exceptthat32subsidiariessuchasBeijingBOEOptoelectronicsTechnologyCo.,Ltd.areapplicabletohigh-techenterprisetaxpreference,7subsidiariessuchasChongqingBOEDisplayLightingCo.,Ltd.areapplicabletoencouragedenterprisesintheWesternDevelopment,and15%corporateincometaxrateisapplicable,andoverseassubsidiariesareapplicabletolocaltaxrate,thetaxrateapplicabletootherenterprisesoftheGroupis25%.V.Notestokeyitemsoftheconsolidatedfinancialstatements

1.Cashatbankandonhand

Cashonhand

Including:TotaloverseasdepositswereequivalenttoRMB7,892,050,802(2024:RMB6,539,879,671).Asat31December2025,othermonetaryfundsincludeddepositswithsecuritiescompaniesbytheGroupamountingtoRMB27,859,235(2024:RMB85,440,549),usedasrefundabledepositsforstockrepurchaseandpaymentforsettlementwiththirdpartyplatform,whichcanbewithdrewondemand.Therestwasrestrictedmonetaryfunds,ofwhich,RMB205,382,358(2024:RMB595,018,149)waspledgedforissuanceofbillspayable,andanequivalenttoRMB706,439,108(2024:RMB846,743,275)wasmainlydepositsincommercialbanksassecurity.

2.Financialassetsheldfortrading

Financialassetsatfairvaluethroughprofitorloss

Total

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

3.Notesreceivable

(1)ClassificationofNotesreceivable

Bankacceptancebills

Less:Impairmentallowance

Total

(2)ThepledgednotesreceivableoftheGroupattheendoftheyear

2025Bankacceptancebills

(3)Notesreceivableendorsedordiscountedbutnotyetmaturedonthebalancesheetdate

Bankacceptancebills

Asat31December2025,thecarryingamountofnotesreceivableoftheGroupthathadbeenendorsedtosuppliersforsettlementofaccountspayableordiscountedamountedtoRMB360,019,857(2024:

RMB209,269,910).TheGroupconsidersthatitretainssubstantiallyalltherisksandrewardsincidentaltothesenotesreceivable,includingtherelateddefaultrisk,andthereforecontinuestorecognisethenotesreceivableandtherelatedsettledaccountspayableinfull.Forthe31December2025,nonotesreceivablewerereclassifiedtoaccountsreceivableduetotheissuers’inabilitytofulfilltheirobligations.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

4.Accountsreceivable

(1)Anageinganalysisofaccountsreceivableisasfollows

Within1year

Less:Provisionforbadanddoubtfuldebts

Total

Theageingiscountedstartingfromthedatewhenaccountsreceivablearerecognised.

(2)Accountsreceivablebyprovisioningmethod2025

Individualassessment

Total

2024

Individualassessment

Total

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

4.Accountsreceivable(continued)

(2)Accountsreceivablebyprovisioningmethod(continued)(a)Criteriaforcollectiveassessmentanddetails

Customerswithhighcreditrisk

(b)AssessmentofECLsonaccountsreceivableAtalltimestheGroupmeasurestheimpairmentlossforaccountsreceivableatanamountequaltolifetimeECLs,andtheECLsarebasedonthenumberofoverduedaysandtheexpectedlossrate.AccordingtotheGroup’shistoricalexperience,differentlossmodelsareapplicabletodifferentcustomergroups.

(3)DetailsofallowancefordoubtfuldebtsMovementsofprovisionsforbadanddoubtfuldebts：

Customerswithhighcreditrisk

Total

(4)FivelargestaccountsreceivableandcontractassetsbydebtorattheendoftheyearThesubtotalofthefivelargestaccountsreceivableandcontractassetsoftheGroupattheendoftheyearisRMB12,591,208,802,representing38%ofthetotalaccountsreceivableandcontractassets.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

5.Receivablesfinancing

(1)Receivablesfinancingbycategory

Bankacceptancebills

(2)Receivablesfinancingthatareendorsedordiscountedbuthavenotmaturedattheend

oftheyear:

Bankacceptancebills

Asattheendoftheyear,thecarryingamountoftheGroup’sreceivablesfinancingassetsendorsedtosuppliersforsettlementofaccountspayableordiscountedamountedtoRMB1,214,507,608(2024:

RMB683,496,249).Sincesubstantiallyalltherisksandrewardsoftheseinstrumentshavebeentransferredtootherparties,theGrouphasfullyderecognizedsuchinstrumentsandthecorrespondingaccountpayablesinitsbooksandrecognizedtherelateddiscountexpensesaccordingly.Forthe31December2025,noreceivablesfinancingwerereclassifiedtoaccountsreceivableduetotheissuers’inabilitytofulfilltheirobligations.

6.Prepayments

(1)Theageinganalysisofprepaymentsisasfollows:

Within1year

Theageingiscountedstartingfromthedatewhenprepaymentsarerecognized.ThetotalofthefivelargestprepaymentsoftheGroupattheendoftheyearisRMB320,046,324,representing39%ofthetotalprepayments.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

7.Otherreceivables

Dividendsreceivable

Total

Otherreceivables

(1)TheageinganalysisoftheGroup’sotherreceivablesisasfollows

Within1year

Less:Provisionforbadanddoubtfuldebts

Theageingiscountedstartingfromthedatewhenotherreceivablesarerecognised.

(2)Theotherreceivablescategorisedbynature

Marginsanddeposits

Less:Provisionforbadanddoubtfuldebts

Total

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

7.Otherreceivables(continued)Othersreceivables(continued)

(3)Otherreceivablesbyprovisioningmethod2025

Individualassessment

Total

2024

Individualassessment

Total

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

7.Otherreceivables(continued)Othersreceivables(continued)

(3)Otherreceivablesbyprovisioningmethod(continued)Themovementsoftheprovisionforbaddebtsprovidedforotherreceivablesbasedon12-monthECLandlifetimeECLrespectivelyareasfollows:

Balanceatthebeginningoftheyear

Balanceattheendoftheyear

(4)FivelargestotherreceivablesbydebtorattheendoftheyearAsof31December2025,thetopfivebalancesofotherreceivablesoftheGroupamountedtoRMB438,387,325representing65.75%ofthetotalyear-endbalanceofotherreceivables.Thesemainlycomprisesecuritydepositsandreceivablesfromequitytransfers,andafterassessment,noallowancefordoubtfulaccountsisconsiderednecessary.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

8.Inventories

(1)TheGroup’sinventoriesbycategory

Rawmaterials

TheGroup’syear-endbalanceofinventoriesincludednocapitalisedborrowingcosts(2024:Nil).Attheyearend,noinventorieswerepledgedassecuritybytheGroup(2024:Nil).

(2)AnanalysisofprovisionforimpairmentofinventoriesoftheGroupisasfollows

Rawmaterials

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

9.Contractassets

Contractassets

Changesinprovisionforimpairmentofcontractassetsareasfollows:

Provisionforbadanddoubtfuldebts

BasedontheGroup’shistoricalexperience,therearenosignificantdifferencesintheincidenceoflossesamongdifferentcustomergroups.Accordingly,theGrouptreatsallcontractassetsasasingleportfolioandrecognizesimpairmentprovisionsbasedoncollectiveassessmentofcreditriskcharacteristics.Asat31December2025,thecarryingamountofcontractassetssubjecttocollectiveimpairmentbasedoncreditriskcharacteristicsamountedtoRMB398,590,711(2024:RMB151,647,876),withimpairmentprovisionsofRMB5,508,809(2024:RMB776,390),representinganimpairmentratioof1.38%(December31,2024:0.51%).

10.Othercurrentassets

VATontaxcredits

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

11.Long-termequityinvestments

Jointventures

Associates

Asat31December2025,certainassociatesinvestedbytheGroupsufferedlossandtheGroupdidnothaveanobligationtoassumeadditionallosses.Therefore,theGroupdiscontinuesrecognisingitsshareoffurtherlossesafterthecarryingamountoflong-termequityinvestmentisreducedtozero,theaccumulatedunrecognisedinvestmentlossesamountedtoRMB12,057,070(2024:RMB11,456,900).Fortheyearended31December2025,foreigncurrencytranslationaccountedforthechangeintheprovisionforimpairmentoftheGroup’slong-termequityinvestments.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

12.Otherequityinvestments

(1)Investmentsinotherequityinstruments

Listedequityinstrumentinvestment

(2)Investmentsderecognisedduringtheyear

Listedequityinstrumentinvestment

Total

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

13.Othernon-currentfinancialassets

Financialassetsatfairvaluethroughprofitorloss

14.InvestmentpropertiesInvestmentpropertymeasuredusingthecostmodel

Cost

Balanceattheendoftheyear

Accumulateddepreciation

Balanceattheendoftheyear

Carryingamount

InformationregardingtheGroup’sinvestmentpropertiespledgedascollateralissetoutindetailinNoteV.23.

V.Notestokeyitemsoftheconsolidatedfinancialstatements(continued)

15.Fixedassets

Cost

Balanceattheendofthe

year

Accumulateddepreciation

Balanceattheendofthe

year

Provisionforimpairment

Balanceattheendofthe

year

Carryingamount