Da Hua Certified Public Accountants（Special General Partnership）
| FIYTA Precision Technology Co., Ltd. |
| Independent Auditor’s Report |
| D.H.S.Z. [2024]0011000766-EN |
FIYTA Precision Technology Co., Ltd.Independent Auditor’s Report and Financial Statements
(1
January 2023 to 31 December 2023)
| Content | Page | ||
| I. | Independent Auditor’s Report | 1-7 | |
| II. | Audited Financial Statements | ||
| Consolidated Balance Sheet | 1-2 | ||
| Consolidated Statement of Comprehensive Income | 3 | ||
| Consolidated Cash Flow Statement | 4 | ||
| Consolidated Statement of Changes in Equity | 5-6 | ||
| Parent Company’s Balance Sheet | 7-8 | ||
| Parent Company’s Statement of Comprehensive Income | 9 | ||
| Parent Company’s Cash Flow Statement | 10 | ||
| Parent Company’s Statement of Changes in Equity | 11-12 | ||
| Notes to Financial Statements | 13-121 |
Da Hua Certified Public Accountants (Special General Partnership)12th Floor, Building 7, No. 16, Xisihuan Middle Road, Haidian District, Beijing [100039]
Tel: 86 (10) 5835 0011 Fax: 86 (10) 5835 0006
www.dahua-cpa.com
Independent Auditor’s Report - Page 1
Independent Auditor’s Report
D.H.S.Z.[2024] 0011000766-EN
To the Shareholders of FIYTA Precision Technology Co., Ltd.:
I.Audit Opinion
We have audited the accompanying financial statements of FIYTA PrecisionTechnology Co., Ltd. (herein after “FIYTA Ltd.” or the Company) , which comprisethe consolidated and the parent company’s balance sheet as at 31 December 2023, theconsolidated and the parent company’s statement of comprehensive income, theconsolidated and the parent company’s cash flow statements and the consolidated andthe parent company’s statement of changes in equity for the year then ended, and notesto the financial statements.In our opinion, the accompanying financial statements present in all materialrespects in accordance with the requirements of Accounting Standards for BusinessEnterprises, and fairly reflect FIYTA Ltd.’s financial position at 31 December 2023 andthe financial performance and cash flows for the year then ended.II.Basis for Audit Opinion
We conducted our audit in accordance with CICPA Standards on Auditing(“CSAs”) . In ‘Certified Public Accountant’s Responsibilities for the Audit ofFinancial Statements’ of this report, our responsibilities under these standards aredescribed. Those standards require that we comply with CICPA professional ethicalrequirements, that we are independent from FIYTA Ltd. and have fulfilled all otherethical obligations. We believe that we have obtained sufficient and appropriate auditevidence as basis of for our opinion.III.Key Audit Matters
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 2
Key audit matters are those matters that, in our professional judgment, were ofmost significance in our audit of the financial statements of the current period. Thesematters were addressed in the context of our audit of the financial statements as a whole,and in forming our opinion thereon, and we do not provide a separate opinion on thesematters.We have determined the following key audit matters that need to be communicatedin audit report.(I) Existence of inventory and its net realizable value
1. Description
As at 31 December 2023, the book balance, provision for decline in value, andcarrying amount of inventory were RMB2,172.58 million, RMB71.91 million andRMB2,100.67 million respectively. The carrying amount of inventory accounts for
49.97% of the total assets of the Company.
(i) As the main business of FIYTA Ltd is selling FIYTA brand watches and otherbranded watches, the main inventory of FIYTA Ltd are finished watches and watchcomponents. The inventories are distributed in stores, regional warehouses, resellers’warehouses and the Company’s warehouses which caused difficulty in inventoryphysical observation;
(ii) The management of FIYTA Ltd measures inventory at lower of cost and netrealizable value (NRV) at balance sheet date. Where the cost of an inventory exceedsits NRV, the difference is recognized as provision for decline in value. Thedetermination of NRV involves significant judgment and estimates by the Management.
Inventory value is significant to the Company’s assets and it requires significantjudgement by the Management, as a result, we identified existence of inventory and itsnet realizable value as key audit matters.
2. How our audit addressed the key audit matter
Major audit procedures we have conducted include:
(i) Understanding, evaluating and testing the design and operating effectiveness ofinternal controls of procurement and payment, production and storage, and theprovision for decline in value of inventory;
(ii) Using the work of experts to conduct IT audit to information system andevaluating the authenticity and accuracy of business data which related to financialstatements.
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 3
(iii) Understanding and evaluating the appropriateness of the Company’s policy inprovision for decline in value;
(iv) Understanding and inquiring the locations of inventory storage, measurementmethod of inventory so as to determining the scope of inventory physical observation;
(v) Discussing physical inventory count status with the Management and attendingthe physical inventory count and conducting observation and test count on site to checkthe quantity of the inventories and observe their condition.
(vi) Obtaining the ageing report of inventory and taking into consideration ofinventory condition in order to perform analytical review on the ageing as well asanalyze the reasonableness of provision for decline in value;
(vii) Reviewing and evaluating the appropriateness of significant estimates madeby the Management in determining the NRV of inventory;
(viii) Obtaining the calculation of provision for decline in value of inventory,reviewing whether the provision was made in compliance with relevant accountingpolicies and performing recalculation of provision. Checking the movements of prioryear’s provision and analyzing whether the provision was adequately accrued in priorperiod.
(ix) Tracing samples of large purchases in current period to their correspondingcontracts and tax invoices, and inspecting their purchase requisition form and goodsreceipt notes.
Based on audit work conducted above, we believe that the inventory exists and themeasurement is reasonable stated according to the Company’s policies.
(II) Revenue recognition
1. Description
In 2023, the Company’s income from main business was RMB4,553.71 million.The Company’s revenue mainly comes from sales of FIYTA brand watches anddistribution of other branded watches. Except for small amount of sales by direct salesand consignment sales of FIYTA brand watches, most of the sales of FIYTA brandwatches and other branded watches are sold through shops in department store and on-line shops. Refer to Note III 32 for accounting policy relating to revenue recognition.
Operating revenue represents major line item in income statement and is mainsource of profit, the accuracy and completeness of revenue recognition have significantimpact to the Company’s profit, as a result, we identified revenue recognition as a key
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 4
audit matter.
2. How our audit addressed the key audit matter
Major audit procedures we have conducted include:
(i) Understanding, evaluating and testing the design and operating effectivenessof internal controls relating to revenue recognition;
(ii) Using the work of experts to conduct IT audit to information system andevaluating the authenticity and accuracy of business data which related to financialstatements.
(iii) Obtaining and understanding accounting policies relating to revenuerecognition, and reviewing and evaluating whether the point in time of control righttransfer, measurement of transaction price and accounting for special transactions arecomplied with the accounting standards;
(iv) Selecting samples from current year’s transaction records, and tracing themto supporting documents such as contract, tax invoice and goods dispatch note (ifapplicable) and courier waybill (if applicable) ;
(v) In connection with audit of accounts receivable, selecting major customers andconfirming corresponding sales in current year and year-end balance, and procedureswere implemented to check for post-dated returns;
(vi) Conducting cut-off test to revenue recognized before and after the balancesheet date by selecting samples to check supporting documents such as contract, taxinvoice and goods dispatch note (if applicable) and courier waybill (if applicable) toevaluate whether the revenue was recorded in appropriate accounting period.
Based on audit work conducted above, we believe that the Company’s revenuerecognition is in conformity to its revenue recognition policy.IV.Other Information
The management of FIYTA Ltd (the “Management”) are responsible for the OtherInformation. The Other Information comprises all of the information included in theCompany’s annual report other than the financial statements and our auditors’ reportthereon.
Our opinion expressed on the financial statements does not cover the OtherInformation and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is toread the Other Information and, in doing so, consider whether the Other Information is
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 5
materially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a materialmisstatement of this Other Information, we are required to report that fact. We havenothing to report in this regard.V.Responsibilities of the Management and those Charged withGovernance for the Financial StatementsThe Management of the Company is responsible for the preparation of thefinancial statements that give a fair view in accordance with Accounting Standards forBusiness Enterprises and for the design, implementation and maintenance of suchinternal controls as the Management determine is necessary to enable the preparationof financial statements that are free from material misstatement, whether due to fraudor error.In preparing the financial statements, the Management is responsible for assessingthe Company’s ability to continue as a going concern, disclosing, as applicable, mattersrelated to going concern and using the going concern basis of accounting unless theManagement either intend to liquidate the Company or to cease operations, or have norealistic alternative but to do so.Those who charged with governance is responsible for overseeing the Company’sfinancial reporting process.
VI.Auditors’ Responsibilities for the Audit of the FinancialStatements
Our objectives are to obtain reasonable assurance about whether the financialstatements as a whole are free from material misstatement, whether due to fraud or error,and to issue an auditors’ report that includes our opinion. Reasonable assurance is ahigh level of assurance, but is not a guarantee that an audit conducted in accordancewith China Standards on Auditing will always detect a material misstatement when itexists. Misstatements can arise from fraud or error and are considered material if,individually or in the aggregate, they could reasonably be expected to influence theeconomic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with China Standards on Auditing, we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 6
also:
1. Identify and assess the risks of material misstatement of the financial statements,whether due to fraud or error, design and perform audit procedures responsive to thoserisks, and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery,intentional omissions, misrepresentations, or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances.
3. Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the Management.
4. Conclude on the appropriateness of the Management’s use of the going concernbasis of accounting and, based on the audit evidence obtained, whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany’s ability to continue as a going concern. If we conclude that a materialuncertainty exists, we are required, according to China Standards on Auditing, to drawattention in our auditors’ report to the related disclosures in the financial statements or,if such disclosures are inadequate, to modify our opinion. Our conclusions are basedon the audit evidence obtained up to the date of our auditors’ report. However, futureevents or conditions may cause the Company to cease to continue as a going concern.
5. Evaluate the overall presentation, structure and content of the financialstatements, including the disclosures, and whether the financial statements representthe underlying transactions and events in a manner that achieves fair presentation.
6. Obtain sufficient appropriate audit evidence regarding the financial informationof the entities or business activities within FIYTA Ltd to express an opinion on thefinancial statements. We are responsible for the direction, supervision and performanceof the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among othermatters, the planned scope and timing of the audit and significant audit findings,including any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that we havecomplied with relevant ethical requirements regarding independence, and to
D.H.S.Z.[2024]0011000766-EN
Independent Auditor’s Report - Page 7
communicate with them all relationships and other matters that may reasonably bethought to bear on our independence, and where applicable, related safeguards.From the matters communicated with those charged with governance, wedetermine those matters that were of most significance in the audit of the financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor’s report unless law or regulation precludes public disclosureabout the matter or when, in extremely rare circumstances, we determine that a mattershould not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of suchcommunication.
| Da Hua Certified Public Accountants (Special General Partnership) | CICPA: | ||
| Beijing, China | Engagement partner | Long Jiao | |
| CICPA: | |||
| Wang Dong | |||
| 12 March 2024 | |||
| Consolidated Balance Sheet | ||
| As at 31 December 2023 | ||
| Current assets:Monetary fundsnote 1504,629,153.71313,747,463.64Financial assets held for tradingDerivative financial assetsNotes receivablenote 218,268,972.3732,214,912.10Accounts receivablenote 3323,142,761.64305,290,959.68Accounts receivable financingPrepaymentsnote 46,571,239.988,039,794.97Other receivablesnote 557,725,792.0056,918,019.48Inventoriesnote 62,100,666,175.282,141,320,373.67Contract assetsHeld-for-sale assetsCurrent portion of non-current assetsOther current assetsnote 772,249,391.8166,339,505.32Total current assets3,083,253,486.792,923,871,028.86Non-current assets:Debt investmentsOther debt investmentsLong-term receivablesLong-term equity investmentsnote 851,862,607.3058,182,086.90Investment in other equity instrumentsnote 985,000.00Other non-current financial assetsInvestment propertiesnote 10360,255,832.14374,979,494.71Fixed assetsnote 11355,785,354.68364,628,765.17Construction in progressProductive biological assetsOil and gas assetsRight-of-use assetsnote 12109,452,481.64110,330,512.03Intangible assetsnote 1331,664,380.7733,200,218.63Development expenditureGoodwillLong-term deferred expensesnote 14122,324,355.13144,488,452.18Deferred tax assetsnote 1580,227,771.4695,784,611.94Other non-current assetsnote 169,434,627.1711,593,741.57Total non-current assets1,121,007,410.291,193,272,883.13Total assets4,204,260,897.084,117,143,911.99(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | ||
| Assets | ||
| Consolidated Balance Sheet (Continued) | ||
| As at 31 December 2023 | ||
| Current liabilities:Short-term borrowingsnote 17250,187,763.87290,237,111.11Financial liabilities held for tradingDerivative financial liabilitiesNotes payablenote 182,000,600.00Accounts payablenote 19173,825,907.71170,589,456.67Payments received in advancenote 2010,267,758.3116,960,128.83Contract liabilitiesnote 2112,286,243.6216,844,437.47Employee benefits payablenote 22120,084,810.60136,587,939.38Tax payablesnote 2364,188,161.3160,770,168.30Other payablesnote 24121,937,801.07165,060,122.58Held-for-sale liabilitiesCurrent portion of non-current liabilitiesnote 2566,399,004.2071,546,316.16Other current liabilitiesnote 261,589,635.301,686,806.01Total current liabilities820,767,085.99932,283,086.51Non-current liabilities:Long-term borrowingsBonds payableIncluding: Preferred stockIncluding: Perpetual debtLease liabilitiesnote 2743,526,352.5241,642,561.58Long-term payablesLong-term employee benefits payableProvisionsDeferred incomenote 28952,785.691,295,926.80Deferred tax liabilitiesnote 155,208,920.695,498,844.95Other non-current liabilitiesTotal non-current liabilities49,688,058.9048,437,333.33Total liabilities870,455,144.89980,720,419.84Equity:Share capitalnote 29415,219,970.00417,627,960.00Other equity instrumentsIncluding: Preferred stockIncluding: Perpetual debtCapital reservesnote 30990,159,033.171,007,086,643.48Less: Treasury stocknote 3178,645,532.2350,759,806.16Other comprehensive incomenote 3219,325,335.935,739,589.89Special reservesnote 333,223,158.062,012,064.91Surplus reservenote 34275,010,401.50275,010,401.50Retained earningsnote 351,709,513,385.761,479,706,638.53Equity attributable to parent company3,333,805,752.193,136,423,492.15Non-controlling interestsTotal shareholders' equity3,333,805,752.193,136,423,492.15Total liabilities and shareholders' equity4,204,260,897.084,117,143,911.99(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | ||
| Liability and Equity | ||
| 13,585,746.0413,397,936.296. Total comprehensive income346,763,848.41280,079,388.13Total comprehensive income attributable to parent company346,763,848.41280,079,388.13Total comprehensive income attributable to non-controlling interests7. Earnings per shareI. Basic earnings per share0.80820.6398II. Diluted earnings per share0.80750.6398(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |||
| For the year ended 31 December 2023 | |||
| Items | |||
| Other comprehensive income after tax attributable to parent | |||
| I. Items of other comprehensive income that will not be reclassified | |||
| II. Items of other comprehensive income that will be reclassified toprofit or loss | |||
| Other comprehensive income attributable to non-controllinginterests after tax | |||
| Consolidated Cash Flows Statement | |||
| For the year ended 31 December 2023 | |||
| Other cash payments related to financing activitiesnote 50198,056,975.77177,477,740.46Total cash outflows from financing activities602,163,687.521,106,081,523.22Net cash flows from financing activities-352,163,687.52-260,925,818.93-20,544.932,132,547.595. Net increase in cash and cash equivalents190,890,764.07103,483,652.50Add: Opening balance of cash and cash equivalents313,738,389.64210,254,737.146. Closing balance of cash and cash equivalentsnote 51504,629,153.71313,738,389.64(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |||
| Items | |||
| 4. Effect of changes in foreign exchange rates on cash and cashequivalents | |||
| Consolidated Statement of Changes in Equity | ||||||||||||||||||
| For the year ended 31 December 2023 | ||||||||||||||||||
| vi. OthersV. Special reserves1,211,093.151,211,093.15 i. Appropriated during current year1,537,825.221,537,825.22 ii. Used during current year-326,732.07-326,732.07VI. Others4. Closing balance of current year415,219,970.00990,159,033.1778,645,532.2319,325,335.933,223,158.06275,010,401.501,709,513,385.763,333,805,752.19(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO):Financial Manager: | ||||||||||||||||||
| Current Period | ||||||||||||||||||
| Equity attributable to parent company | Non-controllinginterests | Total shareholders'equity | ||||||||||||||||
| Share capital | Capital reserves | Less: Treasury stock | Other comprehensiveincome | Special reserves | Surplus reserves | Retained earnings | ||||||||||||
| Consolidated Statement of Changes in Equity |
| For the year ended 31 December 2023 |
| vi. OthersV. Special reserves i. Appropriated during current year ii. Used during current yearVI. Others4. Closing balance of current year(Attached notes to statements are part of the consolidated financial statements)Legal Representative: |
Consolidated Statement of Changes in Equity
(Unless otherwise indicated, the currency is expressed in RMB)(Unless otherwise indicated, the currency is expressed in RMB)
426,051,015.001,040,908,194.1360,585,678.92-7,658,346.401,062,731.13275,010,401.501,338,444,326.093,013,232,642.53
426,051,015.001,040,908,194.1360,585,678.92-7,658,346.401,062,731.13275,010,401.501,338,444,326.093,013,232,642.53-8,423,055.00-33,821,550.65-9,825,872.7613,397,936.29949,333.78141,262,312.44123,190,849.62
13,397,936.29266,681,451.84280,079,388.13-8,423,055.00-33,821,550.65-9,825,872.76-32,418,732.89-7,987,217.00-42,265,614.88-50,252,831.88-435,838.008,459,107.40-9,825,872.7617,849,142.16
-15,043.17-15,043.17
-125,419,139.40-125,419,139.40-125,419,139.40-125,419,139.40
949,333.78949,333.781,246,390.691,246,390.69
-297,056.91-297,056.91417,627,960.001,007,086,643.4850,759,806.165,739,589.892,012,064.91275,010,401.501,479,706,638.533,136,423,492.15
Finance Officer (CFO):Financial Manager:
| Consolidated Statement of Changes in Equity(Unless otherwise indicated, the currency is expressed in RMB)(Unless otherwise indicated, the currency is expressed in RMB)426,051,015.001,040,908,194.1360,585,678.92-7,658,346.401,062,731.13275,010,401.501,338,444,326.093,013,232,642.53426,051,015.001,040,908,194.1360,585,678.92-7,658,346.401,062,731.13275,010,401.501,338,444,326.093,013,232,642.53-8,423,055.00-33,821,550.65-9,825,872.7613,397,936.29949,333.78141,262,312.44123,190,849.6213,397,936.29266,681,451.84280,079,388.13-8,423,055.00-33,821,550.65-9,825,872.76-32,418,732.89-7,987,217.00-42,265,614.88-50,252,831.88-435,838.008,459,107.40-9,825,872.7617,849,142.16-15,043.17-15,043.17-125,419,139.40-125,419,139.40-125,419,139.40-125,419,139.40949,333.78949,333.781,246,390.691,246,390.69-297,056.91-297,056.91417,627,960.001,007,086,643.4850,759,806.165,739,589.892,012,064.91275,010,401.501,479,706,638.533,136,423,492.15 Finance Officer (CFO):Financial Manager: | |||||||||||||||||
| For the year ended 31 December 2023 | |||||||||||||||||
| Prior Period | |||||||||||||||||
| Equity attributable to parent company | Non-controllinginterests | Total shareholders'equity | |||||||||||||||
| Share capital | Capital reserves | Less: Treasury stock | Other comprehensiveincome | Special reserves | Surplus reserves | Retained earnings | |||||||||||
| Parent Company's Balance SheetPrepared by: FIYTA Precision Technology Co., Ltd.(Unless otherwise indicated, the currency is expressed in RMB)Note XVIClosing BalanceClosing Balance of prior periodCurrent assets:Monetary funds308,230,255.35274,691,023.16Financial assets held for tradingDerivative financial assetsNotes receivableAccounts receivablenote 11,822,916.61603,216.03Accounts receivable financingPrepaymentsOther receivablesnote 2696,328,419.85839,782,543.07InventoriesContract assetsHeld-for-sale assetsCurrent portion of non-current assetsOther current assets15,886,769.8214,107,604.63Total current assets1,022,268,361.631,129,184,386.89Non-current assets:Debt investmentsOther debt investmentsLong-term receivablesLong-term equity investmentsnote 31,633,041,716.111,552,310,486.50Investment in other equity instruments85,000.00Other non-current financial assetsInvestment properties293,695,692.68305,676,084.09Fixed assets207,209,890.94209,495,642.59Construction in progressProductive biological assetsOil and gas assetsRight-of-use assetsIntangible assets23,460,211.7023,522,355.93Development expenditureGoodwillLong-term deferred expenses4,795,846.738,240,653.62Deferred tax assets640,783.051,904,597.73Other non-current assets710,807.492,051,932.75Total non-current assets2,163,554,948.702,103,286,753.21Total assets3,185,823,310.333,232,471,140.10(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |
| As at 31 December 2023 | |
| Assets | |
| Parent Company's Balance Sheet (Continued)Prepared by: FIYTA Precision Technology Co., Ltd.(Unless otherwise indicated, the currency is expressed in RMB)Note XVIClosing BalanceClosing Balance of prior periodCurrent liabilities:Short-term borrowings250,187,763.87290,237,111.11Financial liabilities held for tradingDerivative financial liabilitiesNotes payableAccounts payable2,285,657.881,048,201.41Payments received in advance10,267,758.3116,960,128.83Contract liabilitiesEmployee benefits payable25,886,702.6727,139,007.97Tax payables3,322,241.54778,299.01Other payables224,668,548.77299,198,966.56Held-for-sale liabilitiesCurrent portion of non-current liabilitiesOther current liabilitiesTotal current liabilities516,618,673.04635,361,714.89Non-current liabilities:Long-term borrowingsBonds payableIncluding: Preferred stockIncluding: Perpetual debtLease liabilitiesLong-term payablesLong-term employee benefits payableProvisionsDeferred income952,785.691,295,926.80Deferred tax liabilitiesOther non-current liabilitiesTotal non-current liabilities952,785.691,295,926.80Total liabilities517,571,458.73636,657,641.69Equity:Share capital415,219,970.00417,627,960.00Other equity instrumentsIncluding: Preferred stockIncluding: Perpetual debtCapital reserves993,037,528.981,010,917,776.19Less: Treasury stock78,645,532.2350,759,806.16Other comprehensive incomeSpecial reservesSurplus reserve275,010,401.50275,010,401.50Retained earnings1,063,629,483.35943,017,166.88Total owners' equity2,668,251,851.602,595,813,498.41Total liabilities and owners' equity3,185,823,310.333,232,471,140.10(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |
| As at 31 December 2023 | |
| Liability and Equity | |
| 6. Total comprehensive income223,983,671.61261,994,651.82(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |||
| For the year ended 31 December 2023 | |||
| Items | |||
| I. Items of other comprehensive income that will not be reclassified to profitor loss | |||
| II. Items of other comprehensive income that will be reclassified to profit orloss | |||
| Parent Company's Cash Flows StatementPrepared by: FIYTA Precision Technology Co., Ltd.(Unless otherwise indicated, the currency is expressed in RMB)Note XVICurrent PeriodPrior Period1. Cash flows from operating activitiesCash received from sales and services189,464,980.58166,402,067.64Tax and surcharge refunds7,647.56Other cash receipts related to operating activities4,225,525,553.064,309,971,160.78Total cash inflows from operating activities4,414,990,533.644,476,380,875.98Cash paid for goods and services9,573,850.00Cash paid to and for employees61,402,333.1559,513,788.17Taxes and surcharges paid20,428,198.7520,686,403.89Other cash payments related to operating activities4,154,707,540.944,383,872,472.45Total cash outflows from operating activities4,246,111,922.844,464,072,664.51Net cash flows from operating activities168,878,610.8012,308,211.472. Cash flows from investing activitiesCash received from withdrawal of investmentsCash received from investment income198,500,000.00240,595,696.70Net proceeds from disposals of fixed assets, intangible assets and other long-term assets1,146,737.463,973,887.69Net proceeds from disposal of subsidiaries and other business unitsOther cash receipts related to investing activitiesTotal cash inflows from investing activities199,646,737.46244,569,584.39Cash paid for fixed assets, intangible assets and other long-term assets7,686,801.715,810,205.37Cash paid for investments90,000,000.00Net cash paid for acquiring subsidiaries and other business unitsOther cash payments related to investing activitiesTotal cash outflows from investing activities97,686,801.715,810,205.37Net cash flows from investing activities101,959,935.75238,759,379.023. Cash flows from financing activitiesCash received from investments by othersCash received from borrowings250,000,000.00830,000,000.00Other cash receipts related to other financing activitiesTotal cash inflows from financing activities250,000,000.00830,000,000.00Cash repayments for debts290,000,000.00790,000,000.00Cash paid for distribution of dividends and profit and for interest expenses114,106,711.75134,389,016.01Other cash payments related to financing activities83,148,230.8353,390,338.09Total cash outflows from financing activities487,254,942.58977,779,354.10Net cash flows from financing activities-237,254,942.58-147,779,354.104. Effect of changes in foreign exchange rates on cash and cash equivalents-44,371.78380,393.855. Net increase in cash and cash equivalents33,539,232.19103,668,630.24Add: Opening balance of cash and cash equivalents274,691,023.16171,022,392.926. Closing balance of cash and cash equivalents308,230,255.35274,691,023.16(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO): Financial Manager: | |
| For the year ended 31 December 2023 | |
| Items | |
| Parent Company's Statement of Changes in Equity | ||||||||||||||||
| For the year ended 31 December 2023 | ||||||||||||||||
| 4. Closing balance of current year415,219,970.00993,037,528.9878,645,532.23275,010,401.501,063,629,483.352,668,251,851.60(Attached notes to statements are part of the consolidated financial statements)Legal Representative: Finance Officer (CFO):Financial Manager: | ||||||||||||||||
| Current Period | ||||||||||||||||
| Share capital | Capital reserves | Less: Treasury stock | Other comprehensiveincome | Special reserves | Surplus reserves | Retained earnings | Total shareholders'equity | |||||||||
| Parent Company's Statement of Changes in Equity |
| For the year ended 31 December 2023 |
| 4. Closing balance of current year(Attached notes to statements are part of the consolidated financial statements)Legal Representative: |
Parent Company's Statement of Changes in Equity
(Unless otherwise indicated, the currency is expressed in RMB)(Unless otherwise indicated, the currency is expressed in RMB)
426,051,015.001,045,449,410.6760,585,678.92275,010,401.50806,441,654.462,492,366,802.71
426,051,015.001,045,449,410.6760,585,678.92275,010,401.50806,441,654.462,492,366,802.71-8,423,055.00-34,531,634.48-9,825,872.76136,575,512.42103,446,695.70
261,994,651.82261,994,651.82-8,423,055.00-34,531,634.48-9,825,872.76-33,128,816.72-7,987,217.00-42,265,614.88-50,252,831.88
-435,838.007,749,023.57-9,825,872.7617,139,058.33
-15,043.17-15,043.17
-125,419,139.40-125,419,139.40
-125,419,139.40-125,419,139.40
417,627,960.001,010,917,776.1950,759,806.16275,010,401.50943,017,166.882,595,813,498.41
Finance Officer (CFO):Financial Manager:
| Parent Company's Statement of Changes in Equity(Unless otherwise indicated, the currency is expressed in RMB)(Unless otherwise indicated, the currency is expressed in RMB)426,051,015.001,045,449,410.6760,585,678.92275,010,401.50806,441,654.462,492,366,802.71426,051,015.001,045,449,410.6760,585,678.92275,010,401.50806,441,654.462,492,366,802.71-8,423,055.00-34,531,634.48-9,825,872.76136,575,512.42103,446,695.70261,994,651.82261,994,651.82-8,423,055.00-34,531,634.48-9,825,872.76-33,128,816.72-7,987,217.00-42,265,614.88-50,252,831.88-435,838.007,749,023.57-9,825,872.7617,139,058.33-15,043.17-15,043.17-125,419,139.40-125,419,139.40-125,419,139.40-125,419,139.40417,627,960.001,010,917,776.1950,759,806.16275,010,401.50943,017,166.882,595,813,498.41 Finance Officer (CFO):Financial Manager: | |||||||||||||||
| For the year ended 31 December 2023 | |||||||||||||||
| Prior Period | |||||||||||||||
| Share capital | Capital reserves | Less: Treasury stock | Other comprehensiveincome | Special reserves | Surplus reserves | Retained earnings | Total shareholders'equity | ||||||||
Notes to the financial statements - Page 13
FIYTA Precision Technology Co., Ltd.Notes to the Financial StatementsFor the year ended 31 December 2023
I. Company status
1. Registered place, organization and address of headquarters
FIYTA Precision Technology Co., Ltd. (the “Company”) was founded, under the approval ofShen Fu Ban Fu (1992) 1259 issued by the General Office of Shenzhen Municipal Government,through the restructuring of former Shenzhen FIYTA Time Industrial Company by the promoter ofChina National Aero-Technology Import and Export Shenzhen Industry & Trade Center (namechanged to “China National Aero-Technology Shenzhen Co., Ltd” lately) on 25 December 1992.On 3 June 1993, both the Company was listed on Shenzhen Stock Exchange. The Company holdsbusiness license with the Unified Social Credit Code of 91440300192189783K.As at 31 December 2023, the outstanding shares issued by the Company was 415.22 millionshares and the registered capital was RMB415.22 million after a series of share dividend, rightoffering, share capital conversion from retained earnings, and issuing of new shares. TheCompany’s registered address is FIYTA Hi-Tech Building, Gao Xin Nan Yi Dao, Nanshan District,Shenzhen, Guangdong Province, where the Company’s headquarters locates. The parent companyof the Company is CATIC Shenzhen Holdings Limited (CATIC Shenzhen) and the ultimatecontrolling party of the Company is Aviation Industry Corporation of China, Ltd. (AVIC) .
2. Nature of the Company’s business and main operating activities
The business nature and main operating activities of the Company and its subsidiaries mainlyinclude: Watch and Clock Sales; Watch and Timing Instrument Manufacturing; Watch and TimingInstrument Sales; Jewelry Wholesale; Jewelry Retail; Wearable Intelligent Devices Manufacturing;Wearable Intelligent Devices Sales; Property Management; Non-residential Real Estate Leasing;Professional Design Services; Import and Export of Goods; Sales of Household ElectricalAppliances; Sales of Satellite Mobile Communication Terminals; Import and Export Business(according to Shen Mao Jin Zhun Zi No.2001-2204) .
3. Scope of consolidation
There were 12 subsidiaries that are included in the Company’s scope of consolidation for year2023, see Note VI for details. The scope of consolidation was the same as last year.
4. Authorization for issue
The financial statements have been approved and authorized for issue by the Board of Directorson 12 March 2024.
II. Basis of preparation
Notes to the financial statements - Page 14
1. Basis of preparation
The financial statement is prepared in accordance with the requirements of AccountingStandards for Business Enterprises and associated application guidance, illustrations to thestandards and related pronouncements (collectively known as “Accounting Standards for BusinessEnterprises” or “CAS”) . These financial statements also comply with the disclosure requirementsof “Regulation on the Preparation of Information Disclosure of Companies Issuing Public Shares,No. 15: General Requirements for Financial Reports” (revised in 2023) issued by China SecuritiesRegulatory Commission (CSRC) .
2. Going concern
The Company assesses the going concern ability to the extent of 12 month after the balancesheet date. No issues that would result in significant doubt about the Company’s going concern isnoted. As a result, the financial statements of the Company have been prepared on going concernbasis.
3. Basis and principles of accounting
Accrual basis is adopted for the Group’s accounting activity. Except for some financialinstruments, the financial statements are measured using historical cost. In case of impairmentoccurred on assets, provisions for impairment are provided for in accordance with relatedregulations.
III. Significant accounting policies and accounting estimates
1. Highlight to specific accounting policies and estimates
(1) The Company make specific accounting policies and estimates according to its nature ofbusiness. Accounting policies and estimates mainly includes: method of estimated credit lossaccrual (Note III. 13, Note III. 14 and Note III. 15) , measurement of inventory (Note III. 16) ,depreciation of investment property and fixed asset and amortization of intangible asset (Note III.19, Note III. 20 and Note III. 24) , revenue (Note III, 32) etc.
(2) Based on historical experience and other factors including reasonable estimation to futureevents, the Company continues to evaluate significant accounting estimates and key assumptions.If material changes to following accounting estimate and key assumption incurred, material impactwould happened to the carrying value of the Company’s assets and liabilities in coming accountingyear.
1) Measurement of Expected Credit Loss of accounts receivable and other receivables
The management estimates impairment loss provision to accounts receivable and otherreceivables based on the judgments to estimated credit loss of accounts receivable and otherreceivables. If any events occurred that indicated the Company may not be able to recover thebalance amount, estimation is needed in provision accrual. If the expected number is different with
Notes to the financial statements - Page 15
the estimated figure, the difference will affect the carrying value of accounts receivable and otherreceivables and the impairment loss expenses in corresponding accounting period.
2) Impairment to inventory. The Company recognizes provision for obsolete inventories basedon the excess of the cost of inventory over its net realizable value. In determining the net realizablevalue of inventories, the management uses significant judgments to estimate the selling price, costto finish manufacturing, and selling expenses and associated taxes. If the management revisesestimated selling price and cost to finish manufacturing and selling expenses, the NAV estimationwould be affected and the difference would have an effect to the inventory provision.
3) Estimation of long-term asset impairment. When evaluating whether there is impairment tolong-term asset, the management mainly considers the following: (a) whether the events affect theasset impairment have already incurred; (b) whether the discounted cash flow from continue usageof the asset or disposal is lower than its carrying amount; and (c) whether major assumption used inestimating the future cash flow is appropriate.
Changes to related assumption adopted in determining impairment such as profitability,discounting rate and growth rate may have material impact to the present value used in impairmenttest and result in impairment to above mentioned long-term assets.
(a) Depreciation and amortization. The estimated residual value and useful life of investmentproperty, fixed asset and intangible asset that used by the Company are based on historical actualuseful life and actual residual value of assets with similar nature or functions. In the process of usingsuch assets, estimated useful life and residual value may vary depending on the economicenvironment, technological environment and other environment that the assets located. If there isdifference between the expectation and previous estimation, proper adjustments will be made by themanagement.(b) Share-based payments. The management makes best estimation based on up-to-datenumber of employees who have exercisable shares and adjusting the number of exercisable equityinstrument on each balance sheet date in the vesting period. If there is difference between currentyear exercisable employee and previous estimation, proper adjustments will be made by themanagement.(c) Deferred tax asset. Deferred tax asset of taxable losses shall be recognized to the extent thatthere will have sufficient taxable income to offset. This involves significant judgments to estimatethe timing and amount of future taxable profit and taking into consideration of tax planning so as todetermine the amount of deferred tax asset.
(d) Corporate income tax. The final tax treatment of many transaction and events are withuncertainty in the normal course of operation. Significant judgments involves in accrual of corporateincome tax. If there is difference between the final discretion and the amount recorded in books, thedifference will affect the amount of tax in the period of final discretion.
Notes to the financial statements - Page 16
2. Statement of compliance with Accounting Standards for Business EnterprisesThe financial statements of the Company have been prepared in accordance with therequirements of Accounting Standards for Business Enterprises. These financial statements presenttruly and completely the financial position as at 31 December 2023, the results of operations andthe cash flows for the year then ended of the Company.
3. Accounting period
The accounting period of the Company is the calendar year, i.e. from 1 January to 31 Decemberof each year.
4. Operating cycle
The operating cycle refer to the period from purchasing assets for process to realizing cash orcash equivalent. The Company’s operating cycle is 12 months which is also used as standard todetermine the liquidity of asset and liabilities.
5. Recording currency
The Company and its domestic subsidiaries adopt Renminbi (“RMB”) as the recordingcurrency. FIYTA (Hong Kong) Limited (“FIYTA Hong Kong”) , a subsidiary of the Companyoutside mainland China, and Station 68 Limited (“Station 68”) , a subsidiary of FIYTA Hong Kong,use Hong Kong Dollar (“HKD”) as the recording currency according to the main economicenvironment where the companies operated in. Montres Chouriet SA, a subsidiary of FIYTA HongKong (“Swiss Company”) , uses Swiss Franc as the recording currency according to the maineconomic environment where the Swiss Company operated in. The recording currencies mentionedabove will be translated to Renminbi when preparing financial statements. The currency used inpreparing the Group’s financial statements is Renminbi.
6. Methodology for determining materiality criteria and basis for selection
| Item | Materiality criteria |
| Accounts receivable with significant amount of bad debt provision reversed or recovered during the period | Individual closing balance of 0.50 million or more |
| Significant other accounts payable aged over one year | Individual closing balance of 1.00 million or more |
7. Accounting treatment for business combinations involving entities under commoncontrol and not under common control
(1) If a business combination is achieved through multiple steps, of which the terms,condition and economical effect is in line with one or more criteria as followed, the multipletransactions shall be dealt with as one-basket transaction.
1) the transactions were entered into at the same time or by considering each other’s influence;
2) a complete business result can only be achieved by combining all these transactions together;
3) the performing of one transaction is depended on at least one other transaction;
Notes to the financial statements - Page 17
4) a transaction is not economical if it is considered stand along but it will become economicalif it is considered in combination with other transactions.
(2) Business combination involving entities under common control
For a business combination involving enterprises under common control, the assets acquiredand liabilities assumed are measured based on their carrying amounts in the consolidated financialstatements of the ultimate controlling party at the combination date, except for adjustments due todifferent accounting policies. The difference between the carrying amount of the net assets acquiredand the consideration paid for the combination (or the total par value of shares issued) is adjustedagainst share premium in the capital reserve, with any excess adjusted against retained earnings.
If there is contingent consideration and provision or assets are required to be recognized, thedifference between the provision or assets and the contingent consideration shall adjust the capitalreserve, with any excess adjusted against retained earnings.
If business combinations involving entities under common control achieved in stages thatinvolves multiple transactions belongs to one-basket transaction, all transactions shall be dealt withas one transaction. If not, the accounting treatment is as follows: Initial investment cost is theacquirer’s share of the carrying amount of the net assets of the acquiree in the consolidated financialstatements of the ultimate controlling party at the combination date. The difference between theinitial investment cost and the sum of carrying amount of investment prior to combination date andcarrying amount of new considerations paid for the combination at the combination date is adjustedto capital reserve (share premium) . If the capital reserve is not sufficient to absorb the difference,any excess is adjusted against retained earnings. he difference between the carrying amount of thenet assets acquired and the sum of carrying amount of investment prior to combination date andcarrying amount of new considerations paid for the combination at the combination date is adjustedto capital reserve (share premium) . If the capital reserve is not sufficient to absorb the difference,any excess is adjusted against retained earnings. The profit or loss, other comprehensive income andchanges in other owner’s equity recognized by the acquirer during the period from the later of initialinvestment date and the date that the acquirer and acquiree both under common ultimate control tothe combination date are offset the opening retained earnings or profit for loss for the current periodin the comparative statements.
(3) Business combinations involving entities not under common control
The purchase date refers to the date that the Company actually acquired control over the acquirei.e. the date when the control over the acquiree’s net assets or decision of business operation hasbeen transferred to the Company. If the Company fulfills the following conditions at the same time,it is considered that the control has been transferred:
① the contract or agreement of business combination has been approved by internal powerdepartment;
Notes to the financial statements - Page 18
② related matters has been approved by state supervisory authorities, if needed;
③ procedures of asset transfer has been completed;
④ the Company has been made majority of payments and has the ability and plan to make theresidual payments;
⑤ the Company is in substances acquired the business and operating policies and enjoyedcorresponding interests and undertaking risks of the acquire.
On the purchase date, assets transferred, liabilities incurred or assumed as the considerationpaid shall be measured at fair value. The difference between the fair value and carrying amountshall be charged to current period profit or loss.
Where the combination cost exceeds the acquirer’s interest in the fair value of the acquiree’sidentifiable net assets, the difference is recognized as goodwill, and subsequently measured on thebasis of its cost less accumulated impairment provisions. Where the combination cost is less thanthe acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference isrecognized in profit or loss for the current period after reassessment.
If business combinations involving entities not under common control achieved in stages thatinvolves multiple transactions belong to one-basket transaction, all the transactions shall be treatedas one. Otherwise, it shall be treated as follows: In the separate financial statements, the initialinvestment cost is the sum of the carrying amount of equity investment of the acquiree held prior tothe acquisition date and additional investment cost at the acquisition date. When the previously-held equity investment which was accounted for under the e Accounting treatment for businesscombinations involving entities under common control and not under common control equitymethod before the acquisition date, any other comprehensive income previously recognized is notadjusted on acquisition date. When the investment is disposed of in later date, the amount that wasrecognized in other comprehensive income is recognized on the same basis as would be required ifthe investee had disposed directly of the related assets or liabilities. The owners’ equity recognizedas the changes of the investee’s other owners’ equity except for net profit or loss, othercomprehensive income and profit distribution, are transferred to profit or loss for the current periodwhen disposing the investment. When the previously-held equity investment which was measuredat fair value before the acquisition date, the accumulated changes in fair value included in othercomprehensive income is transferred to profit or loss for the current period upon commencement ofthe cost method.
(4) Transaction costs for business combination
The overhead for the business combination, including the expenses for audit, legal services,valuation advisory, and other administrative expenses, are recorded in profit or loss for the currentperiod when incurred. The transaction costs of equity or debt securities issued as the considerationsof business combination are included in the initial recognition amount of the equity or debt securities.
Notes to the financial statements - Page 19
8. Criteria for judging control and the preparation of consolidated financial statements
(1) Criteria for determining control
Control means that the investor has power over the investee, enjoys variable returns throughparticipation in the investee's relevant activities, and has the ability to use its power over the investeeto influence the amount of its returns.The Company makes a judgment on whether or not to control an investee based on acomprehensive consideration of all relevant facts and circumstances. The Company re-evaluates itsjudgment once changes in relevant facts and circumstances result in a change in the relevantelements involved in the definition of control. Relevant facts and circumstances mainly include：
① the purpose for which the investee was established;
② relevant activities of the investee and how decisions are made about relevant activities;
③ whether the investor enjoys rights that currently give it the ability to dominate the investee'srelevant activities;
④ whether the investor enjoys a variable return through participation in the investee's relevantactivities;
⑤ the ability of the investor to use its power over the investee to influence the amount of itsreturn;
⑥ relationships between investors and other parties.
(2)
The scope of consolidated financial statements is based on control. All subsidiaries (includingstandalone entity that controlled by the Company) are all included in the scope of consolidation.
(3) Procedures of consolidation
The consolidated financial statements are prepared by the Company based on the financialstatements of the Company and its subsidiaries and other relevant information. The whole enterpriseis considered as one accounting body when preparing consolidated financial statement and reflectthe whole group’s financial position, performance and cash flow according to unified accountingpolicies based on accounting standards.
All subsidiaries that are included in the scope of consolidation adopt same accounting policies,and accounting period. If there are differences, the subsidiaries shall adjust its policies andaccounting period accordingly.
When preparing consolidated financial statements, the accounting policies and accountingperiods of the subsidiaries should be consistent with those established by the Company, and allsignificant intra-group balances and transactions are eliminated. If the treatment based on enterprisegroup angle is different with the angle from subsidiaries’, it shall be treated based on enterprise
Notes to the financial statements - Page 20
group angle.The portion of a subsidiary’s equity that is not attributable to the parent is treated as non-controlling interests and presented separately in the consolidated balance sheet within shareholders’equity. The portion of net profit or loss of subsidiaries for the period attributable to non-controllinginterests is presented separately in the consolidated income statement below the “net profit” lineitem. When the amount of loss for the current period attributable to the non-controlling shareholdersof a subsidiary exceeds the non-controlling shareholders’ share of the opening owners’ equity of thesubsidiary, the excess is still allocated against the non-controlling interests.
Where a subsidiary or business has been acquired through a business combination involvingenterprises under common control in the reporting period, the subsidiary or business is deemed tobe included in the consolidated financial statements from the date they are controlled by the ultimatecontrolling party. Their operating results and cash flows are included in the consolidated incomestatement and consolidated cash flow statement respectively from the date they are controlled bythe ultimate controlling party.Where a subsidiary or business has been acquired through a business combination notinvolving enterprises under common control in the reporting period, the financial statements ofsubsidiaries shall be adjusted on the basis of fair value of identifiable net assets on purchase date.
1) Addition of subsidiaries or business operation
Where a subsidiary or business has been acquired through a business combination involvingenterprises under common control in the reporting period, the subsidiary or business is deemed tobe included in the consolidated financial statements from the date they are controlled by the ultimatecontrolling party. Their operating results and cash flows are included in the consolidated incomestatement and consolidated cash flow statement respectively from the date they are controlled bythe ultimate controlling party.
If the Company can exert control over the investee under common control because of additionof investment, adjustments shall be made as if all the combining party are at the current conditionin the angle of ultimate controlled party. Equity investment held before acquired control, profit orloss, other comprehensive income and other net asset changes that have already recognized betweenthe later of acquiring original equity and the date under common control, and combination date shalloffset opening retained earnings or current period profit or loss respectively.
In the reporting period, if there is subsidiary or business addition involving entities not undercommon control, no adjustments shall be made to the consolidated balance sheet. The revenue,expenses and profit from the purchasing date to period end shall be included in consolidated incomestatement. The cash flows from the purchasing date to period end shall be included in consolidatedcash flow statement.
Where a subsidiary or business has been acquired through a business combination not
Notes to the financial statements - Page 21
involving enterprises under common control by means of investment addition in the reporting period,equity held before the purchase date shall be re-measured at fair value. Difference between the fairvalue and the carrying amount shall be charged to current period investment gain. Changes relatedto equity method such as other comprehensive income and other equity changes beside net profit,other comprehensive income and profit distribution shall be transferred to current period investmentgain.
2) Disposal subsidiary or business
a) General principalIn the reporting period, if the Company dispose of subsidiary or business, the subsidiary’srevenue, expenses, profit and cash flows from the beginning of the period to the disposal date shallbe included in consolidated financial statements.When the Company loses control over a subsidiary because of disposing part of equityinvestment or other reasons, the remaining part of the equity investment is re-measured at fair valueat the date when the control is lost. A gain or loss is recognized in the current period and is calculatedby the aggregate of consideration received in disposal and the fair value of remaining part of theequity investment deducting the share of net assets in proportion to previous shareholdingpercentage in the former subsidiary since acquisition date and the goodwill.b) Disposal of subsidiary through multiple stepsIn the event that the Company losses control over a subsidiary through multiple transactions,if one or more conditions below are fulfilled, it shall be treated as one-basket transaction:
i) the transactions were entered into at the same time or by considering each other’s influence;ii) a complete business result can only be achieved by combining all these transactions together;iii) the performing of one transaction is depended on at least one other transaction;iv) a transaction is not economical if it is considered stand along but it will become economicalif it is considered in combination with other transactions.If the disposal was categorized as one-basket transaction, the Company dealt with alltransactions as one transaction that resulted in lost control over subsidiary. But, before losing control,the difference between disposal consideration and the portion of net asset of the disposal part shallbe recognized in other comprehensive income each time of disposal and charged to incomestatement in whole in the period loss control.If the disposal does not belong to one-basket transaction, the accounting treatment before lostcontrol shall be in accordance with policies of disposal equity but not losing control. At the timecontrol lost, deal with as normal subsidiary disposal.
3) Acquiring non-controlling interests of subsidiary
Where the Company acquires a non-controlling interest from a subsidiary’s non-controllingshareholders, the book value of shareholder’s equity attributed to the Company and to the non-
Notes to the financial statements - Page 22
controlling interest is adjusted to reflect the change in the Company’s interest in the subsidiaries.The difference between the proportion interests of the subsidiary’s net assets being acquired ordisposed and the amount of the consideration paid or received is adjusted to the capital reserve inthe consolidated balance sheet, with any excess adjusted to retained earnings.
4) Partially disposal subsidiary equity without losing control
The difference between the consideration received from partial disposal of the long-term equityinvestment in the subsidiary without losing control and the share of net assets of the subsidiary thatis continuously calculated from the purchase date or the merger date corresponding to the disposalof the long-term equity investment , to adjust the share premium in the capital reserve in theconsolidated balance sheet, if the share premium in the capital reserve is insufficient to offset, adjustthe retained earnings.
9. Joint arrangement classification and accounting treatment for joint operation
(1) Classification
The Company classifies joint arrangements into joint operations and joint ventures based onthe structure, legal form, terms and conditions in the arrangement, and other related facts.
Joint operations means joint arrangement that does not realized through independent entity.Joint arrangement that realized through independent entity is normally recognized as joint venturebut it also can be classified as joint operation if clear evidence showed that one of the followingcondition is met:
1) The legal form of an joint arrangement showed that the joint parties enjoyed rights over
related assets and undertake liability respectively;
2) The contract showed that the joint parties enjoyed rights over related assets and undertake
liability respectively;
3) Other facts and situation indicated that the joint parties enjoyed rights over related assets
and undertake liability respectively;
(2) Accounting treatment to joint operation
The Company recognizes the following items relating to its interest in a joint operation, andaccount for them in accordance with relevant accounting standards:
1) its solely-held assets, and its share of any assets held jointly;
2) its solely-assumed liabilities, and its share of any liabilities assumed jointly;
3) its revenue from the sale of its share of the output arising from the joint operation;
4) its share of the revenue from the sale of the output by the joint operation; and
5) its solely-incurred expenses, and its share of any expenses incurred jointly.
The Company contribute or disposal of assets (except that asset constitute business) . Beforethese assets are sold to third party, the Company only recognizes the portion of profit or losses thatattributes to the other party. If the assets incurred impairment (meets the requirements of the
Notes to the financial statements - Page 23
"Accounting Standards for Business Enterprises No. 8 - Impairment of Assets"), the Companyrecognizes losses in full.For the assets purchased from joint operation (except that constitutes business) , before it issold to third party, only the portion that attributable to the other parties. If assets incurred impairment(meets the requirements of the "Accounting Standards for Business Enterprises No. 8 - Impairmentof Assets"), the Company recognizes losses based on its share.
The Company does not enjoy joint control to joint operation. If the Company enjoys jointoperation’s asset and undertaking related liabilities, the accounting treatment is the same. Otherwise,it shall be accounted for based on accounting standards.
10. Cash and cash equivalents
When preparing cash flow statement, the Company recognizes cash in hand and bank depositthat available for payment as cash. Cash equivalents include short-term (generally expires withinthree months from the date of purchase),highly liquid investments that are readily convertible toknown amounts of cash and are subject to an insignificant risk of change in value.
11. Foreign currency transactions and translation of foreign currency financialstatements
(1) Foreign currency transactions
Foreign currency transactions are translated into the functional currency of the Company, usingthe exchange rates prevailing at the dates of the transactions.
Monetary items denominated in foreign currencies are translated to Renminbi at the spotexchange rate at the balance sheet date. The resulting exchange differences between the spotexchange rate on balance sheet date and the spot exchange rate on initial recognition or on theprevious balance sheet date are recognized in profit or loss. Non-monetary items that are measuredat historical cost in foreign currencies are translated to Renminbi using the exchange rate at thetransaction date.
Non-monetary items that are measured at fair value in foreign currencies are translated usingthe exchange rate at the date the fair value is determined. The resulting exchange differences arerecognized in profit or loss or other comprehensive income.
(2) Translation of foreign currency financial statements
When translating the foreign currency financial statements of overseas subsidiaries, assets andliabilities of foreign operation are translated to Renminbi at the spot exchange rate at the balancesheet date. Equity items, excluding “retained earnings”, are translated to Renminbi at the spotexchange rates at the transaction dates.
When disposing overseas operations, foreign translation difference that related to the overseas
Notes to the financial statements - Page 24
business shall be charged to current period profit or losses from other comprehensive income. Ifthe disposal resulted in decrease in shareholding but still maintain control, the translationdifference will be included in non-controlling interest. If the disposal related to associate entity orjoint venture entities, the translation difference will be included in current period profit or loss.
12. Financial instruments
The Company recognizes financial assets or financial liabilities when the Company become aparty of the financial instruments.
Effective interest rate method refer to calculating the amortized cost of financial assets orliabilities and amortizes interest income or expenses into corresponding accounting periodaccordingly.
Effective interest rate refers to the interest that is used to discount the estimated future cashflows of existing financial assets or financial liabilities to its amortized cost. When determining theeffective interest rate, the cash flow is estimated taking consideration of all contractual terms offinancial assets or financial liabilities but does not including estimated credit loss.
Amortized cost of financial assets or financial liabilities is the initial recognition amount deductprincipal and add or less accumulated amortization to the difference between initial recognition andthe amount at maturity and less accumulated loss provision (for financial assets only) .
(1) Recognition and derecognition of financial instruments
Financial assets are classified into the following three categories depends on the Company’sbusiness mode of managing financial assets and cash flow characteristics of financial assets
1) Financial assets measured at amortized cost
2) Financial assets at fair value through other comprehensive income
3) Financial assets at fair value through profit or loss
Financial assets are measured at fair value at initial recognition. But it is recognized usingtrading price for accounts receivable or notes receivable arose from sale of goods or providing ofservice that does not including material financing component or does not consider financingcomponent within one year.
For financial assets at fair value through profit or loss, the related transaction costs are directlyrecognized through profit or loss, and the related transaction costs of other types of financial assetsare included in the initial recognition amounts.
Only when the Company changes its business model of managing financial assets, all thefinancial assets affected shall be reclassified on the first day of the first reporting period after thebusiness model changes.
1) Financial assets measured at amortized cost
The Company shall classify financial assets that meet the following conditions and are notdesignated as financial assets at fair value through profit or loss as financial assets measured at
Notes to the financial statements - Page 25
amortized cost: The Company’s business model for managing the financial assets is to collectcontractual cash flows; The terms of the financial asset contract stipulate that cash flows generatedon a specific date are only payments of principal and interest based on the amount of outstandingprincipal. Financial assets measured at amortized cost of the Company includes cash and bankbalances, notes receivable, accounts receivables and other receivables.After initial recognition, the effective interest rate method is used to measure the amortizedcost of such financial assets. Profits or losses arising from financial assets measured at amortizedcosts and not part of any hedging relationship are included in current profit or loss when therecognition is terminated, amortized or impaired according to the effective interest rate.a) for financial assets that already impaired when it is acquired, the Company determines itsinterest income using adjusted effective interest rate based on its amortized cost.
b) for financial assets that does not impaired when it is acquired but impaired latterly, theCompany determines its interest income using adjusted effective interest rate based on its amortizedcost. If there is no credit impairment in later period due to changes to risk factors, the Company useseffective interest rate times of carrying amount of the financial asset to determine interest income.
2) Financial assets at fair value through other comprehensive income
The Company shall classify financial assets that meet the following conditions and are notdesignated as financial assets measured at fair value and whose changes are recorded in currentprofit or loss as financial assets measured at fair value through other comprehensive income: TheGroup’s business model for managing the financial assets is both to collect contractual cash flowsand to sell the financial assets, and the terms of the financial asset contract stipulate that cash flowsgenerated on a specific date are only payments of principal and interest based on the amount ofoutstanding principal.
After initial recognition, financial assets are subsequently measured at fair value. Interest,impairment losses or gains and exchange gains calculated by the effective interest rate method arerecognized in profit or loss, while other gains or losses are recognized in other comprehensiveincome. When derecognized, the accumulated gains or losses previously recognized in othercomprehensive income are transferred from other comprehensive income and recorded in currentprofit or loss.
Notes receivable and accounts receivable measured at fair value through other comprehensiveincome are listed as receivables financing, and other such financial assets are listed as other debtinvestments, of which: one year from the balance sheet date Other debt investments due within oneyear are listed as non-current assets due within one year, and other debt investments with an originalmaturity date within one year are listed as other current assets.
3) Financial assets designated as fair value through other comprehensive income
At initial recognition, the Company may designate non-trading equity instrument investments
Notes to the financial statements - Page 26
as financial assets at fair value through other comprehensive income, presented as other equityinstrument investment, and recognize dividend income when the conditions are met (the designationcannot be revoked once it is made) .The fair value changes of this kind of financial asset shall be included in other comprehensiveincome and no impairment provision is needed. When de-recognizing the financial asset,accumulated gain or loss in other comprehensive income shall be transferred out of othercomprehensive income and charged to retained earnings. During the investing period when theCompany holds equity instruments, the Company recognizes dividends in current period profit orloss when the right of receiving dividends is confirmed and the associated economic benefit isprobable to flow into the Company and that the amount can be measured reliably. The Companytreated this kind of financial instrument under other equity investment.The designated equity instrument investment does not belong to the following: the purpose ofobtaining the financial asset is mainly for the recent sale; it is part of the identifiable financial assetinstrument combination under centralized management at initial recognition, and there is objectiveevidence that the short-term gain actually exists in the near future; it is a derivative (except forderivatives that meet the definition of a financial guarantee contract and are designated as effectivehedging instruments) .
4) Financial assets at fair value through profit or loss
The financial assets other than financial assets measured at amortized cost and financial assetsat fair value through other comprehensive income are classified as financial assets at fair valuethrough profit or loss.
After initial recognition, the financial assets are subsequently measured at fair value, and theprofits or losses generated from which are recognized in profit or loss.
The Company present the financial assets as financial asset held for trade, other non-currentfinancial assets.
5) Financial assets designated at fair value through profit or loss.
At initial recognition, if the accounting mismatch can be eliminated or significantly reduced,the financial assets can be designated as financial assets at fair value through profit or loss.
If the hybrid contract includes one or more embedded derivatives and the main contract doesnot belong to the above financial assets, the Company may designate the whole as a financialinstrument that is measured at fair value through profit or loss, except in the following cases:
a) Embedded derivatives do not materially change the cash flow of a hybrid contract
b) When it is first determined whether a similar hybrid contract requires a spin-off, there islittle need for analysis to make it clear that the embedded derivatives it contains should not be split.If the prepayment right of the embedded loan allows the holder to repay the loan in advance with anamount close to the amortized cost, the prepayment right does not need to be split.
Notes to the financial statements - Page 27
After initial recognition, the financial assets are subsequently measured at fair value, and theprofits or losses generated from which are recognized in profit or loss.
The Company present the financial assets as financial asset held for trade, other non-currentfinancial assets.
(2) Classification and measurement of financial liabilities
The Company categorizes financial liabilities into financial liabilities and equity instrumentbased on the contract terms and economical nature rather than solely on its legal form. Financialliabilities initially recognized as financial liabilities at fair value through profit or loss, otherfinancial liabilities and derivative instrument designated as effective hedging instrument.
The financial liabilities of the Company are initially measured at fair value. The relatedtransaction costs of financial liabilities at fair value through profit or loss are directly recognized inprofit or loss. The related transaction costs of other categories of financial liabilities are included inthe initial recognition amount.
Subsequent measurement of financial liabilities depends on its category:
1) Financial liabilities at fair value through profit or loss
This category includes financial liabilities held for trade (including derivatives that arefinancial liabilities) and financial liabilities designated at fair value through profit or loss.
At initial recognition, in order to provide more relevant accounting information, the Companyclassifies financial liabilities that meet one of the following conditions as financial liabilities at fairvalue through profit or loss (the designation cannot be revoked once it is made) : the aim ofundertaking related financial liabilities is to sell or repurchase in the short run; it is part ofidentifiable financial instruments and there is objective evidence indicated that the enterprise adoptsshort-term profitability mode; belong to derivative instrument except for derivative instrumentdesignated as effective hedging instrument and financial guarantee contract. Financial liabilitiesheld for trade are measured at fair value subsequently and all fair value changes except for hedgingaccounting shall be included in current period profit or loss.
At initial recognition, in order to provide more relevant accounting information, the Companyclassifies financial liabilities that meet one of the following conditions as financial liabilitiesdesignated at fair value through profit or loss (the designation cannot be revoked once it is made) :
a) accounting mismatches can be eliminated or significantly reduced.
b) management and performance evaluation of financial liability portfolios or combinations offinancial assets and financial liabilities based on fair value according to corporate risk managementor investment strategies as stated in formal written documents, and report to key managementpersonnel on this basis.
When the Company initially recognizes a financial liability and designates it at fair valuethrough profit or loss according to stipulations of standards, the changes in the fair value of thefinancial liability arising from changes in the company’s own credit risk are included in other
Notes to the financial statements - Page 28
comprehensive income, and other changes in fair value are recognized in profit or loss for the period.However, if the accounting causes or expands the accounting mismatch in profit or loss, the entiregain or loss of the financial liability (including the affected amount from changes in the company’sown credit risk) is included in the current profit or loss.
2）Other financial liabilitiesExcept for the following items, the Company classifies financial liabilities as financialliabilities measured at amortized cost:
a) Financial liabilities at fair value through profit or loss.b) The transfer of financial assets does not meet the conditions for derecognition or financialliabilities arising from the continued involvement in the transferred financial assets.c) Financial guarantee contracts that are not in the first two categories of this article, and loancommitments granted at a rate lower than market interest rates and that are not in the first categoryof this articleFinancial guarantee contracts that are not designated as financial liabilities measured at fairvalue through profit or loss are initially recognized at fair value. Subsequent to initial recognition,the subsequent measurement is determined according to the higher loss allowance of contingentliabilities under expected credit loss model and the initial recognition amount deducting by theaccumulated amortization.
(3) Derecognition of financial instruments
1）If a financial asset meets one of the following conditions, it shall be derecognized:
a) The contractual right to receive the cash flow of the financial asset is terminated.b) The financial asset has been transferred, and the transfer meets the requirements of the“Accounting Standards for Business Enterprises No. 23 – Transfer of Financial Assets” regardingderecognition of financial assets.
2) Conditions of derecognition of financial liabilities
If the current obligation of a financial liability (or a part thereof) has been discharged, thefinancial liability (or such part of financial liability) is derecognized.When the Company and the lender sign an agreement to replace the original financial liabilitywith a new financial liability, and the new financial liability is substantially different from theoriginal financial liability, the original financial liability is derecognized and a new financial liabilityis recognized. The difference between the carrying amount and the consideration paid (includingthe transferred non-cash assets or liabilities assumed) is recognized in profit or loss
If the Company repurchases part of the financial liabilities, the carrying amount of the financialliabilities as a whole is allocated based on the proportion of the fair value of the continuingrecognition portion and the derecognition portion on the repurchase date. The difference betweenthe carrying amount assigned to the derecognition portion and the consideration paid (including the
Notes to the financial statements - Page 29
transferred non-cash assets or liabilities assumed) shall be included in the current profit or loss.
(4) Recognition basis and measurement for transfer of financial assets
In the event of transfer of financial assets, the Company assesses the extent to which it retainsthe risks and rewards of ownership of the financial assets and treats them in the following cases:
1) If almost all risks and rewards of ownership of financial assets are transferred, the financialassets are derecognized and the rights and obligations arising from or retained in the transfer areseparately recognized as assets or liabilities.
2) If almost all the risks and rewards of ownership of financial assets are retained, the financialassets shall continue to be recognized
3) If there is neither transfer nor retention of almost all risks and rewards of ownership offinancial assets (i.e., other than (1) and (2) of this article) , then depending on whether or not theyretain control over financial assets
a) If control over the financial asset is not retained, the financial asset shall be derecognized,and the rights and obligations arising or retained during the transfer shall be separately recognizedas assets or liabilities.
b) If the control over the financial asset is retained, the relevant financial asset shall becontinuously recognized according to the degree of its continuous involvement in the transferredfinancial asset, and the relevant liabilities shall be recognized accordingly. The degree of continuedinvolvement in the transferred financial assets refers to the degree to which the company bears therisk or reward of the value change of the transferred financial assets
When judging whether the transfer of financial assets satisfies the conditions for derecognitionabove, the principle of substance over form is adopted. The Company divides the transfer offinancial assets into the overall transfer and partial transfer of financial assets:
1) If the overall transfer of financial assets meets the conditions for derecognition, thedifference between the following is included in the current profit or loss:
a) The carrying amount of the transferred financial assets on the date of derecognition.
b) The sum of the consideration received in respect of the transfer of financial assets and theamount corresponding to the derecognized portion in the accumulated changes in the fair valueoriginally and directly recognized in other comprehensive income (the financial assets involved inthe transfer are measured at fair value through other comprehensive income)
If the transfer of a financial asset does not meet the conditions for derecognition, the financialasset will continue to be recognized and the consideration received is recognized as a financialliability
(5) Method for determining the fair value of financial assets and financial liabilities
The fair value of financial assets or financial liabilities with active market is determined byactive market quotations; active market quotations include quotations that are readily and regularly
Notes to the financial statements - Page 30
available from exchanges, dealers, brokers, industry groups, pricing agencies or regulatoryauthorities for related assets or liabilities, and represent actual and frequently occurring markettransactions on a fair trade basis.The fair value of financial assets initially acquired or derived or financial liabilities assumedshall be determined on the basis of the market transaction price.
The fair value of financial assets or financial liabilities without active market is determinedusing valuation techniques. In valuation, the Company adopts valuation techniques that areapplicable under current circumstances and that are supported by adequate available data and otherinformation, selects inputs with consistent asset or liability characteristics considered by marketparticipants in trading related asset or liability, and uses relevant observable inputs where possible.Unobservable inputs are used where the relevant observable inputs are not available or areimpracticable.
(6) Provision for impairment of financial assets
Based on the expected credit losses, the Company assesses the expected credit losses of thefinancial assets measured at amortized cost and financial assets at fair value through othercomprehensive income, lease receivables, contract assets, loan commitment and financial liabilitiesthat are not measured at fair value through profit or loss, and financial guarantee contract etc., andmakes impairment accounting and recognizes loss provisions.
The expected credit loss refers to the weighted average of the credit losses of financialinstruments that are weighted by the risk of default. Credit loss refers to the difference between allcontractual cash flows discounted at the original effective interest rate and receivable from thecontract and all cash flows expected to be received by the Company, and the present value of allcash shortages. For financial assets that have been purchased or generated with credit impairment,loss provision is recognized only for the cumulative changes in lifetime expected credit losses afterthe initial recognition on the balance sheet date.
For accounts receivable, contract assets, and lease receivables, the Company shall alwaysmeasure the loss allowance for them at an amount equal to the lifetime expected credit losses.
For financial assets that have been purchased or generated with credit impairment, lossprovision is recognized only for the cumulative changes in lifetime expected credit losses after theinitial recognition on the balance sheet date. On each balance sheet date, the amount of changes inlifetime expected credit losses is included in profit or loss as an impairment loss or gain. Even ifthe lifetime expected credit loss determined on the balance sheet date is less than the expectedcredit loss reflected in the estimated cash flow at the initial recognition, the positive change inexpected credit loss is also recognized as an impairment gain
Except for the above-mentioned simplified measurement methods and purchased or originated
Notes to the financial statements - Page 31
credit-impaired assets, the Company assesses whether the credit risk of the other financial assets hasincreased significantly since the initial recognition on each balance sheet date, and separatelymeasures its loss provision, recognizes expected credit loss and its changes based on the followingcircumstances：
a) If the credit risk of the financial instruments has not increased significantly since the initialrecognition, the loss provision is measured at the amount equivalent to the expected credit loss ofthe financial instruments in the next 12 months, regardless of whether the basis the Companyassesses the credit loss is on individual financial instrument or the combination of financialinstruments, and the increase or reversal of the loss provision resulting therefrom shall be includedin the current profit or loss as an impairment loss or gain.
b) If the credit risk of the financial instruments has increased significantly since the initialrecognition but no impairment has occurred, the loss provision is measured at the amount equivalentto the lifetime expected credit loss of the financial instruments, regardless of whether the basis theCompany assesses the credit losses is on individual financial instrument or a combination offinancial instruments, and the increase or reversal of the loss provision resulting therefrom shouldbe included in the current profit or loss as an impairment loss or gain.
c) For financial instruments in the third stage which the financial instrument has been impairedsince initial recognition, the Company measures loss provision on the basis of life-time expectedcredit loss and calculating interest income according to their book balance minus the impairmentprovision and the actual interest rate.
Incremental or reversal of credit loss provision shall be included in current profit or loss asimpairment loss or gain. Except for financial asset at fair value through other comprehensiveincome, credit loss provision is to offset the carrying amount of financial assets. For financial assetsat fair value through other comprehensive income, the credit loss provision is recognized in othercomprehensive income and will not offset the financial asset’s carrying amount in balance sheet.
If the Company recognized credit loss provision in prior accounting period in terms of life-time credit loss, but on current period balance sheet date, the associated financial asset does notbelong to the situation of risk increased after the initial recognition, the Company shall accruecredit loss provision for this financial asset based on the next 12 month expected credit loss.Difference arose from above changes shall be included in current period profit or loss asimpairment gain.
1) Assessment of significant increase of credit risk
By comparing the default risk of financial instruments on balance sheet day with that on initialrecognition day, the Company determines the relative change of default risk of financial instrumentsduring the expected life of financial instruments, to evaluate whether the credit risk of financial
Notes to the financial statements - Page 32
instruments has increased significantly since the initial recognition.To determine whether credit risk has increased significantly since the initial recognition, factorsconsidered by the Company includes:
a) Whether there is serious deterioration of the debtor’s operating results that have occurred orare expected to occur;b) Changes in the existing or anticipated technological, market, economic or legal environmentwill have a significant negative impact on the debtor’s repayment capacity.c) Serious deterioration of external or internal credit ratings (if any) of financial instrumentsthat have occurred or are expected to occur;d) Whether the expected performance and repayment of debtor changes significantly.e) Whether the Company changed the way of managing financial assets.On the balance sheet date, if the Company assesses that the financial instrument only has lowerlevel of credit risk, the Company assumes that the credit risk associated with the financialinstrument does not increased after the initial recognition. If the default rate of a financialinstrument is low and the debtor’s ability to fulfill its cash flow liability is strong, the financialinstrument will be regarded with lower credit risk even if there will be adverse changed ineconomic and operating environment in long-term which may not necessarily decrease the debtor’sability of fulfilling its cash flow liabilities.
2) Provision for impairment of financial assets
When one or more events that adversely affect the expected future cash flows of a financialasset occur, the financial asset becomes a financial asset that has suffered credit impairment.Evidence that credit impairment has occurred in a financial asset includes the following observableinformation:
a) significant financial difficulties of the issuer or debtor;
b) the debtor breaches the contract, such as failure to pay or delay in the payment of interest orprincipal;
c) the creditor gives the debtor a concession which would not have been made under any othercircumstances for economic or contractual considerations relating to the financial difficulties of thedebtor;
d) the debtor is likely to go bankrupt or carry out other financial restructurings;
e) the financial difficulties of the issuer or the debtor cause the active market of the financialasset to disappear;
f) purchase or source a financial asset at a substantial discount that reflects the fact that creditlosses have occurred.
The credit impairment of financial assets may be caused by the joint action of multiple events,and may not be caused by separately identifiable event
Notes to the financial statements - Page 33
3) Determining expected credit loss (ECL)
The Company evaluates ECL based on single or portfolio of financial instrument. Whenevaluating ECL, the Company considers past events, current situation and future economiccondition.The Company categorizes financial instrument into different portfolios based on commoncredit risk characteristics. Common credit risk characteristics includes: types of financialinstruments, aging portfolio, settlement period, debtor’s industries etc… Refer to accountingpolicies of financial instruments for standard for single evaluation and credit risk characteristics.The Company uses the following way to determine the ECL of financial instruments:
a) For financial assets, credit loss is the present value of difference between all contractual cashflows receivable from the contract and all cash flows expected to be received by the Company.
b) For lease receivable, credit loss is the present value of difference between all contractualcash flows receivable from the contract and all cash flows expected to be received by the Company.
c) For financial guarantee contract, credit loss is the present value of expected payment amountdue to credit losses happened to the owner of the contract and less any amount that the Companyexpected to receive from the contract owner, debtor or other parties.
d) For financial assets that already impaired on balance sheet date but not impaired whenpurchasing, the credit loss is the difference of carrying amount and present value of future cashflows discounted at original effective interest rate.
Factors that the Company measures ECL of financial instrument includes: assessing a series ofpossible results and to determine a weighted average amount without bias; time value of money;information of past event, current situation and future economic condition forecast that can beobtained without paying extra cost or efforts on balance sheet date.
4) Write off
If the Company no longer reasonably expects that the financial assets contract cash flow canbe recovered fully or partially, the financial assets book balance will be reduced directly. Suchreduction constitutes the derecognition of the financial assets.
(7) Offset of financial assets and financial liabilities
Financial assets and financial liabilities are presented separately in the balance sheet and arenot offset. However, if all of the following conditions are met, the net amount offset by each otheris presented in the balance sheet:
1) The Company has a statutory right to offset the recognized amount, and such legal right iscurrently enforceable;
2) The Company plans to settle in net amount or to realize the financial assets and settle thefinancial liabilities at the same time.
Notes to the financial statements - Page 34
13. Bill receivables
Refer to Note XII. 6 Financial instrument impairment for details of ECL determination andaccounting method to bill receivable.If the Company has sufficient evidence to evaluate the ECL of bill receivable on single basis,it will be assessed on single basis.
If there is not sufficient evidence to evaluate the ECL on single basis, the Company will makejudgment based on historical loss experience, current situation and future economic situation, andclassifying the bill receivable into different portfolios. The basis for portfolios is determined asfollows:
| Portfolio | Basis | method |
| Risk-free banker’s acceptance note | The issuer has higher level of credit rating and no default in past and has strong ability to fulfil its contractual cash follow obligation | Referencing historical impairment experience and taking into consideration of current situation and estimation of future conditions |
| Business acceptance note | Bill receivables with same aging have similar credit risk characteristics | Based on aging analysis |
14. Accounts receivables
Refer to Note XII. 6 Financial instrument impairment for details of ECL determination andaccounting method to accounts receivable.
If the Company has sufficient evidence to evaluate the ECL of account receivable on singlebasis, it will be assessed on single basis.
If there is not sufficient evidence to evaluate the ECL on single basis, the Company will makejudgment based on historical loss experience, current situation and future economic situation, andclassifying the account receivable into different portfolios. The basis for portfolios is determinedas follows:
| Portfolio | Basis | method |
| Receivables for related parties in scope of consolidation | Account receivables for related parties in scope of consolidation have similar credit risk characteristics | Referencing historical impairment experience and taking into consideration of current situation and estimation of future conditions |
| Accounts receivables from other parties | Account receivables with same aging have similar credit risk characteristics | Based on aging analysis |
15. Other receivables
Refer to Note XII. 6 Financial instrument impairment for details of ECL determination andaccounting method to other receivables.
If the Company has sufficient evidence to evaluate the ECL of other receivables on single basis,it will be assessed on single basis.
If there is not sufficient evidence to evaluate the ECL on single basis, the Company will makejudgment based on historical loss experience, current situation and future economic situation, and
Notes to the financial statements - Page 35
classifying the other receivable into different portfolios. The basis for portfolios is determined asfollows:
| Portfolio | Basis | method |
| Receivables of down payment and guarantee | The portfolio has similar credit risk characteristics | Based on aging and ECL rate |
| Petty cash for employees | The portfolio has similar credit risk characteristics | Referencing historical impairment experience and taking into consideration of current situation and estimation of future conditions |
| Social security payment paid on-behalf of employees | The portfolio has similar credit risk characteristics | Referencing historical impairment experience and taking into consideration of current situation and estimation of future conditions |
| Receivables from related parties within scope of consolidation | The portfolio has similar credit risk characteristics | Referencing historical impairment experience and taking into consideration of current situation and estimation of future conditions |
| Others | The portfolio has similar credit risk characteristics | Based on aging and ECL rate |
16. Inventory
(1) Inventory categories, issue valuation method, inventory system, amortization methodfor low value consumables and packages.
1)Classification
Inventory refers to the finished products or commodities that the Company holds for sale in itsdaily activities, semi-products in the production process, materials and consumables used in theproduction process or the provision of labour services. Inventories include raw materials, work inprogress, and finished goods.
2)Valuation method of inventory
When inventory is acquired, it is initially measured at cost, including procurement costs,processing costs and other costs. When the inventory is issued, it is measured by the weightedaverage method (except for branded watches) and specific identification method (for brandedwatches) .
3) Inventory count system
The Company maintains a perpetual inventory system.
4) Amortization methods of low-value consumables and packaging materials
Low-value consumables and packaging materials are charged to profit or loss when they areused.
(2) Basis for determining and method for provision for obsolete inventories
After the inventory is thoroughly inspected at the end of the period, the provision shall beprovided or adjusted at the lower of the cost of the inventory and its net realizable value. The netrealizable value of inventory of goods directly used for sale, such as finished goods, stocked goodsand materials for sale in the normal production and operation process, is determined by the estimatedselling price of the inventory minus the estimated selling expenses and related taxes; net realizable
Notes to the financial statements - Page 36
value of inventory of materials that need to be processed is determined based on the estimated sellingprice of the finished products produced minus the estimated cost till completion, estimated sellingexpenses and related taxes and fees in the normal production and operation process; the netrealizable value of the inventory held for the execution of a sales contract or labour contract iscalculated on the basis of the contract price. If the quantity of the inventory held exceeds the quantityordered by the sales contract, the net realizable value of the excess inventory is calculated based onthe general sales price.The provision is accrued according to the individual inventory project at the end of the period;but for a large number of inventories with lower unit price, the provision is accrued according to thecategory of inventory; for those related to the product series produced and sold in the same region,have the same or similar end use or purpose and that are difficult to measure separately from otherprojects, they are combined for provision for inventory depreciationIf the influencing factors of the write-down of inventory value have disappeared, the amountof write down will be restored and will be reversed within the amount of the provision for declinein value of the inventory that has been accrued. The amount of the reversal is included in the currentprofit or loss.Provision for decline in value of inventories by portfolio is as follows:
| categories | Basis for category determination | Basis for determining net realizable value for this category |
| Inventory ageing portfolio | New products launched in the current year under our own brand | No provision for decline in value |
17. Contract assets
The Company has the right to receive the consideration for the transfer of goods to thecustomers. If the right depends on factors other than the passage of time, it is recognized as acontract asset. If the Company has the right (only depends on passage of time) to receiveconsideration from client, accounts receivable shall be recognized.
Refer to Note XII 6 for impairment to contract asset.
18. Long-term Equity Investment
(1) Determination of investment cost
1) For the long-term equity investment formed by business combination, the specificaccounting policies are detailed in the accounting treatment of business combination under commoncontrol and not under common control as set out in this Note VII.
2) Long-term equity investment obtained by other means
The initial investment cost of the long-term equity investment obtained by cash payment is theactual purchase price. The initial investment cost includes expenses directly related to theacquisition of long-term equity investments, taxes and other necessary expenses
Notes to the financial statements - Page 37
The initial investment cost of the long-term equity investment obtained by issuing equitysecurities is the fair value of the issued equity securities; the transaction cost incurred in theissuance or acquisition of its own equity instruments is deducted from equity if it is directlyattributable to equity transactions.
Under the premise that the non-monetary asset exchange has the commercial substance and thefair value of the assets received or surrendered can be reliably measured, the initial investment costof the long-term equity investment exchanged for non-monetary assets is determined based on thefair value of the assets exchanged and relevant taxes payable, unless there is conclusive evidencethat the fair value of the assets transferred is more reliable; for the exchange of non-monetary assetthat does not meet the above premise, the initial investment cost of long-term equity investment isthe carrying amount of the assets exchanged and the related taxes and fees payable.
The initial investment cost of a long-term equity investment obtained through debtrestructuring includes the fair value of the waived debt, taxes that can be directly attributable tothe asset and other costs
(2) Subsequent measurement and profit and loss recognition
1) Cost method
The long-term equity investment that the Company can control over the investee is accountedfor using the cost method, and the cost of the long-term equity investment is adjusted by adding orrecovering the investment according to the initial investment cost. Except for the actual paymentor the cash dividends or profits included in the consideration that have been announced but not yetpaid at the time of acquiring the investment, the Company recognizes the current investmentincome according to its share of cash dividends or profits declared to be distributed by the investee.
2) Equity method
The Company’s long-term equity investments in associates and joint ventures are accountedfor using the equity method, and some of the equity investments in associates that are indirectlyheld by venture capital institutions, mutual funds, trust companies or similar entities includinginvestment-linked insurance funds are measured at fair value through profit or loss.
When the initial investment cost of a long-term equity investment is greater than the investment,the initial investment cost of the long-term equity investment shall not be adjusted by the differencebetween the fair value of the identifiable net assets of the investee; if the initial investment cost isless than the investment, the difference between the fair value of the identifiable net assets of theinvestee should be included in the current profit or loss
After obtaining the long-term equity investment, the Company shall recognize the investmentincome and other comprehensive income according to the share of net profit and loss and othercomprehensive income realized by the investee that is entitled or should be shared respectively,and adjust the carrying amount of the long-term equity investment; and reduces the carrying
Notes to the financial statements - Page 38
amount of the long-term equity investment based on portion of the profit or cash dividend declaredto be distributed by the investee; and for other changes in the owners’ equity other than the netprofit or loss, other comprehensive income and profit distribution of the investee, the carryingamount of the long-term equity investment is adjusted and included in the owners’ equity.When recognizing the share of the net profit or loss of the investee, the Company shall adjustand recognize the net profit of the investee based on the fair value of the identifiable assets of theinvestee at the time of obtaining the investment. The unrealized internal transaction gains andlosses between the Company and the associates and joint ventures shall be offset against the portionattributable to the Company in accordance with the proportion to be enjoyed, on the basis of whichthe investment gains and losses are recognized.When the Company recognizes the losses incurred by the investee that it should bear, it shalldeal with it in the following order: Firstly, offset the carrying amount of the long-term equityinvestment. Secondly, if the carrying amount of the long-term equity investment is not enough to beoffset, the investment loss will continue to be recognized to the extent of carrying amount of otherlong-term equity that virtually constitutes a net investment in the investee, and the carrying amountof the long-term receivables is offset. Finally, after the above-mentioned treatment, if the enterprisestill bears additional obligations in accordance with the investment contract or agreement, theprojected liabilities are recognized according to the estimated obligations and included in the currentinvestment losses.
If the investee realizes profit in the future period, after deducting the unrecognized loss share,and the reduction of book balance of the recognized projected liabilities and recovery of other long-term equity that virtually constitutes a net investment in the investee and carrying amount of long-term equity investment as opposite to the order above, the Company shall restore the investmentincome.
(3) Conversion of accounting methods for long-term equity investment
1) Fair value measurement to equity method accounting
If the equity investment originally held by the Company that does not have control, joint controlor significant influence on the investee, which is accounted for according to the recognition andmeasurement criteria of financial instruments, can exert significant influence on the investee orjointly control but does not constitute control over it due to additional investment and otherwise, itsinitial investment cost shall be the sum of the fair value of the equity investment originally held inaccordance with the “Accounting Standards for Business Enterprises No. 22 – Recognition andMeasurement of Financial Instruments” and new investment cost after being accounted for underthe equity method.
If the initial investment cost accounted for under the equity method is less than the fair valueshare of the identifiable net assets of the investee on the additional investment date determined by
Notes to the financial statements - Page 39
the new shareholding ratio after the additional investment, the carrying amount of the long-termequity investment is adjusted and included in the current non-operating income.
2) Fair value measurement or equity method accounting to cost method accountingIf the equity investment originally held by the Company, that does not have control, jointcontrol or significant influence on the investee and which is accounted for in accordance with thefinancial instrument recognition and measurement criteria, or the long-term equity investmentoriginally held in associates or joint venture, can exercise control over the investee not undercommon control due to additional investment or otherwise, in the preparation of individual financialstatements, the sum of the carrying amount of the equity investment originally held plus the newinvestment cost shall be regarded as the initial investment cost after being accounted for under thecost method.The other comprehensive income recognized by the equity method in respect of the equityinvestment originally held before the purchase date is accounted for on the same basis as the investeedirectly disposes of the relevant assets or liabilities when the investment is disposed of.
If the equity investment held before the purchase date is accounted for in accordance with therelevant provisions of the “Accounting Standards for Business Enterprises No. 22 – Recognitionand Measurement of Financial Instruments”, the cumulative fair value changes originally includedin other comprehensive income are transferred to current profit or loss when the cost method isadopted.
3) Equity method accounting to fair value measurement
If the Company loses joint control or significant influence on the investee due to the disposalof part of the equity investment or otherwise, the remaining equity after disposal shall be accountedfor according to the “Accounting Standards for Business Enterprises No. 22 – Recognition andMeasurement of Financial Instruments”. The difference between the fair value and the carryingamount on the date of losing joint control or significant impact is recognized in profit or loss.
The other comprehensive income recognized in respect of the original equity investment usingthe equity method is accounted for on the same basis as the investee directly disposes of the relevantasset
4) Cost method to equity method
Where the Company loses control over the investee due to the disposal of part of the equityinvestment, etc., in the preparation of individual financial statements, if the remaining equity afterdisposal can exercise joint control or significant influence on the investee, the equity method isadopted for accounting, and the remaining equity is deemed to be adjusted under the equity methodwhen it is acquired.
5) Cost method to fair value measurement
Where the Company loses control over the investee due to the disposal of part of the equity
Notes to the financial statements - Page 40
investment, etc., in the preparation of individual financial statements, if the remaining equity afterdisposal cannot jointly control or exert significant influence on the investee, the relevant provisionsof the “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement ofFinancial Instruments” are adopted. The difference between the fair value and the carrying amounton the date of loss of control is recognized in profit or loss for the current period.
(4) Disposal of long-term equity investment
For the disposal of long-term equity investment, the difference between the carrying amountand the actual purchase price shall be included in the current profit or loss. For the long-term equityinvestment accounted for using the equity method, when the investment is disposed of, the part thatis originally included in the other comprehensive income is accounted for in the same proportionbased on the same basis as the investee directly disposes of the relevant assets or liabilities.If the terms, conditions and economic impact of each transaction on disposal of the equityinvestment in a subsidiary satisfy one or more of the following cases, the multiple transactions aretreated as a package transaction:
1) The transactions are made simultaneously or with consideration of each other’s influence;
2) The transactions as a whole can achieve a complete business outcome;
3) The occurrence of a transaction depends on the occurrence of at least one other transaction;
4) A transaction is uneconomic alone, but it is economic when considered together with othertransactions
Where the loss of control over the original subsidiary due to disposal of part of the equityinvestment or otherwise which is not a package transaction, the individual financial statements andconsolidated financial statements shall be classified for relevant accounting treatment:
a) In the individual financial statements, the difference between the carrying amount of thedisposed equity and the actual purchase price is included in the current profit or loss. If the remainingequity after disposal can exert joint control or significant influence on the investee, it shall beaccounted for under the equity method, and the residual equity shall be deemed to be adjusted byequity method when it is acquired; if the remaining equity after disposal cannot exert joint controlor significant influence over the investee, it shall be accounted for by the relevant provisions of the“Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement ofFinancial Instruments”, and the difference between the fair value and the carrying amount on thedate of loss of control is included in the current profit or loss.
b) In the consolidated financial statements, for each transaction before the loss of control overthe subsidiary, capital reserve (share premium) is adjusted for the difference between the disposalprice and the share of the net assets corresponding to the disposed long-term equity investment thatthe subsidiary has continuously calculated from the date of purchase or the merger date; if the capitalreserve is insufficient to offset, the retained earnings will be adjusted; when the control of the
Notes to the financial statements - Page 41
subsidiary is lost, the remaining equity shall be re-measured according to its fair value on the dateof loss of control. The sum of the consideration for the disposal of the equity and the fair value ofthe remaining equity, less the share of the net assets that that the original subsidiary has continuouslycalculated from the date of purchase calculated based on the original shareholding, is included inthe investment income for the period of loss of control, while reducing goodwill. Othercomprehensive income related to the original subsidiary’s equity investment will be converted intocurrent investment income when control is lost.
If each transaction on disposal of the equity investment in a subsidiary until the loss of controlis a package transaction, each transaction is accounted for as a transaction to dispose of the equityinvestment in the subsidiary with loss of control, which is distinguished between individual financialstatements and consolidated financial statements:
a) In the individual financial statements, the difference between each disposal price and thecarrying amount of the long-term equity investment corresponding to the disposed equity before theloss of control is recognized as other comprehensive income, and when the control is lost, it istransferred to profit or loss for the period of the loss of control.
b) In the consolidated financial statements, the difference between each disposal price and thedisposal investment that has the share of the net assets of the subsidiary before the loss of control isrecognized as other comprehensive income, and transferred to profit or loss for the period of theloss of control.
(5) Judging criteria for joint control and significant influence
If the Company collectively controls an arrangement with other parties in accordance with therelevant agreement, and the activity decision that has a significant impact on the return of thearrangement needs to be unanimously agreed upon by the parties sharing the control, it is consideredthat the Company and other parties jointly control an arrangement, which is a joint arrangement.
If the joint arrangement is reached through a separate entity and it determines that the Companyhas rights to the net assets of the separate entity in accordance with the relevant agreement, theseparate entity is regarded as a joint venture and is accounted for using the equity method. If it isjudged according to the relevant agreement that the Company does not have rights to the net assetsof the separate entity, the separate entity acts as a joint operation, and the Company recognizes theitems related to the share of the interests of the joint operation and conducts accounting treatmentin accordance with the relevant ASBEs.
Significant influence refers to the investor’s power to participate in the decision-making of thefinancial and operating policies of the investee, but it cannot control or jointly control theformulation of these policies with other parties. The Company has a significant influence on theinvestee under one or more of the following situations and taking into account all facts andcircumstances: (1) it is represented on the board of directors or similar authorities of the investee;
Notes to the financial statements - Page 42
(2) it involves in the formulation of financial and operating policy of the investee; (3) it hasimportant transactions with the investee; (4) it dispatches management personnel to the investee; (5)it provides key technical information to the investee.
19. Investment Property
Investment property refers to property held for the purpose of earning rent or capitalappreciation, or both, including leased land use rights, land use rights held and prepared for transferafter appreciation, and leased buildings. Besides, for empty constructions that the Company heldfor rent lately but with the written resolution from the board stated that it will be used as operatinglease and that intention will not be changed in short-term, it can be treated as investment property.The Company’s investment property is recorded at its cost, and the cost of purchasedinvestment property includes the purchase price, related taxes and other expenses directlyattributable to the asset; the cost of self-built investment property is composed of the necessaryexpenses incurred before the asset is ready for expected use.The Company adopts the cost model for subsequent measurement of investment property, anddepreciates or amortizes buildings and land use rights according to their estimated service life andnet residual value. Expected useful life, residual value and annual depreciation rate are as follows:
| Category | Estimated useful life (years) | Residual value rate % | Depreciation rate % |
| Property | 20-35 | 5.00 | 2.71-4.85 |
When the use of investment property is changed to self-use, the Company converts theinvestment property into fixed assets or intangible assets from the date of change. When the use ofself-use property changes to rental earning or capital appreciation, the Company converts fixedassets or intangible assets into investment property from the date of change. When a conversionoccurs, the carrying amount before conversion is used as the converted value
The investment property is derecognized when the investment property is disposed of, orpermanently withdrawn from use and is not expected to obtain economic benefits from its disposal.The amount of disposal income from the sale, transfer, retirement or damage of the investmentproperty after deducting its carrying amount and related taxes and expenses is recognized in profitor loss for the current period.
20. Fixed assets
(1) Recognition conditions of fixed assets
Fixed assets refer to tangible assets held for the purpose of producing goods, providing labourservices, renting or operating management, and having a useful life of more than one fiscal year.Fixed assets are recognized when they meet all of the following conditions:
1) the economic benefits associated with the fixed assets are likely to flow into the enterprise;
2) the cost of the fixed assets can be reliably measured.
(2) Initial measurement of fixed assets
Notes to the financial statements - Page 43
The fixed assets of the Company are initially measured at cost.
1) The cost of outsourcing fixed assets includes the purchase price, import duties and otherrelated taxes and fees, as well as other expenses that can be directly attributed to the assets beforethey reach their intended usable state.
2) The cost of self-built fixed assets is determined by the necessary expenditures incurredbefore the assets reach their expected usable state.
3) For fixed assets invested by investors, the value agreed in the investment contract oragreement is regarded as the book value, but the value agreed in the contract or agreement is notaccounted for at fair value.
4) If the payment for the purchase of fixed assets is delayed beyond the normal credit conditions,and is of a financing nature in essence, the cost of fixed assets is determined on the basis of thepresent value of the purchase price. The difference between the actual payment and the present valueof the purchase price is recorded in the current profit or loss during the credit period, except whereit should be capitalized.
(3) Subsequent measurement and disposal of fixed assets
1) Depreciation of fixed assets
Depreciation of fixed assets is accrued over the estimated useful life based on its recorded valueless the estimated net residual value. The fixed assets that have been provided for impairmentlosses are depreciated in the future period based on the carrying amount after deducting theimpairment provision and the remaining useful life.
The Company determines the service life and estimated net residual value of fixed assets basedon the nature and use of fixed assets. At the end of the year, the service life, the estimated netresidual value and the depreciation method of the fixed assets are reviewed. If there is a differencefrom the original estimate, corresponding adjustments will be made.
The depreciation method, depreciation period and annual depreciation rate of various fixedassets are as follows.
| Class | Method of depreciation | Estimated useful life (years) | Residual value rate % | Depreciation rate % |
| Property and plant | Straight-line | 20-35 | 5.00 | 2.71-4.85 |
| Machinery and equipment | Straight-line | 10 | 5.00-10.00 | 9.00-9.50 |
| Electronic equipment | Straight-line | 5 | 5.00 | 19.00 |
| Motor vehicles | Straight-line | 5 | 5.00 | 19.00 |
| Others | Straight-line | 5 | 5.00 | 19.00 |
2) Subsequent expenditures on fixed assets
Notes to the financial statements - Page 44
Subsequent expenditures related to fixed assets that meet the conditions for recognition of fixedassets are included in the cost of fixed assets; those that do not meet the conditions for recognitionof fixed assets are included in the current profit or loss when they occur.
3) Disposal of fixed assets
When a fixed asset is disposed of or no economic benefit is expected to result from its use ordisposal, the fixed asset is derecognized. The amount of disposal income from sale, transfer,retirement or damage of the fixed asset after deducting its book value and related taxes is includedinto the current profit or loss.
21. Construction in Progress
(1) Initial measurement of construction in progress
The self-built construction in progress of the Company is measured at the actual cost, which isdetermined by the necessary expenses incurred before the construction of the asset reaches theintended usable condition, including the cost of engineering materials, labour costs and relevanttaxes payable, capitalized borrowing costs and indirect costs that should be apportioned. TheCompany’s construction in progress is classified into projects when in accounting
(2) Criteria for and time point of construction in progress to convert into fixed asset
The total expenditure incurred before the construction in progress project is constructed toreach the intended usable condition shall be recorded as the book value of the fixed assets. For theconstruction in progress built which has reached the intended usable condition, but has not yetcompleted the final accounts, since the date of reaching expected use condition, according to theproject budget, cost or actual project costs, it shall be converted into fixed assets at the estimatedvalue, and fixed assets shall be depreciated in accordance with the depreciation policy of theCompany for fixed assets. After the completion of the final accounts, the original estimated valueshall be adjusted according to the actual cost, but the original depreciation amount shall not beadjusted.
22. Borrowing Costs
(1) Recognition principle for capitalization of borrowing costs
If the borrowing costs of the Company can be directly attributable to the acquisition andconstruction or production of assets eligible for capitalization, it shall start capitalization and beincluded in the cost of relevant assets in the case of eligible for capitalization; other borrowingcosts shall be recognized as expenses at the time of occurrence and shall be included in the currentprofit or loss.
Assets that are eligible for capitalization are assets that require a long period of time to purchaseor produce activities to achieve fixed assets, investment property and inventory that are availablefor intended use or sale.
Borrowing costs begin to capitalize when all of the following conditions are met:
Notes to the financial statements - Page 45
1) Assets expenditure has occurred, including expenditure incurred in the form of cash payment,transfer of non-cash assets or assuming of interest-bearing debt for the acquisition and constructionor production of assets eligible for capitalization;
2) Borrowing costs have already occurred;
3) The purchase and construction or production activities necessary for the assets to reach theintended use or saleable status have started.
(2) Capitalization period of borrowing costs
The period of capitalization refers to the period from the point of time when the borrowingcosts are capitalized to the point of time where the capitalization is stopped, excluding the periodduring which the borrowing costs are suspended from capitalization.
The borrowing costs shall cease to be capitalized when the assets acquired or produced thatmeet the conditions for capitalization are ready for intended use or sale.
When a part of the assets purchased or produced that meet the capitalization conditions arecompleted and can be used alone, such part of the assets shall stop capitalization of borrowing costs.
Where each part of the assets purchased or produced is completed separately, but must waituntil the whole is completed or can be sold externally, the capitalization of the borrowing costs shallbe stopped when the assets are completed as a whole.
(3) Suspension of capitalization period
If the assets that meet the capitalization conditions are interrupted abnormally during theconstruction or production process and the interruption time lasts for more than 3 months, thecapitalization of borrowing costs shall be suspended; the borrowing costs shall continue to becapitalized if the acquisition or production of assets eligible for capitalization is necessary to meetthe required usable status or the availability of sales. The borrowing costs incurred during theinterruption are recognized as profit or loss for the current period and the borrowing costs continueto be capitalized until the acquisition or production of assets is resumed.
(4) Calculation for capitalization amount of borrowing costs
Interest charges on special borrowings (excluding interest income on unused borrowingsdeposited in the bank, or investment income on temporary investment) and their ancillary expensesshall be capitalized before the assets purchased or produced that meet the capitalization conditionsare ready for intended use or sale.
The amount of capitalized interest on general borrowings is calculated by the weighted averageof the excess portion of the accumulative asset expenditures over the special borrowings multipliedby the capitalization rate of general borrowings. The capitalization rate is determined based on theweighted average interest rate of general borrowings.
Where there is a discount or premium in the borrowings, the interest amount shall be adjustedin accordance with the effective interest rate method to determine the discount or premium amount
Notes to the financial statements - Page 46
that shall be amortized during each accounting period.
23. Right-of-use Assets
The Company initially measures the right-to-use assets at cost, which includes:
(1) initial measurement amount of lease liabilities;
(2) lease payments made before or at the beginning of the lease term, and deduction of therelevant amount of rental incentives if any;
(3) initial direct expenses incurred by the Company;
(4) expected costs to be incurred by the Company for dismantling and removing leased assets,restoring the site of leased assets or restoring leased assets to the state agreed in the lease terms(excluding costs incurred for the production of inventory)
After the beginning of the lease term, the Company adopts the cost model for subsequentmeasurement of the right-of-use assets
If it is reasonably certain to obtain the ownership of the leased assets at the expiration of thelease term, the Company shall depreciate the leased assets within the remaining useful life of theleased assets. If it is not reasonably certain to obtain the ownership of the leased assets at theexpiration of the lease term, the Company shall depreciate the leased assets within the shorter ofthe lease term and the remaining useful life of the leased assets. For the right-of-use assets withimpairment provision, depreciation shall be calculated based on the book value after deduction ofimpairment provision in according with the above principles in future periods.
24. Intangible Assets and Development Expenditure
Intangible assets refer to the identifiable non-monetary assets owned or controlled by theCompany which have no physical form, including land use rights, software and trademark use rights.
(1) Initial measurement of intangible assets
The cost of externally purchased intangible assets includes the purchase price, relevant taxationand other expenses directly attributable to bringing the assets to expected usage. If payment for thepurchase price of intangible assets is delayed beyond normal credit conditions and is in factfinancing in nature, the cost of the intangible assets is determined based on the present value of thepurchase price.
For intangible asset obtained through debt restructuring for offsetting the debt of the debtor, itsinitial measurement cost includes the fair value of the waived creditor’s rights and taxes and othercosts directly attributable to bringing the asset to expected usage. The difference between the fairvalue of the waived creditor’s rights and the carrying amount shall be recognized in profit or lossfor the period.
The book value of intangible asset received in exchange for non-monetary asset is based on thefair value of the asset surrendered and relevant taxes payable, provided that the exchange ofnonmonetary asset has a commercial substance and the fair value of both the asset received and the
Notes to the financial statements - Page 47
asset surrendered can be reliably measured, except there is definite evidence that the fair value ofthe asset received is more reliable; for exchange of non-monetary asset that cannot satisfy the aboveconditions, the cost of the intangible asset received is based on the carrying amount of the assetsurrendered and relevant taxes payable, and no profit or loss is recognized.For intangible asset obtained through business absorption or combination under commoncontrol, its book value is determined by the carrying amount of the combined party; for intangibleasset obtained through business absorption or merger not under common control, its book value isdetermined by the fair value of the intangible asset.The cost of an internally developed intangible asset includes the materials consumed indeveloping the intangible asset, labour costs, registration fees, amortization of other patented rightsand licensed rights used during the development process, interest expenses meeting capitalizationconditions, and other direct costs for bringing the intangible asset to expected usage.
(2) Subsequent measurement of intangible assets
The Company determines the useful life of intangible assets on acquisition, which are classifiedas intangible assets with limited useful life and indefinite useful life.
1) Intangible assets with a limited useful life
Intangible assets with a limited useful life are depreciated using straight line method over theterm during which they bring economic benefits to the Company. The estimated life and basis forthe intangible assets with a limited useful life are as follows:
| Item | Estimated useful life | Amortization method |
| Land use right | 50 | Straight-line |
| Software systems | 5 | Straight-line |
| Right to use the trademark | 5-10 | Straight-line |
The useful life and depreciation method of intangible assets with a limited useful life arereassessed at the end of each period. If there is a difference from the original estimate, correspondingadjustments will be made.
Upon re-assessment, there was no difference in the useful life and depreciation method ofintangible assets from the previous estimates at the end of the period.
(3) Specific basis for determining the research stage and development stage of internalresearch and development projects of the Company
Research stage: a stage of scheduled innovative investigations and research activities for theacquisition and understanding of new scientific or technical knowledge.
Development stage: before the commercial production or use, the research results or otherknowledge will be applied to a plan or design to produce new or substantial improvements inmaterials, devices, products and other activities.
The expenditure of the research stage of the internal research and development project is
Notes to the financial statements - Page 48
included in the current profit or loss at the time of occurrence
(4) Specific standard for capitalization of expenditure in the development stageThe expenditure of an internal research and development project in the development stage isrecognized as an intangible asset when meeting all of the following conditions:
1) It is technically feasible to complete the intangible asset so that it can be used or sold;
2) With an intention to complete the intangible asset and to use or sell it;
3) The way the intangible asset generates economic benefits can prove the existence of a marketfor the products produced using the intangible asset or a market for the intangible asset itself, and ifthe intangible asset will be used internally, its usefulness can be proven;
4) Having sufficient technical, financial resources and other resource support to complete thedevelopment of the intangible asset, and having the ability to use or sell the intangible asset;
5) Expenditure attributable to the development stage of the intangible asset can be reliablymeasured.
Expenditures incurred in the development stage that do not meet the above conditions shall beincluded in the current profit or loss at the time of occurrence. The development expenditures whichhave been included in the profit or loss in the previous periods will not be recognized as an asset inthe future period. The capitalized expenditures in the development phase are shown in the balancesheet as development expenditures and are converted into intangible assets from the date of theproject’s intended use.
25. Impairment on Long-term Assets
On the balance sheet date, the Company determines whether there may be a sign of impairmenton long-term assets. If there is a sign of impairment on long-term assets, the recoverable amount isestimated on the basis of a single asset. If it is difficult to estimate the recoverable amount of a singleasset, then determine the recoverable amount of the asset group on the basis of the asset group towhich the asset belongs.
The estimated recoverable amount of an asset is the higher of its fair value less the cost ofdisposal and the present value of the expected future cash flow of the asset.
The measurement results of recoverable amount show that when the recoverable amount of anlong-term asset is lower than its book value, the book value of the long-term asset is reduced to itsrecoverable amount. The reduced amount is recognized as an impairment loss on the asset andincluded in the current profit or loss, at the same time, asset impairment provision will be madeaccordingly. Asset impairment loss shall not be reversed during the subsequent accounting periodonce recognized.
After the asset impairment loss is recognized, the depreciation or amortization expenses of theimpaired assets will be adjusted accordingly in the future period, so that the assets’ book value afteradjustment (deducting the estimated net residual value) will be systematically apportioned over the
Notes to the financial statements - Page 49
remaining useful life of the assets.No matter whether there is any sign of impairment or not, the impairment test is carried outevery year for goodwill and intangible assets with an indefinite useful life arising from an enterprisemerger.
In the impairment test of goodwill, the book value of goodwill would be apportioned to assetgroup or portfolio of asset group expected to benefit from the synergy effect of an enterprise merger.When taking an impairment test on the relevant asset group or portfolio of asset group containinggoodwill, if there is a sign of impairment on the asset group or portfolio of asset group related to thegoodwill, the Company first calculates the recoverable amount after testing the asset group orportfolio of asset group which does not contain the goodwill for impairment, and then compares itwith the related book value to recognize the corresponding impairment loss. Next, the Companyconducts an impairment test on the asset group or portfolio of asset group which contains thegoodwill and compares the book value of the related asset group or portfolio of asset group (bookvalue includes the share of goodwill) with the recoverable amount. If the recoverable amount of therelated asset group or portfolio of asset group is lower than the book value, the Company willrecognize the impairment loss of goodwill.
26. Long-term Deferred Expenses
(1) Amortization method
Long-term deferred expenses refer to expenses that have already been spent by the Company,but shall be apportioned in the current period and the future periods and the benefit period is over 1year. Long-term deferred expenses are amortized in benefit period
(2) Amortization period
| Category | Amortization period | Note |
| Counter fabrication expenses | 2-3 | |
| Decoration expenses | 3-5 | |
| Others | 2-3 |
27. Contract liabilities
The obligation to transfer goods to a customer for which consideration has been received orreceivable is recognized in part as a contract liability
28. Employee Remuneration
Employee remuneration refers to the various forms of remuneration or compensation given bythe Company to obtain the services provided by the employees or to terminate the labour relationship.Employee remuneration includes short-term remuneration, post-employment benefits, terminationbenefits and other long-term employee benefits.
(1) Short-term remuneration
Short-term remuneration refers to the employee compensation other than post-employment
Notes to the financial statements - Page 50
benefits and termination benefits required to be fully paid by the Company within 12 months afterthe end of the annual reporting period in which the employees render relevant services. During theaccounting period in which the employees render services, the Company recognizes the short-termremuneration payable as liabilities and includes the same in related asset costs or expenses accordingto the object which benefits from the services rendered by employees.
(2) Post-employment benefits
Post-employment benefits refer to various forms of remuneration and benefits other than short-term remuneration and termination benefits provided by the Company after the retirement ofemployees or termination of labour relationship with the Company in exchange for the servicesrendered by employees.The Company’s post-employment benefits is defined contribution plan.Defined contribution plan of the post-employment benefits mainly refers to the social basicendowment insurance, unemployment insurance, etc. organized and implemented by local labourand social security institutions; During the accounting period when employees render services tothe Company, amount payable calculated by the defined contribution plan is recognized as a liabilityand included in the current profit or loss or related asset costs.The Company will no longer have any other payment obligations after making the above-mentioned payments on a regular basis in accordance with the standards and annuity plansprescribed by the State.
(3) Termination benefits
Termination benefits refer to the compensation paid to an employee when the Companyterminates the employment relationship with the employee before the expiry of the employmentcontract or provides compensation as an offer to encourage the employee to accept voluntaryredundancy. The Company recognizes the liabilities arising from the compensation paid to terminatethe employment relationship with employees and includes the same in the current profit or loss atthe earlier date of the following: 1) when the Company cannot reverse the termination benefits dueto the plan of cancelling the labour relationship or the termination benefits provided by the adviceof reducing staff; and 2) the Company recognizes the cost or expense relative to the payment oftermination benefits of restructuring into the current profit or loss.
The Company provides internal retirement benefits to employees who accept internalretirement arrangements. The internal retirement benefits refer to the remuneration and the socialinsurance premiums paid to the employees who have not reached the retirement age set by the State,and voluntarily withdrew from the job after approval of the Company’s management. The Companypays internal retired benefits to an internal retired employee from the day when the internalretirement arrangement begins till the employee reaches the normal retirement age. For internalretirement benefits, the Company conducts accounting treatment in contrast to the termination
Notes to the financial statements - Page 51
benefits. When the related recognition conditions of termination benefits are met, the Company willrecognize the remuneration and the social insurance premiums of the internal retired employee tobe paid during the period between the employee’s termination of service and normal retirement dateas liabilities and include the same in the current profit or loss in one time. Changes in actuarialassumptions of internal retirement benefits and differences arising from the adjustment of welfarestandards are included in current profit or loss when incurred.
(4) Other long-term employee benefits
Other long-term employee benefits refer to all employee benefits except for short-termremuneration, post-employment benefits, and termination benefits. For other long-term employeebenefits that meet the conditions of the defined contribution plan, during the accounting period inwhich the employees provide services for the Company, the amount that should be paid isrecognized as a liability and is included in the current profit or loss or related asset costs. In additionto the above situations, other long-term employee benefits are actuarially calculated by theindependent actuary using the expected cumulative welfare unit method on the balance sheet date,and the welfare obligations arising from the defined benefit plans are attributed to the period duringwhich the employees provide services and are included in the current profit or loss or related assetcosts.
29. Projected liabilities
(1) Basis for recognition of projected liabilities
The Company will recognize projected liabilities if the obligation relating to contingent mattersmeets all of the following conditions:
This obligation is a present obligation assumed by the Company;
The fulfillment of this obligation will probably cause the outflow of economic benefits fromthe Company;
The amount of this obligation can be measured reliably.
(2) Measurement method of projected liabilities
The initial measurement of projected liabilities of the Company is based on the best estimateof the expenditure required for the performance of the related present obligations.
When determining the best estimate, the Company comprehensively considers the risks,uncertainties relating to the contingent matters and time value of currency. If the time value ofcurrency has a great influence, the Company determines the best estimate by discounting the relatedfuture cash outflows.
The best estimate is determined in different situations as follow:
If there is a continuous range (or interval) of the required expenditure and the probability ofthe occurrence of all the results in the range is the same, the best estimate is determined accordingto the median value of the range, which is the average of the upper and lower limit.
Notes to the financial statements - Page 52
Where there is not a continuous range (or interval) of the required expenditure, or there is acontinuous range, but the probability of the occurrence of all the results in the range is different, ifthe contingencies involve a single project, the best estimate is determined by the amount which ismost likely to occur; if the contingencies involve a number of projects, the best estimate isdetermined based on various possible results and related probability calculation.If all or part of the expenses of the Company required to settle projected liabilities are expectedto be compensated by a third party and it is basically certain to receive the amount of compensation,it is independently recognized as an asset. The amount of compensation recognized will not exceedthe book value of the projected liabilities.
30. Lease liabilities
The Company initially measures the lease liabilities according to the present value of theunpaid lease payments at the beginning of the lease term. In calculating the present value of leasepayments, the Company adopts the interest rate implicit in the lease as the discount rate. If it isimpossible to determine the interest rate implicit in the lease, the incremental borrowing rate of theCompany shall be used as the discount rate. Lease payments include:
(1) Fixed payments and substantive fixed payments after deducting the relevant amount oflease incentives;
(2) Variable lease payments depending on an index or rate;
(3) Where the Company reasonably determines that the option will be exercised, the amountof the lease payment includes the exercise price of purchase option;
(4) Where the lease term reflects that the Company will exercise the option to terminate thelease, the amount of the lease payment includes the amount to be paid for the exercise of theoption to terminate the lease;
(5) Expected payments based on the guaranteed residual value provided by the Company.
The Company calculates the interest charges of the lease liabilities for each period of thelease term at a fixed discount rate and includes the same in the profit or loss of the current periodor the related asset costs.
Variable lease payments not included in the measurement of lease liabilities shall be includedin the current profit or loss or the related asset costs when they actually occur.
31. Share-based payment
(1) Category of share-based payment
The Company’s share-based payments include equity-settled share-based payments and cashsettled share-based payments.
(2) Recognition method of fair value of equity instrument
For options and other equity instruments granted by the Company with an active market, thefair value is determined at the active market quotations. For options and other equity instruments
Notes to the financial statements - Page 53
granted by the Company with no active market, option pricing model shall be used to estimate thefair value of the equity instruments. Factors as follows shall be taken into account using optionpricing models: 1) the exercise price of the option, 2) the validity of the option, 3) the current priceof the target share, 4) the expected volatility of the share price, 5) predicted dividend of the share,
6) risk-free rate of the option within the validity period.
In determining the fair value of the equity instruments at the date of grant, the Company shallconsider the impact of market conditions in the vesting conditions and non-vesting conditions statedin the share-based payment agreement. If there are no vesting conditions in the share-basedpayments, as long as the employees or other parties satisfy the non-market conditions in all of thevesting conditions (such as term of service) , the Company shall recognize the services rendered asan expense accordingly.
(3) Recognition basis for the best estimate of exercisable equity instruments
On each balance sheet date within the vesting period, the estimated number of exercisableequity instruments is amended based on the best estimate made by the Company according to thelatest available subsequent information as to changes in the number of employees with exercisablerights. As at the exercise date, the final estimated number of exercisable equity instruments shouldequal the actual number of exercisable equity instruments.
(4) Accounting treatment
Equity-settled share-based payments are measured at the fair value of the equity instrumentsgranted to employees. For those exercisable immediately after the grant, they shall be included inthe relevant costs or expenses at the fair value of equity instruments at the grant date with an increasein capital reserve accordingly. For those exercisable only after provision of services or satisfactionof prescribed performance conditions within the vesting period, on each balance sheet date withinthe vesting period, the Company will recognize the services received in the current period in relatedcosts or expenses and capital reserves at the fair value of equity instruments on the grant date basedon the best estimate of the number of exercisable equity instruments. After the vesting period,relevant costs or expenses and total owners’ equity which have been recognized will not be adjusted.
Cash-settled share-based payments are calculated by the fair value of liabilities assumed inaccordance with the Company’s shares or other equity instruments. For those exercisableimmediately after the grant, they shall be included in the relevant costs or expenses at the fair valueof the liabilities assumed by the Company at the grant date with an increase in liabilities accordingly.For cash-settled share-based payments exercisable only after provision of services or satisfaction ofprescribed performance conditions within the vesting period, on each balance sheet date within thevesting period, the Company will recognize the services received in the current period in costs orexpenses and corresponding liabilities at the amount of fair value of the liabilities assumed by the
Notes to the financial statements - Page 54
Company based on the best estimate of the number of exercisable equity instruments. At eachbalance sheet date and the settlement date prior to the settlement of relevant liabilities, the fair valueof the liabilities is re-measured through profit or loss.During the vesting period, if the equity instruments granted are cancelled, the Company willtreat the cancelled equity instruments granted as accelerated vesting, and the amount within theremaining period should be recognized immediately in profit or loss while recognizing the capitalreverse. If employees or other parties can meet non-vesting conditions but do not meet within thevesting period, the Company will treat it as cancelled equity instruments granted.
32. Revenue
The Company’s revenue mainly come from:
1) Sales of watch
2) Precision manufacturing
3) Property leasing
(1) General principal of revenue recognition
The Group recognizes revenue when the contract performance obligations have been fulfilledi.e. the customer has gained control over the relevant goods or services.Performance obligations means the Company’s commitment to transfer identifiable goods orservice to clients.
Obtaining control of the relevant goods means that it is able to dominate the use of the goodsand derive almost all economic benefits therefrom.
The Company assesses contracts at the beginning date of a contract to identify eachperformance obligations contained in a contract and to determine whether each performanceobligation is to be finished over a period of time or at a point of time. The Company satisfies aperformance obligation over time if one of the following criteria is met; or otherwise, aperformance obligation is satisfied at a certain point in time: 1) the customer simultaneouslyreceives and consumes the benefits provided by the Company’s performance as the Companyperforms; 2) the customer can control the goods under construction during the Company’sperformance; 3) the Company’s performance does not create goods with an alternative use to itand the Company has a right to payment for performance completed to date throughout the contractterm. Otherwise, the Company recognizes revenue at the point of time.
For performance obligation satisfied over time, the Company recognizes revenue over time bymeasuring the progress towards complete satisfaction of that performance obligation. When theoutcome of that performance obligation cannot be measured reasonably, but the Company expectsto recover the costs incurred in satisfying the performance obligation, the Company recognizesrevenue only to the extent of the amount of costs incurred until it can reasonably measure theoutcome of the performance obligation
Notes to the financial statements - Page 55
(2) Detailed method for revenue recognition
The Company has three main business sectors: sales of watch, precision manufacturing andproperty leasing. Based on the Company’s business mode and terms of settlement, the Company setdetailed method of revenue recognition method as follows:
1) Sales of watch
Sale of watch belongs to fulfilling performance obligations at a point of time.
① Online sales
Revenue shall be recognized at the point that the goods are dispatched and the customerconfirmed received the goods.
② Offline sales
Revenue shall be recognized at the point when the goods are delivered and payment bycustomer is collected.
③ Consignment sale
The Company recognizes revenue when the Company receives the detail of the sales list fromdistributors and confirms that the control over goods ownership were transferred to the purchaser.
④ Sale of consigned goods from others
Under Sale of consigned goods from others, the Group recognizes revenue in net amount whenit delivered consigned sale goods to customer and confirms that control over the ownership of goodswere transferred to the purchaser.
2) Precision manufacturing
Precision manufacturing business belongs to fulfilling performance obligations at a point oftime. Revenue from domestic sales shall be recognized when the goods are delivered and theeconomic benefit associated with the goods is probable to flow into the Company. Revenue fromexport shall be recognized when the following criteria is satisfied: The Company declared the goodat custom; obtained bill of lading; the right of collecting payment is obtained and its probable thatthe economic benefit associated with the goods flows into the Company.
3) Property leasing
Refer to Note III 36. (4) for details.
(3) Revenue treatment principles for specific transactions
1) Contracts with sales return provisions
When the customer obtains control of the relevant goods, revenue is recognized based on theamount of consideration expected to be received due to the transfer of goods to the customers(exclusive of the amount expected to be refunded due to the return of sales) , while liability isrecognized based on the amount expected to be refunded due to the return of sales.
The carrying amount of goods expected to be returned at sales of goods, after deduction ofcosts expected to incur for recovery of such goods (including impairment of value of the returned
Notes to the financial statements - Page 56
goods) , will be accounted for under the item of “Right of return assets”.
2) Contracts with quality assurance provisions
The Company assesses whether a separate service is rendered in respect of the qualityassurance besides guaranteeing the sales of goods to customers are in line with the designatedstandards. When additional service is provided by the Company, it is considered as a singleperformance obligation and under accounting treatment according to the standards on revenue;otherwise, quality assurance obligations will be under accounting treatment according to theaccounting standards on contingent matters
33. Contract costs
(1) Contract performance cost
The Company recognizes the cost of contract performance as an asset for the cost of performingthe contract as meeting all of the following conditions:
1) The cost is directly related to a current or expected contract, including direct labour, directmaterials, manufacturing expenses (or similar expenses) , costs clearly to be borne by the customer,and other costs incurred solely for the contract;
2) This cost increases the resources that the company will use to fulfill its performanceobligations in the future.
3) The cost is expected to be recovered
The asset will be presented under inventory or other non-current assets based on the length ofits amortization period.
(2) Contract obtainment cost
If the incremental cost of the Company is expected to be recovered, the contract acquisitioncost is recognized as an asset. Incremental cost refers to the cost that the Company will not occurwithout obtaining a contract, such as sales commission. For the amortization period not exceedingone year, it is included in the current profit or loss when it occurs.
(3) Amortization of contract costs
The Company recognizes the contract performance cost and the contract acquisition cost onthe same basis as the commodity income related to the contract cost asset, and amortizes it at thetime when the performance obligation is performed or in accordance with the performance of theperformance obligation, and is included in the current profit or loss.
(4) Contract cost impairment
For assets related to contract costs, if the book value is higher than the difference between theremaining consideration expected to be received by the Company for transfer of the goods relatedto the assets and the estimated cost of transferring the relevant goods, the excess should bedepreciated and confirmed as an asset impairment loss
If the factors caused impairment changed after impairment provision is accrued, impairment
Notes to the financial statements - Page 57
provision shall be reversed and included in current period profit or loss but the carrying amount ofasset after the reversal shall not exceed the carrying amount at the reversal date as if there was noimpair.
34. Government Subsidies
(1) Classification
Government subsidies refer to monetary and non-monetary assets received from thegovernment without compensation, however excluding the capital invested by the government as acorporate owner. According to the subsidy objects stipulated in the documents of relevantgovernment, government subsidies are divided into subsidies related to assets and subsidies relatedto income.Government subsidies related to assets are obtained by the Company for the purposes ofacquiring, constructing or otherwise forming long-term assets. Government subsidies related toincome refer to the government subsidies other than those related to assets
(2) Recognition of government subsidies
Where evidence shows that the Company complies with relevant conditions of policies forfinancial supports and is expected to receive the financial support funds at the end of the period, theamount receivable is recognized as government subsidies. Otherwise, the government subsidy isrecognized upon actual receipt.
Government subsidies in the form of monetary assets are stated at the amount received orreceivable. Government subsidies in the form of non-monetary assets are measured at fair value; iffair value cannot be reliably obtained, a nominal amount (RMB1) is used. Government subsidiesthat are measured at nominal amount shall be recognized in the current profit or loss directly.
(3) Accounting treatment
The Company determines whether a government subsidy shall use gross method or net methodbased on its economical substance. In general, only one method is used for one category or similargovernment subsidy and it shall be used in a consistent way.
Government subsidies related to assets are recognized as deferred income, and are recognized,under reasonable and systematic approach, in profit and loss in each period over the useful life ofthe constructed or purchased assets;
Government subsidies related to income aiming at compensating for relevant expenses orlosses to be incurred by the enterprise in subsequent periods are recognized as deferred income, andare recognized in current profit or loss when relevant expenses or losses are recognized. Governmentsubsidies aiming at compensating for relevant expenses or losses of the enterprise that are alreadyincurred are charged to current profit or loss once received.
Government subsidies related to daily activities of enterprises are included in other income;government subsidies that are not related to daily activities of enterprises are included in non-
Notes to the financial statements - Page 58
operating income and expense.
Government subsidies related to the discount interest received from policy-related preferentialloans offset the relevant borrowing costs; if the policy-based preferential interest rate loan providedby the lending bank is obtained, the borrowing amount actually received shall be taken as therecording value of the borrowings, and borrowing cost should be calculated using the preferentialinterest rate according to the loan principal and the policy.When it is required to return recognized government subsidy, if such subsidy is used to writedown the carrying value of relevant assets on initial recognition, the carrying value of the relevantassets shall be adjusted; if there is balance of relevant deferred income, it shall be written down tothe book balance of relevant deferred income, and the excess is included in the current profit or loss;where there is no relevant deferred income, it shall be directly included in the current profit or loss
35. Deferred Income Tax Assets and Deferred Income Tax Liabilities
Deferred income tax assets and deferred income tax liabilities are measured and recognizedbased on the difference (temporary difference) between the taxable base of assets and liabilities andbook value. On balance sheet date, the deferred income tax assets and deferred income tax liabilitiesare measured at the applicable tax rate during the period when it is expected to recover such assetsor settle such liabilities.
(1) Criteria for recognition of deferred income tax assets
The Company recognizes deferred income tax assets arising from deductible temporarydifference to the extent it is probably that future taxable amount will be available against which thedeductible temporary difference can be utilized, and deductible losses and taxes can be carriedforward to subsequent years. However, the deferred income tax assets arising from the initialrecognition of assets or liabilities in a transaction with the following features are not recognized: 1)the transaction is not a business combination; 2) neither the accounting profit or the taxable incomeor deductible losses will be affected when the transaction occurs.
For deductible temporary difference in relation to investment in the associates, correspondingdeferred income tax assets are recognized in the following conditions: the temporary difference isprobably reversed in a foreseeable future and it is likely that taxable income is obtained fordeduction of the deductible temporary difference in the future.
(2) Criteria for recognition of deferred income tax liabilities
The Company recognizes deferred income tax liabilities on the temporary difference betweenthe taxable but not yet paid taxation in the current and previous periods, excluding:
1) temporary difference arising from the initial recognition of goodwill;
2) a transaction or event arising from non-business combination, and neither the accountingprofit or the taxable income (or deductible losses) will be affected when the transaction or eventoccurs;
Notes to the financial statements - Page 59
3) for taxable temporary difference in relation to investment in subsidiaries or associates, thetime for reversal of the temporary difference can be controlled and the temporary difference isprobably not reversed in a foreseeable future
(3) When all of the following conditions are satisfied, deferred income tax assets and
deferred income tax liabilities shall be presented on a net basis
1) An enterprise has the statutory right to settle the current income tax assets and currentincome tax liabilities at their net amounts;
2) The deferred income tax assets and deferred income tax liabilities relate to income taxeslevied by the same taxation authority on either the same taxable entity or different taxable entitieswhich intend either to settle current income tax assets and current income tax liabilities on a netbasis, or to realize the assets and settle the liabilities simultaneously, in each future period in whichsignificant amounts of deferred tax assets or liabilities are expected to be recovered or settled.
36. Lease
On the commencement date of the contract, the Company evaluates whether the contract is alease or contains a lease. If one party to a contract gives up the right to control the use of one ormore identifiable assets for a period of time in exchange for consideration, the contract is a lease orcontains a lease.
(1) Splitting a lease contract
When the contract contains a number of separate leases, the Company will split the contractinto separate leases for accounting individually.
When the contract contains both leasing and non-leasing parts, the Company will split theleasing and non-leasing parts. The leasing part shall be accounted for in accordance with the leasestandards, and the non-leasing part shall be accounted for in accordance with other applicableaccounting standards for business enterprises.
(2) Combination of lease contracts
When two or more lease-containing contracts concluded by the Company with the same traderor its related parties at the same time or at a similar time meet one of the following conditions, theCompany shall merge them into one contract for accounting:
1) Such two or more contracts are concluded for general commercial purposes and constitute apackage of transactions. If these are not considered as a whole, these overall commercial purposescannot be recognized.
2) The amount of consideration for a contract in such two or more contracts depends on thepricing or performance of other contracts.
3) The right-of-use assets transferred by such two or more contracts together constitute aseparate lease.
(3) Accounting treatment for the Company as a lessee
Notes to the financial statements - Page 60
On the commencement date of lease term, the Company recognizes right-of-use assets andlease liabilities for leases, in addition to short-term leases and low-value asset leases withsimplified treatment.
1) Short-term lease and low value lease
Short-term lease refers to a lease that does not include purchase options and has a lease termnot exceeding 12 months. Low-value asset lease refers to the lease with lower value when a singleleased asset is a new asset.
The Company does not recognize right-of-use assets and lease liabilities for short-term leaseand low value lease. The payment of such leases shall be charged to profit or loss using straight-line method or other systematic method.
2) Refer to Note III. 23 and Note III. 30 for accounting policies for right-of-use assets and leaseliabilities.
(4) Accounting treatment for the Company as a lessor
1) Classification of leases
The Company divides leases into financial leases and operating leases on the start date of thelease. Financial lease refers to a lease that essentially transfers almost all of the risks and rewardsrelated to the ownership of leased assets. Its ownership may or may not be transferred eventually.Operating leases refer to leases other than financial leases.
If a lease has one or more of the following characteristics, the Company usually classifies it asa financial lease:
① At the expiry of the lease term, the ownership of the leased assets is transferred to the lessee.
② The lessee has the option to purchase the leased assets, and the purchase price set by thelessee is low enough compared with the expected fair value of the leased assets when exercising theoption. Therefore, it can be reasonably determined on the lease start date that the lessee will exercisethe option.
③ Although the ownership of the assets is not transferred, the lease term accounts for themajority of the life of the leased assets.
④ On the commencement date of the lease, the present value of the lease receipts is almostequal to the fair value of the leased assets.
⑤ The nature of leased assets is special. If there is no major transformation, only the lesseecan use them.
If one or more of the following conditions exist in a lease, it may also be classified as a financiallease:
① If the lessee stops the lease, the lessee shall bear the losses caused by the termination of thelease to the lessor.
Notes to the financial statements - Page 61
② The profits or losses caused by the fluctuation of the fair value of the balance of assetsbelong to the lessee.
③ The lessee can continue to lease far below the market level for the next period.
2) Accounting treatment for financial leases
On the commencement date of lease term, the Company recognizes the financial leasereceivable on the financial leases and derecognizes the financial lease assets.
When the initial measurement of the financial lease receivable is made, the book value of thefinancial lease receivable is the sum of the unsecured balance and the present value of lease receiptsthat have not yet been received at the beginning of the lease term discounted at the interest rateimplicit in the lease. The lease receipts include:
① Fixed payments and substantive fixed payments after deducting the relevant amount of leaseincentives;
② Variable lease payments depending on an index or rate;
③ In the case of reasonably determining that the lessee will exercise the purchase option, thelease receipts include the exercise price of purchase option;
④ If the lease term reflects that the lessee will exercise the option to terminate the lease, thelease receipts include the amount to be paid by the lessee in exercising the option to terminate thelease;
⑤ Guarantee residual value provided to the lessor by the lessee, the party concerned with thelessee and an independent third party with financial capacity to fulfill the guarantee obligation.
The Company calculates and recognizes the interest income for each period of the lease termbased on the fixed interest rate implicit in the lease, and the variable lease payments which areobtained and not included in the net rental investment amount are included in the profit or loss ofthe period when they actually occur.
3) Accounting treatment for operating leases
The Company adopts the straight line method or other systematic and reasonable method torecognize the lease receipts from operating leases as rental income during each period of the leaseterm. Capitalization of the initial direct expenses incurred in connection with operating leases shallbe apportioned on the same basis as the recognition of rental income during the lease term, and shallbe recorded in the profit or loss of the current period. Variable lease payments obtained in connectionwith operating leases that are not incorporated in the lease receipts shall be incorporated in the profitor loss of the period when they actually occur.
37. Termination of business
The Company recognizes components as termination of business components if one of thefollowing condition is met and that the component has already been disposed or classified as held-
Notes to the financial statements - Page 62
for-sale assets and identifiable.
(1) The component represents a stand along major business or a stand along major area inconducting business.
(2) The component is part of plan connecting to disposal of a stand along major business ormajor area of conducting business.
(3) The component is a subsidiary that obtained specifically for resale.
Operating profit or loss such as the impairment loss and the amount of reversal shall bepresented in income statement as profit or loss from terminated business.
38. Re-purchase of shares
Before written-off or transfer, the shares that the Company re-purchased are dealt as treasuryshares. All expenses incurred for the re-purchase are charged in the cost of treasury shares.Consideration and transaction expenses paid during the share re-purchase shall decreaseshareholder’s equity. No gain or losses shall be recognized during re-purchase, transfer or written-off of the Company’s shares.
If the treasury shares is transferred, the difference between amount actually received and theshare’s carrying amount shall be charged to capital reserve, if the capital reserve is not sufficient tooffset, surplus reserve and retained earing shall be offset. If the treasury share is to written-off, theshare capital shall be decreased based on the face value of shares and the difference between thecarrying amount and its face value shall offset the capital reserve. If the capital reserve is notsufficient to offset, deducting surplus reserve and retained earnings.
39. Safety production fee
The safety production fee is accrued by the Company in accordance with national regulationsand is included in the cost of related products or current profit or loss, and is also recorded in the"specific reserve" item. When using the safety production fee, if it is an expense expenditure, it shallbe directly offset against the special reserve. If the fixed assets are formed, the expenses incurredthrough the collection of "construction in progress" will be recognized as fixed assets when thesafety project is completed and reach the intended usable state; at the same time, the cost of formingfixed assets will be offset against the special reserve, and recognize the accumulated depreciationof the same amount. The fixed assets will not be depreciated in the subsequent period.
40. Significant changes in accounting policies and estimates
(1) Changes in accounting policies
There were no significant changes in accounting policies during the year.
(2)Significant changes in accounting estimates
There were no significant changes in accounting estimates during the year.
Notes to the financial statements - Page 63
IV. Taxes
1. Main types of taxes and corresponding tax rates
| Tax type | Basis | Tax rate | note |
| VAT | Domestic sales, providing manufacturing and repairing services | 13% | |
| Property leasing | 9% | ||
| Other taxable services | 6% | ||
| Simplified method | 5% | ||
| Consumption tax | Luxury watches | 20% | |
| Urban maintenance and construction tax | Turnover tax payable | 7%、5% | |
| Corporate income tax | Taxable income | See below table | |
| Property tax | 70% or 80% of the original cost of property or rental income | 1.2%、12% |
Corporate income tax of different entities:
| Name of entities | CIT rate |
| Shenzhen HARMONY World Watch Center Co., Ltd.(①) | 25% |
| FIYTA Sales Co., Ltd.(①) | 25% |
| Shenzhen FIYTA Precision Technology Co., Ltd.(②) | 15% |
| Shenzhen FIYTA Technology Development Co., Ltd.(②) | 15% |
| HARMONY World Watch Center(Hainan) Co., Ltd.(⑤) | 20% |
| Shenzhen Xunhang Precision Technology Co., Ltd. | 25% |
| Emile Choureit Timing (Shenzhen) Ltd. | 25% |
| Liaoning Hengdarui Commercial & Trade Co., Ltd. | 25% |
| EMPORAL (Shenzhen) Co., Ltd. | 25% |
| Shenzhen Harmony E-commerce Co., Ltd.(⑤) | 20% |
| FIYTA (Hong Kong) Ltd.(③) | 16.5% |
| Montres Chouriet SA(④) | 30% |
Note ①:According to the regulations stated in “Interim Administration Method for Levy ofCorporate Income Tax to Enterprise that Operates Cross-regionally”, the head office of theCompany and its branch offices, the head office of HARMONY Company and its branch offices,and the head office of Sales Company and its branch offices adopt tax submission method of“unified calculation, managing by classes, pre-paid in its registered place, settlement in total, andadjustment by finance authorities”. Branch offices mentioned above share 50% of the enterpriseincome tax and prepay locally; and 50% will be prepaid by the head offices mentioned above.
Notes to the financial statements - Page 64
Note ②:The Company enjoyed for “Reduction and Exemption in Corporate Income Tax Ratefor High and New Technology Enterprises that Require Key Support from the State”.
Note ③: These companies are registered in Hong Kong and the income tax rate of Hong Kongapplicable is 16.50% this year.
Note ④: The comprehensive tax rate of 30% is applicable for Swiss Company as it registeredin Switzerland.
Note ⑤: These companies are small and low-profit enterprises, which enjoy 20% tax rate.
2. Preferential treatment and corresponding approval
According to “Proclamation of Ministry of Finance and State Administration of Taxation inPreferential Tax Rate to Small and Low Profit Enterprises and Sole-proprietors” (Caishui (2023) No.6),small low-profit enterprises will be included in taxable income at 25% and to be taxed at a rate of 20%.
According to “Notice of Ministry of Finance and State Administration of Taxation in ExtendingExpiration Period of Utilizing Losses for High-Tech Enterprises and Scientific Oriented Medium andSmall Enterprises” (Cai Shui [2018] No. 76) , starting from January 1, 2018.，unutilized losses incurredin prior 5 years before obtaining the status of High and New Tech Enterprise can be carried forward andutilized in future years. The longest period was extended from 5 years to 10 years.
According to the Announcement of the Ministry of Finance and the State Administration of Taxationon Further Improving the Policy of Pre-tax Deduction of Research and Development Expenses (Cai Shui[2023] No. 7), the research and development expenses actually incurred by enterprises in carrying outresearch and development activities, which have not been formed into intangible assets and recognizedas profit and loss for the current period, shall be deducted on the basis of actual deduction in accordancewith the regulations, and then deducted in accordance with 100% of the actual amount incurred beforetax starting from 1 January 2023; and if they are formed into If the intangible assets are formed, startingfrom January 1, 2023, the intangible assets will be amortized at 200% of the cost of the intangible assetsbefore tax.
A two-tier profits tax system will be implemented in Hong Kong from 2019, providing that theprofits tax rate for Hong Kong companies will be reduced to 8.25% for the first HK2,000,000.00,with profits thereafter continuing to be taxed at 16.5%.
V. Notes to main items of the consolidated financial statements
(Unless otherwise indicated, the currency unit is Renminbi Yuan, the end of the period refers toDecember 31,2023,the beginning of the period refers to January 1, 2023, and the end of the last periodrefers to December 31, 2022)
Note 1. Monetary funds
| Item | Closing balance | Opening balance |
| Cash on hand | 178,996.87 | 173,368.68 |
Notes to the financial statements - Page 65
| Item | Closing balance | Opening balance |
| Cash at bank | 35,443,378.12 | 41,106,861.46 |
| Other monetary funds | 1,262,979.96 | 1,140,201.67 |
| Deposit in finance company | 467,743,798.76 | 271,327,031.83 |
| Total | 504,629,153.71 | 313,747,463.64 |
| Including: Total overseas deposits | 1,202,601.86 | 716,733.44 |
Deposit in finance company mainly deposited with AVIC Finance Co., Ltd.As of December 31, 2023, The Company has no amounts pledged, frozen, or at potential riskof recovery.Cash with restricted usage is as follows
| Item | Closing balance | Opening balance |
| Overseas deposit with restrictions remitting back | 1,202,601.86 | 716,733.44 |
Note 2. Bill receivable1． Presented by category
| Item | Closing balance | Opening balance |
| Bank acceptance bills | 10,363,449.00 | 10,690,221.03 |
| Commercial acceptance bills | 7,905,523.37 | 21,524,691.07 |
| Total | 18,268,972.37 | 32,214,912.10 |
2． Presented by ECL types
| Type | Closing balance | ||||
| Carrying amount | Provision | Book value | |||
| Amount | Percentage (%) | Amount | Percentage (%) | ||
| Notes receivable that provided expected credit losses on single basis | |||||
| Notes receivable that provided expected credit losses on single basis | 18,685,052.55 | 100.00 | 416,080.18 | 2.23 | 18,268,972.37 |
| Including: Commercial acceptance bills | 8,321,603.55 | 44.54 | 416,080.18 | 5.00 | 7,905,523.37 |
| Risk-free Bank acceptance bills | 10,363,449.00 | 55.46 | 10,363,449.00 | ||
| Total | 18,685,052.55 | 100.00 | 416,080.18 | 2.23 | 18,268,972.37 |
Continued：
Notes to the financial statements - Page 66
| Type | Opening balance | ||||
| Carrying amount | Provision | Book value | |||
| Amount | Percentage (%) | Amount | Percentage (%) | ||
| Notes receivable that provided expected credit losses on single basis | |||||
| Notes receivable that provided expected credit losses on single basis | 33,347,790.58 | 100.00 | 1,132,878.48 | 3.40 | 32,214,912.10 |
| Including: Commercial acceptance bills | 22,657,569.55 | 67.94 | 1,132,878.48 | 5.00 | 21,524,691.07 |
| Risk-free Bank acceptance bills | 10,690,221.03 | 32.06 | 10,690,221.03 | ||
| Total | 33,347,790.58 | 100.00 | 1,132,878.48 | 3.40 | 32,214,912.10 |
3． Notes receivable with expected credit loss provided based on credit risk
characteristic portfolio
| Portfolio | Closing balance | ||
| Carrying amount | Provision | Percentage (%) | |
| Bank acceptance bills | 8,321,603.55 | 416,080.18 | 5.00 |
| Commercial acceptance bills | 10,363,449.00 | ||
| Total | 18,685,052.55 | 416,080.18 | |
4． Bad debt movements in current period
| Types | Opening balance | Movements | Closing balance | |||
| Accrual | Received or reversal | Written-off | Other changes | |||
| Notes receivable that provided expected credit losses on single basis | ||||||
| Notes receivable that provided expected credit losses on single basis | 1,132,878.48 | 716,798.30 | 416,080.18 | |||
| Including: Commercial acceptance bills | 1,132,878.48 | 716,798.30 | 416,080.18 | |||
| Risk-free Bank acceptance bills | ||||||
| Total | 1,132,878.48 | 716,798.30 | 416,080.18 | |||
5． Bills have been endorsed but not yet due at the end of the period.
| Item | Amount de-recognized | Amount not de-recognized |
| Bank acceptance bills | 47,646,674.86 |
Notes to the financial statements - Page 67
Note 3. Accounts receivable1．Presentation by aging
| Aging | Closing balance | Opening balance |
| Within 1 year | 333,204,160.07 | 311,934,503.90 |
| 1-2 years | 2,123,874.00 | 14,972,671.61 |
| 2-3 years | 4,200,458.08 | 2,781,542.85 |
| Over 3 years | 18,005,255.95 | 16,064,539.96 |
| Subtotal | 357,533,748.10 | 345,753,258.32 |
| Less: provision for bad debt | 34,390,986.46 | 40,462,298.64 |
| Total | 323,142,761.64 | 305,290,959.68 |
2．Presentation by method of providing bad debt
| Category | Closing balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Accounts receivable that provided expected credit losses on single basis | 24,708,541.73 | 6.91 | 23,148,792.25 | 93.69 | 1,559,749.48 |
| Accounts receivable that provided expected credit losses on portfolio basis | 332,825,206.37 | 93.09 | 11,242,194.21 | 3.38 | 321,583,012.16 |
| Including: Receivable from other customers | 332,825,206.37 | 93.09 | 11,242,194.21 | 3.38 | 321,583,012.16 |
| Total | 357,533,748.10 | 100.00 | 34,390,986.46 | 323,142,761.64 | |
Continued：
| Category | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Accounts receivable that provided expected credit losses on single basis | 34,982,967.68 | 10.12 | 29,705,797.13 | 84.92 | 5,277,170.55 |
| Accounts receivable that provided expected credit losses on portfolio basis` | 310,770,290.64 | 89.88 | 10,756,501.51 | 3.46 | 300,013,789.13 |
| Including: Receivable from other customers | 310,770,290.64 | 89.88 | 10,756,501.51 | 3.46 | 300,013,789.13 |
| Total | 345,753,258.32 | 100.00 | 40,462,298.64 | 11.70 | 305,290,959.68 |
3．Accounts receivable that provided expected credit losses on single basis included inthe closing balance
Notes to the financial statements - Page 68
| Name | Closing balance | |||
| Carrying amount | Bad debt provision | ECL rate (%) | Reasons | |
| Receivable from other customers | 24,708,541.73 | 23,148,792.25 | 93.69 | Existence of disputes, customer mismanagement, etc. |
4．In the portfolio, accounts receivable with expected credit loss provided based on creditrisk characteristic portfolio
Portfolio of receivable from other customers
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 330,569,799.62 | 9,694,581.78 | 2.93 |
| 1-2 years | 786,438.13 | 78,643.81 | 10.00 |
| 2-3 years | |||
| Over 3 years | 1,468,968.62 | 1,468,968.62 | 100.00 |
| Total | 332,825,206.37 | 11,242,194.21 | |
5．Movements of provision during the period
| Types | Opening balance | Movements during the period | Closing balance | |||
| Accrual | Recovered or reversed | Written-off | Other movements | |||
| Accounts receivable that provided expected credit losses on single basis | 29,705,797.13 | 1,013,478.97 | 7,508,493.54 | 85,000.00 | -23,009.69 | 23,148,792.25 |
| Accounts receivable that provided expected credit losses on portfolio basis` | 10,756,501.51 | 1,052,151.99 | 751,246.27 | -184,786.98 | 11,242,194.21 | |
| Including: Receivable from other customers | 10,756,501.51 | 1,052,151.99 | 751,246.27 | -184,786.98 | 11,242,194.21 | |
| Total | 40,462,298.64 | 2,065,630.96 | 8,259,739.81 | 85,000.00 | -207,796.67 | 34,390,986.46 |
Including：main recovery of bad debt provision in current period:
| Name | Amount | Way of recovery | Note |
| Fuzhou Cangshan Suning e-buy Plaza Co., Ltd. | 4,547,371.89 | Bank transfer | |
| Shanghai Pudong Suning e-buy Business Management Co., Ltd. | 791,000.00 | Bank transfer | |
| Fuzhou Suning e-buy Plaza Co., Ltd. | 706,157.30 | Bank transfer |
6．Accounts receivable actually written off during the period
Notes to the financial statements - Page 69
| Item | Amount written off |
| Accounts receivable actually written off | 85,000.00 |
Including：main accounts receivable write-offs:
| Name | Nature | Amount | Reasons for write-offs | Write-off procedures performed | Whether arising from connected transactions |
| Xi’an Tangcheng Limited | Payment for goods | 85,000.00 | Too old to take back | General manager's office | Clogged |
| Total | 85,000.00 |
7．Top 5 receivable accounts
| Name | Closing balance | Proportion in total closing balance of accounts receivable (%) | Bad debt provision |
| Top 5 receivables accounts in total | 76,589,281.00 | 21.42 | 3,829,464.05 |
Note 4. Prepayments1． Presentation of prepayments by aging
| Aging | Closing balance | Opening balance | ||
| Amount | Percentage (%) | Amount | Percentage (%) | |
| Within one year | 6,564,760.64 | 99.90 | 8,039,794.97 | 100.00 |
| 1-2 years | 6,479.34 | 0.10 | ||
| 2-3 years | ||||
| Total | 6,571,239.98 | 100.00 | 8,039,794.97 | 100.00 |
2．Top 5 prepayments
| Name | Closing balance | Proportion in total closing balance of prepayments (%) |
| Top 5 prepayments in total | 2,884,693.00 | 43.90 |
Note 5. Other receivable1．Presentation of other receivables by aging
| Aging | Closing balance | Opening balance |
| Within one year | 22,481,619.93 | 59,711,314.91 |
| 1 - 2 years | 38,313,327.26 | 216,120.00 |
| 2- 3 years | 119,250.00 | 649,029.90 |
| Over 3 years | 1,159,704.90 | 606,105.00 |
Notes to the financial statements - Page 70
| Aging | Closing balance | Opening balance |
| Subtotal | 62,073,902.09 | 61,182,569.81 |
| Less: bad debt provision | 4,348,110.09 | 4,264,550.33 |
| Total | 57,725,792.00 | 56,918,019.48 |
2．Presented by nature
| Nature | Closing balance | Opening balance |
| Security deposit | 51,775,226.86 | 49,430,408.24 |
| Petty cash | 1,549,821.50 | 2,841,915.70 |
| Others | 8,748,853.73 | 8,910,245.87 |
| Subtotal | 62,073,902.09 | 61,182,569.81 |
| Less: bad debt provision | 4,348,110.09 | 4,264,550.33 |
| Total | 57,725,792.00 | 56,918,019.48 |
3．Presented according to three stages of financial assets impairment
| Item | Closing balance | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | Carrying amount | Bad debt provision | Book value | |
| First stage | 60,655,587.19 | 2,980,723.19 | 57,674,864.00 | 59,703,389.91 | 2,850,206.43 | 56,853,183.48 |
| Second stage | ||||||
| Third stage | 1,418,314.90 | 1,367,386.90 | 50,928.00 | 1,479,179.90 | 1,414,343.90 | 64,836.00 |
| Total | 62,073,902.09 | 4,348,110.09 | 57,725,792.00 | 61,182,569.81 | 4,264,550.33 | 56,918,019.48 |
4．Presented by bad debt provision method
| category | Closing balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Other receivables that provided expected credit losses on single basis | 1,418,314.90 | 2.28 | 1,367,386.90 | 96.41 | 50,928.00 |
| Other receivables that provided expected credit losses on portfolio basis | 60,655,587.19 | 97.72 | 2,980,723.19 | 4.91 | 57,674,864.00 |
| Including: Security deposit portfolio | 51,304,601.86 | 82.65 | 2,603,277.66 | 5.07 | 48,701,324.20 |
| Petty cash portfolio | 1,549,821.50 | 2.50 | 1,549,821.50 | ||
| Social security payment on-behalf portfolio | 284,862.55 | 0.46 | 284,862.55 | ||
| Portfolio of others | 7,516,301.28 | 12.11 | 377,445.53 | 5.02 | 7,138,855.75 |
| Total | 62,073,902.09 | 100.00 | 4,348,110.09 | 57,725,792.00 | |
Continued
Notes to the financial statements - Page 71
| Category | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Other receivables that provided expected credit losses on single basis | 1,479,179.90 | 2.42 | 1,414,343.90 | 95.62 | 64,836.00 |
| Other receivables that provided expected credit losses on portfolio basis | 59,703,389.91 | 97.58 | 2,850,206.43 | 4.77 | 56,853,183.48 |
| Including: Security deposit portfolio | 48,600,258.24 | 79.43 | 2,476,810.04 | 5.10 | 46,123,448.20 |
| Petty cash portfolio | 2,841,915.70 | 4.64 | 2,841,915.70 | ||
| Social security payment on-behalf portfolio | 279,769.98 | 0.46 | 279,769.98 | ||
| Portfolio of others | 7,981,445.99 | 13.05 | 373,396.39 | 4.68 | 7,608,049.60 |
| Total | 61,182,569.81 | 100.00 | 4,264,550.33 | 6.97 | 56,918,019.48 |
5． Other receivables that provided expected credit losses on single basis included in the
closing balance
| Name | Closing balance | |||
| Carrying amount | Bad debt provision | ECL rate (%) | Reason | |
| Receivable from others | 1,418,314.90 | 1,367,386.90 | 96.41 | Commercial disputes |
6．In the portfolio, other receivables with expected credit loss provided based on creditrisk characteristic portfolio
（1）Security deposit portfolio
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 28,136,399.98 | 1,406,820.01 | 5.00 |
| 1 - 2 years | 23,028,151.88 | 1,151,407.65 | 5.00 |
| 2- 3 years | 100,000.00 | 5,000.00 | 5.00 |
| Over 3 years | 40,050.00 | 40,050.00 | 100.00 |
| Total | 51,304,601.86 | 2,603,277.66 | |
（2）Petty cash portfolio
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 1,511,048.50 | ||
| 1 - 2 years | 19,523.00 | ||
| 2- 3 years | 19,250.00 | ||
| Total | 1,549,821.50 | ||
Notes to the financial statements - Page 72
（3）Social security payment on-behalf portfolio
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 284,862.55 | ||
（4）Portfolio of others
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 7,516,301.28 | 377,445.53 | 5.02 |
7．Provision for bad debts of other receivables
| Bad debt provision | First stage | Second stage | Third stage | Total |
| Expected credit losses over the next 12 months | Lifetime expected credit losses (no credit impairment occurred) | Lifetime expected credit losses (credit impairment occurred) | ||
| Opening balance | 2,850,206.43 | 1,414,343.90 | 4,264,550.33 | |
| Opening balance movements in current period | ||||
| —Transfer into the second stage | ||||
| —Transfer into the third stage | ||||
| —Reverse back to the second stage | ||||
| —Reverse back to the first stage | ||||
| Accrual during the period | 188,362.28 | 15,525.00 | 203,887.28 | |
| Reversed during the period | -58,073.95 | -62,482.00 | -120,555.95 | |
| Recovered during the period | ||||
| Written-off during the period | ||||
| Other movements | 228.43 | 228.43 | ||
| Closing balance | 2,980,723.19 | 1,367,386.90 | 4,348,110.09 |
8．No other receivables were written-off during the period.9．Top 5 other receivable accounts
| Name | Closing balance | Proportion to closing balance of other receivables (%) | Closing balance of bad debts provision |
| Top 5 other receivables in total | 7,763,649.48 | 12.51 | 388,182.48 |
Note 6. Inventory
Notes to the financial statements - Page 73
1．Classification
| Item | Closing balance | Opening balance | ||||
| Carrying amount | Provision | Book value | Carrying amount | Provision | Book value | |
| Raw material | 167,281,491.84 | 5,290,855.71 | 161,990,636.13 | 162,338,704.65 | 17,241,512.65 | 145,097,192.00 |
| WIP | 12,060,525.88 | 12,060,525.88 | 7,204,699.11 | 7,204,699.11 | ||
| Stored goods | 1,993,236,975.36 | 66,621,962.09 | 1,926,615,013.27 | 2,085,640,712.37 | 96,622,229.81 | 1,989,018,482.56 |
| Total | 2,172,578,993.08 | 71,912,817.80 | 2,100,666,175.28 | 2,255,184,116.13 | 113,863,742.46 | 2,141,320,373.67 |
2．Provision for inventory
| Item | Opening balance | Increase in current period | Decrease in current period | Closing balance | |||
| Accrual | Other | Reversed | Realized | Others | |||
| Raw material | 17,241,512.65 | 1,767,804.67 | 198,541.68 | 13,917,003.29 | 5,290,855.71 | ||
| Stored goods | 96,622,229.81 | 11,782,189.77 | 16,398.16 | 14,121,974.81 | 27,676,880.84 | 66,621,962.09 | |
| Total | 113,863,742.46 | 13,549,994.44 | 214,939.84 | 14,121,974.81 | 41,593,884.13 | 71,912,817.80 | |
Notes to provision for inventory
| Item | Evidence of determine NRV and future selling cost | Reason for reversal or realized |
| Raw material | Estimated selling price less estimated cost to complete and selling and distribution expenses and associated taxes | Factors that caused impairment has been disappeared and the NAV is higher than its carrying amount |
| Stored goods | Estimated selling price less estimated selling and distributing expenses and associated taxes | Inventory that already provided for was sold or used in current period. |
3．The provision is accrued by portfolio of assets
| Portfolio | Closing balance | ||||
| Carrying amount | Provision for inventory | Book value | Criteria for accrued benefits | ||
| Amount | Percentage (%) | ||||
| Inventory ageing portfolio | 42,498,540.45 | 42,498,540.45 | New products of own brands launched in the year are not subject to write-downs. | ||
| Total | 42,498,540.45 | 42,498,540.45 | |||
Continued：
| Portfolio | Opening balance |
Notes to the financial statements - Page 74
| Carrying amount | Provision for inventory | Book value | Criteria for accrued benefits | ||
| Amount | Percentage (%) | ||||
| Inventory ageing portfolio | 40,147,783.30 | 40,147,783.30 | New products of own brands launched in the year are not subject to write-downs. | ||
| Total | 40,147,783.30 | 40,147,783.30 | |||
Note 7. Other current assets
| Item | Closing balance | Opening balance |
| Input VAT | 21,032,239.30 | 12,967,188.47 |
| Input VAT not yet certified | 31,717,607.91 | 39,454,283.19 |
| Prepaid corporate income tax | 1,364,632.40 | 3,419,026.38 |
| Others | 18,134,912.20 | 10,499,007.28 |
| Total | 72,249,391.81 | 66,339,505.32 |
Note 8. Long-term equity investment
| Investee | Opening balance | Movements during the period | |||
| Addition/new investment | Withdrawn | Investment gains and losses recognized by equity method | Adjustment of other comprehensive income | ||
| Associate | |||||
| Shanghai Watch Co., Ltd. (Shanghai Watch) | 58,182,086.90 | -5,819,479.60 | |||
Continued
| Investee | Movements during the period | Closing balance | Closing balance of impairment provision | |||
| Changes in other equity | Cash dividend declared | Impairment provision | Others | |||
| Associate | ||||||
| Shanghai Watch | -500,000.00 | 51,862,607.30 | ||||
Note 9. Other equity instrument investments
| Item | Closing balance | Opening balance |
| Xi’an Tangcheng Limited | 85,000.00 |
Note 10. Investment property
1. Details of investment property
| Item | Property |
| I. Original cost |
Notes to the financial statements - Page 75
| Item | Property |
| 1．Opening balance | 619,762,618.36 |
| 2．Addition | 572,405.53 |
| Purchase | |
| Transferred from fixed assets | 572,405.53 |
| Other reasons | |
| 3．Decrease | |
| Disposal | |
| Other reasons | |
| 4．Closing balance | 620,335,023.89 |
| II. Accumulated depreciation | |
| 1．Opening balance | 244,783,123.65 |
| 2．Increased in current period | 15,296,068.10 |
| Accrual | 15,044,992.22 |
| Transferred from fixed assets | 251,075.88 |
| Other reasons | |
| 3．Decreased in current period | |
| Disposal | |
| Other reasons | |
| 4．Closing balance | 260,079,191.75 |
| III. Impairment provision | |
| 1．Opening balance | |
| 2．Increased in current period | |
| Accrual | |
| Transferred from fixed assets | |
| Other reasons | |
| 3．Decreased in current period | |
| Disposal | |
| Other reasons | |
| 4．Closing balance | |
| IV. Book value | |
| 1．Carrying amount at end of the period | 360,255,832.14 |
| 2．Carrying amount at opening of the period | 374,979,494.71 |
2. Notes to investment property
During the reporting period, certain self-use property of the Company were changed to leaseout and they were transferred from fixed assets to investment properties measured at cost model.
Notes to the financial statements - Page 76
Note 11. Fixed assets
1. Status of fixed assets
| Item | Property and buildings | Machinery | Transportation vehicles | Electronic devices | Other equipment | Total |
| I.Original cost | ||||||
| 1. Opening balance | 436,320,947.20 | 117,552,809.38 | 14,472,510.38 | 47,600,350.65 | 45,458,802.97 | 661,405,420.58 |
| 2. Increased in current period | 6,274,155.66 | 13,247,259.25 | 22,133.50 | 5,638,594.91 | 1,095,999.30 | 26,278,142.62 |
| Re-classification | ||||||
| Purchased | 914,818.16 | 9,069,828.71 | 22,133.50 | 5,638,411.80 | 1,095,999.30 | 16,741,191.47 |
| Translation difference | 5,359,337.50 | 4,177,430.54 | 183.11 | 9,536,951.15 | ||
| Other increase | ||||||
| 3. Decrease in current period | 1,005,470.23 | 132,279.42 | 1,217,550.05 | 2,581,726.49 | 2,460,547.92 | 7,397,574.11 |
| Disposal or retired | 433,064.70 | 132,279.42 | 1,217,550.05 | 2,260,776.40 | 1,552,373.54 | 5,596,044.11 |
| Transferred to investment property | 572,405.53 | 572,405.53 | ||||
| Translation difference | 309,957.34 | 908,174.38 | 1,218,131.72 | |||
| Other decrease | 10,992.75 | 10,992.75 | ||||
| 4. Closing balance | 441,589,632.63 | 130,667,789.21 | 13,277,093.83 | 50,657,219.07 | 44,094,254.35 | 680,285,989.09 |
| II. Accumulated depreciation | ||||||
| 1. Opening balance | 135,388,740.98 | 71,466,324.74 | 12,901,120.89 | 37,167,150.60 | 39,853,318.20 | 296,776,655.41 |
| 2. Increased in current period | 17,371,592.78 | 11,708,223.48 | 334,169.25 | 2,754,128.08 | 1,490,096.27 | 33,658,209.86 |
| Re-classification | ||||||
| Accrual | 13,829,319.29 | 8,286,484.22 | 334,169.25 | 2,673,316.21 | 1,490,096.27 | 26,613,385.24 |
| Translation difference | 3,542,273.49 | 3,421,739.26 | 80,811.87 | 7,044,824.62 | ||
| Other increase | ||||||
| 3. Decrease in current period | 553,306.35 | 40,954.90 | 1,156,620.74 | 1,964,736.59 | 2,218,612.28 | 5,934,230.86 |
| Disposal or retired | 302,230.47 | 40,954.90 | 1,156,620.74 | 1,964,736.59 | 1,281,465.83 | 4,746,008.53 |
| Transferred to investment property | 251,075.88 | 251,075.88 | ||||
| Translation difference | 937,146.45 | 937,146.45 | ||||
| Other decrease | ||||||
| 4. Closing balance | 152,207,027.41 | 83,133,593.32 | 12,078,669.40 | 37,956,542.09 | 39,124,802.19 | 324,500,634.41 |
| III. Impairment provision | ||||||
| 1. Opening balance |
Notes to the financial statements - Page 77
| Item | Property and buildings | Machinery | Transportation vehicles | Electronic devices | Other equipment | Total |
| 2. Increase in current period | ||||||
| Re-classification | ||||||
| Accrual | ||||||
| Translation difference | ||||||
| Other increase | ||||||
| 3. Decrease in current period | ||||||
| Disposal or retired | ||||||
| Transferred into investment property | ||||||
| Translation difference | ||||||
| Other decrease | ||||||
| 4. Closing balance | ||||||
| IV. Book value | ||||||
| 1. Carrying amount at end of period | 289,382,605.22 | 47,534,195.89 | 1,198,424.43 | 12,700,676.98 | 4,969,452.16 | 355,785,354.68 |
| 2. Carrying amount at beginning of period | 300,932,206.22 | 46,086,484.64 | 1,571,389.49 | 10,433,200.05 | 5,605,484.77 | 364,628,765.17 |
2. Fixed assets that do not have certificate for property right
| Item | Book value | Reason for not having certificate for property rights |
| Property | 190,716.25 | Issues relating to property right |
Note 12. Right-of-use assets
| Item | Property |
| I. Original cost | |
| 1．Opening balance | 362,417,078.85 |
| 2．Increase in current period | 103,612,246.80 |
| Re-classification | |
| Lease | 100,802,964.10 |
| Translation difference | 3,116.50 |
| Other increase | 2,806,166.20 |
| 3．Decrease in current period | 312,819,427.84 |
| Maturity of lease term | 304,816,556.54 |
| Translation difference |
Notes to the financial statements - Page 78
| Item | Property |
| Other decrease | 8,002,871.30 |
| 4．Closing balance | 153,209,897.81 |
| II. Accumulated depreciation | |
| 1．Opening balance | 252,086,566.82 |
| 2．Increase in the period | 103,960,161.59 |
| Reclassification | |
| Accrual | 103,958,386.94 |
| Translation difference | 1,774.65 |
| Other increase | |
| 3．Decrease in the period | 312,289,312.24 |
| Maturity of lease term | 304,816,556.54 |
| Translation difference | |
| Other decrease | 7,472,755.70 |
| 4．Closing balance | 43,757,416.17 |
| III. Impairment provision | |
| 1．Opening balance | |
| 2．Increase in the period | |
| Reclassification | |
| Accrual | |
| Translation difference | |
| Other increase | |
| 3．Decrease in the period | |
| Maturity of lease term | |
| Translation difference | |
| Other decrease | |
| 4．Closing balance | |
| IV. Book value | |
| 1．Carrying amount at end of period | 109,452,481.64 |
| 2．Carrying amount at beginning of period | 110,330,512.03 |
Note 13. Intangible asset1．Status
| Item | Land-use right | Software system | Right to use trademarks | Total |
| I. Original cost | ||||
| 1．Opening balance | 34,933,822.40 | 33,197,692.51 | 16,518,590.29 | 84,650,105.20 |
| 2．Increase in the period | 2,072,450.42 | 80,894.93 | 2,153,345.35 |
Notes to the financial statements - Page 79
| Item | Land-use right | Software system | Right to use trademarks | Total |
| Purchase | 2,072,450.42 | 80,894.93 | 2,153,345.35 | |
| Internal R&D | ||||
| Other source | ||||
| 3．Decrease in the period | 27,470.38 | 27,470.38 | ||
| Disposal | 27,470.38 | 27,470.38 | ||
| Other reasons | ||||
| 4．Closing balance | 34,933,822.40 | 35,242,672.55 | 16,599,485.22 | 86,775,980.17 |
| II. Accumulated amortization | ||||
| 1．Opening balance | 16,515,922.01 | 25,903,908.15 | 9,030,056.41 | 51,449,886.57 |
| 2．Increase in the period | 733,553.29 | 1,717,415.91 | 1,238,214.01 | 3,689,183.21 |
| Accrual | 733,553.29 | 1,717,415.91 | 1,238,214.01 | 3,689,183.21 |
| Other reasons | ||||
| 3．Decrease in the period | 27,470.38 | 27,470.38 | ||
| Disposal | 27,470.38 | 27,470.38 | ||
| Other reasons | ||||
| 4．Closing balance | 17,249,475.30 | 27,593,853.68 | 10,268,270.42 | 55,111,599.40 |
| III. Impairment provision | ||||
| 1．Opening balance | ||||
| 2．Increase in the period | ||||
| Accrual | ||||
| Other reasons | ||||
| 3．Decrease in the period | ||||
| Transfer | ||||
| Other reasons | ||||
| Other transfer | ||||
| 4．Closing balance | ||||
| IV. Book value | ||||
| 1．Book value at end of the period | 17,684,347.10 | 7,648,818.87 | 6,331,214.80 | 31,664,380.77 |
| 2．Book value at beginning of the period | 18,417,900.39 | 7,293,784.36 | 7,488,533.88 | 33,200,218.63 |
Note 14. Long-term deferred expenses
| Item | Opening balance | Increase | Amortized | Other decrease | Closing balance |
| Counter fabrication expenses | 22,247,070.17 | 22,066,842.07 | 23,175,000.62 | 2,130,567.78 | 19,008,343.84 |
Notes to the financial statements - Page 80
| Item | Opening balance | Increase | Amortized | Other decrease | Closing balance |
| Renovation expenses | 116,030,323.61 | 39,047,795.69 | 58,272,039.86 | 509,069.24 | 96,297,010.20 |
| Others | 6,211,058.40 | 7,760,754.71 | 6,952,812.02 | 7,019,001.09 | |
| Total | 144,488,452.18 | 68,875,392.47 | 88,399,852.50 | 2,639,637.02 | 122,324,355.13 |
Note 15. Deferred tax assets and deferred tax liabilities
1．Detail of deferred tax assets before offsetting
| Item | Closing balance | Opening balance | ||
| Deductible temporary difference | Deferred tax assets | Deductible temporary difference | Deferred tax assets | |
| Impairment provision | 107,672,653.16 | 24,371,732.35 | 143,503,292.94 | 30,225,885.07 |
| Unrealized profit for related party transactions | 83,620,908.60 | 20,855,280.62 | 75,781,866.09 | 18,681,772.44 |
| Deductible losses | 126,562,143.51 | 31,197,892.87 | 157,860,317.75 | 37,779,977.71 |
| Restricted shares | 6,263,007.85 | 1,449,733.06 | 23,141,270.85 | 5,411,762.47 |
| Advertisement expenses that allowed to deduct in future years | 515,068.99 | 128,767.25 | ||
| Lease liabilities | 109,682,960.95 | 27,420,740.27 | 113,136,916.00 | 28,284,229.00 |
| Others | 5,168,527.80 | 1,292,131.95 | 7,295,926.80 | 1,823,981.80 |
| Total | 438,970,201.87 | 106,587,511.12 | 521,234,659.42 | 122,336,375.74 |
2．Detail of deferred tax liabilities before offsetting
| Item | Closing balance | Opening balance | ||
| taxable temporary difference | Deferred tax liabilities | Taxable temporary difference | Deferred tax liabilities | |
| One-off deduction of fixed asset before Corporate income tax | 28,437,227.07 | 4,265,584.06 | 29,872,344.91 | 4,480,851.74 |
| Right-of-use asset | 109,212,305.15 | 27,303,076.29 | 110,279,028.02 | 27,569,757.01 |
| Total | 137,649,532.22 | 31,568,660.35 | 140,151,372.93 | 32,050,608.75 |
3．Net-off of deferred tax asset or liabilities
| Item | Amount off-set at current period | Closing balance of deferred tax asset or liability after off-set | Amount off-set at prior period | Opening balance of deferred tax asset or liability after off-set |
| deferred tax asset | 26,359,739.66 | 80,227,771.46 | 26,551,763.80 | 95,784,611.94 |
| deferred tax liabilities | 26,359,739.66 | 5,208,920.69 | 26,551,763.80 | 5,498,844.95 |
4．Details of deductible temporary difference and deductible losses that does not recognize
as deferred income tax asset
| Item | Closing balance | Opening balance |
| Impairment provision | 3,395,341.37 | 16,220,176.97 |
| Deductible losses | 52,523,345.89 | 50,761,915.00 |
Notes to the financial statements - Page 81
| Item | Closing balance | Opening balance |
| Total | 55,918,687.26 | 66,982,091.97 |
Deductible losses of Montres Chouriet SA, which are sub-subsidiary of the Company, is notrecognized as deferred income tax asset as it’s uncertain that the companies can get sufficient taxableincome in future. FIYTA（Hong Kong）Ltd, a subsidiary of the Company, does not need to recognizethe deferred income tax assets for impairment provision according to the local tax policy.5．Deductible losses that are not recognized as deferred tax asset will due in the following
years：
| Year | Closing balance | Opening balance | Note |
| 2023 | 8,456,818.95 | ||
| 2024 | 23,049,503.37 | 18,449,678.50 | |
| 2025 | 29,473,842.52 | 23,855,417.55 | |
| Total | 52,523,345.89 | 50,761,915.00 |
Note 16. Other non-current assets
| Item | Closing balance | Opening balance | ||||
| Carrying amount | Provision | Book value | Carrying amount | Provision | Book value | |
| Prepayment for construction and equipment | 9,434,627.17 | 9,434,627.17 | 11,593,741.57 | 11,593,741.57 | ||
| Total | 9,434,627.17 | 9,434,627.17 | 11,593,741.57 | 11,593,741.57 | ||
Note 17. Short-term loan
| Item | Closing balance | Opening balance |
| Credit loans | 250,000,000.00 | 290,000,000.00 |
| Accrued interest payable | 187,763.87 | 237,111.11 |
| Total | 250,187,763.87 | 290,237,111.11 |
Note 18. Notes payable
| Types | Closing balance | Opening balance |
| Commercial bills payable | 2,000,600.00 |
Note 19. Account payables
| Item | Closing balance | Opening balance |
| Trade payables | 148,281,377.41 | 149,811,781.06 |
| Payables for material purchased | 23,371,455.42 | 19,729,474.20 |
| Payables for project | 2,173,074.88 | 1,048,201.41 |
| Total | 173,825,907.71 | 170,589,456.67 |
Notes to the financial statements - Page 82
Note 20. Advances from customer
| Item | Closing balance | Opening balance |
| Rental received in advance | 10,267,758.31 | 16,960,128.83 |
| Total | 10,267,758.31 | 16,960,128.83 |
Note 21. Contract liabilities
| Item | Closing balance | Opening balance |
| Advances for goods received | 12,286,243.62 | 16,844,437.47 |
| Total | 12,286,243.62 | 16,844,437.47 |
Note 22. Employee remuneration payable1．Status
| Item | Opening balance | Increase | Decrease | Closing balance |
| Short-term employee benefits | 122,389,603.47 | 573,249,889.40 | 581,435,441.84 | 114,204,051.03 |
| Post-employment benefits - defined contribution plans | 9,282,692.00 | 45,699,776.34 | 49,401,016.98 | 5,581,451.36 |
| Termination benefits | 4,915,643.91 | 3,561,468.21 | 8,177,803.91 | 299,308.21 |
| Total | 136,587,939.38 | 622,511,133.95 | 639,014,262.73 | 120,084,810.60 |
2．Short-term employee benefits
| Item | Opening balance | Increase | Decrease | Closing balance |
| Salaries, bonus, allowances | 121,169,046.53 | 514,306,267.70 | 522,193,272.18 | 113,282,042.05 |
| Staff welfare | 10,643.28 | 9,991,313.96 | 9,839,862.22 | 162,095.02 |
| Social insurances | 404,028.29 | 22,623,655.78 | 23,027,605.75 | 78.32 |
| Including:1.Medical insurance | 404,028.29 | 20,961,272.11 | 21,365,300.40 | |
| 2. Supplementary medical insurance | ||||
| 3.Work-related injury insurance | 894,581.96 | 894,503.64 | 78.32 | |
| 4.Maternity insurance | 767,801.71 | 767,801.71 | ||
| Housing Fund | 169,121.00 | 19,257,855.90 | 19,413,425.90 | 13,551.00 |
| Labor union fees and education fee | 636,764.37 | 7,070,796.06 | 6,961,275.79 | 746,284.64 |
| Total | 122,389,603.47 | 573,249,889.40 | 581,435,441.84 | 114,204,051.03 |
3．Defined contribution plans
| Item | Opening balance | Increase | Decrease | Closing balance |
| Basic pension insurance | 290,781.95 | 40,649,553.03 | 40,732,129.01 | 208,205.97 |
| Unemployment insurance | 581.68 | 1,203,467.38 | 1,203,669.18 | 379.88 |
| Annuity | 8,991,328.37 | 3,846,755.93 | 7,465,218.79 | 5,372,865.51 |
| Total | 9,282,692.00 | 45,699,776.34 | 49,401,016.98 | 5,581,451.36 |
Notes to the financial statements - Page 83
Note 23. Taxes payable
| Item | Closing balance | Opening balance |
| VAT | 38,997,243.97 | 39,086,878.23 |
| Corporate income tax | 21,276,050.77 | 16,751,872.66 |
| Individual income tax | 1,101,633.76 | 1,070,872.15 |
| Urban maintenance and construction tax | 1,047,680.77 | 1,353,097.21 |
| Educational surcharges | 748,598.11 | 966,809.02 |
| Others | 1,016,953.93 | 1,540,639.03 |
| Total | 64,188,161.31 | 60,770,168.30 |
Note 24. Other payables
| Item | Closing balance | Opening balance |
| Dividends payable | 2,058,352.24 | 6,324,013.97 |
| Other payables | 119,879,448.83 | 158,736,108.61 |
| Total | 121,937,801.07 | 165,060,122.58 |
Note: Other payables in above table refers to other payables excluding interest payable anddividends payable.
1. Dividends payable
| Item | Closing balance | Opening balance | Reasons for not being paid |
| Dividends for ordinary shares | 2,058,352.24 | 6,324,013.97 | unlock |
| Total | 2,058,352.24 | 6,324,013.97 |
2. Other payables
(1) Other payables by nature
| Nature | Closing balance | Opening balance |
| Security deposit | 34,075,198.63 | 38,319,837.05 |
| Shop activity fund | 17,335,559.49 | 16,105,216.84 |
| Decoration expenses | 10,214,019.04 | 12,827,532.03 |
| Repurchase liability for restricted shares | 14,304,862.81 | 50,759,806.16 |
| Other | 43,949,808.86 | 40,723,716.53 |
| Total | 119,879,448.83 | 158,736,108.61 |
(2) Material other receivables with aging over 1 year
| Name | Closing balance | Reasons for not being paid |
| Company A | 4,614,077.01 | Undue |
Notes to the financial statements - Page 84
| Name | Closing balance | Reasons for not being paid |
| Company B | 2,032,676.76 | Undue |
| Company C | 2,020,950.20 | Undue |
| Company D | 1,807,296.80 | Undue |
| Company E | 1,442,275.27 | Undue |
| Company F | 1,060,132.00 | Undue |
| Total | 12,977,408.04 |
Note 25. Non-current liabilities due within one year
| Item | Closing balance | Opening balance |
| Lease liabilities due in one year | 66,399,004.20 | 71,546,316.16 |
| Total | 66,399,004.20 | 71,546,316.16 |
Note 26. Other current liabilities
| Item | Closing balance | Opening balance |
| Output VAT not yet realized | 1,589,635.30 | 1,686,806.01 |
| Total | 1,589,635.30 | 1,686,806.01 |
Note 27. Lease liabilities
| Item | Closing balance | Opening balance |
| Buildings and Structures | 113,786,386.87 | 113,365,689.55 |
| Less: unrecognised finance costs | 3,861,030.15 | 176,811.81 |
| Subtotal present value of lease receipts | 109,925,356.72 | 113,188,877.74 |
| Less: lease liabilities due in one year | 66,399,004.20 | 71,546,316.16 |
| Total | 43,526,352.52 | 41,642,561.58 |
Interest expenses for lease liabilities recognized in current period was RMB4,583,361.68.Note 28. Deferred income
| Item | Opening balance | Increase | Decrease | Closing balance | Reason |
| Asset related government subsidy | 1,295,926.80 | 343,141.11 | 952,785.69 | ||
| Revenue related government subsidy | |||||
| Total | 1,295,926.80 | 343,141.11 | 952,785.69 |
Deferred income related to government subsidyThe Company's government subsidy are detailed in Note VIII Government subsidy.1 forliability items involving government grants.
Notes to the financial statements - Page 85
Note 29. Share capital
| Item | Opening balance | Movements: increase(+) , decrease(－) | Closing balance | ||||
| Newly issued | Bonus share | Capitalization of capital reserves | Others | Subtotal | |||
| Total shares | 417,627,960.00 | -2,407,990.00 | -2,407,990.00 | 415,219,970.00 | |||
| Total | 417,627,960.00 | -2,407,990.00 | -2,407,990.00 | 415,219,970.00 | |||
Notes to movements：
1. Pursuant to the "Proposal on the Repurchase and Cancellation of Certain Restricted Sharesunder the 2018 A-share Restricted Share Incentive Plan (Phase II)" considered and approved bythe Board of Directors and the general meeting of the Company, 206,860 A-share restricted sharesheld by seven departing former incentive recipients, which had been granted but not yet releasedfrom restriction on sale, were repurchased and cancelled.
2. Pursuant to the ''Proposal on the Failure to Achieve the Conditions for Release of RestrictedShares during the Second Release Period of the 2018 A-share Restricted Share Incentive Plan(Phase II) and the Repurchase and Cancellation of Certain Restricted Shares'' considered andapproved by the Board of Directors and the General Meeting of Shareholders of the Company,2,201,130 restricted shares of A-shares held by 120 incentive recipients for whom the conditionsfor release of restricted shares have not been fulfilled are to be repurchased and cancelled.
Note 30. Capital reserve
| Item | Item | Opening balance | Increase | Decrease |
| Share premium | 969,665,728.36 | 12,799,265.10 | 14,207,807.55 | 968,257,185.91 |
| Other capital reserve | 37,420,915.12 | 3,184,288.69 | 18,703,356.55 | 21,901,847.26 |
| Total | 1,007,086,643.48 | 15,983,553.79 | 32,911,164.10 | 990,159,033.17 |
Notes to capital reserve:
1. Pursuant to the ''Resolution on the fulfillment of the conditions for the release of restrictedshares during the first release period of the 2018 A-share Restricted Stock Incentive Plan (PhaseII)'' and the ''Resolution on the fulfillment of the conditions for the release of restricted sharesduring the third release period of the 2018 A-share Restricted Stock Incentive Plan (Phase I)''considered and approved by the Board of Directors and the General Meeting of Shareholders ofthe Company, in the year of 2023, RMB3,436,710,000 A-share restricted shares which met theconditions for release from restricted sale were released from restricted sale, and the capital surplusof RMB12,799,265.10 corresponding to the restricted shares of the above incentive recipients wastransferred from "Other capital surplus" to "Share premium".
2. As described in Note V. 29, the Company repurchased restricted shares, and the equity
Notes to the financial statements - Page 86
premium was reduced by RMB14,195,451.00 accordingly.
3. Pursuant to the "Program on the Repurchase of Certain Domestically Listed Foreign Shares(B Shares)" considered and approved at the Eleventh Meeting of the Tenth Session of the Board ofDirectors and the General Meeting of Shareholders of the Company, in 2023, the transaction costsincurred by the Company for the repurchase of the Company's shares through the repurchase ofthe special securities account amounted to RMB12,356.55, which was offset against the equitypremium of RMB12,356.55.
4. Pursuant to the Proposal on the Grant of Restricted Shares to the Incentive Recipients underthe Company's 2018 A-Share Restricted Stock Incentive Plan (Phase II), which was consideredand approved by the Board of Directors and the General Meeting of Shareholders of the Company.In 2023, the services obtained by the Company from the above incentive recipients were includedin the relevant costs or expenses and increased the other capital surplus by RMB1,825,092.95accordingly.
5. Pursuant to the ''Proposal on the Failure to Achieve the Conditions for Release of RestrictedShares during the Second Release Period of the 2018 A-Share Restricted Stock Incentive Plan(Phase II) and the Repurchase and Cancellation of Certain Restricted Shares'' considered andapproved by the Board of Directors and the General Meeting of Shareholders of the Company, inthe year 2023, 2,201,130 A-share restricted shares held by 120 incentive recipients for whom theconditions for release of restricted shares have not been reached were repurchased and cancelled.Eliminate the services of the above incentive recipients charged to the relevant costs or expensesand reduce the other capital surplus by RMB5,904,091.45 accordingly.
6. The amount of income tax effect of the difference between the amount deducted beforeincome tax for the current year and the amount of related costs and expenses recognized during thewaiting period resulting from the difference between the fair price at the time of unlocking ofrestricted shares and the grant price at the time of grant was adjusted to other capital surplus byRMB1,359,195.74 accordingly.
Note 31. Treasury shares
| Item | Opening balance | Increase | Decrease | Closing balance |
| Share repurchase | 64,340,669.42 | 64,340,669.42 | ||
| Share based payment | 50,759,806.16 | 36,454,943.35 | 14,304,862.81 | |
| Total | 50,759,806.16 | 64,340,669.42 | 36,454,943.35 | 78,645,532.23 |
Notes to treasury shares:
1. In 2023, the Company repurchased an aggregate of 9,355,763 B shares of the Companythrough the Shenzhen Stock Exchange by way of centralized bidding, and paid a repurchaseamount of HK70,401,771.17 (excluding transaction costs), equivalent to RMB64,340,669.42, thusincreasing "Reduction of registered capital repurchase" by RMB64,340,669.42.
Notes to the financial statements - Page 87
2. As described in Note V. 29. 2, the Company repurchased and canceled the A-share restrictedshares for which the conditions for release from restriction on sale had not been met, therebyreducing the "Restricted share-based payments" by RMB15,187,797.00.
3. As described in Note V. 29. 1, the Company repurchased and canceled the A-share restrictedshares that had been granted but not yet released from restriction, thereby reducing "Restrictedshare-based payments" by RMB1,415,644.00; and reduced "Restricted share-based payments" byRMB588,620.00 in respect of the corresponding cash dividends.
4. As described in Note V. 30. 1, for those shares that meet the unlocking conditions forrestricted shares and do not need to be repurchased, the corresponding repurchase obligations werederecognized, thus reducing "Restricted share-based payments" by RMB19,262,882.35.
Notes to the financial statements - Page 88
Note 32. Other Comprehensive income
| Item | Opening balance | Amount in current period | Closing balance | ||||||||
| Pre-tax amount | Less: recorded in OCI in prior period and transferred to profit or loss in current period | Less: recorded in OCI in prior period and transferred to financial assets at amortized cost | Less: reserve of hedging transferred to related assets or liabilities | Less: CIT | Attribute to parent company after tax | Attribute to non-controlling shareholders after tax | Less: movements of defied benefit plan | Less: recorded in OCI in prior period and transferred to retained earnings in current period | |||
| I. Other comprehensive income items which will not be reclassified subsequently to profit or loss | |||||||||||
| II. Other comprehensive income items which may be reclassified subsequently to profit or loss | 5,739,589.89 | 13,585,746.04 | 13,585,746.04 | 19,325,335.93 | |||||||
| Including:translation difference | 5,739,589.89 | 13,585,746.04 | 13,585,746.04 | 19,325,335.93 | |||||||
| Total | 5,739,589.89 | 13,585,746.04 | 13,585,746.04 | 19,325,335.93 | |||||||
Notes to the financial statements - Page 89
Note 33. Specific reserve
| Item | Opening balance | Increase | Decrease | Closing balance |
| Safety production fee | 2,012,064.91 | 1,537,825.22 | 326,732.07 | 3,223,158.06 |
| Total | 2,012,064.91 | 1,537,825.22 | 326,732.07 | 3,223,158.06 |
Note 34. Surplus reserve
| Item | Opening balance | Increase | Decrease | Closing balance |
| Statutory surplus reserve | 213,025,507.50 | 213,025,507.50 | ||
| Discretionary surplus reserve | 61,984,894.00 | 61,984,894.00 | ||
| Total | 275,010,401.50 | 275,010,401.50 |
Notes to surplus reserve:
Note: According to the Company Law and Articles of Association, the Company drawsstatutory surplus reserve at 10% of net profit. If the statutory surplus reserve is over 50% of theCompany’s registered capital, drawing of statutory surplus reserve will be stopped.
The Company can draw discretionary surplus reserve after drawing statutory surplus reserve.If approved, discretionary surplus reserve can be used to make up for losses in previous years orincrease share capital.
Note 35. Undistributed profit
| Item | Current period | Prior period |
| Undistributed profit at the end of prior year before adjustments | 1,479,706,638.53 | 1,338,444,326.09 |
| Adjustments to undistributed profit at the beginning of year (“+” for increase and “-“ for decrease) | ||
| Undistributed profit at the beginning of year after adjustment | 1,479,706,638.53 | 1,338,444,326.09 |
| Plus: Net profit attributable to the owner of the parent company for the year | 333,178,102.37 | 266,681,451.84 |
| Less: statutory surplus reserve drawn | ||
| Dividends payable to ordinary shares | 103,371,355.14 | 125,419,139.40 |
| Undistributed profit at the end of year | 1,709,513,385.76 | 1,479,706,638.53 |
Note 36. Operating income and operating cost
1．Operating income and operating cost
| Item | Amount in current period | Amount in prior period | ||
| Revenue | Cost | Revenue | Cost | |
| Main business | 4,553,706,250.49 | 2,904,751,241.51 | 4,336,586,473.74 | 2,738,100,529.23 |
| Other business | 15,983,752.50 | 712,233.30 | 17,510,406.62 | 872,261.88 |
Notes to the financial statements - Page 90
| Item | Amount in current period | Amount in prior period | ||
| Revenue | Cost | Revenue | Cost | |
| Total | 4,569,690,002.99 | 2,905,463,474.81 | 4,354,096,880.36 | 2,738,972,791.11 |
2．Revenue generated by contract
| Types of contract | Amount in current period | Amount in prior period |
| I. Types of goods | ||
| Watch business | 4,270,245,173.86 | 4,044,205,847.75 |
| Precision manufacturing | 133,103,042.03 | 163,114,009.23 |
| Other business | 15,916,680.92 | 17,510,406.62 |
| II. Categorized based on timing of goods transfer | ||
| At a point of time | 4,410,670,831.14 | 4,212,548,175.21 |
| During a period of time | 8,594,065.67 | 12,282,088.39 |
Note: revenue generated by contract does not include lease income of RMB150,425,106.18which is regulated under “CAS No.21 – Lease”.
Note 37. Tax and surcharges
| Item | Amount in current period | Amount in prior period |
| Consumption tax | 12,205,585.22 | 10,509,059.81 |
| Urban maintenance and construction tax | 5,188,370.21 | 4,483,205.18 |
| Educational surcharge | 3,452,657.63 | 2,988,250.62 |
| Property tax | 7,512,564.92 | 5,824,577.36 |
| Stamp duty | 3,040,109.98 | 3,814,124.17 |
| Others | 4,794,558.14 | 3,180,982.59 |
| Total | 36,193,846.10 | 30,800,199.73 |
Note 38. Selling and distribution expenses
| Item | Amount in current period | Amount in prior period |
| Salary | 364,493,305.57 | 390,723,066.47 |
| Department store expense and rental | 159,738,493.87 | 154,977,256.13 |
| Market promotion expenses | 146,787,677.11 | 114,559,488.13 |
| Depreciation and amortization | 187,456,893.25 | 210,324,656.21 |
| Packaging expenses | 10,367,129.63 | 8,210,424.75 |
| Utilities and property management expenses | 22,673,870.27 | 22,115,070.79 |
| Shipping fees | 5,921,929.02 | 5,928,120.89 |
Notes to the financial statements - Page 91
| Item | Amount in current period | Amount in prior period |
| Office expenses | 6,285,406.47 | 5,617,713.76 |
| Travel expenses | 8,415,884.60 | 4,533,814.79 |
| Entertainment expenses | 4,581,476.42 | 3,081,324.66 |
| Others | 7,287,113.11 | 11,761,893.82 |
| Total | 924,009,179.32 | 931,832,830.40 |
Note 39. Administrative expenses
| Item | Amount in current period | Amount in prior period |
| Salary | 159,074,391.51 | 169,831,180.19 |
| Depreciation and amortization | 23,462,090.05 | 23,584,581.61 |
| Travel expenses | 4,773,457.90 | 1,651,207.39 |
| Office expenses | 3,174,249.82 | 3,967,189.58 |
| Agents fees | 1,917,258.68 | 1,764,355.96 |
| Rental and utilities | 1,359,636.27 | 941,300.03 |
| Entertainment expenses | 1,368,967.18 | 764,414.05 |
| Vehicle and transportation expenses | 1,884,805.22 | 1,528,304.66 |
| Telecommunication expenses | 368,370.99 | 825,712.63 |
| Others | 7,976,049.62 | 14,156,262.42 |
| Total | 205,359,277.24 | 219,014,508.52 |
Note 40. R&D expenses
| Item | Amount in current period | Amount in prior period |
| Salary | 43,658,293.35 | 47,534,889.46 |
| Sample and material expenses | 2,219,443.20 | 1,964,204.63 |
| Molding expenses | 2,263.43 | 853,056.11 |
| Depreciation and amortization | 4,300,190.56 | 4,852,325.18 |
| Technical cooperation fee | 2,758,347.16 | 217,203.80 |
| Others | 4,863,706.38 | 5,666,906.43 |
| Total | 57,802,244.08 | 61,088,585.61 |
Note 41. Financial expenses
| Item | Amount in current period | Amount in prior period |
| Interest expenses | 12,824,222.06 | 16,846,749.14 |
| Less: Interest income | 5,722,586.39 | 3,923,999.48 |
| Exchange gain or losses | 1,879,443.15 | -3,053,760.78 |
| Bank charges | 12,488,693.95 | 11,319,753.23 |
| Total | 21,469,772.77 | 21,188,742.11 |
Notes to the financial statements - Page 92
Note 42. Other income1．Details
| Sources of other income | Amount in current period | Amount in prior period |
| Government subsidy | 9,105,016.49 | 18,648,210.06 |
| Commission on IIT payment | 494,598.35 | |
| VAT plus credit | 1,835,758.94 | |
| Total | 11,435,373.78 | 18,648,210.06 |
2．Government subsidy included in other incomeThe Company's government subsidy are detailed in Note VIII Government subsidy.2 forgovernment subsidy recognized in profit or loss and Note VIII.3 for Subsidy returned.
Note 43. Investment gain
| Item | Amount in current period | Amount in prior period |
| Gain from long-term equity investments accounted for using equity method | -5,819,479.60 | 3,026,481.59 |
| Total | -5,819,479.60 | 3,026,481.59 |
Note 44. Credit impairment loss
| Item | Amount in current period | Amount in prior period |
| Bad debt loss | 6,827,575.82 | 4,845,379.45 |
| Total | 6,827,575.82 | 4,845,379.45 |
Note 45. Asset impairment loss
| Item | Amount in current period | Amount in prior period |
| Inventory decline in value | 571,980.37 | -37,625,482.96 |
| Total | 571,980.37 | -37,625,482.96 |
Note 46. Gains from assets disposal
| Item | Amount in current period | Amount in prior period |
| Gains (losses) from assets disposal | 527,753.57 | -203,932.45 |
| Gains (losses) from right-of-use assets disposal | 158,115.00 | 295,857.51 |
| Total | 685,868.57 | 91,925.06 |
Note 47. Non-operating income
| Item | Amount in current period | Amount in prior period | Amount included in non-recurring gains or losses in current period |
| Payables cannot be paid | 1,346,926.73 | 305,066.79 | 1,346,926.73 |
| Compensation | 2,215,389.10 | 860,904.01 | 2,215,389.10 |
Notes to the financial statements - Page 93
| Revenues from rights-based compensation | 938,486.50 | 938,486.50 | |
| Others | 269,704.47 | 121,231.28 | 269,704.47 |
| Total | 4,770,506.80 | 1,287,202.08 | 4,770,506.80 |
Note 48. Non-operating expense
| Item | Amount in current period | Amount in prior period | Amount included in non-recurring gains or losses in current period |
| Donation | 311,464.98 | 78,860.00 | 311,464.98 |
| Fine and penalty for late payment | 6,014.28 | 403,084.07 | 6,014.28 |
| Payment for breach of agreement | 37,725.30 | 1,412,548.66 | 37,725.30 |
| Others | 504,565.54 | 456,773.58 | 504,565.54 |
| Total | 859,770.10 | 2,351,266.31 | 859,770.10 |
Note 49. CIT expenses1．Details
| Item | Amount in current period | Amount in prior period |
| Current tax expense for the year based on tax law and regulations | 88,559,245.72 | 86,356,685.06 |
| Changes in deferred tax assets/liabilities | 15,266,916.22 | -13,916,465.05 |
| Total | 103,826,161.94 | 72,440,220.01 |
2．Reconciliation between income tax expenses and accounting profit is as follows:
| Item | Amount in current period |
| Profits before tax | 437,004,264.31 |
| Income tax calculated based on statutory tax rate | 109,251,066.08 |
| Effect of different tax rates applied by subsidiaries | -10,206,789.27 |
| Adjustment to income tax of previous years | 6,187,582.94 |
| Effect of non-taxable income | 1,454,869.90 |
| Effect of non-deductible costs, expenses and losses | 781,125.37 |
| Effect of using the deductible temporary differences or deductible losses for which no deferred tax asset was recognized in prior period | -337,571.86 |
| Effect of deductible temporary differences or deductible losses for which no deferred tax asset was recognized this year | |
| Effect of research and development expenses super deduction | -4,769,518.22 |
| Others | 1,465,397.00 |
| Income tax expenses | 103,826,161.94 |
Note 50. Notes to cash flow statement
1. Cash received from other operating activities
Notes to the financial statements - Page 94
| Item | Amount in current period | Amount in prior period |
| Security deposit | 7,550,296.24 | 15,956,047.24 |
| Government subsidy | 8,796,670.12 | 18,151,302.96 |
| Promotion expenses | 12,561,700.18 | 12,201,925.26 |
| Interest income | 5,722,586.39 | 3,923,999.48 |
| Return of petty cash | 7,787,782.02 | 8,030,966.63 |
| Others | 25,760,176.26 | 21,392,611.71 |
| Total | 68,179,211.21 | 79,656,853.28 |
2. Cash paid for other operating activities
| Item | Amount in current period | Amount in prior period |
| Security deposit | 11,191,285.76 | 24,008,323.15 |
| Petty cash advanced to employee | 22,048,433.11 | 11,049,894.11 |
| Current period expenses | 293,728,229.26 | 288,360,173.00 |
| Others | 60,670,140.56 | 617,269.28 |
| Total | 387,638,088.69 | 324,035,659.54 |
3. Cash paid for other financing activities
| Item | Amount in current period | Amount in prior period |
| Lease payment | 114,908,744.94 | 124,087,402.37 |
| Cash paid for re-purchase of shares | 83,148,230.83 | 53,390,338.09 |
| Total | 198,056,975.77 | 177,477,740.46 |
Note 51. Supplement information to cash flow statement
1. Supplement to cash flow statement
| Item | Amount in current period | Amount in prior period |
| 1. Reconciliation of net profit/loss to cash flows from operating activities： | ||
| Net profit | 333,178,102.37 | 266,681,451.84 |
| Add: Credit impairment loss | -6,827,575.82 | -4,845,379.45 |
| Impairment for assets | -571,980.37 | 37,625,482.96 |
| Depreciation of fixed assets、oil and gas assets and productive biological assets | 41,658,377.46 | 40,524,642.37 |
| Depreciation of right-of-use assets | 103,958,386.94 | 110,464,700.15 |
| Intangible asset amortization | 3,689,183.21 | 5,009,348.81 |
| Amortization of long-term deferred expenses | 91,039,489.52 | 110,435,014.09 |
| Loss on disposal of fixed assets, intangible assets, and other long-term assets (“-“ for gain) | -685,868.57 | -91,925.06 |
| Loss on scrap of fixed assets (“-“ for gain) |
Notes to the financial statements - Page 95
| Item | Amount in current period | Amount in prior period |
| Loss on changes of fair value (“-“ for gain) | ||
| Financial expenses (“-“ for income) | 10,346,099.61 | 16,846,749.14 |
| Investment loss (“-“ for gain) | 5,819,479.60 | -3,026,481.59 |
| Decrease in deferred tax assets (“-“ for increase) | 15,556,840.48 | -14,551,337.29 |
| Increase in deferred tax liabilities (“-“ for decrease) | -289,924.26 | 262,330.92 |
| Decrease in inventories (“-“ for increase) | 82,605,123.05 | -92,627,165.17 |
| Decrease in operating receivables (“-“ for increase) | 34,507,754.85 | 121,164,749.65 |
| Increase in operating payables (“-“ for decrease) | -77,781,831.49 | -117,643,404.85 |
| Others | -3,800,168.60 | |
| Net cash flows from operating activities | 632,401,487.98 | 476,228,776.52 |
| 2. Significant investment or financing activities not involving cash: | ||
| Debts converted to capital | ||
| Convertible debts mature within one year | ||
| Added right-of-use assets in the current period | ||
| 3．Net changes in cash and cash equivalents: | ||
| Cash at end of year | 504,629,153.71 | 313,738,389.64 |
| Less: cash at beginning of year | 313,738,389.64 | 210,254,737.14 |
| Plus: cash equivalents at end of year | ||
| Less: cash equivalents at beginning of year | ||
| Net increase in cash and cash equivalents | 190,890,764.07 | 103,483,652.50 |
2. Total cash outflows related to lease
Total cash outflows related to lease amounted to RMB114,908,744.94.（Prior period：
RMB124,087,402.37）
3. Cash and cash equivalents
| Item | Closing balance | Opening balance |
| I. Cash | 504,629,153.71 | 313,738,389.64 |
| Incl. Cash on hand | 178,996.87 | 173,368.68 |
| Bank deposit available for immediate payment | 503,187,176.88 | 312,433,893.29 |
| Other monetary funds available for immediate payment | 1,262,979.96 | 1,131,127.67 |
| II. Cash equivalents | ||
| Including Bond investment due in three months | ||
| III. Cash and cash equivalents at the end of year | 504,629,153.71 | 313,738,389.64 |
Notes to the financial statements - Page 96
| Item | Closing balance | Opening balance |
| Including Restricted cash and cash equivalents for the Company and its subsidiaries | 1,202,601.86 | 716,733.44 |
4. Restricted use but still presented as cash and cash equivalents
| Item | Amount for the period | rationale |
| Cash at bank | 1,202,601.86 | Funds in the accounts of the Company's subsidiary,FIYTA（Hong Kong）Ltd, and its grandson, Montres Chouriet SA, which are kept outside the country and are subject to restrictions on repatriation of funds, but do not affect their daily use. |
Note 52. Monetary items denominated in foreign currency1．Monetary items denominated in foreign currency
| Item | Balance denominated in foreign currency as at 31 Dec 2023 | Exchange rate | Balance translated in RMB as at 31 Dec 2023 |
| Monetary fund | 4,912,660.52 | ||
| USD | 197,793.98 | 7.0827 | 1,400,915.42 |
| EUR | 109,603.02 | 7.8592 | 861,392.06 |
| HKD | 1,594,744.82 | 0.9062 | 1,445,189.46 |
| CHF | 143,158.27 | 8.4184 | 1,205,163.58 |
| Accounts receivable | 7,180,426.44 | ||
| USD | 496,860.67 | 7.0827 | 3,519,115.06 |
| HKD | 3,737,843.78 | 0.9062 | 3,387,308.79 |
| EUR | 4,824.46 | 7.8592 | 37,916.39 |
| CHF | 28,044.07 | 8.4184 | 236,086.20 |
| Other receivables | 243,119.93 | ||
| HKD | 119,645.92 | 0.9062 | 108,425.53 |
| CHF | 16,000.00 | 8.4184 | 134,694.40 |
| Accounts payable | 8,936,497.51 | ||
| HKD | 552,191.52 | 0.9062 | 500,407.00 |
| CHF | 1,002,101.41 | 8.4184 | 8,436,090.51 |
| Other payables | 810,006.84 | ||
| HKD | 585,023.91 | 0.9062 | 530,160.37 |
| CHF | 33,242.24 | 8.4184 | 279,846.47 |
2．Overseas operational entity
For main business location and recording currency of important overseas operating entities, refer toNote III. 5.
Notes to the financial statements - Page 97
Note 53. TenancyThe Company as a lessor:
The Company's right-of-use assets, lease liabilities and total cash outflows related to leases aredetailed in Note 12, Note 27 and Note 51.The Company, as a lessee, is recognized in profit or loss asfollows:
| Item | Amount in current period | Amount in prior period |
| Interest on lease liabilities | 4,583,361.68 | 8,442,125.35 |
| Short-term rental costs | 784,401.29 | 407,454.71 |
| Lease costs for low-value assets | ||
| Variable lease payments not included in the measurement of the lease liability | 85,741,239.56 | 85,618,040.29 |
| Income from sublease of right-to-use assets | ||
| Sale and leaseback transactions |
Additional information on the Company as lessee is set forth below:
1. Lease activities
All lease of the Company is property lease, including short-term lease and other leased thatrecognized right-of-use asset and lease liabilities.
2. Short-term lease
Short-term leases are treated using simplified method. Short-term leases include lease term thatis shorter than 12 month and no renew options attached, and leases that will be matured in 12 monthafter first adoption of CAS 21 – Lease. Short-term lease expenses charged to profit or loss was RMB784,401.29.
3.Future potential cash outflows that does not included in lease liabilities
(1) Variable lease payment
The lessee leased a lot of retail shops which contains variable lease payment terms inconnection with sales.
Many of the Company’s property lease contain variable lease payment terms in connectionwith sales. In most circumstances, the Company uses these terms to matches lease payment to shopsthat can generate more cash flows lease payment. For standalone shops, variable can reach 100% ofall lease payment at most and that the scope of percentage of sales used is quite large. In somecircumstances, variable payment terms include annual bottom payment and upper limit.
In 2023, the variable lease payment included in the current profit and loss is RMB85,741,239.56.
(2) Option to renew
Notes to the financial statements - Page 98
Many lease contracts entered by the Company has option to renew. The Company has alreadyestimated the option to renew reasonably when determining lease terms in measuring lease liabilities.
(1) Option to discontinue lease
Some of the lease contract entered by the Company has option to discontinue. The Companyhas already estimated the option to discontinue reasonably when determining lease terms inmeasuring lease liabilities.
(2) Residual value guarantee
The Company’s lease does not involve residual value guarantee.
(3) Lease that the lessee has already made commitment but not yet started
The Company does not have lease that has already made commitment but not yet started.
Disclosure as a lessor:
1. Information relating to operating leases
Gains related to operating leases are shown below:
| Item | Rental income | Including: not recognized in lease receipts Income relating to variable lease payments |
| Property | 150,425,106.18 | |
| Total | 150,425,106.18 |
2. Risk management strategy of retaining rights over lease assets
To reduce risks of lease, the Company normally asks lessee to pay rental in advance andcollects 1-3 months rental as deposit.
VI. Research and development expenditures
1.Presentation by nature of costs
| Item | Amount in current period | Amount in prior period |
| Salary | 43,658,293.35 | 47,534,889.46 |
| Sample and material expenses | 2,219,443.20 | 1,964,204.63 |
| Molding expenses | 2,263.43 | 853,056.11 |
| Depreciation and amortization | 4,300,190.56 | 4,852,325.18 |
| Technical cooperation fee | 2,758,347.16 | 217,203.80 |
| Others | 4,863,706.38 | 5,666,906.43 |
| Total | 57,802,244.08 | 61,088,585.61 |
Notes to the financial statements - Page 99
2.Development expenditure on R&D projects eligible for capitalization
Nil.VII. Interests in other entities
1.Equity in subsidiary
(1) Composition of enterprise group
| Name | Place of operation | Place of registration | Nature of business | Shareholding ratio (%) | Ways acquired | |
| Direct | Indirect | |||||
| Shenzhen Harmony World Watch Center Co., Ltd. | Shenzhen | Shenzhen | Commerce | 100.00 | incorporated or investment | |
| FIYTA Sales Co., Ltd. | Shenzhen | Shenzhen | Commerce | 100.00 | incorporated or investment | |
| Shenzhen FIYTA Precision Technology Co., Ltd. | Shenzhen | Shenzhen | Manufacturing | 99.00 | 1.00 | incorporated or investment |
| Shenzhen FIYTA Technology Development Co., Ltd. | Shenzhen | Shenzhen | Manufacturing | 100.00 | incorporated or investment | |
| Harmony World Watch Center (Hainan) Co., Ltd. | Sanya | Sanya | Commerce | 100.00 | incorporated or investment | |
| Shenzhen Xunhang Precision Technology Co., Ltd. | Shenzhen | Shenzhen | Manufacturing | 100.00 | incorporated or investment | |
| Emile Choureit Timing (Shenzhen) Ltd. | Shenzhen | Shenzhen | Commerce | 100.00 | incorporated or investment | |
| Liaoning Hengdarui Commercial & Trade Co., Ltd. | Shenyang | Shenyang | Commerce | 100.00 | Business combination under common control | |
| TEMPORAL (Shenzhen) Co., Ltd. | Shenzhen | Shenzhen | Commerce | 100.00 | incorporated or investment | |
| Shenzhen Harmony E-commerce Co., Ltd. | Shenzhen | Shenzhen | Commerce | 100.00 | incorporated or investment | |
| FIYTA (Hong Kong) Ltd. | Hong Kong | Hong Kong | Commerce | 100.00 | incorporated or investment | |
| Montres Chouriet SA | Swiss | Swiss | Manufacturing | 100.00 | Business combination not under common control | |
2. Equity in joint arrangement or associates
(1) Significant associates
| Name | Place of operation | Place of registration | Nature of business | Shareholding ratio (%) | Accounting treatment | |
| Direct | Indirect | |||||
| Shanghai Watch Co., Ltd. | Shanghai | Shanghai | Commercial | 25% | Equity method | |
(2) Principal financial information of significant associate company
Notes to the financial statements - Page 100
| Item | Closing balance/Amount in current period | Opening balance/Amount in prior period |
| Current assets | 165,796,119.65 | 175,890,077.66 |
| Non-current assets | 16,753,785.07 | 21,637,323.67 |
| Total assets | 182,549,904.72 | 197,527,401.33 |
| Current liabilities | 60,781,571.60 | 44,595,566.75 |
| Non-current liabilities | 5,885,583.05 | |
| Total liabilities | 60,781,571.60 | 50,481,149.80 |
| Non-controlling interest | ||
| Equity attributable to parent company | 121,768,333.12 | 147,046,251.53 |
| Portion of net asset calculated based on shareholding | 30,442,083.28 | 36,761,562.88 |
| Adjustment matters | 21,420,524.02 | 21,420,524.02 |
| - Goodwill | 21,420,524.02 | 21,420,524.02 |
| - Unrealized profit or losses from internal transaction | ||
| - Others | ||
| Carrying value of investment to associates | 51,862,607.30 | 58,182,086.90 |
| Fair value of equity investment that has public quotation | ||
| Operating income | 110,947,629.04 | 141,379,376.32 |
| Net profit | -23,277,918.41 | 12,105,926.36 |
| Net profit from discontinued operation | ||
| Other comprehensive income | ||
| Total comprehensive income | -23,277,918.41 | 12,105,926.36 |
| Dividends received from associated company during the year | 500,000.00 |
VIII.Government subsidy1．Liability items involving government grants
| Item | Opening balance | Addition | Include in non-operating income in current period | Include in other gains in current period | Offsetting expense or cost | Closing balance | Related to asset /income |
| Special fund for Shenzhen industrial design industry development | 314,539.36 | 4,882.52 | 309,656.84 | Asset related | |||
| Funding project for construction of National Enterprise Technology Center | 338,833.33 | 293,147.06 | 45,686.27 | Asset related |
Notes to the financial statements - Page 101
| Provincial Specialized Fund for Industrial and Information | 642,554.11 | 45,111.53 | 597,442.58 | Asset related | |||
| Total | 1,295,926.80 | 343,141.11 | 952,785.69 |
2．Government subsidy recognized in profit or loss
| Item | Amount in current period | Amount in prior period | Asset or income related |
| Subsidy to promote consumption | 7,920,500.00 | Income related | |
| Trade and Distribution Industry Funding Projects | 2,579,700.00 | Income related | |
| Quality and Branding Promotion Multiplication Subsidy | 1,180,000.00 | Income related | |
| Relief Policy Subsidy | 1,058,150.00 | Income related | |
| Shenzhen Special Fund for Technology Research | 1,000,000.00 | 1,000,000.00 | Income related |
| Training subsidy | 4,900.00 | 953,220.00 | Income related |
| Subsidy for stabilizing job position | 824,116.60 | 819,833.38 | Income related |
| Subsidy to Foster High and New Technology Enterprise | 220,000.00 | 700,000.00 | Income related |
| Commission on IIT payment | 730,811.84 | Income related | |
| Other subsidies | 104,887.83 | 624,893.74 | Income related |
| Shenzhen Standard Special Fund | 660,468.00 | 550,694.00 | Income related |
| Shenzhen E-commerce Innovation and Development Support Program Subsidy | 330,000.00 | Income related | |
| Professional, Specialize,Unique and New" SME Development Subsidy | 200,000.00 | Income related | |
| State certified R&D center | 293,147.06 | 293,147.06 | Asset related |
| Provincial industry and information special subsidy | 45,111.53 | 128,176.25 | Asset related |
| Special fund for Shenzhen industrial designing | 4,882.52 | 75,583.79 | Asset related |
| 2019 Headquarters Economic Contribution Award | -496,500.00 | Income related | |
| 2022 Second Half of Nanshan District Industry and Information Technology Bureau Business Stable Growth Special Funding Project Grant | 1,251,400.00 | Income related | |
| Industrial Insurance Fund | 17,566.00 | Income related | |
| 2023 Technology Innovation Project Support Program and Manufacturing Individual Champion Incentive | 1,000,000.00 | Income related | |
| Subsidy to assist high quality development of fashion industry | 900,188.00 | Income related | |
| Special Funds for Civil-Military Integration and Funds for the Fifth Project Grant Scheme | 200,000.00 | Income related | |
| Specialized Economic Development Funding Grants | 100,000.00 | Income related | |
| High-tech Enterprise Recognition Reward Subsidy | 100,000.00 | Income related |
Notes to the financial statements - Page 102
| Subsidies for Production Expansion and Efficiency Incentives in the Third Quarter of Bureau of Industry and Information Technology | 70,000.00 | Income related | |
| Epidemic subsidies | 12,000.00 | Income related | |
| Employment subsidies | 5,382.00 | Income related | |
| Incentive subsidy for employers of persons with disabilities | 14,920.77 | Income related | |
| Specialized funding in the field of Shenzhen standards | 130,468.00 | Income related | |
| Ventilator and key components research and application project | 868,178.18 | Income related | |
| VAT relief for key groups | 179,400.00 | Income related | |
| Funding for technological improvements | 350,000.00 | Income related | |
| Key projects for technology development | 250,000.00 | Income related | |
| Ministry of Industry and Information Technology-Joint security projects | 300,000.00 | Income related | |
| Incentive payments from the Bureau of Science, Technology and Industry to encourage the standardization and upgrading of micro and small enterprises to above-scale enterprises | 200,000.00 | Income related | |
| Government subsidies for《E-Commerce Masters》 | -2,000.00 | Income related | |
| Total | 9,105,016.49 | 18,648,210.06 |
3．Subsidy returned
| Item | Type | Amount in current period | Amount in prior period | Reasons for return |
| Refund of government subsidies for《E-Commerce Masters》 | Income related | 2,000.00 | Not qualified | |
| Total | 2,000.00 |
IX. Risk disclosure related to financial instrumentThe major financial instruments of the Company primarily include cash at bank and on hand,equity investments, borrowings, accounts receivable, accounts payables and bond payables. TheCompany is exposed to risks from various financial instruments in day-to-day operation, mainlyincluding credit risk, liquidity risk and market risk. The risks in connection with such financialinstruments and the risk management policies adopted by the Company to mitigate such risks aresummarized as follows:
The board of directors is responsible for planning and establishing the risk managementstructure for the Company, developing risk management policies and the related guidelines acrossthe Company, and supervising the performance of risk management measures. The Company hasdeveloped risk management policies to identify and analyse risks exposed by the Company. These
Notes to the financial statements - Page 103
risk management policies have clear regulations over specific risks, covering various aspects ofmarket risk, credit risk and liquidity risk management. The Company will evaluate the marketenvironment and changes of the Company’s operating activities on a regular basis to decide whetherto update the risk management policies and systems. Risk management of the Company is carriedout by the Risk Management Committee based on the policies as approved by the board of directors.Risk Management Committee identifies, evaluates and mitigates related risks by working closelywith other business divisions of the Company. Internal Audit Department of the Company willreview the risk management control and process regularly, and submit the review results to AuditCommittee of the Company. The Company spreads the risks of financial instruments throughappropriate diversified investment and business portfolio, and mitigates the risk of focusing on anysingle industry, specific regions or counterparties by way of formulating the corresponding policiesfor risk management.
1. Credit risk
Credit risk refers to the risk of financial losses to the Company as a result of the failure ofperformance of contractual obligations by the counterparties. The management has developedproper credit policies and continuously monitors credit risk exposures.The Company has adopted the policy of transacting with creditworthy counterparties only. Inaddition, the Company evaluates the credit qualification of customers and sets up correspondingcredit term based on the financial status of customers, the possibility of obtaining guarantees fromthird parties, credit records and other factors such as current market conditions. The Companymonitors the balances and recovery of bills and accounts receivable, and contract assets on acontinual basis. As for bad credit customers, the Company will use the written reminders, shortenthe credit term or cancel the credit term to ensure that the Company is free from material creditlosses. In addition, the Company reviews the recovery of financial assets on each balance sheet dateto ensure adequate expected credit loss provision is made for relevant financial assets.The Company’s other financial assets include currency funds and other receivables. The creditrisk relating to these financial assets arises from the default of counterparties, but the maximumexposure to credit risk is the carrying amount of each financial asset in the balance sheet. TheCompany does not provide any other guarantee that may expose the Company to credit risk.The monetary funds held by the Company are mainly deposited with financial institutions suchas state-owned banks and other large and medium-sized commercial banks. The managementbelieves that these commercial banks have a higher reputation and assets, so there is no major creditrisk and the Company would not have any significant losses caused by the default by theseinstitutions. The Company’s policy is to control the amount deposited with these famous financialinstitutions based on their market reputation, operating size and financial background, to limit thecredit risk amount of any single financial institution.
Notes to the financial statements - Page 104
As a part of its credit risk asset management, the Company assesses the credit loss ofreceivables using aging. The Company’s receivable and other receivables involve large amount ofcustomers. Aging information can reflect the ability to repay and risk of bad debt of these customers.The Company determined expected loss rate by calculating historical bad debt rate for receivableswith different aging based on historical data and also taking forecast of future economic conditioninto consideration such as GDP growth rate, state currency policy etc... For long-term receivables,the Company assesses expected credit loss reasonably by considering settlement period, contractedpayment terms, debtor’s financial situation and the economic situation of the debtor’s industry.
As at 31 December 2023, the carrying amount of related assets and corresponding ECL is asfollows:
| Aging | Carrying amount | Provision |
| Bill receivable | 18,685,052.55 | 416,080.18 |
| Accounts receivable | 357,533,748.10 | 34,390,986.46 |
| Other receivable | 62,073,902.09 | 4,348,110.09 |
| Total | 438,292,702.74 | 39,155,176.73 |
As the Company’s customer base is large, no material credit concentration risk.
As at 31 December 2023, the balance of top 5 receivable accounts accounted for 21.42% oftotal accounts receivables (2022: 32.76%) .
2. Liquidity risk
Liquidity risk refers to the risk of short of funds when the company performs its obligation ofcash payment or settlement by other financial assets. The Company’s subordinate membercompanies are responsible for their respective cash flow projections. Based on the results thereof,the subordinate financial management department continually monitors its short-term and long-termcapital needs at the company level to ensure adequate cash reserves; in the meantime, continuallymonitors the compliance with loan agreements and secures undertakings for sufficient reserve fundsfrom major financial institutions, to address its short-term and long-term capital needs. Besides, theCompany mainly signs financing agreements with banks that have business transactions to providesupport to fulfill commercial bill obligation. As at 31 December 2023, the Company has financingfacilities from several banks amounting to RMB2,375.95 million. Amongst, RMB375.95 millionhas already been used.
As at 31 December 2023, the discounted contractual cash flows for financial liabilities and off-balance sheet guarantee that presented in maturity are as follows:
| Item | Closing balance in ten thousands yuan | ||||
| Within 1 year | 1 - 2 years | 2 - 3 years | Over 3 years | Total | |
| Short term loan | 25,018.78 | ||||
Notes to the financial statements - Page 105
| Item | Closing balance in ten thousands yuan | ||||
| Within 1 year | 1 - 2 years | 2 - 3 years | Over 3 years | Total | |
| Bills payable | |||||
| Accounts payable | 17,382.59 | ||||
| Other payables | 12,193.78 | ||||
| Total | 54,595.15 | ||||
3. Market risk
(1) Exchange rate risk
Except that the Company’s subsidiary in Hong Kong uses HKD as settlement currency andsub-subsidiary in Swiss used CHF as settlement currency, the principal places of operations of theCompany are located in China and the major businesses are settled in RMB. However, theCompany’s recognized foreign currency assets and liabilities as well as the foreign currencytransactions in the future (the functional currencies of foreign assets and liabilities as well as thetransactions are mainly HKD and CHF) remain exposed to exchange rate riskAs at 31 December 2023, the RMB equivalent of financial assets and financial liabilitiesdenominated in foreign currencies are as follows:
| Item | Closing balance | ||||
| HKD | USD | EUR | CHF | Total | |
| Financial asset denominated in foreign currency: | 0.9062 | 7.0827 | 7.8592 | 8.4184 | |
| Monetary fund | 1,445,189.46 | 1,400,915.42 | 861,392.06 | 1,205,163.58 | 4,912,660.52 |
| Accounts receivable | 3,387,308.79 | 3,519,115.06 | 37,916.39 | 236,086.20 | 7,180,426.44 |
| Other receivables | 108,425.53 | 134,694.40 | 243,119.93 | ||
| Subtotal | 4,940,923.78 | 4,920,030.48 | 899,308.45 | 1,575,944.18 | 12,336,206.89 |
| Financial liabilities denominated in foreign currency: | |||||
| Accounts payables | 500,407.00 | 8,436,090.51 | 8,936,497.51 | ||
| Other payables | 530,160.37 | 279,846.47 | 810,006.84 | ||
| Total | 1,030,567.37 | 8,715,936.98 | 9,746,504.35 | ||
Sensitivity analysis
As at 31 December 2023, for financial assets and financial liabilities that denominated in foreigncurrency, if Renminbi appreciate or depreciate of 5% to foreign currency and other factors remainunchanged, the net profit will decrease or increase about RMB0.130 million(31 Dec 2022:RMB1.419million) .
Notes to the financial statements - Page 106
(2) Interest rate risk
The interest rate risk of the Company mainly associates with bank borrowings, bonds payable,etc. Floating rate financial liabilities expose the Company to cash-flow interest rate risk, while fixedrate financial liabilities expose the Company to fair-value interest rate risk. The Companydetermines the comparative proportion of fixed rate contracts and floating rate contracts based onthe then market conditions.The interest rate risk of the Company mainly associates with bank borrowings, bonds payable,etc. Floating rate financial liabilities expose the Company to cash-flow interest rate risk, while fixedrate financial liabilities expose the Company to fair-value interest rate risk. The Companydetermines the comparative proportion of fixed rate contracts and floating rate contracts based onthe latest market conditions.Sensitivity analysis:
As at 31 December 2023, it is estimated that a general increase or decrease 50 basis points inthe borrowings with floating interest rates, with all other variables held constant, the Company’s netprofit and shareholder’s equity for the year will decrease or increase by approximatelyRMB307,300.00 (2022: RMB1,200,000.00) .
The above sensitivity analysis assumes that interest rate changed on the balance sheet date andapplicable to all loans with floating interest rate terms.
X. Fair value
1. Financial instruments measured at fair value
As at 31 December 2023, the Company does not have financial instruments measured at fairvalue.
2. Status of financial assets and financial liabilities not measured at fair value
Financial assets and financial liabilities not measured at fair value include: accounts receivable,short-term loans, accounts payable, long-term loans due within one year, and equity instrumentinvestment that does not have public quotation in an active market and its fair value cannot bemeasured reliably.
The difference between fair value and carrying amount of the above financial assets andliabilities that not measured at fair value is insignificant.
XI. Related party and related transaction
1. The parent company of the Company
Notes to the financial statements - Page 107
| Name | Registration place | Type of business | Registered capital (in ten thousand RMB) | Shareholding ratio of parent company to the Company % | Ratio of vote right of parent company to the Company% |
| CATIC Shenzhen | Shenzhen | Commercial | 116,616.20 | 39.25 | 39.25 |
(4) Notes to the parent company
CATIC Shenzhen is a subsidiary that 100.00% held, indirectly, by AVIC International, and AVICdirectly holds 100.00% of the equity of AVIC International.
(5) The ultimate controlling party of the Company is AVIC.
2. Refer to Note VI. 1 for information about the Company’s subsidiaries
3. Refer to Note VI. 2 for information about the Company’s material associates
4. Other related parties
| Name of other related parties | Relationship |
| Shenzhen CATIC Property Management Limited (CATIC Property Management) | Associate company of the controlling shareholder |
| Rainbow Digital Science Co., Ltd. and its associated companies (Rainbow Company | Controlled by the same party |
| Shennan Circuits Co., Ltd. and its associated companies (Shennan Circuits) | Controlled by the same party |
| AVIC Huadong Photoelectric Co., Ltd.(AVIC Huadong Photoelectric) | Controlled by the same party |
| AVIC Xi’an Flight Automatic Control Research Institute(AVIC Xi’an Flight Institute) | Controlled by the same party |
| Shenzhen Grand Skylight Hotel Management Co., Ltd (Grand Skylight Hotel Management Company) | Controlled by the same party |
| AVIC Securities Co., Ltd. (AVIC Securities Company) | Controlled by the same party |
| AVIC Training Center | Controlled by the same party |
| AVIC Finance Co., Ltd. (AVIC Finance Company) | Controlled by the same party |
| Gongqingcheng CATIC Culture Investment Co., Ltd (Gongqingcheng CATIC Culture Investment Company) | Controlled by the same party |
| Avic Jonhon Optronic Technology Co., Ltd.(AVIC Jonhon) | Controlled by the same party |
| AVIC International Holdings (Zhuhai) Co., Ltd. (AVIC Zhuhai) | Controlled by the same party |
| Guizhou HUAYANG Electronics Co., Ltd. | Controlled by the same party |
| Zhuhai Pilot Composite Material Technology Co., Ltd. | Controlled by the same party |
| Guangdong International Mansion Industrial Co., Ltd. (Guangdong International Mansion) | Controlled by the same party |
| Shenzhen Zhonghang Technology Checking & Measuring Institute (Shenzhen ZHTCMI) | Controlled by the same party |
| Shenyang Xinghua Aviation Electric Co., Ltd.（Shenyang Xinghua） | Controlled by the same party |
| Shenzhen AVIC Changtai Investment Development Co., Ltd.（Avic Changtai） | Controlled by the same party |
| AVIC China Aviation Futures Co., Ltd.（AVIC Futures） | Controlled by the same party |
| Anhui AVIC Display Technology Co., Ltd（Anhui AVIC） | Controlled by the same party |
| Shenzhen Lingzhi Digital Technology Co., Ltd.（Shenzhen Lingzhi Digital | Controlled by the same party |
Notes to the financial statements - Page 108
| Name of other related parties | Relationship |
| Technology） | |
| Shenzhen Aero-Fasteners MFG Co., Ltd.（Shenzhen Aero-Fasteners） | Controlled by the same party |
| Castic-SMP Machinery Corp., Ltd.（Castic-SMP Machinery） | Controlled by the same party |
| Company directors, managers, CFO, and secretary of the board | Key management member |
5. Related party transactions
(1) Related transaction between subsidiaries and between parent company andsubsidiaries which are in the scope of consolidation have already been offset.
(2) Purchase good and receiving service
| Related parties | Related transaction content | Amount in current period | Amount in prior period |
| CATIC Property Management | Property management | 11,593,446.00 | 11,834,156.05 |
| Rainbow Company | Department store expenses/ Commodity purchase | 13,276,756.38 | 4,184,883.88 |
| AVIC Jonhon | Purchase of goods | 242,771.36 | 238,755.07 |
| Gongqingcheng CATIC Culture Investment Company | Departmental store expense | 28,667.09 | 25,733.73 |
| Grand Skylight Hotel Management Company | Purchase of goods | 3,855.65 | |
| Guangdong International Mansion | Property management | 18,157.71 | |
| Shenzhen ZHTCM | Accept labour | 6,590.00 | |
| AVIC Xi’an Flight Automatic Control Research Institute(AVIC Xi’an Flight Institute) | Accept labour | 179,245.28 | |
| Total | 25,141,640.83 | 16,491,377.37 |
Notes: All amount listed above exclude tax
(3) Sale of goods and providing services
| Related party | Nature of transaction | Amount in current period | Amount in prior period |
| Gongqingcheng CATIC Culture Investment Company | Sale of product | 293,786.47 | 310,404.70 |
| Shennan Circuit | Sale of material and providing service | 460.80 | 335,070.20 |
| AVIC Training Center | Others | 2,725.66 | 2,453.10 |
| Rainbow Company | Product and service | 58,044,173.59 | 53,197,052.19 |
| AVIC International | Sale of product | 7,710.59 | |
| AVIC Jonhon | Sale of product | 500,559.59 | 1,252,054.56 |
| AVIC Zhuhai | Sale of product | 8,800.00 | |
| CATIC Property Management | Share of Utilities and management fee | 3,363,663.82 | 3,298,502.35 |
| Guizhou HUAYANG Electronics | Sale of product | 18,814.16 | 87,263.71 |
Notes to the financial statements - Page 109
| Co., Ltd. | |||
| AVIC Huadong PHOTOELECTRIC | Sale of product | 21,238.94 | |
| Zhuhai Pilot Composite Material Technology Co., Ltd. | Sale of product | 865,256.63 | 1,805,929.20 |
| Shenzhen Aero-Fasteners | Sale of product | 227,747.79 | |
| Castic-SMP Machinery | Sale of product | 3,960.18 | |
| Shenyang Xinghua | Sale of product | 464,331.51 | |
| Anhui AVIC | Sale of product | 75,504.42 | |
| Total | 63,868,695.21 | 60,318,768.95 |
Notes: All amount listed above exclude tax
(4) Related party lease
1) The Company as lessor
| Lessee | Type of leased assets | Recognized rental income in current year | Recognized rental income in prior year |
| CATIC Property Management | Property | 1,811,657.16 | 4,947,314.30 |
| AVIC Securities Company | Property | 1,411,885.68 | 1,411,885.68 |
| Rainbow Company | Property | 606,792.94 | 437,897.82 |
| Total | 3,830,335.78 | 6,797,097.80 |
2) The Company as lessee
| Lessor | Type | Variable lease payments that are not included in lease liabilities | Rental payment | Interest payment of lease liabilities | Addition of right-of-use asset | ||||
| Current period | Prior period | Current period | Prior period | Current period | Prior period | Current period | Prior period | ||
| Guangdong International Mansion Industrial Co., Ltd. | Property | 40,527.84 | 3,572.58 | 51,030.81 | |||||
| CATIC Property Management | Property | 59,899.04 | 60,513.53 | 501,788.87 | 811,476.76 | 6,776.94 | 29,337.67 | 489,781.90 | 138,708.90 |
| Rainbow Company | Property | 323,382.81 | 417,268.91 | 9,642.03 | 14,378.80 | 247,505.55 | |||
| Total | 59,899.04 | 60,513.53 | 825,171.68 | 1,269,273.51 | 16,418.97 | 47,289.05 | 489,781.90 | 437,245.26 | |
(5) Related party fund lending and borrowing
Nil.
(6) Remuneration to key management
| Item | Amount in current period | Amount in prior period |
| Remuneration to key management | 14,232,500.00 | 15,148,600.00 |
| Total | 14,232,500.00 | 15,148,600.00 |
(7) Other related transactions
The year-end balance of the Company’s cash that is deposited with AVIC Finance Company isRMB467,743,798.76. Interests received from the deposit during the year were RMB342,896.12.
Notes to the financial statements - Page 110
(8) Receivables from and payables to related parties
1) Receivables from related parties
| Item | Related party | Closing balance | Opening balance | ||
| Carrying amount | Bad debt provision | Carrying amount | Bad debt provision | ||
| Monetary fund | |||||
| AVIC Finance Company | 467,743,798.76 | 271,327,031.83 | |||
| Accounts receivable | |||||
| Gongqingcheng CATIC Culture Investment Company | 22,684.75 | 832.29 | 27,297.28 | 1,364.88 | |
| Shennan Circuit | 7,255.14 | 544.14 | |||
| Rainbow Company | 5,973,322.25 | 248,095.43 | 3,808,470.31 | 219,873.20 | |
| AVIC Jonhon | 202,712.86 | 12,162.77 | 649,797.16 | 48,734.79 | |
| CATIC Property Management | 183,123.05 | 9,156.15 | 101,672.00 | 5,083.60 | |
| Guizhou HUAYANG Electronics Co., Ltd. | 21,260.00 | 1,275.60 | 59,528.00 | 4,464.60 | |
| Zhuhai Pilot Composite Material Technology Co., Ltd. | 1,412,045.00 | 105,903.38 | |||
| AVIC Training Center | 2,772.00 | 207.90 | |||
| Shenyang Xinghua | 292,370.58 | 17,542.23 | |||
| Anhui AVIC | 15,800.00 | 790.00 | |||
| Bill receivable | |||||
| AVIC Jonhon | 262,429.22 | ||||
| Zhuhai Pilot Composite Material Technology Co., Ltd. | 892,185.99 | 44,609.30 | |||
| Anhui AVIC | 192,339.42 | ||||
| Other receivables | |||||
| Gongqingcheng CATIC Culture Investment Company | 6,500.00 | 325.00 | 6,500.00 | 325.00 | |
| Rainbow Company | 143,990.00 | 7,199.50 | 123,000.00 | 5,300.00 | |
| AVIC | 834,903.00 | 43,170.15 | 1,055,557.43 | 52,777.87 | |
Notes to the financial statements - Page 111
2）Payables to related parties
| Item | Related party | Closing balance | Opening balance |
| Accounts payable | |||
| CATIC Property Management | 32,992.35 | 32,992.35 | |
| AVIC Jonhon | 391.96 | 19,411.27 | |
| Other payables: | |||
| Rainbow Company | 1,935,611.93 | 108,186.52 | |
| CATIC Property Management | 1,023,487.21 | 2,590,116.05 | |
| AVIC Securities Company | 247,080.00 | 247,080.00 | |
| Avic Changtai | 4,064.81 | ||
| Advance received | |||
| Rainbow Company | 162,324.03 | ||
| AVIC Securities Company | 123,540.00 | ||
| AVIC Futures | 9,435.48 |
XII. Share-based payments
1.General information about share-based payments
(1) Equity instrument
| Category of grant recipients | Granted during current period | Exercised during current period | Unlocked in current period | Voided in current period | ||||
| Quantity | Amount | Quantity | Amount | Quantity | Amount | Quantity | Amount | |
| Some of the company's directors, supervisors and core cadres | 3,436,710.00 | 3,436,710.00 | ||||||
| 合计 | 3,436,710.00 | 3,436,710.00 | ||||||
(2) Stock options or other equity instruments issued and outstanding at the end of theperiod
Nil.
2.Equity settled share-based payment
| Method of determining fair value of equity instrument on grant date | Close price of share on grant date |
| Evidence to determine the number of exercisable equity instrument | Term of employee service, status of target completion, and personal performance assessment |
Notes to the financial statements - Page 112
| Reasons for significant difference between current period estimation and prior period estimation | Nil |
| Accumulated amount charged to capital reserve for equity settled share-based payment | 27,909,283.55 |
| Total expenses for equity settled share-based payment recognized in current period | -4,078,998.50 |
3. Expenses for share-based payment recognized in current period
| Category of grant recipients | Expenses for equity settled share-based payment | Expenses for cash settled share-based payment |
| Some of the company's directors, supervisors and core cadres | -4,078,998.50 |
XIII. Commitment and contingencies
1. Significant commitments
(1) Lease contract that already signed or prepared to fulfil and its financial effectRefer to Note V.53 for details.
2. Contingencies on balance sheet date
The Company does not have material contingent events that need to be disclosed
XIV. Post balance sheet date events
1. Profit distribution
| Profit distributions or dividends proposed | Cash dividend of RMB4.00 (tax inclusive) for every 10 shares held |
2.Other events after the balance sheet date
(1) Financing and guarantee after the balance sheet date
1) On 12 March 2024, pursuant to approval by the 18
th
meeting of the 10
thBoard of directors, theCompany proposed to apply for financing facility of no more than RMB1,200 million by means of credit,pledge and mortgage in 2024. The resolution is pending for approval by the shareholder’s meeting.
2) On 12 March 2024, pursuant to approval by the 18
th
meeting of the 10
th
Board of directors, theCompany proposed to provide guarantee for the Company’s wholly-owned subsidiary to borrow frombanks of no more than RMB600 million in 2024. The credit line is included in the actual usage limit ofRMB1,200 million mentioned above. The resolution is waiting approval from the shareholder’s meeting.
(2) Others
As at 14 March 2024, the Company does not have other post-balance sheet events that need to
Notes to the financial statements - Page 113
be disclosed.
XV. Other material information
1. Segments
Operating segments of the Company are identified on the basis of internal organizationstructure, management requirements and internal reporting system. An operating segment representsa component of the Company that satisfied the following criteria simultaneously:
(1) Its business activities are engaged to earn revenue and incur expenses;
(2) Its operating results are regularly reviewed by the Company’s management to makedecisions on resources allocation and performance assessment;
(3) Its financial conditions, operating results, cash flow and related accounting information areavailable to the Company.
The Company determines the reporting segment based on the operating segment, and theoperating segment that meets any of the following conditions is determined as the reporting segment:
(1) The segment income of the operating segment accounts for 10.00% or more of total incomeof all segments;
(2) The absolute amount of profits (losses) of the segment account for 10.00% or more of thehigher of the absolute amount of total profits of the profiting segment and the absolute amount oftotal losses of the unprofitable segment.
The Company’s business is simple. The business mainly involves manufacturing and sales ofwatch. The management considers the business as a whole in implementing management andassessing its performance. As a result, no segment information is disclosed in this financialstatement.
2. Other material events
As at 31 December 2023, the Company does not have other significant matters that require todisclose.
XVI. Notes to the parent company’s financial statement
Note 1. Accounts receivables
1. Presented by aging
| Aging | Closing balance | Opening balance |
| Within 1 year | 1,875,782.07 | 635,132.16 |
| Over 1 year | 23,346.03 | |
| Subtotal | 1,899,128.10 | 635,132.16 |
| Less: bad debt provision | 76,211.49 | 31,916.13 |
| Total | 1,822,916.61 | 603,216.03 |
2. Presentation by method of providing bad debt
Notes to the financial statements - Page 114
| Category | Closing balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Accounts receivable that provided expected credit losses on single basis | |||||
| Accounts receivable that provided expected credit losses on portfolio basis` | 1,899,128.10 | 100.00 | 76,211.49 | 4.01 | 1,822,916.61 |
| Including: Receivable from other customers | 1,898,159.02 | 99.95 | 76,211.49 | 4.02 | 1,821,947.53 |
| Including: Related party in scope of consolidation | 969.08 | 0.05 | 969.08 | ||
| Total | 1,899,128.10 | 100.00 | 76,211.49 | 1,822,916.61 | |
Continued
| Category | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Accounts receivable that provided expected credit losses on single basis | |||||
| Accounts receivable that provided expected credit losses on portfolio basis` | 635,132.16 | 100.00 | 31,916.13 | 5.03 | 603,216.03 |
| Including: Receivable from other customers | 635,132.16 | 100.00 | 31,916.13 | 5.03 | 603,216.03 |
| Including: Related party in scope of consolidation | |||||
| Total | 635,132.16 | 100.00 | 31,916.13 | 603,216.03 | |
3. In the portfolio, accounts receivable with expected credit loss provided based on creditrisk characteristic portfolio
(1) Portfolio of receivable from other customer
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 1,874,812.99 | 73,876.89 | 3.94 |
| 1 - 2 years | 23,346.03 | 2,334.60 | 10.00 |
| Total | 1,898,159.02 | 76,211.49 | 4.02 |
4. Movements of provision during the period
| Category | Opening balance | Movements during the period | Closing balance | |||
| Accrual | Recovered or reversed | Written-off | Other movements | |||
| Accounts receivable that provided expected credit losses on single basis | 85,000.00 | 85,000.00 | ||||
Notes to the financial statements - Page 115
| Category | Opening balance | Movements during the period | Closing balance | |||
| Accrual | Recovered or reversed | Written-off | Other movements | |||
| Accounts receivable that provided expected credit losses on portfolio basis` | 31,916.13 | 44,295.36 | 76,211.49 | |||
| Including: Receivable from other customers | 31,916.13 | 44,295.36 | 76,211.49 | |||
| Total | 31,916.13 | 129,295.36 | 85,000.00 | 76,211.49 | ||
5. No actual write-off of accounts receivable during the current period.
6. Top 5 receivable accounts
| Name | Closing balance | Proportion in total closing balance of accounts receivable (%) | Bad debt provision |
| Top 5 receivables accounts in total | 1,301,233.17 | 68.52 | 66,197.12 |
| Total | 1,301,233.17 | 68.52 | 66,197.12 |
Note 2. Other receivables1．Presentation of other receivables by aging
| Aging | Closing balance | Opening balance |
| Within 1 year | 614,472,373.93 | 839,808,164.17 |
| 1 - 2 years | 81,857,231.39 | |
| 2- 3 years | ||
| Over 3 years | 40,050.00 | 40,050.00 |
| Subtotal | 696,369,655.32 | 839,848,214.17 |
| Less: bad debt provision | 41,235.47 | 65,671.10 |
| Total | 696,328,419.85 | 839,782,543.07 |
2．Presented by nature
| Nature | Closing balance | Opening balance |
| Related party in scope of consolidation | 696,041,965.52 | 839,174,096.87 |
| Security deposit | 49,581.90 | 537,615.90 |
| Petty cash | 24,542.88 | |
| Others | 278,107.90 | 111,958.52 |
| Total | 696,369,655.32 | 839,848,214.17 |
| Less: bad debt provision | 41,235.47 | 65,671.10 |
Notes to the financial statements - Page 116
| Nature | Closing balance | Opening balance |
| Total | 696,328,419.85 | 839,782,543.07 |
3．Presented according to three stages of financial assets impairment
| Item | Closing balance | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | Carrying amount | Bad debt provision | Book value | |
| First stage | 696,369,655.32 | 41,235.47 | 696,328,419.85 | 839,848,214.17 | 65,671.10 | 839,782,543.07 |
| Second stage | ||||||
| Third stage | ||||||
| Total | 696,369,655.32 | 41,235.47 | 696,328,419.85 | 839,848,214.17 | 65,671.10 | 839,782,543.07 |
4．Presented by bad debt provision method
| Category | Closing balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Other receivables that provided expected credit losses on single basis | |||||
| Other receivables that provided expected credit losses on portfolio basis | 696,369,655.32 | 100.00 | 41,235.47 | 0.01 | 696,328,419.85 |
| Including: Security deposit portfolio | 49,581.90 | 0.01 | 40,526.60 | 81.74 | 9,055.30 |
| Petty cash portfolio | |||||
| Social security payment on-behalf portfolio | 263,930.39 | 0.04 | 263,930.39 | ||
| Receivables from related parties within scope of consolidation | 696,041,965.52 | 99.95 | 696,041,965.52 | ||
| Portfolio of others | 14,177.51 | 708.87 | 5.00 | 13,468.64 | |
| Total | 696,369,655.32 | 100.00 | 41,235.47 | 696,328,419.85 | |
Continued
| Category | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Other receivables that provided expected credit losses on single basis | |||||
| Other receivables that provided expected credit losses on portfolio basis | 839,848,214.17 | 100.00 | 65,671.10 | 0.01 | 839,782,543.07 |
| Including: Security deposit portfolio | 537,615.90 | 0.06 | 64,928.30 | 12.08 | 472,687.60 |
| Petty cash portfolio | 24,542.88 | 0.01 | 24,542.88 | ||
| Social security payment on-behalf portfolio | 97,102.57 | 0.01 | 97,102.57 | ||
| Receivables from related parties within scope of consolidation | 839,174,096.87 | 99.92 | 839,174,096.87 | ||
| Portfolio of others | 14,855.95 | 0.00 | 742.80 | 5.00 | 14,113.15 |
Notes to the financial statements - Page 117
| Category | Opening balance | ||||
| Carrying amount | Bad debt provision | Book value | |||
| Amount | Percentage (%) | Amount | ECL rate (%) | ||
| Total | 839,848,214.17 | 100.00 | 65,671.10 | 0.01 | 839,782,543.07 |
5．In the portfolio, other receivables with expected credit loss provided based on creditrisk characteristic portfolio
(1) Security deposit portfolio
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | |||
| 1 - 2 years | 9,531.90 | 476.60 | 5.00 |
| 2- 3 years | |||
| Over 3 years | 40,050.00 | 40,050.00 | 100.00 |
| Total | 49,581.90 | 40,526.60 | |
(2) Social security payment on-behalf portfolio
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 263,930.39 | ||
| Total | 263,930.39 | ||
(3) Receivables from related parties within scope of consolidation
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 696,041,965.52 | ||
| Total | 696,041,965.52 | ||
(4) Portfolio of others
| Aging | Closing balance | ||
| Carrying amount | Bad debt provision | ECL rate (%) | |
| Within 1 year | 14,177.51 | 708.87 | 5.00 |
| Total | 14,177.51 | 708.87 | 5.00 |
6．Bad debt provision status
Notes to the financial statements - Page 118
| Bad debt provision | First stage | Second stage | Third stage | Total |
| Expected credit losses over the next 12 months | Lifetime expected credit losses (no credit impairment occurred) | Lifetime expected credit losses (credit impairment occurred) | ||
| Opening balance | 65,671.10 | 65,671.10 | ||
| Opening balance movements in current period | ||||
| —Transfer into the second stage | ||||
| —Transfer into the third stage | ||||
| —Reverse back to the second stage | ||||
| —Reverse back to the first stage | ||||
| Accrual during the period | ||||
| Reversed during the period | -24,435.63 | -24,435.63 | ||
| Recovered during the period | ||||
| Written-off during the period | ||||
| Other movements | ||||
| Closing balance | 41,235.47 | 41,235.47 |
7．No other receivables were written-off during the period.8．Top 5 other receivable accounts
| Name | Closing balance | Proportion to closing balance of other receivables (%) | Bad debt provision Closing balance |
| Top 5 other receivables in total | 696,041,965.52 | 99.95 | |
| Total | 696,041,965.52 | 99.95 |
Note 3. Long-term equity investment
| Nature | Closing balance | Opening balance | ||||
| Carrying amount | Provision | Book value | Carrying amount | Provision | Book value | |
| Investment in subsidiaries | 1,581,179,108.81 | 1,581,179,108.81 | 1,494,128,399.60 | 1,494,128,399.60 | ||
| Investment in associates | 51,862,607.30 | 51,862,607.30 | 58,182,086.90 | 58,182,086.90 | ||
| Total | 1,633,041,716.11 | 1,633,041,716.11 | 1,552,310,486.50 | 1,552,310,486.50 | ||
1．Investment in subsidiaries
Notes to the financial statements - Page 119
| Investee | Opening balance | Addition/new investment | Withdrawn | Closing balance | Provision accrued in current period | Closing balance of provision |
| Shenzhen Harmony World Watch Center Co., | 610,354,397.34 | 1,058,906.51 | 609,295,490.83 | |||
| Shenzhen Harmony E-commerce Co., Ltd. | 11,684,484.39 | 11,684,484.39 | ||||
| Shenzhen FIYTA Precision Technology Co., Ltd. | 102,482,069.76 | 80,000,000.00 | 437,608.56 | 182,044,461.20 | ||
| Shenzhen FIYTA Technology Development Co., Ltd. | 51,224,974.98 | 162,083.31 | 51,062,891.67 | |||
| FIYTA (Hong Kong) Ltd. | 137,737,520.00 | 137,737,520.00 | ||||
| TEMPORAL (Shenzhen) Co., Ltd. | 5,000,000.00 | 5,000,000.00 | ||||
| FIYTA Sales Co., Ltd. | 458,083,251.89 | 1,090,795.72 | 456,992,456.17 | |||
| Liaoning Hengdarui Commercial & Trade Co., Ltd. | 36,867,843.96 | 36,867,843.96 | ||||
| Emile Choureit Timing (Shenzhen) Ltd. | 80,693,857.28 | 199,896.69 | 80,493,960.59 | |||
| HARMONY World Watch Center(Hainan) Co., Ltd. | 10,000,000.00 | 10,000,000.00 | ||||
| Total | 1,494,128,399.60 | 90,000,000.00 | 2,949,290.79 | 1,581,179,108.81 |
2．Investment in associates
| Investee | Opening balance | Movements in current period | |||
| Addition/new investment | Withdrawn | Investment gain recognized under equity method | Adjustment to OCI | ||
| Associates | |||||
| Shanghai Watch | 58,182,086.90 | -5,819,479.60 | |||
Continued
| Investee | Movements in current period | Closing balance | Closing balance of provision | |||
| Other equity movements | Cash dividends declared or distribution of profit | Impairment provision accrual | Others | |||
| Associates | ||||||
| Shanghai Watch | -500,000.00 | 51,862,607.30 | ||||
Note 4. Operating income and operating cost
| Item | Amount in current period | Amount in prior period | ||
| Revenue | Cost | Revenue | Cost | |
| Main business | 177,350,230.18 | 49,729,440.87 | 148,557,095.50 | 41,765,441.70 |
| Other business | 3,524,696.56 | 6,727,705.55 | ||
Notes to the financial statements - Page 120
| Item | Amount in current period | Amount in prior period | ||
| Revenue | Cost | Revenue | Cost | |
| Total | 180,874,926.74 | 49,729,440.87 | 155,284,801.05 | 41,765,441.70 |
Note 5. Investment gain
| Item | Amount in current period | Amount in prior period |
| Gain from long-term equity investments accounted for using equity method | -5,819,479.60 | 3,026,481.59 |
| Gain from long-term equity investments accounted for using cost method | 198,000,000.00 | 240,595,696.70 |
| Total | 192,180,520.40 | 243,622,178.29 |
XVII. Supplementary information
1. Details of non-recurring gain or loss for the year
| Item | Amount | Note |
| Disposal gain or loss of non-current assets，including elimination of provision for impairment of assets | 685,868.57 | |
| Government grants included in current profit or loss (except for the fixed or quantitative government grants, enjoyed in a consecutive way, which closely related to the enterprise businesses and according to nation policies) | 8,665,506.85 | |
| Except for effective hedging business related to normal operating business, profit and loss from changes in fair value incurred in financial assets and financial liabilities, and the investment gain from disposal of financial assets, financial liabilities and available-for-sale financial assets | ||
| Charges for the possessions of funds collected from non-monetary enterprises | ||
| Profit and loss from entrusting others to invest or manage assets | ||
| Asset impairment provision accrued due to force majeure such as natural disasters | ||
| Impairment provision reversal of accounts receivable under standalone impairment test | 7,570,975.54 | |
| Gain from investment in subsidiaries, joint venture and cooperative enterprises when cost of investment is less than the profit incurred in identifiable net asset fair value of invested unit when investment | ||
| Current net profit and loss of subsidiaries from business combination under common control from the opening period to combination date | ||
| Profit and loss of non-monetary assets exchange | ||
| Profit and loss of debt restructuring | ||
| Enterprise restructuring expenses, such as expenses for arranging employees, integrating cost | ||
| One-time effect on current period's profit or loss due to adjustments in tax, accounting and other laws and regulations | ||
| Overridden approval, or without official approval document, or incidental tax return or exemption | ||
| For cash-settled share-based payments, gains and losses arising from changes in the fair value of employee compensation payable after the date of exercise of options | ||
| Profit and loss incurred in fair value change of investment property subsequently measured in fair value mode | ||
| Profit and loss over fair value part accrued in transactions of unreasonable transaction price | ||
| Profit and loss incurred contingent matters unrelated to normal operating business |
Notes to the financial statements - Page 121
| Item | Amount | Note |
| Income from trustee fee obtained by trusting operation | ||
| Other non-operating income and expenses other than the above items | 3,910,736.70 | |
| Profit and loss items pursuant to the definition of non-recurring profit and loss | ||
| Less：Effect of income tax of non-recurring profit or loss | 4,461,193.42 | |
| Effect of non-recurring profit or losses attributable to minority shareholders (after tax) | ||
| Total | 16,371,894.24 |
2. Return on Equity (ROE) and Earnings per share (EPS)
| Profit of the reporting period | Weighted average ROE % | EPS | |
| Basic EPS | Diluted EPS | ||
| Net profit attributable to ordinary shareholders of the Company | 10.28 | 0.8082 | 0.8075 |
| Net profit attributable to ordinary shareholders of the Company after deducting non-recurring profit or loss | 9.77 | 0.7685 | 0.7678 |
FIYTA Precision Technology Co., Ltd.(Official Stamp)
12 March 2024