Shandong Airlines Co., Ltd.
Independent Auditors' Report
Ruihua Shen Zi [2019] 48440003Hao
(English Version for Reference only)
Content
A. Independent Auditors' Report 1
B. Audited Financial Statements
1. Consolidated Statement of Financial Position 8
2. Consolidated Statement of Comprehensive Income 11
3. Consolidated Statement of Cash Flows 14
4. Consolidated Statement of Changes in Equity 17
5. Statement of Financial Position 22
6. Statement of Comprehensive Income 24
7. Statement of Cash Flows 26
8. Statement of Changes in Equity 28
9. Notes to the Financial Statements 33
Supplementary information on notes to the financial
10. 131
statements
通讯地址：北京市东城区永定门西滨河路 8 号院 7 号楼中海地产广场西塔 9 层
Postal Address: 9/F,West Tower of China Overseas Property Plaza, Building 7,NO.8,Yongdingmen Xibinhe Road,
Dongcheng District, Beijing
邮政编码（Post Code）：100077
电话（Tel）：+86(10)88095588 传真（Fax）：+86(10)88091190
Independent Auditor’s Report
Ruihua Shen Zi [2019] 48440003Hao
To the Board of Directors of Shandong Airlines Co., Ltd.,
I. Audit Opinion
We have audited the accompanying financial statements of Shandong Airlines Co., Ltd.
(hereafter, Shandong Airlines or the Company), which comprise the consolidated and
separate statements of financial position as at December 31 2018, the consolidated and
separate Consolidated statements of comprehensive income, the consolidated and
separate statements of cash flows and the consolidated and separate statements of
changes in equity for the year then ended and the notes to the financial statements.
In our opinion, the financial statements have been prepared in accordance with the
requirements of the Enterprises Accounting Standards of China and presented fairly, in all
material respects, the consolidated and separate financial positions of Shandong Airlines
as at December 31 2018, and the Company’s consolidated and separate results of
operations and consolidated and separate cash flows for the year then ended.
II. Basis of Forming the Audit Opinion
We conducted our audit in accordance with the Chinese Certified Public Accountant
Auditing Standards. The section “Auditors’ Responsibility for the Financial Statements” in
the audit report further describes our responsibilities in accordance with these standards.
According to the Code of Ethics for Chinese Certified Public Accountants, we are
independent of the Company and fulfilled other responsibilities of code of ethics. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
1
III. Key Audit Items
Key audit items are the items which we believe, based on our professional judgment, to be
significant in the audit of financial statements for the current period. Audit response to these
items has been designed and implemented in the context of auditing the financial
statements as a whole for the purpose of expressing an audit opinion on the financial
statements; and we do not express an opinion on each of these items individually. We
believe that the following items are the key audit items which warrant disclosure in the audit
report.
1. Recognition of Passenger Service Revenue
1.1 Description
The revenue of passenger service of the Company is recognized when the service is
provided. At the balance sheet date, the amount collected by the Company for
transportation service which has been sold but not yet provided is included in the balance
sheet as ticket settlement. The Company uses complex information technology systems,
through the system of automatic processing of large amounts of data to keep track of ticket
sales and transportation services provided, to confirm the timing and the exact amount of
revenue of passenger service. Due to the recognition of passenger service revenue
involving use of complex information technology system, it will lead to inaccurate
recognition of passenger service revenue or the inherent risk of the inappropriateness of
the accounting period. Therefore, we identify revenue recognition of passenger service as a
key audit item.
Please refer to Note 4.21 Revenue under Note 4 Important Accounting Principles and
Accounting Estimates. Please refer to Note 6.19 Advance from customers and Note 6.33
Operating revenues and costs under Note 6 Notes to significant elements of the
consolidated financial statements. Please refer to Note 16. 4 Operating revenues and costs
under Note 16 Notes to elements of the separate financial statements for details.
1.2 Audit Response
1.2.1 We assessed the design, operation and effectiveness of the internal control related to
the company's revenue recognition and assessed the effectiveness of the design and
operation of information technology control related to the revenue system.
2
1.2.2 We assessed the difference between the information output from the information
technology system and the company's financial and operational data and identified the
differences in the process to track the related key labor control.
1.2.3 We compared the opening and closing balance of ticket settlement during the period,
and analyzed the reasonableness of amount changes;
1.2.4 We checked the relevant supporting documents of the account entries of significant
amounts or other specific risk standards.
2. Major Repair Fee for Operating Lease Aircrafts and related Engines
2.1 Description
On December 31 2018, the payable balance of operating lease aircrafts and major repair
fee of the engines (including that due within one year) amounted to 3.38 billion. According
to the terms of the lease agreement, the company shall return the aircraft in accordance
with the agreed conditions demanded at the end of the lease period. In order to ensure the
agreed conditions for the return of the aircraft, the company will make a provision for major
repair to the fuselage and engine of operating lease during the estimated overhaul period,
and the overhaul expenses will be included in the current profit and loss. Management
estimates the expected overhaul cycle and overhaul cost based on the actual maintenance
cost experience of the same or similar fuselage and engine in the past, current economic
and aviation related development, and taking into account the predicted flight hours, flight
cycles, overhaul intervals and other variables. Due to the inherent uncertainty of the
prediction of the overhaul period and the future overhaul cost for different types of
fuselages and engines, there is a risk of inaccurate estimated cost. Therefore, we identify
major repair fee for operating leased aircrafts and related engines as a key audit matter.
Please refer to Note 4.25 Regular repair and substantial repair, Note 4.28.9 Aircraft
operating lease and engine overhaul expenses under Note 4 Important Accounting
Principles and Accounting Estimates. Please refer to Note 6.18 Notes payable and
Accounts payable and Note 6.25 Long-term payables for the details under Note 6 Notes to
significant elements of the consolidated financial statements.
2.2 Audit Response
2.2.1 We assessed the effectiveness of the design and operation of the key internal
3
controls related to the overhaul preparation for the aircraft of operating lease.
2.2.2 We discussed with the engineering department managers of the Company
responsible for aircraft maintenance, obtained the information of the overhaul cycle,
overhaul cost and actual maintenance cost, compared the information to that used by
financial executives to calculate the overhaul preparation.
2.2.3 We compared the assumptions adopted by the management in the previous year with
the actual situation and the assumptions of this year, and evaluated the key assumptions
adopted by the management in estimating the overhaul cycle and the future overhaul cost,
based on the terms of operation lease agreement and the historical maintenance
experience of the Company.
2.2.4 We compared the actual cost of the returned aircraft which was in overhaul previously
to the corresponding overhaul preparation, analyzed the difference to evaluate the
rationality of management accounting estimates.
IV. Other Information
The management of the Company is responsible for other information, which includes the
information contained in the Company’s 2018 annual report except for the financial
statements and our auditor report.
Our audit opinion on the financial statements does not cover other information, and we do
not express assurance opinion in any form on the other information.
In parallel to our audit of the financial statements, our responsibilities include reading other
information to assess if the information included in other information is significantly
inconsistent with the financial statements or information obtained during the audit, and if
there is possible material misstatement in other information.
Where we identify material misstatement in other information on the basis of our work, we
shall report such fact. Based on our work, we have no such matter to be reported.
V. Responsibilities of Management and Those Charged with Governance for the
Financial Statements
4
Management of the Company (hereafter, the management) is responsible for preparing and
presenting the financial statements in accordance with Enterprise Accounting Standards of
China and for the purpose of fair presentation and designing, implementing and maintaining
internal control necessary to the preparation of financial statements that are free from
material misstatements, whether due to fraud or error.
During the preparation of the financial statements, the management is responsible for
assessing the Company’s going-concern capability; disclosing matters in relation to the
going-concern status; and applying the going-concern assumption for preparation of the
financial statements, unless the management plans to liquidate the Company, terminates
operation of the Company or has no other practical alternative choice.
Those charged with governance are responsible for monitoring the Company’s financial
reporting process.
VI. Auditors’ Responsibility for the Financial Statements
Our objective is to obtain reasonable assurance as to whether the financial statements are
free from material misstatement, whether due to frauds or errors, and issue an audit report
with audit opinion. Reasonable assurance is a high-level assurance, but there is no
guarantee that a material misstatement will always be found in the audit performed in
accordance with the auditing standards. Misstatements may be caused by fraud or error.
Misstatements are considered to be material if they, individually or in aggregate, could
reasonably be expected to influence the economic decisions of users based on the
financial statements.
During the performance of our audit in accordance with the auditing standards, we use
professional judgment and maintain professional skepticism. We also perform the following
procedures:
A. Identify and assess the risks of material misstatement of the financial statements due to
fraud and error, design and implement audit procedures to address these risks, and obtain
sufficient and appropriate audit evidence as a basis for forming the audit opinion. As fraud
may involve collusion, forgery, willful omission, misrepresentation or override of internal
control, the risk of not discovering a material misstatement due to fraud is higher than the
risk of failing to detect a material misstatement resulting from a mistake.
B. Understand the internal controls related to auditing in order to design appropriate audit
5
procedures.
C. Evaluate the appropriateness of accounting policies adopted by the management and
the reasonableness of accounting estimates and relevant disclosures made by
management.
D. Conclude on the appropriateness of management’s application of the going concern
assumption. Meanwhile, based on the audit evidence obtained, conclude whether there is
material uncertainty about the Company’s ability to continue as a going-concern. If we
conclude that there is material uncertainty, the auditing standards require us to draw
attention of the users of the financial statements to the relevant disclosures in the financial
statements. If the disclosure is inadequate, we shall express a qualified opinion. Our
conclusion is based on information available as of the date of the audit report. However,
future events or circumstances may cause the Company not being able to continue as a
going-concern.
E. Evaluate the overall presentation, structure and content of financial statements
(including disclosures) and evaluate whether the financial statements present fairly the
relevant transactions and events.
F. Obtain sufficient and appropriate audit evidence regarding to the Company’s financial
information of the entities or business activities in order to express opinion on the financial
statements. We are responsible for the guidance, supervision and execution of the group
audit. We take full responsibility for the audit opinion.
We communicate with those charged with governance on the scope and time schedule of
the audit, and significant audit findings, etc., including deficiency of internal control that we
identified during the audit which warrants attention.
We also provide a statement to those charged with governance regarding the fact that we
comply with the requirements of professional ethics relating to independence, and also
communicate with them about all relationships and other
6
matters that may be reasonably deemed to affect our independence，as well as, where
applicable, the relevant precautions (if applicable).
Through the matters we communicate with those charged with governance, we identify
matters that are significant in the audit of the financial statements for the current period,
which therefore become the key audit items. We disclose these items in the audit report,
unless public disclosure of such items is prohibited by laws and regulations; in exceptional
circumstances, where the benefit arising from public disclosure of certain matters is
outweighed by the negative consequence brought by such disclosure in consideration of
public interest. We do not disclose such items in the audit report.
Ruihua Certified Public Accountants Chinese CPA
(Special General Partnership) (Engagement Partner): ___________
Ou Changxian
Beijing, China Chinese CPA: ____________
Guo Yuefeng
21 March 2019
7
II. Audited Financial Statements
Statement in Financial Notes are carried in RMB/CNY
1. Consolidated Balance Sheet
Prepared by Shandong Airlines Co., Ltd
31 December 2018
In RMB
Item Closing balance Opening balance
Current assets:
Monetary funds 840,960,104.09 543,584,920.30
Settlement provisions
Capital lent
Financial assets measured by fair
value and with variation reckoned into 90,488.17
current gains/losses
Derivative financial liability
Notes receivable & account
413,726,456.71 551,020,199.28
receivables
Including: Notes receivable 115,000.00
Accounts receivable 413,726,456.71 550,905,199.28
Accounts paid in advance 265,931,342.94 222,688,283.66
Insurance receivable
Reinsurance receivables
Contract reserve of reinsurance
receivable
Other receivables 225,281,412.22 349,352,881.41
Including: Interest receivable
Dividends receivable
Buying back the sale of financial
assets
Inventories 105,625,519.42 83,924,185.64
Assets held for sale
Non-current asset due within one year
Other current assets 236,596,457.60 185,809,122.83
Total current assets 2,088,211,781.15 1,936,379,593.12
Non-current assets:
8
Loans and payments on behalf
Finance asset available for sales 310,842,965.35 337,378,099.40
Held-to-maturity investment
Long-term account receivable
Long-term equity investment
Investment property
Fixed assets 7,770,750,794.37 6,904,643,268.14
Construction in progress 4,790,300,972.13 2,737,166,681.62
Productive biological assets
Oil and gas asset
Intangible assets 115,541,881.39 116,334,615.84
Expense on Research and
Development
Goodwill 454,020.13 454,020.13
Long-term expenses to be apportioned 573,645,342.64 535,865,271.69
Deferred income tax asset 914,231,343.25 783,201,289.97
Other non-current asset
Total non-current asset 14,475,767,319.26 11,415,043,246.79
Total assets 16,563,979,100.41 13,351,422,839.91
Current liabilities:
Short-term loans 580,000,000.00
Loan from central bank
Absorbing deposit and interbank
deposit
Capital borrowed
Financial liability measured by fair
value and with variation reckoned into 3,607,390.15
current gains/losses
Derivative financial liability
Notes payable & account payable 2,273,836,607.26 1,931,374,087.78
Accounts received in advance 787,371,671.33 614,319,419.67
Selling financial asset of repurchase
Commission charge and commission
payable
Wage payable 543,294,439.81 567,105,882.00
Taxes payable 252,717,258.87 164,566,790.91
Other accounts payable 635,499,470.13 413,608,826.81
9
Including: Interest payable 10,428,894.80 1,324,391.18
Dividend payable 602,306.96 602,306.96
Reinsurance payables
Insurance contract reserve
Security trading of agency
Security sales of agency
Liability held for sale
Non-current liabilities due within 1
455,840,675.34 622,127,224.77
year
Other current liabilities
Total current liabilities 5,528,560,122.74 4,316,709,622.09
Non-current liabilities:
Long-term loans 1,885,556,557.83 1,217,610,831.16
Bonds payable
Including: preferred stock
Perpetual capital securities
Long-term account payable 4,368,213,445.33 3,277,812,491.65
Long-term wages payable 135,224,119.11 110,950,000.00
Projected liabilities
Deferred income 118,279,868.16 111,638,302.81
Deferred income tax liabilities 56,819,008.96 63,560,578.27
Other non-current liabilities
Total non-current liabilities 6,564,092,999.39 4,781,572,203.89
Total liabilities 12,092,653,122.13 9,098,281,825.98
Owner’s equity:
Share capital 400,000,000.00 400,000,000.00
Other equity instrument
Including: preferred stock
Perpetual capital securities
Capital public reserve 75,410,363.70 75,410,363.70
Less: Inventory shares
Other comprehensive income 149,300,488.94 178,494,839.48
Reasonable reserve
Surplus public reserve 503,999,977.58 471,457,259.99
Provision of general risk
10
Retained profit 3,342,615,148.06 3,127,778,550.76
Total owner’s equity attributable to parent
4,471,325,978.28 4,253,141,013.93
company
Minority interests
Total owner’s equity 4,471,325,978.28 4,253,141,013.93
Total liabilities and owner’s equity 16,563,979,100.41 13,351,422,839.91
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
2. Consolidated Profit Statement
In RMB
Item Current Period Last Period
I. Total operating income 18,765,953,326.74 16,484,713,152.23
Including: Operating income 18,765,953,326.74 16,484,713,152.23
Interest income
Insurance gained
Commission charge and
commission income
II. Total operating cost 18,608,932,400.52 15,992,662,817.00
Including: Operating cost 17,168,678,072.03 14,783,469,085.76
Interest expense
Commission charge and
commission expense
Cash surrender value
Net amount of expense of
compensation
Net amount of withdrawal of
insurance contract reserve
Bonus expense of guarantee slip
Reinsurance expense
Operating tax and extras 14,883,492.61 32,856,813.17
Sales expenses 848,039,181.63 781,723,562.39
Administration expenses 428,763,602.19 378,434,960.67
R&D expenses 20,646,996.66 16,956,102.02
Financial expenses 122,848,912.84 -1,229,260.20
11
Including: interest expenses 117,650,618.41 113,961,789.03
Interest income 15,278,180.93 10,272,441.70
Losses of devaluation of asset 5,072,142.56 451,553.19
Add: other income 221,815,360.84 106,768,467.31
Investment income (Loss is
18,025,825.93 21,716,884.19
listed with “-”)
Including: Investment income
on affiliated company and joint venture
Changing income of fair
3,697,878.32 -2,451,574.35
value(Loss is listed with “-”)
Exchange income (Loss is
listed with “-”)
Income from assets disposal
26,528,980.99 90,439.51
(Loss is listed with “-”)
III. Operating profit (Loss is listed
427,088,972.30 618,174,551.89
with “-”)
Add: Non-operating income 38,380,646.96 35,329,596.21
Less: Non-operating expense 3,959,082.04 2,582,901.73
IV. Total Profit (Loss is listed with
461,510,537.22 650,921,246.37
“-”)
Less: Income tax expense 114,131,222.33 160,567,838.22
V. Net profit (Net loss is listed with “-”) 347,379,314.89 490,353,408.15
(i) Net profit of continuous
347,379,314.89 490,353,408.15
operating (Net loss is listed with “-”)
(ii) Net profit of business
termination (Net loss is listed with “-”)
Net profit attributable to owners of
347,379,314.89 490,353,408.15
parent company
Minority shareholders’ gains and
losses
VI. Net after-tax of other
-29,194,350.54 46,614,777.72
comprehensive income
Net after-tax of other comprehensive
income attributable to owners of parent -29,194,350.54 46,614,777.72
company
(I) Other comprehensive income
items which will not be reclassified -9,293,000.00 -2,514,660.07
subsequently to profit of loss
12
1. Changes as a result of
re-measurement of net defined benefit -9,293,000.00 -2,514,660.07
plan liability or asset
2. Share of the other
comprehensive income of the investee
accounted for using equity method
which will not be reclassified
subsequently to profit and loss
(II) Other comprehensive income
items which will be reclassified -19,901,350.54 49,129,437.79
subsequently to profit or loss
1. Other comprehensive
income turn-able to gain/loss under the
equity method
2. Gains or losses arising
from changes in fair value of -19,901,350.54 49,129,437.79
available-for-sale financial assets
3. Gains or losses arising
from reclassification of held-to-maturity
investment as available-for-sale
financial assets
4. The effect hedging
portion of gains or losses arising from
cash flow hedging instruments
5. Translation differences
arising on translation of foreign
currency financial statements
6. Other
Net after-tax of other comprehensive
income attributable to minority
shareholders
VII. Total comprehensive income 318,184,964.35 536,968,185.87
Total comprehensive income
attributable to owners of parent 318,184,964.35 536,968,185.87
Company
Total comprehensive income
attributable to minority shareholders
VIII. Earnings per share:
(i) Basic earnings per share 0.87 1.23
(ii) Diluted earnings per share 0.87 1.23
13
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
3. Consolidated Cash Flow Statement
In RMB
Item Current Period Last Period
I. Cash flows arising from operating
activities:
Cash received from selling
commodities and providing labor 20,807,163,753.99 17,832,002,542.55
services
Net increase of customer deposit
and interbank deposit
Net increase of loan from central
bank
Net increase of capital borrowed
from other financial institution
Cash received from original
insurance contract fee
Net cash received from reinsurance
business
Net increase of insured savings and
investment
Net increase of amount from
disposal financial assets that measured
by fair value and with variation
reckoned into current gains/losses
Cash received from interest,
commission charge and commission
Net increase of capital borrowed
Net increase of returned business
capital
Write-back of tax received 160,585,071.09 20,098,154.49
Other cash received concerning
451,507,473.74 220,959,949.93
operating activities
Subtotal of cash inflow arising from
21,419,256,298.82 18,073,060,646.97
operating activities
Cash paid for purchasing
14,782,948,436.20 12,127,927,122.14
commodities and receiving labor
14
service
Net increase of customer loans and
advances
Net increase of deposits in central
bank and interbank
Cash paid for original insurance
contract compensation
Cash paid for interest, commission
charge and commission
Cash paid for bonus of guarantee
slip
Cash paid to/for staff and workers 3,127,969,349.97 2,781,005,931.70
Taxes paid 721,075,563.94 952,528,022.85
Other cash paid concerning
337,245,429.23 341,551,448.05
operating activities
Subtotal of cash outflow arising from
18,969,238,779.34 16,203,012,524.74
operating activities
Net cash flows arising from operating
2,450,017,519.48 1,870,048,122.23
activities
II. Cash flows arising from investing
activities:
Cash received from recovering
investment
Cash received from investment
17,934,220.07 22,740,535.94
income
Net cash received from disposal of
fixed, intangible and other long-term 59,270,834.82 3,413,604.19
assets
Net cash received from disposal of
subsidiaries and other units
Other cash received concerning
91,605.86
investing activities
Subtotal of cash inflow from investing
77,296,660.75 26,154,140.13
activities
Cash paid for purchasing fixed,
4,196,183,599.83 2,261,448,480.03
intangible and other long-term assets
Cash paid for investment
Net increase of mortgaged loans
15
Net cash received from
490,295.22 25,120,772.78
subsidiaries and other units obtained
Other cash paid concerning
1,023,651.75
investing activities
Subtotal of cash outflow from investing
4,196,673,895.05 2,287,592,904.56
activities
Net cash flows arising from investing
-4,119,377,234.30 -2,261,438,764.43
activities
III. Cash flows arising from financing
activities
Cash received from absorbing
investment
Including: Cash received from
absorbing minority shareholders’
investment by subsidiaries
Cash received from loans 1,784,385,239.67 400,000,000.00
Cash received from issuing bonds
Other cash received concerning
1,543,271,788.39 1,441,573,989.51
financing activities
Subtotal of cash inflow from financing
3,327,657,028.06 1,841,573,989.51
activities
Cash paid for settling debts 965,762,682.37 1,279,307,411.71
Cash paid for dividend and profit
171,267,798.35 188,645,086.06
distributing or interest paying
Including: Dividend and profit of
minority shareholder paid by
subsidiaries
Other cash paid concerning
273,646,123.68 202,020,573.31
financing activities
Subtotal of cash outflow from financing
1,410,676,604.40 1,669,973,071.08
activities
Net cash flows arising from financing
1,916,980,423.66 171,600,918.43
activities
IV. Influence on cash and cash
equivalents due to fluctuation in 49,654,474.95 -27,881,042.58
exchange rate
V. Net increase of cash and cash
297,275,183.79 -247,670,766.35
equivalents
16
Add: Balance of cash and cash
543,584,920.30 791,255,686.65
equivalents at the period -begin
VI. Balance of cash and cash
840,860,104.09 543,584,920.30
equivalents at the period -end
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
4. Statement of Changes in Owners’ Equity (Consolidated)
Current Period
In RMB
Current Period
Owners’ equity attributable to parent company
Other equity
instrument
Less: Other Provisio Minorit Total
Item Perpet
Reason
Share Capital Invento compre Surplus n of Retaine y owners’
ual
Prefer able
capital capita reserve ry hensive reserve general d profit interests equity
red Other reserve
l shares income risk
stock
securi
ties
400,00 3,127,7 4,253,1
I. Balance at the 75,410, 178,494 471,457
0,000. 78,550. 41,013.
end of the last year 363.70 ,839.48 ,259.99
00 76 93
Add:
Changes of
accounting policy
Error
correction of the
last period
Enterprise
combine under the
same control
Other
II. Balance at the 400,00 3,127,7 4,253,1
75,410, 178,494 471,457
beginning of this 0,000. 78,550. 41,013.
363.70 ,839.48 ,259.99
year 00 76 93
III. Increase/ -29,194, 32,542, 214,836 218,184
17
Decrease in this 350.54 717.59 ,597.30 ,964.35
year (Decrease is
listed with “-”)
(i) Total
-29,194, 347,379 318,184
comprehensive
350.54 ,314.89 ,964.35
income
(ii) Owners’
devoted and
decreased capital
1.Common shares
invested by
shareholders
2. Capital invested
by holders of other
equity instruments
3. Amount
reckoned into
owners’ equity
with share-based
payment
4. Other
-132,54 -100,00
(III) Profit 32,542,
2,717.5 0,000.0
distribution 717.59
9 0
1. Withdrawal of 32,542, -32,542,
surplus reserves 717.59 717.59
2. Withdrawal of
general risk
provisions
3. Distribution for -100,00 -100,00
owners (or 0,000.0 0,000.0
shareholders) 0 0
4. Other
(IV) Carrying
forward internal
owners’ equity
1. Capital reserves
conversed to
capital (share
capital)
18
2. Surplus reserves
conversed to
capital (share
capital)
3. Remedying loss
with surplus
reserve
4. Change amount
of defined benefit
plans that carry
forward retained
earnings
5. Other
(V) Reasonable
reserve
1. Withdrawal in
the report period
2. Usage in the
report period
(VI)Others
IV. Balance at the 400,00 3,342,6 4,471,3
75,410, 149,300 503,999
end of the report 0,000. 15,148. 25,978.
363.70 ,488.94 ,977.58
period 00 06 28
Last Period
In RMB
Last Period
Owners’ equity attributable to parent company
Other equity
instrument
Minorit
Less: Other Provisio Total
Item Perpet y
Reason
Share Capital Invento compre Surplus n of Retaine owners’
ual interest
Prefer able
capital capita reserve ry hensive reserve general d profit equity
red reserve s
Other
l shares income risk
stock
securi
ties
400,00 2,805,4 3,836,1
I. Balance at the 75,410, 131,880 423,424
0,000. 58,074. 72,828.
end of the last year 363.70 ,061.76 ,327.64
00 96 06
Add:
19
Changes of
accounting policy
Error
correction of the
last period
Enterprise
combine under the
same control
Other
II. Balance at the 400,00 2,805,4 3,836,1
75,410, 131,880 423,424
beginning of this 0,000. 58,074. 72,828.
363.70 ,061.76 ,327.64
year 00 96 06
III. Increase/
Decrease in this 46,614, 48,032, 322,320 416,968
year (Decrease is 777.72 932.35 ,475.80 ,185.87
listed with “-”)
(i) Total
46,614, 490,353 536,968
comprehensive
777.72 ,408.15 ,185.87
income
(ii) Owners’
devoted and
decreased capital
1.Common shares
invested by
shareholders
2. Capital invested
by holders of other
equity instruments
3. Amount
reckoned into
owners’ equity
with share-based
payment
4. Other
-168,03 -120,00
(III) Profit 48,032,
2,932.3 0,000.0
distribution 932.35
5 0
1. Withdrawal of 48,032, -48,032,
surplus reserves 932.35 932.35
20
2. Withdrawal of
general risk
provisions
3. Distribution for -120,00 -120,00
owners (or 0,000.0 0,000.0
shareholders) 0 0
4. Other
(IV) Carrying
forward internal
owners’ equity
1. Capital reserves
conversed to
capital (share
capital)
2. Surplus reserves
conversed to
capital (share
capital)
3. Remedying loss
with surplus
reserve
4．Change amount
of defined benefit
plans that carry
forward retained
earnings
6. Other
(V) Reasonable
reserve
1. Withdrawal in
the report period
2. Usage in the
report period
(VI)Others
IV. Balance at the 400,00 3,127,7 4,253,1
75,410, 178,494 471,457
end of the report 0,000. 78,550. 41,013.
363.70 ,839.48 ,259.99
period 00 76 93
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
21
5. Balance Sheet of Parent Company
In RMB
Item Closing balance Opening balance
Current assets:
Monetary funds 804,583,812.57 516,216,370.03
Financial assets measured by fair value
and with variation reckoned into current 90,488.17
gains/losses
Derivative financial assets
Notes receivable & account receivables 412,570,738.01 547,677,560.06
Including: Notes receivable
Accounts receivable 412,570,738.01 547,677,560.06
Account paid in advance 263,658,892.86 222,501,155.94
Other receivables 239,078,612.04 399,100,432.09
Including: Interest receivable
Dividends receivable
Inventories 104,444,823.98 82,225,339.01
Assets held for sale
Non-current assets maturing within one
year
Other current assets 236,057,827.36 185,778,982.56
Total current assets 2,060,485,194.99 1,953,499,839.69
Non-current assets:
Available-for-sale financial assets 310,842,965.35 337,378,099.40
Held-to-maturity investments
Long-term receivables
Long-term equity investments 144,101,285.43 144,101,285.43
Investment property
Fixed assets 7,667,474,888.84 6,802,699,864.94
Construction in progress 4,790,300,972.13 2,737,166,681.62
Productive biological assets
Oil and natural gas assets
Intangible assets 102,375,769.20 102,780,313.61
Research and development costs
22
Goodwill
Long-term deferred expenses 572,919,885.06 534,617,772.35
Deferred income tax assets 913,510,618.39 782,457,009.29
Other non-current assets
Total non-current assets 14,501,526,384.40 11,441,201,026.64
Total assets 16,562,011,579.39 13,394,700,866.33
Current liabilities:
Short-term borrowings 580,000,000.00
Financial liability measured by fair
value and with variation reckoned into 3,607,390.15
current gains/losses
Derivative financial liability
Notes payable & accounts payable 2,292,392,127.26 1,979,178,746.67
Accounts received in advance 785,082,130.23 611,805,531.91
Wage payable 532,617,252.72 558,628,059.49
Taxes payable 248,981,430.52 160,844,683.77
Other accounts payable 680,079,759.56 450,375,054.54
Including: Interest payable 10,428,894.80 1,324,391.18
Dividend payable 11,940.00 11,940.00
Liability held for sale
Non-current liabilities due within 1
455,840,675.34 622,127,224.77
year
Other current liabilities
Total current liabilities 5,574,993,375.63 4,386,566,691.30
Non-current liabilities:
Long-term loans 1,885,556,557.83 1,217,610,831.16
Bonds payable
Including: preferred stock
Perpetual capital securities
Long-term account payable 4,368,213,445.33 3,277,812,491.65
Long-term wages payable 135,224,119.11 110,950,000.00
Projected liabilities
Deferred income 118,279,868.16 111,638,302.81
Deferred income tax liabilities 55,645,338.38 62,256,499.85
Other non-current liabilities
23
Total non-current liabilities 6,562,919,328.81 4,780,268,125.47
Total liabilities 12,137,912,704.44 9,166,834,816.77
Owners’ equity:
Share capital 400,000,000.00 400,000,000.00
Other equity instrument
Including: preferred stock
Perpetual capital securities
Capital public reserve 86,911,168.71 86,911,168.71
Less: Inventory shares
Other comprehensive income 149,300,488.94 178,494,839.48
Reasonable reserve
Surplus reserve 503,339,273.05 470,796,555.46
Retained profit 3,284,547,944.25 3,091,663,485.91
Total owner’s equity 4,424,098,874.95 4,227,866,049.56
Total liabilities and owner’s equity 16,562,011,579.39 13,394,700,866.33
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
6. Profit Statement of Parent Company
In RMB
Item Current Period Last Period
I. Operating income 18,735,517,367.52 16,458,875,009.30
Less: Operating cost 17,189,929,884.10 14,787,294,207.29
Operating tax and extras 12,175,296.39 30,747,837.94
Sales expenses 844,010,110.57 780,907,566.52
Administration expenses 411,885,097.58 365,144,939.36
R&D expenses 20,646,996.66 16,956,102.02
Financial expenses 122,918,574.63 -1,152,997.41
Including: interest expenses 117,650,618.41 113,961,789.03
Interest income 15,170,575.64 10,174,058.19
Losses of devaluation of asset 5,166,365.82 593,979.76
Add: other income 221,139,549.48 103,523,912.62
Investment income (Loss is
18,025,825.93 21,716,884.19
listed with “-”)
24
Including: Investment income
on affiliated company and joint venture
Changing income of fair
3,697,878.32 -2,451,574.35
value(Loss is listed with “-”)
Income on disposal of assets
26,528,980.99 90,439.51
(Loss is listed with “-”)
II. Operating profit (Loss is listed
398,177,276.49 601,263,035.79
with “-”)
Add: Non-operating income 38,140,601.14 38,482,264.33
Less: Non-operating expense 3,959,082.04 2,489,883.38
III. Total Profit (Loss is listed with
432,358,795.59 637,255,416.74
“-”)
Less: Income tax expense 106,931,619.66 156,926,093.20
IV. Net profit (Net loss is listed with
325,427,175.93 480,329,323.54
“-”)
(i) Net profit of continuous
480,329,323.54
operating (Net loss is listed with “-”)
(ii) Net profit of business
termination (Net loss is listed with “-”)
V. Net after-tax of other comprehensive
-29,194,350.54 46,614,777.72
income
(I) Other comprehensive income
items which will not be reclassified -9,293,000.00 -2,514,660.07
subsequently to profit of loss
1. Changes as a result of
-9,293,000.00 -2,514,660.07
re-measurement of defined benefit plan
2. Other comprehensive income
unable turn to gain/loss under the equity
method
(II) Other comprehensive income
items which will be reclassified -19,901,350.54 49,129,437.79
subsequently to gain or loss
1.Other comprehensive
income turn-able to gain/loss under the
equity method
2. Gains or losses arising
from changes in fair value of -19,901,350.54 49,129,437.79
available-for-sale financial assets
3. Gains or losses arising
25
from reclassification of held-to-maturity
investment as available-for-sale
financial assets
4. The effect hedging
portion of gains or losses arising from
cash flow hedging instruments
5. Translation differences
arising on translation of foreign
currency financial statements
6. Other
VI. Total comprehensive income 296,232,825.39 526,944,101.26
VII. Earnings per share:
(i) Basic earnings per share
(ii) Diluted earnings per share
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
7. Cash Flow Statement of Parent Company
In RMB
Item Current Period Last Period
I. Cash flows arising from operating
activities:
Cash received from selling
commodities and providing labor 20,757,159,181.82 17,779,799,230.47
services
Write-back of tax received 160,585,071.09 19,910,796.38
Other cash received concerning
465,154,723.66 224,117,752.85
operating activities
Subtotal of cash inflow arising from
21,382,898,976.57 18,023,827,779.70
operating activities
Cash paid for purchasing
commodities and receiving labor 14,869,671,425.31 12,112,203,516.41
service
Cash paid to/for staff and workers 3,081,272,484.34 2,752,738,939.89
Taxes paid 701,248,455.48 942,671,808.62
Other cash paid concerning
306,064,682.62 333,575,369.33
operating activities
26
Subtotal of cash outflow arising from
18,958,257,047.75 16,141,189,634.25
operating activities
Net cash flows arising from operating
2,424,641,928.82 1,882,638,145.45
activities
II. Cash flows arising from investing
activities:
Cash received from recovering
investment
Cash received from investment
17,934,220.07 22,740,535.94
income
Net cash received from disposal of
fixed, intangible and other long-term 59,270,834.82 3,412,604.19
assets
Net cash received from disposal of
subsidiaries and other units
Other cash received concerning
91,605.86
investing activities
Subtotal of cash inflow from investing
77,296,660.75 26,153,140.13
activities
Cash paid for purchasing fixed,
4,179,715,750.42 2,260,152,791.22
intangible and other long-term assets
Cash paid for investment
Net cash received from
490,295.22 36,763,414.09
subsidiaries and other units
Other cash paid concerning
1,023,651.75
investing activities
Subtotal of cash outflow from investing
4,180,206,045.64 2,297,939,857.06
activities
Net cash flows arising from investing
-4,102,909,384.89 -2,271,786,716.93
activities
III. Cash flows arising from financing
activities
Cash received from absorbing
investment
Cash received from loans 1,784,385,239.67 400,000,000.00
Cash received from issuing bonds
Other cash received concerning
1,543,271,788.39 1,441,573,989.51
financing activities
27
Subtotal of cash inflow from financing
3,327,657,028.06 1,841,573,989.51
activities
Cash paid for settling debts 965,762,682.37 1,279,307,411.71
Cash paid for dividend and profit
171,267,798.35 188,645,086.06
distributing or interest paying
Other cash paid concerning
273,646,123.68 202,020,573.31
financing activities
Subtotal of cash outflow from financing
1,410,676,604.40 1,669,973,071.08
activities
Net cash flows arising from financing
1,916,980,423.66 171,600,918.43
activities
IV. Influence on cash and cash
equivalents due to fluctuation in 49,654,474.95 -27,881,042.58
exchange rate
V. Net increase of cash and cash
288,367,442.54 -245,428,695.63
equivalents
Add: Balance of cash and cash
516,216,370.03 761,645,065.66
equivalents at the period -begin
VI. Balance of cash and cash
804,583,812.57 516,216,370.03
equivalents at the period -end
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
8. Statement of Changes in Owners’ Equity (Parent Company)
Current Period
In RMB
Current Period
Other equity instrument
Perpetu Other
Less: Total
Item Share Capital comprehe Reasonab Surplus Retaine
al
Preferre Inventory owners’
capital capital Other reserve nsive le reserve reserve d profit
d stock shares equity
securiti income
es
3,091,6
I. Balance at the 400,000, 86,911,16 178,494,8 470,796,5 4,227,866
63,485.
end of the last year 000.00 8.71 39.48 55.46 ,049.56
91
Add: Changes
of accounting
28
policy
Error
correction of the
last period
Other
II. Balance at the 3,091,6
400,000, 86,911,16 178,494,8 470,796,5 4,227,866
beginning of this 63,485.
000.00 8.71 39.48 55.46 ,049.56
year 91
III. Increase/
Decrease in this -29,194,3 32,542,71 192,884 196,232,8
year (Decrease is 50.54 7.59 ,458.34 25.39
listed with “-”)
(i) Total
-29,194,3 325,427 296,232,8
comprehensive
50.54 ,175.93 25.39
income
(ii) Owners’
devoted and
decreased capital
1.Common shares
invested by
shareholders
2. Capital invested
by holders of other
equity instruments
3. Amount
reckoned into
owners’ equity
with share-based
payment
4. Other
-132,54
(III) Profit 32,542,71 -100,000,
2,717.5
distribution 7.59 000.00
9
1. Withdrawal of 32,542,71 -32,542,
surplus reserves 7.59 717.59
2. Distribution to -100,00
-100,000,
owners (or 0,000.0
000.00
shareholders) 0
3．Other
(IV) Carrying
29
forward internal
owners’ equity
1. Capital reserves
conversed to
capital (share
capital)
2. Surplus reserves
conversed to
capital (share
capital)
3. Remedying loss
with surplus
reserve
4．Change amount
of defined benefit
plans that carry
forward retained
earnings
5. Other
(V) Reasonable
reserve
1. Withdrawal in
the report period
2. Usage in the
report period
(VI)Others
IV. Balance at the 3,284,5
400,000, 86,911,16 149,300,4 503,339,2 4,424,098
end of the report 47,944.
000.00 8.71 88.94 73.05 ,874.95
period 25
Last period
In RMB
Last period
Other equity instrument
Perpetu Other
Less: Total
Item Share Capital comprehe Reasonab Surplus Retaine
al
Preferre Inventory owners’
capital capital Other reserve nsive le reserve reserve d profit
d stock shares equity
securiti income
es
2,779,3
I. Balance at the 400,000, 86,911,16 131,880,0 422,763,6 3,820,921
67,094.
30
end of the last year 000.00 8.71 61.76 23.11 72 ,948.30
Add: Changes
of accounting
policy
Error
correction of the
last period
Other
II. Balance at the 2,779,3
400,000, 86,911,16 131,880,0 422,763,6 3,820,921
beginning of this 67,094.
000.00 8.71 61.76 23.11 ,948.30
year 72
III. Increase/
Decrease in this 46,614,77 48,032,93 312,296 406,944,1
year (Decrease is 7.72 2.35 ,391.19 01.26
listed with “-”)
(i) Total
46,614,77 480,329 526,944,1
comprehensive
7.72 ,323.54 01.26
income
(ii) Owners’
devoted and
decreased capital
1.Common shares
invested by
shareholders
2. Capital invested
by holders of other
equity instruments
3. Amount
reckoned into
owners’ equity
with share-based
payment
4. Other
-168,03
(III) Profit 48,032,93 -120,000,
2,932.3
distribution 2.35 000.00
5
1. Withdrawal of 48,032,93 -48,032,
surplus reserves 2.35 932.35
2. Distribution to -120,00 -120,000,
owners (or 0,000.0 000.00
31
shareholders) 0
3．Other
(IV) Carrying
forward internal
owners’ equity
1. Capital reserves
conversed to
capital (share
capital)
2. Surplus reserves
conversed to
capital (share
capital)
3. Remedying loss
with surplus
reserve
4．Change amount
of defined benefit
plans that carry
forward retained
earnings
6. Other
(V) Reasonable
reserve
1. Withdrawal in
the report period
2. Usage in the
report period
(VI)Others
IV. Balance at the 3,091,6
400,000, 86,911,16 178,494,8 470,796,5 4,227,866
end of the report 63,485.
000.00 8.71 39.48 55.46 ,049.56
period 91
Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
32
Shandong Airlines Co., Ltd.
Notes to the Financial Statements
for the Year Ended 31 December 2018
(All amounts are expressed in CNY unless otherwise stated)
Note 1 Corporation profile
Shandong Airlines Co., Ltd. (hereafter, the Company) is a foreign-invested limited liability company incorporated in the
People’s Republic of China. The Company was incorporated through the restructuring project jointly initiated by Shandong
Airlines Group Co., Ltd. (hereafter, SDA Group), Inspur Co., Ltd. (previously known as Inspur Electronic Information
Industry Group Company (浪潮电子信息产业集团公司), Shandong Hualu Group Co., Ltd, Shandong Group Corp. of
Fisheries Enterprises and Luyin Investment Group ( 鲁 银 投 资 集 团 股 份 有 限 公 司 ) following the approval
(LuTiGaiQiZi(1999)No.88 (鲁体改企字(1999)第 88 号)) granted by the Economic Reform Commission of Shandong
Province (山东省经济体制改革委员会) on July 29 1999.
Shandong Airlines Group Co., Ltd. acquired 259,204,000 state-owned corporate shares (国有法人股), with CNY 1.00 at
par, of the Company by transferring its air transportation operation and the related assets and liabilities to the Company
on November 25 1999. Inspur Co., Ltd., Shandong Hualu Group Co., Ltd. and Shandong Group Corp. of Fisheries
Enterprises each acquired 199,000 state-owned corporate shares, with CNY 1.00 at par, by cash investment of CNY
200,000.00 each on November 26 1999. Luyin Investment Group acquired 199,000 domestic corporate shares (国内法人
股), with CNY 1.00 at par, by cash investment of CNY 200,000.00 on November 26 1999.
The Company issued 140,000,000 domestically listed shares denominated in foreign currency ( 境内上市外资股)
(hereafter, B share(s)), with par value at CNY 1.00 each and issue price at HKD 1.58 each, on August 28 2000 upon the
approval (ZhengJianFaXingZi[2000]No.116 (证监发行字[2000]116 号)) granted by the China Securities Regulatory
Commission on August 22 2000; and, the Company was listed on the Shenzhen Stock Exchange on September 12 2000.
Immediately after the issuance of the B shares, the capital of the Company increased to CNY 400,000,000.00.
The Agreement of Share Transfer 《股份转让协议》 signed by SDA Group and China National Aviation Holding Company
(hereafter, China Aviation Group) on February 28 2004 authorised the transfer of 91,200,000 shares of the Company,
equal to 22.8% shareholding, from SDA Group to China Aviation Group. Immediately after the share transfer, SDA
Group’s shareholding in the Company was 42.00%. In November 2004, the Board of Directors of the Company, in
accordance with the approval (GuoZiChanQuan[2004]No.956 (国资产权[2004]956 号：《关于中国航空集团公司将受让山东
航空股份有限公司国有股的合同实施转让有关问题的批复》 )) issued by the State-owned Assets Supervision and
Administration Commission of the State Council, authorised China Aviation Group to transfer the state-owned corporate
shares received from SDA Group to Air China Co., Ltd. (hereafter, Air China). As so provided in
33
GuoZiChanQuan[2004]No.956, the rights and obligation attributable to China Aviation Group as specified in the
Agreement of Share Transfer shall be afforded by Air China. The change of share ownership was registered at the China
Securities Depository and Clearing Corporation Limited Shenzhen Office by SDA Group and Air China on December 3
2004; And, 91,200,000 shares of the Company then became held by Air China.
Legal representative of the Company: SUN, Xiujiang
Place of registration: Shandong Jinan Yaoqiang International Airport
Address of headquarter: Shandong Airlines Centre, 5746 – East 2nd Ring Road, Jinan, Shandong
The Company is permitted to undertake international and domestic passenger and cargo transportation, hotel and
beverage related operation (limited to operation through branch); provision of aircraft maintenance, training of civil
aviation pilots and air crew, insurance brokerage; inter-airline agenting, and principal operation related ground services;
sales of airborne material and equipments, grocery, food, health food, art work, souvenir, etc.; retailing of tobacco
products (limited to Qingdao Red-Crowned Crane Hotel); lease of airborne material and equipments; venue rental, private
house rental, business services, hotel accommodation agents and ticket agents; conference services; transportation
agency; air cargo storage; and aviation pilot provision (for other domestic airlines). (The operating activities listed herein
does not involve operation related to commodity that are subject to State Administered Trading (国营贸易管理),but involve
operation related to commodity that are subject to quotas , licence requirements, which are restricted to obtain permission
before the operation)(the project that subjects to the approval in accordance with the law, can carry out business activities
only after the approval of the relevant departments to carry out business activities).
The financial statements of the Company has been approved by the board of directors on March 21 2019. Four
subsidiaries of the Company are included in the consolidated financial statements in 2018, see Note 8 "The equity in other
main entities". Scope of consolidation from last year has not been changed.
The Company and the subsidiaries mainly operate in the industry of air transportation.
Note 2 Basis for preparation of the financial statements
2.1 Basis for preparation
The financial statements of company have been prepared on basis of going concern in conformity with Chinese
Accounting Standards for Business Enterprises and the Accounting Systems for Business Enterprises issued by the
Ministry of Finance of People’s Republic of China (Ministry of Finance issued order No.33, the Ministry of Finance revised
order No.76) on February 15 2006, and revised Accounting Standards (order 42 of the Ministry of Finance) and
Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No.15 – General Provisions
on Financial Reports (2014 Revision) issued by the China Securities Regulatory Commission (CSRC).
According to the relevant accounting regulations in Chinese Accounting Standards for Business Enterprises, the company
has adopted the accrual basis of accounting. Held-for-sale non-current assets are measured at the lower of its book value
at its classification date and fair value minus expected disposal costs. Where assets are impaired, provisions for asset
34
impairment are made in accordance with relevant requirements.
Note 3 Statement of Compliance with Enterprise Accounting Standards
The financial statements of the company are recognized and measured in accordance with the regulations in the Chinese
Accounting Standards for Business Enterprises and they give a true and fair view of the financial position, business result
and cash flow of the Company as of December 31 2018. In addition, the financial statements of the company comply, in all
material respects, with the revised disclosing requirements for financial statements and the Compilation Rules for
Information Disclosure by Companies Offering Securities to the Public No.15—General Provisions on Financial Reports
(2014 Revision) issued by China Securities Regulatory Commission (CSRC) in 2014.
Note 4 Important Accounting Principles and Accounting Estimates
The Company and subsidiaries are principally engaged in air transportation. The company and subsidiaries formulate a
number of specific accounting policies and accounting estimates for the revenue recognition and other transactions in
accordance with the actual features of production and management, and the relevant provisions of the Accounting
Standards. See Note 4.21 “Revenue” for the description. For description of significant accounting judgments and
estimates made by management, see Note 4.28 “Significant accounting judgements and estimates”.
4.1 Accounting period
The accounting period of the Company is classified as interim period and annual period. Interim period refers to the
reporting period shorter than a complete annual period. The accounting period of the Company is the calendar year from
January 1 to December 31.
4.2 Operating cycle
Normal business cycle is realized by the Company in cash or cash equivalents from the purchase of assets for processing
until. The company has a 12 -month operating cycle, and its assets and liabilities as liquidity criteria for the classification.
4.3 Monetary Unit
Yuan (CNY) is the currency of the primary economic environment in which the Company and its domestic subsidiaries
operate. Therefore, the Company and its domestic subsidiaries choose CNY as their functional currency. The Company
adopts CNY to prepare its functional statements.
4.4 Business combination
A business combination is a transaction or event that brings together two or more separate entities into one reporting
entity. Business combinations are classified into business combinations involving enterprises under common control and
business combinations not involving enterprises under common control.
4.4.1 Business combination involving entities under common control
A business combination involving enterprises under common control is a business combination in which all of the
35
combining enterprises are ultimately controlled by the same party or parties both before and after the combination, and
that control is not transitory.
For a business combination involving enterprises under common control, the party that, on the combination date, obtains
control of another enterprise participating in the combination is the absorbing party, while that other enterprise
participating in the combination is a party being absorbed. Combination date is the date on which the absorbing party
effectively obtains control of the party being absorbed.
The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being combined at
the combination date. The difference between the carrying amount of the net assets obtained and the carrying amount of
consideration paid for the combination (or the total face value of shares issued) is adjusted to the capital premium (or
share premium) in the capital reserve. If the balance of the capital premium (or share premium) is insufficient, any excess
is adjusted to retained earnings.
The cost of a combination incurred by the absorbing party includes any costs directly attributable to the combination shall
be recognized as an expense through profit or loss for the current period when incurred.
4.4.2 Business combination involving entities not under common control
A business combination involving enterprises not under common control is a business combination in which all of the
combining enterprises are not ultimately controlled by the same party or parties both before and after the business
combination.
For a business combination not involving enterprises under common control, the party that, on the acquisition date,
obtains control of another enterprise participating in the combination is the acquirer, while that other enterprise
participating in the combination is the acquiree. Acquisition date is the date on which the acquirer effectively obtains
control of the acquiree.
For a business combination not involving enterprise under common control, the combination cost including the sum of fair
value, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the
acquirer. The intermediary expenses incurred by the acquirer in respect of auditing, legal services, valuation and
consultancy services etc and other associated administrative expenses attributable to the business combination are
recognized in profit or loss when they are incurred.
The transaction cost arose from issuing of equity securities or liability securities shall be initially recognized as equity
securities or liability securities.
The contingent consideration related to the combination shall be booked as combination cost at the fair value at the
acquisition date. If, within the 12 months after acquisition, additional information can prove the existence of related
information at acquisition date and the contingent consideration need to be adjusted, goodwill can be adjusted.
Combination cost of the acquirer’s interest and identifiable net assets of the acquirer acquired through the business
combination shall be measured by the fair value at the acquisition date. Where the cost of combination exceeds the
acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill.
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Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets,
the difference shall be accounted for according to the following requirements: (i) the acquirer shall reassess the
measurement of the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement
of the cost of combination; (ii) if after that reassessment, the cost of combination is still less than the acquirer’s interest in
the fair values of the acquiree’s identifiable net assets, the acquirer shall recognize the remaining difference immediately
in profit or loss for the current period.
Where the temporary difference obtained by the acquirer was not recognized due to inconformity with the conditions
applied for recognition of deferred income tax, if, within the 12 months after acquisition, additional information can prove
the existence of related information at acquisition date and the expected economic benefits on the acquisition date arose
from deductible temporary difference by the acquiree can be achieved, relevant income tax assets can be recognized, and
goodwill offset. If the goodwill is not sufficient, the difference shall be recognized as profit of the current period.
Apart from above, the differences shall be taken into profit or loss of the current period if the recognition of deferred
income tax assets is related to the combination.
For a business combination not involving enterprise under common control, which achieved in stages that involves
multiple exchange transactions, according to “The notice of the Ministry of Finance on the issuance of Accounting
Standards Interpretation No. 5” (CaiKuai [2012] No. 19) and Article 51 of “Accounting Standards for Business Enterprises
No.33 - Consolidated Financial Statements” on the “package deal” criterion (see Note 4.5.2), to judge the multiple
transactions whether they are the "package deal". If it belongs to the “package deal” in reference to the preceding
paragraphs of this section and the Notes described in 4.13 “Long-term equity investments” accounting treatment, if it does
not belong to the “package deal” to distinguish the individual financial statements and the consolidated financial
statements related to the accounting treatment:
In the individual financial statements, the total value of the book value of the acquiree's equity investment before the
acquisition date and the cost of new investment at the acquisition date, as the initial cost of the investment, the acquiree's
equity investment before the acquisition date involved in other comprehensive income, in the disposal of the investment
will be in other comprehensive income associated with the use of infrastructure and the acquiree directly related to the
disposal of assets or liabilities of the same accounting treatment (that is, except in accordance with the equity method of
accounting in the defined benefit plan acquiree is remeasured net changes in net assets or liabilities other than in the
corresponding share of the lead, and the rest into the current investment income).
In the combination financial statements, the equity interest in the acquiree previously held before the acquisition date
re-assessed at the fair value at the acquisition date, with any difference between its fair value and its carrying amount is
recorded as investment income. The previously-held equity interest in the acquiree involved in other comprehensive
income and other comprehensive income associated with the purchase of the foundation should be used party directly
related to the disposal of assets or liabilities of the same accounting treatment (that is, except in accordance with the
equity method of accounting in the acquiree is remeasured defined benefit plans other than changes in net liabilities or net
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assets due to a corresponding share of the rest of the acquisition date into current investment income).
4.5 Preparation of the consolidated financial statements
4.5.1 The scope of consolidation
The scope of consolidation for the consolidated financial statements is determined on the basis of control. Control is the
power to govern the financial and operating policies of an enterprise so as to obtain benefits from its operating activities.
The scope of consolidation includes the Company and all of the subsidiaries. Subsidiary is an entity under the control of
the Company.
Once the change in the relevant facts and circumstances leading to the definition of the relevant elements involved in the
control of the change, the company will be re-evaluated.
4.5.2 Preparation of the consolidated financial statements
The subsidiary of the Company is included in the consolidated financial statements from the date when the control over
the net assets and business decisions of the subsidiary is effectively obtained, and excluded from the date when the
control ceases.
For a subsidiary disposed of by the Company, the operating results and cash flows before the date of disposal (the date
when control is lost) are included in the consolidated income statement and consolidated statement of cash flows, as
appropriate. For a subsidiary disposed during the period, no adjustment is made to the opening balance of the
consolidated financial statements.
For a subsidiary acquired through a business combination not under common control, the operating results and cash
flows from the acquisition (the date when the control is obtained) are included in the consolidated income statement and
consolidated statement of cash flows, as appropriated; no adjustment is made to the opening balance and comparative
figures in the consolidated financial statements.
Where a subsidiary and a party being absorbed in a merger by absorption was acquired during the reporting period,
through a business combination involving enterprises under common control, the financial statements of the subsidiary
are included in the consolidated financial statements. The results of operations and cash flow are included in the
consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts, from
the date that common control was established, and the opening balances and the comparative figures of the consolidated
financial statements are restated.
When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company
makes necessary adjustments to the financial statements of the subsidiary based on the Company’s own accounting
period or accounting policies. Where a subsidiary was acquired during the reporting period through a business
combination not under common control, the financial statements was reconciliated on the basis of the fair value of
identifiable net assets at the date of acquisition. Intra-Group balances and transactions, and any unrealized profit or loss
arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.
Minority interest and the portion in the net profit or loss not attributable to the Company are presented separately in the
consolidated balance sheet within shareholders’/ owners’ equity and net profit. Net profit or loss attributable to minority
shareholders in the subsidiaries is presented separately as minority interest in the consolidated income statement below
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the net profit line item.
When the amount of loss for the current period attributable to the minority shareholders of a subsidiary exceeds the
minority shareholders’ portion of the opening balance of shareholders’/equity of the subsidiary, the excess is allocated
against the minority interests.
When the Company loses control of a subsidiary due to the disposal of a portion of an equity investment or other reasons,
the remaining equity investment is re-measured at its fair value at the date when control is lost. The difference between 1)
the total amount of consideration received from the transaction that resulted in the loss of control and the fair value of the
remaining equity investment and 2) the carrying amounts of the interest in the former subsidiary’s net assets immediately
before the loss of the control is recognized as investment income for the current period when control is lost. Other
comprehensive income related to the former subsidiary's equity investment, using the foundation and the acquiree directly
related to the disposal of the same assets or liabilities are accounted when the control is lost( ie, in addition to the former
subsidiary is remeasured at the net defined benefit plan or changes in net assets and liabilities resulting from, the rest are
transferred to the current investment income). The retained interest is subsequently measured according to the rules
stipulated in the - “Chinese Accounting Standards for Business Enterprises No.2 - Long-term equity investment” or
“Chinese Accounting Standards for Business Enterprises No.22 - Determination and measurement of financial
instruments”. See Note 4.13 “Long-term equity investments” and Note 4.9 “Financial instruments ”for details.
The company through multiple transactions step deal with disposal of the subsidiary's equity investment until the loss of
control, need to distinguish between equity until the disposal of a subsidiary's loss of control over whether the transaction
is package deal. Terms of the transaction disposition of equity investment in a subsidiary, subject to the following
conditions and the economic impact of one or more of cases, usually indicates that several transactions should be
accounted for as a package deal:① these transactions are considered simultaneously, or in the case of mutual influence
made, ② these transactions as a whole in order to achieve a complete business results; ③ the occurrence of a
transaction depends on occurs at least one other transaction; ④ a transaction look alone is not economical, but when
considered together with other transaction is economical. If they does not belong to the package deal, each of them
separately, as the case of a transaction in accordance with “without losing control over the disposal of a subsidiary part of
a long-term equity investments”(see Note 4.13.2.4)) and “due to the disposal of certain equity investments or other
reasons lost control of a subsidiary of the original” (see previous paragraph) principles applicable accounting treatment.
Until the disposal of the equity investment loss of control of a subsidiary of the transactions belonging to the package deal,
the transaction will be used as a disposal of a subsidiary and the loss of control of the transaction. However, before losing
control of the price of each disposal entitled to share in the net assets of the subsidiary 's investment corresponding to the
difference between the disposal, recognized in the consolidated financial statements as other comprehensive income,
loss of control over the transferred together with the loss of control or loss in the period.
4.6 Joint arrangement
A joint arrangement is an arrangement of which two or more parties have joint control. A joint arrangement is either a joint
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operation or a joint venture, depending of the rights and obligation of the Company in the joint arrangement. A joint
operation is a joint arrangement whereby the Company has rights to the assets, and obligations for the liabilities, relating
to the arrangement. A joint venture is a joint arrangement whereby the Company has rights to the net assets of the
arrangement.
The Company accounts for joint ventures using the equity method, see Note 4.13.2.2) for details.
The company, a joint operator, recognizes in relation to its interest in a joint operation:(a)its assets, including its share of
any assets held jointly;(b)its liabilities, including its share of any liabilities incurred jointly;(c)its revenue from the sale of its
share of the output arising from the joint operation;(d)its share of the revenue from the sale of the output by the joint
operation; and (e)its expenses, including its share of any expenses incurred jointly.
When the Company enters into a transaction with a joint operation in which it is a joint operator, such as a sale or
contribution of assets, the Company, prior to disposal of the assets to a third party by the joint operation, recognizes gains
and losses resulting from such a transaction only to the extent of the other parties' interests in the joint operation. When
there is evidence of a reduction in the net realizable value of the assets to be sold or contributed to the joint operation, or
of an impairment loss of those assets which is in line with provision stipulated by CAS 8, those losses are recognized fully
by the Company. When there is evidence of a reduction in the net realizable value of the assets to be purchased or of an
impairment loss of those assets, the Company shall recognize its share of those losses.
4.7 Cash equivalent
Cash and cash equivalents of the Company include cash on hand, ready usable deposits and investments having short
holding term (normally will be due within three months from the day of purchase), with strong liquidity and easy to be
exchanged into certain amount of cash that can be measured reliably and have low risks of change.
4.8 Foreign exchange
4.8.1 Translation in foreign exchange transactions
The foreign currency transactions are recorded, on initial recognition in the functional currency, by applying [the spot
exchange rate on the date of the transaction / an exchange rate that approximates the actual spot exchange rate on the
date of transaction]. The exchange of foreign currency and transactions related to the foreign exchange are translated at
the spot exchange rate.
4.8.2 Translation of monetary foreign currency and non-monetary foreign currency
At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance
sheet date. All the exchange differences thus resulted are taken to profit or loss, except for ①those relating to foreign
currency borrowings specifically for construction and acquisition of qualifying assets, which are capitalized in accordance
with the principle of capitalization of borrowing costs, ②hedging accounting, the exchange difference related to hedging
instruments for the purpose of net oversea operating investment is recorded in the comprehensive income till the date of
disposal and recognized in profit or loss of the period; exchange difference from changes of other account balance of
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foreign currency monetary items, ③available-for-trade is recorded into profit or loss except for amortized cost.
In the preparation of consolidated financial statements involving overseas operations, if there is a monetary item in foreign
currency which essentially constitutes a net investment in overseas operation, the exchange difference arising from
exchange rate fluctuation will be included in other comprehensive income. When disposal of overseas operations, it will
be transferred to the current profit or loss.
Non-monetary foreign currency items measured at historical cost shall still be translated at the spot exchange rate
prevailing on the transaction date, and the amount denominated in the functional currency is not changed. Non-monetary
foreign currency items measured at fair value are translated at the spot exchange rate prevailing at the date when the fair
values are determined. The exchange difference thus resulted are recognized in profit or loss for the current period or as
capital reserve.
4.8.3 The translation of financial statement in foreign currency
When the consolidated financial statements include foreign operation(s), if there is a foreign currency monetary item
constituting a net investment in a foreign operation, exchange difference arising from changes in exchange rates are
recognized as “exchange differences arising on translation of financial statements denominated in foreign currencies” in
owner’s equity, and in profit or loss for the period upon disposal of the foreign operation.
The Group translates the financial statements of its foreign operations into CNY by following rules. Assets and liabilities
in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; all equity items except
for retained earnings are translated at the spot exchange rates at the dates on which such items occur; income and
expenses in income statement are translated at the spot exchange rates at the date of transaction; the opening retained
earnings is the closing retained earnings of the last period after translation; the closing balance of retained earnings is
calculates and presented in the basis of each translated income statements and profit distribution item; the difference
arising between the assets and liabilities and shareholders’ equity shall be booked as translation difference of foreign
currency statements, and shall be presented as a separate component of equity in the balance sheet. On a loss of control
over Group’s oversea operation due to disposal, the Company transfers the accumulated or proportionate share of the
accumulated exchange difference arising on translation of financial statements of this oversea operation attributable to the
owners’ equity of the Company and presented under shareholders’ equity, to profit or loss in the period in which the
disposal occurs.
Foreign currency cash flows and cash flow of oversea subsidiaries are translated at the spot exchange rates on the date
of cash flows. The effect of exchange rate changes on cash is separately presented as an adjustment item in the cash
flow statement.
The opening and actual amount of last year are presented in the financial statement after translation
At the disposal of all of the company's ownership interest in a foreign operation, or due to the disposal of part of the equity
investment or other reasons, the loss of control over a foreign operation, the project owner's equity in the balance sheet
listed under the relevant overseas operations attributable to statements of the parent company 's shareholders' equity of
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foreign currency translation differences, all transferred to the disposal of the income statement.
At the disposal of part of the equity investment or other causes lower hold percentage overseas business interests, but
does not lose control over a foreign operation, and disposal of the foreign operation section related to foreign currency
translation differences attributable to minority interests, is not transferred to the income statement. At the disposal of a
foreign operation as part of the equity joint venture or joint ventures, foreign currency financial statements of the foreign
operation and the associated translation difference in proportion to dispose of the foreign operation into the disposal of the
income statement.
4.9 Financial instruments
4.9.1 Determination of financial assets and liabilities’ fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing
parties in an arm’s length transaction. For a financial instrument which has an active market, the Company uses quoted
price in the active market to establish its fair value. The quoted price in the active market refers to the price that can be
regularly obtained from exchange market, agencies, industry associations, pricing authorities; it represents the fair market
trading price in the actual transaction.
For a financial instrument which does not have an active market, the Company establishes fair value by using a valuation
technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing
parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow
analysis and option pricing models.
The Company measures initially and subsequently the fair value of an interest rate swap at the value of a competitor’s
interest rate swap quoted by a recognized financial institution as at the Company’s balance sheet date in accordance with
the principle of consistency.
4.9.2 Classification, recognition and measurement of financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. On initial
recognition, the Company’s financial assets are classified into one of the four categories, including financial assets at fair
value though profit or loss, held-to-maturity investments, loans and receivables and available-for-trade financial assets. A
financial asset is recognized initially at fair value. In the case of financial assets at fair value through profit or loss, relevant
transaction costs are immediately charged to the profit and loss of the current period; transaction costs relating to financial
assets of other categories are included in the amount initially recognized.
1) Financial assets at fair value through profit or loss:
Including financial assets held-for-trade and financial assets designated at fair value through profit or loss.
Financial asset held-for-trade is the financial asset that meets one of the following conditions:
A. the financial asset is acquired for the purpose of selling it in a short term;
B. the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is
objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits;
C. the financial asset is a derivative, except for a derivative that is designated and effective hedging instrument, or a
42
financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity
instrument (without a quoted price from an active market) whose fair value cannot be reliably measured. For such kind of
financial assets, fair values are adopted for subsequent measurement.
Financial asset is designated on initial recognition as at fair value through profit or loss only when it meets one of the
following conditions:
A. the designation eliminates or significantly reduces the inconsistency in the measurement or recognition of relevant
gains or losses that would otherwise arise from measuring the financial instruments on different bases.
B. a Group of financial instruments is managed and its performance is evaluated on a fair value basis, and is reported to
the enterprise’s key management personnel. Formal documentation regarding risk management or investment strategy
has prepared.
Financial assets at fair value through profit or loss are subsequently measured at the fair value. Any gains or losses
arising from changes in the fair value and any dividends or interest income earned on the financial assets are recognized
in the profit or loss.
2) Investment held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity
that an entity has the positive intention and ability to hold to maturity. Such kind of financial assets are subsequently
measured at amortized cost using the effective interest method. Gains or losses arising from derecognition, impairment or
amortization are recognized in profit or loss for the current period.
Effective interest rate is the rate that exactly discounted estimated future cash flows through the expected life of the
financial asset or financial liability or, where appropriate, a shorter period to the net carrying amount of the financial asset
or financial liability.
When calculating the effective interest rate, the Company shall estimate future cash flow considering all contractual terms
of the financial asset or financial liability without considering future credit losses, and also consider all fees paid or
received between the parties to the contract giving rise to the financial asset and financial liability that are an integral part
of the effective interest rate, transaction costs, and premiums or discounts, etc.
3) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed determinable payment that are not quoted in an
active market. Financial assets classified as loans and receivables by the Company include notes receivable, accounts
receivable, interest receivable, dividend receivable and other receivables.
Loans and receivables are subsequently measured at amortized cost using the effective interest method. Gain or loss
arising from derecognition, impairment or amortization is recognized in profit or loss.
4) Financial assets available-for-trade
Financial assets available-for-trade include non-derivative financial assets that are designated on initial recognition as
available for trade, and financial assets that are not classified as financial assets at fair value through profit or loss, loans
and receivables or investment held-to-maturity.
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Financial assets available-for-trade are measured by amortization pricing method, which is that the beginning recognized
amount minus the already paid principal, plus or minus the accumulated amortization which is the amortization amount
from the difference between the beginning recognized amount and maturity amount using the actual interest rate method,
and deduct the impairment losses. It’s ending cost of the period is its initial acquisition cost.
Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in
the fair value are recognized as other comprehensive income and included in the capital reserve, except that impairment
losses and exchange differences related to amortized cost of monetary financial assets denominated in foreign currencies
are recognized in profit or loss, until the financial assets are derecognized, at which time the gains or losses are released
and recognized in profit or loss.
Interests obtained and dividends declared by the investee during the period in which the financial assets
available-for-trade are held, are recognized in investment gains.
4.9.3 Impairment of financial assets
The Group assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets
that measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is
provided for the impairment.
1) Impairment on held-to-maturity investment, loans and receivables
The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of
future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of
value of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment
loss recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not
exceed the amortized cost of the financial assets without provisions of impairment loss on the reserving date.
2) Impairment loss on available-for-trade financial assets
Where the fair value of the equity instrument investment drops significantly or not contemporarily according to the
integrated relevant factors, an available-for-trade financial asset is impaired.
When an available-for-trade financial asset is impaired, the cumulative loss arising from declining in fair value that had
been recognized in capital reserve shall be removed and recognized in profit or loss. The amount of the cumulative loss
that is removed shall be difference between the acquisition cost with deduction of recoverable amount less amortized cost,
current fair value and any impairment loss on that financial asset previously recognized in profit or loss.
If, after an impairment loss has been recognized, there is objective evidence that the value of the financial asset is
recovered, and it is objectively related to an event occurring after the impairment loss was recognized, the initial
impairment loss can be reversed and the reserved impairment loss on available-for-trade equity instrument is recorded in
the profit or loss, the reserved impairment loss on available-for-trade debt instrument is recorded in the current profit or
loss.
The equity instrument where there is no quoted price in an active market, and whose fair value cannot be reliably
measured, or impairment loss on a derivative asset that is linked to and must be settled by delivery of such an unquoted
equity instrument shall not be reversed.
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4.9.4 Recognition and measurement of financial assets transfer
The Group derecognizes a financial asset when one of the following conditions is met:
1) the rights to receive cash flows from the asset have expired;
2) the enterprise has transferred its rights to receive cash flows from the asset to a third party under a pass-through
arrangement; or
3) the enterprise has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
If the enterprise has neither retained all the risks and rewards from the financial asset nor control over the asset, the asset
is recognized according to the extent it exists as financial asset, and correspondent liability is recognized. The extent of
existence refers the level of risk by the financial asset changes the enterprise is facing.
For a transfer of a financial asset in its entirety that satisfies the derecognition criteria, (a). the carrying amount of the
financial asset transferred; and (b) the sum of the consideration received from the transfer and any cumulative gain or loss
that had been recognized in other comprehensive income, is recognized in profit or loss.
If a part of the transferred financial asset qualifies for derecognition, the carrying amount of the transferred financial asset
is allocated between the part that continues to be recognized and the part that is derecognized, based on the relative fair
value of those parts. The difference between (a) the carrying amount allocated to the part derecognized; and (b) the sum
of the consideration received for the part derecognized and any cumulative gain or loss allocated to the part derecognized
which has been previously recognized in other comprehensive income, is recognized in profit or loss.
4.9.5 Classification and measurement of financial liabilities
The Group’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through profit or loss
and other financial liabilities. For financial liabilities at fair value through profit or loss, relevant transaction costs are
immediately recognized in profit or loss for the current period, and transaction costs relating to other financial liabilities are
included in the initial recognition amounts.
1) Financial liabilities measured by the fair value and the changes recorded in profit or loss
The classification by which financial liabilities held-for-trade and financial liabilities designed at the initial recognition to be
measured by the fair value follows the same criteria as the classification by which financial assets held-for-trade and
financial assets designed at the initial recognition to be measured by the fair value and their changes are recorded in the
current profit or loss.
For the financial liabilities measured by the fair value and changes recorded in the profit or loss, fair values are adopted for
subsequent measurement. All the gains or losses on the change of fair value and the expenses on dividends or interests
related to these financial liabilities are recognized in profit or loss for the current period.
2) Other financial liabilities
Derivative financial liabilities that linked with equity instruments, which do not have a quoted price in an active market and
45
their fair value cannot be measured reliably, is subsequently measured by cost Other financial liabilities are subsequently
measured at amortized cost using the effective interest method. Gains or losses arising from derecognition or amortization
is recognized in profit or loss for the current period.
3) Financial guarantee contracts
For financial guarantee contracts that are not designated as at fair value through profit or loss, they are, after initial
recognition, subsequently measured at the higher of: (i) the amount determined according to the principles of Accounting
Standards for Business Enterprises No. 13 - Contingencies, and (ii) the amount initially recognized less the accumulated
amortization determined according to the principles of Accounting Standards for Business Enterprises No. 14 - Revenue.
4.9.6 Derecognition of financial liabilities
The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or part of it) is discharged
or cancelled or has expired. An agreement between the Company (an existing borrower) and existing lender to replace
original financial liability with a new financial liability with substantially different terms is accounted for as an
extinguishment of the original financial liability and the recognition of a new liability.
When the Company derecognizes a financial liability or a part of it, it recognizes the difference between the carrying
amount of the financial liability (or part of the financial liability) derecognized the consideration paid (including any
non-cash assets transferred or new financial liabilities assumed) in profit or loss.
4.9.7 Derivatives and embedded derivatives
Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative
contracts are entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in
profit or loss.
An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a
financial asset or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the
economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and
risks of the host contract; and (b) a separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative. If the Company is unable to measure the embedded derivative separately either at acquisition or
at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at
fair value through profit or loss.
4.9.8 Offsetting financial assets and financial liabilities
When the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial
liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability
simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance
sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the
balance sheet and shall not be offset.
4.9.9 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of
46
its liabilities. The consideration received from issuing equity instruments, net of transaction costs, are added to
shareholders’ equity. All types of distribution (excluding stock dividends) made by the Company to holders of equity
instruments are deducted from shareholders’ equity. The Group does not recognize any changes in the fair value of equity
instruments.
4.10 Receivables
The receivables by the Company include account receivables, and other receivables.
4.10.1 Criteria for recognition of bad debts:
The Company carries out an inspection on the balance sheet date. Where there is any objective evidence proving that the
receivables have been impaired, an impairment provision shall be made:
1) A serious financial difficulty occurs to the issuer or debtor;
2) The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or
the principal, etc.;
3) The debtor will probably become bankrupt or carry out other financial reorganizations;
4) Other objective evidences showing the impairment of the receivables.
4.10.2 Method for bad debts provision
1) Provisions of bad debts in account receivables that is individually significant.
Individual receivables equal to or higher than 5% of total receivables are classified as receivables of individual
significance.
For an account receivable that is individually significant, the asset is individually assessed for impairment, the impairment
loss is recognized at the difference between the present value of future cash flow less the carrying amount, and provision
is made accordingly.
2) Provisions of bad debts in account receivables that individually insignificant items with similar credit risk characteristics
that have significant risk:
A. Evidence of credit risk characteristics
Whether the financial asset is individually significant or not individually significant, it is included in a group of financial
assets with similar credit risk characteristics and collectively assessed for impairment. Such credit risk reflects the
repayment of all due amount under the contract and is related to the estimation of future cash flow expected to be derived
from the assets.
Evidence of portfolios:
Item Basis
Receivables not individually assessed for impairment are categorised on the basis of
Categories by nature of receivables
credit risk. Provision for bad debts for each category of receivables is recognized at
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the actual rate of loss for the previous year of the same or similar category bearing
similar credit risk characteristics after adjustment for the current year circumstances.
B. Provision by credit risk characteristics
During the Company impairment test, the amount of bad debts provisions is determined by the assessed result from the
experience of historical loss and current economic status and the existing loss in the estimated account receivables
according to the set of account receivables and credit risk characteristic.
Provisions for different portfolios:
Item Provision
Categories by nature of receivables Percentage of carrying amount
a. Portfolio 1 by Aging analysis
Percentage of carrying amount for Percentage of carrying amount for
Category recognition of allowance for bad debt recognition of allowance for bad debt
applicable to accounts receivable applicable to other receivables
Categories by nature of receivables 5% 5%
3) Provisions of bad debts that is individually insignificant
For the account receivables not individually significant, the Company assesses the account receivables individually for
impairment when are of following characteristics: if there is objective evidence indicating the impairment, the impairment
loss is recognized at the difference between the present value of future cash flow less the carrying amount, and provision
is made accordingly. For examples: receivables of individual insignificance bears differing credit risk characteristics to
other receivables of individual insignificance account receivables with related parties; account receivables under
litigations or arbitrations, or account receivables with obvious indication that debtor cannot fulfill the obligation of
repayment.
4.10.3 The reversal of bad debts provision
If there is objective evidence of recovery in value of account receivables, and the recovery can be related to an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized in
profit or loss. However, the reversal shall not result in a carrying amount that exceeds what the amortized cost would have
been had the impairment loss not been recognized at the date the impairment is reversed.
4.11 Inventories
4.11.1 Classification of inventory
The Company’s inventory mainly include air materials and low-value consumables.。
4.11.2 Valuation method of inventories upon delivery
Inventories are initially carried at the actual cost. The actual cost of inventories transferred out is assigned by using first-in,
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first out (FIFO) method.
4.11.3 Basis for determining net realizable value of inventories and provision methods for decline in value of inventories
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion,
the estimated costs necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of
clear evidence obtained and takes into consideration the purpose of holding inventories and effect of post balance sheet
events.
At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable
value is below the cost of inventories, a provision for decline in value of inventories is made. The provision for inventories
declines in value is determined normally by the difference of the cost of individual item less its realizable value. For large
quantity and low value items of inventories, provision for decline in value is made based on categories of inventories. For
items of inventories relating to a product line that are produced and marketed in the same geographical area, have the
same or similar end users or purposes, and cannot be practicably evaluated separately from other items in that product
line provision for decline in value is determined on an aggregate basis.
After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be
written down below cost no longer exist so that the net realizable value of inventories is higher than their cost, the original
provision for decline in value is reversed and the reversal is included in profit or loss for the period.
4.11.4 The perpetual inventory system is maintained for stock system.
4.11.5 Amortization method for low cost and short-lived consumable items and packaging materials.
Low cost and short-lived consumable items are amortized using immediate write-off method; packaging materials are
amortized using immediate write-off method.
4.12 Assets and disposal groups held for sale
The company classify an asset or disposal group as held for sale if its carrying amount will be recovered principally
through a sale transaction rather than through continuing use. Specific standards are as follows, which should be satisfied
at the same time: the asset is immediately sellable at its current condition according to the practice; the company has
completed official decision to dispose the asset and has acquired firm purchasing commitments; and the sales will be
completed within one year. The disposal group refers to a group of assets that are sold as a whole or disposed of in a
transaction as a whole, and the liabilities directly related to those assets transferred in the transaction at the same time. If
the assets group or asset group combination of the disposal group share the goodwill obtained in the business
combination according to CAS 8 - Asset Impairment, and the disposal group shall include the goodwill allocated to the
disposal group.
Non-current assets held for sale and disposal group, which the company's initial measurement or remeasurement on the
date of the balance sheet divided into, if the book value is higher than the fair value deducting the sale cost, it’s book value
will be written down to the fair value deducting the sale cost , in addition the reduced amount is recognized as impairment
loss included in the current profits and losses, while accruing the provision for impairment of assets held for sale. For the
disposal group, confirmed asset impairment losses, will reduce the book value of the goodwill of a disposal group first,
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then reduce the book value of the non-current assets proportionally applying to CAS 42 - Non-Current Assets Held For
Sale, the Disposal group and Discontinued Operations (hereinafter referred to as the "held for sale rule"). With the fair
value deducting the sale cost of the disposal assets held for sale increasing on the date of the balance sheet, the
deducted amount should be recovered accordingly Within the relevant scope. The recovering amount is included in the
profits and losses of the current period, and the book value is increased proportionally according to the proportion of the
book value of the non-current assets stipulated in the rules for sale in addition to the goodwill in the disposal group. The
deductible book value of goodwill and the asset impairment losses that are applied to the standards of assets for sale shall
not be recovered before they are classified as holding assets for sale.
Depreciation or amortization of non- current assets held for sale or disposal group are not raised. The interest of liabilities
and other expenses in the disposal group held for sale will continue to be confirmed.
When the non- current assets or disposal groups no longer meet the conditions of assets held for sale categories, the
company will no longer divide that into assets held for sale categories or will remove that from the disposal of non- current
assets held for sale, and measured by the lower amount: (1) the book value before being classified as held for sale
category, and adjusted of the depreciation, amortization or impairment according to the assumption not being classified as
held for sale. (2) recoverable amount.
4.13 Long-term equity investments
Long-term equity investments referred to in this section refer to the Company invested entity has control, joint control or
significant influence over the long-term equity investments. The Company invested does not have control, joint control or
significant influence over the long-term equity investments as financial assets available for sale or at fair value and the
changes included financial assets through profit or loss, which refer to the accounting policies in Note 4. 9 “financial
instruments”.
Joint control is the Company control over an arrangement in accordance with the relevant stipulations are common,
related activities and the arrangement must be after sharing control participants agreed to the decision-making. Significant
influence is the Company s financial and operating policies of the entity has the right to participate in decision-making but
cannot control or with other parties, joint control over those policies.
4.13.1 Determination of investment cost
The cost of a long-term equity investment acquired through business combination under common control is measured at
the acquirer's share of the combination date book value of the acquiree's net equity in the ultimate controller's
consolidated financial statements. The difference between the cost and book value of cash paid, non-monetary assets
transferred, and liabilities assumed is adjusted to capital reserves, and to retained earnings if capital reserves is
insufficient. If the consideration is transferred by way of issuing equity instruments, the face value of the equity
instruments issued is recognized in share capital and the difference between the cost of the face value of the equity
instruments issued is adjusted to capital reserves, and to retained earnings if capital reserves is insufficient. Where a
business combination under common control is achieved by multiple acquisition of the acquiree's shareholding, the
multiple acquisitions shall be assessed to determine whether the multiple acquisitions shall be viewed as "a package deal".
If the multiple acquisitions shall be viewed as "a package deal", the multiple acquisitions shall be accounted for as one
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single transaction accordingly. If the multiple acquisitions shall not be viewed as "a package deal", the difference between
the cost of combination and the sum of the book value of the investment in the acquiree immediately before the
combination and the book value of the consideration transferred to acquire additional shareholding is adjusted to capital
reserves and retained earnings if capital reserves is insufficient. Cumulative other comprehensive income associated with
the investment recognized as a result of the treatment of equity method or available-for-sale financial assets prior to the
combination is not affected by the combination.
The cost of a long-term equity investment acquired through business combination not under common control is the fair
value of the assets transferred, liabilities incurred or assumed, and equity instruments issued.
Through multiple transactions to obtain the shares of the merged party step by step, and ultimately the enterprise merger
under the different control is formed, which should be dealt with differently whether it belongs to "a package deal". If it
belongs to "a package deal", all transactions should be dealt as a transaction of acquiring the control. If not, the initial
investment cost of the long-term equity investment which is changeably measured by the cost method is calculated
according to the sum of the book value of the original investor's equity plus the new investment cost. The original
ownership is measured by equity method, and the other comprehensive income is not carried on an accountancy
processing. The difference between the fair value and the book value of the original holding equity investment which is
financial assets held for the sale, as well as the accumulated change of the fair value which is entered into the other
comprehensive income before, will be transferred into the current profit and loss.
All expenses incurred directly associated with the acquisition by the acquirer, including expenditure of audit, legal services,
valuation and consultancy and other administrative expenses, are recognized in profit or loss for the period during which
the acquisition occurs.
Long-term equity investments acquired not through business combination are measured at cost on initial recognition.
Depending on the way of acquisition, the cost of acquisition can be the total cash paid, the fair value of equity instrument
issued, the contract price, the fair value or book value of the assets given away in the case of non-monetary asset
exchange, or the fair value of the relevant long-term equity investments. The cost of acquisition of a long-term equity
investment acquired not through business combination also includes all directly associated expenses, applicable taxes
and fees, and other necessary expenses. For the implementation of major influence or common control but failing to reach
control through additional investment over the invested entity, the cost of the long-term equity investment is the sum of fair
value of the original equity investment in accordance with "the accounting standards for Enterprises No. 22 - recognition
and measurement of financial instruments" and the new investment cost.
4.13.2 Subsequent measurement
To be invested joint control (except constitute common operator ) or long-term equity investments significant influence are
accounted for using the equity method. In addition, the Company's financial statements using the cost method of
accounting for long-term equity can exercise control over the investee.
1) Cost method of accounting for long-term equity investments
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Under the cost method, a long-term equity investment is measured at initial investment cost. Except for cash dividends or
profits declared but not yet paid that are included in the price or consideration actually paid upon acquisition of the
long-term equity investment, investment income is recognized in the period in accordance with the attributable share of
cash dividends or profit distributions declared by the investee.
2) Equity method of accounting for long-term equity investments
Where the initial investment cost of a long-term equity investment exceeds the investing enterprise’s interest in the fair
values of the investee’s identifiable net assets at the time of acquisition, no adjustment shall be made to the initial
investment cost.
The carrying amount of a long-term equity investment measured using the equity method is adjusted by the Company's
share of the investee's net profit and other comprehensive income, which is recognized as investment income and other
comprehensive income respectively. The carrying amount of an long-term equity investment measured using the equity
method is reduced by profit distribution or cash dividends announced by the investee. The carrying amount of a long-term
equity investment measured using the equity method is also adjusted by the investee's equity movement other than net
profit, other comprehensive income and profit distribution, which is adjusted to capital reserves. The net profit of the
investee is adjusted by the fair value of the investee's identifiable assets as at acquisition. The financial statements and
hence the net profit and other comprehensive income of an investee which does not adopt accounting policies or
accounting period uniform with the Company is adjusted by the Company's accounting policies and accounting period.
The Company's share of unrealized profit or loss arising from related party transactions between the Company and an
associate or joint venture is deducted from investment income. Unrealized loss arising from related party transactions
between the Company and an associate or joint venture which is associated with asset impairment is not adjusted. Where
assets transferred to an associate or joint venture which form part of the Company's investment in the investee but which
does not enable the Company obtain control over the investee, the cost of the additional investment acquired is measured
at the fair value of assets transferred and the difference between the cost of the additional investment and the book value
of the assets transferred is recognized in profit or loss. Where assets transferred to an associate or joint venture form an
operation, the difference between the consideration received and the book value of the assets transferred in recognized in
profit or loss. Where assets transferred from an associate or joint venture form an operation, the transaction is accounted
for in accordance with CAS 20 - Business Combination, any gain or loss is recognized in profit or loss.
The Company's share of an investee's net loss is limited by the sum of the book value of the long-term equity investment
and other net long-term investments in the investees. Where the Company has obligation to share additional net loss of
the investee, the estimated share of loss recognized as accrued liabilities and investment loss. Where the Company has
unrecognized share of loss of the investee when the investee generates net profit, the Company's unrecognized share of
loss is reduced by the Company's share of net profit and when the Company's unrecognized share or loss is eliminated in
full, the Company's share of net profit, if any, is recognized as investment income.
3) Acquisition of minority interest
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The difference between newly increased equity investment due to acquisition of minority interests and portion of net asset
cumulatively calculated from the acquisition date is adjusted as capital reserve. If the capital reserve is not sufficient to
absorb the difference, the excess are adjusted against returned earnings.
4) Disposal of long-term equity investment
Where the parent company disposes long-term investment in a subsidiary without a change in control, the difference in
the net asset between the amount of disposed long-term investment and the amount of the consideration paid or received
is adjusted to the owner’s equity. If the disposal of long-term investment in a subsidiary involves loss of control over the
subsidiary, the related accounting policies in Note 4.5.2 applies. For disposal of long-term equity investments in any
situation other than the fore-mentioned situation, the difference between the book value of the investment disposed and
the consideration received is recognized in profit or loss.
Where a long-term equity investment is measured by the equity method both before and after part disposal of the
investment, cumulative other comprehensive income relevant to the investment recognized prior to the acquisition is
treated in the same manner that the investee disposes the relevant assets or liabilities proportionate to the disposal. The
investee's equity movement other than net profit, other comprehensive income and profit distribution is recognized in profit
or loss proportionate to the disposal.
Where a long-term equity investment is measured at cost both before and after part disposal of the investment, cumulative
other comprehensive income relevant to the investment recognized, as a result of accounting by equity method or
recognition and measurement principles applicable to financial instruments, prior to the Company's acquisition of control
over the investee is treated in the same manner that the investee disposes the relevant assets or liabilities and recognized
in profit or loss proportionate to the disposal. The investee's equity movement other than net profit, other comprehensive
income and profit distribution, as a result of accounting by equity method, is recognized in profit or loss proportionate to
the disposal.
Where the Company's control over an investee is lost due to partial disposal of investment in the investee and the
Company continues to have significant influence over the investee after the partial disposal, the investment in measured
by the equity method in the Company's separate financial statements; where the Company's control over an investee is
lost due to partial disposal of investment in the investee and the Company ceases to have significant influence over the
investee after the partial disposal, the investment in measured in accordance with the recognition and measurement
principles applicable to financial instruments in the Company's separate financial statements and the difference between
the fair value and the book value of the remaining investment at the date of loss of control is recognized in profit or loss.
Cumulative other comprehensive income relevant to the investment recognized, as a result of accounting by equity
method or recognition and measurement principles applicable to financial instruments, prior to the Company's acquisition
of control over the investee is treated in the same manner that the investee disposes the relevant assets or liabilities on
the date of loss of control. The investee's equity movement other than net profit, other comprehensive income and profit
distribution, as a result of accounting by equity method, is recognized in profit or loss when control is lost. Where the
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remaining investment is measured by equity method, the fore-mentioned other comprehensive income and other equity
movement are recognized in profit or loss proportionate to the disposal; Where the remaining investment is measured in
accordance with the recognition and measurement principles applicable to financial instruments, the fore-mentioned other
comprehensive income and other equity movement are recognized in profit or loss in full.
Where the Company's joint control or significant influence over an investee is lost due to partial disposal of investment in
the investee, the remaining investment in the investee is measured in accordance with the recognition and measurement
principles applicable to financial instruments, the difference between the fair value and the book value of the remaining
investment at the date of loss of joint control or significant influence is recognized in profit or loss.Cumulative other
comprehensive income relevant to the investment recognized, as a result of accounting by equity method, prior to the
partial disposal is treated in the same manner that the investee disposes the relevant assets or liabilities on the date of
loss of joint control or significant influence. The investee's equity movement other than net profit, other comprehensive
income and profit distribution is recognized in profit or loss when joint control or significant influence is lost.
Where the Company's control over an investee is lost through multiple disposals and the multiple disposals shall be
viewed as one single transaction, the multiple disposals is accounted for one single transaction which result in the
Company's loss of control over the investee. Each difference between the consideration received and the book value of
the investment disposed is recognized in other comprehensive income and reclassified in full to profit or loss at the time
when control over the investee is lost.
4.14 Fixed assets
4.14.1 The conditions of recognition
Fixed assets refer to the tangible assets that are held for the sake of producing commodities, rendering labour service,
renting or business management and their useful life is in excess of one fiscal year. Fixed assets are only confirmed when
the related economic benefits are likely to flow into the company and its cost can be reliably measured. The initial
measurement is carried out on the basis of the cost of fixed assets and the effect of the expected discarded cost.
4.14.2 The method for depreciation
Fixed assets are stated at cost and consider the impact of expected costs of abandoning the initial measurement. From
the following month of state of intended use, depreciation method of the straight-line method is used for different
categories of fixed assets to take depreciation. The recognition of the classification, useful life and estimated residual rate
are as follows:
Category Expected useful life Estimated residual value (%) Depreciation (%)
Houses and building 20-33 5.00 2.88-4.75
Key components and power supports of
15-20 5.00 4.75-6.33
aircraft engine
Replacement parts of engine 3-7 0.00 14.29-33.33
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Category Expected useful life Estimated residual value (%) Depreciation (%)
Equipments, electronic devices and
4-10 5.00 9.5-23.75
furniture
High value rotables 15-18 0.00 5.56-6.67
Expected net residual value of fixed assets is the balance of the Company currently obtained from the disposal of the
asset less the estimated costs of disposal amount, assuming the asset is out of useful life and state the expected service
life in the end.
4.14.3 Measurement and recognition of fixed assets
Impairment and provisions of fixed assets are disclosed on Note 4.19 “Impairment of long-term assets”.
4.14.4 Fixed Assets under finance leases
A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may
or may not eventually be transferred.
Fixed assets that are held under finance leases shall be depreciated by applying the same policy as that for the fixed
assets owned by the Company. If it can be reasonably determined that the ownership of the leased assets can be
obtained at the end of the lease period, the leased assets are depreciated over their useful lives; otherwise, the leased
assets are depreciated over the shorter of the lease terms and the useful lives of the leased assets.
4.14.5 Others
A fixed asset is recognized only when the economic benefits associated with the asset will probably flow to the Company
and the cost of the asset can be measured reliably. Subsequent expenditure incurred for a fixed asset that meet the
recognition criteria shall be included in the cost of the fixed asset, and the carrying amount of the component of the fixed
asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in profit or loss in the
period in which they are incurred.
The revenue from selling or transferring, or disposing a fixed asset is booked into profit and loss after deduction of
carrying value and related tax.
The Company conducts a review of useful life, expected net realizable value and depreciation methods of the fixed asset
at least on an annual base. Any change is regarded as change in accounting estimates.
4.15 Construction in progress
Construction in progress is measured at its actual cost. The actual costs include various construction expenditures during
the construction period, borrowing costs capitalized before it is ready for intended use and other relevant costs.
Construction in progress is transferred to a fixed asset when it is ready for intended use.
Testing method for provision impairment of construction in progress and accrued method for provision impairment please
refer to Note 4.19 “Impairment of long-term assets”.
4.16 Borrowing costs
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Borrowing costs include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in
connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings.
The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are
capitalized. The amounts of other borrowing costs incurred are recognized as an expense in the period in which they are
incurred. Qualifying assets are asset (fixed assets, investment property and inventories, etc.) that necessarily take a
substantial period of time for acquisition, construction or production to get ready for their intended use or sale.
Where funds are borrowed for a specific-purpose, the amount of interest to be capitalized is the actual interest expense
incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being
used on the asset or any investment income on the temporary investment of those funds.
Where funds are borrowed for a general-purpose, the amount of interest to be capitalized on such borrowings is
determined by applying a weighted average interest rate to the weighted average of the excess amounts of accumulated
expenditure on the asset over and above the amounts of specific-purpose borrowings
During the capitalization period, exchange differences related to a specific-purpose borrowing denominating in foreign
currency are all capitalized. Exchange differences in connection with general-purpose borrowings are recognized in profit
or loss in the period in which they are incurred.
Assets qualified for capitalization are the fixed assets, investment properties or inventories which need a long time of
construction or production activities before ready for intended used or sale.
Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a
qualifying asset is interrupted by activities other than those necessary to prepare the asset for its intended use or sale,
when the interruption is for a continuous period of more than 3 months. Borrowing costs incurred during these periods
recognized as an expense for the current period until the acquisition, construction or production is resumed.
4.17 Intangible assets
4.17.1 Intangible asset
The term “intangible asset” refers to the identifiable non-monetary assets without physical shape, possessed or controlled
by enterprises.
The intangible assets are initially measured by its cost. Expenses related to intangible assets, if the economic benefits
related to intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably,
shall be recorded as cost of intangible assets. The expenses other than this shall be booked in the profit or loss when they
occur.
Land use rights that are purchased by the Company are accounted for as intangible assets. Buildings, such as plants that
are developed and constructed by the Company, and relevant land use rights and buildings, are accounted for as
intangible assets and fixed assets, respectively. Payments for the land and buildings purchased are allocated between the
land use rights and the buildings; if they cannot be reasonably allocated, all of the land use rights and buildings are
accounted for as fixed assets.
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When an intangible asset with a definite useful life is available for use, its original cost less net residual value and any
accumulate impairment losses is amortized over its estimated useful life using the straight-line method. An intangible
asset with an indefinite useful life is not amortized.
For an intangible asset with a definite useful life, the Company reviews the useful life and amortization method at the end
of the period and makes adjustment when necessary. An additional review is also carried out for useful life of the
intangible assets with indefinite useful life. If there is evidence showing the foreseeable limit period of economic benefits
generated to the enterprise by the intangible assets, then estimate its useful life and amortize according to the policy of
intangible assets with definite useful life.
4.17.2 the expenditure of research and development
The expenditures for its internal research and development projects of the Company shall be classified into research
and development expenditures.
The research expenditures shall be recorded into the profits and losses of the current period when they are incurred.
Development expenditures in internal research and development projects shall be recognized as intangible assets where
they satisfy all of the following conditions:
①Technical feasibility of completing the intangible asset so that it will be available for use or sale;
②Intention to complete the intangible asset and use or sell it;
③How the intangible asset will generate economic benefits, including the ability to demonstrate the existence of a market
for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the
intangible asset;
④Availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset;
⑤Ability to measure reliably the expenditure that is attributable to the intangible asset during its development.
The expenses which cannot be distinguished between research and development stage,
shall be recorded into the profit or loss for the current period.
4.17.3 Impairment testing methods and recognition of impairment provision of intangible assets
Impairment and provisions of intangible assets are disclosed on Note 4.19 “Impairment of long-term assets”.
4.18 Deferred charges
Deferred charges represent expenses incurred that should be borne and amortized over the current and subsequent
period (together of more than one year). Deferred charges are amortized by using straight line method. Such as expenses
for pilots’ initial trainings, those expenses are amortized at 10 years according to their benefit period respectively.
4.19 Impairment of long-term assets
Non-financial assets with non-current nature include fixed assets, construction in progress, intangible assets with definite
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useful lives, investment properties measured by cost method and long-term equity investment on subsidiaries, joint
operations. The Company assesses whether there are any indicators of impairment for all non-financial assets at the
balance sheet date, and impairment test is carried out and recoverable value is estimated if such an indicator exits.
Goodwill and intangible assets with indefinite useful lives, as well as intangible assets not ready for use, are tested for
impairment annually regardless of indicators of impairment.
Impairment of loss is calculated, and provisions taken by the difference if the recoverable value of the assets is lower than
the book value. The recoverable value is the higher of estimated present value of the future expected cash flows from the
asset and net fair value of the asset less disposed cost. The fair value of asset is determined by the sales agreement price
within an arm’s length transaction. In case there is no sales agreement, but there is active market of assets, the fair value
can be determined by the selling price. If there is neither sales agreement nor active market, the fair value of the asset can
be estimated based on the best information obtained.
Disposal expenses include expenses related to the legislation, taxes, transportations and the direct expense for the asset
to be ready for sale. When calculating the present value of expected future cash flows from an asset or asset group, the
management shall estimate the expected future cash flows from the asset or asset group and choose a suitable discount
rate in order to calculate the present value of those cash flows.
Provision for asset impairment is calculated and determined on the individual basis. If the recoverable of individual asset
is hard to estimate, the recoverable amount can be determined by the asset group where subject asset belongs. Asset
group is the smallest set of assets that can have cash flow in independently.
The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
present value of the future expected cash flows from the asset groups or sets of asset groups to which the goodwill is
allocated. Estimating the present value requires the Company to make an estimate of the expected future cash flows from
the asset groups or sets of asset groups and also choose a suitable discount rate in order to calculate the present value of
those cash flows. Once the loss from above asset impairment is recognized, the recoverable part cannot be reserved in
the subsequent periods.
4.20 Employee benefits
The employee benefits of the company include short-term employee benefits, post-employment benefits, termination
benefits and other long-term employee benefits:
Short-term employee benefits includes wages, bonuses, allowances and subsidies, welfare, health insurance, maternity
insurance, work injury insurance, housing funds, labor union funds, employee education funds, non-monetary benefits
and etc. Short-term employee benefits are recognized as liabilities and profit or loss account or the costs associated with
the asset during the accounting period when employees actually provide services,. The non -monetary benefits are
measured at fair value.
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Post-employment benefits include defined contribution plans and defined benefit plans. Defined contribution plan which
includes the basic pension, unemployment insurance and annuities shall be recognized as cost of related assets or profit
or loss. Projected unit credit cost method (“PUC”) was used by independent actuaries engaged by the Company to
determine the present value of the defined benefit obligations with unbiased and consistent actuarial assumptions
regarding population variables and financial variables. Defined benefit obligation was presented with the present value
and the related current service cost was accounted into current profit or loss.
When the Company terminates the labor relationship with employees prior to the employment contracts, or encourages
employees to accept voluntary redundancy compensation proposals in this company, a provision shall be recognized for
the compensation arising from the termination of employment relationship with employees at the time when the Company
cannot unilaterally withdraw layoff proposal termination benefits provided due to termination of employment, or the
company ensures the costs related to the payment for termination benefits related to the restructuring, which one is
early to confirm employee benefits liabilities, and recorded as profit or loss. However, if termination benefits cannot be fully
paid after twelve months of the reporting date, the liability shall be processed in accordance with other long-term
employee benefits.
Retirement plan adopts the same principles as the termination benefits. The salaries and insurance to be paid from the
date when employees stop providing services to the date of normal retirement shall be recognized in profit or loss
(termination benefits) when satisfying the requirements of a provision.
Other long-term employee benefits provided by the company to employees that is in line with defined contribution plans
shall adopt the accounting treatment in accordance with defined contribution plans, otherwise the accounting treatment of
defined benefit plans.
4.21 Revenue
4.21.1 Revenue from rendering of service
①The Company recognize revenue from rendering of air service for carriage of passengers when the service is rendered
or when an unused ticket expires. The sale of a ticket does not constitute revenue. An unused ticket expires on the annual
anniversary of its sale. Tickets sold but of which the service is not yet rendered are recognized in current liabilities as
Advances from customers. If service is rendered through code sharing, revenue arising from the service provision is
apportioned amongst parties to the code sharing agreement. The revenue arising from code sharing is also recognized
when the service is rendered.
②The Company recognize air cargo revenue from rendering of air service for carriage of cargo when the service is
rendered
③Revenue arising from other air service rendering is recognized when the service rendering is completed.
4.21.2 Royalty Revenue
According to the contract or agreement, the revenue is recognized on an accrual basis.
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4.21.3 Interest Income
The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the
enterprise's cash is used by others and the actual interest rate.
4.22 Government grants
Government grants are transfer of monetary assets and non-monetary assets from the government to the Company at no
consideration, excluding the capital invested by the government as equity owner. Government grant can be classified as
grant related to the assets and grants related to the income. Government grants obtained by the Company which are
relevant to construction or acquisition of long-term assets are classified as asset-related government grants; all other
government grants are classified as revenue-related government grants. For government grants without specified
beneficiary, the Company performs classification in accordance with the following criteria.
4.22.1 Where a grant is obtained for a specified project, the grant is spitted into asset-related and revenue related portions
proportionate to the project's investment to expense ratio; the classification is reviewed on each balance sheet date and
revised if necessary.
4.22.2 Where a grant is obtained for general purpose, the grant as a whole is classified as a revenue-related government
grant. If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or
receivable. If a government grant is in the form of a non-monetary asset, it is measured at fair value. If the fair value
cannot be reliably determined, it is measured at a nominal amount. A government grant measured at a nominal amount is
recognized immediately in profit or loss for the period.
The company's government subsidies are usually confirmed and measured by the actual amount when they are received.
However for the end of the period, if there are conclusive evidence that the relevant conditions can be meet of the
financial support policy and financial support funds are expected to receive, it should be measured according to the
amount receivable. The following conditions should be meet at the same time if the subsidies are measured by the
amount receivable: (1) The amount of subsidy receivable has been confirmed by the document issued by the government
departments, or could be reasonably estimated in accordance with the relevant provisions of its own official release of
financial resources management approach, and the expected amount of a material uncertainty which does not exist; (2) It
is based on the financial support project and financial management measures which is released officially by the local
finance department with active publicity according to the provisions of the "Regulations on open government information".
And the management measures should be inclusive (any enterprises complying with the conditions may apply for that ),
rather than specifically for specific enterprises; (3) The relevant subsidy has a clear commitment to the allocation period,
and guaranteed by corresponding financial budget, which can be received within the prescribed time limit with reasonable
guarantee; (4) Other relevant conditions (if any) should be met in accordance with the specific circumstances of the
company and the grant.
A government grant related to an asset is recognized as deferred income, and evenly amortized to profit or loss over the
useful life of the related asset according to a systematic and reasonable method. For a government grant related to
income, if the grant is a compensation for related expenses or losses to be incurred in subsequent period, the grant is
recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized.
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If the grant is a compensation for related expenses or losses already incurred, the grant is recognized immediately in profit
or loss for the period.
Government subsidies including both assets-related parts and income-related parts should be treated separately. If it is
difficult to separate, the government subsidies as a whole will be classified as income-related government grants.
The government subsidies related to daily activities of the company are included in other income and gain and expenses
in accordance with the essence of economic business; if it is not related to daily activities, it will be included in
non-operating income and expense.
For repayment of a government grant already recognized, if there is a related deferred income, the repayment is offset
against the carrying amount of the deferred income, and any excess is recognized in profit or loss for the period. If there
are other situations, the repayment is recognized immediately in profit or loss for the period.
4.23 Deferred tax assets and deferred tax liabilities
4.23.1 Income tax for the current period
At the balance sheet date, 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, according to the requirements of tax laws. The measurement
of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which
the Company expects at the balance sheet date, to recover the assets or settle the liabilities.
At the balance sheet date, current income tax liabilities or assets for the current and prior periods, are measured at the
amount expected to be paid (or recovered) according to the requirements of tax laws. The calculation for income tax
expenses in the current period is based on the taxable income according to the related tax laws after adjustment to the
accounting profit of the reporting period.
4.23.2 Deferred income tax assets and liabilities
For temporary differences between the carrying amount of certain assets or liabilities and their tax base, or between the nil
carrying amount of those items that are not recognized as assets or liabilities and their tax base that can be determined
according to tax laws, deferred tax assets and liabilities are recognized using the balance sheet liability method.
For temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability
arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or
deductible losses) at the time of transaction, no deferred tax asset or liability is recognized.
For taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint
ventures, no deferred income tax liability related is recognized except where the Company is able to control the timing of
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable
future.
All deferred income tax liabilities arising from taxable temporary differences except the ones mentioned above are
recognized.
For temporary deductible differences associated with the initial recognition of an asset or liability arising from a transaction
(not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time
of transaction, no deferred tax asset is recognized.
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For taxable temporary deductible differences associated with investments in subsidiaries and associates, and interests in
joint ventures, no deferred income tax asset related is recognized if it is impossible to reversal the temporary difference in
the foreseeable future, or it is not probable to obtain taxable income which can be used for the deduction of the temporary
difference in the future.
Except mentioned above, the Company recognizes other deferred income tax assets that can deduct temporary
differences to the extent that it is probable that taxable profits will be available against which the deductible temporary
differences can be utilized.
For the deductible losses and tax credit that can be carried forward, deferred tax assets for deductible temporary
differences are recognized to the extent that it is probable that taxable profits will be available against which the deductible
temporary differences can be utilized.
At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates according to tax laws, that are
expected to apply in the period in which the asset is realized or the liability is settled.
At the balance sheet date, the Company reviews the carrying amount of deferred tax assets. If it is no longer probable that
sufficient taxable profit will be available in future periods to allow the benefits of the deferred tax assets to be used, the
Company reduces the carrying amount of deferred tax assets. The amount of such reduction is reversed when it becomes
probable that sufficient taxable profit will be available
4.23.3 Income tax expenses
Income tax expenses consist of current income tax and deferred income tax.
The expenses from income tax and deferred income tax, as well as the revenue, shall be recorded into profit or loss in
current accounting period, except expense for income tax of the current period and deferred income tax that booked in
other income and gain or equity and adjusted carrying value of deferred income tax goodwill arose from business
combination.
4.23.4 Income tax offset
When we have the legal right, and have intended to, to make settlement with net amount, or through the asset acquisition
and liability fulfillment simultaneously, the Company shall present the net value from the offset between current income tax
asset and current income tax liability in the financial statement.
When the Company has the legal right to make a settlement with the current income tax asset and current income tax
liability, and the deferred income tax asset and deferred income tax liability are related to the same taxable subject under
the same tax payer, or related to different taxable subject, but the intension of net value settlement in regard of the current
income tax asset and current income tax liability, the Company shall present net value after the offset of deferred income
tax asset and deferred income tax liability.
4.24 Leases
A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may
or may not eventually be transferred. An operating lease is a lease other than a finance lease.
4.24.1 The Company as Lessee under operating Lease
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Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and
either included in the cost of the related asset or charged to profit or loss for the current period. The contingent rents shall
be recorded in the profit or loss of the period in which they actually arise.
4.24.2 The Company as lessor under operating Lease
Lease income from operating leases shall be recognized by the lessor in profit or loss on a straight-line basis over the
lease term. Initial direct cost of significance in amount shall be capitalized when incurred. If another basis is more
systematic and rational, that basis may be used. Contingent rents are credited to profit or loss in the period in which they
actually arise.
4.24.3 The Company as Lessee under financing Lease
For an asset that is held under a finance lease, at the lease commencement, the leased asset is recorded at the lower of
its fair value at the lease commencement and the present value of the minimum lease payments, and the minimum lease
payment is recorded as the carrying amount of the long-term payables; the difference between the recorded amount of the
leased asset and the recorded amount of the payable is accounted for as unrecognized finance charge, Initial direct costs
incurred by the lessee during the process of negotiating and securing the lease agreement shall be added to the amount
recognized for the leased asset.
The net amount of minimum lease payment deducted by the unrecognized finance shall be separated into long-term
liabilities and long-term liability within one year for presentation.
Unrecognized finance charge shall be computed by the effective interest method during the lease term. Contingent rent
shall be booked into profit or loss when actually incurred.
4.24.4 In the case of the lessor of a financing lease
For an asset that is leased out under a finance lease, the aggregate of the minimum lease receipts at the inception of the
lease and the initial direct costs is recorded as a finance lease receivable, and unguaranteed residual value is recorded at
the same time; the difference between the aggregate of the minimum lease receipt, initial direct costs, and unguaranteed
residual value, and the aggregate of their present values, is recognized as unearned finance income, which is amortized
using the effective interest rate method over each period during the lease term.
Finance lease receivable less unearned finance income shall be separated into long-term liabilities and long-term liability
within one year for presentation.
Unearned finance income shall be computed by the effective interest method during the lease term. Contingent rent shall
be credited into profit or loss in which actually incurred.
4.25 Regular repair and substantial repair
Regular repair expenditure of own aircrafts and aircrafts acquired under a financial lease is accounted for through profit or
loss for the period in which it is incurred. Substantial repair expenditure eligible for capitalization is capitalized when
incurred and recognized as replacement cost of non-current assets and depreciated over a reasonable length of time.
Substantial repair expenditure of aircrafts under an operating lease incurred before the lease expiry date is amortized on
the basis of air hours over the lease period.
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4.26 Changes in major accounting policies and accounting estimates
4.26.1 Changes of accounting policies
4.26.1.1 Changes of accounting policy resulting from changes in enterprise accounting standards and other laws and
regulations
A. Implementation of the Notice of the Ministry of Finance on revising the form of the 2018 general corporate financial
statements
On June 15 2018, the Ministry of Finance issued the Notice of the Ministry of Finance on revising the form of the 2018
annual general corporate financial statements (Accounting [2018] No. 15), and adjusted the financial statement format of
the enterprise accordingly. The line items of “notes receivable” and “accounts receivable” are merged into “notes
receivable and accounts receivable”. The line items of “interest receivable”, “dividend receivable” and “other receivables”
are merged into “other receivables”. The line items of “fixed assets” and “disposal of fixed assets” are merged into “fixed
assets”. The line items of “construction materials” and “construction-in-progress” are merged into
“construction-in-progress”. The line items of “notes payable” and “accounts payable” are merged into “notes payable and
accounts payable”. The line items of “interest payable”, “dividend payable” and “other payables” are merged into “other
payables”. The line items of “long-term payables” and “specific payable” are merged into “long-term payables”. The line
item “general and administrative expenses” in the income statement are split into detailed items of “general and
administrative expenses” and “research and development expenses”. Detailed items of “interest expense "and" interest
income" are added under financial costs in income statement. The item of “changes in defined benefit plan transferred to
retained earnings” is added in statement of changes in shareholders’ equity. The company adopts the retrospective
adjustment method for the change of the accounting policy, and the items in 2017 financial statements are retrospectively
adjusted as follows:
Currency: CNY
As of 12.31.2017 / 2017 Pre-adjustment Post-adjustment Movement
Items in consolidated financial statements：
Notes receivable and accounts receivable 551,020,199.28 551,020,199.28
Notes receivable 115,000.00 -115,000.00
Accounts receivable 550,905,199.28 -550,905,199.28
Notes payable and accounts payable 1,931,374,087.78 1,931,374,087.78
Accounts payable 1,931,374,087.78 -1,931,374,087.78
Other payables 411,682,128.67 413,608,826.81 1,926,698.14
Interest payable 1,324,391.18 -1,324,391.18
Dividend payable 602,306.96 -602,306.96
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General and administrative expenses 395,391,062.69 378,434,960.67 -16,956,102.02
Research and development expenses 16,956,102.02 16,956,102.02
Items in parent company’s financial statement：
Notes receivable and accounts receivable 547,677,560.06 547,677,560.06
Accounts receivable 547,677,560.06 -547,677,560.06
Notes payable and accounts payable 1,979,178,746.67 1,979,178,746.67
Accounts payable 1,979,178,746.67 -1,979,178,746.67
Other payables 449,038,723.36 450,375,054.54 1,336,331.18
Interest payable 1,324,391.18 -1,324,391.18
Dividend payable 11,940.00 -11,940.00
General and administrative expenses 382,101,041.38 365,144,939.36 -16,956,102.02
Research and development expenses 16,956,102.02 16,956,102.02
B. Execution of the interpretation of issues concerning the form of the 2018 general corporate financial statements
The Ministry of Finance issued the interpretation of issues concerning the form of the 2018 general corporate financial
statements (hereinafter, the Interpretation). The Interpretation requires that: as a withholding agent for personal income
tax, the withholding tax refund should be recognized as “other projects related to daily activities” under “other income and
gain” in income statement according to the Individual Income Tax Law of the People's Republic of China. The government
subsidies received by the Company, whether related to assets or income, are presented as cash flows from operating
activities when preparing the cash flow statement.
In accordance with the "Accounting Standards for Business Enterprises No. 30 - presentation of financial statements" and
other relevant regulations, the Company adopted the retrospective adjustment method for the changes of accounting
policy. And the 2018/2017 comparative financial statements have been restated. The other income and gain in 2017
consolidated financial statements is increased by CNY 3,244,554.69 and non-operating income is decreased by CNY
3,244,554.69. The other income and gain in parent company’s 2017 financial statement is increased by CNY
3,244,554.69 and the non-operating income is decreased by CNY 3,244,554.69. The other cash receipts relating to
operating activities in 2017 consolidated cash flow statement is increased by CNY 15,630,000.00, and the other cash
receipts relating to financing activities is reduced by CNY 15,630,000.00. The other cash receipts relating to operating
activities in the parent company’s 2017 financial statements is increased by CNY 15,630,000.00, and the other cash
receipts relating to financing activities is reduced by CNY 15,630,000.00.
4.26.1.2 Changes in other accounting policies
There is no significant change of other accounting policies for the company during the reporting period.
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4.26.2 Changes of accounting estimates
There is no significant change of accounting estimates for the company during the reporting period.
4.27 Correction of prior period errors
There is no significant change of previous accounting errors for the Company during the reporting period.
4.28 Significant account judgement and estimates
The Company is required to make judgments, estimates and assumptions about the carrying amounts of items in the
financial statements that cannot be measured accurately, due to the internal uncertainties of operation activities. These
judgments, estimates and assumptions are based on historical experiences of the Company’s management as well as
other factors that are considered to be relevant. These judgements, estimates and assumptions may affect value of the
financial statements in revenue, expenses, assets and liabilities and the disclosure of contingency at the balance sheet
date. However, the actual result derived from those uncertainties in estimates may be different from the management
estimates, which may lead significant adjustments to the carrying amounts of the assets or liabilities affected in the future.
The Company has reviewed the judgments, estimates and assumptions regularly on the basis of going concern. Where
the changes in accounting estimates only affect the period when changes occurred, and they are recognized within the
same period. Where the changes in accounting estimates affect both current period and future period, the changes are
recognized within the period of change and future period.
At the balance sheet date, the followings are the significant areas where the Company needs to make judgement,
estimates and assumptions over the value of items in the financial statements:
4.28.1 Classification of lease
The Company classifies leases as operating lease and financing lease according to the rule stipulated in the Accounting
Standard for Business Enterprises No. 21--Leasing. The management shall make analysis and judgment on whether the
risks and rewards related to the title of leased assets has been transferred to the leaser, or whether the Company has
substantially held the risks and rewards related to the ownership of leased assets.
4.28.2 Allowance for bad debt
According to the relevant accounting policies of the Company in receivables, allowance method is used for bad debt’s
calculation. The impairment of receivables is calculated based on the assessment of recoverable of receivables.
Assurance of receivable impairment needs judgments and estimations from the management. The difference between
actual results and original estimates shall have impact on the carrying amount of receivables and receivable bad debt
provisions or the reverse during the change of estimation.
4.28.3 Impairment of inventories
The Company measures inventories by the lower of cost and realizable net value according to the accounting policies in
regard of inventories and provisions for decline in value of inventories is made if the cost is higher than their net realizable
value, and obsolete and slow-movement inventories. Inventories decline in value to net realizable value is the estimated
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selling price in the ordinary course of business. Net realizable value is determined on the basis of clear evidence obtained
and takes into consideration the purposes of holding inventories and effect of post balance sheet events. The difference
between the actual result and the original estimates shall have impact on reverse of the carrying amount of the inventories
and their decline in value or provisions during the period of change.
4.28.4 The fair value of financial instruments
For a financial instrument which has no active market, the Company establishes fair value by using various valuation
methods, including of discounted cash flow analysis model. The Company needs to estimate future cash flow, credit risk,
volatility and relationship during the valuation and choose appropriate discount rate. Such assumptions have uncertainties
and their changes shall have impact on the fair value of financial instruments.
4.28.5 Impairment of non-financial, non-current assets
The Company assesses whether there are any indicators of impairment for all non-current assets other than financial
assets at the balance sheet date. For an intangible asset that has indefinite useful life, impairment test is made in addition
to the annual impairment test if there is any indication of impairment. For non-current assets other than financial assets,
impairment test is made when there is any indication that its account balance cannot be recovered.
Impairment exists when the recoverable amount of an asset is the higher of its fair value less cost of disposal and present
value of the future cash flows expected to be derived from the asset.
Net value between the difference of fair value and disposal cost is determined by reference of the price of similar product
in a sale agreement in an arm’s length transaction or an observable market price less the additional cost directly
attributable to the disposal of the asset.
When estimating the present value of future cash flow, significant judgments are made over the asset’s production, selling
price and relevant operating expenses, and discount rate used to calculate present value. All available materials that are
considered to be relevant shall be used in the estimation of recoverable value. These materials include estimations of
production, selling price and operating expenses based on reasonable and supportable assumptions.
The Company makes an impairment test for goodwill at least at each year end. This requires an estimation of present
value of future cash flow of the assets or assets group where goodwill has been allocated. The Company shall makes
estimation on the future cash flow derived from assets or assets group and determine an appropriate discount rate for the
present value of future cash flow when the estimation of present value of future cash flow is made.
4.28.6 Depreciation and amortization
Investment property, fixed assets and intangible assets are depreciated and amortized using the straight-line method over
their useful lives after taking into account residual value. The useful lives are regularly reviewed to determine the
depreciation and amortization costs charged in each reporting period. The useful lives are determined based on historical
experience of similar assets and the estimated technical changes. If there is an indication that there has been a change in
the factor used to determine the depreciation or amortization, the rate of depreciation or amortization is revised.
4.28.7 Deferred tax assets
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The Company shall recognize all unused tax losses as deferred tax assets to the extent that it is probable that future
taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. This requires
the management of the Company make a lot of judgments over the estimation of time period, value and tax planning
strategies when future taxable profit incurs so that the value of deferred tax assets can be determined.
4.28.8 Income tax
There are some transactions where ultimate tax treatments and calculations have uncertainties in the Company’s
everyday operation. Whether it is possible for some items to make expenditure before tax needs approval from competent
tax authorities. If there is any difference between finalized determination value and their initial estimations value, the
difference shall have the impact on the income tax and deferred income tax of the current period during the final
determination.
4.28.9 Aircraft operating lease and engine overhaul expenses
Aircraft operating lease and engine overhaul expenses are accrued and charged to profit or loss in accordance with the
expected maintenance cycle, based on flight hours, flight cycles overhaul period and the amount of the cost of repairs
which may occur. These estimates are largely based on past historical data about the same or similar types of aircraft and
engines repairance. The withholding amount and overhaul costs may be affected by different judgments and estimates
and affect current profit or loss.
4.28.10 Defined benefit plan
The defined benefit plan implemented and maintained by the Company includes post-employment benefits plan. The
provided welfare costs under the above defined benefit plan was calculated by expected cumulative unit credit method
according to various actuarial assumptions and were recognized during the employee service providing period. Actuarial
Assumptions include but not limited to discount rate, mortality rate, and etc. The discount rate is on the basis of
management's review of national debt, and mortality rate depends on the mortality rate adopted by the China life
insurance industry. Supplemental information of defined benefit plan refer to Note 6.26.
Note 5 Taxation
5.1 Major taxes and tax rate
Tax Tax rate (%)
Enterprise income tax Business tax is calculated according to the taxable income(note1)
The VAT is calculated as the difference between output tax (11% of the taxable revenue)
Value added tax
and deductible input tax for the period, and the tax rates are 6%, 10%, 11%, 16% or 17%
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Tax Tax rate (%)
(Note 2). The output tax is calculated using the sales of goods and taxable services income
(including transportation and ground services revenue).
Property tax is calculated by the nature of house property and is collected by ad valorem or
Property tax
specific duties according to the tax rules.
Urban maintenance and construction
Urban maintenance and construction tax are calculated at 7% of turnover tax.
tax
Education surcharge Education surcharge is calculated at 3% of turnover tax.
Local education surcharge Local education surcharge is calculated at 2% of turnover tax.
Civil aviation development fund shall be calculated using the collection standard of the
relevant category of flight routes, maximum departure weight and flight distance adopted
Civil aviation development Fund by the civil aviation industry. According to “Interim measures for the administration of the
administration of civil aviation development fund”《民航发展基金征收使用管理暂行
办法》.
Note 1: According to the provision of National Development and Reform Commission ([2014]15) and Announcement of
the State Administration of Taxation on the enterprise income tax on the in-depth implementation of the development
strategy of the western region of China"(《国家税务总局关于深入实施西部大开发战略有关企业所得税问题的公告》) (State
Administration of Taxation [2012]12), the Chongqing branch of the company can get a reduced rate of 15% to pay
corporate income tax, when its international and domestic air passenger and cargo transport projects are in line with the "
Catalogue of Encouraged Industries in Western Region”(《西部地区鼓励类产业目录》). All companies in mainland China
are subject to a corporate income tax rate of 25%.
Note 2: The original applicable tax rate is 17% and 11% for the company output tax and import tax respectively. According
to the "Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Value-Added Tax Rate"
(Caishui [2018] No. 32), the applicable tax rate will be adjusted to 16% and 10% from May 1 2018.
5.2 Tax incentives
5.2.1. Zero VAT rate applies to entities and individuals within the Chinese territory that provide international
transportation services, research and development services and designing services provided to foreign entities, roundtrip
transportation services between Hongkong, Marcau, and Taiwan, as well as transportation services provided in
Hongkong, Marcau, and Taiwan per the Notice of Pilot Conversion of Sales-tax-to-VAT for the Transportation Sector and
Certain Contemporary Service Sectors by the Ministry of Finance and State Administration of Taxation (Caishui [2013]
No.37)(财税[2013]37号《财政部、国家税务总局关于在全国开展交通运输业和部分现代服务业营业税改征增值税试点税收
69
政策的通知》)..
5.2.2. According to the Announcement of the State Administration of Taxation on the enterprise income tax on the in-depth
implementation of the development strategy of the western region of China"(《国家税务总局关于深入实施西部大开发战略
有关企业所得税问题的公告》) (State Administration of Taxation [2012]12), Chongqing Branch of the Company meets the
conditions for reduction and exemption in the development of the western region, could enjoy the preferential policy of
reducing enterprise income tax by 15% in 2018 .
Note 6 Notes to significant elements of the consolidated financial statements
Unless otherwise stated, the meaning of "B/f", "C/f", "Current year", "Prior year" in the following notes (incl. Notes to
elements of the separate financial statements) is "January 1 2018", "December 31 2018", "the year ended December 31
2018", and "the year ended December 31 2017" respectively.
6.1 Monetary funds
Item C/f B/f
Cash at hand: 291,347.27 372,046.44
Bank deposit: 840,568,756.82 543,212,873.86
Other monetary funds 100,000.00
Total 840,960,104.09 543,584,920.30
Including: the total amount of deposit abroad 2,047,660.50 2,495,063.57
Note: As at the year end, the Company used restricted monetary funds of CNY 100,000.00 (prior year: CNY 0.00), which
was issued by the Company with a bank deposit of CNY 100,000.00 as a guarantee.
6.2 Financial assets at fair value through profit or loss
Item C/f B/f
Interest rate swaps 90,488.17
Total 90,488.17
Note: As of December 31 2018, the outstanding principal of the company’s interest rate swaps was USD 21,547,185.60,
and the bank confirmed that the market value of the interest rate swap contract was CNY 90,488.17.
6.3 Notes receivable and accounts receivable
Item C/f B/f
Notes receivable 115,000.00
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Item C/f B/f
Accounts receivable 413,726,456.71 550,905,199.28
Total 413,726,456.71 551,020,199.28
6.3.1 Notes receivable
Item C/f B/f
Banker's acceptance bill 115,000.00
Total 115,000.00
6.3.2 Accounts receivable
6.3.2.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Accounts receivable of individual significance and
105,366,572.73 24.08 105,366,572.73
subject to individual impairment assessment
Accounts receivable subject to impairment assessment
258,395,976.09 59.07 12,919,798.81 5.00 245,476,177.28
by credit risk characteristics of a portfolio
Accounts receivable of individual insignificance but
73,706,824.60 16.85 10,823,117.90 14.68 62,883,706.70
subject to individual impairment assessment
Total 437,469,373.42 100.00 23,742,916.71 5.43 413,726,456.71
(Continued)
B/f
Category Carrying amount Allowance for bad debt Book value
Amount % Amount %
Accounts receivable of individual significance and
354,888,680.81 62.18 354,888,680.81
subject to individual impairment assessment
Accounts receivable subject to impairment assessment 180,164,301.95 31.57 9,008,215.10 5.00 171,156,086.85
71
B/f
Category Carrying amount Allowance for bad debt Book value
Amount % Amount %
by credit risk characteristics of a portfolio
Accounts receivable of individual insignificance but
35,683,549.52 6.25 10,823,117.90 30.33 24,860,431.62
subject to individual impairment assessment
Total 570,736,532.28 100.00 19,831,333.00 3.47 550,905,199.28
A: Accounts receivable of individual significance and subject to individual impairment assessment
C/f
Debtor Allowance for Rate of allowance
Carrying amount Reason for allowance
bad debt (%)
No indication of impairment
BSP-CHINA 56,778,788.70
upon individual assessment
No indication of impairment
Accounting Center of China Aviation 48,587,784.03
upon individual assessment
Total 105,366,572.73
B. Accounts receivable subject to impairment assessment by portfolio
C/f
Debtor
Carrying amount Allowance for bad debt Rate of allowance (%)
Portfolio by nature 258,395,976.09 12,919,798.81 5.00
Total 258,395,976.09 12,919,798.81 5.00
C. Accounts receivable of individual insignificance but subject to individual impairment assessment
C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance
bad debt allowance (%)
No indication of impairment
BSP-Other areas(notes) 47,835,858.63
upon individual assessment
No indication of impairment
Air China 8,564,966.57
upon individual assessment
72
C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance
bad debt allowance (%)
Impairment upon individual
Debtor #1 8,057,209.85 8,057,209.85 100.00
assessment
No indication of impairment
UATP 5,479,498.61
upon individual assessment
Impairment upon individual
Kun Peng Airlines Co., Ltd 1,849,400.00 1,849,400.00 100.00
assessment
Impairment upon individual
CR Airways 916,508.05 916,508.05 100.00
assessment
No indication of impairment
Air China Cargo 907,509.39
upon individual assessment
No indication of impairment
Dalian Airlines 87,473.50
upon individual assessment
Taikoo (Shandong) Aircraft No indication of impairment
8,400.00
Engineering Company Limited upon individual assessment
Total 73,706,824.60 10,823,117.90 14.68
①Notes: BSP-Other areas (notes) includes Tai Wan, Korea, Japan, Hong Kong, Australia, Russia, Canada, Thailand,
Germany, Cambodia, Vietnam, Singapore, Indonesia, Philippines, France etc.
6.3.2.2 Recognition, recovery or reversal of allowance for bad debt
The amount of allowance for bad debt recognized during the year is CNY 3,911,583.71. No recovery or return to bad
debts during the year.
6.3.2.3 Top five accounts receivables by debtors
The total amount of top five accounts receivables summarized by debtors as at the end of current year is CNY
199,325,791.04, accounting for 45.56% of the total accounts receivable as at the end of current year, the total
corresponding allowance for bad debt is CNY 4,697,960.92.
6.4 Prepayments
6.4.1 Disclosure by age
C/f B/f
Age
Amount % Amount %
Within 1 year 265,432,349.34 99.81 221,571,912.67 99.50
73
C/f B/f
Age
Amount % Amount %
1 to 2 years 343,453.93 0.15
2 to 3 years 50,862.40 0.02
Over 3 years 498,993.60 0.19 722,054.66 0.33
Total 265,931,342.94 100.00 222,688,283.66 100.00
6.4.2 Details of top five prepayments
The total amount of top five prepayments as at the end of current year is CNY 107,447,796.54, accounting for 40.40%
of prepayments.
6.5 Other receivables
Item C/f B/f
Interest receivable
Dividend receivable
Other receivables 225,281,412.22 349,352,881.41
Total 225,281,412.22 349,352,881.41
6.5.1 Other receivables
6.5.1.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Other receivables of individual
significance and subject to 249,586,501.51 74.67 106,200,587.24 42.55 143,385,914.27
individual impairment assessment
Other receivables subject to
impairment assessment by credit 55,615,843.32 16.64 2,780,792.16 5.00 52,835,051.16
risk characteristics of a portfolio
Other receivables of individual
insignificance but subject to 29,060,446.79 8.69 29,060,446.79
individual impairment assessment
Total 334,262,791.62 100.00 108,981,379.40 32.60 225,281,412.22
(Continued)
74
B/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Other receivables of individual
significance and subject to individual 397,069,459.88 86.85 106,076,302.93 26.71 290,993,156.95
impairment assessment
Other receivables subject to
impairment assessment by credit risk 34,890,352.33 7.63 1,744,517.62 5.00 33,145,834.71
characteristics of a portfolio
Other receivables of individual
insignificance but subject to individual 25,213,889.75 5.52 25,213,889.75
impairment assessment
Total 457,173,701.96 100.00 107,820,820.55 23.58 349,352,881.41
A. Other receivables of individual significance and subject to individual impairment assessment
C/f
Debtor Allowance for bad Rate of
Carrying amount Reason for allowance
debt allowance (%)
Shandong Rainbow Commercial Jet Co., Impairment upon individual
101,551,717.65 101,551,717.65 100.00
Ltd. assessment
No indication of impairment
Debtor #1 55,057,392.23
upon individual assessment
Impairment assessment by
Debtor #2 33,202,261.73 1,660,113.09 5.00
portfolio
Impairment assessment by
Debtor #3 59,775,129.90 2,988,756.50 5.00
portfolio
Total 249,586,501.51 106,200,587.24 42.55
B. Other receivables subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance(%)
Portfolio by nature 55,615,843.32 2,780,792.16 5.00
75
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance(%)
Total 55,615,843.32 2,780,792.16 5.00
C. Other receivables of individual insignificance but subject to individual impairment assessment
C/f
Debtor Allowance for bad Rate of allowance
Carrying amount Reason for allowance
debt (%)
No indication of impairment
Shandong Air New Media Co., Ltd. 11,745,680.45
upon individual assessment
No indication of impairment
Air China 6,033,885.98
upon individual assessment
No indication of impairment
Debtor #1 4,238,588.20
upon individual assessment
No indication of impairment
Debtor #2 2,202,992.16
upon individual assessment
No indication of impairment
Debtor #3 2,062,200.00
upon individual assessment
No indication of impairment
Debtor #4 784,775.64
upon individual assessment
No indication of impairment
Debtor #5 553,166.41
upon individual assessment
No indication of impairment
Debtor #6 275,493.25
upon individual assessment
No indication of impairment
Dalian Airlines 241,412.00
upon individual assessment
Taikoo (Shandong) Aircraft Engineering No indication of impairment
235,380.70
Company Limited upon individual assessment
No indication of impairment
Kunming Airlines Ltd 202,090.00
upon individual assessment
No indication of impairment
Debtor #7 200,000.00
upon individual assessment
76
C/f
Debtor Allowance for bad Rate of allowance
Carrying amount Reason for allowance
debt (%)
Aircraft Maintenance and Engineering No indication of impairment
169,241.85
Corporation (Ameco Beijing) upon individual assessment
No indication of impairment
Shenzhen Airlines Co., Ltd 50,787.34
upon individual assessment
Shandong XiangYu Air Technology No indication of impairment
50,712.31
Co., Ltd. upon individual assessment
Shandong Airlines Rainbow Auto No indication of impairment
Service Co., Ltd. 14,040.50 upon individual assessment
Total 29,060,446.79
6.5.1.2 Recognition, recovery or reversal of other receivables allowance for bad debt
The amount of allowance for bad debts increased during the year is CNY 1,160,558.85. No recovery or provision to
bad debts during the year.
6.5.1.3 Other receivables written off
There are no written off to other receivables during the year.
6.5.1.4 Disclosure of other receivables by nature
Category C/f B/f
Deposits 65,285,753.89 220,843,044.40
Others 268,977,037.73 236,330,657.56
Total 334,262,791.62 457,173,701.96
6.5.1.5 Top five other receivables
Allowance for bad
Debtor Nature C/f Aging %
debt
Shandong Rainbow Commercial Jet Co., Ltd. Others 101,551,717.65 Over 5 years 30.38 101,551,717.65
Debtor #1 Deposits 55,057,392.23 Within 1 year 16.47
Debtor #2 Others 33,202,261.73 Within 3 years 9.93 1,660,113.09
Debtor #3 Others 59,775,129.90 Within 4 years 17.88 2,988,756.50
77
Allowance for bad
Debtor Nature C/f Aging %
debt
Shandong Air New Media Co., Ltd. Others 11,745,680.45 Within 2 years 3.51
Total 261,332,181.96 78.17 106,200,587.24
6.6 Inventories
C/f
Type
Gross carrying amount Impairment allowance Net carrying amount
Consumable air equipment 99,169,118.33 99,169,118.33
Low-value consumables 3,870,289.81 3,870,289.81
Materials 2,586,111.28 2,586,111.28
Total 105,625,519.42 105,625,519.42
(Continued)
B/f
Type
Gross carrying amount Impairment allowance Net carrying amount
Consumable air equipment 78,296,670.06 78,296,670.06
Low-value consumables 2,644,918.01 2,644,918.01
Materials 2,982,597.57 2,982,597.57
Total 83,924,185.64 83,924,185.64
6.7 Other current assets
Type C/f B/f
VAT deductible 236,596,457.60 185,809,122.83
Total 236,596,457.60 185,809,122.83
6.8 Financial assets available for sale
6.8.1 General information
C/f B/f
Category Net carrying Net carrying
Carrying amount Impairment Carrying amount Impairment
amount amount
78
Available for sale equity instruments 310,842,965.35 310,842,965.35 337,378,099.40 337,378,099.40
Including: measured by fair value 229,180,865.35 229,180,865.35 255,715,999.40 255,715,999.40
measured by cost 81,662,100.00 81,662,100.00 81,662,100.00 81,662,100.00
Total 310,842,965.35 310,842,965.35 337,378,099.40 337,378,099.40
6.8.2 Financial assets available for sale measured by fair value at the end of current year
Available for sale equity
Category Total
instruments
Cost of equity instruments 6,690,000.00 6,690,000.00
Fair value 229,180,865.35 229,180,865.35
Accumulated changes in the fair value recognized into
222,490,865.35 222,490,865.35
other comprehensive income
Impairment amount
6.8.3 Financial assets available for sale measured by cost at the end of current year
Carrying amounts as at 31/12/2018 Impairment Cash
Increase Decrease Increase Decrease Shareholding in Dividend
Investee
B/f in current in current C/f B/f in current in current C/f investee (%) for current
year year year year year
Sichuan Airlines 35,000,000.00 35,000,000.00 10.00 13,907,646.29
Jinan International
46,662,100.00 46,662,100.00 1.94 726,062.28
Airport
Total 81,662,100.00 81,662,100.00 14,633,708.57
6.9 Long-term equity investments
Currency year movement (+, -)
Investment gains
and losses Other comprehensive Other
Category B/f Allowance b/f Additional Investment
recognized under income changes
investment reduction
the equity adjustment in equity
method
Associates
Shandong
Rainbow
22,500,000.00 22,500,000.00
Commercial
Jet Co., Ltd.
Total 22,500,000.00 22,500,000.00
79
(Continued)
Currency year movement (+, -)
Category Declared cash dividends Allowance C/f Allowance c/f
Others
or profits recognized
Investment in associates
Shandong Rainbow Commercial
Jet Co., Ltd. 22,500,000.00 22,500,000.00
Total 22,500,000.00 22,500,000.00
6.10 Fixed assets
Item C/f B/f
Fixed assets 7,770,750,794.37 6,904,643,268.14
Disposal of fixed assets
Total 7,770,750,794.37 6,904,643,268.14
6.10.1 General information
Houses and Aircrafts and High-value Transportation
Items Others Total
buildings engines rotables vehicles
1. Cost:
1.1 Balance as at 31/12/2017 377,594,811.74 10,922,824,621.03 691,140,145.86 75,980,815.47 207,236,294.61 12,274,776,688.71
1.2 Increased in current year 194,248,964.04 1,406,768,009.39 110,466,059.34 7,273,203.11 27,251,297.43 1,746,007,533.31
(1) Purchase 8,194,809.91 1,320,732,168.58 110,466,059.34 7,273,203.11 27,251,297.43 1,473,917,538.37
(2) Transferred from
186,054,154.13 86,035,840.81 272,089,994.94
construction in-progress
(3) Transferred from merger
and acquisitions
(4) Others
1.3 Decreased in
338,170,901.46 83,506,981.12 2,923,224.12 7,064,595.29 431,665,701.99
current year
(1) Disposal or scrap 338,170,901.46 83,506,981.12 2,923,224.12 7,064,595.29 431,665,701.99
80
Houses and Aircrafts and High-value Transportation
Items Others Total
buildings engines rotables vehicles
(2) Others
1.4 Balance as at 31/12/2018 571,843,775.78 11,991,421,728.96 718,099,224.08 80,330,794.46 227,422,996.75 13,589,118,520.03
2. Accumulated Depreciation
2.1 Balance as at 31/12/2017 100,929,753.95 4,842,737,027.50 260,938,213.01 45,330,057.88 117,972,021.16 5,367,907,073.50
2.2 Increased in current year 12,831,022.21 749,166,134.82 37,881,483.83 5,934,219.18 16,930,870.22 822,743,730.26
(1) Accrual 12,831,022.21 749,166,134.82 37,881,483.83 5,934,219.18 16,930,870.22 822,743,730.26
(2) Transferred from merger
and acquisitions
2.3 Decreased in current year 307,661,568.58 57,516,135.04 2,621,422.24 6,478,573.56 374,277,699.42
(1) Disposal or scrap 307,661,568.58 57,516,135.04 2,621,422.24 6,478,573.56 374,277,699.42
(2) Others
2.4. Balance as at 31/12/2018 113,760,776.16 5,284,241,593.74 241,303,561.80 48,642,854.82 128,424,317.82 5,816,373,104.34
3. Impairment allowance
3.1 Balance as at 31/12/2017 2,226,347.07 2,226,347.07
3.2 Increased in current year
(1) Accrual
(2) Transferred from merger
and acquisitions
3.3 Decreased in current year 231,725.75 231,725.75
(1) Disposal or scrap 231,725.75 231,725.75
(2) Others
3.4 Balance as at 31/12/2018 1,994,621.32 1,994,621.32
4. Carrying amount
4.1 Carrying amount as
458,082,999.62 6,707,180,135.22 474,801,040.96 31,687,939.64 98,998,678.93 7,770,750,794.37
at 31/12/2018
4.2 Carrying amount as 276,665,057.79 6,080,087,593.53 427,975,585.78 30,650,757.59 89,264,273.45 6,904,643,268.14
81
Houses and Aircrafts and High-value Transportation
Items Others Total
buildings engines rotables vehicles
at 31/12/2017
6.10.2 Fixed assets acquired under financial leases
Accumulated
Category Cost Impairment allowance Carrying amount
Depreciation
Aircrafts and engines 3,636,221,448.64 1,295,273,413.25 2,340,948,035.39
Total 3,636,221,448.64 1,295,273,413.25 2,340,948,035.39
6.10.3 Fixed assets pending ownership registration
Item Carrying amount Reason for pending
Land rented from Jinan Air Control, not eligible for
Jinan cargo arrival and departure warehouses 11,927,080.37
ownership registration
Land use rights belonging to Shandong SDA Group,
Buildings of Jinping Food Co., Ltd. 12,841,588.18
not eligible for ownership registration
Impairment allowance of fixed assets is CNY 1,994,621.32 as at December 31 2018, with no additional amount of
allowance for fixed assets impairment recognized during the year.
6.11 Construction in progress
Items C/f B/f
Construction in progress 4,790,300,972.13 2,737,166,681.62
Construction material
Total 4,790,300,972.13 2,737,166,681.62
6.11.1 General information
C/f B/f
Items Impairment Impairment
Carrying amount Net carrying amount Carrying amount Net carrying amount
allowance allowance
Factory building
337,399,330.36 337,399,330.36 146,118,195.00 146,118,195.00
project
Prepayment
4,444,647,787.88 4,444,647,787.88 2,587,447,978.67 2,587,447,978.67
for aircrafts
Construction of 1,874,609.59 1,874,609.59 3,600,507.95 3,600,507.95
82
C/f B/f
Items Impairment Impairment
Carrying amount Net carrying amount Carrying amount Net carrying amount
allowance allowance
information system
Simulator 6,379,244.30 6,379,244.30
Total 4,790,300,972.13 4,790,300,972.13 2,737,166,681.62 2,737,166,681.62
6.11.2 Significant projects
Transferred to
Current year
Project Budget B/f fixed assets in Other decrease C/f
increase
current year
Administrative
office of
195,000,000.00 146,118,195.00 39,935,959.13 186,054,154.13
Xiamen
branch
Dining area of
Jiaodong 84,478,748.00 32,219,746.74 32,219,746.74
airport
Freight area
of Jiaodong 144,614,600.00 40,525,078.89 40,525,078.89
airport
Maintenance
area of
361,793,762.00 126,091,135.85 126,091,135.85
Jiaodong
airport
Auxiliary
production 333,439,610.00 138,563,368.88 138,563,368.88
office area
Aircraft asset
introduction 10,432,388,610.26 2,587,447,978.67 3,486,139,380.29 86,035,840.81 1,542,903,730.27 4,444,647,787.88
project
Total 11,551,715,330.26 2,733,566,173.67 3,863,474,669.78 272,089,994.94 1,542,903,730.27 4,782,047,118.24
(Continued)
83
Weight Capitalisation
Including:Transferred Including:Transferred Including:
of cost to Stage of Cumulative rate
into leaseback into fixed assets interests Source of
Items date in completion interests applicable to
assets during the during the current capitalized during finance
budgeted capitalised the current
current year year the current year
cost year
Administrative
Working
office of Xiamen 100.00 Completed
capital
branch
Dining area of Not yet Working
38.14
Jiaodong airport completed capital
Freight area of Not yet Working
28.02
Jiaodong airport completed capital
Maintenance
Not yet Working
area of Jiaodong 34.85
completed capital
airport
Auxiliary
Not yet Working
production office 41.56
completed capital
area
Loans
Aircraft asset
Not from
introduction 42.60 98,985,452.39 6,762,583.70 6,752,650.73 84,206,017.92 3.1172-4.2466
applicable financial
project
institution
Total 98,985,452.39 6,762,583.70 6,752,650.73 84,206,017.92
Note: The cumulative amount of interests capitalized as at December 31 2017 is CNY 28,294,668.90, the amount of
current year is CNY 84,206,017.92, including CNY 6,752,650.73 transferred into fixed assets and CNY 6,762,583.70
transferred into leaseback assets during the current year, the cumulative amount of interests capitalized as at December
31 2018 is CNY 98,985,452.39.
6.12 Intangible assets
6.12.1 General information
Items Land rights Software Total
1. Cost:
1.1 Balance as at 31/12/2017 108,347,341.13 38,034,419.63 146,381,760.76
84
Items Land rights Software Total
1.2 Increased in current year 7,771,003.23 7,771,003.23
(1) Purchase 243,589.74 243,589.74
(2) Diversion of construction 7,527,413.49 7,527,413.49
(3) Increased from business combination
1.3 Decreased in current year
(1) Disposal
1.4 Balance as at 31/12/2018 108,347,341.13 45,805,422.86 154,152,763.99
2. Accumulated amortization
2.1 Balance as at 31/12/2017 15,988,392.43 14,058,752.49 30,047,144.92
2.2 Increased in current year 2,403,582.86 6,160,154.82 8,563,737.68
(1) Accrual 2,403,582.86 6,160,154.82 8,563,737.68
(2) Increased from business combination
2.3 Decreased in current year
(1) Disposal
2.4 Balance as at 31/12/2018 18,391,975.29 20,218,907.31 38,610,882.60
3. Impairment allowance
3.1 Balance as at 31/12/2017
3.2 Increased in current year
(1) Accrual
(2) Increased from business combination
3.3 Decreased in current year
(1) Disposal
3.4 Balance as at 31/12/2018
4. Carrying amount
4.1 Carrying amount as at 31/12/2018 89,955,365.84 25,586,515.55 115,541,881.39
4.2 Carrying amount as at 31/12/2017 92,358,948.70 23,975,667.14 116,334,615.84
6.12.2 Land rights with pending ownership registration
No case of land rights with pending ownership registration was identified as of December 31 2018.
6.13 Goodwill
85
6.13.1 General information
Current year Current year
increase decrease
Investee B/f C/f
From business
Disposal
combination
Qingdao Feisheng 10,220,816.22 10,220,816.22
Shandong Jinping Food Co.,
454,020.13 454,020.13
Ltd.
Total 10,674,836.35 10,674,836.35
6.13.2 Impairment allowance
Current year Current year
Investee B/f increase decrease C/f
Accrual Disposal
Qingdao Feisheng 10,220,816.22 10,220,816.22
Total 10,220,816.22 10,220,816.22
6.14 Deferred charges
Current year Current year
Item B/f Other decrease C/f
increase amortization
Pilot training 523,766,897.35 124,395,649.49 87,336,955.65 560,825,591.19
Decoration expenditure 9,060,656.59 3,061,736.96 5,998,919.63
Modification costs for aircraft
3,037,717.75 4,261,287.46 478,173.39 6,820,831.82
leasing
Total 535,865,271.69 128,656,936.95 90,876,866.00 573,645,342.64
6.15 Deferred tax assets and deferred tax liabilities
6.15.1 Deferred tax assets
C/f B/f
Item Deductible temporary Deductible temporary
Deferred tax assets Deferred tax assets
difference difference
Allowance for bad debt 132,724,296.11 33,181,074.03 127,652,153.55 31,913,038.39
Impairment allowance for
1,994,621.32 498,655.33 2,226,347.07 556,586.77
fixed assets
Fair value movement of 3,607,390.15 901,847.54
86
C/f B/f
Item Deductible temporary Deductible temporary
Deferred tax assets Deferred tax assets
difference difference
financial liabilities held for
trading
Provisions 3,480,184,220.23 870,046,055.05 2,951,741,214.11 737,935,303.53
Employment benefits payable 17,131,763.99 4,282,941.00 19,525,941.56 4,881,485.39
Deferred income 24,890,471.35 6,222,617.84 28,052,113.39 7,013,028.35
Total 3,656,925,373.00 914,231,343.25 3,132,805,159.83 783,201,289.97
6.15.2 Deferred tax liabilities
C/f B/f
Item Taxable temporary Deferred tax Taxable temporary Deferred tax
differences liabilities differences liabilities
Asset evaluation increment
from Enterprise merger under 4,694,682.30 1,173,670.58 5,216,313.67 1,304,078.42
the different control
Changes in fair value of
financial assets held for 90,488.17 22,622.04
trading
Changes in fair value of
financial assets available for 222,490,865.36 55,622,716.34 249,025,999.40 62,256,499.85
sale
Total 227,276,035.83 56,819,008.96 254,242,313.07 63,560,578.27
6.16 Short-term borrowing
Item C/f B/f
Credit loan 580,000,000.00
Total 580,000,000.00
6.17 Financial liabilities at fair value through profit or loss
Item Fair value c/f Fair value b/f
Interest rate swaps 3,607,390.15
87
Total 3,607,390.15
6.18 Notes payable and accounts payable
Items C/f B/f
Notes payable
Accounts payable 2,273,836,607.26 1,931,374,087.78
Total 2,273,836,607.26 1,931,374,087.78
6.18.1 General information
Item C/f B/f
Aircraft maintenance costs 560,449,992.31 337,904,448.20
Fuel cost 327,714,163.12 261,755,113.61
Landing fee 446,878,244.86 465,414,727.22
Aircraft service cost 570,352,031.53 441,075,851.00
Flight catering 109,165,990.89 102,114,633.18
Computer booking fee 135,371,372.00 43,775,358.00
Lease rental 5,602,184.13 5,192,061.57
Others 118,302,628.42 274,141,895.00
Total 2,273,836,607.26 1,931,374,087.78
6.18.2 No significant account payable due for more than 1 year as at the reporting date.
6.19 Advance from customers
Item C/f B/f
Ticket clearing 761,881,379.16 596,872,012.37
Advanced payment for tickets 4,286,573.58 4,622,618.61
Others 21,203,718.59 12,824,788.69
Total 787,371,671.33 614,319,419.67
6.20 Employee benefits payable
6.20.1 Disclosure by classification
88
Current year Current year
Item B/f C/f
increase decrease
1. Short-term employee benefits 567,105,882.00 2,834,332,570.82 2,858,144,013.01 543,294,439.81
2. Post-employment benefits 254,072,917.87 254,072,917.87
3. Termination benefits 327,186.63 327,186.63
4. Other long-term employee benefits within
one year
Total 567,105,882.00 3,088,732,675.32 3,112,544,117.51 543,294,439.81
6.20.2 Disclosure by classification of short-term employee benefits
Current year Current year
Item B/f C/f
increase decrease
1. Wages, salaries and subsidies 516,052,100.09 2,502,119,950.71 2,524,245,374.33 493,926,676.47
2. Employee welfare 19,978,096.69 19,978,096.69
3. Social insurance: 105,226,783.72 105,226,783.72
Including: Medical insurance 91,069,230.10 91,069,230.10
Employment injury insurance 5,214,650.26 5,214,650.26
Maternity insurance 8,942,903.36 8,942,903.36
4.Housing provident fund 12,748.00 100,320,969.41 100,331,173.41 2,544.00
5.Labour union fee and employee
19,583,856.91 74,523,561.50 76,905,407.86 17,202,010.55
education fee
6. Short-term paid absences 31,457,177.00 32,163,208.79 31,457,177.00 32,163,208.79
7. Short-term profit-sharing plan
Total 567,105,882.00 2,834,332,570.82 2,858,144,013.01 543,294,439.81
6.20.3 Disclosure by defined contribution plan
Item B/f Current year increase Current year decrease C/f
1. Basic pension 161,851,669.23 161,851,669.23
2.Unemployment insurance 6,184,421.32 6,184,421.32
3. Annuity payment 86,036,827.32 86,036,827.32
89
Item B/f Current year increase Current year decrease C/f
Total 254,072,917.87 254,072,917.87
The company participated in basic pension and unemployment insurance in accordance with the regulations. Based on
the insurance program, a percentage of total wages of employees were paid to the account separately. Except for the fee
paid, enterprise annuity was deposited to annuity management institution by a percentage of monthly payment base,
which was determined by seniority pay and post salary.
6.21 Taxes and fees payable
Tax (Fee) C/f B/f
VAT 1,550,891.34 1,400,888.26
Urban construction and maintenance tax 203,034.68 223,615.34
Education surcharge 144,777.29 159,477.76
Enterprise income tax 108,855,883.31 15,769,670.61
Property tax 207,271.63 181,408.07
Land tax 284,502.66 205,460.75
Personal income tax 8,016,428.72 14,673,780.29
Stamp duty 1,754,447.96 799,542.22
Civil aviation development fund 131,301,180.63 130,966,878.62
Others 398,840.65 186,068.99
Total 252,717,258.87 164,566,790.91
6.22 Other payables
Item C/f B/f
Interest payable 10,428,894.80 1,324,391.18
Dividend payable 602,306.96 602,306.96
Other payables 624,468,268.37 411,682,128.67
Total 635,499,470.13 413,608,826.81
6.22.1 Interest payable
Item C/f B/f
Interest on long-term borrowings with repayment by installments 6,875,927.06 1,324,391.18
90
Accrued interest on short-term borrowings 3,552,967.74
Total 10,428,894.80 1,324,391.18
6.22.2 Dividend payable
Item C/f B/f
Dividend on common shares 602,306.96 602,306.96
Total 602,306.96 602,306.96
6.22.3 Other payables
6.22.3.1 Disclosure by nature
Item C/f B/f
Payable for construction projects 241,249,024.10 18,457,305.62
Payable for down payments 133,300,822.32 127,273,552.52
Payables associated with aircraft purchase 3,949,505.02 3,973,086.10
Taxes deducted at source 102,180,386.82 83,689,966.95
Others 143,788,530.11 178,288,217.48
Total 624,468,268.37 411,682,128.67
6.22.3.2 No significant other payables due for more than 1 year as at the reporting date.
6.23 Non-current liabilities due within one year
Category C/f B/f
Long-term borrowings due within one year (Note 6.24) 116,076,320.00 433,674,928.00
Long-term payables due within one year (Note 6.25) 330,554,355.34 180,371,296.77
Long-term employee benefits payable due within one
9,210,000.00 8,081,000.00
year (Note 6.26)
Total 455,840,675.34 622,127,224.77
6.24 Long-term borrowings
Category C/f B/f
Secured loans 982,509,309.37 1,553,926,179.16
Credit loans 1,019,123,568.46 97,359,580.00
91
Category C/f B/f
Less: Long-term borrowings due within one year (Note 6.23) 116,076,320.00 433,674,928.00
Total 1,885,556,557.83 1,217,610,831.16
Note: ① Class and amount of mortgage assets see Note 6.50 assets with imposed restriction on ownership.
② Interest rates as at December 31 2018 of the above-mentioned long-term borrowings range from
3.30125%-4.3007%.
6.25 Long-term payables
Item C/f B/f
Long-term payables 4,368,213,445.33 3,277,812,491.65
Specific payable
Total 4,368,213,445.33 3,277,812,491.65
6.25.1 Long-term payables by category
Category C/f B/f
Financial lease rental payables 1,872,324,694.55 1,065,062,917.10
Maintenance payables for aircrafts and engines held under operating lease 3,380,184,220.23 2,717,062,560.74
Less: Financial lease rental payables due within one year (Note 6.23) 330,554,355.34 180,371,296.77
Less: Maintenance payables for aircrafts and engines held under
553,741,114.11 323,941,689.42
operating lease due within one year (Note 1)
Total 4,368,213,445.33 3,277,812,491.65
Note: Maintenance payables for aircrafts and engines held under operating lease due within one year had been included
in accounts payable.
6.26 Long-term employee benefits payable
6.26.1 General information
Item C/f B/f
Post-employment benefits-net defined benefit liability 144,434,119.11 119,031,000.00
Less: long-term staff remuneration payable due within one year (Note 6.23) 9,210,000.00 8,081,000.00
Total 135,224,119.11 110,950,000.00
6.26.2 Movements
92
① Defined benefit obligation
Item C/f B/f
(1) Net Defined Benefit Asset/(Liability) at End of Prior Period 119,031,000.00 100,925,069.51
(2) Defined benefit costs recognized
24,878,000.00 23,179,000.00
into current profit or loss
1. Current Service Cost
2. Past Service Cost 20,278,000.00 20,010,000.00
3. Settlement (Gain)/Loss
4. Net Interest/(Income) on Net Defined Benefit Liability/(Asset) 4,600,000.00 3,169,000.00
(3) Defined benefit costs recognized
-9,293,000.00 -2,514,660.07
into other comprehensive income
1. Actuarial gains/(losses) -9,293,000.00 -2,514,660.07
(4) Other movements 8,767,880.89 7,587,729.58
1. Settlement payment
2. Benefits Paid Directly by Employer 8,767,880.89 7,587,729.58
(5) Net defined benefit asset/(liability) at end of current year 144,434,119.11 119,031,000.00
② Actuarial Assumptions
Item December 31 2018 December 31 2017
Discount Rate 3.25% 4.00%
China Life Insurance Mortality Rate 2010-2013
Mortality Rate
(Annuity)
Cost of Living Adjustments for Retired Cadres and
0.00%
Retirees
Cost of Living Adjustments for Internal Retirees 0.00%
Cost of Living Adjustments for Dependants 0.00%
6.27 Deferred income
Current year Current year
Item B/f C/f Causes
increase decrease
Unrealized gains and 83,586,189.42 15,583,198.45 5,779,991.06 93,389,396.81 The aircraft
93
Current year Current year
Item B/f C/f Causes
increase decrease
losses of operating lease sale-leaseback
from aircraft leaseback disposal profits and
losses
Designated subsidy for Asset related
990,958.34 499,500.00 491,458.34
snow disaster subsidies
Designated subsidy for
Asset related
civil aviation energy-saving 11,852,565.52 976,500.12 10,876,065.40
subsidies
program
Designated subsidy for
Asset related
HUD and repackage 15,208,589.53 1,685,641.92 13,522,947.61
subsidies
project
Total 111,638,302.81 15,583,198.45 8,941,633.10 118,279,868.16
Details of government grants:
Current year Current year decrease Asset /Income
Item B/f C/f
increase (Other benefits) Related
Designated subsidy for Asset related
990,958.34 499,500.00 491,458.34
snow disaster subsidies
Designated subsidy for civil
Asset related
aviation energy-saving 11,852,565.52 976,500.12 10,876,065.40
subsidies
program
Designated subsidy for Asset related
15,208,589.53 1,685,641.92 13,522,947.61
HUD and repackage project subsidies
Total 28,052,113.39 3,161,642.04 24,890,471.35
6.28 Share capital
B/f Currency year movement (+, -) C/f
Coversion
Category Share Bonus
Amount % from Others Subtotal Amount %
issue issue
reserves
1. Shares with
restriction on
disposal
94
B/f Currency year movement (+, -) C/f
Coversion
Category Share Bonus
Amount % from Others Subtotal Amount %
issue issue
reserves
1.1 State-held shares
1.2 Shares held by
259,801,000.00 64.95 259,801,000.00 64.95
state-owned entities
1.3 Shares held by
199,000.00 0.05 199,000.00 0.05
other domestic investors
Including: Held by
199,000.00 0.05 199,000.00 0.05
institutional investors
Held by
non-institutional investors
1.4 Shares held by foreign
investors
Including: Held by
institutional investors
Held by
non-institutional investors
Subtotal of shares with
260,000,000.00 65.00 260,000,000.00 65.00
restriction on disposal
2. Floating shares
2.1 Ordinary shares
issued in CNY
2.2 Shares issued in
domestic stock market in 140,000,000.00 35.00 140,000,000.00 35.00
foreign currency
2.3 Shares issued in
foreign market in foreign
currency
2.4 Others
95
B/f Currency year movement (+, -) C/f
Coversion
Category Share Bonus
Amount % from Others Subtotal Amount %
issue issue
reserves
Subtotal of floating shares 140,000,000.00 35.00 140,000,000.00 35.00
Total 400,000,000.00 100.00 400,000,000.00 100.00
6.29 Capital reserves
Current year Current year
Category B/f C/f
increase decrease
Share premium 67,618,282.54 67,618,282.54
Other capital reserves 7,792,081.16 7,792,081.16
Total 75,410,363.70 75,410,363.70
6.30 Other comprehensive income
Total amount in current year
Less: previously
recognized in
After tax After tax
other
Item B/f Amount for the Less: Income attributable to attributable to C/f
comprehensive
year before tax tax expense the parent minority
income
company shareholders
transferred into
profit or loss
1.Other
comprehensive
income will be
-8,274,660.07 -9,293,000.00 -9,293,000.00 -17,567,660.07
reclassified into
income or loss in
the future
Including:
remeasurement
-8,274,660.07 -9,293,000.00 -9,293,000.00 -17,567,660.07
of net assets or
net liabilities of
96
Total amount in current year
Less: previously
recognized in
After tax After tax
other
Item B/f Amount for the Less: Income attributable to attributable to C/f
comprehensive
year before tax tax expense the parent minority
income
company shareholders
transferred into
profit or loss
defined benefit
plans
2.Other
comprehensive
income
reclassifiable to 186,769,499.55 -26,535,134.05 -6,633,783.51 -19,901,350.54 166,868,149.01
profit or loss in
subsequent
periods
Gains and losses
from changes in
fair value of 186,769,499.55 -26,535,134.05 -6,633,783.51 -19,901,350.54 166,868,149.01
financial assets
available for sale
Total of other
comprehensive 178,494,839.48 -35,828,134.05 -6,633,783.51 -29,194,350.54 149,300,488.94
income
6.31 Surplus reserves
Current year Current year
Category B/f C/f
increase decrease
Statutory surplus reserve 471,457,259.99 32,542,717.59 503,999,977.58
Total 471,457,259.99 32,542,717.59 503,999,977.58
Notes: according to the Company Law and the Articles of Association, 10% of net profit was transferred to statutory
surplus reserve.
97
The company may make allocations to the discretionary surplus reserve from the after-tax profits after making allocations
to the statutory surplus reserve from the after-tax profits. Approved surplus reserves can be released to recover losses or
for conversion into share capital.
6.32 Retained earnings
Items Current year Prior year
Pre-adjustment balance brought forward 3,127,778,550.76 2,805,458,074.96
Total adjustment to retained earnings b/f (+, -)
Retained earnings b/f after adjustment 3,127,778,550.76 2,805,458,074.96
Add: Net profit attributable to shareholders of the parent 347,379,314.89 490,353,408.15
Less: Appropriation to statutory surplus reserve 32,542,717.59 48,032,932.35
Appropriation to discretionary surplus reserve
General reserve
Ordinary dividends declared 100,000,000.00 120,000,000.00
Bonus issue
Balance carrying forward 3,342,615,148.06 3,127,778,550.76
6.33 Operating revenues and costs
Current year Prior year
Category
Operating revenues Operating costs Operating revenues Operating costs
Principal business 18,119,305,689.58 17,164,835,774.69 16,046,687,453.67 14,774,120,250.51
Other business 646,647,637.16 3,842,297.34 438,025,698.56 9,348,835.25
Total 18,765,953,326.74 17,168,678,072.03 16,484,713,152.23 14,783,469,085.76
6.34 Tax and surcharges
Item Current year Prior year
Urban maintenance and construction tax 3,496,473.78 22,129,543.73
Education surcharge and others 11,387,018.83 10,727,269.44
Total 14,883,492.61 32,856,813.17
Notes: Applicable rates for business tax and surcharges see Note 5 Taxation.
6.35 Sales expenses
Category Current year Prior year
98
Category Current year Prior year
Agency fees 256,489,732.72 258,971,906.80
Employment benefits 236,615,107.85 236,720,432.47
Computer booking 185,743,434.41 139,678,642.23
Online payment 40,777,011.46 34,049,310.56
System and network 21,858,013.97 28,021,600.45
Lease rental 19,057,258.96 16,910,605.64
Advertisement fees 21,112,359.55 16,316,066.02
Travel expenses 5,361,277.56 5,561,740.83
BSP data processing 12,137,953.63 5,438,596.42
Administrative office expenses 5,575,312.93 4,942,211.35
Depreciation 1,439,254.79 1,475,012.61
Sales expense of annual tickets 1,076,208.16 1,343,079.63
Others 40,796,255.64 32,294,357.38
Total 848,039,181.63 781,723,562.39
6.36 General and administrative expenses
Category Current year Prior year
Employment benefits 244,557,871.24 227,245,134.62
Outsourcing fee 23,448,474.46 20,816,097.75
Lease rental 21,858,369.20 22,996,800.15
Depreciation 16,769,280.33 15,030,163.81
Water, electricity charges 12,593,866.47 11,442,234.06
Administrative office expenses 9,603,957.33 5,408,399.05
Amortization of intangibles 8,563,737.68 7,045,560.47
Technology development costs 5,478,799.02 5,134,384.86
Business entertainment costs 5,197,316.39 6,037,192.32
Others 80,691,930.07 57,278,993.58
Total 428,763,602.19 378,434,960.67
99
6.37 Research and development costs
Category Current year Prior year
Employment benefits 20,336,654.67 16,919,293.66
Others 310,341.99 36,808.36
Total 20,646,996.66 16,956,102.02
6.38 Financial costs
Category Current year Prior year
Interest expenses 117,650,618.41 113,961,789.03
Less: Interest income 15,278,180.93 10,272,441.70
Exchange difference 18,701,008.00 -106,586,357.82
Bank charges and others 1,775,467.36 1,667,750.29
Total 122,848,912.84 -1,229,260.20
6.39 Loss on asset impairment
Category Current year Prior year
Allowance for bad debt 5,072,142.56 451,553.19
Total 5,072,142.56 451,553.19
6.40 Other income and gain
Included in current year
Item Current year Prior year
non-recurring profit and loss
Government subsidies 210,862,890.39 103,523,912.62 210,862,890.39
Including:
Route subsidy 185,720,387.90 92,199,043.70 185,720,387.90
Designated subsidy for HUD and repackage
1,685,641.92 421,410.47 1,685,641.92
project
Designated subsidy for civil aviation
976,500.12 976,500.12 976,500.12
energy-saving program
Designated subsidy for snow disaster 499,500.00 499,500.00 499,500.00
Other government subsidy 21,980,860.45 9,427,458.33 21,980,860.45
Other projects related to daily activities 10,952,470.45 3,244,554.69 10,952,470.45
100
Included in current year
Item Current year Prior year
non-recurring profit and loss
Including: Withholding fee refund 10,952,470.45 3,244,554.69 10,952,470.45
Total 221,815,360.84 106,768,467.31 221,815,360.84
6.41 Investment income
Category Current year Prior year
Income from financial assets measured by fair value with changes in
91,605.86 -1,023,651.75
fair value recognized in profit or loss
Income from holding of financial assets available for sale 17,934,220.07 22,740,535.94
Total 18,025,825.93 21,716,884.19
6.42 Gain from changes in fair value
Source Current year Prior year
Interest rate swaps 3,697,878.32 -2,451,574.35
Total 3,697,878.32 -2,451,574.35
6.43 Gain on disposal of non-current assets
Included in current year non-recurring
Item Current year Prior year
profit and loss
Disposal of fixed assets 26,528,980.99 90,439.51 26,528,980.99
Total 26,528,980.99 90,439.51 26,528,980.99
6.44 Non-operating income
Included in current year
Category Current year Prior year non-recurring profit and
loss
Transferred income from pilot 17,924,528.30 18,490,566.03 17,924,528.30
Others 20,456,118.66 16,839,030.18 20,456,118.66
Total 38,380,646.96 35,329,596.21 38,380,646.96
6.45 Non-operating expenses
101
Included in current year
Category Current year Prior year non-recurring profit and
loss
Loss on non-current asset disposals 1,341,230.64 1,460,627.44 1,341,230.64
Others 2,617,851.40 1,122,274.29 2,617,851.40
Total 3,959,082.04 2,582,901.73 3,959,082.04
6.46 Income tax expenses
6.46.1 Income tax expenses
Items Current year Prior year
Current income tax expense 245,269,061.41 302,003,860.64
Deferred tax expense -131,137,839.08 -141,436,022.42
Total 114,131,222.33 160,567,838.22
6.46.2 Reconciliation of account profit and income tax expenses
Items Current year
Profit before tax 461,510,537.22
Income tax computed in accordance with the applicable tax rate 115,377,634.31
Impact of income tax in the previous period -3,645,902.58
Impact of non-taxable income -4,483,555.02
Impact of non-deductible costs, expenses and losses 7,235,098.86
Impact of the deductible loss of deferred income tax assets not recognized in the
-352,053.24
previous period
Income tax expenses 114,131,222.33
6.47 Other comprehensive income
Please see Note 6. 30 for detail.
6.48 Notes to the consolidated statement of cash flows
6.48.1 Other cash receipts relating to operating activities
Category Current year Prior year
Government grants 207,701,248.35 117,256,502.03
Refund of withholding tax payment 10,952,470.45 3,244,554.69
Interest income on bank deposit 15,278,180.93 10,272,441.70
102
Category Current year Prior year
Cash receipts from non-operating income 38,380,526.96 35,329,596.21
Cash receipts from operating balance 179,195,047.05 54,856,855.30
Total 451,507,473.74 220,959,949.93
6.48.2 Other cash payments relating to operating activities
Category Current year Prior year
Bank charges 42,552,478.82 35,717,060.85
Cash payments for non-operating expenses 2,617,851.40 1,122,274.29
Cash payments for operating balance 25,103,983.51 68,954,325.07
Cash payments for sales and general and administrative expenses 266,971,115.50 235,757,787.84
Total 337,245,429.23 341,551,448.05
6.48.3 Other cash receipts relating to investing activities
Category Current year Prior year
Cash receipts of settlement of interest rate swaps 91,605.86
Total 91,605.86
6.48.4 Other cash payments relating to investing activities
Category Current year Prior year
Cash payments of settlement of interest rate swaps 1,023,651.75
Total 1,023,651.75
6.48.5 Other cash receipts relating to financing activities
Category Current year Prior year
Cash receipts for aircraft transfer of sale and leaseback deals 1,543,271,788.39 1,441,573,989.51
Total 1,543,271,788.39 1,441,573,989.51
6.48.6 Other cash payments relating to financing activities
Category Current year Prior year
Cash payments for aircraft financial lease rental 273,646,123.68 202,020,573.31
Total 273,646,123.68 202,020,573.31
103
6.49 Supplementary information to the consolidated statement of cash flows
6.49.1 Supplementary information to the statement of cash flows
Items Current year Prior year
① Reconciliation of cash flows from operating activities to net profit:
Net profit 347,379,314.89 490,353,408.15
Add: Loss on asset impairment 5,072,142.56 451,553.19
Depreciation of fixed assets, oil and gas assets, biological assets held for
822,743,730.26 829,052,576.20
production
Amortization of intangible assets 8,563,737.68 7,045,560.47
Amortization of Long-term deferred expenditure 90,876,866.00 84,544,766.31
Loss on non-current assets disposal (gain presented by "-" prefix) -26,528,980.99 -90,439.51
Loss on scrap of fixed assets (gain presented by "-" prefix) 1,341,230.64 1,460,627.44
Loss on fair value changes (gain presented by "-" prefix) -3,697,878.32 2,451,574.35
Financial costs (gain presented by "-" prefix) 142,480,807.24 14,256,436.16
Investment loss (gain presented by "-" prefix) -18,025,825.93 -21,716,884.19
Decrease of deferred tax assets (increase presented by "-" prefix) -131,030,053.28 -141,403,420.46
Increase of deferred tax liabilities (increase presented by "-" prefix) -107,785.80 -32,601.96
Decrease of inventories (increase presented by "-" prefix) -21,701,333.78 39,067,450.45
Decrease of operating receivables (increase presented by "-" prefix) 226,819,428.04 -221,353,078.89
Increase of operating payables (decrease presented by "-" prefix) 994,322,001.16 773,538,324.10
Others 11,510,119.11 12,422,270.42
Net cash flows generated from operating activities 2,450,017,519.48 1,870,048,122.23
②Significant investing and financing activities involve no cash:
Debt-to-capital conversion
Convertible loan due within one year
Fixed assets acquired under financial lease
③ Movement of cash and cash equivalents:
Cash as at 31/12/2018 840,860,104.09 543,584,920.30
104
Items Current year Prior year
Less: Cash as at 31/12/2017 543,584,920.30 791,255,686.65
Add: Cash equivalents as at 31/12/2018
Less: Cash equivalents as at 31/12/2017
Net increase of cash and cash equivalents 297,275,183.79 -247,670,766.35
6.49.2 Net cash paid for acquisition of subsidiary this year
Item Amount
Cash or cash equivalents resulted from business combination
Including merger of jinping food
Less: cash and cash equivalents held by the subsidiary on the day of purchase
Add: cash or cash equivalents of business combination in the previous period to be paid in this year 490,295.22
Net cash payments made by subsidiaries 490,295.22
6.49.3 Composition of cash and cash equivalents
Items C/f B/f
①Cash 840,860,104.09 543,584,920.30
Including: Cash at hand 291,347.27 372,046.44
Demand bank deposit 840,568,756.82 543,212,873.86
Demand other monetary funds
Demand deposit in the Central Bank
Deposit in peer firms
Loan to peer firms
②Cash equivalents
Including: Debt instrument matured within three months
④ Cash and cash equivalents as at 31/12/2018 840,860,104.09 543,584,920.30
Including: restricted cash and cash equivalents in parent company or subsidiary
Note: Cash and cash equivalents excluding restricted cash and cash equivalents in parent company or subsidiary.
6.50 Assets with imposed restriction on ownership
Item C/f Reason of restriction
105
Item C/f Reason of restriction
Assets pledged as security 1,656,111,177.77
Aircrafts and engines 1,656,011,177.77 Pledge as security for borrowings
Bank deposit 100,000.00 Guarantee deposit
Other form of restriction: 2,340,948,035.39
Aircrafts and engines 2,340,948,035.39 Assets acquired under financial lease
Total 3,997,059,213.16
6.51 Foreign currency monetary items
Original amount as at Foreign exchange Translated amount as at
Item
31/12/2018 rate 31/12/2018
Monetary funds
Including: -USD 78,402,754.38 6.8632 538,093,783.87
-CAD 10.00 5.0380 50.38
-Hwan 170,234,530.00 0.0061 1,038,430.63
-TWD 1,494,370.00 0.2234 333,842.27
-JPY 6,177,291.00 0.0619 382,294.01
-THB 1,449,314.96 0.2110 305,805.46
-EUR 5,042.00 7.8473 39,566.09
Other receivables
Including: -USD 16,810,968.53 6.8632 115,377,039.22
Accounts payable
Including: -USD 7,133,254.20 6.8632 48,956,950.23
-EUR 19,073.20 7.8473 149,673.12
-GBP 6,164.00 8.6762 53,480.10
-JPY 10,103,677.01 0.0619 625,417.61
106
Original amount as at Foreign exchange Translated amount as at
Item
31/12/2018 rate 31/12/2018
Other payables
Including: -USD 11,138.56 6.8632 76,446.16
Non-current liabilities due within one year
Including: -USD 23,401,135.37 6.8632 160,606,672.30
Long-term borrowings
Including: -USD 243,786,653.14 6.8632 1,673,156,557.83
Long-term payables
Including: -USD 46,780,527.21 6.8632 321,064,114.31
6.52 Government grants
6.52.1 Basic information on government grants initially recognized this year
Related to assets Related to revenue
Deduction Whether
Grant projects Amounts Deferred to book Deferred Non-operating Deduction to costs actually
Other income
income value of income income and expenses received
assets
Airline grants 185,720,387.90 185,720,387.90 Yes
Other government grants 21,980,860.45 21,980,860.45 Yes
Total 207,701,248.35 207,701,248.35
6.52.2 The company did not returned government subsidies this year.
Note 7: Change of scope of consolidation
The consolidation scope of the financial statements for the current year is consistent with the previous year.
Note 8: The equity in other main entities
8.1 The equity in subsidiaries
107
8.1.1 The construction of the group
Place Holding proportion %
Place of Nature
Subsidiaries of Acquired method
operation of business Directly Indirectly
registration
Shandong aviation Logistics
Ltd Qingdao, Qingdao, Logistics and
100.00 Acquired through investment
(hereafter, Qingdao Shandong Shandong storage
Logistics)
Qingdao Feisheng
International Aviation
Acquired through business
Training Technology Qingdao, Qingdao,
Pilot training 100.00 combination not under common
Development Co., Ltd Shandong Shandong
control
(hereafter, Qingdao
Feisheng)
Shandong Jinping Air
Aeronautical Acquired through business
Catering Co., Ltd. Jinnan, Jinnan,
food 100.00 combination not under common
(hereinafter referred to as Shandong Shandong
processing control
"Jinping food")
Shandong Airlines Qingdao
Aeronautical Acquired through business
Food Co., Ltd. (hereinafter Qingdao, Qingdao,
food 49.70 50.30 combination not under common
referred to as "Qingdao Shandong Shandong
processing control
Food")
8.2 The equity in joint ventures and associates
8.2.1 Significant joint ventures and associates
Holding proportion % The accounting
Place treatment of
Place of Nature
joint ventures and associates of investments in joint
operation of business Directly Indirectly
registration ventures and
associates
Shandong Rainbow Commercial Jinan, Jinan, Aero
45.00 Equity method
Jet Co., Ltd. Shandong Shandong transportation
8.2.2 Key financial information of significant associate- Shandong Rainbow Commercial Jet Co., Ltd.
Item Dec 31, 2018/Year 2018 Dec 31, 2017/Year 2017
Current assets 1,803,040.67 1,819,652.14
108
Item Dec 31, 2018/Year 2018 Dec 31, 2017/Year 2017
Non-current assets 23,120.72 24,172.36
Total assets 1,826,161.39 1,843,824.5
Current liabilities 167,765,813.33 167,765,813.33
Non-current liabilities
Total liabilities 167,765,813.33 167,765,813.33
Minority interests
Equity attributable to shareholders of the parent -165,939,651.94 -165,921,988.83
Pro rata share of the net assets calculated
Adjusting events
- Goodwill
-Unrealized profits from internal transaction
-Others
Book value of equity investments in associates
Fair value of publicly quoted equity investments in associates
Operating income
Net profit -17,619.24 -2,813.17
Net profit from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received from associates during the year
8.2.3 Excess loss occurred by joint ventures and associates
Unrecognized losses of
Cumulative unrecognized Cumulative unrecognized
joint ventures and associates current year (Share of net
losses of prior year losses of current year
profit of current year)
Shandong Rainbow Commercial Jet Co., Ltd. -74,664,874.73 -7,928.66 -74,672,803.39
Note 9 The risk associated with financial instruments
The main financial instruments of the Company include equity investments, loans, accounts receivable, and accounts
payable etc. Please see Note 6 for details of related items. The risks associated with financial instruments, and risk
109
management policies which the company use to reduce these risks are described below. The management of the
Company manages and supervises the risks to ensure that the risks can be controlled within a limited range.
Sensitivity analysis techniques are adopted by the Company to analyze the impact of reasonable and possible changes of
risk variables on the profit and loss or shareholders' equity for the current period. While risk variables seldomly change
individually, the correlation among variables has a significant effect on the ultimate impact of the change of one risk
variable. Therefore, the following content is based on the assumption that changes in each variable is independent.
9.1 The targets and policies of risks management
The target of risks management is to obtain the proper balance between the risks and benefits, to reduce the negative
impact that caused by the risk of the Company to the lowest level, and to maximize the benefits of shareholders and other
equity investors. Based on the targets of risk management, the basic strategy of the Company’s risk management is to
identify and analyze the risks which are faced by the Company, to establish suitable risk tolerance baseline and proceed
the risk management, and to supervise a variety of risks timely and reliably, and control the risk within a limited range.
9.1.1 Market Risk
(1) Foreign exchange risk
Foreign exchange risk refers to the risk of loss due to exchange rate fluctuations. The company bears the foreign
exchange risk primarily concerned with USD, and uses USD settlement in main financing transactions, operating leases,
and financing leasing. On December 31 2018, except the following assets or liabilities in Note 6.51 are recorded in foreign
currency, the others are recorded in CNY. Foreign exchange risk of the assets and liabilities in foreign currencies may
have an impact on the Company's performance of operation.
(2) Interest rate risk - the risk of changes in cash flow
The risk of changes in cash flows of a financial instrument due to interest rate is mainly concerned with the floating rate of
bank borrowings (see Note 6.16, 6.23, 6.24, 6.25). The company's policy is to maintain a floating interest rate on the
borrowings.
(3) Other price risk
Financial assets available for sale and financial assets held-for-trade held by the company are measured at fair value on
the balance sheet date. Hence, the company bears the risk of changes in the stock market.
9.1.2. Credit Risk
As of December 31 2018, the maximum risk that could cause the Company’s financial losses mainly comes from default of
the other party of the contract, which includes:
The carrying amount of financial assets recognized in the consolidated statement of financial position; for financial
instruments measured by fair value, the book value reflects its risk exposure but not the maximum risk exposure, which
will vary with changes in the fair value in the future.
In order to reduce credit risk, the Company sets up a team responsible for determination of credit limits, credit approvals
110
and other monitoring procedures to ensure that the necessary measures be taken to recover overdue debts. In addition,
the Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure fully
provision for bad debts recognized for the money that cannot be recovered. Therefore the Company's management
believes the Company’s credit risk has been greatly reduced.
The Company's working capital was deposited in banks with high credit ratings, so that the credit risk of working capital
was low.
9.1.3 Liquidity risk
When managing liquidity risk, the Company’s management believes maintaining adequate cash and cash equivalents,
and monitoring that at same time, meets the needs of operation of the Company, and reduces the impact of fluctuations in
cash flows. The management of the Company monitors the use of bank borrowings and ensures to abide by loan
agreements.
Note 10 Disclosure of the fair value
10.1 The fair value at the end of current year of assets and liabilities which are measured by fair value
The fair value at the end of current year
The 1st level The 2nd level The 3rd level
Item
measured by fair measured by fair measured by Total
value value fair value
1. Continuous measurement by fair value
1.1 financial assets available for sale 229,180,865.35 229,180,865.35
1.1.1 Equity instruments investment 229,180,865.35 229,180,865.35
1.2. Financial assets measured at fair value
with changes in fair value recognized in profit
or loss 90,488.17 90,488.17
1.2.1. Interest rate swaps 90,488.17 90,488.17
Total amount of assets continuous
measurement by fair value 229,180,865.35 90,488.17 229,271,353.52
10.2 Determined on the basis of continuous and noncontinuous first level for fair value measurement of the
market of project
Financial assets available for sale of continuous measurement by fair value is the investment in TravelSky Technology
Limited, whose fair value was determined based on the closing price for the stock market in Hong Kong Stock Exchange
on balance sheet date.
10.3 Continuous and noncontinuous second level for fair value measurement of the market of project, the
qualitative and quantitative information of the valuation techniques and important parameters
111
Fair value measurement basis of interest rate swaps which was continuously measured by fair value is quotes from
counterparty banks on the fair value of interest rate swaps.
Note 11 Related parties and related party transaction
11.1 Major parent companies
Shareholding in the Voting right in the
Place of
Parent companies Nature of operation Registered capital Company Company
registration
(%) (%)
Investment and
SDA Group Jinan management of aero 580,000,000.00 42.00 42.00
transportation
Air China Beijing Aero transportation 14,524,815,185.00 22.80 22.80
Note: SDA Group and Air China is the first and second largest shareholder of the Company respectively. Air China is the
largest shareholder of SDA Group; Air China’s shareholding and voting right in SDA Group is 49.406% and 49.406%
respectively.
11.2 Subsidiaries
See Note 8.1 for subsidiaries.
11.3 Joint ventures and associates
See Note 8.2 for joint ventures and associates.
11.4 Other related parties
Other related parties Relationship to the Company
Taikoo (Shandong) Aircraft Engineering Company Limited Controlled by major investors
Shandong XiangYu Air Technology Co., Ltd. Controlled by major investors
Shandong Rainbow Commercial Jet Co., Ltd. Controlled by major investors
Shandong Air New Media Co., Ltd. Controlled by major investors
Air China Import & Export Co., Ltd. Controlled by major investors
Zhejiang Aviation Service Co., Ltd. Controlled by major investors
Air China Shanghai Aviation Service Co., Ltd. Controlled by major investors
Beijing Golden Phoenix Human Resources Service Co., Ltd. Controlled by major investors
CATIC Industrial Co., Ltd. Controlled by major investors
112
Other related parties Relationship to the Company
Air Macau Corporation Controlled by major investors
Air China Offshore Holding Company Controlled by major investors
Air China Hongkong Development Limited Controlled by major investors
Beijing Airlines Co., Ltd. Controlled by major investors
China International Aviation Shantou Industrial Development Corporation Controlled by major investors
Chengdu Fukai Aircraft Engineering Services Limited Controlled by major investors
Beijing Aircraft Maintenance and Engineering Corporation Controlled by major investors
Air China Cargo Co., Ltd. Controlled by major investors
China Aviation Group Finance Co., Ltd. Controlled by major investors
Shenzhen Airlines Co., Ltd. Controlled by major investors
Dalian Airlines Co., Ltd. Controlled by major investors
China International Airlines Inner Mongolia Co., Ltd. Controlled by major investors
Kunming Airlines Ltd Controlled by major investors
Sichuan international aero engine maintenance Co., Ltd. jointly operated by major investors
SkyWorks Capital Asia Ltd. jointly operated by major investors
Shanghai Pudong International Airport West Public Cargo Terminal Co., Ltd. jointly operated by major investors
Ji'an Beijing Aviation Asset Management Co., Ltd. jointly operated by major investors
Shanghai International Airport Ground Service Co., Ltd. jointly operated by major investors
Controlled by major investors
Shandong Airlines Rainbow Auto Service Co., Ltd.
Controlled by major investors
Chongqing Golden Phoenix Aviation Service Co., Ltd.
Controlled by major investors
Shenzhen Airport Catering Company Limited
11.5 Related party transactions
11.5.1 Purchase of goods and services
Related party Transaction Current year Prior year
Beijing Aircraft Maintenance and
Repairment 55,204,506.94 49,112,850.71
Engineering Corporation
Beijing Aircraft Maintenance and Purchase / lease of aircraft 167,487.51
113
Related party Transaction Current year Prior year
Engineering Corporation materials
Beijing Aircraft Maintenance and
Rentals 688,109.49
Engineering Corporation
Beijing Aircraft Maintenance and
Ground service 20,260,962.92 26,770,323.67
Engineering Corporation
Beijing Golden Phoenix Human
Ground service 1,860,814.69 1,874,683.07
Resources Service Co., Ltd.
Chengdu Fukai Aircraft Engineering
Repairment 10,577,784.85 6,043,043.40
Services Limited
Aircraft offerings and advertising
Shandong Air New Media Co., Ltd. 12,537,535.57 10,069,312.24
fees
Shandong Air New Media Co., Ltd. Ground service 937,382.08
Taikoo (Shandong) Aircraft Engineering
Aircraft maintenance 114,539,387.51 111,390,230.75
Company Limited
Taikoo (Shandong) Aircraft Engineering Measurement fee for measuring
334,050.38
Company Limited instruments
Taikoo (Shandong) Aircraft Engineering
Seat cover and carpet fee 4,087,695.43
Company Limited
Taikoo (Shandong) Aircraft Engineering
Aircraft meal offerings 138,965.52
Company Limited
Shandong XiangYu Air Technology Co.,
Repairment 86,068,411.87 70,853,836.21
Ltd.
Shandong XiangYu Air Technology Co., Purchase / lease of aircraft
29,110.10
Ltd. materials
SDA Group Office lease rental and catering 36,048,450.45 31,061,380.69
SDA Group Airport take-off and landing fees 140,440.00
SDA Group Group fee 12,471,675.35 5,548,659.72
Shandong Airlines Rainbow Auto Vehicle rental fee and
68,974,066.66
Service Co., Ltd. maintenance fee
Shandong Airlines Rainbow Auto Group fee 3,303,430.00
114
Related party Transaction Current year Prior year
Service Co., Ltd.
Shandong Airlines Rainbow Auto
Irregular flight 573,383.02
Service Co., Ltd.
Shenzhen Airlines Co., Ltd. Agency service 2,766,348.96 2,506,826.67
Purchase / lease of aircraft
Shenzhen Airlines Co., Ltd. 173,256.79 77,366.20
materials
Shenzhen Airlines Co., Ltd. Catering 1,546,308.54 1,322,605.55
Shenzhen Airlines Co., Ltd. Irregular flight 192,965.46 63,169.82
Sichuan International Aero Engine
Repairment 77,076,397.08 46,660,824.96
Maintenance Co., Ltd.
Air China Ground service 15,613,836.08 15,476,556.88
Air China Repairment 186,711.99
Purchase / lease of aircraft
Air China 2,564,417.48
materials
Air China Agency service 15,679,347.66 19,982,955.48
Air China Irregular flight expenditure 27,481,100.22 28,038,113.58
Air China Cargo Co., Ltd. Ground service 4,180,905.82 7,089,769.02
Kunming Airlines Co., Ltd Agency service 18,900.68 33,323.92
Dalian Airlines Co., Ltd. Irregular flight 276,000.00
Shanghai International Airport Ground
Ground service 207,224.24
Service Co., Ltd.
Air Macau Corporation Agency service 23,342.07
Total 572,181,815.61 438,724,730.34
11.5.2 Sales of goods and rendering of services
Related party Transaction Current year Prior year
Beijing Aircraft Maintenance and
Sale /rent of aircraft materials 229,271.21 532,205.65
Engineering Corporation
Dalian Airlines Co., Ltd. Ground service 1,332,910.83 277,453.85
Dalian Airlines Co., Ltd. Non-routine 111,066.10 141,998.06
115
Related party Transaction Current year Prior year
maintenance/machinery service
Kunming Airlines Co., Ltd Ground service 82,830.19 90,283.02
Kunming Airlines Co., Ltd Locomotive service income 141,050.10 64,320.76
Kunming Airlines Co., Ltd Agency service 24,722.49 32,336.79
Shandong Air New Media Co., Ltd. Media resource fee 9,713,675.22 11,991,452.99
Taikoo (Shandong) Aircraft Engineering
Sale of aircraft materials 535,703.95 397,672.42
Company Limited
Taikoo (Shandong) Aircraft Engineering
Training fee 81,415.09 11,031.49
Company Limited
Shandong XiangYu Air Technology Co.,
Sale of aircraft materials 179,334.35 334,132.98
Ltd.
Shenzhen Airlines Co., Ltd. Agency service 1,219,936.77 1,220,924.95
Shenzhen Airlines Co., Ltd. Ground service 201,698.12 250,754.71
Shenzhen Airlines Co., Ltd. Sale /rent of aircraft materials 102,468.20 72,586.00
Shenzhen Airlines Co., Ltd. Irregular flight expenditure 11,586.21 5,982.90
Air China Ground service 7,019,502.31 4,029,380.06
Simulator maintenance / House
Air China 3,956,673.95 4,402,183.15
rental income
Air China Sale /rent of aircraft materials 106,019.52 12,906.84
Air China Irregular flight expenditure 31,811.97
Air China Agency service 1,652,870.13 4,286,956.10
Air China Catering 34,241.26
Air China Cargo Co., Ltd. Warehouse rent income 2,641.51
SDA Group Catering 5,488.00
Shandong Airlines Rainbow Auto
Storage income 435,690.56
Service Co., Ltd.
Shandong Airlines Rainbow Auto
Property fee income 27,509.43
Service Co., Ltd.
Total 27,168,576.24 28,226,103.95
116
11.5.3 Related Party borrowing funds demolition
Related Party Borrowing money Beginning date Due date Description
borrowing：
China Aviation Group Finance Balance as at 31/12/2018 CNY
296,000,000.00 2016-6-20 2026-6-20
Co., Ltd. 222,000,000.00
The balance at the end of the year is
CNY 180,000,000.00, and the loan is
SDA Group 180,000,000.00 2018-6-28 2019-6-25 entrusted by the Industrial and
Commercial Bank of China Co., Ltd.
Jinan Minghu Branch.
11.5.4 Remuneration to key management personnel
Item Current year Prior year
Key management personnel compensation CNY 14.6679 million CNY 13.5487 million
11.5.5 Other related party transactions
Related party Transaction Current year Prior year
Air China Wet lease 136,598,092.82
Air China Code sharing 39,808.59
Air China Frequent flyer cooperation 100,000,000.00 54,000,000.00
Air China Cargo Co., Ltd. Code sharing for cargo 7,167,959.00 6,567,764.12
Total 107,167,959.00 197,205,665.53
11.6 Related party balances
11.6.1 Receivables
C/f B/f
Related party Allowance for bad Allowance for bad
Carrying amount Carrying amount
debt debt
Accounts receivable
Air China 8,564,966.57 226,488,421.70
China International Cargo Airlines Co., Ltd. 907,509.39
Dalian Airlines Co., Ltd. 87,473.50
Taikoo (Shandong) Aircraft Engineering 8,400.00 18,400.00
117
C/f B/f
Related party Allowance for bad Allowance for bad
Carrying amount Carrying amount
debt debt
Company Limited
Total 9,568,349.46 226,506,821.70
Other receivables
Air China 6,033,885.98 5,799,073.26
Shenzhen Airlines Co., Ltd. 50,787.34 100,100.00
Shandong Rainbow Commercial Jet Co., Ltd. 101,551,717.65 101,551,717.65 101,551,717.65 101,551,717.65
Shandong XiangYu Air Technology Co., Ltd. 50,712.31 402.45
Taikoo (Shandong) Aircraft Engineering
235,380.70 188,945.11
Company Limited
Shandong Air New Media Co., Ltd. 11,745,680.45 2,952,004.83
Beijing Aircraft Maintenance and
169,241.85 7,745.32
Engineering Corporation
Dalian Airlines Co., Ltd. 241,412.00 97,611.00
Kunming Airlines Co., Ltd 202,090.00 92,410.00
Shandong Airlines Rainbow Auto Service Co.,
14,040.50 157,830.09
Ltd.
Total 120,294,948.78 101,551,717.65 110,947,839.71 101,551,717.65
11.6.2 Payables
Related party C/f B/f
Accounts payable
Shandong XiangYu Air Technology Co., Ltd. 8,707,204.12 3,448,051.17
Taikoo (Shandong) Aircraft Engineering Company Limited 45,732,196.37 27,753,155.69
Air China 138,532,747.16 259,659,603.16
Air China Cargo Co., Ltd. 507,357.91 1,306,550.93
Beijing Golden Phoenix Human Resources Service Co., Ltd. 350,189.85 346,206.28
Shenzhen Airlines Co., Ltd. 686,733.52 659,964.90
Aircraft Maintenance and Engineering Corporation (Ameco Beijing) 25,913,065.74 15,130,561.55
Sichuan International Aero Engine Maintenance Co., Ltd. 7,343,500.43 7,091,848.70
118
Related party C/f B/f
Shandong Air New Media Co., Ltd. 5,567,055.00 1,339,801.63
Shandong Airlines Rainbow Auto Service Co., Ltd. 4,602,800.00 4,538,560.00
Dalian Airlines Co., Ltd. 31,200.00
Chengdu Fukai Aircraft Engineering Service Co., Ltd. 3,130,432.94
Shanghai International Airport Ground Service Co., Ltd. 34,557.70
Total 241,139,040.74 321,274,304.01
Other payables
Air China 20,000,000.00
SDA Group 1,648,781.43 5,888,565.00
Taikoo (Shandong) Aircraft Engineering Company Limited 484,291.74 484,291.74
Shandong Air New Media Co., Ltd. 7,094,412.89
Total 9,227,486.06 26,372,856.74
Note 12 Commitments
12.1 Signifcant commitments
12.1.1 Capital commitment
Item C/f B/f
Signed but not yet confirmed in the financial statements
- Commitment to acquire non-current assets 8,514,239,377.41 17,159,340,532.55
- large outsourcing contracts
- External investment commitments
Total 8,514,239,377.41 17,159,340,532.55
12.1.2 Operating lease
As of the balance sheet date, the irrevocable operating lease contracts signed by the Company are as follows:
Item C/f B/f
Minimum lease rental for irrevocable operating lease contracts
Within one year from the reporting date 2,940,809,183.76 2,566,886,865.79
119
Within two years from the reporting date 2,868,211,237.17 2,539,998,632.79
Within three years from the reporting date 2,616,077,071.91 2,464,366,482.24
Subsequent years 11,464,973,122.44 11,109,059,067.92
Total 19,890,070,615.28 18,680,311,048.74
12.1.3 Other commitment
No other significant commitments of the Company need to be disclosed as of 31/12/2018.
Note 13 Post balance sheet date events
13.1 Post balance sheet date profit appropriation
The Proposal for Profit Appropriation for the Year ended 31 December 2018 of distributing cash dividend of CNY 2.00
(gross) per 10 shares for the 400 million shares outstanding as at the reporting date, which in total amounts to CNY
80,000,000.00, was approved by the 4th Meeting of the 6th Term of Board of Directors of the Company held on 21March
2019; the Proposal was pending the approval of the General Meeting of stockholders of the Company.
13.2 Implementation of the new accounting standards from January 1, 2019
On March 31, 2017, the Ministry of Finance issued the "Accounting Standards for Business Enterprises No. 22 -
Recognition and Measurement of Financial Instruments (Revised in 2017)" (Accounting [2017] No. 7) and "Accounting
Standards for Business Enterprises No. 23" Transfer of Financial Assets (Revised in 2017) (Accounting [2017] No. 8),
"Accounting Standards for Business Enterprises No. 24 - Hedge Accounting (Revised in 2017)" (Accounting [2017] No. 9).
On May 2 2017, the Ministry of Finance issued “Accounting Standards for Business Enterprises No. 37 – Financial
Instruments Presentation (Revised in 2017)” (Accounting [2017] No. 14) was issued (the above-mentioned guidelines are
collectively referred to as the “New Financial Instruments Guidelines”), and domestic listed companies are required to
implement it from January 1, 2019. After the resolution of the 4th meeting of the 6th Board of Directors of the Company on
March 21, 2019, the company will implement the above new financial instrument guidelines from January 1, 2019, and will
change in relevant accounting policies based on the above new financial instrument guidelines.
The following are the main contents of the accounting policy changes involved:
All recognized financial assets under the new financial instrument criteria are subsequently measured at amortised cost or
fair value.
On the implementation date of the new financial instrument standard, the business model of managing financial assets is
evaluated based on the facts and circumstances of the company on the implementation date. According to the contractual
cash flow characteristics on the financial assets, which are evaluated based on the facts and circumstances at the initial
recognition of the financial assets, financial assets are classified into three categories: measured at amortised cost,
measured at fair value through other comprehensive income, and measured at fair value through profit or loss. In case of
120
an equity instrument investment measured at fair value through other comprehensive income, when the financial asset is
derecognised, the accumulated gain or loss previously recognised in other comprehensive income is transferred to
retained earnings, rather than profit and loss.
Under the new financial instrument standard, the Company accrues impairment provision and recognizes credit
impairment losses for financial assets measured at amortized cost, debt instrument investments measured at fair value
through other comprehensive income, lease receivables, contract assets and the financial guarantee contract based on
expected credit losses.
Note 14 Comparative data
A number of prior period comparison data have been reorganized to accommodate this year's presentation.
Note 15 Other significant events
15.1 Pension Plan
No significant change of the annuity program occurred for current year, see note 6.20, 6.26.
Note 16 Notes to elements of the separate financial statements
16.1 Notes receivable and accounts receivable
Item C/f B/f
Notes receivable
Accounts receivable 412,570,738.01 547,677,560.06
Total 412,570,738.01 547,677,560.06
16.1.1 Accounts receivable
16.1.1.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Accounts receivable of individual
significance and subject to individual 105,366,572.73 24.31 105,366,572.73
impairment assessment
Accounts receivable subject to 256,206,313.25 59.11 12,810,315.67 5.00 243,395,997.58
121
C/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
impairment assessment by credit risk
characteristics of a portfolio
Accounts receivable of individual
insignificance but subject to individual 71,865,377.55 16.58 8,057,209.85 11.21 63,808,167.70
impairment assessment
Total 433,438,263.53 100.00 20,867,525.52 4.81 412,570,738.01
(Continued)
B/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Accounts receivable of individual significance and
subject to individual 354,831,772.34 62.85 354,831,772.34
impairment assessment
Accounts receivable subject to
impairment assessment by credit risk 176,321,122.59 31.23 8,816,056.13 5.00 167,505,066.46
characteristics of a portfolio
Accounts receivable of individual
insignificance but subject to individual 33,397,931.11 5.92 8,057,209.85 24.12 25,340,721.26
impairment assessment
Total 564,550,826.04 100.00 16,873,265.98 2.99 547,677,560.06
① Accounts receivable of individual significance and subject to individual impairment assessment
C/f
Debtor Allowance for bad Rate of allowance
Carrying amount Reason for allowance
debt (%)
No indication of
BSP-CHINA 56,778,788.70 impairment upon
individual assessment
No indication of
Accounting Center of China Aviation 48,587,784.03
impairment upon
122
C/f
Debtor Allowance for bad Rate of allowance
Carrying amount Reason for allowance
debt (%)
individual assessment
Total 105,366,572.73
② Accounts receivable subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance (%)
Portfolio by nature 256,206,313.25 12,810,315.67 5.00
Total 256,206,313.25 12,810,315.67 5.00
③ Accounts receivable of individual insignificance but subject to individual impairment assessment
C/f
Debtor Allowance for bad Rate of allowance
Carrying amount Reason for allowance
debt (%)
No indication of impairment upon
BSP-other areas 47,835,858.63
individual assessment
Impairment upon individual
Debtor #1 8,057,209.85 8,057,209.85 100.00
assessment
No indication of impairment upon
UATP
5,479,498.61 individual assessment
China International Airlines No indication of impairment upon
Corporation 7,813,395.57 individual assessment
No indication of impairment upon
Shandong Airlines Logistics Co., Ltd.
1,763,505.50 individual assessment
China International Airlines No indication of impairment upon
Corporation 907,509.39 individual assessment
Taikoo (Shandong) Aircraft No indication of impairment upon
Engineering Company Limited 8,400.00 individual assessment
Total 71,865,377.55 8,057,209.85 11.21
Note: BSP-other areas includes Tai Wan、Korea、Japan、Hong Kong、Australia、Russia、Canada、Thailand、Germany、
123
Cambodia、Vietnam、Singapore、Indonesia、Philippines、France etc.
16.1.2 Recognition, recovery or reversal of allowance for bad debt
The amount of allowance for bad debt recognized during the year is CNY 3,994,259.54. No recovery or return to bad debt
during the year.
16.1.3 Top five accounts receivable by debtors
The total amount of top five accounts receivable summarized by debtors as at the end of current year is CNY
199,325,791.04, accounting for 45.99% of the total accounts receivable as at the end of current year, the total
corresponding allowance for bad debt is CNY 4,697,960.91.
16.2 Other receivables
Item C/f B/f
Interest receivable
Dividend receivable
Other receivables 239,078,612.04 399,100,432.09
Total 239,078,612.04 399,100,432.09
16.2.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value
Amount % Amount %
Other receivables of individual
significance and subject to individual 249,586,501.51 71.71 106,200,587.24 42.55 143,385,914.27
impairment assessment
Other receivables subject to
impairment assessment by credit risk 55,465,677.85 15.94 2,773,283.89 5.00 52,692,393.96
characteristics of a portfolio
Other receivables of individual
insignificance but subject to individual 43,000,303.81 12.35 43,000,303.81
impairment assessment
Total 348,052,483.17 100.00 108,973,871.13 31.31 239,078,612.04
(Continued)
B/f
Category
Carrying amount Allowance for bad debt Book value
124
Amount % Amount %
Other receivables of individual
significance and subject to individual 447,153,532.78 88.21 106,076,302.93 23.72 341,077,229.85
impairment assessment
Other receivables subject to
impairment assessment by credit risk 34,509,238.33 6.81 1,725,461.92 5.00 32,783,776.41
characteristics of a portfolio
Other receivables of individual
insignificance but subject to individual 25,239,425.83 4.98 25,239,425.83
impairment assessment
Total 506,902,196.94 100.00 107,801,764.85 21.27 399,100,432.09
① Other receivables of individual significance and subject to individual impairment assessment
C/f
Rate of
Debtor Carrying Allowance for bad
allowance Reason for allowance
amount debt
(%)
Impairment upon individual
Shandong Rainbow Commercial Jet Co., Ltd. 101,551,717.65 101,551,717.65 100.00
assessment
No indication of impairment
Debtor #1 55,057,392.23
upon individual assessment
Impairment assessment by
Debtor #2 33,202,261.73 1,660,113.09 5.00
portfolio
Impairment assessment by
Debtor #3 59,775,129.90 2,988,756.50 5.00
portfolio
Total 249,586,501.51 106,200,587.24 42.55
② Other receivables subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance (%)
Portfolio by nature 55,465,677.85 2,773,283.89 5.00
Total 55,465,677.85 2,773,283.89 5.00
③ Other receivables of individual insignificance but subject to individual impairment assessment
125
C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance
bad debt allowance (%)
No indication of impairment
Shandong Airlines Logistics Co., Ltd. 14,112,610.84
upon individual assessment
No indication of impairment
Shandong Air New Media Co., Ltd. 11,745,680.45
upon individual assessment
No indication of impairment
China International Airlines Corporation 6,033,885.98
upon individual assessment
No indication of impairment
Debtor #1 4,238,588.20
upon individual assessment
No indication of impairment
Debtor #2 2,202,992.16
upon individual assessment
No indication of impairment
Debtor #3 2,062,200.00
upon individual assessment
No indication of impairment
Debtor #4 784,775.64
upon individual assessment
No indication of impairment
Debtor #5 553,166.41
upon individual assessment
No indication of impairment
Debtor #6 275,493.25
upon individual assessment
No indication of impairment
Dalian Airlines Co., Ltd. 241,412.00
upon individual assessment
Taikoo (Shandong) Aircraft Engineering No indication of impairment
235,380.70
Company Limited upon individual assessment
No indication of impairment
Kunming Airlines Co., Ltd. 202,090.00
upon individual assessment
Beijing Aircraft Maintenance Engineering Co., No indication of impairment
169,241.85
Ltd. upon individual assessment
Shenzhen Airlines Co., Ltd. 50,787.34 No indication of impairment
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C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance
bad debt allowance (%)
upon individual assessment
Shandong Xiangyu Aviation Technology Service No indication of impairment
50,712.31
Co., Ltd. upon individual assessment
No indication of impairment
Shandong Jinping aviation food Co., Ltd. 27,486.18
upon individual assessment
Shandong Airlines Rainbow Auto Service No indication of impairment
Co., Ltd. 13,800.50 upon individual assessment
Total 43,000,303.81
16.2.2 Recognition, recovery or reversal of allowance for bad debt
16.2.2.1 Recognition, recovery or reversal of allowance for bad debt
The amount of allowance for bad debt reversed during the current year is CNY 1,172,106.28. No recovery or provision
to bad debts during the year.
16.2.2.2 Disclosure by nature
Category C/f B/f
Deposits 65,174,607.89 220,843,044.40
Others 282,877,875.28 286,059,152.54
Total 348,052,483.17 506,902,196.94
16.2.2.3 Top five other receivables
Allowance for bad
Debtor Nature C/f Aging %
debt
Shandong Rainbow Commercial Jet
Others 101,551,717.65 Over 5 years 29.18 101,551,717.65
Co., Ltd.
Debtor #1 Deposits 55,057,392.23 Within 1 year 15.82
Debtor #2 Others 33,202,261.73 Within 3 years 9.54 1,660,113.09
Debtor #3 Others 59,775,129.90 Within 4 years 17.17 2,988,756.50
Shandong Airlines Logistics Co., Ltd. Others 14,112,610.84 Within 2 years 4.05
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Allowance for bad
Debtor Nature C/f Aging %
debt
Total 263,699,112.35 75.76 106,200,587.24
16.3 Long-term equity investments
16.3.1 Disclosure by category
C/f B/f
Item Impairment Net carrying Impairment
Carrying amount Carrying amount Net carrying amount
allowance amount allowance
Investments in
144,101,285.43 144,101,285.43 144,101,285.43 144,101,285.43
subsidiaries
Investments in
22,500,000.00 22,500,000.00 22,500,000.00 22,500,000.00
associates
Total 166,601,285.43 22,500,000.00 144,101,285.43 166,601,285.43 22,500,000.00 144,101,285.43
15.3.2 Investments in subsidiaries
Current
Current year Allowance Year-end
Investee B/f year C/f
increase recognized allowance
decrease
Shandong aviation
48,323,205.97 48,323,205.97
Logistics Ltd
Qingdao Feisheng
International Aviation
57,677,479.46 57,677,479.46
Training Technology
Development Co., Ltd
Shandong Jinping aviation
30,310,200.00 30,310,200.00
food Co., Ltd.
Shandong Airlines
7,790,400.00 7,790,400.00
Qingdao Food Co., Ltd.
Total 144,101,285.43 144,101,285.43
15.3.3 Investments in joint ventures and associates
Investee B/f Impairment Currency year movement (+, -)
128
allowance Investment gains
Additional Investment and losses Other comprehensive Other changes
investment reduction recognized under income adjustment in equity
the equity method
Associates
Shandong
Rainbow
Commercial
Jet Co.,
Ltd. 22,500,000.00 22,500,000.00
Total 22,500,000.00 22,500,000.00
(Continued)
Currency year movement (+, -)
Year-end
Investee Declared cash C/f
Allowance recognized Others allowance
dividends or profits
Associates
Shandong Rainbow
22,500,000.00 22,500,000.00
Commercial Jet Co., Ltd.
Total 22,500,000.00 22,500,000.00
16.4 Operating revenues and costs
Current year Prior year
Category
Operating revenues Operating costs Operating revenues Operating costs
Principal business 18,089,027,687.91 17,186,382,224.35 16,022,208,389.76 14,777,997,386.71
Other business 646,489,679.61 3,547,659.75 436,666,619.54 9,296,820.58
Total 18,735,517,367.52 17,189,929,884.10 16,458,875,009.30 14,787,294,207.29
16.5 Investment income
Category Current year Prior year
Income from financial assets measured by fair value with changes in
91,605.86 -1,023,651.75
fair value recognized in profit or loss
Income from holding of financial assets available for sale 17,934,220.07 22,740,535.94
129
Category Current year Prior year
Total 18,025,825.93 21,716,884.19
130
Note 17 Supplementary information
17.1 Non-recurring profit and loss
Category Current year Description
Gains from disposals of non-current assets after expending impairment provisions 25,187,750.35
Exceeded-authority approved, non-official approved or accidental tax repayment and relief
Government grants recognized through profit or loss for the current reporting period, excluding
grants which are closely related to the Company’s operating activities and of which the quota or 210,862,890.39
approval is eligible for automatic renewal in accordance with relevant regulations
Financial resource usage fees charged on non-financial institution recognized through profit or
loss for the current reporting period
Gains arising from bargain purchase in business combination and investments in associates
and joint ventures
Non-monetary asset exchange
Consigned investment and asset management
Impairment provision resulting from force majeure, eg. natural disasters
Reorganization
Reorganization expenditure
Unfair transactions
Net profits or losses achieved by an acquired under-common-control entity during the period
from the start of the period to the acquisition date
Gains or losses arising from contingent events unconnected with the Company’s daily
operating activities
Fair value changes of tradable financial assets and tradable financial liabilities held and gains
or losses arising from disposals of tradable financial assets, tradable financial liabilities and
3,789,484.18
available-for-sale financial assets, excluding hedging contracts relevant to the Company’s daily
operating activities
Reversal of impairment provision for accounts receivables eligible for individual impairment
assessment
Gains or losses arising from consigned borrowings
Fair value changes of property investments subsequently measured at fair value
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Category Current year Description
One-off adjustment of profit or loss for the current reporting period in accordance with tax and
accounting laws and regulations
Consignment income arising from consigned operations
Income and expenses other than items listed above 35,762,795.56
Other gains or losses satisfying the definition of extraordinary gains or losses 10,952,470.45
Subtotal 286,555,390.93
Less: Impact of income tax 71,725,366.00
Less: Impact on non-controlling interest
Total 214,830,024.93
Note: Positive amounts and negative amounts in non-recurring categories mean income and expenses or loss
respectively.
The Company recognized non-recurring categories of activities in accordance with the Explanatory Announcement
regarding Information Disclosure by Publicly Listed Company No. 1 - Non-recurring Profit and Loss (Zhengjianhui
Gonggao [2008] No.43).
17.2 Rate of return on net assets and earnings per share
Earnings per share (CNY/share)
Types of Profit Weighted average rate of RONA
Basic EPS Diluted EPS
Net profit attributable to ordinary shareholders 7.94 0.87 0.87
Recurring profit or loss attributable to ordinary
3.03 0.33 0.33
shareholders
132
