(For Translation Purpose Only) The reader is advised that the report is originally prepared in Chinese. The English version is for translation purpose only. In the event of a conflict between this report and the original Chinese version or difference in the interpretation between the versions of the report, the Chinese language report shall prevail. YANTAI CHANGYU PIONEER WINE COMPANY LIMITED (A joint stock limited company incorporated in the People’s Republic of China) 30 June 2011 1 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONTENTS Pages Consolidated: Balance sheet 2-3 Income statement 4 Statement of changes in equity 5 Cash flow statement 6 Company: Statement of changes in equity 7 Notes to financial statements 8 - 91 Appendix I supplementary Information to financial statements 1. Non-recurring gains and losses A-1 2. Return on net assets and earnings per share A-2 2 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED BALANCE SHEET 30 June 2011 RMB YUAN 30/6/2011 31/12/2010 Assets Note Consolidated Parent company Consolidated Parent company CURRENT ASSETS Cash and bank 5.1 2,575,302,305 1,937,453,170 2,489,804,162 1,898,488,544 Trading financial assets 21,200,000 21,200,000 Bills receivable 5.2 56,026,700 24,607,165 31,447,207 12,871,415 Trade receivables 5.3 10.1 95,255,224 10,357,520 100,113,271 11,708,820 Advances to suppliers 5.4 70,742,936 61,392,268 74,728,756 40,352,558 Interest receivable 5.5 18,216,011 18,094,085 9,519,721 9,519,721 Dividends receivable 1,765,637,074 1,765,637,075 Other receivables 5.6 10.2 62,383,999 1,613,571,335 30,686,838 1,155,602,622 Inventories 5.7 1,079,415,696 383,689,771 1,294,406,406 481,049,315 Non-current asset expire in a year Other current assets Total current assets 3,978,542,871 5,836,002,387 4,030,706,362 5,375,230,070 NON-CURRENT ASSETS Available for sale financial assets Held-to-maturity investment Long-term receivables Long-term equity investments 5.8 10.3 5,000,000 712,783,083 5,000,000 331,907,113 Investment Real Estate Property, plant and equipment 5.9 1,222,721,665 321,960,105 1,188,081,245 325,016,812 Construction in progress 5.10 353,576,695 25,326,123 242,107,575 13,603,659 Construction materials Fixed assets disposal Biological assets 5.12 38,539,812 9,683,931 37,773,638 10,270,836 Oil and gas assets Intangible assets 5.11 274,070,448 91,219,294 208,847,847 87,521,064 Development expenditure Goodwill Long-term prepaid expense 5.13 104,839,398 106,233,673 Deferred tax assets 5.14 143,853,616 28,462,210 160,275,366 27,019,769 Other non-current assets 4,070,510 4,257,410 4,351,547 4,538,447 Total non-current assets 2,146,672,143 1,193,692,156 1,952,670,890 799,877,700 Total assets 6,125,215,014 7,029,694,543 5,983,377,253 6,175,107,770 3 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) 30 June 2011 RMB YUAN LIABILITIES AND 30/6/2011 31/12/2010 EQUITY Note Consolidated Parent company Consolidated Parent company CURRENT LIABILITIES Short-term loan Trading of financial liabilities Bills payable Trade payables 5.16 234,251,383 152,527,756 259,022,075 165,884,293 Advances from customers 5.17 290,340,844 309,481,976 Employee benefits 5.18 165,097,207 117,825,347 186,915,812 114,351,323 Taxes payable 5.19 486,594,616 126,920,299 649,365,259 122,920,579 Interest payable Dividends payable 0 0 Other payables 5.20 689,337,237 2,598,527,785 476,897,721 1,768,065,889 Total current liabilities 1,865,621,287 2,995,801,187 1,881,682,843 2,171,222,084 NON-CURRENT LIABILITIES Deferred tax liabilities 5.14 5,316,436 5,336,115 Other non-current liabilities 5.21 120,110,000 8,027,000 100,213,000 8,027,000 Total non-current liabilities 125,426,436 8,027,000 105,549,115 8,027,000 Total liabilities 1,991,047,723 3,003,828,187 1,987,231,958 2,179,249,084 EQUITY Share capital 5.22 527,280,000 527,280,000 527,280,000 527,280,000 Capital surplus 5.23 557,242,133 557,222,454 557,222,454 557,222,454 Less treasury stock Surplus reserve 5.24 295,942,630 295,942,630 295,942,630 295,942,630 Retained earnings 5.25 2,598,026,373 2,645,421,272 2,459,263,257 2,615,413,602 Equity attributable to equity holders of the company 3,978,491,136 4,025,866,356 3,839,708,341 3,995,858,686 Minority interests 155,676,154 156,436,954 Total equity 4,134,167,291 4,025,866,356 3,996,145,295 3,995,858,686 Total liabilities and equity 6,125,215,014 7,029,694,543 5,983,377,253 6,175,107,770 Financial statements have been signed by The legal representative Accounting Supervisor Accounting Department Manager Signature Signature Signature _______________ _____________ ___________________ 07/08/2011 07/08/2011 07/08/2011 4 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED INCOME STATEMENT 30 JUNE 2011 RMB YUAN Six months ended 30 June 2011 Six months ended 30 June 2010 Item Note Consolidated Parent company Consolidated Parent company Revenue 5.27 10.4 3,090,021,567 881,120,226 2,481,885,134 746,408,137 Less Cost of sales 5.27 10.4 749,237,629 681,420,169 697,904,404 554,127,550 Taxes and surcharges 5.28 175,702,733 99,160,797 143,954,547 84,288,354 Selling expenses 869,894,366 760,912,413 Administrative expenses 157,485,167 66,569,261 110,222,160 75,329,206 Financial expenses 5.29 -21,687,300 -23,747,128 -5,470,293 -9,672,089 Loss for impairment of assets Add: fair value charge profit (loss is listed with "-") Investment profit ((loss is listed with "- 5.30 ") 10.5 52,122 723,374,683 429,107 429,107 Including: investment profit for joint- run business and joint venture Operating profit 1,159,441,095 781,091,810 774,791,010 42,764,223 Add: Non-operating income 5.31 4,062,176 1,574,281 5,023,942 209,453 Less: Non-operating expenses 5.32 988,331 245,922 572,190 5,231 Including: losses on disposal of non-current assets Profit before tax 1,162,514,940 782,420,169 779,242,762 42,968,445 Less: Income tax 5.33 286,320,623 14,220,498 186,395,367 21,926,577 Profit for the year 876,194,317 768,199,671 592,847,395 21,041,868 Attributable to equity holders of the company 876,955,116 768,199,671 585,674,479 21,041,868 Minority interests -760,800 7,172,916 Earnings per share Basic earnings per share 5.34 1.66 1.46 1.11 0.04 Diluted earnings per share 5.34 1.66 1.46 1.11 0.04 Other Comprehensive Income 19,679.11 Comprehensive Income 876,213,996 768,199,671 592,847,395 21,041,868 Attributable to equity holders of the company 876,974,795 768,199,671 585,674,479 21,041,868 Attributable to minority interests -760,800 7,172,916 5 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED CHANGES IN EQUITY 30 June 2011 RMB YUAN Item Six months ended 30 June 2011 Minority stockholders' Total shareholders' Shareholders' equity of parent company Equity equity Capital stock Capital reserves Less: Treasury Surplus Undistributed profits Others stock reserves 1.Banlance at the end of last year 527,280,000 557,222,454 295,942,630 2,459,263,257 156,436,954 3,996,145,295 Plus: Accounting policies changing Previous error correction 2.Banlance at the beginning of this year 527,280,000 557,222,454 295,942,630 2,459,263,257 156,436,954 3,996,145,295 3.Increasing or reducing amount of this year (reducing amount is listed with "-") 19,679 138,763,116 -760,800 138,021,996 3.1 Net profits 876,955,116 -760,800 876,194,317 3.2 Other Comprehensive Income 19,679 19,679 Subtotal of above 3.1 and 3.2 19,679 876,955,116 -760,800 876,213,996 3.3 Owners' invested and reduced capital 3.3.1 Owners' invested capital 3.3.2 Amount of shares paid and reckoned in owners' equity 3.3.3 Others 3.4 Profit distribution -738,192,000 -738,192,000 3.4.1Drew surplus reserves 3.4.2 Distribution to owners (or shareholders) -738,192,000 -738,192,000 3.4.3 Others 3.5 Internal transfer of owners' equity 3.5.1 Capital reserves transferred and increased capital (or capital stock) 3.5.2 Surpuls reserves transferred and increased capital (or capital stock) 3.5.3 Surpuls reserves covering deficit 3.5.4 Others 4.Banlance at the end of this year 527,280,000 557,242,133 295,942,630 2,598,026,373 155,676,154 4,134,167,291 Item Year 2010 6 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED CHANGES IN EQUITY 30 June 2011 RMB YUAN Minority stockholders' Total shareholders' Shareholders' equity of parent company Equity equity Capital stock Capital Less: Surplus Undistributed Others reserves Treasury reserves profits stock 1.Banlance at the end of last year 527,280,000 557,222,454 295,942,630 1,657,780,929 136,455,048 3,174,681,061 Plus: Accounting policies changing Previous error correction 2.Banlance at the beginning of this year 527,280,000 557,222,454 295,942,630 1,657,780,929 136,455,048 3,174,681,061 3.Increasing or reducing amount of this year (reducing amount is listed with "-") 801,482,328 19,981,906 821,464,234 3.1 Net profits 1,434,218,328 19,981,906 1,454,200,234 3.2 Other Comprehensive Income Subtotal of above 3.1 and 3.2 1,434,218,328 19,981,906 1,454,200,234 3.3 Owners' invested and reduced capital 3.3.1 Owners' invested capital 3.3.2 Amount of shares paid and reckoned in owners' equity 3.3.3 Others 3.4 Profit distribution -632,736,000 -632,736,000 3.4.1Drew surplus reserves 3.4.2 Distribution to owners (or shareholders) -632,736,000 -632,736,000 3.4.3 Others 3.5 Internal transfer of owners' equity 3.5.1 Capital reserves transferred and increased capital (or capital stock) 3.5.2 Surpuls reserves transferred and increased capital (or capital stock) 3.5.3 Surpuls reserves covering deficit 3.5.4 Others 4.Banlance at the end of this year 527,280,000 557,222,454 295,942,630 2,459,263,257 156,436,954 3,996,145,295 7 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT 30 June 2011 RMB YUAN Six months ended 30 June 2011 Six months ended 30 June 2010 Item Cosolidated Parent company Cosolidated Parent company amount amount amount amount 1. Cash flows from operating activities: Cash received from sales of goods and rending of services 3,615,239,260 1,023,172,610 2,871,056,257 876,676,704 Tax refund received 31,895,583 17,931,445 4,117,244 Other cash received related to operating activities 74,339,353 78,314,429 17,298,076 506,068,946 Subtotal of cash flows of operating activities 3,721,474,196 1,119,418,484 2,892,471,577 1,382,745,650 Cash paid for goods and services 782,258,636 662,332,168 733,563,534 637,851,952 Cash paid to and on behalf of employees 199,782,598 74,164,408 174,512,763 85,341,019 Cash paid for taxes and expenses 1,141,618,275 245,261,179 764,530,299 176,043,602 Other cash paid related to operating activities 578,927,423 51,618,902 580,158,139 20,391,456 Sub-total of cash outflows of operating activities 2,702,586,931 1,033,376,657 2,252,764,735 919,628,029 Net cash flow from operating activities 1,018,887,265 86,041,827 639,706,842 463,117,621 2. Cash flow from investing activities: Cash received from return of investment 64,671,946 59,671,946 Fixed deposit with the term of over 3 months Cash received from obtaining investment profit 52,122 723,374,683 7,943,364 455,372,638 Cash received from interest income 21,630,697 21,630,697 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 519,304 519,204 Net cash received from disposal of branch and other business unit Other cash received related to investing activities Subtotal of cash flows of investment activities 22,202,123 745,524,584 72,615,310 515,044,584 Cash paid to acquire fixed assets, intangible assets and other long-term assets 217,541,724 23,390,203 189,217,153 9,221,963 Fixed deposit with the term of over 3 months 71,437,507 71,437,507 Cash for investment 199,688,120 106,000,000 8 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT 30 June 2011 RMB YUAN Net cash paid to acquire branch and other business unit Other cash paid related to investment activities Subtotal of cash outflows of investment activities 288,979,231 294,515,830 189,217,153 115,221,963 Net cash flow from investing activities -266,777,108 451,008,754 -116,601,843 399,822,621 3.Cash flow from financing activities Cash received from acquiring investment Including: cash received from acquiring minority shareholders investment by branch Cash received from acquiring loans 256,026,059 Other cash received related to financing activities 0 Subtotal cash flows of financing activities 256,026,059 Cash paid to pay debts 87,500,000 224,500,000 220,000,000 Cash paid to distribute dividend, profit or pay interest 738,192,000 738,192,000 153,384,471 151,778,850 Including: dividend and profit paid to minority shareholders by branch Other cash paid related to financing activities Subtotal of cash outflows of financing activities 738,192,000 825,692,000 377,884,471 371,778,850 Net cash flow from financing activities -738,192,000 -569,665,941 -377,884,471 -371,778,850 4. Influences of exchange rate fluctuation on cash and cash equivalents 5. Net Increase in cash and cash equivalents 13,918,157 -32,615,360 145,220,528 491,161,392 Add: balance at the beginning of the period of cash and cash equivalents 998,934,824 407,619,206 1,998,681,278 1,159,666,918 6.Balance at the end of the period of cash and cash equivalents 1,012,852,981 375,003,846 2,143,901,806 1,650,828,310 9 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CHANGES IN EQUITY 30 June 2011 RMB YUAN Item Six months ended 30 June 2011 Total shareholders' Shareholders' equity of parent company equity Capital stock Capital Less: Treasury Surplus reserves Undistributed Others reserves stock profits 1.Banlance at the end of last year 527,280,000 557,222,454 295,942,630 2,615,413,602 3,995,858,686 Plus: Accounting policies changing Previous error correction 2.Banlance at the beginning of this year 527,280,000 557,222,454 295,942,630 2,615,413,602 3,995,858,686 3.Increasing or reducing amount of this year (reducing amount is listed with "-") 30,007,670 30,007,670 3.1 Net profits 768,199,670 768,199,670 3.2 Other Comprehensive Income Subtotal of above 3.1 and 3.2 768,199,670 768,199,670 3.3 Owners' invested and reduced capital 3.3.1 Owners' invested capital 3.3.2 Amount of shares paid and reckoned in owners' equity 3.3.3 Others 3.4 Profit distribution -738,192,000 -738,192,000 3.4.1Drew surplus reserves 3.4.2 Distribution to owners (or shareholders) -738,192,000 -738,192,000 3.4.3 Others 3.5 Internal transfer of owners' equity 3.5.1 Capital reserves transferred and increased capital (or capital stock) 3.5.2 Surpuls reserves transferred and increased capital (or capital stock) 3.5.3 Surpuls reserves covering deficit 3.5.4 Others 4.Banlance at the end of this year 527,280,000 557,222,454 295,942,630 2,645,421,272 4,025,866,356 10 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED CHANGES IN EQUITY 30 June 2011 RMB YUAN Item Year 2010 Total shareholders' Shareholders' equity of parent company equity Capital stock Capital Less: Treasury Surplus reserves Undistributed Others reserves stock profits 1.Banlance at the end of last year 527,280,000 557,222,454 295,942,630 1,705,057,969 3,085,503,053 Plus: Accounting policies changing Previous error correction 2.Banlance at the beginning of this year 527,280,000 557,222,454 295,942,630 1,705,057,969 3,085,503,053 3.Increasing or reducing amount of this year (reducing amount is listed with "-") 910,355,633 910,355,633 3.1 Net profits 1,543,091,633 1,543,091,633 3.2 Other Comprehensive Income Subtotal of above 3.1 and 3.2 1,543,091,633 1,543,091,633 3.3 Owners' invested and reduced capital 3.3.1 Owners' invested capital 3.3.2 Amount of shares paid and reckoned in owners' equity 3.3.3 Others 3.4 Profit distribution -632,736,000 -632,736,000 3.4.1Drew surplus reserves 3.4.2 Distribution to owners (or shareholders) -632,736,000 -632,736,000 3.4.3 Others 3.5 Internal transfer of owners' equity 3.5.1 Capital reserves transferred and increased capital (or capital stock) 3.5.2 Surplus reserves transferred and increased capital (or capital stock) 3.5.3 Surplus reserves covering deficit 3.5.4 Others 4.Banlance at the end of this year 527,280,000 557,222,454 295,942,630 2,615,413,602 3,995,858,686 11 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED NOTES TO FINANCIAL STATEMENTS Ended 30 June 2011 1. CORPORATE INFORMATION Yantai Changyu Pioneer Wine Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in accordance with the Company Law of the Peoples Republic of China (the “PRC”) in a reorganization carried out by Yantai Changyu Group Co., Ltd. (“Changyu Group Company”), in which Changyu Group Company injected certain assets and liabilities in relation to the brandy, wine, sparkling wine, and tonic wine production and sales businesses to the Company. The Company and its subsidiaries (the “Group”) are principally engaged in the production and sales of wine, brandy, sparkling wine and tonic wine. Pursuant to the approval from the Government of Shandong Province (Luzheng [1997]119), the Company was reorganized as a joint stock limited company on 10 April 1997. On 23 September 1997, the Company was approved by China Securities Regulatory Commission (the “CSRC”) ([1997] No. 52) to issue 88,000,000 domestically listed foreign investment shares (“B shares”) on Shenzhen Stock Exchange. On 18 September 1997, the Company obtained the business license with the registered number No. 26718011-9. In October 2000, the Company was approved by CSRC to issue 32,000,000 domestically listed Shares (“A Shares”). The A shares were listed on Shenzhen Stock Exchange on 26 October 2000. Pursuant to the share reform notices issued by the Company in February 2006, Changyu Group Company transferred its 13,977,600 shares to the shareholders of A share of the Company. After the reform, percentage of equity attributable to Changyu Group Company decreased from 53.8% to 50.4%. At 31 December 2010, the total shares issued by the Company amounts to 527,280,000 shares. Please refer to No.22 of Notes 5 in detail. The holding company of the Group is Changyu Group Company, which was jointly controlled by Yantai SASAC, ILLVA Saronno Investment Italy, International Finance Corporation and Yantai Yuhua Investment and Development Company Limited. 12 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (1) Preparation of financial statements The financial statements are prepared in according with “Corporate Accounting Standards – The Principles” which was published by Ministry of Finance in February 2006, and “the 38 specific accounting standards”, its application guide, interpretations for accounting standards, and other relevant regulations (collectively “CAS”). The financial statements are prepared on a going concern basis. Except for certain financial instrument, the measurement basis adopted by the group in preparing its financial statement is historical cost. Subsequently, if the assets are impaired, impairment provisions are made in accordance with the relevant accounting standards. (2) Declaration for implementing CAS The financial statements are prepared in accordance with CAS, which showing a true and fair view of the financial position on 30 June 2011, financial performance and cash flow for six months ended 30 June 2011 of the Company and the Group. (3) Accounting year The accounting year of the Group is from 1 January to 31 December. (4) Reporting currency The Group reporting and presentation currency is the Renminbi (“RMB”). Unless otherwise stated, the unit of the currency is Yuan. 13 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (5) Business combination A business combination is the bringing together of separate entities or businesses into one reporting entity, classified into the business combination under common control and business combination under non common control. Business combination under common control A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The combining entity that obtains control of other combining entities or businesses is the acquirer, and the other entities involved are the acquires. The combination date is when the acquirer effectively obtains the control of the acquires. The assets and liabilities obtained by the acquirer shall be measured at carrying amount in the acquiree's accounts as at the date of combination. Where there is a difference between the carrying amount of the net assets of the acquiree and the cost of combination, capital surplus shall be adjusted. Where the capital surplus is not sufficient to offset the value of the net assets acquired, retained earnings shall be adjusted. Business combination under non-common control A business combination involving entities or businesses under non-common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. The combining entity that obtains control of other combining entities or businesses is the acquirer, and the other entities involved are the acquirees. The acquisition date is when the acquirer effectively obtains the control of the acquirees. For business combination under non-common control, the assets and liabilities and contingent liabilities obtained by the acquirer shall be measured at fair value as at the date of combination. Where the cost of combination is greater than the fair value of assets and liabilities and contingent liabilities, the difference should be recognized as goodwill. Where the cost of combination is smaller than the fair value of acquirees assets and liabilities and contingent liabilities, and cost of combination should be reevaluated. Where cost of combination is still smaller than fair value of acquirees net assets, the difference should be recognized in income statement. 14 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (6) Consolidated financial statements The consolidation scope of consolidated financial statements is determined on the basis of control. The consolidated financial statements include the financial statements of the Company and its subsidiaries for the end of 30 June 2011. The subsidiaries are entities that are controlled by the Company. The subsidiaries adopt the same accounting year and accounting policies as the Company adopted. All intercompany balances, transactions, unrealized gain and loss and dividends within the Group are eliminated in full on consolidation. Losses within a subsidiary are attributed to the minority interest even if that results in a deficit balance. Any changes of minority interest that do not result loss of control is accounted for as equity transaction. For the subsidiaries acquired through business combination under non-common control, their financial performance and cash flow shall be included in the consolidated financial statements from the combination date, as long as they are under control by the Company. In preparation of the consolidated financial statements, the subsidiaries identifiable assets, liabilities and contingent liabilities are adjusted by their fair value on the acquisition date. For the subsidiaries acquired through business combination under common control, their financial performance and cash flow shall be included in the consolidated financial statements. When preparing comparative consolidated financial statements, the pre- combination adjustment of the subsidiarys financial statements is considered as it has existed before the business combination from the beginning of the reporting period. (7) Cash and cash equivalents Cash comprises cash on hand and demand deposit. Cash equivalents refers to short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. (8) Foreign currency transactions and foreign currencies reporting For any foreign currency transactions, they are recorded in functional currency. Transactions in currencies other than the reporting currency are translated into the reporting currency at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are restated into the reporting currency using the rates of exchange ruling at the balance sheet date. The exchange gains or losses are dealt with in the income statement for the year. 15 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (8) Foreign currency transactions and foreign currencies reporting (continued) The exchange gains or losses arising from foreign currency borrowings in relation to the acquisition or construction of a fixed asset are accounted for according to the requirements relating to the capitalization of borrowing costs. Non-monetary items denominated in foreign currencies which are measured at historical cost are translated using the exchange rates on their transaction dates. Non-monetary foreign items denominated in foreign currencies which are measured at fair value are translated using the exchange rates on balance sheet date, and any difference is recognized in income statement or other comprehensive income. Foreign currency cash flows are translated using the spot exchange rate prevailing on the date that the cash flows occur. The effect of exchange rate changes on cash is separately presented as an adjustment item in the cash flow statement. (9) Inventories Inventories comprise raw materials, work in progress, finished goods and transitory materials. The inventories are initially measured at cost. The cost of inventories comprises all costs of purchase, cost of conversion and other costs. When inventories are sold, the cost of sale is calculated on a weighted-average basis. Agricultural products harvested from the companys biological assets are measured on a weighted-average basis, which comprises all material, labor and other indirect expense incurred in producing and gathering the agricultural assets. Agricultural products harvested are reported in accordance with the CAS 1 Inventories. The Company adopts perpetual inventory system. Inventories are measured at the lower of cost and net realizable value at the balance sheet date. If the cost of inventories is higher than the net realizable value, the impairment of inventories is accrued and recognized in income statement. If the factors causing any impairment of the inventories do not exist, where the net realizable value is higher than the cost, the amount of impairment is reversed and the reversed amount is recognized in the income statement. 16 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (9) Inventories (continued) The net realizable value is estimated selling prices in ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The net realizable value is estimated selling prices in ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The inventory provision for raw materials is assessed by categories of inventories, where finished goods are assessed by items. For the homogeneous products which are produced and sold in the same region and are inseparable from other inventories, the inventory provision is accrued collectively. (10) Long term equity investments Long term equity investments comprise investments in subsidiaries, joint ventures, associates and any investment whose fair value cannot be reliably measured, with which the Company cannot exert control, joint control or significant influence over the investee. The investment is initially measured at cost. For business combination under common control, the investment cost is recorded at the book value of the acquirees equity acquired. For business combination under non-common control, the investment cost is recorded at combination cost. Long term equity investments other than business combination, the investment cost is recorded at cash paid plus any direct expense, tax or other expenditures associate with the investment, or the fair value of the equity instruments issued, or value agreed in the investment contract, except for the value agreed in the investment contract is not a fair market value. Cost method is adopted for the investments whose fair value cannot be reliably measured, with which the Group does not exert control, joint control or significant influence over the investees. Cost method is also adopted for the investments in subsidiaries in the Companys balance sheet. When cost method is adopted, the long term equity investments are measured at its initial investment cost, except that the initial investment cost contains declared dividend. The dividend declared by the investee is recorded as investment income in income statement. Impairment is assessed according to relevant policies. The invested entities over which the Group has joint control or significant influence are measured by equity method. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. Significant influences refers to the power to participate in making decisions on the 17 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (10) Long term equity investments (continued) Financial and operating of an enterprise but not to control or joint control together with other parties over the formulation of the policies. By equity method, where initial cost of investment excesses the fair value of identifiable net assets of investee, the difference should be recognized in initial investment cost. Where initial cost of investment is smaller than the fair value of identifiable net assets of investee, the difference should be recognized in income statement and the investment cost should be adjusted accordingly. By equity method, after investment, the Group recognizes the investment profits or losses and adjusts the book value of the long term equity investment based on the share of the net profits or losses of the investee. The share of the net profits and losses of the investee should be recognized at fair value of all identifiable assets in accordance with the accounting policy and accounting period of the Group, and the inter-company transactions between the investees and the Group shall be eliminated in proportion to the Groups equity interest in the investees after making adjustments on the net profits of the investees(the loss shall be recognized in full in case impairment is recognized from the inter-company transactions). For the investment in associate and joint ventures before the first time adoption of CAS, the debit balance of the investment differences, if any, also should be deducted from the investment income. The Group will reduce the book value of the long term equity investment in accordance with the share of profits or cash dividends declared to distribute by the invested entities. The net losses of the invested entity should be recognized until the book value of the long term equity investment and other long term rights and interests which substantially from the net investment made to the invested entities are reduced to zero, unless the Group has the obligation to assume extra losses. Where any change is made to the owner's equity other than the net profits and losses of the invested entity, the book value of the long term equity investment are adjusted and be included in the owner's equity. When disposing of a long term equity investment, the difference between its book value and the proceeds is recognized in the income statement in the corresponding period. Details for the impairment test and impairment loss recognition for the long term equity investments in subsidiaries, associates and joint ventures, please refer to Note 2 (18). Details for the impairment test and impairment loss recognition for other long term equity investment, which fair value not available in active market and cannot be reliably measured, please refer to Note 2 (17). 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) 18 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 (11) Biological assets The biological assets of the Group are vines. Biological assets should be recognized when and only when: (i) The Group controls the asset as a result of past events; (ii) It is probable that future economic benefits associate with the asset will flow to the entity; and (iii) The cost of the asset can be measured reliably. Biological assets comprise consumptive biological assets, productive biological assets, and not for profit biological assets. Biological assets are initially measured at its cost. The Group charge deprecation for productive biological assets which satisfy expected production, and record the deprecation in balance sheet and income statement. The Group uses straight line method to calculate the deprecation, and details as follows: Category Estimated useful Estimated residual Annual depreciation life rate rate Vines 20 years - 5% Consumptive biological assets and productive biological assets are measured as at each balance sheet date. Where reliable evidence shows there is natural disaster, plant diseases, insect pests, animal disease or change of market demand that make the realizable net value of any consumptive biological asset or the recoverable amount of any productive biological asset is lower than its book value, provision or impairment should be recognized in income statement in according to the difference. Where the factors which cause any provision of a consumptive biological asset are not exist, the amount of provision are reversed limited to the provision which has been made. The reversed amounts are recognized in the income statement of the current period. Impairment on productive biological assets cannot be reversed. No provision is made for not for profit biological assets. The Group evaluates the useful life, expected net salvage value, and the depreciation method of the property, plant and equipment at the end of each year. Agricultural produce harvested from the entitys biological assets are measured at its weighted-average book value. The book value comprises all material, labor and other indirect expense occurred in producing and gathering the agricultural assets. Agricultural produce harvested are reported in accordance with the CAS 1 Inventories. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) 19 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 (11) Biological assets(continued) When biological assets are sold, lost, dead, or damaged, the carrying amount is recognized in the income statement after deduction of relevant taxes. (12) Property, plant and equipment Property, plant and equipment should be recognized as an asset if, and only if: (i) It is probable that future economic benefits associated with the item will flow to the entity; and (ii) The cost of the item can be measured reliably. Property, plant and equipments is initially measured at cost. The cost of an item of property, plant and equipment comprises its purchase price, including import duties and non- refundable purchase taxes, after deducting trade discounts and rebates; and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation is calculated on a straight line basis. The estimated useful life and residual value rate are as follows: Estimated useful Estimated residual Annual depreciation life rate rate Buildings 30-40years 5%-40% 2%-3.2% Machinery 10-20years 5% 4.8%-9.5% Motor Vehicles 6-12years 5% 7.9%-15.8% A variety of depreciation rate can be used for different components of an item of property, plant and equipment according to its different useful lives or nature. The Group evaluates the useful life, expected net residual value, and the depreciation method of the property, plant and equipment every year, and makes adjustment where necessary. For details of the impairment test and impairment loss recognition for property, plant and equipment, please refer to Note 2 (18). 20 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (13) Construction in progress Construction in progress are measured on actual construction costs, including the direct costs of construction, capitalized borrowing costs during the period of construction and other expenditures. Construction in progress is reclassified to the property, plant and equipment when completed and ready for use. Details for the impairment test and impairment loss recognition for construction in progress, please refer to Note 2 (18). (14) Borrowing costs Borrowing costs are interest and other costs incurred by the Group in connection with the borrowing of funds, which includes interests, amortization of discounts or premiums, ancillary costs, and exchange differences arising from foreign currency borrowings. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalization of borrowing costs as part of the cost of a qualifying asset shall commence when: (i) Expenditures of the asset are being incurred; (ii) Borrowing costs are being incurred; and (iii) Activities that are necessary to prepare the asset for its intended use of sale are in progress. Capitalization of borrowing costs shall cease when all the activities necessary to prepare the qualifying asset for its intended use of sale are substantially complete. Any borrowing costs incurred after this should be recognized in income statement. 21 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (14) Borrowing costs (continued) During the capitalization period, the amount of borrowing costs eligible for capitalization on a qualifying asset for each accounting period shall be determined by: (i) The actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowing for specifically purpose borrowing; or (ii) Applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing coasts applicable to the borrowings of the entity for general purpose borrowing. When the acquisition, construction or production of a qualifying asset is abnormally interrupted before it necessarily takes a substantial period of time to get ready for its intended use or sale, and the interruption period exceed three months, the capitalization of borrowing coasts shall be temporally ceased. During the cessation of capitalization, the borrowing costs should be recognized in income statement, until the construction resume. 22 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (15) Intangible assets Intangible assets would only be recognized when it can bring economic benefits to the group and its cost could be reliably measured. The opening balance of such intangible assets is measured at its cost. For those intangible assets that acquired by merger and acquisition and its fair value could be reliably measured, their book value would be measured by its fair value. The estimated useful lives are determined on the periods during which it can bring economic benefits to the Group. If the periods cannot be reliably determined, the intangible assets are classified as intangible assets with indefinite useful life. The useful lives of the intangible assets are as follows: Useful life Land use rights 50 years Software use rights 5 years The land use rights obtained by purchase or payment of land lease prepayment are recorded as intangible assets. For self-constructed buildings, the land use rights and plants are recorded as intangible assets and property, plant and equipment, respectively. Purchased buildings are allocated between land use rights and buildings based on actual payments, and are totally recorded as property, plant and equipment when it is difficult to allocate. Intangible assets with finite lives are amortized over the useful life on the straight line basis. The amortization period and amortization method for an intangible asset with a finite useful life are reevaluated at each year end. Intangible assets with indefinite lives are assed for impairment every year whenever there is an indication that the intangible asset may be impaired. If there is evidence that the useful lives of the intangible assets are finite, the change in the useful life assessment from infinite to finite is accounted for on a prospective basis. For details for the impairment test and impairment loss recognition for intangible assets, please refer to Note 2 (18). 23 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (16) Long term prepaid expenses Long term prepaid expenses are mortized over the useful economic life on a straight line basis. Amortization period: Land requisition fee 50 years Land Lease prepayment 50 years Others 50 years (17) Financial instruments Financial instruments refer to the contracts whereby the financial assets of an enterprise are formed, and whereby the financial liabilities or right instruments of any other entity are formed. Recognition and derecognizing of financial instruments The Group recognizes the financial assets or financial liabilities as it contracted in financial instruments agreements. If a financial asset meets any of the following requirements, it is derecognized: (i) If the contractual rights for collecting the cash flow of the said financial asset are terminated; or (ii) Transferred the ownership of receive the cash flow form financial assets, or with the responsibility of transferred all cash flow received form financial assets to the third parties; And (a) actually transferred out all the risk and reward related to the financial assets, or (b) actually neither remained nor transferred out almost of the risk and reward of financial assets, but lost the control of the financial assets. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognizing of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in the income statement. 24 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (17) Financial instruments (continued) In a regular way purchase or sale financial instrument, the financial instrument should be recognized or derecognized on transaction date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation of convention in the marketplace concerned. Transaction date is the date that the Group commits to purchase or disposal a financial instrument. Classification and measurement of financial assets Financial assets are classified when they are initially recognized, including financial assets at fair through profits or losses, held to maturity investments, loans and receivables and available for sale financial assets, and hedging instrument. Financial assets initially recognized at fair value. For financial assets measured at fair value through profits or losses, the transaction expenses thereof are directly included in the current profits or losses; for other categories of financial assets and financial liabilities, the transaction expenses thereof are included in the initial costs. Subsequent measurement of financial assets depends on its classification: Financial assets at fair value through profits and losses Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they meet any of the following requirements: (i) The financial assets being acquired mainly for the purpose of selling or repurchase in the near future; (ii) Forming a part of the identifiable combination of financial instruments, which are managed in a centralized way, and for which there is objective evidence that the enterprise will manage the combination by way of short term profit making in the near future; (iii) Being a derivative instrument. Theses financial assets are subsequently measured at fair value, and all the realized and unrealized profits and losses are included in profits and losses of the current year. Gains or losses on these financial assets are recognized in the income statement whenever they are realized or not realized. Dividend or interest associate with financial instrument which measured at fair value and changes recorded in income statement, should be recorded in income statement. 25 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (17) Financial instruments (continued) Held to maturity investments Non derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Group has the positive intention and ability to hold to maturity. Held to maturity investments are subsequently measured at carried amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the investments are derecognized or impaired, as well as through the amortization. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process. Available for sale financial assets Available for sale financial assets are non-derivative financial that are initially designated as available for sale or are not classified into any of the other three categories. After initial recognition, available for sale financial assets are measured at fair value, with gains or losses recognized as capital surplus reserve until the investment is derecognized or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity are recognized in the income statement. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Interest and dividends earned are recoded as interest income and dividend income, respectively and are recognized in the income statement. Available for sale financial assets which have no quoted price and fair value cannot be reliably measured are measured at cost. 26 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (17) Financial instruments (continued) Classification and measurement of financial liabilities Financial liabilities are classified into financial liabilities at fair through profits and losses, other financial liabilities and hedging instrument when they are initially recognized. For financial liabilities at fair through profits and losses, the transaction expenses thereof are directly included in the current profits or losses, while the transaction expenses of other financial liabilities are include in the initially recognized amounts. Subsequent measurement of financial liability depends on its classification: Financial liabilities at fair value through profits and losses Financial liabilities at fair through profits and losses include transaction financial liabilities, and the designated financial liabilities measured at fair value upon initial recognition, and whose variation is recognized in the income statement of the current year. Financial liabilities that meet any of the following requirements are classified as transaction financial liabilities: (i) The financial liability being undertaken mainly for the purpose of selling or repurchase in the near future; (ii) Forming a part of the identifiable combination of financial instruments, which are managed in a centralized way, and for which there is objective evidence that the enterprise will manage the combination by way of short term profit making in the near future; (iii) Being a derivative instrument. Theses financial liabilities are subsequently measured at fair value, and all the realized and unrealized profits and losses are recognized in the income statement of the current year. Other financial liabilities The financial liabilities are subsequently measured at amortized cost by adopting effective interest rate method. Fair value of financial instruments The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market prices. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arms length market transactions; reference to the current market value of another instrument, which is substantially the same; a discounted cash flow analysis; option pricing models and other valuation models. 27 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (17) Financial instruments (continued) Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Positive evidences refer to those occurred after the initial recognition, have effect on estimated future cash flows of the financial assets, and can be measured reliably. Assets carried at amortized cost If there is objective evidence that an impairment loss on financial assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate after taking into account of the collateral over these balances. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If it is determined that objective evidence of impairment exists for an individually assessed financial asset, the impairment losses are recognized in the income statement of the current year. Not individually significant financial assets are assessed individually or collectively included in a group of financial assets with similar credit risk characteristics. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement, to the extent that the carrying value of asset does not exceed its amortized cost at the reversal date. 28 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (17) Financial instruments (continued) Available for sale financial assets When a decline in the fair value of an available for sale financial asset has been recognized directly in equity and there is objective evidence that the asset is impaired the accumulative loss that had been recognized directly in capital surplus are removed from equity and recognized in profit or loss of the current period. The amount of the cumulative loss that is removed from equity and recognized in the income statement is be the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in the income statement. Impairment losses on debt instruments are reversed through the profits or losses, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment, loss was recognized in the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement. Fair value increase after impairment is recognized in comprehensive income. Financial assets carried at cost If there is objective evidence that the financial assets have been impaired, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset, and recognized in the income statement of the current year. Such impairment losses are not reversed. The impairment on long term equity investment which are measured by employing cost method in accordance with CAS2 Long term equity investments, have no quoted market price in an active market and the fair value cannot be reliably measured are recorded according to the aforesaid requirements. Transfers of financial assets If the Group has transferred substantially all the risks and rewards of the asset and waived the control of the asset, the asset is derecognized. If the Group has retained substantially all the risks and rewards of the asset, the assets are not de recognized. Where the Group has neither transferred nor retained substantially all the risks and rewards of the asset, if the Group waived the control of the assets, the financial assets are derecognized and the assets and liabilities are recognized accordingly; if the Group did not waive the control of the assets, the financial assets are recognized to the extent of the Group's continuing involvement in the asset, and the liabilities are recognized accordingly. 29 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (18) Impairment of assets Impairments on assets other than inventories, deferred tax, financial assets and long term equity investments without quoted market price in active market the fair value cannot be reliably measured are determined according to the following methods: On each balance sheet date, the Group made assessment on whether or not there is any indication of potential asset impairment. If there is any evidence that indicates the possibility of asset impairment, the recoverable amount of the asset is being estimated. Independent of whether there are indication of potential impairment, the goodwill from an enterprise merger and intangible assets whose useful lives are indefinite are subjected to impairment testing each year. Intangible assets which are not ready to use also need perform impairment test every year. The recoverable amount of an asset is the higher of the asset's or cash generating unit's value in use and its fair value less costs to sell, and is determined for an individual asset. If it is difficult to determine the recoverable amount individually, the recoverable amount is determined for the cash generating unit to which the asset belongs. Cash generating unit is determined as the asset generate cash inflows that are largely independent of those from other assets or groups of assets. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement and provision is made accordingly. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, and not larger than the reportable segment determined by the Group. 30 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (18) Impairment of assets (continued) When conducting impairment testing on relevant cash generating units or groups of cash generating units that have related goodwill, if there is any evidence indicating that impairment of the cash generating units or groups of units has occurred, the Company first carries out impairment testing on the cash generating units or groups of units excluding goodwill, calculating the recoverable amount, comparing it with the corresponding carrying amount and recognizing any resulting impairment loss. Then impairment testing are conducted on the cash generating units or groups of units with goodwill included, the carrying amount of these cash generating units or combinations of cash generating units (including the carrying amount of the goodwill allocated thereto) compared to the recoverable amount; if the recoverable amount of said cash generating units or groups of units is below the carrying amount thereof, the impairment loss are first deducted from the carrying amount of the corporate assets and goodwill which have been allocated to the cash generating unit or group of units, and then deducted from the carrying amount of the remaining assets pro rata with goodwill excluded from consideration. After a loss of asset impairment has been recognized, it is not be reversed in future accounting periods. (19) Contingent liabilities Besides the contingent consideration or liabilities through merger and acquisition, contingent liabilities should be recognized when and only when: (i) The group has a present obligation as a result of a past event; (ii) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (iii) A reliable evaluation can be made of the obligation. The contingent liabilities are measured at the best estimate of the expenditure required to settle the present obligation at the balance sheet date, taking into consideration of the risks, uncertainties and time value of money. The book value of contingent liabilities is reviewed at each balance sheet date. Whether there is any objective evidence indicating that the book value cannot reflect the best estimated amount, adjustments should be make to the book value. The acquirees contingent liabilities through business combination is initial recognized at fair value, and its subsequent measurement is recognized at the higher of estimated value and the initial cost less any accumulated amortization. 31 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (20) Revenue Revenue is recognized when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: Revenue from the sale of goods When the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, and cost of sales can be measured reliably. The amount of revenue arising on sale of goods is determined by agreement between the entity and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable. Rendering of service When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference the stage of completion of the transaction at the reporting date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (i) The amount of revenue can be measured reliably; (ii) It is probable that the economic benefit associated with the transaction will flow to the entity; (iii) The stage of completion of the transaction at the reporting date can be measured reliably; and (iv) The costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Interest income Interest income is measured based on the borrowing periods and actual interest rate. (21) Leases Leases that substantially transfer all the rewards and risks of ownership of assets are accounted for as finance leases, otherwise are accounted for as operating leases. As an operating lessee Rental expenses under the operating leases are charged to related costs of the assets or the income statement on a straight line basis over the lease period. 32 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (22) Employee benefits Employee benefits refer to all kinds of remunerations and other relevant reimbursements made by the Group to its employees in exchange for services of employees. During accounting periods wherein an employee renders services to the Group, the Group recognized the benefits payable as a liability. The benefits payable which will be matured over 1 year are discounted when it is material. Medical insurance, pensions, unemployment insurance, other social insurance and housing fund are recorded as cost of relevant assets or expenses for the relevant period. If an Group terminates the labor relationship with any employee prior to the expiration of the relevant labor contract or makes a severance package proposal with the purpose of enticing the employees to willingly accept such a termination, the Group recognized the contingent liabilities to be incurred due to severance pay, and recorded them in income statement of the current period. The treatment for the early retirement planning is on the same basis to that of the termination benefits. The salaries and the social insurance expenses for the periods from the employees termination of service and the normal retirement of these staffs are recognized as employee benefits payable when meeting the aforesaid retirement benefits recognition requirements, and recognized to income statement of relevant period. (23) Profit distribution The cash dividends would be recognized as liability after General Meeting of stockholders meetings approval. (24) Income tax Income tax comprises current and deferred tax. Income tax is recognized in the income statement, except for goodwill arises from business combination, or transactions directly recorded in equity of which the related income is recorded in equity. The Group recognizes the income tax assets or liabilities related to current period and prior period by calculating the expected payable or refundable amount in accordance with the tax law. Deferred tax is provided on balances sheet approach on all temporary differences between tax basis and accounting basis at each balance sheet date. 33 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (24) Income tax (continued) Deferred tax liabilities are recognized for all taxable temporary difference, except: (i) Where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (ii) In respect of taxable temporary differences associated with interests in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except: (i) Where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (ii) In respect of deductible temporary differences associated with interests in subsidiaries, associates and joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. At each reporting date, the entity re-assesses unrecognized deferred tax assets. The entity recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 34 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (25) Government grants Government grants refers to monetary or non monetary assets received by an enterprise from the government, but excludes capital invested in the Group by the government that gives the government ownership rights. Government grants are recognized where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Monetary grants are measured on the basis of the amount received or the amount receivable. Non monetary grants are measured based on the fair value of relevant assets, where fair value cannot be measure reliably, the grants are measured based on nominal amount. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual installments. Grant which measured at nominal amount, should be recorded in income statement. (26) Related party relationships Related party relationships can be defined as the entity is under control, joint control or significant influence by another entity or two or more than two entities are under the control, joint control by the same entity. (27) Significant accounting judgments and accounting estimates Preparing financial statements requires management make judgment and estimates, which could affect the amount of revenue, expense, asset, liabilities and the disclosure of contingent liabilities. However, those uncertainties of estimate may cause significant adjustment on the book value of assets and liabilities. Estimation uncertainty The following are key assumptions for after balance sheet date event and other factors of uncertain estimation. They may cause material adjustment on balance sheet in following accounting period. 35 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (27) Significant Accounting Judgments and Accounting Estimates (continued) Estimation uncertainty (continued) Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Depreciation As set out in Note 2 (12), the depreciation is calculated on the straight line basis to write- off the cost of each item of fixed assets to its residual value over its estimated useful life. The Groups management determines the estimated useful lives for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. If the previous estimates have significant changes, and depreciation expenses will be adjusted in the future periods. Useful life of intangible assets The estimated useful lives of the intangible assets are determined based on the historical experience of the actual useful lives of intangible assets of similar nature and functions as well as considering the contractual rights and statutory rights applicable to the intangible assets. When the estimated useful lives of finite intangible assets are shortened or extended, the amortization periods should be adjusted accordingly. When there is evidence indicating the useful lives of intangible assets with indefinite useful lives becomes finite, the useful lives should be estimated and the intangible assets should be accounted for in accordance with the standards for the intangible assets with finite useful lives. 36 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED) (27) Significant Accounting Judgments and Accounting Estimates (continued) Estimation uncertainty (continued) Impairment of biological assets As set out in Note 2 (11), the Group examined the consumptive biological assets and productive biological assets at each balance sheet date. If any reliable evidence shows that the realizable net value of any consumptive biological asset or the recoverable amount of any productive biological asset is lower than its book value due to natural disaster, plant diseases and insect pests, animal disease or change of market demand, the Group, on the basis of the difference between the realizable net value or the recoverable amount and the book value, make provision for the loss on decline in value of or for the impairment of the biological asset and are recorded it in the profits and losses of the current period. The aforesaid realizable net value and recoverable amount is determined according to the CAS 1 Inventories and CAS 8 Asset Impairment, respectively. Impairment of non-current assets As set out in Note 2 (18), the Group assesses whether the recoverable amount is lower than the book value. If there are any indicators that the book value of non-current assets cannot be fully recoverable, impairment losses should be recorded. The recoverable amount is the higher of an assets fair value less costs to sell and the present value of the future cash flows expected to be derived from an asset. As it is difficult for the Group to obtain the quoted market price of the assets (or assts group), the fair value of the assets cannot be reliably estimated. When the management make estimation on the expected future cash flows from the asset or cash generating unit, estimates should be made on choosing a suitable production volume, selling price and related operating costs discount rate in order to calculate the present value of those cash flows. When recoverable amounts are undertaken, management may use all available for use information, including the forecast on production volume, selling price and related operating costs in reasonable and supportable assumptions. Estimated provision for trade receivables A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy are considered indicators that the trade receivable is impaired. The provision is reassessed at the end of each year. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND 37 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 ACCOUNTING ESTIMATES (CONTINUED) (27) Significant Accounting Judgments and Accounting Estimates (continued) Estimation uncertainty (continued) Inventory provision based on net realizable value The inventory are measured on the lower of carrying value and net realizable value, and provision should be made for impairment on obsolete and slow moving inventories. The group will reassess whether the net realizable value is lower than the carrying cost at the end of each year. 3. TAXES (1) The main taxes and tax rate are as follows: Value added tax VAT is levied at 17% on the invoiced amount after deduction of eligible input VAT. Consumption tax Consumption tax of the tonic wine is levied at quantity and certain tax rate of gross turnover, namely levied at 20% of total turnover and RMB1000 per ton. For all other product, consumption tax is levied on gross revenue at rates ranging from 10% to 20%. Business tax The Group is subject to a business tax of 5% on its taxable revenue. City development tax Levied at 7% of total business tax payment. Corporate income tax The Group is subject to a corporate income tax rate of 25% on its taxable income. (2) Tax incentives and relative permit A subsidiary of the Company, Liaoning Changyu Ice Wine Chateau Co., Ltd. which is a productive foreign-invested enterprise was incorporated in Huanren Manzu Autonomous County. In accordance with PRC Income Tax of Foreign Investment and Foreign Enterprises and Notice of the State Council’s Implementation of the Transitionally Preferential Policies (GuoFa [2007] permit No.39), the productive foreign-invested company, from the first profit-making year, exempts from corporate income tax in 2007 and 2008, and enjoys a favorable corporate income tax rate of 12.5% from 2009 to 2011. 3. TAXES (continued) 38 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 (2) Tax incentives and relative permit (continued) Ningxia Changyu Grape Growing Co., Ltd., a subsidiary of the Group, whose principal activity is grape growing is incorporated in Ningxia Huizu Autonomous Region. According to clause 27 of PRC Corporate Income Tax and clause 86 of PRC Corporate Income Tax Measures for Implementation, Ningxia Changyu Grape Growing Co., Ltd. enjoys an exemption of corporate income tax. 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (1) Particulars of the subsidiaries Name Place and date Legal Business nature Registered Principle Incorporate of registration represe- capital activities code ntative Subsidiary acquired from a business combination: under non-common control Xinjiang Tianzhu Wine 11 April 2006 Zhou Manufacturing RMB Production and 787 604 261 Co.,Ltd.(Xinjiang Tianzhu) Shihezi , Xinjiang, Hongjiang 75,000,000 sales of wine China Subsidiaries acquired by establishment: Yantai Changyu Pioneer Vehicular 1 December 1992 Zhang Transportation RMB Transportation 165 031 729 Transport Yantai, Shandong, Lixian 300,000 service Co., Ltd. (“Vehicular China Transportation”) Beijing Changyu Sales and 14 July 1998 Sun Sales RMB Sales of wine 634 377 029 Distribution Co., Ltd. (“Beijing Beijing, China Liqiang 500,000 Sales”) Yantai Kylin Packaging Co., Ltd. 29 September 1999 Yang Manufacturing USD Production of 863 052 455 (“Kylin Packaging”) (a) Yantai, Shandong, Ming 1,900,000 packaging China materials Yantai Changyu-Castel Wine 3 September 2001 Sun Manufacturing USD Production and 730 682 613 Chateau Co., Ltd. Yantai, Shandong, Liqiang 5,000,000 sales of wine (“Changyu Chateau”) (b) China Changyu (Jingyang) Pioneer Wine 5 December 2001 Cai Manufacturing RMB Production and 732 663 643 Co., Ltd. (“Jingyang Wine”) Jingyang, Shanxi, Jianshe 1,000,000 sales of wine China Yantai Changyu Pioneer Wine 24 December 2001 Jiang Sales RMB Sales of wine 746 576 380 Sales Co., Ltd. (“Sales Yantai, Shandong, Hua 8,000,000 Company”) China Langfang Development Zone 1 March 2002 Mige Manufacturing USD Production and 735 624 56X Castel-Changyu Wine Co., Ltd. Lanfang , Hebei, Balu 3,000,000 sales of wine (“Langfang Castel”) (c) China 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) 39 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 (1) Particulars of the subsidiaries (continued) Name Place and date Legal Business nature Registered Principle activities Incorporate of registration represe- capital code ntative Changyu (Jingyang) 8 April 2002 Zhou Sales RMB Sales of wine 735 379 154 Pioneer Wine Sales Co., Jingyang, Mingqiang 1,000,000 Ltd. (“Jingyang Sales”) Shanxi, China Langfang Changyu Pioneer 19 April 2002 Liu Sales RMB Sales of wine 737 388 150 Wine Sales Co.,Ltd. Langfang, Wanqiang 1,000,000 (“Langfang Sales”). Hebei, China Shanghai Changyu Sales 28 April 2003 Zhou Sales RMB Sales of wine 749 571 075 and Distribution Co., Shanghai, China Hongjiang 1,000,000 Ltd.(“Shanghai Sales”) Beijing Changyu AFIP 27 October 2005 Sun Manufacturing RMB Production and 780 953 469 Wine Chateau Co., Ltd. Beijing, China Liqiang 110,000,000 sales of wine (“Beijing Chateau”) Yantai Changyu Wine Sales 9 January 2006 Jiang Sales RMB Sales of wine 783 487 627 Co., Ltd.( “Wines Sales”) Yantai, Hua 5,000,000 Shandong, China Yantai Changyu Pioneer 29 September Zhou Sales RMB Import and 780 766 161 International Co., 2005 Yantai, Hongjiang 5,000,000 export of wine and Ltd.(“Pioneer Shandong, technology International”) China Hangzhou Changyu Wine 14 June 2006 Jiang Sales RMB Whole-sale and retail of 788 283 631 Sales Co., Hangzhou, Hua 500,000 packaging food Ltd.(“Hangzhou Zhejinag, China Changyu”) Ningxia Changyu Grape- 16 November Shao Planting RMB Plant and 788 200 410 Growing Co., 2006 Chunsheng 1,000,000 purchase of Ltd.(“Ningxia Growing”) Yinchuang, grape Ningxia, China Huanren Changyu National 16 November Leng Sales RMB Sales of wine, healthy 794 822 179 Wines Sales Co., 2006 Bin 2,000,000 liquor, liqueur,non- Ltd.(“National Wines”) Huanren, alcohol beverages Liaoning, China Liaoning Changyu Ice 3 April 2003 Zhou Manufacturing RMB Production and 747 128 301 Wine Chateau Co., Benxi, Liaoning, Hongjiang 26,300,000 sales of ice wine Ltd.(“Ice Chateau”) (d) China Yantai Development Zone 4 December Zhou Sales RMB Whole-sale and retail of 796 183 411 Changyu Trade Co., 2006 Hongjiang 5,000,000 wine Ltd.(“Development Zone Yantai, Trade”) Shandong, China Shenzhen Changyu Wine 17 July 2007 Lin Sales RMB Whole-sale and retail of 664 195 20X Marketing Futian, Pu 500,000 wine Ltd.(“Shenzhen Shenzhen, China Marketing”) 40 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) Name Place and Legal Business Registered Principle activities Incorporate date of represe- nature capital code registration ntative Yantai Changyu 27 March 2007 Zhou Sales RMB Whole-sale and retail of 660 176 044 Trading Company Yantai, Hongjiang 5,000,000 wine (“Changyu Shandong, China Trading”) Beijing AFIP Meeting 4 December 2007 Sun Services RMB Meeting service, foods, 669 926 612 Center (“Meeting Miyun, Beijing , Hongbo 500,000 accommodation, tourism Center”) China and sales of souvenir Beijing AFIP 4 June 2008 Liu Tourism RMB Tourism and culture 676 627 372 Tourism and Miyun, Beijing , Shilu 500,000 communication, Culture Company China development of tourist (“AFIP Tourism”) resources, meeting service Qing Tong Xia 17 November Cai Sales RMB Whole-sale and retail of 694 334 151 Changyu Wine 2009 Jianshe 500,000 wine Qing Tong Xia , Marketing Ltd. Ningxia, China (“Qing Tong Xia Sales) Shihezi Changyu 2 April 2010 Sun Manufacturing RMB Manufacturing and sales of 552 414 949 Wine Chateau Co., Shihezi, Xinjiang, Liqiang 2,000,000 wine Ltd.(“ Shihezi China Chateau”) Ningxia Changyu 25 April 2008 Li Manufacturing RMB Manufacturing and sales of 670 408 275 Pioneer Wine Co., Yinchuan, Jiming 1,000,000 wine, packing material, Ltd. (“Ningxia Ningxia, China plant, process and purchase Wine”) of grapes 41 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) Name Place and Legal Business Registered Principle Incorporate code date of representative nature capital activities registration Ningxia Changyu 26 April 2010 Zhou Manufacturing RMB Wine / packaging 694 349 740 Wine Chateau Yinchuan, Hongjiang 2,000,000 manufacturing, Co., Ltd. Ningxia, tourism (“ Ningxia China Chateau”) XianYang Changyu 12April 2010 Sun Manufacturing RMB Tourism and wine 552 180 142 Chateau Co., Xianyang, Liqiang 2,000,000 manufacturing Ltd.(“ Xianyang Shanxi, China Chateau”) Yantai Changyu 29 March Sun Manufacturing RMB Research and 555 235 76X Wine Research 2010 Liqiang 500,000,000 development of and Yantai, winery Development Shandong Co., Ltd. China (Development Centre) (e) 42 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) Equity interest owned by the Company Name Paid in capital Direct Indirect Voting Consolidated Non- at 31 December power financial controlling 2010 statements interest Subsidiary acquired in business combination :under non-common control Xinjiang Tianzhu RMB 60% - 60% Yes RMB 60,000,000 56,093,912 Subsidiaries acquired by establishment: Vehicular Transportation RMB 100% - 100% Yes - 300,000 Beijing Sales RMB 70% 30% 100% Yes - 500,000 Kylin Packaging (a) RMB 50% - 62.5% Yes RMB 7,783,813 18,499,049 Changyu Chateau (b) RMB 70% - 100% Yes RMB 28,968,100 12,174,645 Jingyang Wine RMB 90% 10% 100% Yes - 1,000,000 Sales Company RMB 90% 10% 100% Yes - 8,000,000 Langfang Castel (c) RMB 49% - 100% Yes RMB 12,142,200 12,640,000 Jingyang Sales RMB 10% 90% 100% Yes - 1,000,000 43 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) Equity interest owned by the Company Name Paid in capital Direct Indirect Voting Consolidate Non-controlling at 31 December power financial interest 2010 statements Langfang Sales RMB 10% 90% 100% Yes - 1,000,000 Shanghai Sales RMB 30% 70% 100% Yes - 1,000,000 Beijing Chateau RMB 70% - 70% Yes RMB 77,000,000 35,293,868 Wines Sales RMB 90% 10% 100% Yes - 5,000,000 Pioneer International RMB 70% 30% 100% Yes - 5,000,000 Hangzhou Changyu RMB - 100% 100% Yes - 500,000 Ningxia Growing RMB 100% - 100% Yes - 1,000,000 National Wines RMB 100% - 100% Yes - 2,000,000 Ice Chateau (d) RMB 51% - 100% Yes RMB 13,413,000 16,959,292 Development Zone Trade RMB - 100% 100% Yes - 5,000,000 Shenzhen Marketing RMB - 100% 100% Yes - 500,000 44 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) Equity interest owned by the Company Name Paid in Direct Indirect Voting Consolidate Non- capital at 31 power financial controlling December statements interest 2010 Changyu Trading RMB - 100% 100% Yes - 5,000,000 Meeting Center RMB - 100% 100% Yes - 500,000 AFIP Tourism RMB 70% - 70% Yes RMB 350,000 4,015,388 Ningxia Wine RMB 100% - 100% Yes - 1,000,000 Qing tong xia Sales RMB 100% 100% Yes - 500,000 Shihezi Chateau RMB 100% - 100% Yes - 2,000,000 Ningxia Chateau RMB 100% - 100% Yes - 2,000,000 Xianyang Chateau RMB 100% - 100% Yes - 2,000,000 Development Centre (e) RMB 99% - 99% Yes - 100,000,000 45 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 4. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS (continued) (1) Particulars of the subsidiaries (continued) (a) Kylin Packaging is a Sino-foreign joint venture. Pursuant to the agreement, the Company has invested USD950,000 (about RMB7,783,813), accounting for 50% of Kylins equity interest. By 30 June 2011, the Company has completed the capital contribution. For the Company have over half of the voting power and therefore has the power to control its strategic operating, investing and financing policies, the financial statements of Kylin Packaging are consolidated in the Groups financial statements. (b) Changyu Chateau is a Sino-foreign joint venture established by the Company and a foreign investor. Pursuant to an operation contract signed by the Company, Changyu Chateau and the foreign investor, the Company is entrusted to manage Changyu Chateau and therefore has the full power to control its strategic operating, investing and financing policies. The operation agreement will terminate at 31 Dec 2012. (c) Langfang Castel is a Sino-foreign joint venture established by the Company and a foreign investor. Pursuant to the agreement signed by the Company, Langfang Castel and the foreign investor, the Company is entrusted to manage Langfang Castel and therefore has the full power to control its strategic operating, investing and financing policies, therefore the financial statements of Langfang Castel are consolidated in the Groups financial statements. The operation agreement will terminate at 31 Dec 2012. (d) Ice Chateau is a Sino-foreign joint venture established by the Company and a foreign investor. Pursuant to the agreement signed by the Company, Ice Chateau and the foreign investor, the Company is entrusted to manage Ice Chateau and therefore has the full power to control its strategic operating, investing and financing policies. The operation agreement will terminate at 31 Dec 2016. (e) Development centre is a joint venture established by the Company and Shandong Yantai Brewing Co., Ltd. The registered capital for development centre is RMB500,000,000. According to the investment agreement, the company would contribute RMB495,000,000 while the Shandong Yantai Brewing Co., Ltd would contribute the rest RMB5,000,000. Up to 30 June 2011, the first stage contribution of RMB100,000,000 has been contributed solely by the Company. (2) Changes in the scope of consolidated financial statement The scope of consolidated financial statements was same with last year. 46 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Cash and bank At 30 June 2011 At 31 Dec 2010 Cash on hand 140,434 89,425 Cash at bank 2,572,557,268 2,466,052,613 Other monetary assets 2,604,604 23,662,124 2,575,302,305 2,489,804,162 At 30 June 2011, the balance of restricted cash of the Group is RMB2,604,604, which is the companys housing fund (31 December 2010:RMB2,462,124). At 30 June 2011, the Group has no overseas cash and bank deposit (31 December 2010: Nil). Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between three months to one year, based on the demands of the Group. At 30 June 2011, The Groups term deposits with original maturity of more than three months when acquired is RMB1,559,844,720 (31 December 2010: RMB1,488,407,214) with interest rates ranging from 1.91%-2.75%, which will mature from 3 months to 1 year. (2) Bills receivable At 30 June 2011 At 31 Dec 2010 Bank acceptance bills 56,026,700 31,447,207 At 30 June 2011, there was no pledged bills receivable (31 December 2010: Nil), and no bills receivable were reclassified as accounts receivable due to the default of drawer (31 December 2010: Nil). At 30 June 2011, the top five bills receivable endorsed to the third parties but not yet matured is as follows: Drawer Issuing date Maturity date Amount Shanxi Luan Energy Co.,Ltd 2011.01.11 2011.07.11 500,000.00 Wuhan Quanxing Co.,Ltd 2011.02.14 2011.08.14 500,000.00 Qunshan Jingyuan Co.,Ltd 2011.5.26 2011.8.25 802,500.00 Longyan Ruijie Co.,Ltd 2011.05.05 2011.08.05 1,200,000.00 Longyan Ruijie Co.,Ltd 2011.04.22 2011.07.22 1,000,000.00 47 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (2) Bills receivable (continued) At 31 December 2010, the bill endorsed but not expired is as follows: Drawer Issuing date Maturity date Amount Wuhan Hexiang Co.,Ltd 29/11/2010 28/2/2011 1,500,000 Wuhan Tongchuang Co.,Ltd 24/11/2010 24/2/2011 1,000,000 Wuhu Licheng Co.,Ltd 16/12/2010 16/6/2011 1,000,000 Langfang Anjia Co.,Ltd 23/12/2010 13/6/2011 1,000,000 Tangshan Zhijing Co.,Ltd 23/11/2010 23/2/2011 900,000 5,400,000 At 30 June 2011, there was no notes receivable discounted to obtain short-term loan. (31 December 2010: Nil). (3) Trade receivables The normal credit term is one month, which can be extended to three months for certain major customers. The trade receivables are interest free. The aged analysis is as follows: At 30 June 2011 At 31 Dec 2010 Within 1 year 95,255,224 100,113,271 At 30 June 2011, there was no bad debt provision for trade receivables (31 December 2010: Nil). There was no bad debt provision made or reversed by the management until 30 June 2011 (2010: Nil). At 30 June 2011 At 31 Dec 2010 Balance Provision Balance Provision Amount % Amount % Amount % Amount % Individually significant 55,701,242 58.5 37,472,999 37.4 - - Individually insignificant 39,553,982 41.5 62,640,272 62.6 - - 95,255,224 100 100,113,271 100.0 At 30 June 2011, there were no trade receivables due from shareholders with voting rights of 5% or above. (31 December 2010: Nil) 48 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) Trade receivables (continued) At 30 June 2011, the particulars of top 5 trade receivables are as follows: Relationship Amount Aging Percentage with the of total Group receivables % First Third party 13,103,548 Within 1 year 13.8 Second Third party 9,741,178 Within 1 year 10.2 Third Third party 8,114,102 Within 1 year 8.5 Fourth Third party 3,905,690 Within 1 year 4.1 Fifth Third party 2,130,844 Within 1 year 2.2 At 31 December 2010, the particulars of top 5 trade receivables are as follows: Relationship with Amount Aging Percentage of the Group total receivables % First Third party 9,369,211 Within 1 year 9.4 Second Third party 6,767,820 Within 1 year 6.8 Third Third party 6,434,578 Within 1 year 6.4 Fourth Third party 6,216,172 Within 1 year 6.2 Fifth Third party 4,365,619 Within 1 year 4.4 33,153,400 33.2 49 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) Trade receivables (continued) At 30 June 2011, there were no trade receivables due from shareholders with voting rights of 5% or above. At 31 December 2010, trade receivables from related parties are as following: Relationship with Group Amount Percentage of total receivables % Yantai Changyu Under the control of the 120,322 0.1 International same parent company Window of the Wine City Company Limited 50 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) Advances to suppliers The aged analysis is as follows: At 30 June 2011 At 31 Dec 2010 Balance % Balance % Within 1 year 70,742,936 100.0 74,728,756 100.0 At 30 June 2011, the particulars of top 5 advances to suppliers are as follows: Relationship Amount Aging Reseason for being Percentage of with the outstanding total advances Group to suppliers % First Third party 26,576,467 Within 1 year goods not received 37.6 Second Third party 8,013,966 Within 1 year goods not received 11.3 Third Third party 6,710,032 Within 1 year goods not received 9.5 Fourth Third party 6,518,395 Within 1 year goods not received 9.2 Fifth Third party 5,977,160 Within 1 year goods not received 8.4 At 31 December 2010, the particulars of top 5 advances to suppliers are as follows: Relationship Amount Aging Reseason for being Percentage with the outstanding of total group advances to suppliers % First Third party 22,453,121 Within 1 year goods not received 30.0 Second Third party 5,952,642 Within 1 year goods not received 8.0 Third Third party 5,615,367 Within 1 year goods not received 7.5 Fourth Third party 5,259,570 Within 1 year goods not received 7.0 Fifth Third party 3,528,000 Within 1 year goods not received 4.7 42,808,700 57.2 At 30 June 2011, there were no advances paid to the shareholders with voting rights of 5% or above (31 December 2010: Nil). 51 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) Interest receivable At 30 June 2011 Opening Increase Decrease Closing balance balance Bank fixed deposits interest 9,519,721 19,391,594 10,695,304 18,216,011 2010 Opening Closing balance Increase Decrease balance Bank fixed deposits 8,969,343 12,234,345 11,683,967 9,519,721 interest At 30 June 2011, there was no overdue interest (31 December 2010: Nil). 52 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) Other receivables The aging analysis is as follows: At 30 June 2011 At 31 Dec 2010 Within 1 year 56,993,147 20,568,664 1 to 2 years 5,184,388 9,911,712 2 to 3 years 47,524 47,524 Over 3 years 8,158,939 8,158,939 70,383,999 38,686,839 Less: bad debts provision for other receivables 8,000,000 8,000,000 62,383,999 30,686,839 At 30 June 2011 At 31 Dec 2010 Balance Bad debts Balance Bad debts provision provision Amount % Amount % Amount % Amount % Individually significant and Provision 58,029,071 82.4 8,000,000 11,048,886 28.6 8,000,000 Individually insignificant 12,354,928 17.6 27,637,953 71.4 - - 70,383,999 100 8,000,000 38,686,839 100.0 8,000,000 At 30 June 2011 and 31 December 2010, the bad debts provision for individually significant balances is as follows: Balance Bad debts Percentag Reason for provision provision e Tiantong Security Co., The debtor is in the Ltd. 8,000,000 8,000,000 100% process of liquidation At 30 June 2011, there were no other receivables due from shareholders with voting rights of 5% or above (31 December 2010: Nil). 53 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) Other receivables (continued) At 30 June 2011, the particulars of top 5 other receivables are as follows: Relationship Amount Percentage of with the total other Group receivables % First Third party 47,410,000 Within 1 year 67.4 Second Third party 3,120,600 Within 1 year 4.4 Third Third party 2,913,696 Within 1 year 4.1 Fourth Third party 2,334,775 Within 1 year 3.3 Fifth Third party 2,250,000 Within 1 year 3.2 At 31 December 2010, the particulars of top 5 other receivables are as follows: Relationship Amount Percentage of with the total other Group receivables % First Third party 3,120,600 1 year-2 years 8.1 Second Third party 1,412,546 Within 1 year 3.6 Third Third party 1,227,280 Within 1 year 3.2 Fourth Third party 1,036,364 Within 1 year 2.7 Fifth Third party 1,000,000 Within 1 year 2.6 7,796,790 20.2 At 30 June 2011, there was no other receivable due from related parties (31 December 2010: Nil). 54 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) Inventories At 30 June 2011 At 31 Dec 2010 Balance Provision Net carrying Balance Provision Net carrying amount amount Raw material 24,662,383 24,662,383 59,385,786 - 59,385,786 Finished goods 478,497,207 10,077,620 468,419,587 538,480,066 10,077,620 528,402,446 Work in progress 586,333,726 586,333,726 706,618,174 - 706,618,174 1,089,493,316 10,077,620 1,079,415,696 1,304,484,026 10,077,620 1,294,406,406 Analysis of inventory provision is as follows: 2011.1-6 Opening Decrease Closing balance balance Finished goods 10,077,620 10,077,620 Opening Decrease Closing 2010 Balance Balance Finished goods 10,274,687 -197,067 10,077,620 At 30 June 2011, the carrying amount of inventory with restrictions in ownership is RMB13,524,960, which was due to the Company has transferred the related right of profit to a specialized trust fund established by Zhong Rong International Trust Co., Ltd. Please also refer to Notes 5 (21). At 30 June 2011 Proportion of reversal to closing balance of Balance Basis for provision Reason for reversal inventory Calculation based on Finished Expected damage rate the expected damage rate Goods from daily handling from daily handling There was no reversal of inventory provision in 2011. 55 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) Long-term equity investment 2011 Initial cost Opening Movement Closing Equity Voting Provision balance for the year balance interest power % % Cost Method: Yantai Dingtao Construction and Development Co., Ltd. (“Yantai Dingtao”) 10,000,000 5,000,000 5,000,000 18 18 10,000,000 5,000,000 5,000,000 2010 Initial Cost Opening Movement Closing Equity Voting Balance for the year Balance Interest Power Provision % % Cost Method: Yantai Dingtao Construction and Development Co., Ltd. 10,000,000 10,000,000 -5,000,000 5,000,000 18 18 5,000,000 10,000,000 10,000,000 -5,000,000 5,000,000 5,000,000 At 30 June 2011 and 31 December 2010, the initial investment to Yantai Dingtao is RMB10,000,000, and the Group holds 18% of its equity interests. 56 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) Property, plant and equipment 30 June 2011 Opening Increase Decrease Closing balance balance Cost: Buildings 812,780,815 40,873,739 6,210,557 847,443,997 Machineries and equipments 875,907,151 40,148,925 7,337,125 908,718,951 Motor vehicles 19,819,539 1,615,506 0 21,435,045 1,708,507,505 82,638,170 13,547,682 1,777,597,992 Accumulated depreciation: Buildings 129,641,538 11,631,597 37,987 141,235,148 Machineries and equipments 377,433,760 28,582,427 6,776,976 399,239,210 Motor vehicles 13,350,962 1,051,008 0 14,401,970 520,426,260 41,265,031 6,814,963 554,876,328 Net carrying amount: Buildings 683,139,277 29,242,142 6,172,570 706,208,849 Machineries and equipments 498,473,391 11,566,498 560,149 509,479,740 Motor vehicles 6,468,577 564,498 0 7,033,075 1,188,081,245 41,373,139 6,732,719 1,222,721,665 57 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) Property, plant and equipment (continued) 2010 Opening Increase Decrease Closing balance balance Cost: Buildings 698,714,336 117,389,989 3,323,510 812,780,815 Machineries and equipments 737,132,083 148,327,144 9,552,076 875,907,151 Motor vehicles 17,488,406 2,331,133 - 19,819,539 1,453,334,825 268,048,266 12,875,586 1,708,507,505 Accumulated depreciation: Buildings 108,526,523 21,550,526 435,511 129,641,538 Machineries and equipments 336,801,458 49,063,099 8,430,797 377,433,760 Motor vehicles 11,213,979 2,136,983 - 13,350,962 456,541,960 72,750,608 8,866,308 520,426,260 Net carrying amount: Buildings 590,187,813 95,839,463 2,887,999 683,139,277 Machineries and equipments 400,330,625 99,264,045 1,121,279 498,473,391 Motor vehicles 6,274,427 194,150 - 6,468,577 996,792,865 195,297,658 4,009,278 1,188,081,245 Depreciation for Jan-June 2011 is RMB41,265,031 (2010: RMB 72,750,608). In 2011, the value of property, plant and equipment transferred from construction in progress is RMB93,003,556 (2010: RMB189,903,490). At 30 June 2011, the book value of property, plant and equipment with ownership restricted is nil (31 December 2010: nil). At 30 June 2011, no property, plant and equipment are idle, held for disposal or under finance or operating lease (31 December 2010: Nil). 58 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) Property, plant and equipment (continued) At 30 June 2011, buildings without property certificate are as follows: Reason for not receiving property certificates Fermentation Centre Office Tower and Workshop waiting for completion report Xinjiang Tianzhu Fermentation and Storage Workshop waiting for completion report Kylin Packaging Finish Goods Warehouse and Workshop waiting for completion report Ice Wine Chateau Office Building and Packing Workshop waiting for completion report Beijing Chateau European Town waiting for completion report Beijing Chateau Office Town waiting for completion report Beijing Chateau Production Factory waiting for completion report Sales Company Province Offices Processing (10) Construction in progress At 30 June 2011 At 31 Dec 2010 West Mountain Factory Project 5,833,826 2,985,201 Sparkling Wine Reconstruction Project 0 - Cabernet Centre Project 7,619,532 Fermentation Centre Reconstruction Project 19,431,597 2,998,926 Beijing Chateau 3000 Ton Production Line Project 60,700 30,000,000 Beijing Chateau Project 31,212,957 19,468,392 Ice Wine Chateau Factory Project 49,602,154 - Ningxia United Workshop 0 3,380,801 Xinjiang Tianzhu Workshop Reconstruction Project 3,246,830 17,878,259 Jingyang ferment project 8,123,185 15,048,365 Plants for Jingyang Sales 0 33,737,780 Shihezi Chateau Construction Project 25,050,022 85,455,488 Ningxia Chateau Construction Project 134,134,278 11,271,515 Xianyang Chateau Construction Project 37,129,026 10,458,506 Development Centre Construction Project 31,572,865 1,804,810 Others 6,374,446 353,576,695 242,107,575 59 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (10) Construction in progress (continued) 30 June 2011 Budget Opening Addition Transferred Closing Financed balance to property, balance by plant and equipment Red Wind Club 15,000,000 - - West Mountain Factory Project 40,000,000 2,985,201 5,646,525 2,797,899 5,833,826 Self-raised Sparkling Wine Reconstruction 45,000,000 Project Self-raised Cabernet Centre Project 21,000,000 7,619,532 11,812,065 0 19,431,597 Self-raised Fermentation Centre 3,300,000 Reconstruction Project 26,000 0 26,000 Self-raised Fermentation centre Machinery 5,000,000 2,998,926 1,336,443 4,300,669 34,700 Self-raised Beijing Chateau 3000 Ton 92,500,000 Production Line Project 30,000,000 1,212,957 0 31,212,957 Self-raised Beijing Chateau Display Project 305,750,000.00 19,468,392 30,133,762 0 49,602,154 Self-raised Beijing Chateau Project 30,000,000 38,001,066 38,001,066 0 Self-raised Ice Wine Chateau Factory Project 20,910,000 6,924,520 6,924,520 0 Self-raised Ningxia United Workshop 58,700,000 3,380,801 3,430,508 3,564,479 3,246,830 Self-raised Xinjiang Tianzhu Workshop 37,570,000 Reconstruction Project 17,878,259 3,923,725 13,678,800 8,123,185 Self-raised Jingyang ferment project 26,000,000 15,048,365 0 15,048,365 0 Self-raised 53,000,000 Plants for Jingyang Sales 33,737,780 0 8,687,758 25,050,022 Self-raised Shihezi Chateau Construction 540,000,000 Project 85,455,488 48,678,790 0 134,134,278 Self-raised Ningxia Chateau Construction 15,000,000 Project 11,271,515 25,857,511 0 37,129,026 Self-raised Xianyang Chateau Construction 250,000,000 Project 10,458,506 21,114,359 0 31,572,865 Self-raised Development Centre Construction 165,000,000 Project 1,804,810 0 0 1,804,810 Self-raised Others 6,374,446 6,374,446 242,107,575 204,472,676 93,003,556 353,576,695 60 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (10) Construction in progress (continued) 2010 Budget Opening Addition Transferred Closing Financed Accumulated balance to property, balance by expenditure plant and /budget equipment % Red Wind Club 15,000,000 - 5,307,768 5,307,768 - Self-raised 35.4% West Mountain Factory Project 40,000,000 - 2,985,201 - 2,985,201 Self-raised 7.5% Sparkling Wine Reconstruction 45,000,000 2,234,216 - 2,234,216 - Project Self-raised 129.6% Cabernet Centre Project 21,000,000 - 7,619,532 - 7,619,532 Self-raised 36.3% Fermentation Centre 3,300,000 - 2,863,872 2,863,872 - Reconstruction Project Self-raised 86.8% Fermentation centre Machinery 5,000,000 - 3,165,682 166,756 2,998,926 Self-raised 63.3% Beijing Chateau 3000 Ton 92,500,000 - 30,000,000 - 30,000,000 Production Line Project Self-raised 32.4% Beijing Chateau Display Project 305,750,000.00 11,714,331 23,410,240 15,656,179 19,468,392 Self-raised 140.1% Beijing Chateau Project 30,000,000 - 38,001,066 38,001,066 - Self-raised 126.7% Ice Wine Chateau Factory 20,910,000 3,119,556 11,708 3,131,264 - Project Self-raised 102.2% Ningxia United Workshop 58,700,000 60,394,418 29,216,851 86,230,468 3,380,801 Self-raised 95.3% Xinjiang Tianzhu Workshop 37,570,000 9,179,267 10,123,072 1,424,080 17,878,259 Reconstruction Project Self-raised 78.5% Jingyang ferment project 26,000,000 9,271,105 5,777,260 15,048,365 Self-raised 61.6% 53,000,000 13,459,425 20,278,355 33,737,780 Plants for Jingyang Sales Self-raised 111.5% Shihezi Chateau Construction 540,000,000 - 120,343,309 34,887,821 85,455,488 Project Self-raised 21.1% Ningxia Chateau Construction 15,000,000 - 11,271,515 - 11,271,515 Project Self-raised 75.1% Xianyang Chateau Construction 250,000,000 - 10,458,506 - 10,458,506 Project Self-raised 4.2% Development Centre 165,000,000 - 1,804,810 - 1,804,810 Construction Project Self-raised 1.1% Others 109,372,318 322,638,747 (189,903,490) 242,107,575 There was no capitalized interest from January to June 2011 (in 2010: Nil). At 30 June 2011, there is no provision was made for the constructions in process (31 December 2010: Nil). 61 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (11) Intangible assets 30 June 2011 Opening Increase Decrease Closing balance balance Cost: Land use right 220,872,498 67,040,675 287,913,173 Software use right 3,480,000 3,480,000 224,352,498 67,040,675 291,393,173 Accumulated amortization Land use right 13,416,651 1,470,074 14,886,725 Software use right 2,088,000 348,000 2,436,000 15,504,651 1,818,074 17,322,725 Net carrying amount: Land use right 207,455,847 65,570,601 273,026,448 Software use right 1,392,000 -348,000 1,044,000 208,847,847 65,222,601 274,070,448 2010 Opening Increase Decrease Closing balance balance Cost: Land use right 155,444,429 65,428,069 - 220,872,498 Software use right 3,480,000 - - 3,480,000 158,924,429 65,428,069 - 224,352,498 Accumulated amortization Land use right 10,022,874 3,393,777 - 13,416,651 Software use right 1,392,000 696,000 - 2,088,000 11,414,874 4,089,777 - 15,504,651 Net carrying amount: Land use right 145,421,555 62,034,292 - 207,455,847 Software use right 2,088,000 - 696,000 - 1,392,000 147,509,555 61,338,292 - 208,847,847 The amortization of intangible assets from January to June 2011 is RMB1,818,074 (2010: RMB4,089,777). At 30 June 2011, there was no land use right with restricted ownership (31 December 2010: nil). 62 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (12) Biological assets At 30 June 2011 At 31 Dec 2010 Opening balance 37,773,638 39,717,396 Addition from self-cultivation 2,899,974 2,156,974 Amortization 2,133,800 4,100,732 Closing balance 38,539,812 37,773,638 At 30 June 2011, no ownership of the biological asset is restricted (31 December 2010: Nil). The productive biological assets are vines. The vines may suffer from scourge, plant diseases and insect pests, market demand and other risk factors, which lead to impairment on assets. The Group will adopt effective procedures to prevent plant diseases and insect pests, and strengthen the management of trees and soils to safeguard the biological assets. Except for the addition during 2010, the rest biological assets of the Group had reached their intended production status and thus had been amortised from 2009. At 30 June 2011, there is no indication that biological assets may be impaired, and no provision was made (31 December 2010: Nil). (13) Long-term prepaid expenses 30 June 2011 Opening Increase Amortization Closing balance balance Land fee 103,783,513 451,324 1,783,619 102,451,217 Others 2,450,160 61,980 2,388,180 106,233,673 451,324 1,845,599 104,839,398 2010 Opening Increase Amortization Closing Balance balance Land fee 36,951,118 68,027,349 1,194,954 103,783,513 Others 2,004,904 591,696 146,440 2,450,160 38,956,022 68,619,045 1,341,394 106,233,673 63 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (14) Deferred tax assets/liabilities Deferred tax assets and liabilities are presented separately: Deferred tax assets and liabilities recognized: At 30 June 2011 At 31 Dec 2010 Deferred tax assets Unrealized profit from intra-company transactions 85,616,373 110,184,929 Unpaid bonus 31,932,922 36,072,822 Retirement benefit 5,892,781 6,725,237 Asset impairment provision 5,769,405 5,769,405 Deductable losses 14,572,125 1,383,138 Start-up costs 70,009 139,835 143,853,616 160,275,366 Deferred tax liabilities Business combination under non-common control 5,316,436 5,336,115 Deferred tax assets and liabilities not recognized: Deductable losses 25,982,703 24,719,043 Deductable losses not recognized for deferred tax assets will expire in: 2011 6,754,872 5,491,212 2012 85,340 85,340 2013 64,997 64,997 2014 19,077,494 19,077,494 25,982,703 24,719,043 64 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (14) Deferred tax assets/liabilities (continued) Temporary differences from assets and liabilities that resulting in such differences are as follows: At 30 June 2011 At 31 Dec 2010 Deductible temporary difference Inter-company sales unrealized profit 342,465,490 440,739,716 Unpaid bonus 127,731,688 144,291,288 Early retirement benefit 23,571,126 26,900,948 Provision for impairment 23,077,620 23,077,620 Deductible loss 58,288,501 5,532,552 Preliminary expense 280,038 559,340 575,414,462 641,101,464 At 30 June 2011 At 31 Dec 2010 Taxable temporary difference Fair value adjustment in business combination 21,265,744 21,344,460 65 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (15) Provision for impairment of assets 30 June 2011 Opening Closing balance Accrual Reversal balance Bad debt provision 8,000,000 8,000,000 Inventory provision 10,077,620 10,077,620 Impairment of long- term investment 5,000,000 5,000,000 23,077,620 23,077,620 2010 Opening Closing balance Accrual Reversal balance Bad debt provision 8,000,000 - - 8,000,000 Inventory provision 10,274,687 - 197,067 10,077,620 Impairment of long- term investment - 5,000,000 - 5,000,000 18,274,687 5,000,000 197,067 23,077,620 (16) Trade payables The trade payables are interest free. The Group is normally granted a credit period of no more than three months from its suppliers. At 30 June 2011 At 31 Dec 2010 Within 1 year 234,251,383 259,022,075 At 30 June 2011, the Group has no outstanding balance payable to related parties or shareholders with voting rights of 5% or above (31 December 2010: Nil). At 30 June 2011, the Group has no significant outstanding balances aged more than one year (31 December 2010: Nil). 66 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (17) Advances from customers At 30 June 2011 At 31 Dec 2010 Within 1 year 290,340,844 309,481,976 As at 30 June 2011, the Group has no outstanding balance is payable to the related parties or shareholders with voting rights of 5% or above (31 December 2010: Nil). (18) Employee benefit 30 June 2011 Opening Increase Decrease Closing balance balance Salaries and bonus 122,804,887 125,945,795 141,534,282 107,216,399 Staff benefit - 2,293,350 2,293,350 0 Staff welfare 3,022,339 15,213,597 14,880,207 3,355,729 Includes: Medical insurance 598,887 3,642,028 3,460,513 780,402 Pension 2,199,409 9,311,647 9,392,822 2,118,234 Unemployment insurance 81,668 1,130,022 988,718 222,972 Injury insurance 137,764 528,666 543,795 122,635 Maternity insurance 4,611 601,234 494,359 111,486 Housing fund 430,600 1,368,500 1,569,088 230,012 Union fee and education fee 5,644,688 1,641,131 4,003,557 Termination benefits 31,252,497 3,345,758 27,906,739 Other allowances 23,760,801 1,376,030 22,384,771 186,915,812 144,263,887 166,082,492 165,097,207 67 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (18) Employee benefit (continued) 31 December 2010 Opening Closing balance Increase Decrease balance Salaries and bonus 97,044,478 325,313,609 299,553,200 122,804,887 Staff benefit - 6,349,210 6,349,210 - Staff welfare 2,895,754 18,400,313 18,273,728 3,022,339 Includes: Medical insurance 588,777 5,167,075 5,156,965 598,887 Pension 2,101,580 12,576,562 12,478,733 2,199,409 Unemployment insurance 96,560 499,757 514,649 81,668 Injury insurance 105,868 114,667 82,771 137,764 Maternity insurance 2,969 42,252 40,610 4,611 Housing fund 389,545 3,571,417 3,530,362 430,600 Union fee and education fee 2,288,240 4,454,300 1,097,852 5,644,688 Termination benefits 44,771,363 - 13,518,866 31,252,497 Other allowances 29,591,619 17,768 5,848,586 23,760,801 176,980,999 358,106,617 348,171,804 186,915,812 At 30 June 2011, no payment of any employee benefits was delayed (December 2010: Nil). From January to June 2010, the amount of union fee and education fee paid was RMB 1,641,131 (in 2010: RMB1,097,852). The amount of termination benefit paid was RMB 3,329,824 (in 2010: RMB13,518,866). No non-monetary benefit was distributed in 2011 (2010: Nil). (19) Taxes payable At 30 June 2011 At 31 Dec 2010 Value added tax 12,387,377 20,867,507 Consumption tax 18,859,913 36,964,290 Business tax 383,249 346,375 Corporation income tax 438,172,966 567,303,677 Urban land use tax 578,261 744,172 Individual income tax 19,656,048 7,434,054 City construction tax -4,525,167 8,449,064 Property tax 1,727,234 1,715,820 Others -645,264 5,540,300 486,594,616 649,365,259 68 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (20) Other payables At 30 June 2011 At 31 Dec 2010 Advertising expenses payable 291,926,762 190,122,855 Distributors deposit payable 152,317,484 135,052,781 Equipment and construction payable 54,788,498 50,072,081 Royalty fee 58,899,954 41,640,572 Deposits from suppliers 5,162,374 4,326,760 Others 126,242,164 55,682,672 689,337,237 476,897,721 At 30 June 2011, the balance due to the shareholders with voting right of 5% or above is as follows: At 30 June 2011 At 31 Dec 2010 Royalty fee payable to parent company 58,899,954 41,640,572 At 30 June 2011, significant outstanding balances aged over than one year are as follows: Amount payable Reasons for outstanding Deposits from suppliers 5,162,374 Deposits Deposits from distributors 152,317,484 Deposits There was no repayment of the above balances after the balance sheet date. 69 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (21) Other long-term liabilities At 30 June 2011 At 31 Dec 2010 Employee benefit (1) 17,927,000 20,185,000 Trust scheme (2) 80,028,000 80,028,000 Special subsidies for fixed assets (3) 22,155,000 120,110,000 100,213,000 (1) The other long-term liability represented bonus accrued for management at 30 June 2011. According to the bonus payment schedule, the bonus is expected to be paid from 2012 to 2014. (2) In September 2010, The Company and Zhong Rong International Trust Co., Ltd. entered into "Profit transfer agreement on the wine of Changyu AFIP", pursuant to which the Company has transferred right to the profit generated by certain type of wine to a specialized trust fund established by Zhong Rong International Trust Co., Ltd and received RMB80,028,000. This contract was guaranteed by Yantai Changyu Group Company. The specialized trust fund will end in April 2012. (3)Xinjiang Shihezi Chateau received special subsidies RMB 22.8 million yuan for fixed assets purchasing from local government. The assets are under 10-year amortization, it has been amortized 645,000 yuan in this year and a surplus of 22.155 million yuan. (22) Share capital 30 June 2011 Opening Movement Closing balance balance Issue capital Share Other Total premium account Restricted shares Shares held by domestic investors Including: Shares held by non-state owned legal persons 213,021,120 - - -213,021,120 -213,021,120 Total of restricted shares 213,021,120 - - -213,021,120 -213,021,120 Unrestricted shares A Shares 135,794,880 - - 213,021,120 213,021,120 348,816,000 B Shares 178,464,000 - - - - 178,464,000 Total of unrestricted shares 314,258,880 - - 213,021,120 213,021,120 527,280,000 Total shares 527,280,000 - - - - 527,280,000 70 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (22) Share capital(continued) 2010 Opening Movement Closing balance balance Issue capital Share Other Total premium account Restricted shares Shares held by domestic investors Including: Shares held by non-state owned legal persons 239,385,120 - - -26,364,000 -26,364,000 213,021,120 Total of restricted shares 239,385,120 - - -26,364,000 -26,364,000 213,021,120 Unrestricted shares A Shares 109,430,880 - - 26,364,000 26,364,000 135,794,880 B Shares 178,464,000 - - - - 178,464,000 Total of unrestricted shares 287,894,880 - - 26,364,000 26,364,000 314,258,880 Total shares 527,280,000 - - - - 527,280,000 Restricted shares of 213,021,120 (2010: 26,364,000) held by Yantai Changyu Group Co.,Ltd., 40.4% of total shares issued, were released since 25 March 2011 (2010: 1 April 2010). (23) Capital surplus At 30 June of 2011 and 2010, the balance of capital surplus represented share premium. In this year, the increasing in capital surplus is due to the decrease in deferred income tax liabilities which are from Xinjiang subsidiary company accrued assets depreciation and amortization. (24) Surplus reserve In accordance with the Company Law of the People's Republic of China and the Articles of Association of the Company, the Company is required to appropriate 10% of the net profit to the statutory surplus reserve until the accumulated balance of the statutory surplus reserve reaches 50% of the registered share capital. The Company can appropriate discretionary surplus reserve after appropriation of the statutory surplus reserve. Discretionary surplus reserve can be utilized to offset the deficit or increase the share capital after approval. Since 31 December 2006, the statutory surplus reserve of the Company has reached 50% of the registered share capital. Pursuant to the resolution of the board of directors of the Company, no appropriation of statutory surplus reserve since 2007. 71 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (25) Retained earnings At 30 June 2011 At 31 Dec 2010 Retained earnings brought forward 2,459,263,257 1,657,780,929 Add: profit attributable to shareholders of the Company 1,434,218,328 876,955,116 Less: dividends of ordinary shares 738,192,000 632,736,000 Retained earnings carried forward 2,598,026,373 2,459,263,257 Pursuant to the resolution of board of directors held on 7 April 2011, a cash dividend of RMB1.40 per share (based on the total share of 527,280,000) totaling RMB738,192,000 is proposed and distributed. (26) Assets with restriction of ownership 30 June 2011 Restricted assets due to other reasons Opening Balance Increase Decrease Closing balance Note Cash at bank 2,462,124 170,923 28,443 2,604,604 (ii) Inventory 13,524,960 13,524,960 (iii) 15,987,084 170,923 28,443 16,129,564 2010 Opening Balance Decrease Closing balance Note Assets as collateral Property, plant and equipment 1,439,022 1,439,022 - (i) Intangible assets 8,882,146 8,882,146 - (i) 10,321,168 10,321,168 - Opening Balance Increase Decrease Closing balance Restricted assets due to other reasons Cash at bank 2,449,848 59,974 47,698 2,462,124 (ii) Inventory - 13,524,960 - 13,524,960 (iii) 2,449,848 13,584,934 47,698 15,987,084 72 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (26) Assets with restriction of ownership (continued) (i) At 31 December 2009, the book value of Property, Plant and Equipment with ownership restricted is RMB 1,439,022 , and intangible assets is RMB8,882,146,which was pledged to obtain a short-term bank loan RMB 4,500,000 for one year and a long term bank loan BMB 10,500,000 for 2-3 years. All the bank loans have been repaid in 2010. (ii) At 30 June 2011 and 2010, the restricted deposit is the groups housing fund. (iii) At 30 June 2011, inventory with restriction in ownership was due to the group has transferred the related right of profit to a specialized trust fund established by Zhong Rong International Trust Co., Ltd. Please also refer to Note 5 (21). (27) Operating income and costs Operating income is as follows: Six months ended 30 Six months ended June 2011 30 June 2010 Revenue 3,082,709,568 2,474,442,243 Other operating income 7,311,999 7,442,891 3,090,021,567 2,481,885,134 Six months ended 30 Six months ended June 2011 30 June 2010 Cost of sales 746,406,542 695,022,637 Other operating expenses 2,831,087 2,881,767 749,237,629 697,904,404 The operating income for the group is mainly from the sales of wine, brandy, sparking wine and tonic wine. Over 99% of the sales generated in PRC. 73 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (27) Operating income and costs (continued) Operating income from top five customers from 1st Jan to 30th June in 2011 is as follows: Amount Percentage of total operating incomes % First 22,196,201 0.72 Second 17,958,411 0.58 Third 13,314,359 0.43 Fourth 12,563,524 0.41 Fifth 11,867,762 0.38 77,900,256 2.52 Operating income from top five customers from 1st Jan to 30th June in 2010 is as follows: Percentage of Amount total operating incomes % First 15,580,071 0.63 Second 13,096,091 0.53 Third 13,039,167 0.53 Fourth 12,813,415 0.52 Fifth 12,391,493 0.50 66,920,237 2.70 74 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (28) Taxes and surcharges Six months ended 30 Six months ended June 2011 30 June 2010 Consumption tax 112,022,461 103,452,256 Business Tax 1,951,821 1,430,805 City construction tax 35,639,149 24,877,924 Education fee and surcharges 25,486,893 14,193,562 Others 602,409 175,702,733 143,954,547 (29) Financial income Six months ended 30 Six months ended June 2011 30 June 2010 Interest income 26,673,536 10,834,926 Less: interest expenses 3,741,771 6,182,749 Bank charges 1,377,002 337,877 Exchange gains 132,537 1,155,993 21,687,300 5,470,293 75 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (30) Investment income Six months ended Six months ended 30 June 2011 30 June 2010 Investment income from held-to-maturity investment Investment income gained from disposal of financial assets held for trading 52,122 429,107 52,122 429,107 As of 30 June 2011, there was no significant restriction on the remittance of investment income to the investor. (31) Non-operation income Six months ended Six months ended 30 June 2011 30 June 2010 Gains on disposal of non-current assets 137,072 Including: gain on disposal of plant property and equipments 137,072 Government grants 2,137,979 4,507,854 Gain on acquisition of subsidiary 593,390 Penalty income 1,193,734 516,088 Others 4,062,176 5,023,942 Government grants recognized in the income statement is as follows: Six months ended Six months ended 30 June 2011 30 June 2010 Funds to support major projects 645,000 Funds to support Small and Medium Enterprises 0 Tax refund 1,340,299 4,117,244 Others 152,680 390,610 2,137,979 4,507,854 76 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (32) Non-operation expenses Six months ended Six months ended 30 June 2011 30 June 2010 Loss on disposal of non-current assets 236,937 283,954 Including: loss on disposal of property, plant and equipments 236,937 283,954 Donation 0 212,431 Others 751,395 75,805 988,331 572,190 (33) Income tax Six months ended Six months ended 30 June 2011 30 June 2010 Current income tax 269,898,873 134,528,802 Deferred income tax 16,421,750 51,866,565 286,320,623 186,395,367 (34) Earnings per share The calculation of basic earnings per share is based on the consolidated profit attributable to ordinary equity shareholders of the Company during the year and the weighted average ordinary shares in issue. Six months ended Six months ended 30 30 June 2011 June 2010 Earnings Consolidated profit attributable to ordinary equity shareholders of the Company 876,955,116 585,674,479 Shares Weighted average number of ordinary shares issued 527,280,000 527,280,000 Basic earnings per share 1.66 1.11 Diluted earnings per share N/A N/A The company does not have dilutive potential ordinary shares. From the balance sheet date to the date of approval of this report, there are no subsequent events which would affect the numbers of the weighted average number of ordinary shares issued. 77 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (35) Notes to consolidated cash flow statement Cash received relating to other operating activities: Six months ended Six months ended 30 30 June 2011 June 2010 Government grants 24,937,979 390,610 Dealer deposit 8,238,366 12,797,190 Earnest money 30,997,730 Interest income 3,057,524 Others 7,107,754 4,110,276 74,339,353 17,298,076 Cash paid relating to other operating activities: Six months ended Six months ended 30 30 June 2011 June 2010 Selling expenses 452,579,271 551,486,246 General and administrative expenses 42,909,757 28,383,657 Others 83,438,395 288,236 578,927,423 580,158,139 78 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (36) Supplementary information to consolidated cash flow statement (i) Supplementary information to consolidated cash flow statement Cash flows from operating activities calculated by adjusting the net profit: Six months Six months ended 30 June ended 30 June 2011 2010 Net profit 876,194,317 592,847,395 Less: Gain on acquisition of a subsidiary Add: Loss for impairment of assets Depreciation 41,265,031 34,848,129 Intangible assets amortization 1,818,074 2,516,846 Amortization of long term prepaid expenses 1,845,599 784,012 Losses/(gain) on disposal of property, plant and equipment 99,865 283,954 Finance costs 21,630,697 -7,514,257 Investment income -52,122 -429,107 Increase in deferred tax assets 16,421,750 51,866,565 Increase in inventories 214,990,710 208,848,368 Increase in operating receivables -56,129,075 13,633,747 Increase in operating payables -99,197,581 -257,978,810 Net cash flows from operating activities 1,018,887,265 639,706,842 (ii) Cash and cash equivalents At 30 June 2011 At 31 Dec 2010 Cash 1,012,852,981 998,934,824 Including:Cash on hand 140,434 89,425 Bank deposits on demand 1,012,712,548 977,645,399 Other monetary capital on demand 21,200,000 Closing balance of cash and 1,012,852,981 998,934,824 cash equivalents 79 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 6. RELATED PARTY AND RELATED PARTY TRANSACTIONS (1) Parent company Name of Type of Place of Legal Scope of Registered Percentage Percentage incorporate parent enterprise registration representative business capital of shares of voting Code company rights Changyu Limited Yantai Sun Manufacturing 50,000,000 50.4% 50.4% 265 645 824 Group Company Liqiang Company During six months ended 30 June 2011, there is no change in parent companys registered capital, interest shares or percentage of voting rights. (2) Subsidiaries Please refer to Note 4 (1). (3) Other related parties Nature of related parties Incorporate code Yantai Changyu Travelling Company Limited Fellow subsidiary 258 258 654 Yantai Changyu International Window of the Wine City Company Limited Fellow subsidiary 672 208 146 Yantai Shenma Packaging co.,ltd Fellow subsidiary 553 393 350 (4) Significant related party transactions (i) Purchases from and sales to related parties Purchase form related parties Six months ended Six months ended 30 30 June 2011 June 2010 Yantai Changyu Travelling Co. Ltd. 139,111 1,271,103 Yantai Changyu International Window of the 6,533 3,807 Wine City Company Limited Yantai Shenma Packaging co.,ltd 75,477,030 75,622,674 1,274,910 All related party transactions are based on the negotiated price. 80 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 6. RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED) (4) Significant related party transactions (continued) (i) Purchases from and sales to related parties Sales to related parties Six months ended Six months ended 30 30 June 2011 June 2010 Yantai Changyu Travelling Co. Ltd. 2,504,133 2,086,866 Yantai Changyu International Window of the 2,149,862 1,694,723 Wine City Company Limited 4,563,995 3,781,589 All related party transactions are based on the negotiated price. From 1st Jan to 30th June in 2011, sales to related parties accounted for less than 1% of the Groups total sales (2010: less than 1%). (ii) Property leased from related parties From 1st Jan to Note Assets leased Leasing assets Beginning date Ending date Rental Expense 30th June 2011 Changyu Group (a) Warehouse and office 6,383,000 2007/1/1 2011/12/31 3,191,500 Company building From 1st Jan to Note Assets leased Leasing assets Beginning Date Ending Date Rental Expense 30th June 2010 Changyu Group (a) Warehouse and office 6,383,000 2007/1/1 2011/12/31 3,191,500 Company building Pursuant to a patents implementation license dated 28 November 2006, starting from 1 January 2007, the Company may rent properties from Changyu Group Company for operation purposes at a basic annual rental of RMB6,383,000, and the expired date is 31 December 2011. For six months ended 30 June 2011, the rental expenses payable to Changyu Group Company amounted to RMB3,191,500 (From 1st Jan to 30th June 2010: RMB3,191,500). During six months ended 30 June 2011, leasing expenses paid to related company accounted for 13.2% of the Group (during six months ended 30 June 2010: 16.63%). 81 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 6. RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED) (4) Significant related party transactions (continued) (i) Other significant related party transactions Note Six months ended 30 June Six months ended 2011 30 June 2010 Amount Amount Royalty fee (a) 58,899,954 50,430,025 Patents fee (b) 25,000 25,000 All related party transactions are based on the negotiated price. (a) Royalty fee Pursuant to a royalty agreement dated 18 May 1997, starting from 18 September 1997, the Company may use certain trademarks of Changyu Group Company, which have been registered with the PRC Trademark Office. An annual royalty fee at 2% of the Groups annual sales is payable to Changyu Group Company. The license is effective until the expiry of the registration of the trademarks. During six months ended 30 June 2011, royalty fee paid to related company accounted for 100% of the Group (during six months ended 30 June 2010: 100%). (a) Patents fee Pursuant to a patents implementation license dated 18 May 1997, starting from 18 September 1997, the Company may use the patents of Changyu Group Company. The annual patents usage fee payable by the Company to Changyu Group Company was RMB 50,000. The contract was expired on 20 December 2005. The Company renewed the contract on 20 August 2006 for 10 years. The annual patents usage fee payable by the Company to Changyu Group Company remained RMB50,000. For six months ended 30 June 2011, the patents usage fee payable to Changyu Group Company amounted to RMB 25,000 (during six months ended 30 June 2010: RMB25,000). During six months ended 30 June 2011, patent fee paid to related company accounted for 100% of the Group (during six months ended 30 June 2010: 100%). 82 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 6. RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED) (4) Significant related party transactions (continued) (v) Guarantee provided by related parties Acceptance of guarantee provided by related parties Whether the Amount guarantee has Notes guaranteed From To ended Changyu Group Company (a) 88,236,000 2010-10-25 2012-4-24 No Changyu Group Company has provided guarantee to the Company for the full responsibility under the trust scheme as mentioned in Note 5 (21) (2) amounting to RMB88,236,000. (5) Balance due from related parties At 30 June 2011 At 31 Dec 2010 Trade receivables Balance Provision Balance Provision Yantai Changyu International Window of the Wine City Company Limited 120,322 - 120,322 - The above balances due from related parties are unsecured, interest-free and have no fixed terms of repayment. (6) Balance of other payable of the related parties Other payable At 30 June 2011 At 31 Dec 2010 Yantai Shenma Packaging Co., Ltd material payable 13,593,717 Royalty fee payable to parent company 58,899,954 41,640,572 The above balance due to related party is unsecured, interest-free and has no fixed terms of repayment. 83 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 7. CONTINGENT LIABILITIES The Group and the Company did not have any significant contingent liabilities as at balance sheet date. 8. COMMITMENT At 30 June 2011 At 31 Dec 2010 Capital commitments Authorized, but not contracted 1,003,120,000 488,000,000 At 31 December 2010, all capital commitments in 2009 have been provided for. 9. POST BALANCE SHEET DATE EVENTS At July 4 2011, The company sign a share transfer contract with Portugal Guozheng Financial Investment Co., Ltd which is the original stakeholder of the subsidiary company Yantai Shenma Packaging co.,ltd. It has been agreed that the company will be transferred Yantai Shenma Packaging co.,ltd 50% equity which worth 15,392,300 yuan. Stock right transfer is in processing. After the processing has been completed, Yantai Shenma Packaging co.,ltd will become the wholly-owned subsidiaries of Yantai Changyu Pioneer Wine Co., Ltd. 84 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (1) Trade receivables The normal credit term of trade receivables is one month, which can be extended to three months for certain major customers. The trade receivables are interest free. The ageing analysis is as follows: At 30 June 2011 At 31 Dec 2010 Within 1 year 10,357,520 11,708,820 At 30 June 2011, there was no account receivable provision (31 December 2010: Nil). There was no bad debt provision accrued or reversed by the management at 30 June 2011 (31 December 2010: Nil) At 30 June 2011 At 31 Dec 2010 Amount % Provision Amount % Provision Individually significant - 10,535,769 90.0 - Individually insignificant 10,357,520 100 - 1,173,051 10.0 - 10,357,520 100 11,708,820 100.0 As at 30 June 2011, there was no account receivable due from the Companys shareholders with voting rights of 5% or above (31 December 2010: Nil). As at 30 June 2011, the particulars of top 5 account receivables amount are as follows: Relationship Amount Aging Ratio of total with the receivables % group First Third party 10,357,520 Within 1 year 100 85 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (1) Trade receivables (continued) As at 31 December 2010, the particulars of top 5 account receivable amount are as follows: Relationship with the Ratio of total group Amount Aging receivables % First Third party 6,216,172 Within 1 year 53.1 Second Third party 4,319,597 Within 1 year 36.9 Third Third party 996,882 Within 1 year 8.5 Fourth Third party 176,169 Within 1 year 1.5 11,708,820 100.0 As at 30 June 2011, no outstanding balance was due from related parties (31 December 2010: Nil). (2) Other receivables The aging analysis is as follows: At 30 June 2011 At 31 Dec 2010 Bad debt Account Book Bad debt Account Book Value Provision Balance Value Provision Balance Within 1 year 1,134,822,763 1,134,822,763 877,461,750 - 877,461,750 1 to 2 years 478,600,000 478,600,000 277,992,300 - 274,992,300 2 to 3 years 46,707 - 46,707 Over 3 years 8,148,572 8,000,000 148,572 8,101,865 8,000,000 101,865 1,621,571,335 8,000,000 1,613,571,335 1,163,602,622 8,000,000 1,155,602,622 At 30 June 2011 At 31 Dec 2010 Amount % Bed debt % Amount % Bed debt % provision provision Individually significant and provision 1,616,051,469 99.7 8,000,000 1,162,026,156 99.9 8,000,000 Individually insignificant 5519865.95 0.3 - 1,576,466 0.1 - 1,621,571,335 100 8,000,000 1,163,602,622 100.0 8,000,000 86 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (2) Other receivables (continued) The provision of bad debts for other receivable has no change During six months ended 30 June 2011 (2010 Nil). As at 30 June 2011, there was no other receivable due from the shareholders with voting rights of 5% or above. (31 December 2010: Nil) As at 30 June 2011, the particulars of top 5 other receivables amount are as follows: Relationship Amount Aging Percentage of with the group total advances to suppliers % First related party 382,035,360 Within 1 year 23.56 Second related party 146,631,870 Within 1 year 9.04 Third related party 65,000,000 Within 1 year 4.01 Fourth related party 39,600,000 Within 1 year 2.44 Fifth related party 37,500,000 Within 1 year 2.31 670,767,230 41.37 As at 31 December 2010, the particulars of top 5 other receivables amount are as follows: Relationship Amount Aging Percentage of with the group total advances to suppliers % First related party 414,607,102 Within 1 year 35.6 Second related party 211,345,055 Within 1 year 18.2 Third related party 164,126,000 Within 1 year 14.1 Fourth related party 83,328,400 Within 1 year 7.1 Fifth related party 80,969,908 Within 1 year 7.0 954,376,465 82.0 At 30 June 2011, the balance of other receivables from related parties is RMB670,767,230 approximately 41.37% of total other receivables. These were all from subsidiaries of the Company (At 31 December 2010: the balance of other receivable from related parties is RMB954,376,465, 82% of total other receivables). 87 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (3) Long-term equity investment At 30 June 2011 Cost Opening Movement Closing Share Voting Cash balance for the year Bbalance holding power Dividends for % % the year Cost Method: Xinjiang Tianzhu - 60,000,000 60 60 60,000,000 60,000,000 936,851 Vehicular Transportation 300,000 300,000 300,000 100 100 Kylin Packaging 7,783,813 50 62.5 7,783,813 7,783,813 Changyu Chateau 28,968,100 70 100 28,968,100 28,968,100 48,573,146 AFIP Tourism 350,000 70 70 350,000 350,000 Pioneer International 3,500,000 70 100 3,500,000 3,500,000 Ningxia Growing 1,000,000 100 100 1,000,000 1,000,000 National Wines 2,000,000 100 100 2,000,000 2,000,000 53,398,971 Ice Chateau 13,413,000 51 100 13,413,000 13,413,000 4,914,958 Beijing Chateau 77,000,000 70 70 77,000,000 77,000,000 Sales Company 7,200,000 90 100 7,200,000 7,200,000 617,180,727 Langfang Sales 100,000 10 100 100,000 100,000 Langfang Castel 12,142,200 49 100 12,142,200 12,142,200 191,610 Wines Sales 4,500,000 90 100 4,500,000 4,500,000 Shanghai Sales 300,000 30 100 300,000 300,000 Beijing Sales 350,000 70 100 350,000 350,000 Jingyang Sales 100,000 10 100 100,000 100,000 Jingyang Wine 900,000 90 100 900,000 900,000 Ningxia Wine 1,000,000 100 100 1,000,000 1,000,000 Yantai Dingtao 10,000,000 18 18 5,000,000 5,000,000 Ningxia Chateau 2,000,000 100 100 2,000,000 37,264,000 39,264,000 Shihezi Chateau 2,000,000 100 100 2,000,000 224,208,570 226,208,570 Xianyang Chateau 2,000,000 100 100 2,000,000 119,403,400 121,403,400 Development centre 100,000,000 100 100 100,000,000 100,000,000 336,907,113 331,907,113 380,875,970 712,783,083 723,322,561 During six months ended 30 June 2011, there was no significant restriction on the remittance of fund from the invested entities to the Company. At 30 June 2011, an impairment provision of RMB5,000,000 was provided for Yantai Dingtao (31 December 2010:RMB5,000,000). 88 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (4) Revenue and cost of sales Revenue is as follows: Six months ended Six months ended 30 30 June 2011 June 2010 Income from principal activities 844,356,340 743,849,060 Other operating income 36,763,886 2,559,077 881,120,226 746,408,137 Cost of sales is as follows: Six months ended Six months ended 30 30 June 2011 June 2010 Cost from principal activities 648,133,062 552,783,117 Other operating cost 33,287,107 1,344,433 681,420,169 554,127,550 During six months ended 30 June 2011, revenue derived from top 5 customers are as follows: Amount Percentage of total revenue % First 823,608,524 93.47 Second 33,724,984 3.83 Third 10,015,128 1.14 Fourth 2,538,326 0.29 Fifth 1,338,603 0.15 871,225,566 98.88 During six months ended 30 June 2011, top 5 customers of the Company are all subsidiaries. 89 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (4) Revenue and cost of sales (continued) During six months ended 30 June 2010, revenue derived from top 5 customers are as follows: Percentage of total Amount revenue % First 633,479,816 84.87 Second 20,486,604 2.74 Third 9,997,800 1.34 Fourth 5,123,414 0.69 Fifth 1,072,634 0.14 670,160,268 89.78 During six months ended 30 June 2010, top 5 customers of the Company are all subsidiaries. (5) Investment income Six months ended 30 Six months ended June 2011 30 June 2010 Long –term equity investment income accounted for using the cost method 723,322,561 Investment income gained from disposal of financial assets held for trading 52,122 429,107 723,374,683 429,107 Among the long-term equity investment income accounted for using the cost method, any investee with investment income accounting for more than 5% of the Companys total profit are as follows: Subsidiaries Six months ended 30 June 2011 Six months ended 30 June 2010 Changyu Chateau 48,573,146 National Wines 53,398,971 Sales Company 617,180,727 719,152,844 At 30 June 2011, there was no significant restriction on the remittance of investment income to the Company. 90 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 10. NOTES TO COMPANY FINANCIAL STATEMENTS (CONTINUED) (6) Supplement to cash flow statement Cash flows from operating activities calculated by adjusting the net profit: Six months ended Six months ended 30 June 2011 30 June 2010 Net profit 768,199,671 21,041,868 Add: Depreciation 17,192,970 14,610,287 Impairment provision Intangible assets amortization 1,089,963 1,523,705 Biological assets amortization Losses on disposal of property, plant and equipments Finance costs 21,630,697 -7,514,257 Investment income 723,374,683 -429,107 Increase in deferred tax assets -1,442,441 11,257,742 Increase in inventories 97,551,852 51,892,248 Increase in operating receivables -522,152,036 -6,589,973 Increase in operating payables -1,019,403,532 377,325,108 Net cash flows from operating activities 86,041,827 463,117,621 (7) Cash and cash equivalents At 30 June 2011 At 30 June 2010 Cash and bank 375,003,846 407,619,206 Including: Cash on hand 91,741 46,647 Bank deposits on demand 374,912,105 386,372,559 Other monetary capital on demand 21,200,000 375,003,846 407,619,206 91 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 Appendix I supplementary Information to financial statements 1. Details of non-recurring profit and loss Six months ended Six months ended Items 30 June 2011 30 June 2010 Loss on disposal of non-current assets -99,865 -283,954 Tax refund or exemption that is either non-recurring or without proper approval government grants credited in profit and loss(except for those recurring government grants that are closely related to the entity's operation, in line with related regulations and have proper basis of calculation) 2,137,979 4,507,854 Gains on fair value change and disposal of trading financial assets and financial liabilities, except for those from hedgings that are closely related to the entity's principal operations 52,122 429,107 Other non-operating income and expense 1,035,730 227,852 subtotal 3,125,967 4,880,859 Corporate income tax 931,274 1,220,215 Attributable to minority interests 6,249 939,584 Total 2,188,444 2,721,061 The Group’s Non-operating profit and loss on non-recurring items are recognized in accordance with the regulations of the "public offering of securities of the Company Disclosure Explanatory Notice No. 1 - non-recurring profit and losses" (SFC [2008] No. 43). All non-operation income and non-operation expenses are non-operating profit During six months ended 30 June 2011.Please refer to Note 5 (31) and (32). A-1 YANTAI CHANGYU PIONEER WINE COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR FINANCIAL STATEMENT Ended 30 June 2011 Appendix I supplementary Information to financial statements 2. Return on net assets and earnings pre share Weighted average Basic earnings return on net assets per share (RMB) During six months ended 30 June 2011 (%) Net profit attributable to shareholders of the Company 21.21 1.66 Net profit attributable to shareholders of the Company deduct incidental profits 21.16 1.66 There are no potential dilutive shares outstanding. During six months ended 30 June 2010 Weighted average Basic earnings return on net assets per share (RMB) (%) Net profit attributable to shareholders of the Company 17.04 1.11 Net profit attributable to shareholders of the Company deduct incidental profits 16.97 1.11 There is no potential dilutive share outstanding. A-1