Auditor’s report
Shandong Airlines Co., Ltd.
RONGCHENG SHENZI [2022] No. 518Z0027
RSM CHINA CPA LLP
CHINABEIJING
Contents
Page
1 Auditor’s report 1
2 Consolidated Statement of Financial Position 9
3 Consolidated Statement of Profit or Loss and Other Comprehensive Income 13
4 Consolidated Statement of Cash Flows 18
5 Consolidated Statement of Changes in Owners' Equity 22
6 Statement of Financial Position of Parent Company 31
7 Statement of Profit or Loss and Other Comprehensive Income of Parent Company 35
8 Statement of Cash Flows of Parent Company 38
9 Statement of Changes in Owners' Equity of Parent Company 41
10 Notes to the Financial Statements 50
Independent Auditor’s Report
RONGCHENG SHENZI [2022] No. 518Z0027
To the Shareholders 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
the parent company’s statements of financial position as at December 31, 2021, the
consolidated and the parent company’s statements of comprehensive income, the
consolidated and the parent company’s statements of cash flows and the consolidated
and the parent company’s statements of changes in equity for the year then ended and
the notes to the financial statements.
In our opinion, the accompanying financial statements of Shandong Airlines 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 the parent
company’s financial positions as at December 31, 2021, and the consolidated and the
parent company’s financial performance and the consolidated and the parent company’s
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 have fulfilled other responsibilities of code of
ethics. We believe that the audit evidence we have obtained is sufficient and appropriate
1
to provide a basis for our audit opinion.
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.
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
system, through the system the company automatically processes 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. Since the recognition of
passenger service revenue involves using complex information technology system, it
will lead to the inherent risk of inaccurate recognition of passenger service revenue or
inappropriateness recognition of the accounting period. Therefore, we identify revenue
recognition of passenger service as a key audit item.
Please refer to accounting policies described in Note 3.13 Contract assets and contract
liabilities under Note 3 Important Accounting Principles and Accounting Estimates.
Please refer to Note 5.21 Contract liabilities and Note 5.39 Operating revenues and
costs under Note 5 Notes to significant elements of the consolidated financial
statements. Please refer to Note 14.4 Operating revenues and costs under Note 14 Notes
to elements of the parent company’s financial statements for details.
2
1.2 Audit Response
The relevant procedures we implemented for the recognition of passenger service
revenue mainly include:
1.2.1 We assessed the design, operation and effectiveness of the internal controls related
to the company's revenue recognition and assessed the effectiveness of the design and
operation of information technology controls related to the revenue system.
1.2.2 We assessed the key manual controls related to the track and treatment of the
identified difference between the information output from the information technology
system and the company's financial and operational data.
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 examined the relevant supporting documents of the journal entries with
significant amounts or other specific risk.
2. Impairment provisions for owned and leased aircrafts and engines
2.1 Description
As at December 31, 2021, the amount of owned and leased aircrafts and engines is CNY
20,763,616,394.54, accounting for 63.61% of the total assets of the consolidated
statement. The Company evaluated the recoverable amount of the asset group when
there is any indication that the asset group may be impaired at the balance sheet date to
recognize loss of asset impairments. The recoverable amount is the higher of the fair
value of the asset group less disposal costs and the present value of the estimated future
cash flows of the asset group. According to the result of the impairment test, there is no
impairment among owned and leased aircrafts and engines of the Company.
Since significant judgement is required to assess the assumptions of the forecast growth
3
rate and discount rate involved in the estimation of the present value of the estimated
future cash flows of the aircraft assets by the Company, we identified the assessment of
the present value of the estimated future cash flows of the aircraft assets as the key
Audit Matters.
Please refer to accounting policies described in Note 3.21 Long-term assets impairment
and Note 3.28 Lease under Note 3 Important Accounting Principles and Accounting
Estimates. Please refer to accounting policies described in Note 5.10 Fixed asset, Note
5.11 Construction in process and Note 5.12 Right of use asset under Note 5 Notes to
significant elements of the consolidated financial statements.
2.2 Audit Response
The relevant procedures we implemented for impairment provisions for owned and
leased aircrafts and engines mainly including:
2.2.1 Assess the effectiveness of the design and operation of internal controls related to
current value of estimated future cash flows of aircrafts.
2.2.2 Assess the reasonableness of estimated growth ratio based on the future business
plan of the Company.
2.2.3 Understand and assess the testing measure of recoverable amount used and
material judgment and estimate made by the Management and review the calculation of
impairment test with the assistance of our professionals with valuation skills and
knowledge.
2.2.4 Analyze the sensitivity of estimated growth rate and discount rate to evaluate the
influence on the impairment test result of the Company.
IV. Other Information
The management of the Company is responsible for other information, which includes
the information contained in the Company’s 2021 annual report except for the financial
statements and our auditor report.
4
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
Management of the Company (hereafter, the management) is responsible for the
preparation and fair presentation of the financial statements in accordance with
Enterprise Accounting Standards of China, and for the design, implementation and
maintenance of such internal control to ensure the financial statements 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 (if applicate), and applying the going-concern assumption, 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. Auditor’ Responsibility for the Audit of 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
5
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 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
6
continue as a going-concern.
E. Evaluate the overall presentation, structure and content of financial statements 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 audit opinion on the
financial statements. We are responsible for the guidance, supervision and execution of
the group audit, and 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 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.
7
RSM China CPA LLP Chinese CPA：YANG, Yunhui (Engagement Partner)
Beijing, China Chinese CPA： GUO, Yuefeng
Chinese CPA：XU, Hong
March 29, 2022
8
2. Consolidated Statement of Financial Position
Prepared by Shandong Airlines Co., Ltd.
December 31, 2021
In RMB
Item December 31, 2021 December 31, 2020
Current assets:
Monetary funds 3,811,102,681.16 5,306,474,451.06
Settlement provisions
Capital lent
Trading financial assets
Derivative financial assets
Note receivable
Account receivable 340,113,063.11 354,352,296.99
Receivable financing
Accounts paid in advance 4,685,949.55 213,530,865.28
Insurance receivable
Reinsurance receivables
Contract reserve of
reinsurance receivable
Other account receivable 171,734,868.85 159,397,943.13
Including: Interest
receivable
Dividend
receivable
Buying back the sale of
financial assets
Inventories 111,785,343.17 110,572,399.50
Contractual assets
Assets held for sale
9
Non-current asset due
within one year
Other current assets 369,977,255.76 282,572,739.73
Total current assets 4,809,399,161.60 6,426,900,695.69
Non-current assets:
Loans and payments on
behalf
Debt investment
Other debt investment
Long-term account
receivable
Long-term equity
investment
Investment in other equity
461,245,883.18 541,789,406.63
instrument
Other non-current financial
assets
Investment real estate 24,226,182.74
Fixed assets 6,200,939,794.32 6,904,082,012.35
Construction in progress 4,862,174,283.01 5,770,696,951.56
Productive biological asset
Oil and gas asset
Right-of-use assets 12,051,991,488.86 N/a
Intangible assets 441,785,379.60 118,699,980.33
Expense on Research and
Development
Goodwill 454,020.13
Long-term expenses to be
587,815,156.73 641,782,578.43
apportioned
Deferred income tax asset 3,204,004,227.14 1,999,099,488.87
10
Other non-current asset
Total non-current asset 27,834,182,395.58 15,976,604,438.30
Total assets 32,643,581,557.18 22,403,505,133.99
Current liabilities:
Short-term loans 2,601,211,111.11 2,001,111,111.11
Loan from central bank
Capital borrowed
Trading financial liability 78,548.31 862,955.67
Derivative financial
liability
Note payable 94,287,021.53 472,095,003.24
Account payable 2,220,194,249.13 2,543,319,300.31
Accounts received in
advance
Contractual liability 455,346,878.56 445,400,801.19
Selling financial asset of
repurchase
Absorbing deposit and
interbank deposit
Security trading of agency
Security sales of agency
Wage payable 454,324,256.07 346,238,955.37
Taxes payable 73,278,520.98 102,206,477.49
Other account payable 667,515,022.58 635,865,961.62
Including: Interest
payable
Dividend
602,306.96 602,306.96
payable
Commission charge and
commission payable
11
Reinsurance payable
Liability held for sale
Non-current liabilities due
3,219,248,211.06 321,577,566.89
within one year
Other current liabilities 32,096,585.80 31,100,597.66
Total current liabilities 9,817,580,405.13 6,899,778,730.55
Non-current liabilities:
Insurance contract reserve
Long-term loans 6,697,007,747.75 6,117,434,899.32
Bonds payable 1,000,000,000.00 1,000,000,000.00
Including: Preferred
stock
Perpetual
capital securities
Lease liability 9,441,515,109.42 N/a
Long-term account payable 5,230,688,729.19 5,303,354,015.63
Long-term wages payable 254,025,000.00
Accrual liability 1,060,428,713.51
Deferred income 97,814,550.53 100,513,810.37
Deferred income tax
216,210,941.34 158,137,753.91
liabilities
Other non-current
liabilities
Total non-current liabilities 23,743,665,791.74 12,933,465,479.23
Total liabilities 33,561,246,196.87 19,833,244,209.78
Owner’s equity:
Share capital 400,000,000.00 400,000,000.00
Other equity instrument
Including: Preferred
12
stock
Perpetual
capital securities
Capital public reserve 75,410,363.70 75,410,363.70
Less: Inventory shares
Other comprehensive
279,670,337.38 322,552,319.90
income
Reasonable reserve
Surplus public reserve 538,773,444.97 538,773,444.97
Provision of general risk
Retained profit -2,211,518,785.74 1,233,524,795.64
Total owner’ s equity
-917,664,639.69 2,570,260,924.21
attributable to parent company
Minority interests
Total owner’ s equity -917,664,639.69 2,570,260,924.21
Total liabilities and owner’ s
32,643,581,557.18 22,403,505,133.99
equity
Legal Representative: Sun Xiujiang
Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
3.Consolidated Statement of Profit or Loss and Other Comprehensive Income
In RMB
Item 2021 2020
I. Total operating income 12,515,317,963.16 10,534,403,350.87
Including: Operating income 12,515,317,963.16 10,534,403,350.87
Interest income
Insurance gained
Commission charge
and commission income
13
II. Total operating cost 15,147,394,074.67 13,833,221,113.61
Including: Operating cost 13,550,590,002.11 12,554,900,116.09
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
Tax and extras 18,372,220.34 10,479,064.77
Sales expense 648,675,348.06 613,910,975.53
Administrative
424,010,598.68 493,640,757.37
expense
R&D expense 25,042,013.59 22,866,289.98
Financial expense 480,703,891.89 137,423,909.87
Including: Interest
821,081,133.14 230,831,883.77
expenses
Interest
96,757,343.73 45,680,277.19
income
Add: Other income 160,262,151.16 100,684,939.11
Investment income
-568,877.88 3,190,496.20
(Loss is listed with “-”)
Including: Investment
income on affiliated company
and joint venture
The termination of
income recognition for financial
assets measured by amortized
14
cost
Exchange income (Loss
is listed with “-”)
Net exposure hedging
income (Loss is listed with “-”)
Income from change of
784,407.36 -736,690.92
fair value (Loss is listed with “-”)
Loss of credit
impairment (Loss is listed with -16,030,897.16 3,388,382.43
“-”)
Losses of devaluation
-454,020.13
of asset (Loss is listed with “-”)
Income from assets
162,594.11 603,734.58
disposal (Loss is listed with “-”)
III. Operating profit (Loss is
-2,487,920,754.05 -3,191,686,901.34
listed with “-”)
Add: Non-operating income 88,322,895.53 46,593,143.85
Less: Non-operating
2,658,018.62 798,968.97
expense
IV. Total profit (Loss is listed
-2,402,255,877.14 -3,145,892,726.46
with “-”)
Less: Income tax expense -588,550,569.75 -763,877,270.65
V. Net profit (Net loss is listed
-1,813,705,307.39 -2,382,015,455.81
with “-”)
(i) Classify by business
continuity
1.continuous operating net
-1,813,705,307.39 -2,382,015,455.81
profit (net loss listed with ‘-”)
2.termination of net profit
(net loss listed with ‘-”)
(ii) Classify by ownership
1.Net profit attributable to -1,813,705,307.39 -2,382,015,455.81
15
owner’s of parent company
2.Minority shareholders’
gains and losses
VI. Net after-tax of other
-60,407,642.59 -247,935,420.02
comprehensive income
Net after-tax of other
comprehensive income
-60,407,642.59 -247,935,420.02
attributable to owners of parent
company
(I) Other comprehensive
income items which will not be
-60,407,642.59 -247,935,420.02
reclassified subsequently to profit
of loss
1.Changes of the
defined benefit plans that 1,769,000.00
re-measured
2.Other
comprehensive income under
equity method that cannot be
transfer to gain/loss
3.Change of fair
value of investment in other -60,407,642.59 -249,704,420.02
equity instrument
4.Fair value change
of enterprise's credit risk
5. Other
(ii) Other comprehensive
income items which will be
reclassified subsequently to profit
or loss
1.Other
comprehensive income under
equity method that can transfer to
gain/loss
16
2.Change of fair
value of other debt investment
3.Amount of
financial assets re-classify to
other comprehensive income
4.Credit impairment
provision for other debt
investment
5.Cash flow hedging
reserve
6.Translation
differences arising on translation
of foreign currency financial
statements
7.Other
Net after-tax of other
comprehensive income
attributable to minority
shareholders
VII. Total comprehensive income -1,874,112,949.98 -2,629,950,875.83
Total comprehensive income
attributable to owners of parent -1,874,112,949.98 -2,629,950,875.83
Company
Total comprehensive income
attributable to minority
shareholders
VIII. Earnings per share:
(i) Basic earnings per share -4.53 -5.96
(ii) Diluted earnings per
-4.53 -5.96
share
Legal Representative: Sun Xiujiang
Person in charge of Accounting Works: Xu Guojian
17
Person in charge of Accounting Institution: Zhou Shoubin
4.Consolidated Statement of Cash Flows
In RMB
Item 2021 2020
I. Cash flows arising from
operating activities:
Cash received from selling
commodities and providing 13,597,307,085.68 11,042,083,759.34
labor 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
Cash received from
interest, commission charge and
commission
Net increase of capital
borrowed
Net increase of returned
business capital
Net cash received by
agents in sale and purchase of
securities
18
Write-back of tax received 15,592,880.52 59,006,545.25
Other cash received
281,275,702.01 238,727,574.04
concerning operating activities
Subtotal of cash inflow arising
13,894,175,668.21 11,339,817,878.63
from operating activities
Cash paid for purchasing
commodities and receiving 8,594,911,906.26 9,575,117,855.40
labor service
Net increase of customer
loans and advances
Net increase of deposits in
central bank and interbank
Cash paid for original
insurance contract
compensation
Net increase of capital lent
Cash paid for interest,
commission charge and
commission
Cash paid for bonus of
guarantee slip
Cash paid to/for staff and
3,167,172,577.54 2,965,393,711.37
workers
Taxes paid 207,751,817.71 201,842,884.10
Other cash paid concerning
367,017,548.88 297,192,188.56
operating activities
Subtotal of cash outflow arising
12,336,853,850.39 13,039,546,639.43
from operating activities
Net cash flows arising from
1,557,321,817.82 -1,699,728,760.80
operating activities
II. Cash flows arising from
investing activities:
19
Cash received from
recovering investment
Cash received from
208,728.00 4,019,690.59
investment income
Net cash received from
disposal of fixed, intangible and 68,366,199.75 5,464,475.89
other long-term assets
Net cash received from
disposal of subsidiaries and
other units
Other cash received
concerning investing activities
Subtotal of cash inflow from
68,574,927.75 9,484,166.48
investing activities
Cash paid for purchasing
fixed, intangible and other 2,068,296,938.33 660,563,018.81
long-term assets
Cash paid for investment
Net increase of mortgaged
loans
Net cash received from
subsidiaries and other units
obtained
Other cash paid concerning
777,605.88 829,194.39
investing activities
Subtotal of cash outflow from
2,069,074,544.21 661,392,213.20
investing activities
Net cash flows arising from
-2,000,499,616.46 -651,908,046.72
investing activities
III. Cash flows arising from
financing activities:
Cash received from
20
absorbing investment
Including: Cash received
from absorbing minority
shareholders’ investment by
subsidiaries
Cash received from loans 4,100,000,000.00 9,950,000,000.00
Other cash received
2,000,000,000.00
concerning financing activities
Cash received from issuing
bonds
Subtotal of cash inflow from
4,100,000,000.00 11,950,000,000.00
financing activities
Cash paid for debt
2,110,292,372.25 4,376,851,929.66
repayment
Cash paid for distribution
of dividends, profits or 319,544,830.00 152,212,442.26
repayment of interest
Including: Dividend and
profit of minority shareholder
paid by subsidiaries
Other cash paid in
connection with financing 2,725,684,347.70 360,556,413.20
activities
Subtotal of cash outflow from
5,155,521,549.95 4,889,620,785.12
financing activities
Net cash flows arising from
-1,055,521,549.95 7,060,379,214.88
financing activities
IV. Influence on cash and cash
equivalents due to fluctuation in -334,663.59 -1,129,021.99
exchange rate
V. Net increase of cash and cash
-1,499,034,012.18 4,707,613,385.37
equivalents
Add: Balance of cash and 5,306,474,451.06 598,861,065.69
21
cash equivalents at the period
-begin
VI. Balance of cash and cash
3,807,440,438.88 5,306,474,451.06
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
5.Consolidated Statement of Changes in Owners' Equity
Current Amount
In RMB
2021
Owners’ equity attributable to the parent Company
Other
equity
instrument
Pe Oth
Les Pro Min Tot
rp
er
Sh s: Rea visi Ret orit al
et
Item Cap com Sur
are Inv son on aine Sub y own
Pr ua
ital pre plus Oth
ca ento able of d tota inte ers’
ef l
Ot rese hen rese er
pit ry rese gen prof l rest equi
err ca
he rve sive rve
al shar rve eral it s ty
ed pit
r inco
sto al es risk
me
ck se
cu
riti
es
40 2,5
I. The 75, 538
0,0 322, 1,23 2,57 70,
ending 410 ,77
00, 552, 3,52 0,26 260
balance of ,36 3,4
00 319. 4,79 0,92 ,92
the previous 3.7 44.
0.0 90 5.64 4.21 4.2
year 0 97
0 1
22
-1,6
-1,6 -1,6
Add: 13,
13,8 13,8
Changes of 812
12,6 12,6
accounting ,61
13.9 13.9
policy 3.9
2 2
2
Error
correction
of the last
period
Enterprise
combine
under the
same
control
Other
40
II. The 75, 538 956
0,0 322, -38 956,
beginning 410 ,77 ,44
00, 552, 0,28 448,
balance of ,36 3,4 8,3
00 319. 7,81 310.
the current 3.7 44. 10.
0.0 90 8.28 29
year 0 97 29
0
III.
Increase/ -1,8 -1,8 -1,8
-42,
Decrease in 31,2 74,1 74,1
881,
the period 30,9 12,9 12,
982.
(Decrease is 67.4 49.9 949
52
listed with 6 8 .98
“-”)
-1,8 -1,8 -1,8
-60,
(i) Total 13,7 74,1 74,1
407,
comprehens 05,3 12,9 12,
642.
ive income 07.3 49.9 949
59
9 8 .98
(ii) Owners’
23
devoted and
decreased
capital
1.Common
shares
invested by
shareholder
s
2. Capital
invested by
holders of
other equity
instruments
3. Amount
reckoned
into owners
equity with
share-based
payment
4. Other
(iii) Profit
distribution
1.
Withdrawal
of surplus
reserves
2.
Withdrawal
of general
risk
provisions
3.
Distribution
for owners
(or
24
shareholder
s)
4. Other
(iv)
Carrying 17,5 -17,
forward 25,6 525,
internal 60.0 660.
owners’ 7 07
equity
1. Capital
reserves
conversed
to capital
(share
capital)
2. Surplus
reserves
conversed
to capital
(share
capital)
3.
Remedying
loss with
surplus
reserve
4.
Carry-over
retained 17,5 -17,
earnings 25,6 525,
from the 60.0 660.
defined 7 07
benefit
plans
5.
25
Carry-over
retained
earnings
from other
comprehens
ive income
6. Other
(v)
Reasonable
reserve
1.
Withdrawal
in the report
period
2. Usage in
the report
period
(vi) Others
40
75, 538 -2,2 -91
IV. Balance 0,0 279, -91
410 ,77 11,5 7,6
at the end 00, 670, 7,66
,36 3,4 18,7 64,
of the 00 337. 4,63
3.7 44. 85.7 639
period 0.0 38 9.69
0 97 4 .69
0
Amount of the previous period
In RMB
2020
Owners’ equity attributable to the parent Company
Other Les Oth Pro Total
Sh Rea Ret Min
equity Cap s: er Sur visi own
Item ority
are son aine Sub
instrument ital Inv co plus on Oth ers’
ca able d tota inter
rese ent mpr rese of er equit
pit rese prof l ests
Pr Pe Ot y
rve ory ehe rve gen
al ef rp her rve it
shar nsiv eral
26
er et es e risk
re ua inc
d l om
st ca e
oc pit
k al
se
cu
rit
ie
s
I. The 40 5,1
75, 570 538
ending 0,0 3,58 73, 5,17
410 ,48 ,77
balance of 00, 8,84 519 3,51
,36 7,7 3,4
the 00 7,45 ,00 9,00
3.7 39. 44.
previous 0.0 6.98 5.5 5.57
0 92 97
year 0 7
26,
Add: 26,6 26,6
692
Changes of 92,7 92,7
,79
accounting 94.4 94.4
4.4
policy 7 7
7
Error
correction
of the last
period
Enterprise
combine
under the
same
control
Other
II. The 40 75, 570 538 3,61 5,2 5,20
beginning 0,0 410 ,48 ,77 5,54 00, 0,21
balance of 00, ,36 7,7 3,4 0,25 211 1,80
the current 00 3.7 39. 44. 1.45 ,80 0.04
27
year 0.0 0 92 97 0.0
0 4
III.
-2,6
Increase/ -24 -2,3 -2,6
29,
Decrease in 7,9 82,0 29,9
950
the period 35, 15,4 50,8
,87
(Decrease 420 55.8 75.8
5.8
is listed .02 1 3
3
with “-”)
-2,6
-24 -2,3 -2,6
(i) Total 29,
7,9 82,0 29,9
comprehen 950
35, 15,4 50,8
sive ,87
420 55.8 75.8
income 5.8
.02 1 3
3
(ii)
Owners’
devoted
and
decreased
capital
1.Common
shares
invested by
shareholder
s
2. Capital
invested by
holders of
other
equity
instruments
3. Amount
reckoned
into owners
equity with
28
share-based
payment
4. Other
(iii) Profit
distribution
1.
Withdrawal
of surplus
reserves
2.
Withdrawal
of general
risk
provisions
3.
Distributio
n for
owners (or
shareholder
s)
4. Other
(iv)
Carrying
forward
internal
owners’
equity
1. Capital
reserves
conversed
to capital
(share
capital)
2. Surplus
reserves
29
conversed
to capital
(share
capital)
3.
Remedying
loss with
surplus
reserve
4.
Carry-over
retained
earnings
from the
defined
benefit
plans
5.
Carry-over
retained
earnings
from other
comprehen
sive
income
6. Other
(v)
Reasonable
reserve
1.
Withdrawal
in the
report
period
2. Usage in
30
the report
period
(vi) Others
40 2,5
75, 322 538
IV. Balance 0,0 1,23 70, 2,57
410 ,55 ,77
at the end 00, 3,52 260 0,26
,36 2,3 3,4
of the 00 4,79 ,92 0,92
3.7 19. 44.
period 0.0 5.64 4.2 4.21
0 90 97
0 1
Legal Representative: Sun Xiujiang
Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
6.Statement of Financial Position of Parent Company
In RMB
Item December 31, 2021 December 31, 2020
Current assets:
Monetary funds 3,799,124,518.37 5,302,302,306.13
Trading financial assets
Derivative financial assets
Note receivable
Account receivable 338,296,131.65 350,673,304.20
Receivable financing
Accounts paid in advance 4,409,314.22 213,297,372.67
Other account receivable 179,708,210.51 165,544,964.64
Including: Interest
receivable
Dividend
receivable
Inventories 108,129,200.65 108,682,699.25
Contractual assets
31
Assets held for sale
Non-current assets
maturing within one year
Other current assets 369,478,051.10 282,309,117.39
Total current assets 4,799,145,426.50 6,422,809,764.28
Non-current assets:
Debt investment
Other debt investment
Long-term receivables
Long-term equity
144,101,285.43 144,101,285.43
investments
Investment in other equity
461,245,883.18 541,789,406.63
instrument
Other non-current financial
assets
Investment real estate 24,226,182.74
Fixed assets 6,110,155,029.14 6,812,145,764.90
Construction in progress 4,854,111,226.65 5,770,696,951.56
Productive biological
assets
Oil and natural gas assets
Right-of-use assets 12,051,991,488.86 N/a
Intangible assets 429,783,837.53 106,310,248.22
Research and development
costs
Goodwill
Long-term deferred
587,815,156.73 641,779,766.13
expenses
Deferred income tax assets 3,202,709,890.47 1,998,341,086.43
Other non-current assets
32
Total non-current assets 27,866,139,980.73 16,015,164,509.30
Total assets 32,665,285,407.23 22,437,974,273.58
Current liabilities:
Short-term borrowings 2,601,211,111.11 2,001,111,111.11
Trading financial liability 78,548.31 862,955.67
Derivative financial
liability
Notes payable 94,287,021.53 472,095,003.24
Account payable 2,224,880,206.89 2,560,482,401.82
Accounts received in
advance
Contractual liability 453,677,991.84 443,746,099.43
Wage payable 449,645,567.63 341,473,984.67
Taxes payable 70,542,724.73 99,360,041.47
Other accounts payable 752,957,627.89 726,704,906.20
Including: Interest
payable
Dividend
11,940.00 11,940.00
payable
Liability held for sale
Non-current liabilities due
3,219,248,211.06 321,577,566.89
within one year
Other current liabilities 32,096,585.80 31,100,597.66
Total current liabilities 9,898,625,596.79 6,998,514,668.16
Non-current liabilities:
Long-term loans 6,697,007,747.75 6,117,434,899.32
Bonds payable 1,000,000,000.00 1,000,000,000.00
Including: Preferred
stock
33
Perpetual
capital securities
Lease liability 9,441,515,109.42 N/a
Long-term account payable 5,230,688,729.19 5,303,354,015.63
Long term employee
254,025,000.00
compensation payable
Accrued liabilities 1,060,428,713.51
Deferred income 97,814,550.53 100,513,810.37
Deferred income tax
215,428,494.29 157,224,899.02
liabilities
Other non-current
liabilities
Total non-current liabilities 23,742,883,344.69 12,932,552,624.34
Total liabilities 33,641,508,941.48 19,931,067,292.50
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
279,670,337.38 322,552,319.90
income
Special reserve
Surplus reserve 538,112,740.44 538,112,740.44
Retained profit -2,280,917,780.78 1,159,330,752.03
Total owner’s equity -976,223,534.25 2,506,906,981.08
Total liabilities and owner’s 32,665,285,407.23 22,437,974,273.58
34
equity
Legal Representative: Sun Xiujiang
Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
7.Statement of Profit or Loss and Other Comprehensive Income of Parent Company
In RMB
Item 2021 2020
I. Operating income 12,469,239,340.59 10,510,004,302.71
Less: Operating cost 13,524,184,156.03 12,555,099,599.57
Taxes and surcharge 16,273,798.24 8,539,807.74
Sales expenses 645,370,725.69 611,539,386.64
Administration
404,404,768.11 477,280,905.62
expenses
R&D expenses 25,042,013.59 22,866,289.98
Financial expenses 480,707,287.41 137,421,750.46
Including:
230,831,883.77 5,554,390.21
Interest expenses
Interest
45,641,728.82 0.60
income
Add: Other income 160,031,682.63 100,419,883.27
Investment income
-568,877.88 3,190,496.20
(Loss is listed with “-”)
Including: Investment
income on affiliated Company
and joint venture
The termination
of income recognition for
financial assets measured by
amortized cost (Loss is listed
with “-”)
35
Net exposure hedging
income (Loss is listed with “-”)
Changing income of
fair value (Loss is listed with 784,407.36 -736,690.92
“-”)
Loss of credit
impairment (Loss is listed with -16,154,979.96 3,472,930.02
“-”)
Losses of devaluation
of asset (Loss is listed with “-”)
Income on disposal of
162,594.11 603,734.58
assets (Loss is listed with “-”)
II. Operating profit (Loss is
-2,482,488,582.22 -3,195,793,084.15
listed with “-”)
Add: Non-operating
88,174,781.11 46,368,092.53
income
Less: Non-operating
2,653,546.07 800,154.63
expense
III. Total Profit (Loss is listed
-2,396,967,347.18 -3,150,225,146.25
with “-”)
Less: Income tax -588,057,088.36 -765,353,953.03
IV. Net profit (Net loss is listed
-1,808,910,258.82 -2,384,871,193.22
with “-”)
(i) continuous operating net
-1,808,910,258.82 -2,384,871,193.22
profit (net loss listed with ‘-”)
(ii) termination of net
profit (net loss listed with ‘-”)
V. Net after-tax of other
-60,407,642.59 -247,935,420.02
comprehensive income
(i) Other comprehensive income
items which will not be -60,407,642.59 -247,935,420.02
reclassified subsequently to
36
profit of loss
1.Changes of the
defined benefit plans that 1,769,000.00
re-measured
2.Other
comprehensive income under
equity method that cannot be
transfer to gain/loss
3.Change of fair
value of investment in other -60,407,642.59 -249,704,420.02
equity instrument
4.Fair value change
of enterprise's credit risk
5. Other
(ii) Other comprehensive
income items which will be
reclassified subsequently to
profit or loss
1.Other
comprehensive income under
equity method that can transfer
to gain/loss
2.Change of fair
value of other debt investment
3.Amount of
financial assets re-classify to
other comprehensive income
4.Credit
impairment provision for other
debt investment
5.Cash flow
hedging reserve
6.Translation
37
differences arising on
translation of foreign currency
financial statements
7.Other
VI. Total comprehensive income -1,869,317,901.41 -2,632,806,613.24
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
8.Statement of Cash Flows of Parent Company
In RMB
Item 2021 2020
I. Cash flows arising from
operating activities:
Cash received from selling
commodities and providing 13,535,433,001.45 11,009,882,324.49
labor services
Write-back of tax received 15,592,880.52 59,006,545.25
Other cash received in
connection with operating 285,000,578.38 248,160,175.85
activities
Subtotal of cash inflow arising
13,836,026,460.35 11,317,049,045.59
from operating activities
Cash paid for purchasing
commodities and receiving 8,619,388,427.50 9,605,312,325.28
labor service
Cash paid to/for staff and
3,118,574,378.18 2,920,147,365.43
workers
38
Taxes paid 200,653,861.40 194,509,236.96
Other cash paid in
connection with operating 364,919,237.63 269,257,710.91
activities
Subtotal of cash outflow arising
12,303,535,904.71 12,989,226,638.58
from operating activities
Net cash flows arising from
1,532,490,555.64 -1,672,177,592.99
operating activities
II. Cash flows arising from
investing activities:
Cash received from
recovering investment
Cash received from
208,728.00 4,019,690.59
investment income
Net cash received from
disposal of fixed assets,
68,365,703.35 5,453,274.22
intangible assets and other
long-term assets
Net cash received from
disposal of subsidiaries and
other units
Other cash received
concerning investing activities
Subtotal of cash inflow from
68,574,431.35 9,472,964.81
investing activities
Cash paid for purchasing
fixed assets, intangible assets 2,051,271,197.61 656,948,896.00
and other long-term assets
Cash paid for investment
Net cash received from
subsidiaries and other units
obtained
39
Other cash paid in
connection with investment 777,605.88 829,194.39
activities
Subtotal of cash outflow from
2,052,048,803.49 657,778,090.39
investing activities
Net cash flows arising from
-1,983,474,372.14 -648,305,125.58
investment activities
III. Cash flows arising from
financing activities:
Cash received from
absorbing investment
Cash received from loans 4,100,000,000.00 9,950,000,000.00
Other cash received
2,000,000,000.00
concerning financing activities
Cash received from issuing
bonds
Subtotal of cash inflow from
4,100,000,000.00 11,950,000,000.00
financing activities
Cash paid for debt
2,110,292,372.25 4,376,851,929.66
repayment
Cash paid for distribution
of dividends, profits or 319,544,830.00 152,212,442.26
repayment of interest
Other cash paid in
connection with financing 2,725,684,347.70 360,556,413.20
activities
Subtotal of cash outflow from
5,155,521,549.95 4,889,620,785.12
financing activities
Net cash flows arising from
-1,055,521,549.95 7,060,379,214.88
financing activities
IV. Influence on cash and cash
-334,663.59 -1,129,021.99
equivalents due to fluctuation in
40
exchange rate
V. Net increase of cash and cash
-1,506,840,030.04 4,738,767,474.32
equivalents
Add: Balance of cash and
cash equivalents at the period 5,302,302,306.13 563,534,831.81
-begin
VI. Balance of cash and cash
3,795,462,276.09 5,302,302,306.13
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
9.Statement of Changes in Owners' Equity of Parent Company
Current Amount
In RMB
2021
Other
equity instrument
Perp Other
Less: Reas
Shar etua Capit comp Surpl Reta
Pref Inven onabl Total
Item e al rehen us ined
l tory e Other owners
capit erre reser sive reser prof
capi Oth share reser ’ equity
al d ve inco ve it
tal er s ve
stoc me
secu
k
ritie
s
I. The
400, 1,15
ending 86,91 322,5 538,1 2,506,9
000, 9,33
balance of 1,168 52,31 12,74 06,981.
000. 0,75
the previous .71 9.90 0.44 08
00 2.03
year
Add: -1,6 -1,613,
Changes of 13,8 812,61
accounting 12,6 3.92
41
policy 13.9
2
Error
correction of
the last
period
Other
II. The
400, -454
beginning 86,91 322,5 538,1 893,09
000, ,481
balance of 1,168 52,31 12,74 4,367.1
000. ,861
the current .71 9.90 0.44 6
00 .89
year
III. Increase/
-1,8
Decrease in
-42,8 26,4 -1,869,
the period
81,98 35,9 317,90
(Decrease is
2.52 18.8 1.41
listed with
9
“-”)
-1,8
(i) Total -60,4 08,9 -1,869,
comprehensi 07,64 10,2 317,90
ve income 2.59 58.8 1.41
2
(ii) Owners’
devoted and
decreased
capital
1.Common
shares
invested by
shareholders
2. Capital
invested by
holders of
other equity
42
instruments
3. Amount
reckoned
into owners
equity with
share-based
payment
4. Other
(iii) Profit
distribution
1.
Withdrawal
of surplus
reserves
2.
Distribution
for owners
(or
shareholders
)
3. Other
(iv)
Carrying -17,
17,52
forward 525,
5,660
internal 660.
.07
owners’ 07
equity
1. Capital
reserves
conversed to
capital
(share
capital)
2. Surplus
reserves
43
conversed to
capital
(share
capital)
3.
Remedying
loss with
surplus
reserve
4.
Carry-over
-17,
retained 17,52
525,
earnings 5,660
660.
from the .07
07
defined
benefit plans
5.
Carry-over
retained
earnings
from other
comprehensi
ve income
6. Other
(v)
Reasonable
reserve
1.
Withdrawal
in the report
period
2. Usage in
the report
period
(vi) Others
44
-2,2
400,
IV. Balance 86,91 279,6 538,1 80,9 -976,2
000,
at the end of 1,168 70,33 12,74 17,7 23,534.
000.
the period .71 7.38 0.44 80.7 25
00
8
Amount of the previous period
In RMB
2020
Other
equity instrument
Othe
Per Less: r
Sha pet Capit Reaso Surp
Pref Inve comp Retain Total
Item re al nable lus
ual
erre ntory rehen ed Other owners’
capi capi Oth reser reserv reser
d share sive profit equity
tal tal er ve e ve
stoc s inco
sec me
k
uriti
es
I. The
ending 400, 570, 538,
86,91 3,517, 5,113,0
balance of 000, 487, 112,
1,16 509,15 20,799.
the 000. 739. 740.
8.71 0.78 85
previous 00 92 44
year
Add:
26,692
Changes of 26,692,
,794.4
accounting 794.47
7
policy
Error
correction
of the last
period
Other
II. The 400, 86,91 570, 538, 3,544, 5,139,7
45
beginning 000, 1,16 487, 112, 201,94 13,594.
balance of 000. 8.71 739. 740. 5.25 32
the current 00 92 44
year
III.
Increase/
-247,
Decrease in -2,384 -2,632,8
935,
the period ,871,1 06,613.
420.
(Decrease 93.22 24
02
is listed
with “-”)
-247,
(i) Total -2,384 -2,632,8
935,
comprehens ,871,1 06,613.
420.
ive income 93.22 24
02
(ii)
Owners’
devoted
and
decreased
capital
1.Common
shares
invested by
shareholder
s
2. Capital
invested by
holders of
other equity
instruments
3. Amount
reckoned
into owners
equity with
share-based
46
payment
4. Other
(iii) Profit
distribution
1.
Withdrawal
of surplus
reserves
2.
Distributio
n for
owners (or
shareholder
s)
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
47
loss with
surplus
reserve
4.
Carry-over
retained
earnings
from the
defined
benefit
plans
5.
Carry-over
retained
earnings
from other
comprehens
ive income
6. Other
(v)
Reasonable
reserve
1.
Withdrawal
in the
report
period
2. Usage in
the report
period
(vi) Others
IV. Balance 400, 322, 538,
86,91 1,159, 2,506,9
at the end 000, 552, 112,
1,16 330,75 06,981.
of the 000. 319. 740.
8.71 2.03 08
period 00 90 44
48
Legal Representative: Sun Xiujiang
Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin
49
Shandong Airlines Co., Ltd.
Notes to the Financial Statements
for the Year Ended December 31, 2021
(All amounts are expressed in CNY unless otherwise stated)
Note 1 BASIC INFORMATION ABOUT THE COMPANY
1.1 Corporation Information
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
50
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
authorized 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, authorized 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 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 main operating activities of the Company include: 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
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services; sales of airborne material and equipment, grocery, food, health food, art work,
souvenir, etc.; retailing of tobacco products (limited to Qingdao Red-Crowned Crane Hotel);
lease of airborne material and equipment; 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 , license 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 Company and the subsidiaries mainly operate in the industry of air transportation.
Financial Statement Approval Reporting Date: The financial statements were approved for
publication by the board of directors of the Company on March 29, 2022.
1.2 Scope and Changes of Consolidation
The scope of consolidation includes 4 subsidiaries in total. There is no change in the scope of
consolidation compared to last financial year. For details of the subsidiaries, please refer to
Note 7 INTEREST IN OTHER ENTITIES.
Note 2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
2.1 Basis for Preparation
Based on going concern, according to actually occurred transactions and events, the Company
prepares its financial statements in accordance with the Accounting Standards for Business
Enterprises – Basic standards and concrete accounting standards, Accounting Standards for
Business Enterprises – Application Guidelines, Accounting Standards for Business
Enterprises – Interpretations and other relevant provisions (collectively known as
“Accounting Standards for Business Enterprises, issued by Ministry of Finance of PRC”).
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Besides, the Company has disclosed related financial information in conformity with the
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).
2.2 Going Concern
The Company has assessed its ability to continually operate for the next twelve months from
the end of the reporting period, and no any matters that may result in doubt on its ability as a
going concern were noted. Therefore, it is reasonable for the Company to prepare financial
statements on the going concern basis.
Note 3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES
The following significant accounting policies and accounting estimates of the Company are
formulated in accordance with the Accounting Standards for Business Enterprises. Businesses
not mentioned are complied with relevant accounting policies of the Accounting Standards for
Business Enterprises.
3.1 Statement of Compliance with The Accounting Standards for Business Enterprises
The Company prepares its financial statements in accordance with the requirements of the
Accounting Standards for Business Enterprises, truly and completely reflecting the
Company’s financial position as at December 31, 2020, and its operating results, changes in
shareholders' equity, cash flows and other related information for the year then ended.
3.2 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.
3.3 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
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assets and liabilities as liquidity criteria for the classification.
3.4 Functional Currency
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.
3.5 Accounting Treatment of Business Combinations Under and Not Under Common
Control
3.5.1 Business Combinations Under Common Control
The assets and liabilities that the Company obtains in a business combination under common
control shall be measured at their carrying amount of the acquired entity at the combination
date. If the accounting policy adopted by the acquired entity is different from that adopted by
the acquiring entity, the acquiring entity shall, according to accounting policy it adopts, adjust
the relevant items in the financial statements of the acquired party based on the principal of
materiality. As for the difference between the carrying amount of the net assets obtained by
the acquiring entity and the carrying amount of the consideration paid by it, the capital reserve
(capital premium or share premium) shall be adjusted. If the capital reserve (capital premium
or share premium) is not sufficient to absorb the difference, any excess shall be adjusted
against retained earnings.
For the accounting treatment of business combination under common control by step
acquisitions, please refer to Note 3.6 (6).
3.5.2 Business combinations not under common control
The assets and liabilities that the Company obtains in a business combination not under
common control shall be measured at their fair value at the acquisition date. If the accounting
policy adopted by the acquired entity is different from that adopted by the acquiring entity,
the acquiring entity shall, according to accounting policy it adopts, adjust the relevant items in
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the financial statements of the acquired entity based on the principal of materiality. The
acquiring entity shall recognise the positive balance between the combination costs and the
fair value of the identifiable net assets it obtains from the acquired entity as goodwill. The
acquiring entity shall, pursuant to the following provisions, treat the negative balance between
the combination costs and the fair value of the identifiable net assets it obtains from the
acquired entity:
①It shall review the measurement of the fair values of the identifiable assets, liabilities and
contingent liabilities it obtains from the acquired entity as well as the combination costs;
②If, after the review, the combination costs are still less than the fair value of the identifiable
net assets it obtains from the acquired entity, the balance shall be recognised in profit or loss
of the reporting period. For the accounting treatment of business combination under common
control by step acquisitions, please refer to Note 3.6 (6).
3.5.3 Treatment of Business Combination Related Costs
The intermediary costs such as audit, legal services and valuation consulting and other related
management costs that are directly attributable to the business combination shall be charged
in profit or loss in the period in which they are incurred. The costs to issue equity or debt
securities for the consideration of business combination shall be recorded as a part of the
value of the respect equity or debt securities upon initial recognition.
3.6 Method of Preparing the Consolidated Financial Statements
3.6.1 Scope of Consolidation
The scope of consolidated financial statements shall be determined on the basis of control. It
not only includes subsidiaries determined based on voting power (or similar) or other
arrangement, but also structured entities under one or several contract arrangements.
Control exists when the Company has all the following: power over the investee; exposure, or
rights to variable returns from the Company’s involvement with the investee; and the ability
to use its power over the investee to affect the amount of the investor’s returns. Subsidiaries
are the entities that controlled by the Company (including enterprise, a divisible part of the
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investee, and structured entity controlled by the enterprise). A structured entity (sometimes
called a Special Purpose Entity) is an entity that has been designed so that voting or similar
rights are not the dominant factor in deciding who controls the entity.
3.6.2 Special provisions on the parent company being an investment subject
If the parent company is an investment entity, it should measure its investments in particular
subsidiaries as financial assets at fair value through profit or loss instead of consolidating
those subsidiaries in its consolidated and separate financial statements. However, as an
exception to this requirement, if a subsidiary provides investment-related services or activities
to the investment entity, it should be consolidated.
The parent company is defined as investment entity when meets following conditions:
①Obtains funds from one or more investors for the purpose of providing those investors with
investment management services;
②Commits to its investors that its business purpose is to invest funds solely for returns from
capital appreciation, investment income or both; and
③Measures and evaluates the performance of substantially all of its investments on a fair
value basis.
If the parent company becomes an investment entity, it shall cease to consolidate its
subsidiaries at the date of the change in status, except for any subsidiary which provides
investment-related services or activities to the investment entity shall be continued to be
consolidated. The deconsolidation of subsidiaries is accounted for as though the investment
entity partially disposed subsidiaries without loss of control.
When the parent company previously classified as an investment entity ceases to be an
investment entity, subsidiary that was previously measured at fair value through profit or loss
shall be included in the scope of consolidated financial statements at the date of the change in
status. The fair value of the subsidiary at the date of change represents the transferred deemed
consideration in accordance with the accounting for business combination not under common
control.
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3.6.3 Method of Preparing the Consolidated Financial Statements
The consolidated financial statements shall be prepared by the Company based on the
financial statements of the Company and its subsidiaries, and using other related information.
When preparing consolidated financial statements, the Company shall consider the entire
group as an accounting entity, adopt uniform accounting policies and apply the requirements
of Accounting Standard for Business Enterprises related to recognition, measurement and
presentation. The consolidated financial statements shall reflect the overall financial position,
operating results and cash flows of the group.
①Like items of assets, liabilities, equity, income, expenses and cash flows of the parent are
combined with those of the subsidiaries.
②The carrying amount of the parent’s investment in each subsidiary is eliminated (off-set)
against the parent’s portion of equity of each subsidiary.
③Eliminate the impact of intragroup transactions between the Company and the subsidiaries
or between subsidiaries, and when intragroup transactions indicate an impairment of related
assets, the losses shall be recognised in full.
④Make adjustments to special transactions from the perspective of the group.
3.6.4Method of preparation of the consolidated financial statements when subsidiaries
are acquired or disposed in the reporting period
①Acquisition of subsidiaries or business
A. Subsidiaries or business acquired through business combination under common control
(a) When preparing consolidated statements of financial position, the opening balance of the
consolidated balance sheet shall be adjusted. Related items of comparative financial
statements shall be adjusted as well, deeming that the combined entity has always existed ever
since the ultimate controlling party began to control.
(b) Incomes, expenses and profits of the subsidiary incurred from the beginning of the
reporting period to the end of the reporting period shall be included into the consolidated
statement of profit or loss. Related items of comparative financial statements shall be adjusted
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as well, deeming that the combined entity has always existed ever since the ultimate
controlling party began to control.
(c) Cash flows from the beginning of the reporting period to the end of the reporting period
shall be included into the consolidated statement of cash flows. Related items of comparative
financial statements shall be adjusted as well, deeming that the combined entity has always
existed ever since the ultimate controlling party began to control.
B. Subsidiaries or business acquired through business combination not under common control
(a) When preparing the consolidated statements of financial position, the opening balance of
the consolidated statements of financial position shall not be adjusted.
(b) Incomes, expenses and profits of the subsidiary incurred from the acquisition date to the
end of the reporting period shall be included into the consolidated statement of profit or loss.
(c) Cash flows from the acquisition date to the end of the reporting period shall be included
into the consolidated statement of cash flows.
②Disposal of subsidiaries or business
A. When preparing the consolidated statements of financial position, the opening balance of
the consolidated statements of financial position shall not be adjusted.
B. Incomes, expenses and profits incurred from the beginning of the subsidiary to the disposal
date shall be included into the consolidated statement of profit or loss.
C. Cash flows from the beginning of the subsidiary to the disposal date shall be included into
the consolidated statement of cash flows.
3.6.5 Special consideration in consolidation elimination
①Long-term equity investment held by the subsidiaries to the Company shall be recognised
as treasury stock of the Company, which is offset with the owner’s equity, represented as
“treasury stock” under “owner’s equity” in the consolidated statement of financial position.
Long-term equity investment held by subsidiaries between each other is accounted for taking
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long-term equity investment held by the Company to its subsidiaries as reference. That is, the
long-term equity investment is eliminated (off- set) against the portion of the corresponding
subsidiary’s equity.
②Due to not belonging to paid-in capital (or share capital) and capital reserve, and being
different from retained earnings and undistributed profit, “Specific reserves” and “General
risk provision” shall be recovered based on the proportion attributable to owners of the parent
company after long-term equity investment to the subsidiaries is eliminated with the
subsidiaries’ equity.
③If temporary timing difference between the book value of the assets and liabilities in the
consolidated statement of financial position and their tax basis is generated as a result of
elimination of unrealized inter-company transaction profit or loss, deferred tax assets of
deferred tax liabilities shall be recognised, and income tax expense in the consolidated
statement of profit or loss shall be adjusted simultaneously, excluding deferred taxes related to
transactions or events directly recognised in owner’s equity or business combination.
④Unrealised inter-company transactions profit or loss generated from the Company selling
assets to its subsidiaries shall be eliminated against “net profit attributed to the owners of the
parent company” in full. Unrealized inter-company transactions profit or loss generated from
the subsidiaries selling assets to the Company shall be eliminated between “net profit
attributed to the owners of the parent company” and “non-controlling interests” pursuant to
the proportion of the Company in the related subsidiaries. Unrealized inter-company
transactions profit or loss generated from the assets sales between the subsidiaries shall be
eliminated between “net profit attributed to the owners of the parent company” and
“non-controlling interests” pursuant to the proportion of the Company in the selling
subsidiaries.
⑤If loss attributed to the minority shareholders of a subsidiary in current period is more than
the proportion of non-controlling interest in this subsidiary at the beginning of the period,
non-controlling interest is still to be written down.
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3.6.6 Accounting for Special Transactions
①Purchasing of non-controlling interests
Where, the Company purchases non-controlling interests of its subsidiary, in the separate
financial statements of the Company, the cost of the long-term equity investment obtained in
purchasing non-controlling interests is measured at the fair value of the consideration paid. In
the consolidated financial statements, difference between the cost of the long-term equity
investment newly obtained in purchasing non-controlling interests and share of the
subsidiary’s net assets from the acquisition date or combination date continuingly calculated
pursuant to the newly acquired shareholding proportion shall be adjusted into capital reserve
(capital premium or share premium). If capital reserve is not enough to be offset, surplus
reserve and undistributed profit shall be offset in turn.
②Gaining control over the subsidiary in stages through multiple transactions
A. Business combination under common control in stages through multiple transactions
On the combination date, in the separate financial statement, initial cost of the long-term
equity investment is determined according to the share of carrying amount of the acquiree’s
net assets in the ultimate controlling entity’s consolidated financial statements after
combination. The difference between the initial cost of the long-term equity investment and
the carrying amount of the long -term investment held prior of control plus book value of
additional consideration paid at acquisition date is adjusted into capital reserve (capital
premium or share premium). If the capital reserve is not enough to absorb the difference, any
excess shall be adjusted against surplus reserve and undistributed profit in turn.
In the consolidated financial statements, the assets and liabilities acquired during the
combination should be recognized at their carrying amount in the ultimate controlling entity’s
consolidated financial statements on the combination date unless any adjustment is resulted
from the difference in accounting policies. The difference between the carrying amount of the
investment held prior of control plus book value of additional consideration paid on the
acquisition date and the net assets acquired through the combination is adjusted into capital
reserve (capital premium or share premium). If the capital reserve is not enough to absorb the
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difference, any excess shall be adjusted against retained earnings.
If the acquiring entity holds equity investment in the acquired entity prior to the combination
date and the equity investment is accounted for under the equity method, related profit or loss,
other comprehensive income and other changes in equity which have been recognised during
the period from the later of the date of the Company obtaining original equity interest and the
date of both the acquirer and the acquiree under common control of the same ultimate
controlling party to the combination date should be offset against the opening balance of
retained earnings at the comparative financial statements period respectively.
B. Realize the combination of enterprises under different control step by step through multiple
transactions
On the consolidation date, in the separate financial statements, the initial cost of long-term
equity investment is determined according to the carrying amount of the original long-term
investment plus the cost of new investment.
In the consolidated financial statements, the equity interest of the acquired entity held prior to
the acquisition date shall be re-measured at its fair value on the acquisition date. Difference
between the fair value of the equity interest and its book value is recognised as investment
income. The other comprehensive income related to the equity interest held prior to the
acquisition date calculated through equity method, should be transferred to current investment
income of the acquisition period, excluding other comprehensive income resulted from the
remeasurement of the net assets or net liabilities under defined benefit plan. The Company
shall disclose acquisition-date fair value of the equity interest held prior to the acquisition date,
and the related gains or losses due to the remeasurement based on fair value.
③Disposal of investment in subsidiaries without a loss of control
For partial disposal of the long-term equity investment in the subsidiaries without a loss of
control, when the Company prepares consolidated financial statements, difference between
consideration received from the disposal and the corresponding share of subsidiary’s net
assets cumulatively calculated from the acquisition date or combination date shall be adjusted
into capital reserve (capital premium or share premium). If the capital reserve is not enough to
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absorb the difference, any excess shall be offset against retained earnings.
④ Disposal of investment in subsidiaries with a loss of control
A. Disposal through one transaction
If the Company loses control in an investee through partial disposal of the equity investment,
when the consolidated financial statements are prepared, the retained equity interest should be
re-measured at fair value at the date of loss of control. The difference between i) the fair value
of consideration received from the disposal plus non-controlling interest retained; ii) share of
the former subsidiary’s net assets cumulatively calculated from the acquisition date or
combination date according to the original proportion of equity interest, shall be recognised in
current investment income when control is lost.
Moreover, other comprehensive income and other changes in equity related to the equity
investment in the former subsidiary shall be transferred into current investment income when
control is lost, excluding other comprehensive income resulted from the remeasurement of the
movement of net assets or net liabilities under defined benefit plan.
B. Disposal in stages
In the consolidated financial statements, whether the transactions should be accounted for as
“a single transaction” needs to be decided firstly.
If the disposal in stages should not be classified as “a single transaction”, in the separate
financial statements, for transactions prior of the date of loss of control, carrying amount of
each disposal of long-term equity investment need to be recognized, and the difference
between consideration received and the carrying amount of long-term equity investment
corresponding to the equity interest disposed should be recognized in current investment
income; in the consolidated financial statements, the disposal transaction should be accounted
for according to related policy in “Disposal of long-term equity investment in subsidiaries
without a loss of control”.
If the disposal in stages should be classified as “a single transaction”, these transactions
should be accounted for as a single transaction of disposal of subsidiary resulting in loss of
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control. In the separate financial statements, for each transaction prior of the date of loss of
control, difference between consideration received and the carrying amount of long-term
equity investment corresponding to the equity interest disposed should be recognised as other
comprehensive income firstly, and transferred to profit or loss as a whole when control is lost;
in the consolidated financial statements, for each transaction prior of the date of loss of
control, difference between consideration received and proportion of the subsidiary’s net
assets corresponding to the equity interest disposed should be recognised in profit or loss as a
whole when control is lost.
In considering of the terms and conditions of the transactions as well as their economic impact,
the presence of one or more of the following indicators may lead to account for multiple
transactions as a single transaction:
(a) The transactions are entered into simultaneously or in contemplation of one another.
(b) The transactions form a single transaction designed to achieve an overall commercial
effect.
(c) The occurrence of one transaction depends on the occurrence of at least one other
transaction.
(d) One transaction, when considered on its own merits, does not make economic sense, but
when considered together with the other transaction or transactions would be considered
economically justifiable.
⑤ Diluting equity share of parent company in its subsidiaries due to additional capital
injection by the subsidiaries’ minority shareholders.
Other shareholders (minority shareholders) of the subsidiaries inject additional capital in the
subsidiaries, which resulted in the dilution of equity interest of parent company in these
subsidiaries. In the consolidated financial statements, difference between share of the
corresponding subsidiaries’ net assets calculated based on the parent’s equity interest before
and after the capital injection shall be adjusted into capital reserve (capital premium or share
premium). If the capital reserve is not enough to absorb the difference, any excess shall be
adjusted against retained earnings.
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3.7 Classification of Joint Arrangements and Accounting for Joint Operation
A joint arrangement is an arrangement of which two or more parties have joint control. Joint
arrangement of the Company is classified as either a joint operation or a joint venture.
3.7.1 Joint operation
A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the
arrangement.
The Company shall recognise the following items in relation to shared interest in a joint
operation, and account for them in accordance with relevant accounting standards of the
Accounting Standards for Business Enterprises:
① its assets, including its share of any assets held jointly;
② its liabilities, including its share of any liabilities incurred jointly;
③ its revenue from the sale of its share of the output arising from the joint operation;
④ its share of the revenue from the sale of the output by the joint operation; and
⑤ its expenses, including its share of any expenses incurred jointly.
3.7.2 Joint venture
A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
The Company accounts for its investment in the joint venture by applying the equity method
of long-term equity investment.
3.8 Cash and Cash Equivalents
Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash
equivalents include short-term (generally within three months of maturity at acquisition),
highly liquid investments that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value.
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3.9 Foreign Currency Transactions and Translation of Foreign Currency Financial
Statements
3.9.1 Determination of the exchange rate for foreign currency transactions
At the time of initial recognition of a foreign currency transaction, the amount in the foreign
currency shall be translated into the amount in the functional currency at the spot exchange
rate of the transaction date, or at an exchange rate which is determined through a systematic
and reasonable method and is approximate to the spot exchange rate of the transaction date
(hereinafter referred to as the approximate exchange rate).
3.9.2 Translation of monetary items denominated in foreign currency on the balance
sheet date
The foreign currency monetary items shall be translated at the spot exchange rate on the
balance sheet date. The balance of exchange arising from the difference between the spot
exchange rate on the balance sheet date and the spot exchange rate at the time of initial
recognition or prior to the balance sheet date shall be recorded into the profits and losses at
the current period. The foreign currency non-monetary items measured at the historical cost
shall still be translated at the spot exchange rate on the transaction date; for the foreign
currency non-monetary items restated to a fair value measurement, shall be translated into the
at the spot exchange rate at the date when the fair value was determined, the difference
between the restated functional currency amount and the original functional currency amount
shall be recorded into the profits and losses at the current period.
3.9.3 Translation of foreign currency financial statements
Before translating the financial statements of foreign operations, the accounting period and
accounting policy shall be adjusted so as to conform to the Company. The adjusted foreign
operation financial statements denominated in foreign currency (other than functional
currency) shall be translated in accordance with the following method:
①The asset and liability items in the statement of financial position shall be translated at the
spot exchange rates at the date of that statement of financial position.. The owners’ equity
items except undistributed profit shall be translated at the spot exchange rates when they are
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incurred.
②The income and expense items in the statement of profit and other comprehensive income
shall be translated at the spot exchange rates or approximate exchange rate at the date of
transaction.
③Foreign currency cash flows and cash flows of foreign subsidiaries shall be translated at the
spot exchange rate or approximate exchange rate when the cash flows are incurred. The effect
of exchange rate changes on cash is presented separately in the statement of cash flows as an
adjustment item.
④The differences arising from the translation of foreign currency financial statements shall
be presented separately as “other comprehensive income” under the owners’ equity items of
the consolidated statement of financial position.
When disposing a foreign operation involving loss of control, the cumulative amount of the
exchange differences relating to that foreign operation recognised under other comprehensive
income in the statement of financial position, shall be reclassified into current profit or loss
according to the proportion disposed.
3.10 Financial Instruments
Financial instrument is any contract which gives rise to both a financial asset of one entity and
a financial liability or equity instrument of another entity.
3.10.1 Recognition and derecognition of financial instrument
A financial asset or a financial liability should be recognised in the statement of financial
position when, and only when, an entity becomes party to the contractual provisions of the
instrument.
A financial asset can only be derecognised when meets one of the following conditions:
①The rights to the contractual cash flows from a financial asset expire; and
②The financial asset has been transferred and meets one of the following derecognition
conditions.
Financial liabilities (or part thereof) are derecognised only when the liability is
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extinguished—i.e., when the obligation specified in the contract is discharged or cancelled or
expires. An exchange of the Company (borrower) and lender of debt instruments that carry
significantly different terms or a substantial modification of the terms of an existing liability
are both accounted for as an extinguishment of the original financial liability and the
recognition of a new financial liability.
Purchase or sale of financial assets in a regular-way shall be recognised and derecognised
using trade date accounting. A regular-way purchase or sale of financial assets is a transaction
under a contract whose terms require delivery of the asset within the time frame established
generally by regulations or convention in the market place concerned. Trade date is the date at
which the entity commits itself to purchase or sell an asset.
3.10.2 Classification and measurement of financial assets
At initial recognition, the Company classified its financial asset based on both the business
model for managing the financial asset and the contractual cash flow characteristics of the
financial asset: financial asset at amortised cost, financial asset at fair value through profit or
loss (FVTPL) and financial asset at fair value through other comprehensive income
(FVTOCI). Reclassification of financial assets is permitted if, and only if, the objective of the
entity’s business model for managing those financial assets changes. In this circumstance, all
affected financial assets shall be reclassified on the first day of the first reporting period after
the changes in business model; otherwise the financial assets cannot be reclassified after
initial recognition.
Financial assets shall be measured at initial recognition at fair value. For financial assets
measured at FVTPL, transaction costs are recognised in current profit or loss. For financial
assets not measured at FVTPL, transaction costs should be included in the initial
measurement. Notes receivable or accounts receivable that arise from sales of goods or
rendering of services are initially measured at the transaction price defined in the accounting
standard of revenue where the transaction does not include a significant financing component.
Subsequent measurement of financial assets will be based on their categories:
①Financial asset at amortised cost
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The financial asset at amortised cost category of classification applies when both the
following conditions are met: the financial asset is held within the business model whose
objective is to hold financial assets in order to collect contractual cash flows, and the
contractual term of the financial asset gives rise on specified dates to cash flows that are
solely payment of principal and interest on the principal amount outstanding. These financial
assets are subsequently measured at amortised cost by adopting the effective interest rate
method. Any gain or loss arising from derecognition according to the amortization under
effective interest rate method or impairment are recognised in current profit or loss.
②Financial asset at fair value through other comprehensive income (FVTOCI)
The financial asset at FVTOCI category of classification applies when both the following
conditions are met: the financial asset is held within the business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets, and the
contractual term of the financial asset gives rise on specified dates to cash flows that are
solely payment of principle and interest on the principal amount outstanding. All changes in
fair value are recognised in other comprehensive income except for gain or loss arising from
impairment or exchange differences, which should be recognised in current profit or loss. At
derecognition, cumulative gain or loss previously recognised under OCI is reclassified to
current profit or loss. However, interest income calculated based on the effective interest rate
is included in current profit or loss.
The Company make an irrevocable decision to designate part of non-trading equity instrument
investments as measured through FVTOCI. All changes in fair value are recognised in other
comprehensive income except for dividend income recognised in current profit or loss. At
derecognition, cumulative gain or loss are reclassified to retained earnings. ③Financial asset
at fair value through profit or loss (FVTPL)
Financial asset except for above mentioned financial asset at amortised cost or financial asset
at fair value through other comprehensive income (FVTOCI), should be classified as financial
asset at fair value through profit or loss (FVTPL). These financial assets should be
subsequently measured at fair value. All the changes in fair value are included in current
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profit or loss.
3.10.3 Classification and measurement of financial liabilities
The Company classified the financial liabilities as financial liabilities at fair value through
profit or loss (FVTPL), loan commitments at a below-market interest rate and financial
guarantee contracts and financial asset at amortised cost.
Subsequent measurement of financial assets will be based on the classification:
①Financial liabilities at fair value through profit or loss (FVTPL)
Held-for-trading financial liabilities (including derivatives that are financial liabilities) and
financial liabilities designated at FVTPL are classified as financial liabilities at FVTP. After
initial recognition, any gain or loss (including interest expense) are recognised in current
profit or loss except for those hedge accounting is applied. For financial liability that is
designated as at FVTPL, changes in the fair value of the financial liability that is attributable
to changes in the own credit risk of the issuer shall be presented in other comprehensive
income. At derecognition, cumulative gain or loss previously recognised under OCI is
reclassified to retained earnings.
②Loan commitments and financial guarantee contracts
Loan commitment is a commitment by the Company to provide a loan to customer under
specified contract terms. The provision of impairment losses of loan commitments shall be
recognised based on expected credit losses model.
Financial guarantee contract is a contract that requires the Company to make specified
payments to reimburse the holder for a loss it incurs because a specified debtor fails to make
payment when due in accordance with the original or modified terms of a debt instrument.
Financial guarantee contracts liability shall be subsequently measured at the higher of: The
amount of the loss allowance recognised according to the impairment principles of financial
instruments; and the amount initially recognised less the cumulative amount of income
recognised in accordance with the revenue principles.
③Financial liabilities at amortised cost
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After initial recognition, the Company measured other financial liabilities at amortised cost
using the effective interest method.
Except for special situation, financial liabilities and equity instrument should be classified in
accordance with the following principles:
①If the Company has no unconditional right to avoid delivering cash or another financial
instrument to fulfill a contractual obligation, this contractual obligation meet the definition of
financial liabilities. Some financial instruments do not comprise terms and conditions related
to obligations of delivering cash or another financial instrument explicitly, they may include
contractual obligation indirectly through other terms and conditions.
②If a financial instrument must or may be settled in the Company's own equity instruments,
it should be considered that the Company’s own equity instruments are alternatives of cash or
another financial instrument, or to entitle the holder of the equity instruments to sharing the
remaining rights over the net assets of the issuer. If the former is the case, the instrument is a
liability of the issuer; otherwise, it is an equity instrument of the issuer. Under some
circumstances, it is regulated in the contract that the financial instrument must or may be
settled in the Company's own equity instruments, where, amount of contractual rights and
obligations are calculated by multiplying the number of the equity instruments to be available
or delivered by its fair value upon settlement. Such contracts shall be classified as financial
liabilities, regardless that the amount of contractual rights and liabilities is fixed, or fluctuate
totally or partially with variables other than market price of the entity’s own equity
instruments (such as interest rate, price of some kind of goods or some kind of financial
instrument).
3.10.4 Derivatives and embedded derivatives
At initial recognition, derivatives shall be measured at fair value at the date of derivative
contracts are signed and subsequently measured at fair value. The derivative with a positive
fair value shall be recognized as an asset, and with a negative fair value shall be recognised as
a liability.
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Gains or losses arising from the changes in fair value of derivatives shall be recognised
directly into current profit or loss except for the effective portion of cash flow hedges which
shall be recognised in other comprehensive income and reclassified into current profit or loss
when the hedged items affect profit or loss.
An embedded derivative is a component of a hybrid contract with a financial asset as a host,
the Company shall apply the requirements of financial asset classification to the entire hybrid
contract. If a host that is not a financial asset and the hybrid contract is not measured at fair
value with changes in fair value recognised in profit or loss, and the economic characteristics
and risks of the embedded derivative are not closely related to the economic characteristics
and risks of the host, and a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative, the embedded derivative shall be
separated from the hybrid instrument and accounted for as a separate derivative instrument. If
the Company is unable to measure the fair value of the embedded derivative at the acquisition
date or subsequently at the balance sheet date, the entire hybrid contract is designated as
financial assets or financial liabilities at fair value through profit or loss.
3.10.5 Impairment of financial instrument
The Company shall recognise a loss allowance based on expected credit losses on a financial
asset that is measured at amortised cost, a debt investment at fair value through other
comprehensive income, a contract asset, a lease receivable, a loan commitment and a financial
guarantee contract.
①Measurement of expected credit losses
Expected credit losses are the weighted average of credit losses of the financial instruments
with the respective risks of a default occurring as the weights. Credit loss is the difference
between all contractual cash flows that are due to the Company in accordance with the
contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls),
discounted at the original effective interest rate or credit- adjusted effective interest rate for
purchased or originated credit-impaired financial assets.
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Lifetime expected credit losses are the expected credit losses that result from all possible
default events over the expected life of a financial instrument.
12-month expected credit losses are the portion of lifetime expected credit losses that
represent the expected credit losses that result from default events on a financial instrument
that are possible within the 12 months after the reporting date (or the expected lifetime, if the
expected life of a financial instrument is less than 12 months).
At each reporting date, the Company classifies financial instruments into three stages and
makes provisions for expected credit losses accordingly. A financial instrument of which the
credit risk has not significantly increased since initial recognition is at stage 1. The Company
shall measure the loss allowance for that financial instrument at an amount equal to 12-month
expected credit losses. A financial instrument with a significant increase in credit risk since
initial recognition but is not considered to be credit-impaired is at stage 2. The Company shall
measure the loss allowance for that financial instrument at an amount equal to the lifetime
expected credit losses. A financial instrument is considered to be credit-impaired as at the end
of the reporting period is at stage 3. The Company shall measure the loss allowance for that
financial instrument at an amount equal to the lifetime expected credit losses.
The Company may assume that the credit risk on a financial instrument has not increased
significantly since initial recognition if the financial instrument is determined to have low
credit risk at the reporting date and measure the loss allowance for that financial instrument at
an amount equal to 12-month expected credit losses.
For financial instrument at stage 1, stage 2 and those have low credit risk, the interest revenue
shall be calculated by applying the effective interest rate to the gross carrying amount of a
financial asset (i.e., impairment loss not been deducted). For financial instrument at stage 3,
interest revenue shall be calculated by applying the effective interest rate to the amortised cost
after deducting of impairment loss.
For notes receivable, accounts receivable and accounts receivable financing, no matter it
contains a significant financing component or not, the Company shall measure the loss
allowance at an amount equal to the lifetime expected credit losses.
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A. Receivables
For the notes receivable, accounts receivable, other receivables, accounts receivable financing
and long-term receivables which are demonstrated to be impaired by any objective evidence,
or applicable for individual assessment, the Company shall individually assess for impairment
and recognise the loss allowance for expected credit losses. If the Company determines that
no objective evidence of impairment exists for notes receivable, accounts receivable, other
receivables, accounts receivable financing and long-term receivables, or the expected credit
loss of a single financial asset cannot be assessed at reasonable cost, such notes receivable,
accounts receivable, other receivables, accounts receivable financing and long-term
receivables shall be divided into several groups with similar credit risk characteristics and
collectively calculated the expected credit loss. The determination basis of groups is as
following:
a. Determination basis of notes receivable is as following:
The Company shall measure the credit loss for notes receivable at an amount equal to the
lifetime expected credit losses. Based on the credit risk characteristics of notes receivable, it is
divided into different groups:
Item Characteristics of the group
Banker’s acceptable bill Acceptor who is a bank with less credit risk
b. Determination basis of accounts receivable is as following:
For accounts receivable and contract assets without the existence of a significant financing
component, the Company shall measure the loss allowance at the amount equal to the lifetime
expected credit losses.
For accounts receivable, contract assets and lease receivable with the existence of a
significant financing component, the Company chooses to always measure its losses
allowance at the amount equal to the lifetime expected credit losses.
Except for accounts receivable and contract assets which are individually assessed for credit
risk, accounts receivable and contract assets shall be divided into different groups based on its
credit risk characteristics:
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Item Characteristics of the group
Amounts due from the clearing center The receivables are due from the clearing center.
The receivables are due from the aviation
Amounts due from the aviation association
association.
The receivables are business operating receivables
Amounts due from related parties
due from related parties.
The receivables are business operating receivables
Other receivables
which are not included in the above categories.
c. Determination basis of other receivables is as following:
For each group, the Company calculates expected credit losses through default exposure and
the 12-months or lifetime expected credit losses rate, taking reference to historical experience
for credit losses and considering current condition and expectation for the future economic
situation.
Item Determine basis of the combination
Deposits receivable The receivables are deposits receivables daily activities.
The receivables are receivables due from related parties in
Amounts due from related parties
daily activities.
Other receivables The receivables are other receivables in daily activities.
d. Determination basis of long-term receivables financing is as following (except for
receivables with a material financing component and lease receivables):
The Company calculates expected credit losses through default exposure and the lifetime
expected credit losses rate, taking reference to historical experience for credit losses and
considering current condition and expectation for the future economic situation.
B. Debt investment and other debt investment
For debt investment and other debt investment, the Company shall calculate the expected
credit loss through the default exposure and the 12-month or lifetime expected credit loss rate
based on the nature of the investment, counterparty and the type of risk exposure.
②Low credit risk
If the financial instrument has a low risk of default, the borrower has a strong capacity to meet
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its contractual cash flow obligations in the near term and adverse changes in economic and
business conditions in the longer term may, but will not necessarily, reduce the ability of the
borrower to fulfill its contractual cash flow obligations.
③Significant increase in credit risk
The Company shall assess whether the credit risk on a financial instrument has increased
significantly since initial recognition, using the change in the risk of a default occurring over
the expected life of the financial instrument, through the comparison of the risk of a default
occurring on the financial instrument as at the reporting date with the risk of a default
occurring on the financial instrument as at the date of initial recognition.
To make that assessment, the Company shall consider reasonable and supportable information,
that is available without undue cost or effort, and that is indicative of significant increases in
credit risk since initial recognition, including forward-looking information. The information
considered by the Company are as following:
A. Significant changes in internal price indicators of credit risk as a result of a change in
credit risk since inception; and
B. Existing or forecast adverse change in the business, financial or economic conditions of the
borrower that results in a significant change in the borrower’s ability to meet its debt
obligations; and
C. An actual or expected significant change in the operating results of the borrower; An actual
or expected significant adverse change in the regulatory, economic, or technological
environment of the borrower; and
D. Significant changes in the value of the collateral supporting the obligation or in the quality
of third-party guarantees or credit enhancements, which are expected to reduce the borrower’s
economic incentive to make scheduled contractual payments or to otherwise have an effect on
the probability of a default occurring; and
E. Significant change that are expected to reduce the borrower’s economic incentive to make
scheduled contractual payments ; and
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F. Expected changes in the loan documentation including an expected breach of contract that
may lead to covenant waivers or amendments, interest payment holidays, interest rate
step-ups, requiring additional collateral or guarantees, or other changes to the contractual
framework of the instrument; and
G. Significant changes in the expected performance and behaviour of the borrower; and
H. Contractual payments are more than 30 days past due.
Depending on the nature of the financial instruments, the Company shall assess whether the
credit risk has increased significantly since initial recognition on an individual financial
instrument or a group of financial instruments. When assessed based on a group of financial
instruments, the Company can group financial instruments on the basis of shared credit risk
characteristics, for example, past due information and credit risk rating.
Generally, the Company shall determine the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments are more than 30 days past
due. The Company can only rebut this presumption if the Company has reasonable and
supportable information that is available without undue cost or effort, that demonstrates that
the credit risk has not increased significantly since initial recognition even though the
contractual payments are more than 30 days past due.
④Credit-impaired financial asset
The Company shall assess at each reporting date whether the credit impairment has occurred
for financial asset at amortised cost and debt investment at fair value through other
comprehensive income. A financial asset is credit-impaired when one or more events that
have a detrimental impact on the estimated future cash flows of that financial asset have
occurred. Evidences that a financial asset is credit-impaired include observable data about the
following events:
Significant financial difficulty of the issuer or the borrower；a breach of contract, such as a
default or past due event; the lender(s) of the borrower, for economic or contractual reasons
relating to the borrower’s financial difficulty, having granted to the borrower a concession(s)
that the lender(s) would not otherwise consider；it is becoming probable that the borrower will
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enter bankruptcy or other financial reorganisation；the disappearance of an active market for
that financial asset because of financial difficulties；the purchase or origination of a financial
asset at a deep discount that reflects the incurred credit losses.
⑤Presentation of impairment of expected credit loss
In order to reflect the changes of credit risk of financial instrument since initial recognition,
the Company shall at each reporting date remeasure the expected credit loss and recognise in
profit or loss, as an impairment gain or loss, the amount of expected credit losses addition(or
reversal). For financial asset at amortised cost, the loss allowance shall reduce the carrying
amount of the financial asset in the statement of financial position; for debt investment at fair
value through other comprehensive income, the loss allowance shall be recognised in other
comprehensive income and shall not reduce the carrying amount of the financial asset in the
statement of financial position.
⑥Write-off
The Company shall directly reduce the gross carrying amount of a financial asset when the
Company has no reasonable expectations of recovering the contractual cash flow of a
financial asset in its entirety or a portion thereof. Such write-off constitutes a derecognition of
the financial asset. This circumstance usually occurs when the Company determines that the
debtor has no assets or sources of income that could generate sufficient cash flow to repay the
write-off amount.
Recovery of financial asset written off shall be recognised in profit or loss as reversal of
impairment loss.
3.10.6 Transfer of financial assets
Transfer of financial assets refers to following two situations:
A. Transfers the contractual rights to receive the cash flows of the financial asset; and
B. Transfers the entire or a part of a financial asset and retains the contractual rights to receive
the cash flows of the financial asset, but assumes a contractual obligation to pay the cash
flows to one or more recipients.
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①Derecognition of transferred assets
If the Company transfers substantially all the risks and rewards of ownership of the financial
asset, or neither transfers nor retains substantially all the risks and rewards of ownership of
the financial asset but has not retained control of the financial asset, the financial asset shall
be derecognised.
Whether the Company has retained control of the transferred asset depends on the transferee’s
ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety
to an unrelated third party and is able to exercise that ability unilaterally and without needing
to impose additional restrictions on the transfer, the Company has not retained control.
The Company judges whether the transfer of financial asset qualifies for derecognition based
on the substance of the transfer.
If the transfer of financial asset qualifies for derecognition in its entirety, the difference
between the following shall be recognised in profit or loss:
A. The carrying amount of transferred financial asset;
B. The sum of consideration received and the part derecognised of the cumulative changes in
fair value previously recognised in other comprehensive income (The financial assets
involved in the transfer are classified as financial assets at fair value through other
comprehensive income in accordance with Article 18 of the Accounting Standards for
Business Enterprises - Recognition and Measurement of Financial Instruments).
If the transferred asset is a part of a larger financial asset and the part transferred qualifies for
derecognition, the previous carrying amount of the larger financial asset shall be allocated
between the part that continues to be recognised (For this purpose, a retained servicing asset
shall be treated as a part that continues to be recognised) and the part that is derecognised,
based on the relative fair values of those parts on the date of the transfer. The difference
between following two amounts shall be recognised in profit or loss:
A. The carrying amount (measured at the date of derecognition) allocated to the part
derecognized;
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B. The sum of the consideration received for the part derecognised and part derecognised of
the cumulative changes in fair value previously recognised in other comprehensive income
(The financial assets involved in the transfer are classified as financial assets at fair value
through other comprehensive income in accordance with Article 18 of the Accounting
Standards for Business Enterprises - Recognition and Measurement of Financial Instruments).
②Continuing involvement in transferred assets
If the Company neither transfers nor retains substantially all the risks and rewards of
ownership of a transferred asset, and retains control of the transferred asset, the Company
shall continue to recognise the transferred asset to the extent of its continuing involvement
and also recognise an associated liability.
The extent of the Company’s continuing involvement in the transferred asset is the extent to
which it is exposed to changes in the value of the transferred asset.
③Continue to recognise the transferred assets
If the Company retains substantially all the risks and rewards of ownership of the transferred
financial asset, the Company shall continue to recognise the transferred asset in its entirety
and the consideration received shall be recognised as a financial liability.
The financial asset and the associated financial liability shall not be offset. In subsequent
accounting period, the Company shall continuously recognise any income (gain) arising from
the transferred asset and any expense (loss) incurred on the associated liability.
3.10.7 Offsetting financial assets and financial liabilities
Financial assets and financial liabilities shall be presented separately in the statement of
financial position and shall not be offset. When meets the following conditions, financial
assets and financial liabilities shall be offset and the net amount presented in the statement of
financial position:
The Company currently has a legally enforceable right to set off the recognised amounts; The
Company intends either to settle on a net basis, or to realise the asset and settle the liability
simultaneously.
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In accounting for a transfer of a financial asset that does not qualify for derecognition, the
Company shall not offset the transferred asset and the associated liability.
3.10.8 Determination of fair value of financial instruments
Determination of financial assets and financial liabilities please refer to Note 3.11
3.11 Fair Value Measurement
Fair value refers to the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
The Company determines fair value of the related assets and liabilities based on market value
in the principal market, or in the absence of a principal market, in the most advantageous
market price for the related asset or liability. The fair value of an asset or a liability is
measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic best interest.
The principal market is the market in which transactions for an asset or liability take place
with the greatest volume and frequency. The most advantageous market is the market which
maximizes the value that could be received from selling the asset and minimizes the value
which is needed to be paid in order to transfer a liability, considering the effect of transport
costs and transaction costs both.
If the active market of the financial asset or financial liability exists, the Company shall
measure the fair value using the quoted price in the active market. If the active market of the
financial instrument is not available, the Company shall measure the fair value using
valuation techniques.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
① Valuation techniques
The Company uses valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, including the market approach, the
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income approach and the cost approach. The Company shall use valuation techniques
consistent with one or more of those approaches to measure fair value. If multiple valuation
techniques are used to measure fair value, the results shall be evaluated considering the
reasonableness of the range of values indicated by those results. A fair value measurement is
the point within that range that is most representative of fair value in the circumstances.
When using the valuation technique, the Company shall give the priority to relevant
observable inputs. The unobservable inputs can only be used when relevant observable inputs
is not available or practically would not be obtained. Observable inputs refer to the
information which is available from market and reflects the assumptions that market
participants would use when pricing the asset or liability. Unobservable Inputs refer to the
information which is not available from market and it has to be developed using the best
information available in the circumstances from the assumptions that market participants
would use when pricing the asset or liability.
② Fair value hierarchy
To Company establishes a fair value hierarchy that categorises into three levels the inputs to
valuation techniques used to measure fair value. The fair value hierarchy gives the highest
priority to Level 1 inputs and second to the Level 2 inputs and the lowest priority to Level 3
inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other
than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
3.12 Inventory
3.12.1 Classification of Inventory
The Company’s inventories mainly includes air materials and low-value consumables.
3.12.2 Measurement Method of Cost of Inventories Sold or Used
Inventories are initially carried at the actual cost. The actual cost of inventories transferred out
is assigned by using weighted average method.
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3.12.3 Inventory System
The perpetual inventory system is adopted. The inventories should be counted at least once a
year, and surplus or losses of inventory stocktaking shall be included in current profit and
loss.
3.12.4 Provision for Impairment of Inventory
Inventories are stated at the lower of cost and net realizable value. The excess of cost over net
realizable value of the inventories is recognized as provision for impairment of inventory, and
recognized in current profit or loss.
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.
3.12.5 Amortization Method for Low-Value Consumables
Low cost and short-lived consumable items are amortized using immediate write-off method;
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packaging materials are amortized using immediate write-off method.
3.13 Contract assets and contract liabilities
Contract assets and contract liabilities are reocgnised on the basis of fulfilment of
performance obligations and payment received from clients. A right to receive a promised
consideration from a client resulting from goods transferred to or services provided to the
client (where the right to consideration is dependent on factors other than the passage of time)
is reocgnised a contract asset. A payment received from a client for which goods shall be
transferred to or services shall be provided to the client is recognised as a contract liability.
See Note 3.10 for impairment of contract assets.
Contract assets and contract liabilities are presented as line items on the statement of financial
position. A contract asset and contract liability arising from one contract are presented in net;
while the net amount is a debit balance, it is presented in contract assets or other non-current
assets depending on liquidity; while the net amount is a credit balance, it is presented in
contract liabilities or other non-current liabilities depending on liquidity. Contract assets and
contract liabilities arising from different contracts are not be offset.
3.14 Contract costs
Costs for a contract include costs to fulfill the contract and costs to obtain the contract.
An asset is recognised for the costs incurred to fulfill a contract on if those costs meet all of
the following criteria:
I. the costs are directly associated with a contract or an anticipated contract, explicitly
chargeable to the client under the contract, incurred only for the contract;
II. the costs generate or enhance resources of the Company that will be used in satisfying
performance obligations in the future; and
III. the costs are expected to be recovered.
An asset is recognised for the costs incurred to obtained a contract with a client if those costs
are expected to be recovered.
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An asset recognised for the costs of a contract are amortised on a systematic basis that is
consistent with recognition of revenue arising from the contract. Where the costs incurred to
obtain a contract would be amortised for a period less than one year should they be recognised
as an asset, the costs are recognised in the current profit or loss as incurred.
An impairment is recognised for an asset recognised for the costs of a contract to the extent
that the carrying amount of the asset exceeds:
I. the remaining amount of consideration that is expected to be received in exchange for the
goods or services to which the asset relates; less
II. the costs that relate directly to providing those goods or services and that have not been
recognised as expenses.
Upon recognition of the impairment, further consideration is given for provision for an
onerous contract, in necessary.
A reversal of some or all of an impairment loss previously recognised for an asset for the
costs of a contract when the impairment conditions no longer exist or have improved. The
increased carrying amount of the asset is capped by the amount that would have been
determined (net of amortisation) if no impairment loss had been recognised previously.
An asset recognised for the costs to fulfill a contract is presented in inventories if its
amortisation is not longer than 1 year or an operating cycle upon initial recognition; otherwise,
it is presented in other non-current assets.
An asset recognised for the costs to obtain a contract is presented in other current assets if its
amortisation is not longer than 1 year or an operating cycle upon initial recognition; otherwise,
it is presented in other non-current assets.
3.15 Long-term Equity Investments
Long-term equity investments refer to equity investments where an investor has control of, or
significant influence over, an investee, as well as equity investments in joint ventures.
Associates of the Company are those entities over which the Company has significant
influence.
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3.15.1 Determination basis of joint control or significant influence over the investee
Joint control is the relevant agreed sharing of control over an arrangement, and the arranged
relevant activity must be decided under unanimous consent of the parties sharing control. In
assessing whether the Company has joint control of an arrangement, the Company shall assess
first whether all the parties, or a group of the parties, control the arrangement. When all the
parties, or a group of the parties, considered collectively, are able to direct the activities of the
arrangement, the parties control the arrangement collectively. Then the Company shall assess
whether decisions about the relevant activities require the unanimous consent of the parties
that collectively control the arrangement. If two or more groups of the parties could control
the arrangement collectively, it shall not be assessed as have joint control of the arrangement.
When assessing the joint control, the protective rights are not considered.
Significant influence is the power to participate in the financial and operating policy decisions
of the investee but is not control or joint control of those policies. In determination of
significant influence over an investee, the Company should consider not only the existing
voting rights directly or indirectly held but also the effect of potential voting rights held by the
Company and other entities that could be currently exercised or converted, including the
effect of share warrants, share options and convertible corporate bonds that issued by the
investee and could be converted in current period.
If the Company holds, directly or indirectly 20% or more but less than 50% of the voting
power of the investee, it is presumed that the Company has significant influence of the
investee, unless it can be clearly demonstrated that in such circumstance, the Company cannot
participate in the decision-making in the production and operating of the investee.
3.15.2 Determination of initial investment cost
① Long-term equity investments generated in business combinations
A. For a business combination involving enterprises under common control, if the Company
makes payment in cash, transfers non-cash assets or bears liabilities as the consideration for
the business combination, the share of carrying amount of the owners’ equity of the acquiree
in the consolidated financial statements of the ultimate controlling party is recognised as the
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initial cost of the long-term equity investment on the combination date. The difference
between the initial investment cost and the carrying amount of cash paid, non-cash assets
transferred and liabilities assumed shall be adjusted against the capital reserve; if capital
reserve is not enough to be offset, undistributed profit shall be offset in turn; and
B. For a business combination involving enterprises under common control, if the Company
issues equity securities as the consideration for the business combination, the share of
carrying amount of the owners’ equity of the acquiree in the consolidated financial statements
of the ultimate controlling party is recognised as the initial cost of the long-term equity
investment on the combination date. The total par value of the shares issued is recognised as
the share capital. The difference between the initial investment cost and the carrying amount
of the total par value of the shares issued shall be adjusted against the capital reserve; if
capital reserve is not enough to be offset, undistributed profit shall be offset in turn; and
C. For business combination not under common control, the assets paid, liabilities incurred or
assumed and the fair value of equity securities issued to obtain the control of the acquiree at
the acquisition date shall be determined as the cost of the business combination and
recognised as the initial cost of the long-term equity investment. The audit, legal, valuation
and advisory fees, other intermediary fees, and other relevant general administrative costs
incurred for the business combination, shall be recognised in profit or loss as incurred.
② Long-term equity investments acquired not through the business combination, the
investment cost shall be determined based on the following requirements:
A. For long-term equity investments acquired by payments in cash, the initial cost is the
actually paid purchase cost, including the expenses, taxes and other necessary expenditures
directly related to the acquisition of long-term equity investments; and
B. For long-term equity investments acquired through issuance of equity securities, the initial
cost is the fair value of the issued equity securities; and
C. For the long-term equity investments obtained through exchange of non-monetary assets, if
the exchange has commercial substance, and the fair values of assets traded out and traded in
can be measured reliably, the initial cost of long-term equity investment traded in with
non-monetary assets are determined based on the fair values of the assets traded out together
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with relevant taxes. Difference between fair value and book value of the assets traded out is
recorded in current profit or loss. If the exchange of non-monetary assets does not meet the
above criterion, the book value of the assets traded out and relevant taxes are recognised as
the initial investment cost; and
D. For long-term equity investment acquired through debt restructuring, the book value is
determined based on the fair value of waived debts and the taxes and other costs directly
attributable to the assets. Difference between fair value and carrying amount of waived debts
shall be recorded in current profit or loss.
3.15.3 Subsequent measurement and recognition of profit or loss
Long-term equity investment to an entity over which the Company has ability of control shall
be accounted for at cost method. Long-term equity investment to a joint venture or an
associate shall be accounted for at equity method.
①Cost method
For Long-term equity investment at cost method, cost of the long-term equity investment shall
be adjusted when additional amount is invested or a part of it is withdrawn. The Company
recognises its share of cash dividends or profits which have been declared to distribute by the
investee as current investment income.
②Equity method
For long-term equity investment at equity method, the general accounting treatment is as
follows:
If the initial cost of the investment is in excess of the share of the fair value of the net
identifiable assets in the investee at the date of investment, the difference shall not be adjusted
to the initial cost of long-term equity investment; if the initial cost of the investment is in
short of the share of the fair value of the net identifiable assets in the investee at the date
investment, the difference shall be included in the current profit or loss and the initial cost of
the long-term equity investment shall be adjusted accordingly.
The Company recognises the share of the investee’s net profits or losses, as well as its share
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of the investee’s other comprehensive income, as investment income or losses and other
comprehensive income respectively, and adjusts the carrying amount of the investment
accordingly. The carrying amount of the investment shall be reduced by the share of any
profit or cash dividends declared to distribute by the investee. The investor’s share of the
investee’s owners’ equity changes, other than those arising from the investee’s net profit or
loss, other comprehensive income or profit distribution, shall be recognised in the investor’s
equity, and the carrying amount of the long-term equity investment shall be adjusted
accordingly. The Company recognises its share of the investee’s net profits or losses after
making appropriate adjustments of investee’s net profit based on the fair values of the
investee’s identifiable net assets at the investment date. If the accounting policy and
accounting period adopted by the investee is not in consistency with the Company, the
financial statements of the investee shall be adjusted according to the Company’s accounting
policies and accounting period, based on which, investment income or loss and other
comprehensive income, etc., shall be adjusted. The unrealized profits or losses resulting from
inter-company transactions between the Company and its associate or joint venture are
eliminated in proportion to the company’s equity interest in the investee, based on which
investment income or losses shall be recognised. Any losses resulting from inter-company
transactions between the investor and the investee, which belong to asset impairment, shall be
recognised in full.
Where the Company obtains the power of joint control or significant influence, but not
control, over the investee, due to additional investment or other reason, the relevant long-term
equity investment shall be accounted for by using the equity method, initial cost of which
shall be the fair value of the original investment plus the additional investment. Where the
original investment is classified as available-for sale investment, difference between its fair
value and the carrying value, in addition to the cumulative changes in fair value previously
recorded in other comprehensive income, shall be recognised into current profit or loss using
equity method.
If the Company loses the joint control or significant influence of the investee for some reasons
such as disposal of equity investment, the retained interest shall be measured at fair value and
the difference between the carrying amount and the fair value at the date of loss the joint
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control or significant influence shall be recognised in profit or loss. When the Company
discontinues the use of the equity method, the Company shall account for all amounts
previously recognised in other comprehensive income under equity method in relation to that
investment on the same basis as would have been required if the investee had directly
disposed of the related assets or liabilities.
3.15.4 Impairment test method and provision for impairment
For investments in subsidiaries, associates and joint ventures, see Note 3.21 for the method of
recognizing asset impairment.
3.16 Investment properties
3.16.1 Categories of investment properties
Investment property is property held to earn rentals or for capital appreciation or both.
Investment properties mainly include:
①Land use right leased out
②Land held for transfer upon appreciation
③Buildings leased out.
3.16.2 The measurement model of investment properties
The Company adopts cost model for subsequent measurement of investment properties. For
provision for impairment please refer to Note 3.21.
The Company calculates the depreciation or amortization based on the net amount of
investment property cost less the accumulated impairment and the net residual value using
straight-line method. The estimated useful life and annual depreciation rates which are
determined according to the categories, estimated economic useful lives and estimated net
residual rates are listed as followings:
Estimated useful life Annual depreciation
Category Residual rates (%)
(Year) rates (%)
Buildings and constructions 20-33 5.00 2.88-4.75
Land use right Legal life 0.00 N/a
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3.17 Fixed Assets
Fixed assets refer to the tangible assets with higher unit price held for the purpose of
producing commodities, rendering services, renting or business management with useful lives
exceeding one year.
（1）Recognition criteria of fixed assets
Fixed assets will only be recognised at the actual cost paid when obtaining as all the following
criteria are satisfied:
①It is probable that the economic benefits relating to the fixed assets will flow into the
Company;
②The costs of the fixed assets can be measured reliably.
Subsequent expenditure for fixed assets shall be recorded in cost of fixed assets, if recognition
criteria of fixed assets are satisfied, otherwise the expenditure shall be recorded in current
profit or loss when incurred.
（2）Depreciation methods of fixed assets
Fixed assets are initially measured at cost and taking into account the impact of expected
disposal costs. The Company begins to depreciate the fixed asset from the next month after it
is available for intended use by the straight-line-method, except for the replacement parts of
the engine, which is depreciated by units of production method based on flight hours. The
useful life, estimated net residual value and annual depreciation rate of various types of fixed
assets are as follows:
Estimated useful life
Annual
Depreciation (Year)/ Residual
Category depreciation
method Estimated flight rates (%)
rates/KHrs (%)
hours (KHrs)
Buildings and Straight-line
20-33 5.00 2.88-4.75
constructions method
Aircraft engine core parts
Straight-line
and engine auxiliary 15-20 0.00-5.00 4.75-6.67
method
power unit
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Estimated useful life
Annual
Depreciation (Year)/ Residual
Category depreciation
method Estimated flight rates (%)
rates/KHrs (%)
hours (KHrs)
Engine replacement parts Units-of-produc 17-23 0.00 4.35-5.88
(KHrs) tion method
High-priced revolving Straight-line
3-15 0.00 6.67-33.33
parts method
Transportation equipment Straight-line
4-20 5.00 4.75-23.75
and others method
For the fixed assets with impairment provided, the impairment provision should be excluded
from the cost when calculating depreciation.
At the end of reporting period, the Company shall review the useful life, estimated net
residual value and depreciation method of the fixed assets. Estimated useful life of the fixed
assets shall be adjusted if it is changed compared to the original estimation.
3.18 Construction in Progress
The initial book values of the fixed assets are stated at total expenditures incurred before they
are ready for their intended use, including construction costs, original price of machinery
equipment, other necessary expenses incurred to bring the construction in progress to get
ready for its intended use and borrowing costs of the specific loan for the construction or the
proportion of the general loan used for the constructions incurred before they are ready for
their intended use. The construction in progress shall be transferred to fixed asset when the
installation or construction is ready for the intended use. For construction in progress that has
been ready for their intended use but relevant budgets for the completion of projects have not
been completed, the estimated values of project budgets, prices, or actual costs should be
included in the costs of relevant fixed assets, and depreciation should be provided according
to relevant policies of the Company when the fixed assets are ready for intended use. After the
completion of budgets needed for the completion of projects, the estimated values should be
substituted by actual costs, but depreciation already provided is not adjusted.
3.19 Borrowing Costs
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（1）Recognition criteria and period for capitalization of borrowing costs
The Company shall capitalize the borrowing costs that are directly attributable to the
acquisition, construction or production of qualifying assets when meet the following
conditions:
①Expenditures for the asset are being incurred;
②Borrowing costs are being incurred; and
③Acquisition, construction or production activities that are necessary to prepare the assets for
their intended use or sale are in progress.
Other borrowing cost, discounts or premiums on borrowings and exchange differences on
foreign currency borrowings shall be recognized into current profit or loss when incurred.
Capitalization of borrowing costs is suspended during periods in which the acquisition,
construction or production of a qualifying asset is interrupted abnormally and the interruption
is for a continuous period of more than 3 months.
Capitalization of such borrowing costs ceases when the qualifying assets being acquired,
constructed or produced become ready for their intended use or sale. The expenditure incurred
subsequently shall be recognised as expenses when incurred.
（2）Capitalization rate and measurement of capitalized amounts of borrowing costs
When funds are borrowed specifically for purchase, construction or manufacturing of assets
eligible for capitalization, the Company shall determine the amount of borrowing costs
eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the
period less any interest income on bank deposit or investment income on the temporary
investment of those borrowings.
Where funds allocated for purchase, construction or manufacturing of assets eligible for
capitalization are part of a general borrowing, the eligible amounts are determined by the
weighted-average of the cumulative capital expenditures in excess of the specific borrowing
multiplied by the general borrowing capitalization rate. The capitalization rate will be the
weighted average of the borrowing costs applicable to the general borrowing.
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During the capitalization period, all the exchange differences of special foreign currency loans
shall be capitalized. The exchange difference of foreign currency general borrowings is
carried to the current profit and loss.
3.20 Intangible Assets
3.20.1 Measurement method of intangible assets
Intangible assets are recognised at actual cost at acquisition.
3.20.2 The useful life and amortisation of intangible assets
①The estimated useful lives of the intangible assets with finite useful lives are as follows:
Category Estimated useful life
Land use right Legal life
The service life is determined by reference to the period that can
Software
bring economic benefits to the Company
For intangible assets with finite useful life, the estimated useful life and amortisation method
are reviewed annually at the end of each reporting period and adjusted when necessary. No
change incur in current year in the estimated useful life and amortisation method upon review.
② Assets of which the period to bring economic benefits to the Company are unforeseeable
are regarded as intangible assets with indefinite useful lives. The Company reassesses the
useful lives of those assets at every year end. If the useful lives of those assets are still
indefinite, impairment test should be performed on those assets at the balance sheet date.
③Amortisation of the intangible assets
For intangible assets with finite useful lives, their useful lives should be determined upon
their acquisition and systematically amortised on a straight-line basis [units of production
method] over the useful life. The amortisation amount shall be recognized into current profit
or loss according to the beneficial items. The amount to be amortised is cost deducting
residual value. For intangible assets which has impaired, the cumulative impairment provision
shall be deducted as well. The residual value of an intangible asset with a finite useful life
shall be assumed to be zero unless: there is a commitment by a third party to purchase the
asset at the end of its useful life; or there is an active market for the asset and residual value
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can be determined by reference to that market; and it is probable that such a market will exist
at the end of the asset’s useful life.
Intangible assets with indefinite useful lives shall not be amortised. The Company reassesses
the useful lives of those assets at every year end. If there is evidence to indicate that the useful
lives of those assets become finite, the useful lives shall be estimated and the intangible assets
shall be amortised systematically and reasonably within the estimated useful lives.
(3) Criteria of classifying expenditures on internal research and development projects
into research phase and development phase
①Preparation activities related to materials and other relevant aspects undertaken by the
Company for the purpose of further development shall be treated as research phase.
②Development activities after the research phase of the Company shall be treated as
development phase.
(4) Criteria for capitalization of qualifying expenditures during the development phase
Expenditures arising from development phase on internal research and development projects
shall be recognised as intangible assets only if all of the following conditions have been met:
A. Technical feasibility of completing the intangible assets so that they will be available for
use or sale; and
B. Its intention to complete the intangible asset and use or sell it; and
C. The method that the intangible assets generate economic benefits, including the Company
can demonstrate the existence of a market for the output of the intangible assets or the
intangible assets themselves or, if it is to be used internally, the usefulness of the intangible
assets; and
D. The availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset; and
E. Its ability to measure reliably the expenditure attributable to the intangible asset.
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3.21 Impairment of Long-Term Assets
Impairment loss of fixed assets, constructions in progress, Intangible assets with finite useful
lives, investment properties subsequently measured at cost, right-of-use assets, long-term
equity investment in subsidiaries, associates and joint ventures, goodwill, etc. shall be
determined according to following method:
The Company shall assess at the end of each reporting period whether there is any indication
that an asset may be impaired. If any such indication exists, the Company shall estimate the
recoverable amount of the asset and test for impairment. Irrespective of whether there is any
indication of impairment, the Company shall test for impairment of goodwill acquired in a
business combination, intangible assets with an indefinite useful life or intangible assets not
yet available for use annually.
The recoverable amounts of the long-term assets are the higher of their fair values less costs
to dispose and the present values of the estimated future cash flows of the long-term assets.
The Company estimate the recoverable amounts on an individual basis. If it is difficult to
estimate the recoverable amount of the individual asset, the Company estimates the
recoverable amount of the groups of assets that the individual asset belongs to. Identification
of a group of asset is based on whether the cash inflows from it are largely independent of the
cash inflows from other assets or groups of assets.
If, and only if, the recoverable amount of an asset or a group of assets is less than its carrying
amount, the carrying amount of the asset shall be reduced to its recoverable amount and the
provision for impairment loss shall be recognised accordingly.
For the purpose of impairment testing, goodwill acquired in a business combination shall,
from the acquisition date, be allocated to relevant group of assets based on reasonable method;
if it is difficult to allocate to relevant group of assets, good will shall be allocated to relevant
combination of asset groups. The relevant group of assets or combination of asset groups is a
group of assets or combination of asset groups that is benefit from the synergies of the
business combination and is not larger than the reporting segment determined by the
Company.
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When test for impairment, if there is an indication that relevant group of assets or
combination of asset groups may be impaired, impairment testing for group of assets or
combination of asset groups excluding goodwill shall be conducted first, and calculate the
recoverable amount and recognize the impairment loss. Then the group of assets or
combination of asset groups including goodwill shall be tested for impairment, by comparing
the carrying amount with its recoverable amount. If the recoverable amount is less than the
carrying amount, the Company shall recognise the impairment loss.
The mentioned impairment loss will not be reversed in subsequent accounting period once it
had been recognised.
3.22 Long-term Deferred Expenses
Long-term deferred expenses are various expenses already incurred, which shall be amortised
over current and subsequent periods with the amortisation period exceeding one year.
Long-term prepaid expenses are amortized on a straight-line basis over the period of expected
benefit. In the case of pilot training expenses, they shall be amortized on an average basis of
10 years according to the period of benefit of the expense items.
3.23 Employee Benefits
Employee benefits refer to all forms of consideration or compensation given by the Company
in exchange for service rendered by employees or for the termination of employment
relationship. Employee benefits include short-term employee benefits, post-employment
benefits, termination benefits and other long-term employee benefits. Benefits provided to an
employee's spouse, children, dependents, family members of decreased employees, or other
beneficiaries are also employee benefits.
According to liquidity, employee benefits are presented in the statement of financial position
as “Employee benefits payable” and “Long-term employee benefits payable”.
(1) Short-term employee benefits
①Employee basic salary (salary, bonus, allowance, subsidy)
The Company recognises, in the accounting period in which an employee provides service,
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actually occurred short-term employee benefits as a liability, with a corresponding charge to
current profit except for those recognised as capital expenditure based on the requirement of
accounting standards.
②Employee welfare
The Company shall recognise the employee welfare based on actual amount when incurred
into current profit or loss or related capital expenditure. Employee welfare shall be measured
at fair value as it is a non-monetary benefits.
③Social insurance such as medical insurance, work injury insurance and maternity insurance,
housing funds, labor union fund and employee education fund.
Payments made by the Company of social insurance for employees, such as medical insurance,
work injury insurance and maternity insurance, payments of housing funds, and labor union
fund and employee education fund accrued in accordance with relevant requirements, in the
accounting period in which employees provide services, is calculated according to required
accrual bases and accrual ratio in determining the amount of employee benefits and the
related liabilities, which shall be recognised in current profit or loss or the cost of relevant
asset.
④Short-term paid absences
The company shall recognise the related employee benefits arising from accumulating paid
absences when the employees render service that increases their entitlement to future paid
absences. The additional payable amounts shall be measured at the expected additional
payments as a result of the unused entitlement that has accumulated. The Company shall
recognise relevant employee benefit of non-accumulating paid absences when the absences
actually occurred.
⑤Short-term profit-sharing plan
The Company shall recognise the related employee benefits payable under a profit-sharing
plan when all of the following conditions are satisfied:
A. The Company has a present legal or constructive obligation to make such payments as a
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result of past events; and
B. A reliable estimate of the amounts of employee benefits obligation arising from the profit-
sharing plan can be made.
(2) Post-employment benefits
①Defined contribution plans
The Company shall recognise, in the accounting period in which an employee provides
service, the contribution payable to a defined contribution plan as a liability, with a
corresponding charge to the current profit or loss or the cost of a relevant asset.
When contributions to a defined contribution plan are not expected to be settled wholly before
twelve months after the end of the annual reporting period in which the employees render the
related service, they shall be discounted using relevant discount rate (market yields at the end
of the reporting period on high quality corporate bonds in active market or government bonds
with the currency and term which shall be consistent with the currency and estimated term of
the defined contribution obligations) to measure employee benefits payable.
②Defined benefit plan
A. The present value of defined benefit obligation and current service costs
Based on the expected accumulative welfare unit method, the Company shall make estimates
about demographic variables and financial variables in adopting the unbiased and consistent
actuarial assumptions and measure defined benefit obligation, and determine the obligation
period. The Company shall discount the obligation arising from defined benefit plan using
relevant discount rate (market yields at the end of the reporting period on high quality
corporate bonds in active market or government bonds with the currency and term which shall
be consistent with the currency and estimated term of the defined benefit obligations) in order
to determine the present value of the defined benefit obligation and the current service cost.
B. The net defined benefit liability or asset
The net defined benefit liability (asset) is the deficit or surplus recognised as the present value
of the defined benefit obligation less the fair value of plan assets (if any).
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When the Company has a surplus in a defined benefit plan, it shall measure the net defined
benefit asset at the lower of the surplus in the defined benefit plan and the asset ceiling.
C. The amount recognised in the cost of asset or current profit or loss
Service cost comprises current service cost, past service cost and any gain or loss on
settlement. Other service cost shall be recognised in profit or loss unless accounting standards
require or allow the inclusion of current service cost within the cost of assets.
Net interest on the net defined benefit liability (asset) comprising interest income on plan
assets, interest cost on the defined benefit obligation and interest on the effect of the asset
ceiling, shall be included in profit or loss.
D. The amount recognised in other comprehensive income
Changes in the net liability or asset of the defined benefit plan resulting from the
remeasurements including:
(a) Actuarial gains and losses, the changes in the present value of the defined benefit
obligation resulting from experience adjustments or the effects of changes in actuarial
assumptions; and
(b) Return on plan assets, excluding amounts included in net interest on the net defined
benefit liability or asset; and
(c) Any change in the effect of the asset ceiling, excluding amounts included in net interest on
the net defined benefit liability (asset).
Remeasurements of the net defined benefit liability (asset) recognised in other comprehensive
income shall not be reclassified to profit or loss in a subsequent period. However, the
Company may transfer those amounts recognised in other comprehensive income within
equity.
(3) Termination benefits
The Company providing termination benefits to employees shall recognise an employee
benefits liability for termination benefits, with a corresponding charge to the profit or loss of
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the reporting period, at the earlier of the following dates:
①When the Company cannot unilaterally withdraw the offer of termination benefits because
of an employment termination plan or a curtailment proposal.
②When the Company recognises costs or expenses related to a restructuring that involves the
payment of termination benefits.
If the termination benefits are not expected to be settled wholly before twelve months after the
end of the annual reporting period, the Company shall discount the termination benefits using
relevant discount rate (market yields at the end of the reporting period on high quality
corporate bonds in active market or government bonds with the currency and term which shall
be consistent with the currency and estimated term of the defined benefit obligations) to
measure the employee benefits.
(4) Other long-term employee benefits
①Meet the conditions of the defined contribution plan
When other long-term employee benefits provided by the Company to the employees satisfies
the conditions for classifying as a defined contribution plan, all those benefits payable shall be
accounted for as employee benefits payable at their discounted value.
②Meet the conditions of the defined benefit plan
At the end of the reporting period, the Company recognised the cost of employee benefit from
other long-term employee benefits as the following components:
A. Service costs; and
B. Net interest cost for net liability or asset of other long-term employee benefits; and
C. Changes resulting from the remeasurements of the net liability or asset of other long-term
employee benefits.
In order to simplify the accounting treatment, the net amount of above items shall be
recognised in profit or loss or relevant cost of assets.
3.24 Estimated liabilities
3.24.1 Recognition criteria for contingent liabilities
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Estimated liabilities are recognized by the Company if obligations related to contingencies if
all following criteria are met:
① That obligation is a current obligation of the Company; and
② The settle of that obligation is probable to result in an outflow of economic benefits from
the Company; and
③ The amount of that obligation can be estimated reliably.
3.24.2 Measurement method of estimated liabilities
The estimated liabilities of the Company are initially measured at the best estimate of
expenses required for the performance of relevant present obligations. The Company, when
determining the best estimate, has had a comprehensive consideration of risks with respect to
contingencies, uncertainties and the time value of money. The carrying amount of the
estimated liabilities shall be reviewed at the end of every reporting period. If conclusive
evidences indicate that the carrying amount fails to be the best estimate of the estimated
liabilities, the carrying amount shall be adjusted based on the updated best estimate.
3.25 Revenue
3.25.1 General principle
Revenue is the gross inflow of economic benefits arising from the ordinary operating
activities of the Company that will result in an increase in Stockholders' equity and is
unrelated to the capital invested by Stockholders.
The company recognises revenue when the performance obligation of the contract with the
customer is fulfilled, that is, when the customer obtains control of the relevant commodity.
Control of the relevant commodity refers to the ability to direct the use of, and obtain
substantially all of the remaining benefits from the commodity.
If the contract contains two or more performance obligations, the Company shall, on the
commencement date of the contract, allocate the contract price in proportion to the
stand-alone selling prices of the distinct good or service underlying each performance
obligation in the contract and recognize revenue according to the transaction price
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apportioned to each individual performance obligation.
The transaction price is the amount of consideration the Company is expected to be entitled to
receive for the transfer of goods or services to a Customer, excluding payments received on
behalf of third parties. When determining the transaction price of the contract, if there is a
variable consideration, the Company shall determine the best estimate of the variable
consideration according to the expected value or the most likely amount, and shall include in
the transaction price some or all of an amount of variable consideration estimated to the extent
that it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty associated with the variable consideration is
subsequently resolved. In the circumstances where the contract contains a significant
financing component, the Company shall recognise revenue at an amount that reflects the
price that a customer would have paid for the promised goods or services if the customer had
paid cash for those goods or services when the customer obtains the control of the commodity.
The difference between the transaction price and the contract consideration is amortised in the
contract period using effective rate method. The Company does not consider the financing
component if the period between when the entity transfers a promised good or service to a
customer and when the customer pays for that good or service is one year or less.
If one of the following conditions is met, the performance obligation is satisfied over time.
Otherwise, the performance obligation is satisfied at a certain point:
I. the client simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs;
II. the entity’s performance creates or enhances an asset that the customer controls as the asset
is created or enhanced; or
III. the entity’s performance does not create an asset with an alternative use to the entity and
the entity has an enforceable right to payment for performance completed to date.
For the performance obligations over time, the Company shall recognize revenue in
accordance with the performance progress during that period, except where the performance
progress cannot be reasonably determined. The progress of completion can be measured using
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either the input method or output method. Where the progress of completion cannot be
reliably measured but the entity expects to recover the costs incurred, revenue is measured to
the extent of the costs incurred until such time that the progress of completion can be reliably
measured.
For performance obligations performed at a certain point, the Company recognizes revenue at
the point when the Customer obtains control of the relevant commodity. In determining
whether a customer has acquired control of goods or services, the Company will consider the
following indications:
I. the entity has a present right to payment for the asset, i.e.. the client is presently obliged to
pay for an asset;
II. the legal title to the asset has been transferred to the client, i.e.. the client has the legal title
to the asset;
III. the entity has transferred physical possession of the asset to the client, i.e.. the client has
physical possession of the asset;
IV. the entity has transferred substantially significant risks and rewards of ownership of the
asset, i.e.. the client has the significant risks and rewards of ownership of the asset;
V. the client has accepted the asset;
When the Company receives payment for goods or services from the customer in advance,
such payment shall first be recognized as a liability and shall be transferred to revenue when
the relevant performance obligations are fulfilled. Where the Company does not need to
refund the advance payment and the Client may waive all or part of its contractual rights, the
Company expects to be entitled to an amount related to the waiver of the Contract rights by
the Client, such amount shall be recognized as revenue pro rata in accordance with the mode
in which the Client exercises the contractual rights; Otherwise, the company will only convert
the relevant balance of the aforesaid liability into revenue when the possibility of the client’s
request to fulfill the remaining performance obligations is extremely low.
3.25.2 Specific methods
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The specific methods of revenue recognition of the Company are as follows:
① Revenue from providing services
A. The Company recognises passenger revenue based on the provision of transport services
and not on ticket sales. The airline tickets sold by the Company shall be included in current
liabilities when they have not been carried out, and recognized as contract liabilities. In
addition, the Company has entered into code-sharing agreements with other airlines, under
which the flight number of one carrier can use the code specified by the other carrier's airline.
Code sharing revenue is apportioned among code sharing standard partners in accordance
with the contractual agreements entered into and the proportional apportionment standards of
the aviation industry, and is also recognized as passenger revenue when transportation
services are provided.
An overdue ticket is an unexercised contractual right. When the company sells air tickets
without refund and the customer may waive all or part of its contractual rights, the company
expects to be entitled to the amount related to the contractual rights waived by the customer,
the aforesaid amount shall be recognized as revenue on a pro rata basis; otherwise, the
company will only convert the relevant balance of the aforesaid liability into revenue when
the possibility of the client’s request to fulfill the remaining performance obligations is
extremely low.
B. The Company recognised freight transportation revenue based on the provision of
transportation services.
C. Other revenues from providing labor services and selling goods. Other revenue mainly
includes revenues from ground services and aircraft maintenance, and revenues from selling
goods on board, which shall be recognized when the customer obtains control over relevant
goods or services.
3.26 Government Grants
(1) Recognition of government grants
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A government grant shall not be recgonised until there is reasonable assurance that:
①The Company will comply with the conditions attaching to them; and
②The grants will be received.
(2) Measurement of government grants
Monetary grants from the government shall be measured at amount received or receivable,
and non-monetary grants from the government shall be measured at their fair value or at a
nominal value of RMB 1.00 when reliable fair value is not available.
(3) Accounting for government grants
①Government grants related to assets
Government grants pertinent to assets mean the government grants that are obtained by the
Company used for purchase or construction, or forming the long-term assets by other ways.
Government grants pertinent to assets shall be recognised as deferred income, and should be
recognised in profit or loss on a systematic basis over the useful lives of the relevant assets.
Grants measured at their nominal value shall be directly recognised in profit or loss of the
period when the grants are received. When the relevant assets are sold, transferred, written off
or damaged before the assets are terminated, the remaining deferred income shall be
transferred into profit or loss of the period of disposing relevant assets.
②Government grants related to income
Government grants other than related to assets are classified as government grants related to
income. Government grants related to income are accounted for in accordance with the
following principles:
If the government grants related to income are used to compensate the enterprise’s relevant
expenses or losses in future periods, such government grants shall be recognised as deferred
income and included into profit or loss in the same period as the relevant expenses or losses
are recognised;
If the government grants related to income are used to compensate the enterprise’s relevant
expenses or losses incurred, such government grants are directly recognised into current profit
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or loss.
For government grants comprised of part related to assets as well as part related to income,
each part is accounted for separately; if it is difficult to identify different part, the government
grants are accounted for as government grants related to income as a whole.
Government grants related to daily operation activities are recognised in other income in
accordance with the nature of the activities, and government grants irrelevant to daily
operation activities are recognised in non-operating income.
③Loan interest subsidy
When loan interest subsidy is directly allocated to the Company, the subsidy shall be
recognised as offsetting the relevant borrowing cost.
④Repayment of the government grants
Repayment of the government grants shall be recorded by increasing the carrying amount of
the asset if the book value of the asset has been written down, or reducing the balance of
relevant deferred income if deferred income balance exists, any excess will be recognised into
current profit or loss; or directly recognised into current profit or loss for other circumstances.
3.27 Deferred Tax Assets and Deferred Tax Liabilities
Temporary differences are differences between the carrying amount of an asset or liability in
the statement of financial position and its tax base at the balance sheet date. The Company
recognise and measure the effect of taxable temporary differences and deductible temporary
differences on income tax as deferred tax liabilities or deferred tax assets using liability
method. Deferred tax assets and deferred tax liabilities shall not be discounted.
(1) Recognition of deferred tax asset
Deferred tax assets should be recognised for deductible temporary differences, the
carryforward of unused tax losses and the carryforward of unused tax credits to the extent that
it is probable that taxable profit will be available against which the deductible temporary
differences, the carryforward of unused tax losses and the carryforward of unused tax credits
can be utilised at the tax rates that are expected to apply to the period when the asset is
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realised, unless the deferred tax asset arises from the initial recognition of an asset or liability
in a transaction that:
A. Is not a business combination; and
B. At the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
The Company shall recognise a deferred tax asset for all deductible temporary differences
arising from investments in subsidiaries, associates and joint ventures, only to the extent that,
it is probable that:
A. The temporary difference will reverse in the foreseeable future; and
B. Taxable profit will be available against which the deductible temporary difference can be
utilised.
At the end of each reporting period, if there is sufficient evidence that it is probable that
taxable profit will be available against which the deductible temporary difference can be
utilized, the Company recognises a previously unrecognised deferred tax asset.
The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting
period. The Company shall reduce the carrying amount of a deferred tax asset to the extent
that it is no longer probable that sufficient taxable profit will be available to allow the benefit
of part or all of that deferred tax asset to be utilised. Any such reduction shall be reversed to
the extent that it becomes probable that sufficient taxable profit will be available.
(2) Recognition of deferred tax liabilities
A deferred tax liability shall be recognised for all taxable temporary differences at the tax rate
that are expected to apply to the period when the liability is settled.
①No deferred tax liability shall be recognised for taxable temporary differences arising from:
A. The initial recognition of goodwill; or
B. The initial recognition of an asset or liability in a transaction which: is not a business
combination; and at the time of the transaction, affects neither accounting profit nor taxable
profit (tax loss).
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②An entity shall recognise a deferred tax liability for all taxable temporary differences
associated with investments in subsidiaries, associates, and joint ventures, except to the extent
that both of the following conditions are satisfied:
A. The Company is able to control the timing of the reversal of the temporary difference; and
B. It is probable that the temporary difference will not reverse in the foreseeable future.
(3) Recognition of deferred tax liabilities or assets involved in special transactions or
events
①Deferred tax liabilities or assets related to business combination
For the taxable temporary difference or deductible temporary difference arising from a
business combination not under common control, a deferred tax liability or a deferred tax
asset shall be recognised, and simultaneously, goodwill recognised in the business
combination shall be adjusted based on relevant deferred tax expense (income).
②Items directly recognised in equity
Current tax and deferred tax related to items that are recognised directly in equity shall be
recognised in equity. Such items include: other comprehensive income generated from fair
value fluctuation of available for sale investments; an adjustment to the opening balance of
retained earnings resulting from either a change in accounting policy that is applied
retrospectively or the correction of a prior period (significant) error; amounts arising on initial
recognition of the equity component of a compound financial instrument that contains both
liability and equity component.
③Unused tax losses and unused tax credits
A. Unused tax losses and unused tax credits generated from daily operation of the Company
itself
Deductible loss refers to the loss calculated and permitted according to the requirement of tax
law that can be offset against taxable income in future periods. The criteria for recognising
deferred tax assets arising from the carryforward of unused tax losses and tax credits are the
same as the criteria for recognising deferred tax assets arising from deductible temporary
differences. The Company recognises a deferred tax asset arising from unused tax losses or
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tax credits only to the extent that there is convincing other evidence that sufficient taxable
profit will be available against which the unused tax losses or unused tax credits can be
utilised by the Company. Income taxes in current profit or loss shall be deducted as well.
B. Unused tax losses and unused tax credits arising from a business combination
Under a business combination, the acquiree’s deductible temporary differences which do not
satisfy the criteria at the acquisition date for recognition of deferred tax asset shall not be
recognised. Within 12 months after the acquisition date, if new information regarding the
facts and circumstances exists at the acquisition date and the economic benefit of the
acquiree’s deductible temporary differences at the acquisition is expected to be realised, the
Company shall recognise acquired deferred tax benefits and reduce the carrying amount of
any goodwill related to this acquisition. If goodwill is reduced to zero, any remaining deferred
tax benefits shall be recognised in profit or loss. All other acquired deferred tax benefits
realised shall be recognised in profit or loss.
④Temporary difference generated in consolidation elimination
When preparing consolidated financial statements, if temporary difference between carrying
value of the assets and liabilities in the consolidated financial statements and their taxable
bases is generated from elimination of inter-company unrealized profit or loss, deferred tax
assets or deferred tax liabilities shall be recognised in the consolidated financial statements,
and income taxes expense in current profit or loss shall be adjusted as well except for deferred
tax related to transactions or events recognised directly in equity and business combination.
⑤Share-based payment settled by equity
If tax authority permits tax deduction that relates to share-based payment, during the period in
which the expenses are recognised according to the accounting standards, the Company
estimates the tax base in accordance with available information at the end of the accounting
period and the temporary difference arising from it. Deferred tax shall be recognised when
criteria of recognition are satisfied. If the amount of estimated future tax deduction exceeds
the amount of the cumulative expenses related to share-based payment recognised according
to the accounting standards, the tax effect of the excess amount shall be recognised directly in
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equity.
3.28 Leases
Adopted from January 1, 2021
3.28.1 Identifying a lease
At inception of a contract, the Company shall assess whether the contract is, or contains, a
lease. A contract is, or contains, a lease if the contract conveys the right to control the use of
one or more identified assets for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset for a period of
time, the Company shall assess whether, throughout the period of use, the customer has the
right to obtain substantially all of the economic benefits from use of the identified asset and to
direct the use of the identified asset.
3.28.2 Identifying a separate lease component
When a contract includes more than one separate lease components, the Company shall
separate components of the contract and account for each lease component separately. The
right to use an underlying asset is a separate lease component if both conditions have been
satisfied: ①the lessee can benefit from use of the underlying asset either on its own or
together with other resources that are readily available to the lessee; ②the underlying asset is
neither highly dependent on, nor highly interrelated with, the other underlying assets in the
contract.
3.28.3 The Company as a lessee
At the commencement date, the Company identifies the lease that has a lease term of 12
months or less and does not contain a purchase option as a short-term lease. A lease qualifies
as a lease of a low-value asset if the nature of the asset is such that, when new, the asset is
typically of low value. If the Company subleases an asset, or expects to sublease an asset, the
head lease does not qualify as a lease of a low-value asset.
For all asset included in short-term leases or leases for which the underlying asset is of low
value/ all the short-term leases or leases for which the underlying asset is of low value, the
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Company shall recognise the lease payments associated with those leases as cost of relevant
asset or expenses in current profit or loss on a straight-line basis over the lease term.
Except for the election of simple treatment as short-term lease or lease of a low-value asset as
mentioned above, at the commencement date, the Company shall recognise a right-of-use
asset and a lease liability.
① Right-of-use assets
A right-of-use asset represents the right of the Company to use an asset over the life of a lease.
At the commencement date, the Company shall initially measure the right-of-use asset at cost.
The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability；
(b) any lease payments made at or before the commencement date, less any lease incentives
received;
(c) any initial direct costs incurred by the lessee; and
(d) an estimate of costs to be incurred by the lessee in dismantling and removing the
underlying asset, restoring the site on which it is located or restoring the underlying asset to
the condition required by the terms and conditions of the lease. The Company recognises and
measures the cost in accordance with the recognition criteria and measurement method for
estimated liabilities, details please refer to Notes 3.24. Those costs incurred to produce
inventories shall be included in the cost of inventories.
The right-of-use asset shall be depreciated according to the categories using straight‐line
method or units of production method. If it is reasonably certain that the ownership of the
underlying asset shall be transferred to the lessee by the end of the lease term, the depreciation
rate shall be determined based on the classification of the right-of- use asset and estimated
residual value rate from the commencement date to the end of the useful life of the underlying
asset. Otherwise, the depreciation rate shall be determined based on the classification of the
right-of-use asset from the commencement date to the earlier of the end of the useful life of
the right-of-use asset or the end of the lease term.
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The depreciation method, estimated useful life, residual rates and annual depreciation rates
which are determined according to the categories of right-of-use asset are listed as followings:
Estimated useful
Annual
Depreciation life (Year)/ Residual
Category depreciation
method Estimated flight rates (%)
rates/KHrs (%)
hours (KHrs)
Straight-line
Buildings and constructions 1-5 0.00 20-100
method
Aircraft engine core parts and Straight-line
5-20 0.00-5.00 4.75-20
engine auxiliary power unit method
Units-of-product
Engine replacement parts 17-23 0.00 4.35-5.88
ion method
②Lease liability
A lease liability shall be measured at the present value of the lease payments that are not paid
at the commencement date. The lease payments include the followings:
(a) Fixed payments and in-substance fixed payments, less any lease incentives if exist; and
(b) Variable lease payments that depend on an index or a rate; and
(c) The exercise price of a purchase option if the Company is reasonably certain to exercise
that option; and
(d) Payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising an option to terminate the lease; and
(e) Amounts expected to be payable by the lessee under residual value guarantees.
The Company uses the interest rate implicit in the lease to discount the lease payments. If that
rate cannot be readily determined, the Company uses the lessee’s incremental borrowing rate
as discount rate.
The difference between the lease payment and its present value shall be recognized as
unrecognised financial charges, calculated bases on the discount rate of the present value of
the lease payments in each period within the lease term and recorded as interest expense in
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current profit or loss. Variable lease payments not included in the measurement of lease
liabilities shall be recognised in current profit or loss when incurred.
After the commencement date, the Company shall remeasure the lease liability based on the
revised present value of the lease payments and adjust the carrying amount of the right-of-use
asset if there is a change in the in-substance fixed payments, or change in the amounts
expected to be payable under a residual value guarantee, or change in an index or a rate used
to determine lease payments, or change in the assessment or exercising of an option to
purchase the underlying asset, or an option to extend or terminate the lease.
3.28.4 The Company as a lessor
At the commencement date, the Company shall classify a lease as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership of an underlying asset,
otherwise it shall be classified as an operating lease.
①Operating leases
The Company shall recognise lease payments from operating leases as income on a
straight-line basis / units of production method (or other systematic and rational basis) over
the term of the relevant lease and the initial direct costs incurred in obtaining an operating
lease shall be capitalised and recognised as an expense over the lease term on the same basis
as the lease income. The Company shall recognise the variable lease payments relating to the
operating lease but not included in the measurement of the lease receivables into current profit
or loss when incurred.
②Finance leases
At the commencement date, the Company shall recognise the lease receivables at an account
equal to the net investment in the lease (the sum of the present value of the unguaranteed
residual values and the lease payment that are not received at the commencement date
discounted at the interest rate implicit in the lease) and derecognise the asset relating to the
finance lease. The Company shall recognise interest income using the interest rate implicit in
the lease over the lease term.
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The Company shall recognise the variable lease payments relating to the finance lease but not
included in the measurement of the net investment in the lease into current profit or loss when
incurred.
3.28.5 Lease modifications
Where there is a modification on operating lease, the Company considers it to be a new lease
from the effective date of the modification, and the advances from customer and receivables
related to lease payments before the modification shall be considered as payments for new
lease.
3.28.6 Sale and leaseback transactions
The Company shall determine whether the transfer of an asset under the sale and leaseback
transaction is a sale of that asset according to the policies in Note 3.25.
①The Company as a seller (lessee)
If the transfer of the asset is not a sale, the Company shall continue to recognise the
transferred asset and shall recognise a financial liability equal to the transfer proceeds. It shall
account for the financial liability according to Note 3.10. If the transfer of the asset is a sale,
the Company shall measure the right-of-use asset arising from the leaseback at the proportion
of the previous carrying amount of the asset that relates to the right of use retained by the
Company. Accordingly, the Company shall recognise only the amount of any gain or loss that
relates to the rights transferred to the buyer-lessor.
②The Company as a buyer (lessor)
If the transfer of the asset is not a sale, the Company shall not recognise the transferred asset
and shall recognise a financial asset equal to the transfer proceeds. It shall account for the
financial asset according to Note 3.10. If the transfer of the asset is a sale, the Company shall
account for the purchase of the asset applying applicable Accounting Standards of Business
Enterprises, and for the lease applying the lessor accounting requirements.
The following accounting policies for operating leases and finance leases apply to the
year 2020 or before
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The Company classifies the lease that substantially transfers all the risks and rewards
incidental to ownership of an underlying asset as a finance lease. Other lease shall be
classified as an operating lease.
(1) Accounting for operating leases
①When the Company as a lessee, the lease payments should be recognised into profit or loss
of the reporting period over the lease terms on a straight-line basis or the amount of usage. If
the lessor provides the rent-free period, the Company shall allocate total lease payment over
the entire lease terms including the rent-free period using straight-line basis or other
reasonable method. Lease expense and the corresponding liabilities shall be recognised during
the rent-free period. If expenses relating to lease which should be borne by the Company are
paid by the lessor of the assets, they shall be deducted from the total lease expenses and the
balances shall be amortised over the lease terms by the Company.
Initial direct costs relating to lease transactions incurred by the Company shall be recognised
into current profit or loss. Contingent rental, if included in the lease contract, shall be
recognised into profit or loss upon occurrence.
②When the Company as a lessor, lease income should be recognised over the lease terms on
a straight-line basis. If the lessor provides the rent-free period, the Company shall allocate
total lease income over the entire lease terms including the rent-free period using straight-line
basis or other reasonable method. Lease income shall be recognised during the rent-free
period. If expenses relating to leases which should be borne by the lessee of the assets are
paid by the Company, they shall be deducted from the total lease income and the balances
shall be amortised over the lease terms by the Company.
Initial direct costs relating to lease transactions incurred by the Company shall be recognised
into current profit or loss ; if the amounts are material, they shall be capitalised and amortised
over the lease terms on the same basis as the recognition of lease income. Contingent rental, if
included in the lease contract, shall be recognised into profit or loss upon occurrence.
(2) Accounting for finance leases
①When the Company as a lessee, at commencement of the lease, assets obtained through
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finance leases should be recorded at the lower of their fair values and the present values of the
minimum lease payments. The Company shall recognise long-term payables at amounts equal
to the minimum lease payments, and the differences shall be recognised as unrecognised
finance charges, which shall be amortised over the lease terms as finance expenses by using
effective interest rate method and recognised into finance cost.
Initial direct costs are recorded in the value of the leased assets.
The Company adopts the same depreciation policy for the leased assets as its self-owned fixed
assets. Depreciation period is determined according to the lease contract. If it is reasonably
certain that the Company will obtain the ownership of the assets at the expiration of the lease,
the depreciation period will be the useful lives of the leased assets. If it is not certain that the
Company will obtain the ownership of the asset at the expiration of the lease, the depreciation
period is the shorter of the lease period and their useful lives.
②When the Company as a lessor, at commencement of the lease, lease receivables shall be
measured at minimum lease receivables plus initial direct costs relating to lease transactions
and recognised as long-term receivable in the statement of financial position. Unguaranteed
residual values are recorded simultaneously. The differences between the total of minimum
lease receivable, initial direct cost and unguaranteed residual values and their present value
shall be recognised as unearned finance income, and shall amortised over the lease terms as
lease income at the effective interest rate method.
3.29 Routine maintenance and overhaul costs
According to the relevant lease agreement, the company needs to carry out regular
maintenance work on certain aircraft held by the company by lease, so as to ensure that the
aircraft is returned to the agreed state. Except for the provision for lease termination
compensation reserve recognized in the initial measurement of the right-of-use assts on the
commence date in Note 3.28.3, other overhaul costs related to the lease termination shall be
accrued during the lease term. The difference between the provision and actual expense for
overhaul shall be included in the current profits and losses in the overhaul period.
Eligible overhaul costs are capitalized as incurred and depreciated by the straight-line method
or units-of-production method over a reasonable period. Expenses for routine maintenance
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and repair shall be carried to the current profits and losses when incurred.
3.30 Changes in Significant Accounting Policies and Accounting Estimates
3.30.1 Changes in Significant Accounting Policies
The Ministry of Finance issued the revised Accounting Standards for Business Enterprises No.
21 -- Lease (Caikuai [2018] No. 35) on December 7, 2018 (hereinafter referred to as the "new
lease standards"), requiring domestic listed enterprises to implement the new revenue
standards from January 1, 2021.
According to the resolution of the Tenth Meeting of the Seventh Board of Directors on March
25, 2021, the Company will implement the aforementioned new lease standards from January
1, 2021. Please see details in Note 3.28.
① The Company as a lessee
The Company chooses to recognise the cumulative impact of initially applying this standard
as an adjustment to the opening balance of retained earnings and other related accounts of the
financial statements at the date of initial application (January 1, 2021), not restating
comparative information:
A. For leases previously classified as finance leases, the carrying amount of the right-of-use
asset and the lease liability at the date of initial application shall be the carrying amount of the
lease asset and finance lease payable immediately before that date measured applying
previous standard;
B. For leases previously classified as operating leases, the Company adopts the following
method to measure the right-of-use asset:
I. For aircraft and engine lease, the Company measures that right-of-use asset at its carrying
amount as if the standard had been applied since the commencement date, but discounted
using the lessee’s incremental borrowing rate at the date of initial application;
II. For lease other than aircraft and engine, the Company measures the right-of-use asset at an
amount equal to the lease liability, with necessary adjustments for lease prepayment.
C. At the first implementation date, the Company conducts impairment test on right-of-use
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assets and performs corresponding accounting treatment in accordance with Note 3.21.
For operating leases that are classified as low value assets before the first implementation date,
the Company adopts simplified treatments, not recognising right-of-use assets and lease
liabilities.
② The Company as a lessor
The Company does not make any adjustments on transition for leases in which it is a lessor
and accounts for those leases applying this Standard from the date of initial application .
③Sale and leaseback transactions
The Company does not reassess sale and leaseback transactions entered into before the date of
initial application to determine whether the transfer of the underlying asset satisfies the
requirements in Note 3.25 to be accounted for as a sale. For sale and leaseback transactions
after the first implementation date, as a seller and a lessor, the Company assesses whether the
transfer of assets in sale and leaseback transactions is a sale in accordance with the revenue
standards.
Please refer to Note 3.30.3 for the cumulative effect of the above accounting standards.
3.30.2 Significant changes in accounting estimates
The Company has no change in accounting estimates for the current period.
3.30.3 Adjustments of the Financial Statements at the Beginning of the Reporting Period
for the First-Year Adoption of New Lease Standards
Consolidated Statement of Financial Position
Unit: Yuan, Currency: CNY
Items December 31, 2020 January 1, 2021 Adjustment
Current assets:
Prepayments 213,530,865.28 6,408,523.03 -207,122,342.25
Total current assets 6,426,900,695.69 6,219,778,353.44 -207,122,342.25
Non-current assets:
Fixed assets 6,904,082,012.35 5,313,062,985.24 -1,591,019,027.11
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Items December 31, 2020 January 1, 2021 Adjustment
Right-of-use assets N/a 13,096,845,510.69 13,096,845,510.69
Deferred tax assets 1,999,099,488.87 2,537,037,026.88 537,937,538.01
Total non-current assets 15,976,604,438.30 28,020,368,459.89 12,043,764,021.59
Total assets 22,403,505,133.99 34,240,146,813.33 11,836,641,679.34
Current liabilities
Accounts payable 2,543,319,300.31 2,137,248,727.24 -406,070,573.07
Non-current liabilities due within
321,577,566.89 2,804,980,819.75 2,483,403,252.86
one year
Total current liabilities 6,899,778,730.55 8,977,111,410.34 2,077,332,679.79
Non-current liabilities:
Lease liabilities N/a 11,218,614,628.36 11,218,614,628.36
Long-term payables 5,303,354,015.63 4,464,861,000.74 -838,493,014.89
Accrued liabilities 993,000,000.00 993,000,000.00
Total non-current liabilities 12,933,465,479.23 24,306,587,092.70 11,373,121,613.47
Total liabilities 19,833,244,209.78 33,283,698,503.04 13,450,454,293.26
Shareholders' equity
Retained earnings 1,233,524,795.64 -380,287,818.28 -1,613,812,613.92
Equity attributable to shareholders
2,570,260,924.21 956,448,310.29 -1,613,812,613.92
of the parent
Total owners’ equity 2,570,260,924.21 956,448,310.29 -1,613,812,613.92
Total liabilities and owners' equity 22,403,505,133.99 34,240,146,813.33 11,836,641,679.34
On January 1, 2021, for financial lease prior to the first implementation date, the Company
reclassified the book value of fixed assets of financial leases amounted to CNY
1,591,019,027.11 from fixed assets to right-of-use assets. Finance lease payable amounted to
CNY 1,048,235,448.82 were reclassified from long-term payable to lease liabilities. Finance
lease payable under non-current liabilities due within one year amounted to CNY
181,264,490.05 were reclassified to lease liabilities under non-current liabilities due within
one year.
On January 1, 2021, for operating lease prior to the first implementation date, for aircraft and
engine lease, the Company measured the right-of-use asset, lease liabilities, and estimated
liabilities at their carrying amounts as if the standard had been applied since the
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commencement date. The amount of right-of-use assets is CNY 11,484,632,839.77, the
amount of lease liabilities and lease liabilities under non-current liabilities due within one year
is CNY 12,632,588,788.59, the amount of estimated liabilities is CNY 993,000,000.00, and
prepayment amount decreases CNY 207,122,342.25. For lease of buildings and constructions,
the Company measures the right-of-use asset at an amount equal to the lease liability, which is
CNY 21,193,643.81.
On January 1, 2021, payable of overhaul expense of operating lease of aircraft and engine
under long-term payable and accounts payable were written back, and payables of lease
termination compensation of operating lease of aircraft and engine were recognised,
decreasing accounts payables by CNY 406,070,573.07 and increasing long-term payables by
CNY 209,742,433.93.
On January 1, 2021, the deferred tax assets was adjusted for the book-tax difference in
relation with new lease standards and accrued expenses, the deferred tax assets was increased
by CNY 537,937,538.01.
Statement of Financial Position of the Parent Company
Unit: Yuan Currency: CNY
Items December 31, 2020 January 1, 2021 Adjustment
Current assets:
Prepayments 213,297,372.67 6,175,030.42 -207,122,342.25
Total current assets 6,422,809,764.28 6,215,687,422.03 -207,122,342.25
Non-current assets:
Fixed assets 6,812,145,764.90 5,221,126,737.79 -1,591,019,027.11
Right-of-use assets N/a 13,096,845,510.69 13,096,845,510.69
Deferred tax assets 1,998,341,086.43 2,536,278,624.44 537,937,538.01
Total non-current assets 16,015,164,509.30 28,058,928,530.89 12,043,764,021.59
Total assets 22,437,974,273.58 34,274,615,952.92 11,836,641,679.34
Current liabilities
Accounts payable 2,560,482,401.82 2,154,411,828.75 -406,070,573.07
Non-current liabilities due within
321,577,566.89 2,804,980,819.75 2,483,403,252.86
one year
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Items December 31, 2020 January 1, 2021 Adjustment
Total current liabilities 6,998,514,668.16 9,075,847,347.95 2,077,332,679.79
Non-current liabilities:
Lease liabilities N/a 11,218,614,628.36 11,218,614,628.36
Long-term payables 5,303,354,015.63 4,464,861,000.74 -838,493,014.89
Accrued liabilities 993,000,000.00 993,000,000.00
Total non-current liabilities 12,932,552,624.34 24,305,674,237.81 11,373,121,613.47
Total liabilities 19,931,067,292.50 33,381,521,585.76 13,450,454,293.26
Shareholders' equity
Retained earnings 1,159,330,752.03 -454,481,861.89 -1,613,812,613.92
Total owners' equity 2,506,906,981.08 893,094,367.16 -1,613,812,613.92
Total liabilities and owners' equity 22,437,974,273.58 34,274,615,952.92 11,836,641,679.34
On January 1, 2021, for financial lease prior to the first implementation date, the Company
reclassified the book value of fixed assets of financial leases amounted to CNY
1,591,019,027.11 from fixed assets to right-of-use assets. Finance lease payable amounted to
CNY 1,048,235,448.82 were reclassified from long-term payable to lease liabilities. Finance
lease payable under non-current liabilities due within one year amounted to CNY
181,264,490.05 were reclassified to lease liabilities under non-current liabilities due within
one year.
On January 1, 2021, for operating lease prior to the first implementation date, for aircraft and
engine lease, the Company measured the right-of-use asset, lease liabilities, and estimated
liabilities at their carrying amounts as if the standard had been applied since the
commencement date. The amount of right-of-use assets is CNY 11,484,632,839.77, the
amount of lease liabilities and lease liabilities under non-current liabilities due within one year
is CNY 12,632,588,788.59, the amount of accrued liabilities is CNY 993,000,000.00, and
prepayment amount decreases CNY 207,122,342.25. For lease of buildings and constructions,
the Company measures the right-of-use asset at an amount equal to the lease liability , which
is CNY 21,193,643.81.
On January 1, 2021, payable of overhaul expense of operating lease of aircraft and engine
under long-term payable and accounts payable were written back, and payables of lease
121
termination compensation of operating lease of aircraft and engine were recognised,
decreasing accounts payables by CNY 406,070,573.07 and increasing long-term payables by
CNY 209,742,433.93.
On January 1, 2021, the deferred tax assets was adjusted for the book-tax difference in
relation with new lease standards and accrued expenses, the deferred tax assets was increased
by CNY 537,937,538.01.
3.31 Correction of Prior Period Errors
There is no significant correction of prior period errors for the Company during the reporting
period.
3.32 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:
(1) Impairment of Financial Assets
122
The Company uses the expected credit loss model to assess the impairment of financial
instruments. The application of the expected credit loss model requires significant judgment
and estimation, and all reasonable and evidenced information, including forward-looking
information, needs to be considered. In making such judgments and estimates, the Company
infers the expected changes in the debtor's credit risk based on historical data combined with
economic policies, macroeconomic indicators, industry risks, external market environment,
technological environment, and changes in customer circumstances.
(2) 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 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.
(3) 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. If an equity instrument
investment or contract has a public offer, the Company does not use cost as the best estimate
of its fair value.
(4) 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
123
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.
(5) 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.
(6) Deferred Tax Assets
124
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.
(7) 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.
(8) Overhaul Expenses and lease termination compensations for leased aircraft and engine
Aircraft overhaul expenses and lease termination compensations are accrued and charged to
profit or loss during the lease period. The calculation of the provision for overhaul expenses
and lease termination compensations involves a number of variable factors and assumptions,
including the expected use of the aircraft and the estimated maintenance cost. These estimates
are largely based on past historical data about the same or similar types of aircraft and engines
overhaul. The overhaul expenses and lease termination compensations may be affected by
different judgments and estimates and affect current profit or loss.
Note 4 TAXATION
4.1 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 and deductible
Value added tax input tax for the period, and the tax rates are 6%, 9%, 13% (Note 2). The
output tax is calculated using the sales of goods and taxable services income
125
Tax Tax rate (%)
(including transportation and ground services revenue).
Property tax is calculated by the nature of house property and is collected by
Property tax
ad valorem or specific duties according to the tax rules.
Urban maintenance and Urban maintenance and construction tax are calculated at 7% of turnover
construction tax tax.
Education surcharge Education surcharge is calculated at 3% of turnover tax.
Local education Local education surcharge is calculated at 2% of turnover tax.
surcharge
Civil aviation development fund shall be calculated using the collection
standard of the relevant category of flight routes, maximum departure
Civil aviation
weight and flight distance adopted by the civil aviation industry. According
development Fund
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: As a taxpayer in production and living service industry, from 1 April 2019 to December 31, 2021,
the Company can deduct the taxable amount according to the current deductible input tax plus 10% of the
current deductible input tax.
4.2 Tax Incentives
4.2.1. 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, Macao, and Taiwan, as well as transportation services provided in Hongkong,
126
Macao, 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
政策的通知》). After the comprehensive “replacement of business tax with VAT” in 2016, the
relevant policies will continue to apply in accordance with the requirements of the Notice of
the Ministry of Finance and the State Administration of Taxation on Fully Implementing the
Pilot Program of Replacing Business Tax with VAT” (Cai Shui [2016] No. 36). (财税
[2016]36 号《财政部、国家税务总局关于全面推开营业税改征增值税试点的通知》).
4.2.2. 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) （国家税务总局[2012]12 号）
and Announcement on Continuing the Enterprise Income Tax Policy for the Great Western
Development" (Announcement No. 23 [2020] of the Ministry of Finance, the State
Administration of Taxation, and the National Development and Reform Commission) (财政
部、税务总局、国家发展改革委公告 2020 年第 23 号《关于延续西部大开发企业所得税
政策的公告》), 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 2020.
4.2.3. According to the Announcement on Cancellation of Port Construction Fees and
Adjustment of Civil Aviation Development Fund Relevant Policies (《关于取消港口建设费
和调整民航发展基金有关政策的公告》) (Ministry of Finance Announcement No. 8, 2021),
from April 1, 2021, the civil aviation development funds shall be paid by the airlines followed
by a further 20% reduction based on the original 50% reduction in accordance with the Notice
of the Ministry of Finance on Adjusting Some Government Funds Relevant Policies (Cai Shui
[2019] No. 46) （财税〔2019〕46 号《财政部关于调整部分政府性基金有关政策的通知》）
127
Note 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the following annotated items (including the annotated major items in the parent
Company's financial statements), unless otherwise indicated, "end of the previous period "
refers to December 31, 2020 and "end of the period" refers to December 31, 2021; "Current
period" refers to the year 2021 and "Previous period" refers to the year 2020.
5.1 Monetary funds
Item December 31, 2021 December 31, 2020
Cash at hand: 159,608.70 225,522.11
Bank deposit: 3,810,943,072.46 5,306,248,928.95
Other monetary funds
Total 3,811,102,681.16 5,306,474,451.06
Including: the total amount of
1,109,732.99 5,411,252.96
deposit abroad
As of the end of the period, CNY 3,662,242.28 of bank deposit of the Company is interest
receivable on notice deposits.
5.2 Accounts receivable
5.2.1 Disclosure by Age
Age December 31, 2021 December 31, 2020
Within 1 year 296,273,001.48 283,442,317.86
1 to 2 years 26,836,339.62 52,253,563.71
2 to 3 years 15,955,262.91 34,123,063.16
3 to 4 years 32,120,000.00
4 to 5 years
Over 5 years 3,186,437.70 3,186,437.70
Subtotal 374,371,041.71 373,005,382.43
Less: provision for bad debt 34,257,978.60 18,653,085.44
Total 340,113,063.11 354,352,296.99
128
5.2.2 Disclosure by Category
① December 31, 2021
December 31, 2021
Book balance Provision for bad debt
Category
Proportion Provision Carrying amount
Amount Amount
(%) ratio (%)
Accounts receivable
subject to individual 50,258,874.92 13.42 20,883,150.81 41.55 29,375,724.11
impairment assessment
Accounts receivable
subject to group 324,112,166.79 86.58 13,374,827.79 4.13 310,737,339.00
impairment assessment
Total 374,371,041.71 100.00 34,257,978.60 9.15 340,113,063.11
(Continued)
December 31, 2020
Book balance Provision for bad debt
Category
Proportion Proportion Carrying amount
Amount Amount
(%) (%)
Accounts receivable
subject to individual 2,765,908.05 0.74 2,765,908.05 100.00
impairment assessment
Accounts receivable
subject to group 370,239,474.38 99.26 15,887,177.39 4.29 354,352,296.99
impairment assessment
Total 373,005,382.43 100.00 18,653,085.44 5.00 354,352,296.99
Detailed explanation of provision for bad debt:
② Accounts receivable subject to individual impairment assessment as of December 31,
2021
December 31, 2021
Category Provision for bad Provision ratio
Book balance Reason
debt (%)
Debtor #1 32,120,000.00 12,773,220.82 39.77 Impairment upon
129
December 31, 2021
Category Provision for bad Provision ratio
Book balance Reason
debt (%)
individual
assessment
Impairment upon
Debtor #2 15,372,966.87 5,344,021.94 34.76 individual
assessment
Impairment upon
Kun Peng Airlines Co.,
1,849,400.00 1,849,400.00 100.00 individual
Ltd
assessment
Impairment upon
CR Airways 916,508.05 916,508.05 100.00 individual
assessment
Total 50,258,874.92 20,883,150.81 41.55
③ Accounts receivable subject to group impairment assessment as of December 31, 2021
December 31, 2021
Category
Book balance Provision for bad debt Provision ratio (%)
Amounts due from the
16,263,740.96
clearing center
Amounts due from the
34,671,136.84
aviation association
Amounts due from
5,680,733.40
related parties
Other receivables 267,496,555.59 13,374,827.79 5.00
Total 324,112,166.79 13,374,827.79 4.13
The Company calculate provision of bad debt according to the combination of credit risk
characteristics and the expected loss amount.
④ Accounts receivable with individually significant balance and provision for bad debt
recognized individually as of December 31, 2020
December 31, 2020
Entity name Book balance Provision for bad Provision ratio Reason
debt (%)
Kun Peng Airlines Co., 1,849,400.00 1,849,400.00 100.00 Impairment upon
130
December 31, 2020
Entity name Book balance Provision for bad Provision ratio Reason
debt (%)
Ltd individual
assessment
Impairment upon
CRAirways 916,508.05 916,508.05 100.00 individual
assessment
Total 2,765,908.05 2,765,908.05 100.00
⑤Accounts receivable with individually insignificant balance but provision for bad debt
recognized individually as of December 31, 2020
December 31, 2020
Entity name
Book balance Provision for bad debt Book balance
Amounts due from the
10,455,297.15
clearing center
Amounts due from the
31,724,360.89
aviation association
Amounts due from
10,316,268.77
related parties
Other receivables 317,743,547.57 15,887,177.39 5.00
Total 370,239,474.38 15,887,177.39 4.29
The Company calculate provision of bad debt according to the combination of credit risk
characteristics and the expected loss amount.
5.2.3 Changes of Provision for Bad Debt During the Reporting Period
Changes during the reporting period
December 31,
Category December 31, 2020 Recovery or
Provision Write-off 2021
reversal
Accounts receivable
subject to individual 2,765,908.05 18,117,242.76 20,883,150.81
impairment assessment
Accounts receivable
subject to impairment 15,887,177.39 2,512,349.60 13,374,827.79
assessment by group
131
Total 18,653,085.44 18,117,242.76 2,512,349.60 34,257,978.60
5.2.4 The Company has no accounts receivable actually written-off in the current period.
5.2.5 According to the ending balance collected by the debtor, the summary amount of the top
five accounts receivable is CNY 174,838,477.71, accounting for 46.70% of the total ending
balance of accounts receivable, and the corresponding summary amount of the ending balance
of bad debt provision is CNY 19,909,144.71.
5.2.6 The Company has no receivables terminated due to the transfer of financial assets.
5.2.7 The Company has no assets or liabilities arising from continuing involvement in
transferred accounts receivable.
5.3 Prepayments
5.3.1 Disclosure by Age
December 31, 2021 December 31, 2020
Age
Amount % Amount %
Within 1 year 4,314,603.85 92.08 213,189,480.25 99.84
1 to 2 years 280,226.14 5.98 151,385.03 0.07
2 to 3 years 61,119.56 1.30 120,000.00 0.06
Over 3 years 30,000.00 0.64 70,000.00 0.03
Total 4,685,949.55 100.00 213,530,865.28 100.00
The Company has no significant prepayments over 1 year.
5.3.2 The total amount of the top five prepayments of the company is CNY 4,362,157.29,
accounting for 93.09% of the total ending balance of prepayments.
5.3.3 The ending balance of prepayments decreases by 97.81% compared with the end of the
previous period, mainly due to the implementation of the new lease standards in the current
period.
5.4 Other receivables
5.4.1 Other Receivables by Category
Items December 31, 2021 December 31, 2020
Interest receivable
132
Items December 31, 2021 December 31, 2020
Dividend receivable
Other receivables 171,734,868.85 159,397,943.13
Total 171,734,868.85 159,397,943.13
5.4.2 Other Receivables
① Other receivables by age
Age December 31, 2021 December 31, 2020
Within one year 136,102,606.78 129,289,406.75
1-2 years 17,401,910.52 5,366,941.18
2-3 years 3,653,219.68 12,340,149.83
3-4 years 9,370,949.83 4,004,091.99
4-5 years 1,980,964.96 803,055.01
Over 5 years 109,130,160.41 113,073,237.70
Subtotal 277,639,812.18 264,876,882.46
Less: provision for bad debt 105,904,943.33 105,478,939.33
Total 171,734,868.85 159,397,943.13
②Other receivables by nature
Nature December 31, 2021 December 31, 2020
Deposits receivable 66,697,664.53 63,646,894.09
Amounts due from related parties 123,877,633.81 122,685,554.68
Other receivables 87,064,513.84 78,544,433.69
Subtotal 277,639,812.18 264,876,882.46
Less: provision for bad debt 105,904,943.33 105,478,939.33
Total 171,734,868.85 159,397,943.13
③ Other receivables by bad debt provision method
A．Provision for bad debts recognized based on three stages model as of December 31, 2021
is as follows:
Stage Book balance Provision for bad debt Carrying amount
First stage 176,088,094.53 4,353,225.68 171,734,868.85
Second stage
Third stage 101,551,717.65 101,551,717.65
133
Total 277,639,812.18 105,904,943.33 171,734,868.85
Provision for bad debt in the first stage as of December 31, 2021:
Lifetime
Provision for bad
Category Book balance expected credit Carrying amount Reason
debt
losses rate (%)
Oher receivables subject to
individual impairment
assessment
Oher receivables subject to
impairment assessment by 176,088,094.53 2.47 4,353,225.68 171,734,868.85
group
No significant
Including: Deposits
66,697,664.53 66,697,664.53 increase on
receivable
credit risk
No significant
Amounts due from related
22,325,916.16 22,325,916.16 increase on
parties
credit risk
No significant
Other receivables 87,064,513.84 5.00 4,353,225.68 82,711,288.16 increase on
credit risk
Total 176,088,094.53 2.47 4,353,225.68 171,734,868.85
As of December 31, 2021, the Company have no interest receivable, dividends receivable and
other receivables recognized in the second Stage.
Provision for bad debt in the third stage as of December 31, 2021:
Lifetime expected
Provision for Carrying
Category Book balance credit losses rate Reason
bad debt amount
(%)
Other receivables
subject to individual 101,551,717.65 100.00 101,551,717.65
impairment assessment
Shandong Rainbow Credit
101,551,717.65 100.00 101,551,717.65
Commercial Jet Co., impaired
134
Lifetime expected
Provision for Carrying
Category Book balance credit losses rate Reason
bad debt amount
(%)
Ltd
Total 101,551,717.65 100.00 101,551,717.65
B．Provision for bad debt using incurred loss model as of December 31, 2020:
Provision for bad debt in the first stage as of December 31, 2020:
Lifetime
Provision for bad
Category Book balance expected credit Carrying amount Reason
debt
losses rate (%)
Other receivables subject
to individual impairment
assessment
Other receivables subject
to impairment assessment 163,325,164.81 2.40 3,927,221.68 159,397,943.13
by group
No significant
Including: Deposits
63,646,894.09 63,646,894.09 increase on
receivable
credit risk
No significant
Amounts due from related
21,133,837.03 21,133,837.03 increase on
parties
credit risk
No significant
Other receivables 78,544,433.69 5.00 3,927,221.68 74,617,212.01 increase on
credit risk
Total 163,325,164.81 2.40 3,927,221.68 159,397,943.13
As of December 31, 2020, the Company have no interest receivable, dividends receivable and
other receivables recognized in the second Stage.
Provision for bad debt in the third stage as of December 31, 2020:
Lifetime expected
Provision for Carrying
Category Book balance credit losses rate Reason
bad debt amount
(%)
135
Lifetime expected
Provision for Carrying
Category Book balance credit losses rate Reason
bad debt amount
(%)
Other receivables subject
to individual impairment 101,551,717.65 100.00 101,551,717.65
assessment
Shandong Rainbow Credit
101,551,717.65 100.00 101,551,717.65
Commercial Jet Co., Ltd impaired
Total 101,551,717.65 100.00 101,551,717.65
④ Changes of provision for bad debt during the reporting period
Changes during the reporting period
December 31, December 31,
Category Recovery
2020 Provision Write-off 2021
or reversal
Other receivables
subject to individual
101,551,717.65 101,551,717.65
impairment
assessment
Other receivables
subject to impairment
assessment by credit 3,927,221.68 426,004.00 4,353,225.68
risk characteristics of
a group
Total 105,478,939.33 426,004.00 105,904,943.33
⑤There are no other receivables written off during the reporting period.
⑥Top five closing balances by entity
Proportion of
Balance at
the balance to Provision for
Entity name Nature December 31, Age
the total other bad debt
2021
receivables (%)
Shandong Rainbow Related
Commercial Jet Co., party 101,551,717.65 Over 5 years 36.58 101,551,717.65
Ltd.
Debtor #1 Deposits 31,257,853.34 Within 1 year 11.26
136
Proportion of
Balance at
the balance to Provision for
Entity name Nature December 31, Age
the total other bad debt
2021
receivables (%)
Debtor #2 Deposits 14,567,356.48 Within 1 year 5.25
Debtor #3 Others 14,129,792.80 Within 1 year 5.09 706,489.64
Debtor #4 Deposits 10,503,492.40 Within 3 years 3.78
Total 172,010,212.67 61.96 102,258,207.29
⑦ The Company has no other receivables relating to government grants.
⑧ The Company has no other receivables relating to derecognition of other receivables for
transfer of financial assets.
⑨ The Company has no assets or liabilities arising from continuing involvement in
transferred other receivables.
5.5 Inventories
5.5.1 Inventories by Category
December 31, 2021 December 31, 2020
Items Provision for Carrying Provision for Carrying
Book balance Book balance
impairment amount impairment amount
Consumable
air 108,880,783.95 4,227,205.99 104,653,577.96 109,543,973.05 4,227,205.99 105,316,767.06
equipment
Low-value
2,388,064.47 2,388,064.47 2,325,185.14 2,325,185.14
consumables
Materials 4,743,700.74 4,743,700.74 2,930,447.30 2,930,447.30
Total 116,012,549.16 4,227,205.99 111,785,343.17 114,799,605.49 4,227,205.99 110,572,399.50
5.5.2 Provision for Impairment
Increase during the Decrease during the
December 31, reporting period reporting period December 31,
Items
2020 Reversal or 2021
Provision Others Others
written-down
Consumable air 4,227,205.99 4,227,205.99
137
equipment
Total 4,227,205.99 4,227,205.99
5.6 Other current assets
Items December 31, 2021 December 31, 2020
VAT deductible 369,977,255.76 282,572,739.73
Total 369,977,255.76 282,572,739.73
Other current assets at the end of the period increases by 30.93% compared with the end of
the previous period, mainly due to the increase of tax credit as of the reporting date.
138
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.7 Long-term equity investment
Changes in the current period (+, -)
December 31, Investment gains and Other
Investees Provision b/f Additional Investment Other changes in
2020 losses recognized under comprehensive
investment reduction equity
the equity method income adjustment
Associates
Shandong Air New
22,500,000.00 22,500,000.00
Media Co., Ltd.
Total 22,500,000.00 22,500,000.00
(Continued)
Changes in the current period (+, -)
Provision as at
Investees Declared cash Provision December 31, 2021
Others December 31, 2021
dividends or profits recognized
Associates
Shandong Air New Media Co., Ltd. 22,500,000.00 22,500,000.00
Total 22,500,000.00 22,500,000.00
5.8 Other equity instrument investment
5.8.1 General Information of Other Equity Instrument Investment
Items December 31, 2021 December 31, 2020
Non-trading equity instrument investment 461,245,883.18 541,789,406.63
Total 461,245,883.18 541,789,406.63
139
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.8.2 General Information of Non-Trading Equity Instrument Investment
Other Reasons for other
Reasons for being measured at
comprehensive comprehensive
Dividend income in fair value and its changes are
Item Cumulative gain Cumulative loss income transferred income transferred
current period included in other
into retained into retained
comprehensive income
earnings earnings
TravelSky Technology
208,728.00 133,247,930.50 Non-trading financial assets
Limited
Sichuan Airlines 239,823,105.34 Non-trading financial assets
Jinan International Airport 177,252.66 Non-trading financial assets
Total 208,728.00 373,071,035.84 177,252.66
140
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.9 Investment properties
5.9.1 Investment properties adopt the cost model
Buildings and
Items Land use right Total
constructions
1. Cost:
1.1 Balance as at December 31, 2020
1.2 Increased in current period 26,263,754.60 8,480,000.00 34,743,754.60
(1) Purchase
(2) Transferred from fixed assets/ intangible
26,263,754.60 8,480,000.00 34,743,754.60
assets
(3) Transferred from merger and acquisitions
1.3 Decreased in current period
(1) Disposal
(2) Others
1.4 Balance as at December 31, 2021 26,263,754.60 8,480,000.00 34,743,754.60
2. Accumulated depreciation and amortization
2.1 Balance as at December 31, 2020
1.2 Increased in current period 8,488,388.04 2,029,183.82 10,517,571.86
(1) amortization 774,690.77 242,663.93 1,017,354.70
(2) Others 7,713,697.27 1,786,519.89 9,500,217.16
2.3 Decreased in current period
(1) Disposal
(2) Others
2.4 Balance as at December 31, 2021 8,488,388.04 2,029,183.82 10,517,571.86
3. Impairment provision
3.1 Balance as at December 31, 2020
3.2 Increased in current period
(1) Accrual
3.3 Decreased in current period
(1) Disposal
(2) Others
3.4 Balance as at December 31, 2021
4. Carrying amount of investment properties
141
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Buildings and
Items Land use right Total
constructions
4.1 Carrying amount as at December 31, 2021 17,775,366.56 6,450,816.18 24,226,182.74
4.2 Carrying amount as at December 31, 2020
5.9.2 The Company has no investment properties without certificate of title.
5.10 Fixed assets
5.10.1 Fixed Assets by Category
Items December 31, 2021 December 31, 2020
Fixed assets 6,200,939,794.32 6,904,082,012.35
Disposal of fixed assets
Total 6,200,939,794.32 6,904,082,012.35
142
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.10.2 Fixed Assets
①General information of fixed assets
Houses and Aircrafts and High-value Transportation
Category Others Total
buildings engines rotables vehicles
1. Cost:
1.1 Balance as at December 31, 2020 572,253,146.88 12,379,288,425.67 764,930,369.31 73,914,807.79 240,054,880.79 14,030,441,630.44
Changes in accounting policies -2,128,488,287.78 -2,128,488,287.78
Balance as at 1 January 2021 572,253,146.88 10,250,800,137.89 764,930,369.31 73,914,807.79 240,054,880.79 11,901,953,342.66
1.2 Increased in current period 1,072,904,127.53 477,545,283.00 16,590,708.06 12,116,539.39 28,802,356.47 1,607,959,014.45
(1) Purchase 268,112.00 477,545,283.00 16,590,708.06 12,116,539.39 28,802,356.47 535,322,998.92
(2) Transferred from construction-in-progress 1,072,636,015.53 1,072,636,015.53
(3) Transferred from merger and acquisitions
(4) Others
1.3 Decreased in current period 26,263,754.60 311,786,603.06 897,482.54 1,529,400.03 9,570,789.42 350,048,029.65
(1) Disposal or scrap 311,786,603.06 897,482.54 1,529,400.03 9,570,789.42 323,784,275.05
(2) Others 26,263,754.60 26,263,754.60
1.4. Balance as at December 31, 2021 1,618,893,519.81 10,416,558,817.83 780,623,594.83 84,501,947.15 259,286,447.84 13,159,864,327.46
2. Accumulated depreciation
2.1 Balance as at December 31, 2020 150,076,855.72 6,345,506,840.16 422,221,950.34 48,373,090.74 157,983,058.20 7,124,161,795.16
Changes in accounting policies -537,469,260.67 -537,469,260.67
Balance as at 1 January 2021 150,076,855.72 5,808,037,579.49 422,221,950.34 48,373,090.74 157,983,058.20 6,586,692,534.49
2.2 Increased in current period 39,729,638.22 554,952,780.08 79,116,993.17 5,138,685.80 21,261,510.85 700,199,608.12
143
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Houses and Aircrafts and High-value Transportation
Category Others Total
buildings engines rotables vehicles
(1) Accrual 39,729,638.22 554,952,780.08 79,116,993.17 5,138,685.80 21,261,510.85 700,199,608.12
(2) Transferred from merger and acquisitions
2.3 Decreased in current period 7,713,697.27 311,786,603.06 893,325.73 1,365,919.16 8,401,730.37 330,161,275.59
(1) Disposal or scrap 311,786,603.06 893,325.73 1,365,919.16 8,401,730.37 322,447,578.32
(2) Others 7,713,697.27 7,713,697.27
2.4 Balance as at December 31, 2021 182,092,796.67 6,051,203,756.51 500,445,617.78 52,145,857.38 170,842,838.68 6,956,730,867.02
3. Impairment provision
3.1 Balance as at December 31, 2020 2,197,822.93 2,197,822.93
Changes in accounting policies
Balance as at 1 January 2021 2,197,822.93 2,197,822.93
3.2 Increased in current period
(1) Accrual
(2) Transferred from merger and acquisitions
3.3 Decreased in current period 4,156.81 4,156.81
(1) Disposal or scrap 4,156.81 4,156.81
(2) Others
3.4 Balance as at December 31, 2021 2,193,666.12 2,193,666.12
4 Carrying amount of fixed assets
4.1 Carrying amount as at December 31, 2021 1,436,800,723.14 4,365,355,061.32 277,984,310.93 32,356,089.77 88,443,609.16 6,200,939,794.32
4.2 Carrying amount as at December 31, 2020 422,176,291.16 6,033,781,585.51 340,510,596.04 25,541,717.05 82,071,822.59 6,904,082,012.35
144
Shandong Airlines Co., Ltd. Notes to the Financial Statements
② The Company has no fixed assets leased out through operating lease.
③Fixed assets without certificate of title
Items Carrying amount Reason
Buildings of Shandong Airline Base of Qingdao
1,044,322,513.69 Related procedures of land use right are in progress
Jiaodong International Airport
Land use rights belonging to Shandong SDA Group, not eligible for
Buildings of Jinping Food Co., Ltd. 9,001,313.36
ownership registration
Jinan cargo arrival and departure warehouses 10,535,903.63 Land rented from Jinan Air Control, not eligible for ownership registration
5.11 Construction in progress
5.11.1 Construction in Progress by Category
Items December 31, 2021 December 31, 2020
Construction in progress 4,862,174,283.01 5,770,696,951.56
Construction material
Total 4,862,174,283.01 5,770,696,951.56
5.11.2 Construction in Progress
① General Information of Construction in Progress
Items December 31, 2021 December 31, 2020
145
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Provision for Provision for
Book balance Carrying amount Book balance Carrying amount
impairment impairment
Factory building project 2,944,905.67 2,944,905.67 920,262,448.04 920,262,448.04
Prepayment for aircrafts introduction
4,845,889,181.13 4,845,889,181.13 4,845,805,623.68 4,845,805,623.68
project
Construction of information system 1,355,171.97 1,355,171.97 706,911.96 706,911.96
Simulator 3,921,967.88 3,921,967.88 3,921,967.88 3,921,967.88
Others 8,063,056.36 8,063,056.36
Total 4,862,174,283.01 4,862,174,283.01 5,770,696,951.56 5,770,696,951.56
② Changes in significant projects of construction in progress
Increase during the Transfer to fixed Decrease during the
Projects Budget December 31, 2020 December 31, 2021
reporting period asset reporting period
Jiaodong airport project 1,265,803,800.00 907,818,189.40 159,513,121.56 1,067,331,310.96
Aircraft asset introduction project 9,937,456,340.04 4,845,805,623.68 83,557.45 4,845,889,181.13
Total 11,203,260,140.04 5,753,623,813.08 159,596,679.01 1,067,331,310.96 4,845,889,181.13
(Continued）
Weight of Cumulative Including: Including: cost of
Stage of Including: Transferred Capitalisation rate
cost to date cost of Transferred into borrowing Source of
Items completion into leaseback assets applicable to the
in budgeted borrowing fixed assets during capitalized during finance
during the current year current year
cost capitalized the current year the current year
Jiaodong airport 84.32 Completed Working
146
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Weight of Cumulative Including: Including: cost of
Stage of Including: Transferred Capitalisation rate
cost to date cost of Transferred into borrowing Source of
Items completion into leaseback assets applicable to the
in budgeted borrowing fixed assets during capitalized during finance
during the current year current year
cost capitalized the current year the current year
project capital
Loans from
Aircraft asset
48.76 N/a 134,270,401.12 financial
introduction project
institution
Total 134,270,401.12
147
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.12 Right-of-use assets
Category Houses and Aircrafts and
Total
buildings engines
1. Cost:
1.1 Balance as at December 31, 2020 — — —
Changes in accounting policies 21,193,643.81 27,956,907,834.86 27,978,101,478.67
Balance as at 1 January 2021 21,193,643.81 27,956,907,834.86 27,978,101,478.67
1.2 Increased in current period 2,902,094.59 1,382,424,923.85 1,385,327,018.44
1.3 Decreased in current period 499,392,441.07 499,392,441.07
1.4. Balance as at December 31, 2021 24,095,738.40 28,839,940,317.64 28,864,036,056.04
2. Accumulated depreciation
2.1 Balance as at December 31, 2020 — — —
Changes in accounting policies 14,881,255,967.98 14,881,255,967.98
Balance as at 1 January 2021 14,881,255,967.98 14,881,255,967.98
2.2 Increased in current period 10,977,757.22 2,419,203,283.05 2,430,181,040.27
2.3 Decreased in current period 499,392,441.07 499,392,441.07
2.4. Balance as at December 31, 2021 10,977,757.22 16,801,066,809.96 16,812,044,567.18
3. Impairment provision
3.1 Balance as at December 31, 2020 — — —
Changes in accounting policies
Balance as at 1 January 2021
3.2 Increased in current period
3.3 Decreased in current period
3.4 Balance as at December 31, 2021
4. Carrying amount of right-of-use
assets
4.1 Carrying amount as at December
13,117,981.18 12,038,873,507.68 12,051,991,488.86
31, 2021
4.2 Carrying amount as at December
21,193,643.81 13,075,651,866.88 13,096,845,510.69
31, 2020
148
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.13 Intangible assets
5.13.1 General Information of Intangible Assets
Items Land rights Software Total
1. Cost:
1.1 Balance as at December 31, 2020 108,347,341.13 70,177,954.74 178,525,295.87
1.2 Increased in current year 344,688,942.00 3,473,035.65 348,161,977.65
(1) Purchase 344,688,942.00 344,688,942.00
(2) Transferred from construction-in-progress 3,473,035.65 3,473,035.65
(3) Increased from business combination
1.3 Decreased in current year 8,480,000.00 8,480,000.00
(1) Disposal
(2) Others 8,480,000.00 8,480,000.00
1.4 Balance as at December 31, 2021 444,556,283.13 73,650,990.39 518,207,273.52
2. Accumulated amortization
2.1 Balance as at December 31, 2020 23,199,141.01 36,626,174.53 59,825,315.54
2.2 Increased in current year 6,182,289.92 12,200,808.35 18,383,098.27
(1) Accrual 6,182,289.92 12,200,808.35 18,383,098.27
2.3 Decreased in current year 1,786,519.89 1,786,519.89
(1) Disposal
(2) Others 1,786,519.89 1,786,519.89
2.4 Balance as at December 31, 2021 27,594,911.04 48,826,982.88 76,421,893.92
3. Impairment provision
3.1 Balance as at December 31, 2020
3.2 Increased in current year
(1) Accrual
3.3 Decreased in current year
(1) Disposal
3.4 Balance as at December 31, 2021
4. Carrying amount
4.1 Carrying amount as at December 31, 2021 416,961,372.09 24,824,007.51 441,785,379.60
4.2 Carrying amount as at December 31, 2020 85,148,200.12 33,551,780.21 118,699,980.33
5.13.2 The Company has no intangible assets arising from internal research and development
149
Shandong Airlines Co., Ltd. Notes to the Financial Statements
project as at the end of reporting period.
5.13.3 The general information of land use of right without certificate of title
Items Book value Reason
Related procedures of land use
Land of Qingdao Jiaozhou 340,667,571.01
right are in progress
Total 340,667,571.01
5.13.4 Intangible assets at the end of this period increases 272.19% compared with the end of
the previous period, mainly due to the purchase of land use rights in some areas of Qingdao
Jiaodong Airport this year.
5.14 Goodwill
5.14.1 Initial Recognition of Goodwill
Decrease during
Investees or Increase during the
the reporting
matters that December 31, reporting period December 31,
period
goodwill arising 2020 2021
Business
from Others Disposal Others
combination
Qingdao Feisheng 10,220,816.22 10,220,816.22
Shandong Jinping
454,020.13 454,020.13
Food Co., Ltd.
Total 10,674,836.35 10,674,836.35
5.14.2 Provision for Impairment
Decrease during
Investees or Increase during the
the reporting
matters that December 31, reporting period December 31,
period
goodwill arising 2020 2021
Business
from Others Disposal Others
combination
Qingdao Feisheng 10,220,816.22 10,220,816.22
Shandong Jinping
454,020.13 454,020.13
Food Co., Ltd.
Total 10,220,816.22 454,020.13 10,674,836.35
150
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.15 Deferred charges
Increase Decrease during the reporting
December 31, during the period December 31,
Items
2020 reporting Other 2021
Amortization
period decrease
Pilot training 620,401,352.79 64,644,551.34 108,020,568.53 17,362,500.71 559,662,834.89
Decoration expenditure 407,277.20 12,573,308.06 1,664,608.01 11,315,977.25
Modification costs for
20,973,948.44 693,983.22 4,831,587.07 16,836,344.59
aircraft leasing
Total 641,782,578.43 77,911,842.62 114,516,763.61 17,362,500.71 587,815,156.73
5.16 Deferred tax assets and deferred tax liabilities
5.16.1 Deferred Tax Assets Before Offsetting
December 31, 2021 December 31, 2020
Deductible Deductible
Items Deferred tax Deferred tax
temporary temporary
assets assets
differences differences
Provision for bad debt 140,162,821.93 35,040,705.48 124,132,024.77 31,033,006.20
Impairment provision for
4,227,205.99 1,056,801.50 4,227,205.99 1,056,801.50
inventories
Impairment provision for fixed
2,193,666.12 548,416.53 2,197,822.93 549,455.73
assets
Fair value movement of
financial liabilities held for 78,548.31 19,637.08 862,955.67 215,738.92
trading
Provisions 5,844,514,155.98 1,461,128,539.00 5,022,551,127.92 1,255,637,781.98
Employment benefits payable 43,815,617.86 10,953,904.47 39,140,304.16 9,785,076.04
Deferred income 22,622,586.89 5,655,646.72 19,074,728.93 4,768,682.23
New lease standards related 1,197,120,612.68 299,280,153.17
Deductible losses 5,561,281,692.78 1,390,320,423.19 2,784,211,785.04 696,052,946.27
Total 12,816,016,908.54 3,204,004,227.14 7,996,397,955.41 1,999,099,488.87
151
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.16.2 Deferred Tax Liabilities Before Offsetting
December 31, 2021 December 31, 2020
Deductible Deductible
Items Deferred tax Deferred tax
temporary temporary
liabilities liabilities
differences differences
Asset evaluation increment
from business combination 3,129,788.20 782,447.05 3,651,419.57 912,854.89
not under same control
Depreciation and amortization
488,820,193.96 122,205,048.49 175,462,289.43 43,865,572.36
of fixed assets
Changes in fair value of other
372,893,783.18 93,223,445.80 453,437,306.63 113,359,326.66
equity instruments investment
Total 864,843,765.34 216,210,941.34 632,551,015.63 158,137,753.91
5.16.3 Deferred income tax assets at the end of the period increased by 60.27% compared
with the end of the previous period , mainly due to the book-tax difference treatment in
relation with the new lease standards and the increase in deferred income tax assets on loss
carryforward at the end of the period. Deferred income tax liabilities at the end of the period
increased by 36.72% compared with the end of the previous period , mainly due to the
increase in the book-tax difference in relation with fixed assets depreciation.
5.17 Short-term borrowings
5.17.1 Disclosure of Short-Term Borrowings by Category
Items December 31, 2021 December 31, 2020
Credit loan 2,601,211,111.11 2,001,111,111.11
Total 2,601,211,111.11 2,001,111,111.11
5.17.2 The Company has no overdue short-term borrowings.
152
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.18 Held-for-trading financial liabilities
Increase during Decrease during
December 31, December 31,
Items the reporting the reporting
2020 2021
period period
Financial liabilities designated at
862,955.67 784,407.36 78,548.31
fair value through profit or loss
Including: Interest rate swaps 862,955.67 784,407.36 78,548.31
Total 862,955.67 784,407.36 78,548.31
5.19 Notes payable
Category December 31, 2021 December 31, 2020
Commercial acceptance bills 49,605,767.94
Bank acceptance bills 94,287,021.53 422,489,235.30
Total 94,287,021.53 472,095,003.24
5.19.1 The Company has no notes payable matured but not yet paid as at the reporting date.
5.19.2 Notes payable at the end of this period decreases 80.03% compared with the end of
pervious period, mainly due to the payment of matured bank acceptance bills in this period.
5.20 Accounts payable
5.20.1 Accounts Payable by Nature
Items December 31, 2021 December 31, 2020
Aircraft maintenance costs 117,074,446.80 492,193,935.93
Engine lease return
102,385,814.48
compensation
Fuel cost 187,084,901.39 197,183,769.59
Landing fee 290,843,996.33 466,711,569.27
Aircraft service cost 805,652,196.57 549,082,156.02
Flight catering 95,577,041.54 113,233,126.31
Computer booking fee 191,836,041.64 325,614,566.13
Lease rental 573,761.49 96,262,308.48
Others 429,166,048.89 303,037,868.58
Total 2,220,194,249.13 2,543,319,300.31
153
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.20.2 The Company has no significant accounts payable with age of over one year as at the
reporting date.
5.21 Contract liabilities
Items December 31, 2021 December 31, 2020
Ticket clearing 297,337,814.74 314,216,701.60
Advanced payment for tickets 137,783,246.87 99,366,787.75
Others 20,225,816.95 31,817,311.84
Total 455,346,878.56 445,400,801.19
The Company has no significant contract liabilities with aging of over one year as at the
reporting date.
5.22 Employee benefits payable
5.22.1 Details of Employee Benefits Payable
Increase during Decrease during
December 31, December 31,
Items the reporting the reporting
2020 2021
period period
1. Short-term employee benefits 346,238,955.37 2,578,803,687.93 2,470,718,387.23 454,324,256.07
2. Post-employment benefits –
424,927,901.20 424,927,901.20
defined contribution plans
3. Termination benefits
4. Other long-term employee
benefits within one year
Total 346,238,955.37 3,003,731,589.13 2,895,646,288.43 454,324,256.07
5.22.2 Short-Term Employee Benefits
Increase during Decrease during
December 31, December 31,
Items the reporting the reporting
2020 2021
period period
1. Wages, salaries and subsidies 306,835,731.58 2,212,101,959.24 2,139,735,339.60 379,202,351.22
2. Employee welfare 24,993,935.79 24,993,935.79
3. Social insurance: 125,114,737.05 125,114,737.05
Including: Medical insurance 103,311,874.70 103,311,874.70
Employment injury insurance 7,281,362.08 7,281,362.08
Maternity insurance 14,521,500.27 14,521,500.27
154
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Increase during Decrease during
December 31, December 31,
Items the reporting the reporting
2020 2021
period period
4. Housing provident fund 120,496,666.31 120,496,666.31
5. Labour union fee and 39,403,223.79 65,096,389.54 60,377,708.48 44,121,904.85
employee education fee
6. Short-term paid absences 31,000,000.00 31,000,000.00
7. Short-term profit-sharing plan
Total 346,238,955.37 2,578,803,687.93 2,470,718,387.23 454,324,256.07
5.22.3 Defined Contribution Plans
Increase during Decrease during
December 31, December 31,
Items the reporting the reporting
2020 2021
period period
Post-employment benefits:
1. Basic pension 246,774,078.60 246,774,078.60
2. Unemployment insurance 10,535,007.40 10,535,007.40
3. Annuity payment 167,618,815.20 167,618,815.20
Total 424,927,901.20 424,927,901.20
The employee benefits payable at the end of the period increases 31.22% compared with the
end of pervious period, mainly due to the increase of accrual of safety and performance
reward.
5.23 Taxes and fees payable
Items December 31, 2021 December 31, 2020
VAT 1,773,763.50 1,476,083.36
Urban construction and maintenance tax 139,135.62 160,601.55
Education surcharge 102,412.92 118,517.68
Enterprise income tax 539,381.28 944,983.82
Property tax 2,986,370.57 172,992.36
Land tax 979,311.20 179,311.20
Personal income tax 8,464,616.24 9,353,560.27
Stamp duty 700,000.00 1,380,000.00
Civil aviation development fund 57,593,529.65 88,404,867.39
Others 15,559.86
Total 73,278,520.98 102,206,477.49
155
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.24 Other payables
5.24.1 Other Payables by Category
Items December 31, 2021 December 31, 2020
Interests payable
Dividends payable 602,306.96 602,306.96
Other payables 666,912,715.62 635,263,654.66
Total 667,515,022.58 635,865,961.62
5.23.2 Dividends Payable
Items December 31, 2021 December 31, 2020
Dividend on common shares 602,306.96 602,306.96
Total 602,306.96 602,306.96
The Company has no significant dividends payable over one year as at the reporting date.
5.24.3 Other Payables
① Other Payables by Nature
Items December 31, 2021 December 31, 2020
Payables for construction projects 270,620,233.42 225,955,475.65
Payables for deposits 144,432,403.45 180,641,018.52
Taxes deducted at source 67,166,197.85 70,763,959.51
Others 184,693,880.90 157,903,200.98
Total 666,912,715.62 635,263,654.66
②The Company has no significant other payables with aging of more than one year as at the
reporting date.
5.25 Non-current liabilities due within one year
Items December 31, 2021 December 31, 2020
Long-term borrowings due within one year 903,784,357.84 103,186,354.59
Bonds payables due within one year 20,514,722.25 20,514,722.25
Long-term payables due within one year 181,264,490.05
Long-term employee benefits payable due within one year 16,612,000.00
Lease liabilities due within one year 2,294,949,130.97
156
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Items December 31, 2021 December 31, 2020
Total 3,219,248,211.06 321,577,566.89
The non-current liabilities due within one year at the end of this period increases 901.08%
compared with the end of the pervious period, mainly due to the increase of lease liabilities
due within one year from the implementation of new lease standards.
5.26 Other current liabilities
Items December 31, 2021 December 31, 2020
VAT to be recognised 32,096,585.80 31,100,597.66
Total 32,096,585.80 31,100,597.66
5.27 Long-term borrowings
5.27.1 Long-Term Borrowings by Category
Range of interest
Items December 31, 2021 December 31, 2020
rates in 2021
Secured loans 379,162,550.65 464,796,466.93 0.8554%~1.2650%
Credit loans 7,221,629,554.94 5,755,824,786.98 3.3200%~3.5000%
Subtotal 7,600,792,105.59 6,220,621,253.91
Less: Long-term borrowings due
903,784,357.84 103,186,354.59
within one year (Note 5.25)
Total 6,697,007,747.75 6,117,434,899.32
5.28 Bonds payable
5.28.1 Bonds Payable by Category
Items December 31, 2021 December 31, 2020
Medium-term notes 1,020,514,722.25 1,020,514,722.25
Subtotal 1,020,514,722.25 1,020,514,722.25
Less: Bonds payable due within one year (Note 5.25) 20,514,722.25 20,514,722.25
Total 1,000,000,000.00 1,000,000,000.00
5.28.2 Changes in increase or decrease of bonds payable
Maturity of
Bond name Face value Issue date Issue price December 31, 2020
bond
20 Shandong 1,000,000,000.00 2020-4-22 3 years 1,000,000,000.00 1,020,514,722.25
157
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Maturity of
Bond name Face value Issue date Issue price December 31, 2020
bond
Airlines MTN001
Total 1,000,000,000.00 1,000,000,000.00 1,020,514,722.25
(Continued)
Issued this Interest accrued at Amortization of Payback this
Bond name December 31, 2021
period face value excess discount period
20 Shandong Airlines
27,989,722.26 27,989,722.26 1,020,514,722.25
MTN001
Total 27,989,722.26 27,989,722.26 1,020,514,722.25
5.29 Lease liabilities
Items December 31, 2021 December 31, 2020
Lease payments 12,968,955,180.10 —
Less: Unrealised finance expenses 1,232,490,939.71 —
Subtotal 11,736,464,240.39 —
Less: lease liabilities due within one year (Note 5.25) 2,294,949,130.97 —
Total 9,441,515,109.42 —
5.30 Long-term payables
5.30.1 Long-Term Payables by Category
Items December 31, 2021 December 31, 2020
Long-term payables 5,450,148,990.47 5,976,812,441.61
Subtotal 5,450,148,990.47 5,976,812,441.61
Less: Long-term payables due within one year (Note 5.25) 219,460,261.28 673,458,425.98
Total 5,230,688,729.19 5,303,354,015.63
5.30.2 Long-Term Payables by Nature
Items December 31, 2021 December 31, 2020
Financial lease rental payables 1,229,499,938.87
Payables of lease termination compensation of aircraft and
4,887,007,912.24
engine held under operating lease
Overhaul payables for aircrafts and engines held under
4,747,312,502.74
operating lease
Others 563,141,078.23
Subtotal 5,450,148,990.47 5,976,812,441.61
158
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Items December 31, 2021 December 31, 2020
Less: Financial lease rental payables due within one year
181,264,490.05
(Note 5.25)
Less: Payables of lease termination compensation of
aircraft and engine held under operating lease due within 102,385,814.48
one year (Note 1)
Less: Overhaul payables for aircrafts and engines held
492,193,935.93
under operating lease due within one year
Others due within one year 117,074,446.80
Total 5,230,688,729.19 5,303,354,015.63
Note 1: Payables of lease termination compensation of aircraft and engine held under
operating lease due within one year had been included in accounts payable.
5.31 Long-term employee benefits payable
5.31.1 General information of long-term employee benefits payable
Items December 31, 2021 December 31, 2020
1. Post-employment benefits-net defined benefit liability 270,637,000.00
Less: long-term staff remuneration payable due within one
16,612,000.00
year (Note 5.25)
Total 254,025,000.00
5.31.2 Changes in Defined Benefit Plans
Present value of the defined benefit obligation:
Items 2021 2020
1. Balance at the beginning of the reporting period 270,637,000.00 162,909,225.21
2. Cost recognized in current profit or loss: 120,860,000.00
2.1 Current service cost
2.2 Past service cost 115,723,000.00
2.3 Gains /(losses) on settlement (loss presented with "-"
prefix)
2.4 Net interest 5,137,000.00
3. Cost recognized in other comprehensive income: 1,769,000.00
3.1 Actuarial gains /(losses) (loss presented with "-" prefix) 1,769,000.00
4. Other changes: 270,637,000.00 11,363,225.21
159
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Items 2021 2020
4.1 Consideration paid in settlements 264,723,621.69
4.2 Payment of benefits 5,913,378.31 11,363,225.21
5. Balance at the end of the reporting period 270,637,000.00
Note: The long-term employee benefits payable at the end of this period decreases 100%
compared with the end of the previous period, mainly because in this period, the Company
enters into an agreement with a third party to materially terminate the future obligations of the
original defined benefit plan through a one-time payment.
5.32 Accrued liabilities
Items December 31, 2021 December 31, 2020 Reason
Restoration costs of Restoration costs of
1,060,428,713.51
aircrafts under leases aircrafts under leases
Total 1,060,428,713.51
160
Shandong Airlines Co., Ltd. Notes to the Fina ncial Statements
5.33 Deferred income
5.33.1 General information of deferred income
Increase during the Decrease during the
Items December 31, 2020 December 31, 2021 Reason
reporting period reporting period
Unrealized gains and losses of The aircraft
operating lease from aircraft 81,439,081.44 6,247,117.80 75,191,963.64 sale-leaseback disposal
leaseback profits and losses
Designated subsidy for civil
8,923,065.16 976,500.12 7,946,565.04 Asset related subsidies
aviation energy-saving program
Designated subsidy for HUD and
10,151,663.77 6,480,000.00 1,955,641.92 14,676,021.85 Asset related subsidies
repackage project
Total 100,513,810.37 6,480,000.00 9,179,259.84 97,814,550.53
5.33.2 Items Related to Government Grants
Recognized in Recognized in
Increase during Related to
December 31, non-operating income other income Other December 31,
Items the reporting assets/Related to
2020 during the reporting during the changes 2021
period profit or loss
period reporting period
Designated subsidy for civil Asset related
8,923,065.16 976,500.12 7,946,565.04
aviation energy-saving program subsidies
Designated subsidy for HUD and Asset related
10,151,663.77 6,480,000.00 1,955,641.92 14,676,021.85
repackage project subsidies
Total 19,074,728.93 6,480,000.00 2,932,142.04 22,622,586.89
161
Shandong Airlines Co., Ltd. Notes to the Fina ncial Statements
5.34 Share capital
December 31, Changes during the reporting period (+, -)
Item December 31, 2021
2020 New issues Bonus issues Capitalisation of reserves Others Subtotal
Number of total shares 400,000,000.00 400,000,000.00
5.35 Capital reserves
Items December 31, 2020 Increase during the reporting period Decrease during the reporting period December 31, 2021
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
5.36 Other comprehensive income
Changes during the reporting period
December 31, Less: Items previously recognized in Attributable to Attributable to Amount December 31,
Items Less: Income
2020 Amount before tax other comprehensive income being owners of the minority before 2021
tax expenses
reclassified to current profit or loss Company interests tax
Other comprehensive
income that cannot be
322,552,319.90 -80,543,523.45 -17,525,660.07 -20,135,880.86 -42,881,982.52 279,670,337.38
reclassified into profit or
loss
Including:
remeasurement of net -17,525,660.07 -17,525,660.07 17,525,660.07
assets or net liabilities of
162
Shandong Airlines Co., Ltd. Notes to the Fina ncial Statements
Changes during the reporting period
December 31, Less: Items previously recognized in Attributable to Attributable to Amount December 31,
Items Less: Income
2020 Amount before tax other comprehensive income being owners of the minority before 2021
tax expenses
reclassified to current profit or loss Company interests tax
defined benefit plans
Fair value change of the
340,077,979.97 -80,543,523.45 -20,135,880.86 -60,407,642.59 279,670,337.38
equity instruments
Total of other
322,552,319.90 -80,543,523.45 -17,525,660.07 -20,135,880.86 -42,881,982.52 279,670,337.38
comprehensive income
163
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.37 Surplus reserves
Increase Decrease
December 31, Changes of during the during the December 31,
Items January 1, 2021
2020 accounting policy reporting reporting 2021
period period
Statutory
surplus 538,773,444.97 538,773,444.97 538,773,444.97
reserve
Total 538,773,444.97 538,773,444.97 538,773,444.97
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.
5.38 Retained earnings
Items 2021 2020
Pre-adjustment balance brought forward 1,233,524,795.64 3,588,847,456.98
Total adjustment to retained earnings b/f (+, -) -1,613,812,613.92 26,692,794.47
Retained earnings b/f after adjustment -380,287,818.28 3,615,540,251.45
Add: Net profit attributable to shareholders of the parent -1,813,705,307.39 -2,382,015,455.81
Changes in the defined benefit plan transferred to retained
-17,525,660.07
earnings
Less: Appropriation to statutory surplus reserve
Appropriation to discretionary surplus reserve
General reserve
Ordinary dividends declared
Bonus issue
Closing balance as of December 31, 2021 -2,211,518,785.74 1,233,524,795.64
5.39 Operating revenues and operating costs
2021 2020
Items
Operating revenues Operating costs Operating revenues Operating costs
Principal
11,870,164,619.98 13,539,575,331.07 9,881,777,998.48 12,550,178,248.90
activities
Other activities 645,153,343.18 11,014,671.04 652,625,352.39 4,721,867.19
164
Shandong Airlines Co., Ltd. Notes to the Financial Statements
2021 2020
Items
Operating revenues Operating costs Operating revenues Operating costs
Total 12,515,317,963.16 13,550,590,002.11 10,534,403,350.87 12,554,900,116.09
165
Shandong Airlines Co., Ltd. Notes to the Financial Statements
（1）Operating revenue deductions
2021 2020
Items
Amount Details Amount Details
Operating revenue 12,515,317,963.16 10,534,403,350.87
Total amount of operating revenue deductions 54,035,710.22 56,794,107.52
Proportion of operating revenue deductions to operating
0.43% 0.54%
revenues
1. Revenues unrelated to principal activities — — — —
1.1 Revenues from other operating revenue than normal
Revenue of media Revenue of media
operations. i.e. revenues from renting out fixed assets, intangible
resource fee, revenue resource fee, revenue
assets, or packaging, sales of materials, exchange of
of labor expenses for of labor expenses for
non-monetary assets with materials, income from operation of 54,035,710.22 56,794,107.52
foreign flights, foreign flights,
entrusted management business, as well as income other than
maintenance revenue, maintenance revenue,
the normal operation of the listed company although it is
lease revenue, etc.. lease revenue, etc..
included in the main business income
Subtotal of revenues unrelated to principal activities 54,035,710.22 56,794,107.52
2. Revenue without commercial substance
3. Other revenues unrelated to principal activities or without
commercial substance
Operating revenues after deductions 12,461,282,252.94 10,477,609,243.35
166
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.40 Tax and surcharges
Items 2021 2020
Urban maintenance and construction tax 2,307,862.32 1,646,287.30
Housing property tax 7,650,120.45 2,731,914.23
Land use tax 2,750,614.23 1,056,036.38
Education surcharge and others 5,663,623.34 5,044,826.86
Total 18,372,220.34 10,479,064.77
Tax and surcharges at the end of this period increases 75.32% compared with the end of the
previous period, mainly because Qingdao Jiaodong Airport was put into use in this period,
increasing the housing property tax and land use tax.
5.41 Sales expenses
Items 2021 2020
Agency fees 173,831,486.42 138,402,370.07
Employment benefits 239,187,806.97 238,062,702.66
Computer booking fees 94,593,727.35 101,239,667.49
Online payment fees 33,394,218.76 22,746,819.32
Lease rental 13,782,104.29 20,950,099.16
Advertisement fees 13,927,077.73 12,139,670.83
Administrative office expenses 2,014,325.10 5,935,784.08
Travel expenses 3,556,627.44 3,768,427.11
System and network fees 38,709,108.84 39,289,807.51
BSP data processing fees 2,697,402.50 3,193,912.84
Depreciation 12,376,891.41 1,521,642.25
Others 20,604,571.25 26,660,072.21
Total 648,675,348.06 613,910,975.53
5.42 General and administrative expenses
Items 2021 2020
Employment benefits 221,608,067.44 325,886,133.31
Lease rental fees 20,065,677.92 27,737,933.24
Business entertainment costs 4,051,190.96 2,235,917.06
Depreciation 29,187,469.98 21,093,013.51
167
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Items 2021 2020
Administrative office expenses 13,121,623.02 11,545,974.78
Amortization of intangibles 15,930,482.48 11,644,865.33
Water, electricity charges 13,257,526.33 10,576,962.96
Outsourcing fees 36,383,509.89 34,055,410.64
Others 70,405,050.66 48,864,546.54
Total 424,010,598.68 493,640,757.37
5.43 Research and development expenses
Items 2021 2020
Employment benefits 24,703,588.89 22,514,111.50
Others 338,424.70 352,178.48
Total 25,042,013.59 22,866,289.98
5.44 Financial costs
Items 2021 2020
Interest expenses 821,081,133.14 230,831,883.77
Including: interest expenses for lease liabilities 463,855,802.08
Less: Interest income 96,757,343.73 45,680,277.19
Net interest expenses 724,323,789.41 185,151,606.58
Foreign exchange losses 465,682,517.79 52,422,557.01
Less: Foreign exchange gains 710,634,788.47 102,518,814.24
Net foreign exchange losses -244,952,270.68 -50,096,257.23
Bank charges 1,332,373.16 2,368,560.52
Total 480,703,891.89 137,423,909.87
Financial costs of this period increase 249.80% compared with the previous period, mainly
due to the increase of the interest expenses resulting from the adoption of new lease standards
and the increase of borrowings in this period.
5.45 Other income
Included in current period
Category 2021 2020
non-recurring profit and loss
1. Government grant recognized in
155,394,226.24 98,058,606.34 155,394,226.24
other income
Including: Government grant
2,932,142.04 2,662,142.04 2,932,142.04
related to deferred income (related
168
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Included in current period
Category 2021 2020
non-recurring profit and loss
to assets)
Government grant related
to deferred income (related to
income)
Government grant directly
recognized in current profit or loss 152,462,084.20 95,396,464.30 152,462,084.20
(related to income)
2. Others related to daily operation
activities and recognized in other 4,867,924.92 2,626,332.77 4,867,924.92
income
Including: Charges of withholding
4,598,970.36 2,598,570.59 4,598,970.36
individual income tax
Including: Input tax deduction 268,954.56 27,762.18 268,954.56
Total 160,262,151.16 100,684,939.11 160,262,151.16
Other income of this period increases 59.17% compared with the previous period, mainly due
to the increase of navigation subsidies received by the Company in this period.
5.46 Investment income
Category 2021 2020
Investment income from held-for-trading
-777,605.88 -829,194.39
financial assets during holding period
Dividend income from other equity instrument
208,728.00 4,019,690.59
income during holding period
Total -568,877.88 3,190,496.20
5.47 Gains/(losses) from changes in fair values
Sources of gains on changes in fair value 2021 2020
Interest rate swaps 784,407.36 -736,690.92
Total 784,407.36 -736,690.92
5.48 Impairment loss of credit
Category 2021 2020
Provision for bad debt for accounts receivable -15,604,893.16 667,731.60
Provision for bad debt for other receivables -426,004.00 2,720,650.83
169
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Category 2021 2020
Total -16,030,897.16 3,388,382.43
5.49 Impairment loss of asset
Category 2021 2020
Goodwill impairment loss -454,020.13
Total -454,020.13
5.50 Gains/(losses) from disposal of assets
Included in current
Category 2021 2020 period non-recurring
profit and loss
Gains/(losses) from disposal of fixed assets,
construction in progress, productive
162,594.11 603,734.58 162,594.11
biological assets and intangible assets not
classified as held for sale
Including: Fixed assets 162,594.11 603,734.58 162,594.11
Total 162,594.11 603,734.58 162,594.11
5.51 Non-operating income
5.51.1 Details of Non-operating income
Included in current period
Category 2021 2020
non-recurring profit and loss
Transferred income from pilot 66,044,171.38 24,999,999.99 66,044,171.38
Others 22,278,724.15 21,593,143.86 22,278,724.15
Total 88,322,895.53 46,593,143.85 88,322,895.53
5.51.2 The Company has no government grants irrelevant to daily operation activities during
the reporting period.
5.51.3 The non-operating income of this period increases 89.56% compared with the previous
period, mainly due to the increase of pilot compensation received by the Company.
5.52 Non-operating expenses
Included in current period
Category 2021 2020
non-recurring profit and loss
Loss on non-current asset damage 1,408,954.73 544,262.93 1,408,954.73
170
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Included in current period
Category 2021 2020
non-recurring profit and loss
and scrap
Others 1,249,063.89 254,706.04 1,249,063.89
Total 2,658,018.62 798,968.97 2,658,018.62
The non-operating expense of this period increases 232.68% compared with the previous
period, mainly due to the increase of loss on asset damage and scrap.
5.53 Income tax expenses
5.53.1 Details of Income Tax Expenses
Category 2021 2020
Current tax expenses 207,562.22 121,260,500.16
Deferred tax expenses -588,758,131.97 -885,137,770.81
Total -588,550,569.75 -763,877,270.65
5.53.2 Reconciliation of Accounting Profit and Income Tax Expenses
Category 2021 2020
Profit before tax -2,402,255,877.14 -3,145,892,726.46
Income tax expense at the statutory /applicable tax rate -600,563,969.28 -786,473,181.62
Adjustments of impact from prior period income tax -380,809.13 -6,811,830.61
Effect of income that is exempt from taxation -52,182.00 -1,004,922.65
Effect of non-deductible costs, expenses or losses 11,249,317.80 30,450,823.64
Effect of previously unrecognized deductible losses
-38,159.41
recognized as deferred tax assets
Effect of deductible temporary differences or tax losses
1,197,072.86
which no deferred income tax asset was recognised
Income tax expenses -588,550,569.75 -763,877,270.65
5.51 Other comprehensive income
For details of the other comprehensive income and related tax effect, transfer to profit or loss
and adjustment of other comprehensive income, please refer to Note 5.36 Other
Comprehensive Income.
5.55 Notes to the Statement of Cash Flow
171
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.55.1 Other cash received relating to operating activities
Category 2021 2020
Government grants 158,942,084.20 95,396,464.30
Cash received other than government grants which is
4,867,924.92 2,626,332.77
recognized in other income
Interest income on bank deposit 93,095,101.45 45,680,277.19
Cash receipts from non-operating income 22,278,724.15 46,593,143.85
Cash receipts from current account 2,091,867.29 48,431,355.93
Total 281,275,702.01 238,727,574.04
5.55.2 Other cash payments relating to operating activities
Category 2021 2020
Bank charges 34,726,591.92 25,115,379.84
Cash payments for non-operating expenses 1,249,063.89 254,706.04
Cash payments for current account 73,532,858.30 23,517,158.20
Cash payments for sales and general and administrative expenses 257,509,034.77 248,304,944.48
Total 367,017,548.88 297,192,188.56
5.55.3 Other cash payment relating to financing activities
Category 2021 2020
Cash receipts from settlement of interest rate swaps 777,605.88 829,194.39
Total 777,605.88 829,194.39
5.55.4 Other cash payments relating to financing activities
Category 2021 2020
Cash payments for lease liabilities 2,725,684,347.70 360,556,413.20
Total 2,725,684,347.70 360,556,413.20
5.56 Supplementary information to the Statement of Cash Flows
5.56.1 Supplementary Information to the Statement of Cash Flows
Supplementary information 2021 2020
1．Adjustments of net profit to cash flows from operating
activities:
Net profit -1,813,705,307.39 -2,382,015,455.81
Add: Provisions for impairment of assets 454,020.13
172
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Supplementary information 2021 2020
Impairment loss of credit 16,030,897.16 -3,388,382.43
Depreciation of fixed assets, investment properties, oil and gas
701,216,962.82 796,938,226.47
assets and biological assets held for production
Depreciation of right-of-use asset 2,430,181,040.27
Amortization of intangible assets 18,383,098.27 11,644,865.33
Amortization of deferred charges 114,516,763.61 113,982,866.41
Loss on non-current assets disposal (gain presented by "-"
-66,206,765.49 -603,734.58
prefix)
Loss on scrap of fixed assets (gain presented by "-" prefix) 1,408,954.73 544,262.93
Loss on fair value changes (gain presented by "-" prefix) -784,407.36 736,690.92
Financial costs (gain presented by "-" prefix) 575,294,023.28 183,792,301.57
Investment loss (gain presented by "-" prefix) 568,877.88 -3,190,496.20
Decrease of deferred tax assets (increase presented by "-"
-666,967,200.26 -893,720,837.14
prefix)
Increase of deferred tax liabilities (increase presented by "-"
78,209,068.29 8,583,066.33
prefix)
Decrease of inventories (increase presented by "-" prefix) -1,212,943.67 -1,137,142.81
Decrease of operating receivables (increase presented by "-"
-36,250,837.43 158,681,830.15
prefix)
Increase of operating payables (decrease presented by "-"
206,185,572.98 309,423,178.06
prefix)
Others
Net cash flows generated from operating activities 1,557,321,817.82 -1,699,728,760.80
2．Significant 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 at the end of the reporting period 3,807,440,438.88 5,306,474,451.06
Less: Cash at the beginning of the reporting period 5,306,474,451.06 598,861,065.69
Add: Cash equivalents at the end of the reporting period
Less: Cash equivalents at the beginning of the reporting period
173
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Supplementary information 2021 2020
Net increase in cash and cash equivalents -1,499,034,012.18 4,707,613,385.37
5.56.2 Net Cash Received from Disposals of Subsidiaries
Category December 31, 2021 December 31, 2020
①Cash 3,807,440,438.88 5,306,474,451.06
Including: Cash at hand 159,608.70 225,522.11
Demand bank deposit 3,807,280,830.18 5,306,248,928.95
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
③Cash and cash equivalents at the end of the
3,807,440,438.88 5,306,474,451.06
reporting period
Including: Restricted cash and cash equivalents used
by parent companies or subsidiaries within the group
5.57 Assets with Imposed Restriction on Ownership
Closing balance as of December
Category Reason of restriction
31, 2021
Assets pledged as security 806,930,433.54
Aircrafts and engines 806,930,433.54 Pledge as security for borrowings
Other form of restriction: 3,662,242.28
Interest on notice deposit
Bank deposit 3,662,242.28
receivable
Total 810,592,675.82
5.58 Foreign Currency Monetary Items
174
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Carrying amount at Carrying amount at
Items Exchange rate
foreign currency CNY
Monetary funds
Including: -USD 391,106.17 6.3757 2,493,575.61
-EUR 5,042.00 7.2197 36,401.73
-CAD 10.00 5.0050 50.05
-JPY 3,251,069.00 0.0554 180,109.22
-TWD 2,779,463.00 0.2302 639,832.38
-KRW 35,702,109.00 0.0054 192,791.39
-THB 507,280.52 0.1912 96,992.04
Other receivables
Including: -USD 6,340,014.96 6.3757 40,422,033.38
Accounts payable
Including: -USD 16,871,273.87 6.3757 107,566,180.81
-JPY 2,618,255.00 0.0554 145,051.33
Other payables
Including: -USD 21,076.05 6.3757 134,374.57
Non-current liabilities due
within one year
Including: -USD 353,103,282.91 6.3757 2,251,280,600.85
-JPY 22,861,813.96 0.0554 1,266,544.49
-THB 1,226,522.44 0.1912 234,511.09
-TWD 4,459,378.32 0.2302 1,026,548.89
Long-term borrowings
Including: -USD 5,490,808.50 6.3757 35,007,747.75
Lease liabilities
Including: -USD 1,155,017,186.70 6.3757 7,364,043,077.24
-JPY 14,044,486.37 0.0554 778,064.54
175
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Carrying amount at Carrying amount at
Items Exchange rate
foreign currency CNY
-TWD 6,092,655.25 0.2302 1,402,529.24
5.59 Government Grants
5.59.1 Government Grants Related to Assets
Recognized in current profit Presented items that
Items presented or loss or directly as deduct of recognized in current
Items Amount in the Financial related cost profit or loss or
Statements directly as deduct of
2021 2020
related cost
Designated subsidy for
Deferred
civil aviation 976,500.12 976,500.12 Other income
income
energy-saving program
Designated subsidy for
Deferred
HUD and repackage 1,955,641.92 1,955,641.92 Other income
income
project
Total 2,932,142.04 2,932,142.04
5.59.2 Government grants related to income
Recognized in current profit or loss Presented items that
Items
or directly as deduct of related cost recognized in current
presented in
Items Amount profit or loss or
the Financial
2021 2020 directly as deduct of
Statements
related cost
Airline grants 105,322,923.29 Other income 105,322,923.29 Other income
Other
government 47,139,160.91 Other income 47,139,160.91 Other income
grants
Total 152,462,084.20 152,462,084.20
5.59.3 The Company has no return of government grants during the reporting period.
176
Shandong Airlines Co., Ltd. Notes to the Financial Statements
5.60 Lease
5.60.1 The Company as a lessee
①Short-term lease expenses and low-value asset lease expenses of this period included in the
current profits and losses:
Category 2021
Short-term lease expenses 53,641,137.12
Low-value asset lease expenses (except for short-term lease)
Total 53,641,137.12
②Current profit and loss and cash flow related to lease
Category 2021
Interest expenses of lease payments 463,855,802.08
Variable lease payments included in the current profits and losses and
56,500,633.59
not included in the lease liabilities
Revenue of sublease right-of-use assets
Total cash outflow related to leases 2,835,826,118.41
Profit and loss related to sale and leaseback transaction
5.60.2 The Company as a lessor
①Operating lease
A. Lease revenue
Category 2021
Lease revenue 2,935,401.85
Including: Revenue related to variable lease payments not included in
lease payments
B. Undiscounted lease receivables to be received in each of the five consecutive financial
years followings the balance sheet date
Year Amount
2022 2,452,592.00
2023 2,452,592.00
2024 2,452,592.00
2025 507,500.00
177
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Year Amount
2026 522,725.00
Total 8,388,001.00
C. The total undiscounted lease receivables related to irrevocable lease that will be received in
the future according to the lease contracts signed with the lessee.
Residual maturity Amount
Within 1 year (including 1 year, same as below) 500,000.00
1-2 years 500,000.00
2-3 years 500,000.00
Over 3 years 6,153,897.85
Total 7,653,897.85
Note 6 CHANGES IN THE SCOPE OF CONSOLIDATION
The consolidation scope of the financial statements for the current year is consistent with the
previous year.
178
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Note 7 INTERESTS IN OTHER ENTITIES
7.1 Interests in Subsidiaries
Place Nature Holding proportion (%)
Subsidiaries Place of operation Acquired method
of registration of business Directly Indirectly
Shandong aviation Logistics Ltd Logistics and Acquired through
Qingdao, Shandong Qingdao, Shandong 100.00
(hereafter, Qingdao Logistics) storage investment
Qingdao Feisheng International Acquired through
Aviation Training Technology business combination
Qingdao, Shandong Qingdao, Shandong Pilot training 100.00
Development Co., Ltd not under common
(hereafter, Qingdao Feisheng) control
Acquired through
Shandong Jinping Air Catering Co.,
Aeronautical food business combination
Ltd. (hereinafter referred to as Jinan, Shandong Jinan, Shandong 100.00
processing not under common
"Jinping food")
control
Acquired through
Shandong Airlines Qingdao Food
Aeronautical food business combination
Co., Ltd. (hereinafter referred to as Qingdao, Shandong Qingdao, Shandong 49.70 50.30
processing not under common
"Qingdao Food")
control
179
Shandong Airlines Co., Ltd. Notes to the Financial Statements
7.2 The Equity in Joint Ventures and Associates
7.2.1 Significant Joint Ventures and Associates
Place Nature Holding proportion (%) Accounting treatment for investment
Subsidiaries Place of operation
of registration of business Directly Indirectly of joint ventures and associates
Shandong Rainbow Aero
Jinan, Shandong Jinan, Shandong 45.00 Equity method
Commercial Jet Co., Ltd. transportation
180
Shandong Airlines Co., Ltd. Notes to the Financial Statements
7.2.2 Key Financial Information of the Significant Associate - Shandong Rainbow
Commercial Jet Co., Ltd.
December 31, 2021 December 31, 2020
Item
/Year 2021 /Year 2020
Current assets 1,795,682.09 1,803,440.67
Non-current assets 360.00 360.00
Total assets 1,796,042.09 1,803,800.67
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 -165,969,771.24 -165,962,012.66
Pro rata shares 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 -7,758.58 -20,692.86
Net profit from discontinued operations
Other comprehensive income
Total comprehensive income -7,758.58 -20,692.86
Dividends received from associates during the year
7.2.8 Excess Loss Occurred by Joint Ventures and Associates
Cumulative Unrecognized losses of Cumulative unrecognized
Name of joint ventures and
unrecognized losses as current year (Share of net losses as of December 31,
associates
of December 31, 2020 profit of current year) 2021
Shandong Rainbow Commercial
-74,685,696.99 -3,491.36 -74,689,188.35
Jet Co., Ltd.
181
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Note 8 RISKS RELATED TO FINANCIAL INSTRUMENTS
The main financial instruments of the Company include equity investments, loans, accounts
receivable, and accounts payable etc. Please see Note 5 for details of related items. The risks
associated with financial instruments, and risk 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.
8.1 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.
8.1.1 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, 2021, except the assets or liabilities in Note 5.58 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.
182
Shandong Airlines Co., Ltd. Notes to the Financial Statements
(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 5.17, 5.25, 5.27, 5.28, 5.29).
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.
8.1.2 Credit Risk
As of December 31, 2021, 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 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.
8.1.3 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.
183
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Note 9 FAIR VALUE DISCLOSURES
The inputs used in the fair value measurement in its entirety are to be classified in the level of
the hierarchy in which the lowest level input that is significant to the measurement is
classified.
Level 1: Inputs consist of unadjusted quoted prices in active markets for identical assets or
liabilities
Level 2: Inputs for the assets or liabilities (other than those included in Level 1) that are either
directly or indirectly observable.
Level 3: Inputs are unobservable inputs for the assets or liabilities
9.1 Assets and Liabilities Measured at Fair Value as at December 31, 2021
The fair value at December 31, 2021
The 1st level The 2nd level The 3rd level
Item
measured by fair measured by measured by Total
value fair value fair value
1. Continuous measurement
by fair value
1.1 Other equity instrument
139,937,930.50 321,307,952.68 461,245,883.18
investments
Total amount of assets
continuous measurement by 139,937,930.50 321,307,952.68 461,245,883.18
fair value
1.2 Financial liabilities at fair
78,548.31 78,548.31
value through profit or loss
Interest rate swaps 78,548.31 78,548.31
Total amount of liabilities
continuous measurement by 78,548.31 78,548.31
fair value
The fair value of financial instruments traded in an active market is based on quoted market
prices at the reporting date. The fair value of financial instruments not traded in an active
market is determined by using valuation techniques. Specific valuation techniques used to
184
Shandong Airlines Co., Ltd. Notes to the Financial Statements
value the above financial instruments include discounted cash flow and market approach to
comparable company model. Inputs in the valuation technique include risk-free interest rates,
benchmark interest rates, exchange rates, credit spreads, liquidity premiums, discount for lack
of liquidity.
9.2 Determined on the Basis of Continuous and Noncontinuous First Level for Fair
Value Measurement of the Market of Project
Investment in other equity instruments for continued fair value measurement is an investment
in TravelSky Technology Limited, of which fair value was determined based on the closing
price for the stock market in Hong Kong Stock Exchange on balance sheet date.
9.3 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
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.
9.4 Continuous and Noncontinuous Third Level for Fair Value Measurement of the
Market of Project, the Qualitative and Quantitative Information of the Valuation
Techniques and Important Parameters
Other equity instrument investments that continue to be measured at fair value are
investments in Sichuan Airlines and Jinan International Airport. Unlisted equity instrument
investments which using comparable company multiplier models to estimate fair value, their
assumptions adopted are not supported by observable market prices or interest rates. The
Company needs to make an estimate of the liquidity discount. The Company believes that the
fair value and its changes estimated by valuation techniques are reasonable and are also the
most appropriate value on the balance sheet date.
Note 10 RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Recognition of related parties: The Company has control or joint control of, or exercise
185
Shandong Airlines Co., Ltd. Notes to the Financial Statements
significant influence over another party; or the Company is controlled or jointly controlled, or
significant influenced by another party.
10.1 Major Parent Companies
Shareholding in Voting right in
Parent Place of
Nature of operation Registered capital the Company the Company
companies 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 shareholders 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.
10.2 Subsidiaries
See Note 7 for subsidiaries.
10.3 Joint Ventures and Associates
See Note 7 for joint ventures and associates.
10.4 Other related parties that have transactions with the company
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 Air New Media Co., Ltd. Controlled by major investors
Beijing Airlines Co., Ltd. Controlled by major investors
Chengdu Fukai Aircraft Engineering Services Limited Controlled by major investors
Beijing Aircraft Maintenance and Engineering Corporation 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
186
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Other related parties Relationship to the Company
Sichuan international aero engine maintenance Co., Ltd. Jointly operated by major investors
Shanghai International Airport Ground Service Co., Ltd. Jointly operated by major investors
Shandong Airlines Rainbow Auto Service Co., Ltd. Controlled by major investors
Beijing Golden Phoenix Human Resources Service Co., Ltd. Controlled by major investors
Chongqing Golden Phoenix Aviation Service Co., Ltd. Controlled by major investors
10.5 Related Party Transactions
10.5.1 Purchases or Sales of Goods, Rendering or Receiving of Services
Purchase of goods and services
Related party Transaction 2021 2020
Beijing Aircraft Maintenance and
Repairment 66,539,965.28 59,917,514.33
Engineering Corporation
Beijing Aircraft Maintenance and Purchase / lease of
119,313.00 283,789.14
Engineering Corporation aircraft materials
Beijing Aircraft Maintenance and
Ground service 18,554,603.19 25,036,782.78
Engineering Corporation
Beijing Golden Phoenix Human Resources
Ground service 1,476,891.93 1,572,810.30
Service Co., Ltd.
Chengdu Fukai Aircraft Engineering
Repairment 7,351,474.56 6,183,500.06
Services Limited
Aircraft offerings and
Shandong Air New Media Co., Ltd. 8,290,715.38 7,105,576.24
advertising fees
Shandong Air New Media Co., Ltd. Ground service 549,114.62 347,115.05
Taikoo (Shandong) Aircraft Engineering
Aircraft maintenance 99,603,645.09 94,693,380.12
Company Limited
Taikoo (Shandong) Aircraft Engineering Purchase of aircraft
3,870,523.52 2,788,150.44
Company Limited materials
Shandong XiangYu Air Technology Co.,
Repairment 91,453,918.31 77,999,772.25
Ltd.
Shandong XiangYu Air Technology Co., Purchase / lease of
12,232.91
Ltd. aircraft materials
187
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Related party Transaction 2021 2020
Office lease rental
SDA Group 39,047,598.20 37,260,027.24
and catering
SDA Group Group fee 5,647,026.04 8,645,366.19
SDA Group Irregular flight 52,340.00 44,840.00
Shandong Airlines Rainbow Auto Service
Vehicle rental fee 64,201,573.93 67,139,779.12
Co., Ltd.
Shandong Airlines Rainbow Auto Service
Group fee 3,137,837.35 2,533,255.98
Co., Ltd.
Shandong Airlines Rainbow Auto Service
Irregular flight 347,807.34 362,440.37
Co., Ltd.
Shenzhen Airlines Co., Ltd. Ground service 3,898,859.27 964,552.14
Shenzhen Airlines Co., Ltd. Agency service 56.13 205,627.68
Purchase / lease of
Shenzhen Airlines Co., Ltd. 256,415.09 147,389.16
aircraft materials
Shenzhen Airlines Co., Ltd. Catering 1,479,232.29 758,702.77
Shenzhen Airlines Co., Ltd. Irregular flight 1,233,845.02 290,943.40
Sichuan International Aero Engine
Repairment 900,031,573.93 82,956,535.74
Maintenance Co., Ltd.
Air China Ground service 12,406,355.24 12,714,204.38
Purchase / lease of
Air China 915,811.59 97,627.90
aircraft materials
Air China Agency service 35,238.87 548,692.50
Irregular flight /
Air China 18,414,723.04 21,782,305.64
Group fee
Kunming Airlines Co., Ltd Agency service 15,626.32 5,214.99
Dalian Airlines Co., Ltd. Irregular flight 464,547.17 234,339.62
Shanghai International Airport Ground
Ground service 13,389.20 175,187.49
Service Co., Ltd.
Total 1,349,410,020.90 512,807,655.93
188
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Sales of goods and rendering of services
Related party Transaction 2021 2020
Beijing Aircraft Maintenance and Sale /rent of aircraft
1,559,510.35 410,650.36
Engineering Corporation materials
Dalian Airlines Co., Ltd. Ground service 928,188.86 1,112,129.34
Non-routine
Dalian Airlines Co., Ltd. maintenance/machine 177,560.85 54,619.72
ry service
Kunming Airlines Co., Ltd Ground service 6,947.13
Locomotive service
Kunming Airlines Co., Ltd 53,803.77 4,132.08
income
Kunming Airlines Co., Ltd Agency service 12,952.36 6,722.40
Shandong Air New Media Co., Ltd. Media resource fee 13,154,530.86 16,065,789.77
Taikoo (Shandong) Aircraft Engineering Sale of aircraft
797,845.00 882,671.27
Company Limited materials
Taikoo (Shandong) Aircraft Engineering
Training fee 114,100.00 51,556.60
Company Limited
Taikoo (Shandong) Aircraft Engineering
Maintenance fee 173,396.26 939,588.49
Company Limited
Shandong XiangYu Air Technology Co., Sale of aircraft
990,000.00 1,820,932.96
Ltd. materials
Shenzhen Airlines Co., Ltd. Agency service 201,448.80
Sale /rent of aircraft
Shenzhen Airlines Co., Ltd. 303,405.10 214,448.00
materials
Irregular flight
Shenzhen Airlines Co., Ltd. maintenance/locomoti 10,475.20 495.58
ve service income
Aircraft food
Shenzhen Airlines Co., Ltd. 1,701,343.43
offerings
Air China Ground service 5,037,122.40 4,961,303.96
Simulator
Air China maintenance / House 4,111,642.86
rental income
Air China Sale /rent of aircraft 3,783,256.16 682,341.23
189
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Related party Transaction 2021 2020
materials
Irregular flight
Air China maintenance/locomoti 12,212.39 29,619.47
ve service income
Air China Agency service 95,947.26 304,889.55
Beijing Airlines Co., Ltd. Ground service 19,547.17 3,698.11
China International Airlines Inner
Ground service 3,891.83 128,185.47
Mongolia Co., Ltd.
China International Airlines Inner Aircraft food
841.68
Mongolia Co., Ltd. offerings
Shandong Airlines Rainbow Auto Service
Storage income 341,430.08 392,919.42
Co., Ltd.
Shandong Airlines Rainbow Auto Service
Property fee income 21,803.77 28,420.75
Co., Ltd.
Total 29,293,164.78 32,415,153.32
10.5.2 Remuneration to Key Management Personnel
Item 2021 2020
Key management personnel compensation CNY 8.0962 million CNY 8.7852 million
10.5.3 Other Related Party Transactions
Related party Transaction 2021 2020
Air China Frequent flyer cooperation 70,000,000.00 60,000,000.00
Total 70,000,000.00 60,000,000.00
10.6 Related Party Balances
10.6.1 Receivables
December 31, 2021 December 31, 2020
Related party Provision for Carrying Provision for
Carrying amount
bad debt amount bad debt
Accounts receivable
Air China 5,235,402.60 9,869,517.17
Air China Inner Mongolia Co.,
684.00 69,220.80
Ltd.
190
Shandong Airlines Co., Ltd. Notes to the Financial Statements
December 31, 2021 December 31, 2020
Related party Provision for Carrying Provision for
Carrying amount
bad debt amount bad debt
Dalian Airlines Co., Ltd. 36,046.80 2,530.80
Taikoo (Shandong) Aircraft
33,600.00
Engineering Company Limited
Shandong Air New Media Co.,
375,000.00 375,000.00
Ltd.
Total 5,680,733.40 10,316,268.77
Other receivables
Air China 8,487,948.47 6,284,099.27
Shenzhen Airlines Co., Ltd. 261,861.69 9,991.75
Shandong Rainbow
101,551,717.65 101,551,717.65 101,551,717.65 101,551,717.65
Commercial Jet Co., Ltd.
Shandong XiangYu Air
867,437.30 158,519.78
Technology Co., Ltd.
Taikoo (Shandong) Aircraft
1,158,659.95 32,760.70
Engineering Company Limited
Shandong Air New Media Co.,
9,228,235.91 13,212,795.39
Ltd.
Beijing Aircraft Maintenance
2,186,215.64 1,061,799.39
and
Dalian Airlines Co., Ltd. 93,625.20 321,199.10
Kunming Airlines Co., Ltd 35,312.00 48,640.00
Shandong Airlines Rainbow
4,060.00 4,031.65
Auto Service Co., Ltd.
Beijing Airlines Co., Ltd. 2,560.00
Total 123,877,633.81 101,551,717.65 122,685,554.68 101,551,717.65
10.6.2 Payables
Related party December 31, 2021 December 31, 2020
Accounts payable
Shandong XiangYu Air Technology Co., Ltd. 66,504,135.32 62,612,200.70
Taikoo (Shandong) Aircraft Engineering Company Limited 46,130,817.29 71,170,122.15
Air China 363,886,555.24 288,157,344.35
Beijing Golden Phoenix Human Resources Service Co., Ltd. 468,107.35
191
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Related party December 31, 2021 December 31, 2020
Shenzhen Airlines Co., Ltd. 1,348,606.03 1,575,214.82
Aircraft Maintenance and Engineering Corporation (Ameco) 41,299,730.06 69,550,487.95
Sichuan International Aero Engine Maintenance Co., Ltd. 188,855,298.97 40,552,088.72
Shandong Air New Media Co., Ltd. 842,384.00 4,310,391.38
Shandong Airlines Rainbow Auto Service Co., Ltd. 40,392,244.33 45,500,000.00
Chengdu Fukai Aircraft Engineering Service Co., Ltd. 3,421,933.08 2,407,193.88
Shanghai International Airport Ground Service Co., Ltd. 53,210.80
Dalian Airlines Co., Ltd. 38,160.00
Total 752,719,864.32 586,356,362.10
Other payables
SDA Group 37,087,354.58 20,892,072.83
Taikoo (Shandong) Aircraft Engineering Company Limited 80,022.00 641,414.74
Shandong Air New Media Co., Ltd. 1,772,290.91 3,138,323.91
Shandong Rainbow Commercial Jet Co., Ltd. 1,889,871.66 1,257,646.00
Total 40,829,539.15 25,929,457.48
Note 11 COMMITMENTS AND CONTINGENCIES
11.1 Significant Commitments
The nature and amount of significant commitments existing at the balance sheet date:
11.1.1 Capital Commitment
Capital commitments signed but not yet recognized in
December31, 2021 December 31, 2020
the financial statements
Commitment for purchase long-term assets 4,744,085,049.45 6,327,478,302.14
Large contract
Commitment for external investment
11.1.2 Other Commitment
The Company has no other significant commitment needed to be disclosed as of December 31,
2021.
11.2 Contingencies
192
Shandong Airlines Co., Ltd. Notes to the Financial Statements
The Company has no other significant contingencies needed to be disclosed as of December
31, 2021.
Note 12 EVENTS AFTER THE REPORTING PERIOD
As of this reporting date, the Company has no post-balance sheet events that should be
disclosed.
Note 13 OTHER SIGNIFICANT MATTERS
13.1 Pension Plan And Defined Benefit Plan
The Company enters into an agreement with a third party to materially terminate the future
obligations of the original defined benefit plan through a one-time payment. The net liability
of defined benefit plan under post-employment benefits after termination of obligation is zero.
In addition to the above, no significant change of the annuity program occurred for the current
year, see Note 5.22, 5.31 for details.
Note 14 NOTES TO ELEMENTS OF THE PARENT COMPANY’S FINANCIAL
STATEMENTS
14.1 Accounts receivable
14.1.1 Disclosure by Age
Age December 31, 2021 December 31, 2020
Within 1 year 294,841,782.04 279,757,208.36
1 to 2 years 26,374,321.46 52,098,250.31
2 to 3 years 15,955,262.91 34,122,000.00
3 to 4 years 32,120,000.00
4 to 5 years
Over 5 years 420,529.65 420,529.65
Subtotal 369,711,896.06 366,397,988.32
Less: provision for bad debt 31,415,764.41 15,724,684.12
Total 338,296,131.65 350,673,304.20
193
Shandong Airlines Co., Ltd. Notes to the Financial Statements
14.1.2 Disclosure by Category
December 31, 2021
Book balance Provision for bad debt
Category Carrying
Proportion Provision
Amount Amount amount
ratio (%) ratio (%)
Accounts receivable subject to
47,492,966.87 12.85 18,117,242.76 38.15 29,375,724.11
individual impairment assessment
Accounts receivable subject to
322,218,929.19 87.15 13,298,521.65 4.13 308,920,407.54
group impairment assessment
Total 369,711,896.06 100.00 31,415,764.41 8.50 338,296,131.65
(Continued)
December 31, 2020
Book balance Provision for bad debt
Category Carrying
Provision Provision
Amount Amount amount
ratio (%) ratio (%)
Accounts receivable subject to
individual impairment assessment
Accounts receivable subject to
366,397,988.32 100.00 15,724,684.12 4.29 350,673,304.20
group impairment assessment
Total 366,397,988.32 100.00 15,724,684.12 4.29 350,673,304.20
①Provisions for bad debts subject to individual impairment assessment as of December 31,
2021.
December 31, 2021
Category Provision
Carrying amount Provision Reason
ratio（%）
Impairment upon individual
Debtor #1 32,120,000.00 12,773,220.82 39.77
assessment
Impairment upon individual
Debtor #2 15,372,966.87 5,344,021.94 34.76
assessment
194
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Total 47,492,966.87 18,117,242.76 38.15
②Accounts receivable subject to impairment assessment by credit risk characteristics group
as of December 31, 2021.
December 31, 2021
Category Provision for bad Provision ratio
Book value
debt (%)
Amounts due from the clearing center 16,263,740.96
Amounts due from the aviation
34,671,136.84
association
Amounts due from related parties 5,313,618.50
Other receivables 265,970,432.89 13,298,521.65 5.00
Total 322,218,929.19 13,298,521.65 4.13
③As at December 31, 2020, there is no provision for bad debts subject to individual
impairment assessment.
④Accounts receivable subject to impairment assessment by credit risk characteristics group
as of December 31, 2020
December 31,2021
Category Provision for bad Provision ratio
Book value
debt (%)
Amounts due from the clearing center 10,455,297.15
Amounts due from the aviation
31,724,360.89
association
Amounts due from related parties 9,724,648.00
Other receivables 314,493,682.28 15,724,684.12 5.00
Total 366,397,988.32 15,724,684.12 4.29
The Company calculate provision of bad debt according to the combination of credit risk
characteristics and the expected loss amount.
14.1.3 Changes of Provision for Bad Debt During the Reporting Period
195
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Changes during the reporting period
December 31, December 31,
Category Recovery or
2020 Provision Write-off 2021
reversal
Accounts receivable subject to
18,117,242.76 18,117,242.76
individual impairment assessment
Accounts receivable subject to
15,724,684.12 2,426,162.47 13,298,521.65
impairment assessment by group
Total 15,724,684.12 18,117,242.76 2,426,162.47 31,415,764.41
14.1.4 The Company has no accounts receivable actually written off in this period.
14.1.5 As of December 31, 2021, the top five accounts receivable amounted to CNY
174,838,477.71, accounting for 47.29% of the total ending balance of accounts receivable,
and the corresponding bad debt provision amounted to CNY 19,909,144.71 collectively.
14.1.6 The Company has no derecognition of accounts receivable due to the transfer of
financial assets.
14.1.7 The Company has no assets or liabilities arising from continuing involvement in
transferred accounts receivable.
14.2 Other receivables
14.2.1 Other receivables by category
Items December 31, 2021 December 31, 2020
Interests receivable
Dividends receivable
Other receivables 179,708,210.51 165,544,964.64
Total 179,708,210.51 165,544,964.64
14.2.2 Other Receivables
① Other receivables by age
Age December 31, 2021 December 31, 2020
Within one year 144,296,475.71 136,305,404.11
1-2 years 17,370,290.85 4,690,877.26
2-3 years 3,644,719.68 12,288,561.13
3-4 years 9,319,361.13 3,882,745.43
196
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Age December 31, 2021 December 31, 2020
4-5 years 1,859,618.40 773,009.94
Over 5 years 109,055,375.34 112,978,097.70
Subtotal 285,545,841.11 270,918,695.57
Less: provision for bad debt 105,837,630.60 105,373,730.93
Total 179,708,210.51 165,544,964.64
② Other receivables by nature
Nature December 31, 2021 December 31, 2020
Deposits receivable 66,697,664.53 63,646,894.09
Amounts due from related parties 133,129,917.60 130,831,535.85
Other receivables 85,718,258.98 76,440,265.63
Subtotal 285,545,841.11 270,918,695.57
Less: provision for bad debt 105,837,630.60 105,373,730.93
Total 179,708,210.51 165,544,964.64
③ Other receivables by bad debt provision method
A．Provision for bad debts recognized based on three stages model as of December 31, 2021
is as follows:
Provision for bad debt in the first stage as of December 31, 2021:
Lifetime expected Provision for
Category Book balance Carrying amount Reason
credit losses rate (%) bad debt
Oher receivables
subject to individual
impairment
assessment
Oher receivables
subject to impairment 183,994,123.46 2.33 4,285,912.95 179,708,210.51
assessment by group
No significant
Including: Deposits
66,697,664.53 66,697,664.53 increase on
receivable
credit risk
No significant
Amounts due from
31,578,199.95 31,578,199.95 increase on
related parties
credit risk
Other receivables 85,718,258.98 5.00 4,285,912.95 81,432,346.03 No significant
197
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Lifetime expected Provision for
Category Book balance Carrying amount Reason
credit losses rate (%) bad debt
increase on
credit risk
Total 183,994,123.46 2.33 4,285,912.95 179,708,210.51
As of December 31, 2021, the Company has no interest receivable, dividends receivable or
other receivables recognized in the second stage.
Provision for bad debt in the third stage as of December 31, 2021:
Lifetime
Provision for Carrying
Category Book balance expected credit Reason
bad debt amount
losses rate (%)
Provision for bad debt Credit
recognized 101,551,717.65 100.00 101,551,717.65 impairment has
individually occurred
Shandong Rainbow Credit
Commercial Jet Co., 101,551,717.65 100.00 101,551,717.65 impairment has
Ltd occurred
Total 101,551,717.65 100.00 101,551,717.65
B．Provision for bad debt using incurred loss model as of December 31, 2020:
Provision for bad debt in the first stage as of December 31, 2020:
Lifetime expected Provision for
Category Book balance Carrying amount Reason
credit losses rate (%) bad debt
Other receivables
subject to individual
impairment
assessment
Other receivables
subject to impairment 169,366,977.92 2.26 3,822,013.28 165,544,964.64
assessment by group
No significant
Including: Deposits
63,646,894.09 63,646,894.09 increase on
receivable
credit risk
Amounts due from No significant
29,279,818.20 29,279,818.20
related parties increase on
198
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Lifetime expected Provision for
Category Book balance Carrying amount Reason
credit losses rate (%) bad debt
credit risk
No significant
Other receivables 76,440,265.63 5.00 3,822,013.28 72,618,252.35 increase on
credit risk
Total 169,366,977.92 2.26 3,822,013.28 165,544,964.64
As of December 31, 2020, the Company has no interest receivable, dividends receivable or
other receivables recognized in the second stage.
Provision for bad debt in the third stage as of December 31, 2020:
Lifetime
Provision for Carrying
Category Book balance expected credit Reason
bad debt amount
losses rate (%)
Provision for bad debt Credit
recognized 101,551,717.65 100.00 101,551,717.65 impairment has
individually occurred
Shandong Rainbow Credit
Commercial Jet Co., 101,551,717.65 100.00 101,551,717.65 impairment has
Ltd occurred
Total 101,551,717.65 100.00 101,551,717.65
④ Changes of provision for bad debt during the reporting period
Changes during the reporting period
December 31, Recovery December 31,
Category
2020 Provision or Write-off 2021
reversal
Other receivables of
individual significance
and subject to 101,551,717.65 101,551,717.65
individual impairment
assessment
Other receivables
subject to impairment 3,822,013.28 463,899.67 4,285,912.95
assessment by credit
199
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Changes during the reporting period
December 31, Recovery December 31,
Category
2020 Provision or Write-off 2021
reversal
risk characteristics
group
Total 105,373,730.93 463,899.67 105,837,630.60
⑤ There are no written off of other receivables during the reporting period.
⑥ Top five closing balances by entity
Proportion of the
Balance as at Provision for bad
Entity name Nature Age balance to the total
December 31, 2021 debt
other receivables (%)
Shandong Rainbow
Related
Commercial Jet Co., 101,551,717.65 Over 5 years 35.56 101,551,717.65
party
Ltd.
Debtor #1 Deposits 31,257,853.34 Within 1 year 10.95
Debtor #2 Deposits 14,567,356.48 Within 1 year 5.10
Debtor #3 Others 14,129,792.80 Within 1 year 4.95 706,489.64
Debtor #4 Deposits 10,503,492.40 Within 3 years 3.68
Total 172,010,212.67 60.24 102,258,207.29
⑦The Company has no other receivables relating to government grants.
⑧The Company has no other receivables relating to derecognition of other receivables for
transfer of financial assets.
⑨The Company has no assets or liabilities arising from continuing involvement in transferred
other receivables.
14.3 Long-term equity investments
14.3.1 Investments in Subsidiaries
Current Current
December 31, December 31, Provision Year-end
Investee year year
2020 2021 recognized provision
increase decrease
200
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Current Current
December 31, December 31, Provision Year-end
Investee year year
2020 2021 recognized provision
increase 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
7,790,400.00 7,790,400.00
aviation food Co., Ltd.
Shandong Airlines
30,310,200.00 30,310,200.00
Qingdao Food Co., Ltd.
Total 144,101,285.43 144,101,285.43
14.3.2 Investments in Joint Ventures and Associates
Changes in the current period (+, -)
Investment
gains
Other Other
December 31, Impairment and losses
Investee Additional Investment comprehensive changes
2020 provision recognized
investment reduction income in
under
adjustment equity
the 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
(Continued)
Changes in the current period (+, -)
Declared cash December 31, Year-end
Investee Provision
dividends or Others 2021 provision
recognized
profits
201
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Changes in the current period (+, -)
Declared cash December 31, Year-end
Investee Provision
dividends or Others 2021 provision
recognized
profits
Associates
Shandong Rainbow
Commercial Jet Co., 22,500,000.00 22,500,000.00
Ltd.
Total 22,500,000.00 22,500,000.00
14.4 Operating revenues and operating costs
2021 2020
Items
Operating revenues Operating costs Operating revenues Operating costs
Principal activities 11,825,926,931.05 13,513,169,484.99 9,854,672,423.67 12,550,540,262.47
Other activities 643,312,409.54 11,014,671.04 655,331,879.04 4,559,337.10
Total 12,469,239,340.59 13,524,184,156.03 10,510,004,302.71 12,555,099,599.57
14.5 Investment Income
Items 2021 2020
Investment income from held-for-trading
-777,605.88 -829,194.39
financial assets during holding period
Dividend income from other equity
208,728.00 4,019,690.59
instrument income during holding period
Total -568,877.88 3,190,496.20
Note 15 SUPPLEMENTARY INFORMATION
15.1 Current non-recurring statement of profit and loss
Items 2021 2020 Description
Gains /(losses) on disposal of non-current assets 64,797,810.76 59,471.65
Government grants recognized in current profit or
loss (except government grants that is closely related 155,394,226.24 98,058,606.34
to operations and determined based on a fixed scale
202
Shandong Airlines Co., Ltd. Notes to the Financial Statements
Items 2021 2020 Description
according to the national unified standard)
Gains /(losses) arising from changes in fair value of
held-for-trading financial assets, derivative financial
assets, held-for-trading financial liabilities and
derivative financial liabilities during the holding
period and investment income arising from disposal of
6,801.48 -1,565,885.31
held-for-trading financial assets, derivative financial
assets, held-for-trading financial liabilities, derivative
financial liabilities and other debt investment except
effective hedging transactions related to the
Company's principal activities
Other non-operating income/expenses except for
21,029,660.26 46,338,437.81
items mentioned above
Other gains or losses satisfying the definition of
4,867,924.92 2,626,332.77
extraordinary gains or losses
Total extraordinary gains/(losses) 246,096,423.66 145,516,963.26
Less: tax effect 61,534,128.14 36,389,420.55
Net extraordinary gains/(losses) 184,562,295.52 109,127,542.71
Less: net extraordinary gains/(losses) attributable to
minority interests
Net extraordinary gains/(losses) attributable to
184,562,295.52 109,127,542.71
ordinary shareholders
15.2 Return on Net Assets and Earnings Per Share (‘EPS’)
15.2.1 Year 2021
Profit for the reporting period Weighted average return EPS
on net assets (%) Basic Diluted
Net profit attributable to ordinary
-9,352.93 -4.53 -4.53
shareholders
Net profit attributable to ordinary
shareholders after extraordinary gains -10,304.69 -5.00 -5.00
and losses
203
Shandong Airlines Co., Ltd. Notes to the Financial Statements
15.2.2 Year 2020
Weighted average return EPS
Profit for the reporting period
on net assets (%) Basic Diluted
Net profit attributable to ordinary
-61.31 -5.96 -5.96
shareholders
Net profit attributable to ordinary
shareholders after extraordinary gains -64.12 -6.23 -6.23
and losses
Company Name: Shandong Airlines Co., Ltd
Date: March 29, 2022
204
