2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. TSANN KUEN (CHINA) ENTERPRISE CO., LTD. 2021 SEMI-ANNUAL REPORT (Unaudited) August 2021 1 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Section I. Important Statements, Contents & Terms The Board of Directors, the Supervisory Committee as well as all directors, supervisors and senior management staff of Tsann Kuen (China) Enterprise Co., Ltd. (hereinafter referred to as “the Company”) warrant that this Report is factual, accurate and complete without any false record, misleading statement or material omission. And they shall be jointly and severally liable for that. All directors attended the board session for reviewing this Report. Investors are kindly reminded to read the full text of this Report carefully and pay special attention to the risks mentioned in “X. Risks facing the Company and countermeasures” under “Section III. Management Discussion & Analysis”. Mr. Cai Yuansong, company principal, and Mr. Wu Jianhua, head of the accounting work & the accounting division (head of accounting) jointly declare that the financial statements carried in this Report are factual, accurate and complete. The Company plans not to distribute cash dividends or bonus shares or turn capital reserve into share capital. English translation is for reference only. Should there be any discrepancy between the two versions, the Chinese version shall prevail. 2 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Contents Section I. Important Statements, Contents & Terms...................................................... 2 Section II. Company Profile & Financial Highlights.....................................................6 Section III. Management Discussion & Analysis...........................................................9 Section IV. Corporate Governance............................................................................... 22 Section V. Environmental & Social Responsibility......................................................23 Section VI. Significant Events......................................................................................23 Section VII. Change in Shares & Shareholders........................................................... 34 Section VIII. Preference Shares....................................................................................38 Section IX. Corporate Bonds........................................................................................38 Section X. Financial Report..........................................................................................39 3 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Documents Available for Reference (I) The financial statements signed and sealed by the company principal and the head of the accounting work & the accounting division (head of accounting) of the Company. (II) The originals of all the Company’s documents and announcements which were disclosed on the website designated by the CSRC in the reporting period. (III) The original of this Report carrying the signature of the Board Chairman. (IV) The aforesaid documents are available at the Board Secretary’s Office of the Company. 4 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Terms Term Refers to Contents Xiamen Tsann Kuen, TKC-B, Company, Refers to Tsann Kuen (China) Enterprise Co., Ltd. the Company, TKC Tsann Kuen Zhangzhou, TKL Refers to Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. Tsann Kuen Shanghai, TKS Refers to Tsann Kuen China (Shanghai) Enterprise Co., Ltd. Tsann Kuen (Zhangzhou) South Port Electronics Enterprise Co., South Port Electronics, TKN Refers to Ltd. STD Refers to Shanghai Canxing Trading Co., Ltd. East Sino Refers to East Sino Development Limited SCI Refers to Pt.Star Comgistic Indonesia Orient Star Investments Refers to Orient Star Investments Limited TKEI Refers to Tsannkuen Edge Intelligence Co., Ltd. SCPDI Refers to Pt.Star Comgistic Property Development Indonesia TKW Refers to Xiamen Tsannkuen Property Services Co., Ltd. RMB Refers to RMB YUAN 5 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Section II. Company Profile & Financial Highlights I. Basic information about the Company Stock name TKC-B Stock code 200512 Stock exchange Shenzhen Stock Exchange Chinese name of the 厦门灿坤实业股份有限公司 Company Abbr. of the Chinese 闽灿坤 name of the Company English name of the TSANNKUEN(CHINA) ENTERPRISE CO. LTD Company Abbr. of the English TKC name of the Company Legal representative of Cai Yuansong the Company II. Contact information Board Secretary Securities Representative Name Sun Meimei Dong Yuanyuan TSANN KUEN Industrial Park, TSANN KUEN Industrial Park, Contact address Taiwanese Investment Zone, Zhangzhou, Taiwanese Investment Zone, Fujian Province, P.R.China Zhangzhou, Fujian Province, P.R.China Tel. 0596-6268161 0596-6268103 Fax 0596-6268104 0596-6268104 E-mail mm_sun@tkl.tsannkuen.com yy_dong@tkl.tsannkuen.com III. Other information 1. Ways to contact the Company Did any change occur to the registered address, office address and their postal codes, website address and email address of the Company during the reporting period? □ Applicable √ Inapplicable No change occurred to the said information in the reporting period, which can be found in the 2020 Annual Report. 2. About information disclosure and where this Report is placed Did any change occur to information disclosure media and where this Report is placed during the reporting 6 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. period? □ Applicable √ Inapplicable The newspapers designated by the Company for information disclosure, the website designated by the CSRC for disclosing the Company’s periodic reports and the place for lodging such reports did not change in the reporting period. The said information can be found in the 2020 Annual Report. 3. Other relevant information Did any change occur to other relevant information during the reporting period? □ Applicable √ Inapplicable IV. Accounting and financial highlights Does the Company adjust retrospectively or restate accounting data of previous years? □ Yes √ No Unit: RMB Yuan Same period of Item Reporting period YoY +/-(%) last year Operating revenue 1,197,289,007.11 793,014,584.36 50.98 Net profit attributable to shareholders of the 60,417,688.12 39,220,703.16 54.05 Company Net profit attributable to shareholders of the 48,033,980.60 32,506,739.64 47.77 Company before extraordinary gains and losses Net cash flows from operating activities -62,974,459.40 -28,011,876.14 -124.81 Basic EPS (RMB Yuan/share) 0.33 0.21 57.14 Diluted EPS (RMB Yuan/share) 0.33 0.21 57.14 Weighted average ROE (%) 6.76 5.10 1.66 As at the end of As at the end of Item the Reporting +/- (%) last year period Total assets 2,894,468,587.30 2,408,046,446.78 20.20 Net assets attributable to shareholders of the 895,834,244.98 864,030,127.11 3.68 Company Total shares of the Company as at closure of the last trading day before the disclosure of this Report: Total shares of the Company as at closure of the last trading day 185,391,680 before the disclosure of this Report (share) Fully diluted EPS based on the latest total shares: Dividends paid to preference shareholders 0.00 Fully diluted EPS based on the latest total shares (RMB Yuan/share) 0.33 7 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. V. Differences between accounting data under domestic and overseas accounting standards 1. Differences of net profit and net assets disclosed in financial reports prepared under international and Chinese accounting standards □ Applicable √ Inapplicable No difference in the reporting period. 2. Differences of net profit and net assets disclosed in financial reports prepared under overseas and Chinese accounting standards □ Applicable √ Inapplicable No difference in the reporting period. 3. Explain reasons for the differences between accounting data under domestic and overseas accounting standards □ Applicable √ Inapplicable VI. Items and amounts of extraordinary gains and losses √ Applicable □ Inapplicable Unit: RMB Yuan Item Amount Explanation Gains/losses on the disposal of non-current assets (including 996,128.23 the offset part of asset impairment provisions) Tax rebates, reductions or exemptions due to approval beyond authority or the lack of official approval documents Government grants recognized in the current period, except for those acquired in the ordinary course of business or granted at 1,764,476.00 certain quotas or amounts according to the country’s unified standards Capital occupation charges on non-financial enterprises that recorded into current gains and losses Gains due to that the investment costs for the Company to obtain subsidiaries, associates and joint ventures are lower than the enjoyable fair value of the identifiable net assets of the investees when making the investments Gain/loss on non-monetary asset swap Gain/loss on entrusting others with investments or asset management Asset impairment provisions due to acts of God such as natural disasters Gain/loss on debt restructuring Expenses for business reorganization, such as expenses for staffing, reorganization etc. Gain/loss on the part over the fair value due to transactions with distinctly unfair prices Current gains and losses of subsidies acquired from business 8 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Item Amount Explanation combination under the same control as from period-begin to combination date Gain/loss on contingent events irrelevant to the Company’s normal business Gains and losses on change in fair value from financial assets held for trading, derivative financial assets, financial liabilities held for trading and derivative financial liabilities, as well as Gains on sale of forward investment income from disposal of financial assets held for exchange contracts, fair 16,801,379.02 trading, derivative financial assets, financial liabilities held for value changes and wealth trading, derivative financial liabilities and other debt management instruments investments except for effective hedging related with normal businesses of the Company Impairment provision reversal of receivables and contract assets on which the impairment test is carried out separately Gain/loss on loans obtained by entrusting others Gain/loss on change of the fair value of investing real estate of which the subsequent measurement is carried out adopting the fair value method Effect on current gains/losses when a one-off adjustment is made to current gains/losses according to requirements of taxation, accounting and other relevant laws and regulations Custody fee income when entrusted with operation Other non-operation income and expenses other than the above 1,524,402.78 Other gain/loss items that meet the definition of an extraordinary gain/loss Less: Effects of extraordinary gains and losses on income tax 3,543,149.21 Less: Net extraordinary gains/losses attributable to minority 5,159,529.30 interests Net extraordinary gains/losses attributable to the ordinary 12,383,707.52 shareholders of the Company Explain the reasons if the Company classifies an item as an extraordinary gain/loss according to the definition in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Extraordinary Gains and Losses, or classifies any extraordinary gain/loss item mentioned in the said explanatory announcement as a recurrent gain/loss item □ Applicable √ Inapplicable Section III. Management Discussion & Analysis I. Main business during the reporting period Development and manufacture of household appliances, electronics, light industrial products, modern office supplies; design and manufacture of molds for those products; Sale of the Company’s products in China and to other countries and regions as well as provision of relevant after-sales service; wholesale, retail (only in the Company’s own shops), import & export and relevant supporting business of household appliances, 9 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. electronic products, electrical equipment, office supplies, kitchen utensils and pre-packaged food as well as provision of relevant after-sales service (the aforesaid business scope of the Company does not involve state trading commodities; where quota permission or a license is required, it shall be obtained according to the regulations of the country before operation). No material changes occurred to the business model of the Company in the reporting period. II. Core competitiveness analysis No material change occurred to the core competitiveness of the Company during the reporting period. Following the corporate culture of research and development, the Company has a diversified R&D service system and provides a well-established customer service and management platform, which are well-received among major brand customers across the globe. Through constant close interaction with customers and innovation in R&D, it caters to customer needs from the development to the manufacturing of differentiated products. The Company has been adhering to the two development paths of innovative R&D and technological application, as well as to the dual circulation strategy of focusing on export and boosting domestic sales. Focusing on smart control, smart household appliances, the application of IoT, etc. in product development, the Company supplies smart, quality products with high added value to create new market demand and compete in the industry. In the reporting period, the Company obtained 34 patents in R&D, including 13 invention patents, 18 utility model patents and 3 design patents. These patents can help better protect the Company’s intellectual property rights, give play to its competitive edge in independent property rights, keep a leading position in technology and increase its core competitiveness. III. Main business analysis For the reporting period, we achieved a profit before tax of RMB89.09 million, up 48.73% year-on-year; a net profit attributable to shareholders of the Company of RMB60.42 million, up 54.05% year-on-year; and basic earnings per share of RMB0.33, RMB0.12 higher than the same period of last year. The changes in the aforesaid indicators are primarily attributed to substantial increases in new products and export orders, rising prices of raw materials, and the depreciation of RMB. The Company reshaped the supply chain, and maximized earnings on new products; negotiated with customers about product prices; improved the workshop environment to retain workers, refined production processes, and increased production efficiency, with an aim to offset adverse external factors. 10 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 1. YoY changes in major financial data Unit: RMB Yuan Same period of last Item Reporting period +/-% Main reasons for changes year Substantial increases in new products and export Operating revenue 1,197,289,007.11 793,014,584.36 50.98 orders Increase in operating revenue and rising prices of Operating costs 1,014,246,279.69 644,212,379.74 57.44 raw materials Increase in export expenses due to the increase in Selling expenses 30,803,997.63 22,695,745.52 35.73 operating revenue Administrative 35,890,649.41 46,326,432.58 -22.53 expenses As the new accounting standard governing leases was adopted in 2021, a lessee should calculate the interest expenses of lease liabilities during the reporting periods within the lease period. And the Financial costs 12,962,287.19 -14,459,194.20 189.65 Company recognized such amount at RMB13.43 million in the current period. Meanwhile, interest income decreased due to lower interest rates for term deposits, and exchange losses expanded as a result of the depreciation of RMB. Increase in gains on settled forward forex contracts Investment income 35,541,462.36 7,879,887.04 351.04 in the current period Increase in such losses in the current period due to Gains on fair value -18,740,083.34 -1,707,089.00 -997.78 the reversal of assessed gains on forward forex changes contracts of last year-end Credit impairment Impairment allowances were established for accounts 1,107,265.88 -1,129,743.77 198.01 losses receivable in the same period of last year Higher inventory valuation allowances and fixed Asset impairment -1,243,755.14 -8,052,144.68 84.55 asset impairment allowances in the same period of losses last year than in the current period Income from the disposal in the current period of Assets disposal 996,128.23 279,810.12 256.00 fully depreciated molds that were no longer needed income in mass production Receipt of material-related compensation from Non-operating 1,568,968.09 2,794,509.46 -43.86 customer due to cancellation of order in the same income period of last year Non-operating Transfer of unrecovered amounts to non-operating 44,565.31 211,771.67 -78.96 expenses expenses in the same period of last year Income tax 8,349,548.21 7,827,101.86 6.67 expenses R&D investments 30,305,264.63 30,818,857.76 -1.67 Increase in operating revenue, as well as cost and Net profit 80,743,470.98 52,076,256.64 55.05 expense control Net cash flows from Increase in payments to suppliers in the current -62,974,459.40 -28,011,876.14 -124.81 operating activities period Increase in principals of wealth management Net cash flows from 64,925,789.67 -253,882,705.24 125.57 instruments withdrawn upon maturity in the current investing activities period Increases in dividend payouts by the Company and Net cash flows from its subsidiary TKL, and increase in net outflow with -57,126,333.65 -24,094,067.00 -137.10 financing activities respect to short-term borrowings, in the current period Net increase in cash Increase in principals of wealth management and cash -57,774,818.54 -304,800,590.47 81.05 instruments withdrawn upon maturity in the current equivalents period Major changes to the profit structure or sources of the Company during the reporting period: 11 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. □ Applicable √ Inapplicable No such cases. 2. Breakdown of operating revenues (1)Breakdown of main business revenues Unit: RMB Yuan Reporting period Same period of last year Item In total operating In total operating +/-% Amount Amount revenues (%) revenues (%) Total operating 1,197,289,007.11 100.00 793,014,584.36 100.00 50.98 revenues By segments Small home appliance 1,197,289,007.11 100.00 793,014,584.36 100.00 50.98 manufacturing By products Cooking 849,986,846.00 70.99 500,877,565.26 63.16 69.70 utensils Everyday home 205,547,120.00 17.17 184,127,407.97 23.22 11.63 appliances Tea and coffee 85,696,036.63 7.16 61,420,124.34 7.75 39.52 makers Other 56,059,004.48 4.68 46,589,486.79 5.87 20.33 Total 1,197,289,007.11 100.00 793,014,584.36 100.00 50.98 By areas Americas 648,414,462.43 54.16 356,754,688.62 44.98 81.75 Europe 246,816,658.92 20.61 188,723,058.75 23.80 30.78 Asia 255,906,786.72 21.37 210,674,347.81 26.57 21.47 Australia 38,902,178.40 3.25 28,906,788.68 3.65 34.58 Africa 7,248,920.64 0.61 7,955,700.50 1.00 -8.88 Total 1,197,289,007.11 100.00 793,014,584.36 100.00 50.98 12 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. (2) Segments, products or areas contributing over 10% of operating revenues or profit √ Applicable □ Inapplicable Unit: RMB Yuan Operating Cost of sales: Gross profit Gross revenue: +/-% +/-% from margin: +/-% profit Item Operating revenue Cost of sales from the same the same from the same margin period of last period of last period of last (%) year year year By segments Small home appliance 1,197,289,007.11 1,014,246,279.69 15.29 50.98 57.44 -3.47 manufacturing Total 1,197,289,007.11 1,014,246,279.69 15.29 50.98 57.44 -3.47 By products Cooking utensils 849,986,846.00 737,816,873.51 13.20 69.70 75.64 -2.93 Everyday home 205,547,120.00 183,542,832.34 10.71 11.63 18.22 -4.97 appliances Tea and coffee makers 85,696,036.63 71,774,401.71 16.25 39.52 45.36 -3.36 Other 56,059,004.48 21,112,172.13 62.34 20.33 8.20 4.22 Total 1,197,289,007.11 1,014,246,279.69 15.29 50.98 57.44 -3.47 By areas Americas 648,414,462.43 562,093,573.29 13.31 81.75 87.80 -2.79 Europe 246,816,658.92 214,191,136.16 13.22 30.78 38.79 -5.01 Asia 255,906,786.72 198,515,081.65 22.43 21.47 22.94 -0.93 Australia 38,902,178.40 33,221,857.34 14.60 34.58 45.17 -6.23 Africa 7,248,920.64 6,224,631.25 14.13 -8.88 -0.03 -7.60 Total 1,197,289,007.11 1,014,246,279.69 15.29 50.98 57.44 -3.47 IV. Analysis of non-core business √ Applicable □ Inapplicable Unit: RMB Yuan Ratio to the Recurring or Items Amount total profits Notes of the causes not amount (%) Government subsidy in relation to production and Other income 1,764,476.00 1.98 No operation Income from settled forward forex contracts and wealth Investment income 35,541,462.36 39.89 No management instruments Gains on fair value Assessed losses on forward forex contracts and accrued -18,740,083.34 -21.03 No changes gains on wealth management instruments Credit impairment Withdrawal or reversal of impairment allowances for 1,107,265.88 1.24 No losses accounts receivable Asset impairment Increase in inventory valuation allowances and fixed -1,243,755.14 -1.40 No losses asset impairment allowances Assets disposal 996,128.23 1.12 Income from disposal of fixed assets No income Non-operating Receipt of compensation for patent infringement and 1,568,968.09 1.76 No income compensation from customer for cancellation of order Non-operating 44,565.31 0.05 Donation and penalty expenses No expenses 13 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. V. Analysis of assets and liabilities 1. Significant changes in major assets √ Applicable □ Inapplicable Unit: RMB Yuan At the end of the same period of last At the end of the reporting period year Change in As a As a Item percentage Reason for any significant change percentage percentage of Amount Amount (%) of total total assets assets (%) (%) Cash and cash 744,754,520.51 25.73 591,354,074.68 32.01 -6.28 equivalents Reclassification of wealth management instruments to Held-for-trading 552,835,416.66 19.10 1,319,000.00 0.07 19.03 held-for-trading financial financial assets assets according to new accounting standards The balance of notes Notes receivable 0.00 0.00 1,559,385.90 0.08 -0.08 receivable was nil at the end of the current period. Increase in outstanding Accounts accounts receivable in the 433,529,952.12 14.98 302,087,312.15 16.35 -1.37 receivable current period due to higher operating revenue Increase in export tax rebates Other receivables 22,368,439.05 0.77 17,477,176.51 0.95 -0.18 receivable Increase in inventories of raw materials and finished goods Inventories 293,499,525.11 10.14 175,072,301.31 9.48 0.66 along with an increase in operating revenue in the current period Reclassification of wealth management instruments to Other current 30,569,129.13 1.06 494,809,476.00 26.78 -25.72 held-for-trading financial assets assets according to new accounting standards Investment 20,712,590.14 0.72 22,321,513.39 1.21 -0.49 properties Increase in accumulated Fixed assets 157,027,732.21 5.43 181,817,396.06 9.84 -4.41 depreciations Prepayment for the expansion Construction in 4,487,009.02 0.16 750,571.75 0.04 0.12 of the component plant of SCI progress in the current period Recognition of right-of-use Right-of-use assets due to the adoption of 576,583,323.00 19.92 0.00 0.00 19.92 assets the new accounting standard governing leases in 2021 Transfers to this item due to the acceptance upon check in the current period of the Long-term smoke extraction system for 11,159,038.26 0.39 7,654,594.99 0.41 -0.02 deferred expenses firefighting purposes for workshops, the renovation of rooftop gutters and the floor hardening project Short-term 29,118,135.68 1.01 28,331,283.48 1.53 -0.52 borrowings Held-for-trading Increase in assessed losses on financial 753,600.00 0.03 44,200.00 0.00 0.03 forward forex contracts in the liabilities current period 14 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. At the end of the same period of last At the end of the reporting period year Change in As a As a Item percentage Reason for any significant change percentage percentage of Amount Amount (%) of total total assets assets (%) (%) Increase in bank acceptance notes issued along with an Notes payable 7,457,554.16 0.26 1,319,784.49 0.07 0.19 increase in operating revenue in the current period Increase in the outstanding balance of accounts payable Accounts payable 765,690,844.84 26.45 464,538,790.03 25.14 1.31 along with an increase in operating revenue in the current period Advances from Increase in advances received 7,550,078.36 0.26 4,439,418.57 0.24 0.02 customers from customers Amounts received in relation to customer-owned molds were not reclassified from Contract liabilities 18,060,312.71 0.62 8,137,507.11 0.44 0.18 other payables to contract liabilities in the same period of last year Plant rentals and customer-owned molds-related amounts Other payables 47,612,534.58 1.64 60,679,281.36 3.28 -1.64 accrued in the same period of last year were reclassified to lease liabilities and contract liabilities in the current period Recognition of lease liabilities Non-current maturing within one year due liabilities 81,310,298.16 2.81 0.00 0.00 2.81 to the adoption of the new maturing within accounting standard one year governing leases in 2021 Recognition of long-term lease liabilities due to the Lease liabilities 517,740,534.06 17.89 0.00 0.00 17.89 adoption of the new accounting standard governing leases in 2021 2. Main assets overseas √ Applicable □ Inapplicable Unit: RMB Yuan Measures In the Any major taken to Company’ impairmen Asset Nature Value Location Earnings protect asset s net t risk or safety assets (%) not Investm Periodic SCI Indonesia 4,180,813.15 24.30 No ent 217,653,539.02 review Equity Periodic TKEI acquisiti Taiwan 888,607.66 2.82 No 25,302,558.38 review on Other N/A information 3. Assets and liabilities measured at fair value √ Applicable □ Inapplicable 15 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Unit: RMB Yuan Cumulati Impairme Profit/loss on ve fair nt fair value Purchased in Sold in this Opening value provided Other Item changes in this this Reporting Reporting Closing balance balance changes in this changes Reporting Period Period charged Reportin Period to equity g Period Financial assets 1. Tradable financial assets (excluding 700,000,000.00 878,916.66 185,000,000.00 335,000,000.00 550,878,916.66 derivative financial assets) 2. Derivative 20,821,900.00 -18,865,400.00 339,323,400.00 608,877,200.00 1,956,500.00 financial assets 3. Available-for-sale financial assets 4. Investments in other equity instruments Subtotal of financial 720,821,900.00 -17,986,483.34 524,323,400.00 943,877,200.00 552,835,416.66 assets Investment properties Biological assets held for production Others Total of the above 720,821,900.00 -17,986,483.34 524,323,400.00 943,877,200.00 552,835,416.66 Financial liabilities 753,600.00 109,479,600.00 753,600.00 Did any significant changes occur to the measurement attributes of the Company’s main assets in the reporting period? □ Yes √ No 4. Restricted asset rights as of the end of the reporting period √ Applicable □ Inapplicable There was a difference of RMB129,728,132.37 between the closing amount of cash and cash equivalents of RMB615,026,388.14 in the consolidated cash flow statement and the closing amount of monetary funds of RMB744,754,520.51 in the consolidated balance sheet, because the amount of RMB22,750,000.00 in pledge for loan that did not meet the definition of cash and cash equivalents, security deposits of RMB15,902,259.04 for letters of credit and the term deposits held in financial institutions for interest income were excluded from the closing amount of cash and cash equivalents in the cash flow statement. Other than the mentioned restricted funds, the Company does not have other funds with restrictions or potential recovery risks due to mortgage, pledge, or freezing in the monetary funds at the end of the reporting period. 16 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. VI. Investments made 1. Total investments made √ Applicable □ Inapplicable Unit: RMB Yuan Investments made in the reporting Investments made in the same +/-% period period of last year 38,879,586.00 0.00 100.00 2. Significant equity investments made in this Reporting Period □ Applicable √ Inapplicable 3. Significant non-equity investments ongoing in this Reporting Period □ Applicable √ Inapplicable 4. Financial investments (1) Securities investments □ Applicable √ Inapplicable (2) Investment in derivative financial instruments √ Applicable □ Inapplicable 17 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Unit: RMB’0,000 Ratio of Type of Investment Investment investment amount investment amount at Pursed in Amount Actual Related-party Initial Sold in this amount at the end of the in Commencement Termination the this provided profit/loss Operating party Relation transaction investment reporting at the end period to the derivative date date beginning reporting for for the or not amount period of the Company's net financial of the period impairment period period asset at the end of instruments period the period (%) Forward Bank Non-related No 91,409.95 1 January 2021 30 June 2021 46,529.65 44,880.30 60,887.72 30,522.23 34.07% 724.04 forex Total 91,409.95 46,529.65 44,880.30 60,887.72 0.00 30,522.23 34.07% 724.04 Source of investment funds Self-owned funds Lawsuits N/A Disclosure date of the announcement about the board’s consent 2013/3/12 for the investment Disclosure date of the announcement about the general 2013/5/18 meeting’s consent for the investment 1. Analysis on risks from holding of derivative products: gains or losses from difference between contracted exchange rate and market exchange rate on value date. 2. Control measures: (1) Principle: The purpose of the financial derivative operation is to avoid risks. The Company shall not conduct transactional operation for other purposes than risk avoidance. The Company shall not conduct complex derivative trading above the actual operation needs and shall not speculate in derivative trading with hedging as an excuse. The overall contractual amount for risk avoidance of the Company shall not exceed the summation of the net risk exposure of the existing assets and liabilities and the net risk exposure of assets and liabilities arising from the operation of the Company in the coming year. Risk analysis and risk control measures for positions held in (2) Staff requirements: Personnel taking part in the investment shall all fully understand the risks of derivative investment and strictly execute the business operation derivatives in this reporting period (including but not limited to and risk management mechanisms for derivative investment. market risk, liquidity risk, credit risk, operational risk, legal risk, (3) Operation standardization: Before making a derivative investment, the Company shall rationally equip itself with professional personnel for investment etc.) decision-making, business operation, risk control, etc. It shall also inquire and compare among various markets and products. Besides, it shall strictly control the variety and size of derivative investment and try to choose derivative trading on exchange as much as possible. (4) Periodic evaluation: Derivative investments shall be evaluated at least twice for a month and the evaluation report shall be sent to a high-ranking executive authorized by the Board of Directors. And a derivative investment report shall be sent to the Board of Directors annually. The Company and its subsidiaries only need to submit to the Board of Directors of the subsidiaries. (5) Loss limit: The investment loss on a single derivative and all the investment loss shall not exceed 20% of the total investment amount. (6) Audit system: The audit department audits derivative product trading periodically and submits audit reports to relevant units. (1) Gains on delivered derivatives in the reporting period were RMB26.8594 million, and assessed losses on those undelivered were RMB19.6190 million, among Changes in market price or fair value of derivatives invested in which assessed gains of RMB20.8219 million on undelivered forward forex contracts last year were reversed. this reporting period (specific methods used and relevant (2) The former contracted bank provided monthly sheets of estimated exchange rates for the undue contracted forward exchanges on the last trading day of the month. assumption and parameter settings shall be disclosed for analysis (3) The profit and loss from fair value changes of the derivative was confirmed according to the difference between the contracted amount undue by the month*the of fair value of derivatives) estimated exchange rate and the currency amount when bought in. Significant changes in the Company’s accounting policies and specific accounting principles for derivatives in this reporting No significant changes period as compared to the prior period Special opinions expressed by independent directors The Company has carried out a strict internal assessment for the financial derivative business and has established a corresponding supervision mechanism. We are of concerning the Company’s derivatives investment and risk the opinion that the financial derivative business conducted by the Company is fairly necessary in its routine operation and is in compliance with relevant laws and control regulations, with the risks controllable. 18 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. VII. Sale of major assets and equity interests 1. Sale of major assets □ Applicable √ Inapplicable 2. Sale of major equity interests □ Applicable √ Inapplicable VIII. Main controlled and joint stock companies √ Applicable □ Inapplicable Main subsidiaries and joint stock companies with over 10% effect on the Company’s net profit Unit: RMB Yuan Relationship Main business Company Registered with the scope Total assets Net assets Operating revenues Operating profit Net profit name capital Company Small home TKL Subsidiary appliance USD160 million 2,811,337,064.68 1,343,847,758.20 1,058,761,873.20 73,859,859.49 67,251,597.38 manufacturing Subsidiaries obtained or disposed in the reporting period □ Applicable √ Inapplicable IX. Structured bodies controlled by the Company □ Applicable √ Inapplicable 19 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. X. Risks facing the Company and countermeasures 1. International Influenced by Sino-US Trade War, parts of the countries began to adopt trade protectionism and suppress the domestic electrical home appliances for the methods such as improve the import tariff. The outburst of the global financial crisis led to the rise of the international trade protection, the aggravation of the tariff barrier and the non-tariff barrier especially such as the technology standard, Intellectual property right protection and anti-dumping etc., as well as the export of the domestic electrical home appliance encountered more and more threatens tariff and non-tariff barrier with the more complicated international environment faced with the electrical home appliances. Influenced by the slowly recovery of the global economy, the enlarge of the exchange rate fluctuation, the enhance of the domestic comprehensive cost, and with global inflation pressure that cannot be eased in the short run and more and more non-economic obstacles from western countries in their trading with China, once the demand in the international market is insufficient, the Company will face the risk of a decline in sales revenue caused by a decline of the demand in the international market. Affected by pandemic-related uncertainties, destination ports in the western countries work at lower efficiency, causing bottlenecks on the global shipping market, which may impact the delivery of the Company’s exported products. 2. Domestic With the development of domestic production and the improvement of people's living standards, the domestic market competition will become more intense, the domestic home appliances market competition pattern has changed significantly, and the new economic model under the background of Internet sales will become a market opportunity in the next few years. In view of the domestic market, on the one hand, the Company takes technological innovation as the core to promote brand image investment and talent team building, establish its own brand, and develop green smart home appliances to increase the share of the domestic market. On the other hand, the Company continues to improve the protection of the Company's patent intellectual property rights to face competition in the industry and actively expand new channels such as Internet sales and TV shopping to promote sales. If the domestic market 20 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. development is not effective, the Company will face the risk of declining sales revenue. 3. Exchange rate fluctuation The Company’s products were export-oriented, so the influence of the exchange rate fluctuation on the Company was rather big. Facing with the negative influences of the appreciation of the RMB, the main methods are: to avoid the exchange risks by the financial tools and to fully considerate the influences of the exchange risks when receiving an order, thus to transfer the exchange risks. 4. Increase of the labor costs and the labor shortage Factors such as increase of local minimum wage standard, decrease of labor supply and the seasonal human resource demand of surrounding enterprises, have resulted in increase of comprehensive labor costs of the Company year by year. To cope with the risk of decline in profitability due to rising labor costs, the Company improves the staff production efficiency by promoting procurement modularization and lean automation, continuously make the production and manufacturing environment better, promote bonus retention policy, improve compensation & benefits of the employees, enhance the construction of corporate culture, increase the work enthusiasm and identity of employees to reduce employee turnover rate. 5. Environmental protection low-carbon As the execution of the Environmental Protection Act, to prevent and remedy pollution and other public nuisance as well as to ensure the environmental and public health become the development tendency that the production processes of the enterprises must active deal with; the Company continuously put the lean manufacturing into the core goal of the enterprises, and with the introduce of the new environmental protection materials, the input of the automation and the technical promotion of the environmental manufacture processing, the environment protection of products of the Company will be continuously promoted. 6. Rising prices of industrial raw materials Affected by the pandemic, prices of industrial raw materials have been rising since the second half of 2020, with record highs in some of them. Along with the rollout of vaccines worldwide, the prices of main raw materials are still on the rise as of now. As the world and domestic economies are recovering, the Company conducts price negotiations with its suppliers, and works on the development of alternative materials, in order to offset the rising 21 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. prices of raw materials. 7. Impact of the COVID-19 pandemic The COVID-19 pandemic creates not only a huge impact on the operation of the global economy but also challenges and opportunities for the development of the Company. The "stay-at-home economy" has become a fact of life due to the policy responses of different countries, but people's quality of life will not be diminished. More people will cook at home. Therefore, the demand for small home appliances will increase. Meanwhile, as a result of the pandemic uncertainty overseas, there will be additional sales costs for the Company. Section IV. Corporate Governance I. List of the Annual Meeting of Shareholders and Special Meeting of Shareholders held during the Reporting Period 1. List of Meeting of Shareholders during the Reporting Period Participation Time Type Date of meeting Date of disclosure Disclosure index ratio The 2020 Annual Annual Meeting of 44.91% 14 May 2021 15 May 2021 www.cninfo.com.cn Meeting of Shareholders Shareholders 2. Preferred shareholders with the restoration of voting rights made a request for the Special Meeting of Shareholders □ Applicable √ Inapplicable II. Changes in directors, supervisors and executive officers √ Applicable □ Inapplicable Name Office title Type of change Date Reason Chairman of the Board and General Pan Zhirong Left 19 May 2021 Personal reasons Manager Chairman of the Board and General Cai Yuansong Elected 19 May 2021 Elected Manager 22 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. III. Pre-plan for profit allocation and turning capital reserve into share capital for the reporting period □ Applicable √ Inapplicable The Company planned not to distribute cash dividend and bonus share, and not to convert capital reserves into share capital in half year. IV. Implementation of any equity incentive plan, employee stock ownership plan or other incentive measures for employees □ Applicable √ Inapplicable Section V. Environmental & Social Responsibility I. Significant environmental issues Whether the Company or any of its subsidiaries is identified as a key polluter by the environment authorities □ Yes √ No II. Social responsibilities The Company did not carry out poverty alleviation or rural revitalization activities in the reporting period. Section VI. Significant Events I. Commitments of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company and other commitment makers, fulfilled in this reporting period or ongoing at the period-end □ Applicable √ Inapplicable No such cases in the Reporting Period. II. Occupation of the Company’s funds for non-operating purposes by the controlling shareholder and its related parties □ Applicable √ Inapplicable III. Illegal provision of guarantees for external parties □ Applicable √ Inapplicable 23 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. IV. Engagement and disengagement of CPAs firm Whether the semi-annual financial report has been audited □ Yes √ No The semi-annual financial report of the Company has not been audited. V. Notes for “non-standard audit report” of CPAs firm during the Reporting Period by board of directors and supervisory board □ Applicable √ Inapplicable VI. Notes for the related information of “non-standard audit reports” last year by board of directors □ Applicable √ Inapplicable VII. Bankruptcy and restructuring □ Applicable √ Inapplicable VIII. Litigations and arbitrations Significant litigations and arbitrations □ Applicable √ Inapplicable Other lawsuits √ Applicable □ Inapplicable Unit: RMB’0,000 Lawsuit Situation of Whether Trial results amount execution of Basic situation of form into Process of lawsuit and influences Disclosu Disclosu (RMB judgment of lawsuit (arbitration) estimated (arbitration) of lawsuit re date re index Ten lawsuit liabilities (arbitration) thousand) (arbitration) Tsann Kuen China (Zhangzhou) Enterprise Co., Ltd. filed a plaint at Kobe District Court on 9 May 2014; The case of the the judgment of first instance controlling subsidiary that the claim of Tsann Kuen Tsann Kuen China China (Zhangzhou) Enterprise (Zhangzhou) Co., Ltd. was rejected was Enterprise Co., Ltd. 1,770.26 No Had no result No No No received on 1 April 2019. sued Japan UCC Currently, the case is in the Ueshima Coffee Co., second trial. The eighth court Ltd. (contract session was opened in June disputes) 2021. Dispute points are being sorted out. And damage compensation has not yet been discussed. The contract disputes Defendants of Zhangzhou Receive the judgment of case of the controlling Sanda and Intermediate 333 No second instance on 11 No No subsidiary Tsann Lianyuan People’s Court December 2018 Kuen China applied a put on record the 24 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Lawsuit Situation of Whether Trial results amount execution of Basic situation of form into Process of lawsuit and influences Disclosu Disclosu (RMB judgment of lawsuit (arbitration) estimated (arbitration) of lawsuit re date re index Ten lawsuit liabilities (arbitration) thousand) (arbitration) (Zhangzhou) retrial. case and consent Enterprise Co., Ltd to the application sued Sanda Electric of enforcement on Machinery Co., Ltd. 21 January 2019; and Boluo County the execution Lianyuan Industrial money of RMB Technology Co., Ltd. 1,771,541.08 was received from Zhangzhou Intermediate People’s Court on 21 March 2019. In April 2021, the Company applied for the re-execution of the 80,603 motors left by the defendants in the Company’s plant. Currently, they are on auction. Guangzhou Intellectual Property Court opened the court session for the second time on 29 May 2019; Guangzhou Intellectual Property Court made the The judgment judgment of first instance on of second The patent RMB407,920 31 October 2019; instance infringement case of (including legal Ningbo Kaibo Group Co., supported the Company sued 50 No cost) was received No No Ltd. lodged an appeal with the RMB400,000 Ningbo Kaibo Group on 9 November Supreme Court on 6 of the Co., Ltd 2020. December 2019; Company’s The Supreme Court opened claim. the court session for the first time on 10 June 2020. The judgment of second instance was received on 2 November 2020. On 12 December 2018, the The patent court judged that the case infringement cases of should be transferred to the controlling Shenzhen Intermediate subsidiary Tsann People’s Court for filing; Kuen China Shenzhen Intermediate The judgment (Zhangzhou) People’s Court opened the RMB558,937 of second Enterprise Co., Ltd. court session for the first time (including legal instance sued Zhejiang Tmall on 25 April 2019; cost and delay 50 No supported the No No Network Co., Ltd., Shenzhen Intermediate interest) was Company’s Shenzhen People’s Court made the received on 28 full claim of ZhengXiang judgment of first instance on April 2021. RMB500,000. Electrical Industrial 7 August 2019; Co., Ltd and Shenzhen Zhengxiang Shenzhen Aierde Electrical Industrial Co., Ltd. Household lodged an appeal for the Furnishings Co., Ltd. second trial with the Supreme Court on 29 August 2019; 25 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Lawsuit Situation of Whether Trial results amount execution of Basic situation of form into Process of lawsuit and influences Disclosu Disclosu (RMB judgment of lawsuit (arbitration) estimated (arbitration) of lawsuit re date re index Ten lawsuit liabilities (arbitration) thousand) (arbitration) Shenzhen Aierde Household Furnishings Co., Ltd. lodged an appeal for the second trial with the Supreme Court on 3 September 2019. The judgment of second instance was received on 11 October 2020. Registered at Guangzhou Intellectual Property Court on 26 March 2020; Guangzhou Intellectual The Company Property Court opened the won the case court session for the first time according to The patent on 23 June 2020. the judgment infringement case of The judgment of first instance of first the Company sued 50 No was received on 12 July 2021, instance, and No No No Zhe jiang Oubeijia according to which the the defendant Kitchenware Co., Ltd. defendant Oubeijia should should pay pay a total of RMB113,273 to RMB113,273 the Company as as compensations for economic compensation. damages and reasonable expenditures for rights protection. The patent Registered at Guangzhou infringement cases of Intellectual Property Court on the controlling 7 April 2020; subsidiary Tsann Guangzhou Intellectual The defendant Kuen China Property Court opened the should pay the The amount of (Zhangzhou) court session for the first time Company RMB108,800 was Enterprise Co., Ltd. 50 No on 30 June 2020. RMB108,800 No No received on 9 July sued Zhongshan according to 2021. Carmate Electrical the mediation A mediation agreement was Appliances Co., Ltd. agreement. received from the court on 25 and Shenzhen Wande June 2021. Electrical Appliances Co., Ltd. The Company filed the case with Ningbo Intermediate People’s Court on 7 July 2020, asking for a The patent compensation of RMB1 infringement case of million for its loss. the Company sued 500 No The court opened the first Had no result Cuori Electrical session on 8 December 2020. Appliances (Group) The Company changed the Co., Ltd. claim amount to RMB5 million on 8 March 2021. The court opened the second session on 30 June 2021. IX. Punishments and rectifications □ Applicable √ Inapplicable No such cases in the Reporting Period. 26 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. X. Credit conditions of the Company as well as its controlling shareholder and actual controller □ Applicable √ Inapplicable 27 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. XI. Significant related-party transactions 1. Related-party transactions relevant to routine operation √ Applicable □ Inapplicable Unit: RMB’0,000 Pricing Type of principle Proportion Whether Settlement the Content of the of the Transact in same kind Approved exceeded method of related- Transactio Similar Disclosure Disclosure Related party Relationship related-party related-pa ion of transaction the the party n amount market price date index transaction rty price transactions quota approved related-party transacti transactio (%) quota transaction on n Purchas Company directly e of Thermaster controlled by commod Purchase of Electronic actual controller ities 2,261.23 2.53 4,000.00 No raw parts (Xiamen) Ltd. and their close from the family members related party Purchas e of Based on Tsann Kuen Under the control commod Purchase of the market Enterprise Co., of the same actual ities 0.24 0.00 0.00 Yes raw parts price and Ltd. controller from the Settled both related according to www.cnin parties 23 March party N/A the contract N/A fo.com.cn abide by 2021 Purchas signed by the fair e of both parties and Under the control commod Gold Mining Purchase of reasonable of the same actual ities 0.04 0.00 0.00 Yes Chain Co., Ltd. raw parts principle controller from the related party Sales of commod Ultimate Sales of parts Star Comgistic ities to controlling and finished 551.56 0.46 975.00 No Capital Co., Ltd. the company products related party Total 2,813.07 4,975.00 28 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Details of large amount of sales returns N/A As for the prediction on the total amount of routine related-party transactions to be occurred in the reporting period by relevant types, N/A the actual performance in the reporting period Reason for significant difference between the transaction price and N/A the market price 2. Related-party transactions regarding purchase or sales of assets or equity interests □ Applicable √ Inapplicable 3. Related-party transitions regarding joint investments □ Applicable √ Inapplicable 29 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 4. Credits and liabilities with related parties √ Applicable □ Inapplicable Whether was any contract related to the non-operating credits and liabilities with related parties? □ Yes √ No 5. Transactions with related finance company, especially one that is controlled by the Company □ Applicable √ Inapplicable 6. Other significant related-party transactions □ Applicable √ Inapplicable XII. Significant contracts and execution 1. Entrustment, contracting and leasing (1) Entrustment □ Applicable √ Inapplicable (2) Contracting □ Applicable √ Inapplicable (3) Leasing □ Applicable √ Inapplicable 2. Significant guarantees √ Applicable □ Inapplicable Unit: RMB’0,000 Guarantees between subsidiaries Disclosure Actual Guarante date of the Term occurrence Type of Due e for a Guaranteed guarantee Line of Actual guarantee of date (date of guarante or related party line guarantee amount guar agreement e not party or announceme antee signing) not nt 2020/08/07 PT.STAR 2020/10/27 2020/10/22 1 COMGISTIC 2020/03/14 2,977.12 Pledged No No 5,203.52 2021/01/18- year INDONESIA 2020/06/23 2021/06/24 Total guarantee line for Total actual guarantee - 4,817.82 subsidiaries approved during amount for subsidiaries 30 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. this Reporting Period (C1) during this Reporting Period (C2) Total actual guarantee Total approved guarantee line balance for subsidiaries at for subsidiaries at the end of 5,203.52 2,977.12 the end of this Reporting this Reporting Period (C3) Period (C4) Total guarantee amount (total of the above-mentioned three kinds of guarantees) Total guarantee line approved Total actual guarantee during this Reporting Period - amount during this 4,817.82 (C1) Reporting Period (C2) Total approved guarantee line Total actual guarantee at the end of this Reporting 5,203.52 balance at the end of this 2,977.12 Period (C3) Reporting Period (C4) Proportion of the total actual guarantee amount (C4) in net 3.32% assets of the Company Of which: Amount of guarantees provided for shareholders, the actual controller and their related parties (D) Amount of debt guarantees provided directly or indirectly for entities with a liability-to-asset ratio over 70% (E) Portion of the total guarantee amount in excess of 50% of net assets (F) Total amount of the three kinds of guarantees above (D+E+F) Explanation on undue guarantee or possible joint liquidated None liability undertaken Explanation on providing external guarantee violating None established procedures 3. Entrusted cash management √ Applicable □ Inapplicable Unit: RMB’0,000 Type Resource of funds Amount incurred Undue balance Amount overdue Bank financial Self-owned fund 70,000.00 55,000.00 0.00 product Total 70,000.00 55,000.00 0.00 31 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Particular information of high-risk entrusted asset management with individual significant amount or low security, poor liquidity and non breakeven √ Applicable □ Inapplicable Unit: RMB’0,000 Overv Actua iew of l Whether Amoun the recov Whet there is Break Amount t item Res Annual ery of her go wealth Type -even of actual withdr and Type ourc yield profit throu manage of the Use of floati Estimate profits or awn the Name of the trustee of the Amount e of Initial date Ended Date for s or gh ment produ fund ng profit losses in impair relate trustee fun referenc losses stator entrustm ct proce reporting ment d ds e in proce ent plan eds period provisi index report dures in future on for ing or not inquir period ing Chiyu Banking-Fuzhou 5,000 2020/1/9 2021/1/8 4.35% 220.52 220.52 Branch Chiyu Banking-Fuzhou 5,000 2020/8/10 2021/2/10 3.70% 94.56 94.56 Branch Recov Chiyu ered Banking-Fuzhou 5,000 2020/9/8 2021/3/8 3.60% 90.50 90.50 upon Branch matur Xiamen Princi Paym ity Subject 8,500 2020/3/10 2021/3/10 4.00% 344.72 344.72 International Bank pal-pr ent of to the Xiamen Self http:// otecte 5,000 2020/10/23 2021/4/21 Struct intere 3.40% 85.00 85.00 future International Bank -ow www. d with ural st and market Xiamen Bank ned N/A Yes cninf floati 5,000 2020/11/11 2021/5/10 deposi princi 3.40% 85.00 85.00 yield International Bank fun o.com ng t pal at and fund Xiamen d .cn proce 6,000 2020/8/18 2021/8/17 matur 3.40% 206.27 conditio International Bank eds ity n Xiamen 5,500 2020/8/20 2021/8/19 3.40% 189.08 International Bank Xiamen 5,000 2020/9/4 2021/9/3 3.40% 171.89 Undu International Bank Xiamen e 5,000 2020/11/19 2021/11/19 3.40% 172.36 International Bank Xiamen 5,000 2020/12/10 2021/12/9 3.40% 171.89 International Bank Xiamen 5,000 2020/12/11 2021/12/10 3.40% 171.89 32 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Overv Actua iew of l Whether Amoun the recov Whet there is Break Amount t item Res Annual ery of her go wealth Type -even of actual withdr and Type ourc yield profit throu manage of the Use of floati Estimate profits or awn the Name of the trustee of the Amount e of Initial date Ended Date for s or gh ment produ fund ng profit losses in impair relate trustee fun referenc losses stator entrustm ct proce reporting ment d ds e in proce ent plan eds period provisi index report dures in future on for ing or not inquir period ing International Bank Xiamen 5,000 2020/12/11 2021/9/7 3.40% 127.50 International Bank BEA (Xiamen) 5,000 2021/1/13 2021/7/13 3.50% 87.99 BEA (Xiamen) 5,000 2021/2/25 2021/12/23 3.50% 146.32 Xiamen 5,000 2021/3/18 2021/12/13 3.50% 131.25 International Bank Xiamen 3,500 2021/3/19 2021/12/14 3.50% 91.88 International Bank Total 88,500 2,588.62 920.30 33 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 4. Significant contracts relevant to routine operation □ Applicable √ Inapplicable 5. Other significant contracts □ Applicable √ Inapplicable XIII. Other significant events √ Applicable □ Inapplicable The Company will keep a close eye on and evaluate the influence of the overseas pandemic situation, and timely adjust all operating arrangements, so as to lower the negative effects of the epidemic on the Company. XIV. Significant events of subsidiaries □ Applicable √ Inapplicable Section VII. Change in Shares & Shareholders I. Changes in shares 1. Changes in shares Unit: share Before Increase/decrease (+/-) After Increase Item Percentage New Bonus from Percentage Number Other Subtotal Number (%) issues shares capital (%) reserve 1. Restricted shares 1.1 Shares held by state 1.2 Shares held by state-owned corporations 1.3 Shares held by other domestic investors Among which: Shares held by domestic corporations Shares held by domestic individuals 34 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Before Increase/decrease (+/-) After Increase Item Percentage New Bonus from Percentage Number Other Subtotal Number (%) issues shares capital (%) reserve 1.4 Shares held by foreign investors Among which: Shares held by foreign corporations Shares held by foreign individuals 2. Unrestricted shares 185,391,680 100% 0 0 0 0 0 185,391,680 100% 2.1 RMB ordinary shares 2.2 Domestically listed 185,391,680 100% 0 0 0 0 0 185,391,680 100% foreign shares 2.3 Foreign capital stocks listed abroad 2.4 Other 3. Total shares 185,391,680 100% 0 0 0 0 0 185,391,680 100% Reasons for the share changes □ Applicable √ Inapplicable Approval of share changes □ Applicable √ Inapplicable Transfer of share ownership □ Applicable √ Inapplicable Implementation progress of share repurchases □ Applicable √ Inapplicable Progress on reducing the repurchased shares by way of centralized bidding □ Applicable √ Inapplicable Change in share capital’s impacts on basic EPS and diluted EPS in recent year and recent issue, and net assets per share attributed to equity shareholder and financial index etc. □ Applicable √ Inapplicable Other contents was necessary to the company or the securities regulators required to be disclosed □ Applicable √ Inapplicable 2. Changes in restricted shares □ Applicable √ Inapplicable 35 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. II. Issuance and listing of securities □ Applicable √ Inapplicable III. Total number of shareholders and their shareholdings Unit: share Total number of common 14,990 Total number of preference shareholders with 0 shareholders at the period-end resumed voting rights at the period-end Greater than 5% or top 10 common shareholders Pledged or frozen Sharehold Increase/dec Number of Total common Number of shares Nature of ing rease during restricted Name of shareholder shares held at unrestricted Numbe shareholder percentag the reporting common Status of the period-end common shares r of e period shares shares shares FORDCHEE DEVELOPMENT Foreign 29.10% 53,940,530 Unchanged 0 53,940,530 0 corporation LIMITED EUPA INDUSTRY CORPORATION Foreign 13.09% 24,268,840 Unchanged 0 24,268,840 0 corporation LIMITED GUOTAI JUNAN SECURITIES(HONG Foreign 4.89% 9,074,682 -200,217 0 9,074,682 0 corporation KONG) LIMITED FILLMAN INVESTMENTS Foreign 2.49% 4,621,596 Unchanged 0 4,621,596 0 corporation LIMITED SHENWAN HONGYUAN Foreign 1.06% 1,962,752 -170,000 0 1,962,752 0 SECURITIES (H.K.) corporation LIMITED Domestic 1.03% 1,900,776 Unchanged 0 1,900,776 0 CHEN YONGQUAN individual Foreign 0.87% 1,607,178 Unchanged 0 1,607,178 0 CHEN YONGQING individual Foreign 0.76% 1,401,134 Unchanged 0 1,401,134 0 CHEN LIJUAN individual Domestic 0.61% 1,130,000 Unchanged 0 1,130,000 0 DING XIAOLUN individual XIA QIANRU Domestic 0.32% 601,417 Unchanged 0 601,417 0 individual Strategic investor or general corporation becoming a top ten None shareholder due to placing of new shares The first, the second and the fourth shareholders are the Company’s corporate controlling Related or acting-in-concert parties shareholders. It is unknown whether the other public shareholders are related parties or among the shareholders above acting-in-concert parties as prescribed in the Administrative Methods for Disclosure of the Shareholding Changes of the Listed Company’s Shareholders. Top ten unrestricted common shareholders Number of unrestricted common Type of shares Name of shareholder shares held at the period-end Type Number FORDCHEE DEVELOPMENT Domestically listed foreign 53,940,530 53,940,530 LIMITED share EUPA INDUSTRY CORPORATION 24,268,840 Domestically listed foreign 24,268,840 LIMITED share GUOTAI JUNAN SECURITIES(HONGKONG) 9,074,682 Domestically listed foreign 9,074,682 share LIMITED 36 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. FILLMAN INVESTMENTS 4,621,596 Domestically listed foreign 4,621,596 LIMITED share SHENWAN HONGYUAN 1,962,752 Domestically listed foreign 1,962,752 SECURITIES (H.K.) LIMITED share CHEN YONGQUAN 1,900,776 Domestically listed foreign 1,900,776 share CHEN YONGQING 1,607,178 Domestically listed foreign 1,607,178 share CHEN LIJUAN 1,401,134 Domestically listed foreign 1,401,134 share DING XIAOLUN 1,130,000 Domestically listed foreign 1,130,000 share XIA QIANRU 601,417 Domestically listed foreign 601,417 share Explanation on associated relationship or/and persons acting in concert The first, the second and the fourth shareholders are the Company’s corporate controlling among the top ten unrestricted shareholders. It is unknown whether the other shareholders of public shares are related common shareholders and between parties or acting-in-concert parties as prescribed in the Administrative Methods for the top ten unrestricted common Disclosure of the Shareholding Changes of the Listed Company’s Shareholders. shareholders and the top ten common shareholders Explanation on the top 10 common shareholders participating in the N/A margin trading business Did any of the top ten common shareholders or the top ten unrestricted common shareholders of the Company conduct any promissory repo during the Reporting Period? □ Yes √ No No such cases in the Reporting Period. IV. Changes in shareholdings of directors, supervisors and executive officers □ Applicable √ Inapplicable There was no change in shareholding of directors, supervisors and senior management staffs, for the specific information please refer to the 2020 Annual Report. V. Change of the controlling shareholder or the actual controller Change of the controlling shareholder during this reporting period □ Applicable √ Inapplicable No such cases in this reporting period. Change of the actual controller during this reporting period □ Applicable √ Inapplicable No such cases in this reporting period. Section VIII. Preference Shares □ Applicable √ Inapplicable 37 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. No preference shares in this reporting period. Section IX. Corporate Bonds □ Applicable √ Inapplicable 38 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Section X. Financial Report I. Auditor’s Report Whether the semi-annual report has been audited? □Yes √No The semi-annual report of the Company has not been audited. II. Financial statements (attached) 1. Balance sheet 2. Income statement 3. Cash flow statement 4. Statement of Change in Owners’ Equity 5. Notes to the Financial Statements Board Chairman: Cai Yuansong The Board of Directors of Tsann Kuen (China) Enterprise Co., Ltd. 3 August 2021 39 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 1. Consolidated Statement of Financial Position as at 30 June 2021 Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Item Note 2021/6/30 2020/12/31 Item Note 2021/6/30 2020/12/31 Current assets: Current liabilities Cash and cash equivalents 5.1 744,754,520.51 707,794,598.20 Short-term borrowings 5.17 29,118,135.68 16,345,141.13 Held-for-trading financial 5.2 552,835,416.66 720,821,900.00 Held-for-trading financial liabilities 5.18 753,600.00 assets Derivative financial assets - Derivative financial liabilities - Notes receivable - Notes payable 5.19 7,457,554.16 7,521,531.97 Accounts receivable 5.3 433,529,952.12 431,006,560.62 Accounts payable 5.20 765,690,844.84 874,962,887.93 Accounts receivable Advances from customers 5.21 7,550,078.36 6,853,100.03 financing Advances to suppliers 5.4 2,047,006.73 2,622,554.07 Contract liabilities 5.22 18,060,312.71 25,605,755.71 Other receivables 5.5 22,368,439.05 31,938,548.59 Employee benefits payable 5.23 39,961,529.73 51,262,265.67 Including: Interests - Taxes payable 5.24 15,912,061.50 20,238,247.17 receivable Dividend - Other payables 5.25 47,612,534.58 52,803,158.48 receivable Inventories 5.6 293,499,525.11 255,052,077.36 Including: Interests payables - Contract assets - Dividend payables - Assets classified as held for - Liabilities classified as held for sale - sale Non-current assets Non-current liabilities maturing - 5.26 81,310,298.16 maturing within one year within one year Other current assets 5.7 30,569,129.13 18,634,037.60 Other current liabilities - Total current assets 2,079,603,989.31 2,167,870,276.44 Total current liabilities 1,013,426,949.72 1,055,592,088.09 Non-current assets: Non-current liabilities: Debt investments Long-term borrowings Other debt investments Bonds payable Long-term receivables Including: Preference share Long-term equity - Perpetual capital securities 40 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Item Note 2021/6/30 2020/12/31 Item Note 2021/6/30 2020/12/31 investments Other equity instrument 5.8 40,000.00 40,000.00 Lease liabilities 5.27 517,740,534.06 investment Other non-current financial Long-term payables - assets Investment properties 5.9 20,712,590.14 21,255,610.91 Long-term employee benefits payable 5.28 339,285.03 312,775.91 Fixed assets 5.10 157,027,732.21 164,338,962.07 Estimated liabilities - Construction in progress 5.11 4,487,009.02 728,529.68 Deferred income - Productive biological assets Deferred tax liabilities 5.15 48,657,324.82 51,425,551.57 Oil and gas assets Other non-current liabilities - Use rights assets 5.12 576,583,323.00 Total non-current liabilities 566,737,143.91 51,738,327.48 Intangible assets 5.13 28,444,399.09 29,346,312.82 Total liabilities 1,580,164,093.63 1,107,330,415.57 Research and development Owners’ equity expenditure Goodwill Share capital 5.29 185,391,680.00 185,391,680.00 Long-term deferred 5.14 11,159,038.26 6,831,730.07 Other equity instruments expenses Deferred tax assets 5.15 15,614,091.03 15,590,322.49 Including: Preference shares Other non-current assets 5.16 796,415.24 2,044,702.30 Perpetual capital securities Total non-current assets 814,864,597.99 240,176,170.34 Capital reserves 5.30 296,808,965.79 296,808,965.79 Less: Treasury stock Other comprehensive income 5.31 1,018,244.78 1,823,063.03 Specific reserves Surplus reserves 5.32 49,087,662.68 49,087,662.68 Retained earnings 5.33 363,527,691.73 330,918,755.61 Total owner’s equity attributable to 895,834,244.98 864,030,127.11 parent company Non-controlling interests 418,470,248.69 436,685,904.10 Total owners’ equity 1,314,304,493.67 1,300,716,031.21 Total assets 2,894,468,587.30 2,408,046,446.78 Total liabilities and owners' equity 2,894,468,587.30 2,408,046,446.78 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager:Wu Jianhua 41 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 2. Statement of Financial Position of Parent Company as at 30 June 2021 Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Assets Note 2021/6/30 2020/12/31 Liabilities and owners' equity Note 2021/6/30 2020/12/31 Current assets: Current liabilities Cash and cash equivalents 7,646,590.85 7,767,004.93 Short-term borrowings - Held-for-trading financial Held-for-trading financial - - assets liabilities Derivative financial assets - Derivative financial liabilities - Notes receivable - Notes payable - Accounts receivable 13.1 958,899.44 2,710,138.48 Accounts payable 2,245,441.45 31,990,751.46 Accounts receivable Advances from customers 1,270,025.37 1,101,005.38 financing Advances to suppliers 92,154.18 32,124.35 Contract liabilities 1,717,718.61 224,884.11 Other receivables 13.2 2,606,132.25 3,311,425.63 Employee benefits payable 4,561,136.81 7,903,368.21 Including: Interests - Taxes payable 3,196,382.16 1,896,604.41 receivable Dividend receivable - Other payables 103,499,264.13 168,453,443.56 Inventories 940,910.34 1,457,947.89 Including: Interests payables - Contract asset Dividend payables - Assets classified as held Liabilities classified as held for - - for sale sale Non-current assets Non-current liabilities - 314,470.64 maturing within one year maturing within one year Other current assets - Other current liabilities - Total current assets 12,244,687.06 15,278,641.28 Total current liabilities 116,804,439.17 211,570,057.13 Non-current assets: Non-current liabilities: Debt investments Long-term borrowings Other debt investments Bonds payable Long-term receivables Including: Preference share Long-term equity Perpetual capital 13.3 923,414,701.56 923,414,701.56 investments securities Other equity instrument 40,000.00 40,000.00 Lease liabilities 361,647.27 42 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Assets Note 2021/6/30 2020/12/31 Liabilities and owners' equity Note 2021/6/30 2020/12/31 investment Other non-current Long-term payables financial assets Long-term employee benefits Investment properties 24,090,510.39 25,202,712.69 payable Fixed assets 410,548.83 606,019.76 Estimated liabilities Construction in progress 348,990.82 Deferred income Productive biological Deferred tax liabilities assets Oil and gas assets Other non-current liabilities Use rights assets 669,819.71 Total non-current liabilities 361,647.27 - Intangible assets - Total liabilities 117,166,086.44 211,570,057.13 Research and Owners’ equity development expenditure Goodwill Share capital 185,391,680.00 185,391,680.00 Long-term deferred 558,082.01 641,932.25 Other equity instruments expenses Deferred tax assets 3,708,912.95 3,961,079.97 Including: Preference shares Perpetual capital Other non-current assets - - securities Total non-current 953,241,566.27 953,866,446.23 Capital reserves 271,490,289.82 271,490,289.82 assets Less: Treasury stock Other comprehensive income - Specific reserves Surplus reserves 49,087,662.68 49,087,662.68 Retained earnings 342,350,534.39 251,605,397.88 Total owners’ equity 848,320,166.89 757,575,030.38 Total liabilities and owners' Total assets 965,486,253.33 969,145,087.51 965,486,253.33 969,145,087.51 equity Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager:Wu Jianhua 43 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 3. Consolidated Statement of Profit or Loss and Other Comprehensive Income Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Same period of Item Note Reporting period last year I. Revenue 5.34 1,197,289,007.11 793,014,584.36 Including: operating revenue 5.34 1,197,289,007.11 793,014,584.36 II. Cost of sales 1,129,145,884.69 735,225,257.48 Including: operating cost 5.34 1,014,246,279.69 644,212,379.74 Taxes and surcharges 5.35 4,937,406.14 5,631,036.08 Selling and distribution expenses 5.36 30,803,997.63 22,695,745.52 General and administrative expenses 5.37 35,890,649.41 46,326,432.58 Research and development expenses 5.38 30,305,264.63 30,818,857.76 Finance costs 5.39 12,962,287.19 -14,459,194.20 Including: Interest expense 13,815,268.62 151,742.56 Interest income 8,020,668.61 12,388,999.10 Add: Other income 5.40 1,764,476.00 2,260,574.12 Investment income/(losses) 5.41 35,541,462.36 7,879,887.04 Including: Investment income from associates - - and joint ventures Gains /(losses) from derecognition of financial - - assets measured at amortised cost Income /(losses) from net exposure hedging - - Gains/(losses) from changes in fair values 5.42 -18,740,083.34 -1,707,089.00 Impairment loss of credit 5.43 1,107,265.88 -1,129,743.77 Impairment loss of asset 5.44 -1,243,755.14 -8,052,144.68 Gains/(losses) from disposal of assets 5.45 996,128.23 279,810.12 III. Profit/(loss) from operations 87,568,616.41 57,320,620.71 Add: Non-operating income 5.46 1,568,968.09 2,794,509.46 Less: Non-operating expenses 5.47 44,565.31 211,771.67 IV. Profit/(loss) before tax 89,093,019.19 59,903,358.50 Less: Income tax expenses 5.48 8,349,548.21 7,827,101.86 V. Net profit/(loss) 80,743,470.98 52,076,256.64 (I) Net profit/(loss) by continuity Net profit/(loss) from continuing operation 80,743,470.98 52,076,256.64 Net profit/(loss) from discontinued operation (II) Net profit/(loss) by ownership attribution Attributable to owners of the parent 60,417,688.12 39,220,703.16 Attributable to non-controlling interests 20,325,782.86 12,855,553.48 VI. Other comprehensive income, after tax 5.49 -1,073,091.00 1,469,795.41 44 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Same period of Item Note Reporting period last year (a) Attributable to owners of the parent 5.49 -804,818.25 1,102,346.56 (i) Items that will not be reclassified subsequently 5.49 67,071.95 -8,394.48 to profit or loss 1.Remeasurement of the net defined benefit 5.49 67,071.95 -8,394.48 liability (asset) 2. Other comprehensive income using the equity method which will not be reclassified subsequently to profit and loss 3. Changes in fair value of other equity instrument investment 4. Changes in fair value of the Company’s own credit risks (ii) Items that may be reclassified subsequently to 5.49 -871,890.20 1,110,741.04 profit or loss 1. Other comprehensive income using the equity method which will be reclassified subsequently to profit or loss 2. Changes in fair value of other debt instrument investment 3. Other comprehensive income arising from the reclassification of financial assets 4. Provision for credit impairment in other debt investments 5. Reserve for cash flow hedges 6. Exchange differences on translating foreign 5.49 -871,890.20 1,110,741.04 operations (b) Attributable to non-controlling interests 5.49 -268,272.75 367,448.85 VII. Total comprehensive income 79,670,379.98 53,546,052.05 Attributable to owners of the parent 59,612,869.87 40,323,049.72 Attributable to non-controlling interests 20,057,510.11 13,223,002.33 VIII. Earnings per share: Basic earnings per share 14.2 0.33 0.21 Diluted earnings per share 14.2 0.33 0.21 Where business mergers under the same control occurred in the Reporting Period, net profit achieved by the merged parties before the business mergers was CNY 0.00, with the corresponding amount for the same period of last year being CNY 0.00. Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager: Wu Jianhua 45 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 4. Statement of Profit or Loss and Other Comprehensive Income of Parent Company Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Same period of Item Note Reporting period last year I. Revenue 13.4 27,115,177.04 39,381,607.56 Less: Costs of sales 13.4 19,435,107.86 29,743,243.90 Taxes and surcharges 1,215,293.42 1,161,564.08 Selling and distribution expenses 888,228.78 1,462,192.36 Administrative expenses 1,702,372.30 1,845,878.74 Research and development expenses - - Finance costs -171,196.62 -23,503.87 Including: Interest expense 16,334.28 Interest income 145,184.05 88,362.30 Add: Other income 47,035.22 70,439.12 Investment income/(losses) 13.5 114,819,496.58 79,185,554.77 Including: Investment income from associates - and joint ventures Gains /(losses) from derecognition of financial - assets measured at amortised cost Income /(losses) from net exposure hedging - Gains/(losses) from changes in fair values - - Impairment loss of credit -41,444.13 219,385.70 Impairment loss of asset -90,332.22 53,233.39 Gains/(losses) from disposal of assets - - II. Profit/(loss) from operations 118,780,126.75 84,720,845.33 Add: Non-operating income 51,112.12 115,698.84 Less: Non-operating expenses 25,183.34 - III. Profit/(loss) before tax 118,806,055.53 84,836,544.17 Less: Income tax expenses 252,167.02 945,365.26 IV. Net profit/(loss) 118,553,888.51 83,891,178.91 Net profit/(loss) from continuing operation 118,553,888.51 83,891,178.91 Net profit/(loss) from discontinued operation V. Other comprehensive income, after tax - - (i) Items that will not be reclassified subsequently - - to profit or loss 1.Remeasurement of the net defined benefit liability (asset) 2. Other comprehensive income using the equity method which will not be reclassified subsequently to profit and loss 46 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Same period of Item Note Reporting period last year 3. Changes in fair value of other equity instrument investment 4. Changes in fair value of the Company’s own credit risks (ii) Items that may be reclassified subsequently to - - profit or loss 1. Other comprehensive income using the equity method which will be reclassified subsequently to profit or loss 2. Changes in fair value of other debt instrument investment 3. Other comprehensive income arising from the reclassification of financial assets 4. Provision for credit impairment in other debt investments 5. Reserve for cash flow hedges 6. Exchange differences on translating foreign operations VI. Total comprehensive income 118,553,888.51 83,891,178.91 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager: Wu Jianhua 47 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 5. Consolidated Statement of Cash Flows Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Same period of last Item Note Reporting period year I. Cash flows from operating activities Cash received from the sale of goods and the rendering of 1,154,806,316.74 760,032,384.25 services Cash received from tax refund 90,888,710.07 57,320,585.80 Other cash received relating to operating activities 5.50 45,360,066.39 36,017,760.78 Subtotal of cash inflows from operating activities 1,291,055,093.20 853,370,730.83 Cash payments for goods purchased and services received 1,076,306,208.51 670,039,827.72 Cash payments to and on behalf of employees 157,026,734.78 123,559,701.92 Payments of taxes 24,640,900.69 22,265,046.50 Other cash payments relating to operating activities 5.50 96,055,708.62 65,518,030.83 Subtotal of cash outflows from operating activities 1,354,029,552.60 881,382,606.97 Net cash flows from operating activities -62,974,459.40 -28,011,876.14 II. Cash flows from investing activities Cash received from disposal and redemption of investments 439,053,618.34 216,993,732.02 Cash received from returns on investments 9,610,762.65 11,383,180.62 Net cash received from disposals of fixed assets, intangible 1,052,134.14 53,012.94 assets and other long-term assets Net cash received from disposals of subsidiaries and other business units Other cash received relating to investing activities 5.50 170,037,164.75 240,268,714.80 Subtotal of cash inflows from investing activities 619,753,679.88 468,698,640.38 Cash payments to acquire fixed, intangible and other long-term 26,496,062.77 27,331,748.41 assets Cash payments to acquire investments 267,136,402.90 205,224,443.75 Net cash payments to acquire subsidiaries and other business units Other cash payments relating to investing activities 5.50 261,195,424.54 490,025,153.46 Subtotal of cash outflows from investing activities 554,827,890.21 722,581,345.62 Net cash flows from investing activities 64,925,789.67 -253,882,705.24 III. Cash flows from financing activities Cash received from capital contributions Including: Cash received from absorbing minority shareholders' equity investment by subsidiaries Cash received from borrowings 108,537,961.78 54,522,840.00 Other cash received relating to financing activities 5.50 12,876,842.79 0.00 Subtotal of cash inflows from financing activities 121,414,804.57 54,522,840.00 Cash repayments of debts 95,638,993.48 26,769,860.00 48 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Same period of last Item Note Reporting period year Cash payments for dividends, distribution of profit and interest 66,366,434.43 45,072,022.49 expenses Including: Dividends, distribution of profit paid by 38,273,165.52 26,395,184.92 subsidiaries to minority shareholders Other cash payments relating to financing activities 5.50 16,535,710.31 6,775,024.51 Subtotal of cash outflows from financing activities 178,541,138.22 78,616,907.00 Net cash flows from financing activities -57,126,333.65 -24,094,067.00 IV. Effect of foreign exchange rate changes on cash and cash -2,599,815.16 1,188,057.91 equivalents V. Net increase / (decrease) in cash and cash equivalents -57,774,818.54 -304,800,590.47 Plus: Cash and cash equivalents at the beginning of the period 672,801,206.68 639,623,201.98 VI. Cash and cash equivalents at the end of the period 615,026,388.14 334,822,611.51 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager: Wu Jianhua 49 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 6. Statement of Cash Flows of Parent Company Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Same period of last Item Note Reporting period year I. Cash flows from operating activities Cash received from the sale of goods and the rendering of 6,348,977.40 12,939,282.22 services Cash received from tax refund 72,898.30 Other cash received relating to operating activities 28,643,896.60 28,295,141.08 Subtotal of cash inflows from operating activities 35,065,772.30 41,234,423.30 Cash payments for goods purchased and services received 32,504,704.59 9,585,274.32 Cash payments to and on behalf of employees 1,035,768.22 970,120.74 Payments of taxes 2,903,294.74 4,249,252.46 Other cash payments relating to operating activities 85,796,694.20 90,604,336.94 Subtotal of cash outflows from operating activities 122,240,461.75 105,408,984.46 Net cash flows from operating activities -87,174,689.45 -64,174,561.16 II. Cash flows from investing activities Cash received from disposal and redemption of investments Cash received from returns on investments 114,819,496.58 79,185,554.77 Net cash received from disposals of fixed assets, intangible assets and other long-term assets Net cash received from disposals of subsidiaries and other business units Other cash received relating to investing activities Subtotal of cash inflows from investing activities 114,819,496.58 79,185,554.77 Cash payments to acquire fixed, intangible and other long-term 39,162.00 54,985.00 assets Cash payments to acquire investments Net cash payments to acquire subsidiaries and other business units Other cash payments relating to investing activities Subtotal of cash outflows from investing activities 39,162.00 54,985.00 Net cash flows from investing activities 114,780,334.58 79,130,569.77 III. Cash flows from financing activities Cash received from capital contributions Cash received from borrowings Other cash received relating to financing activities Subtotal of cash inflows from financing activities - - Cash repayments of debts Cash payments for dividends, distribution of profit and interest 27,808,752.00 18,539,168.00 expenses 50 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Same period of last Item Note Reporting period year Other cash payments relating to financing activities Subtotal of cash outflows from financing activities 27,808,752.00 18,539,168.00 Net cash flows from financing activities -27,808,752.00 -18,539,168.00 IV. Effect of foreign exchange rate changes on cash and cash 82,692.79 -14,614.06 equivalents V. Net increase / (decrease) in cash and cash equivalents -120,414.08 -3,597,773.45 Plus: Cash and cash equivalents at the beginning of the period 7,767,004.93 7,624,622.27 VI. Cash and cash equivalents at the end of the period 7,646,590.85 4,026,848.82 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager: Wu Jianhua 51 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 7. Consolidated Statement of Changes in Shareholders' Equity Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Reporting period Owners’ equity attributable to the parent company Item Other equity instruments Non-controlling Total owners’ Less: Other Capital Specific Surplus Retained interests equity Share capital Perpetual Treasury comprehensive Subtotal Preference reserves reserves reserves earnings capital Others stock income shares securities I. Balance brought forward 185,391,680.00 296,808,965.79 1,823,063.03 49,087,662.68 330,918,755.61 864,030,127.11 436,685,904.10 1,300,716,031.21 Add:Changes in accounting policy - - Correction of prior period errors - - Business combination under common control - - Others - - II. Balance as at 1 January 185,391,680.00 - - - 296,808,965.79 - 1,823,063.03 - 49,087,662.68 330,918,755.61 864,030,127.11 436,685,904.10 1,300,716,031.21 III. Changes in equity during the reporting period - - - - - - -804,818.25 - - 32,608,936.12 31,804,117.87 -18,215,655.41 13,588,462.46 (i) Total comprehensive income -804,818.25 60,417,688.12 59,612,869.87 20,057,510.11 79,670,379.98 (ii) Capital contributions or withdrawals by owners - - - - - - - - - - - - - 1. Ordinary shares contributed by shareholders - - 2.Capital contributed by holders of other equity instruments - - 3.Share-based payments recognised in owners’ equity - - 4.Others - - (iii) Profit distribution - - - - - - - - - -27,808,752.00 -27,808,752.00 -38,273,165.52 -66,081,917.52 1.Withdrawal of surplus reserves - - - 52 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Reporting period Owners’ equity attributable to the parent company Item Other equity instruments Non-controlling Total owners’ Less: Other Capital Specific Surplus Retained interests equity Share capital Perpetual Treasury comprehensive Subtotal Preference reserves reserves reserves earnings capital Others stock income shares securities 2.Profit distribution to owners (or shareholders) -27,808,752.00 -27,808,752.00 -38,273,165.52 -66,081,917.52 3.Others - - (iv) Transfer between owners' equity - - - - - - - - - - - - - 1.Capital reserves transfer to share capital - - 2.Surplus reserves transfer to share capital - - 3.Surplus reserves used to cover accumulated deficits - - 4.Defined benefit plan transfer to retained earnings - - 5. Other comprehensive income transfer to retained earnings - - 6. Others - - (v) Specific reserves - - - - - - - - - - - - - 1.Withdrawal during the reporting period - - 2.Usage during the reporting period - - (vi) Others - - IV. Balance carried forward 185,391,680.00 - - - 296,808,965.79 - 1,018,244.78 - 49,087,662.68 363,527,691.73 895,834,244.98 418,470,248.69 1,314,304,493.67 53 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. (Continued) The same period of last year Owners’ equity attributable to the parent company Item Other equity instruments Specif Non-controlling Total owners’ Less: Other interests equity ic Surplus Retained Share capital Prefere Perpetual Capital reserves Treasur comprehensiv Subtotal reserv reserves earnings nce capital Others y stock e income es shares securities I. Balance brought forward 185,391,680.00 296,808,965.79 7,514,750.01 40,499,488.55 218,523,906.99 748,738,791.34 418,530,084.22 1,167,268,875.56 Add:Changes in accounting policy Correction of prior period errors Business combination under common control Others II. Balance as at 1 January 185,391,680.00 296,808,965.79 7,514,750.01 40,499,488.55 218,523,906.99 748,738,791.34 418,530,084.22 1,167,268,875.56 III. Changes in equity during the reporting period 1,102,346.56 20,681,535.16 21,783,881.72 -13,172,182.58 8,611,699.14 (i) Total comprehensive income 1,102,346.56 39,220,703.16 40,323,049.72 13,223,002.33 53,546,052.05 (ii) Capital contributions or withdrawals by owners 1. Ordinary shares contributed by shareholders 2.Capital contributed by holders of other equity instruments 3.Share-based payments recognised in owners’ equity 4.Others (iii) Profit distribution -18,539,168.00 -18,539,168.00 -26,395,184.92 -44,934,352.92 1.Withdrawal of surplus reserves 2.Profit distribution to owners (or shareholders) -18,539,168.00 -18,539,168.00 -26,395,184.92 -44,934,352.92 3.Others 54 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. The same period of last year Owners’ equity attributable to the parent company Item Other equity instruments Specif Non-controlling Total owners’ Less: Other interests equity ic Surplus Retained Share capital Prefere Perpetual Capital reserves Treasur comprehensiv Subtotal reserv reserves earnings nce capital Others y stock e income es shares securities (iv) Transfer between owners' equity 1. Capital reserves transfer to share capital 2.Surplus reserves transfer to share capital 3.Surplus reserves used to cover accumulated deficits 4.Defined benefit plan transfer to retained earnings 5. Other comprehensive income transfer to retained earnings 6. Others (v) Specific reserves 1.Withdrawal during the reporting period 2.Usage during the reporting period (vi) Others 0.01 0.01 IV. Balance carried forward 185,391,680.00 296,808,965.79 8,617,096.57 40,499,488.55 239,205,442.15 770,522,673.06 405,357,901.64 1,175,880,574.70 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager:Wu Jianhua 55 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. 8. Statement of Changes in Owners' Equity of Parent Company Prepared by: TsannKuen (China) Enterprise Co., Ltd Unit:Yuan Currency: CNY Reporting period Other equity instruments Specifi Item Less: Other Capital c Surplus Retained Total owners’ Share capital Prefer Perpetual Treasury comprehensi reserves reserv reserves earnings equity ence capital Others stock ve income es shares securities I. Balance brought forward 185,391,680.00 271,490,289.82 49,087,662.68 251,605,397.88 757,575,030.38 Add:Changes in accounting policy - Correction of prior period errors - Others - II. Balance as at 1 January 185,391,680.00 - - - 271,490,289.82 - - - 49,087,662.68 251,605,397.88 757,575,030.38 III. Changes in equity during the reporting period - - - - - - - - - 90,745,136.51 90,745,136.51 (i) Total comprehensive income - 118,553,888.51 118,553,888.51 (ii) Capital contributions or withdrawals by owners - - - - - - - - - - - 1. Ordinary shares contributed by - shareholders 2.Capital contributed by holders of - other equity instruments 3.Share-based payments recognised in owners’ equity - 4.Others - (iii) Profit distribution - - - - - - - - - -27,808,752.00 -27,808,752.00 1.Withdrawal of surplus reserves - - 2.Profit distribution to owners (or shareholders) -27,808,752.00 -27,808,752.00 3.Others - (iv) Transfer between owners' equity - - - - - - - - - - - 56 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Reporting period Other equity instruments Specifi Item Less: Other Capital c Surplus Retained Total owners’ Share capital Prefer Perpetual Treasury comprehensi reserves reserv reserves earnings equity ence capital Others stock ve income es shares securities 1. Capital reserves transfer to share capital - 2.Surplus reserves transfer to share capital - 3.Surplus reserves used to cover accumulated deficits - 4.Defined benefit plan transfer to retained earnings - 5. Other comprehensive income transfer to retained - earnings 6. Others - (v) Specific reserves - - - - - - - - - - - 1.Withdrawal during the reporting period - 2.Usage during the reporting period - (vi) Others - IV. Balance carried forward 185,391,680.00 - - - 271,490,289.82 - - - 49,087,662.68 342,350,534.39 848,320,166.89 57 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. (Continued) Same period of last year Other equity instruments Perp Less: Other Item Pref etual Treasu compreh Specific Surplus Share capital eren Capital reserves Retained earnings Total owners’ equity capit Othe ry ensive reserves reserves ce al rs stock income shar secu es rities I. Balance brought forward 185,391,680.00 271,490,289.82 40,499,488.55 192,850,998.74 690,232,457.11 Add:Changes in accounting policy Correction of prior period errors Others II. Balance as at 1 January 185,391,680.00 271,490,289.82 40,499,488.55 192,850,998.74 690,232,457.11 III. Changes in equity during the reporting 65,352,010.91 65,352,010.91 period (i) Total comprehensive income 83,891,178.91 83,891,178.91 (ii) Capital contributions or withdrawals by owners 1. Ordinary shares contributed by shareholders 2.Capital contributed by holders of other equity instruments 3.Share-based payments recognised in owners’ equity 4.Others (iii) Profit distribution -18,539,168.00 -18,539,168.00 1.Withdrawal of surplus reserves 2.Profit distribution to owners (or -18,539,168.00 -18,539,168.00 shareholders) 3.Others (iv) Transfer between owners' equity 58 2021 Semi-Annual Report of Tsann Kuen (China) Enterprise Co., Ltd. Same period of last year Other equity instruments Perp Less: Other Item Pref etual Treasu compreh Specific Surplus Share capital eren Capital reserves Retained earnings Total owners’ equity capit Othe ry ensive reserves reserves ce al rs stock income shar secu es rities 1. Capital reserves transfer to share capital 2.Surplus reserves transfer to share capital 3.Surplus reserves used to cover accumulated deficits 4.Defined benefit plan transfer to retained earnings 5. Other comprehensive income transfer to retained earnings 6. Others (v) Specific reserves 1.Withdrawal during the reporting period 2.Usage during the reporting period (vi) Others IV. Balance carried forward 185,391,680.00 271,490,289.82 40,499,488.55 258,203,009.65 755,584,468.02 Legal Representative: Cai Yuansong Chief Financial Officer:Wu Jianhua Finance Manager:Wu Jianhua 59 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Tsann Kuen (China) Enterprise Co., Ltd. Notes to the Financial Statements for H1 2021 (All amounts are expressed in Renminbi Yuan (“CNY”) unless otherwise stated) 1. BASIC INFORMATION ABOUT THE COMPANY 1.1 Corporate Information Tsann Kuen (China) Enterprise Co., Ltd. (hereafter “the Company or TKC”) was established in the People’s Republic of China (“the PRC”) in 1988 as a wholly owned foreign investment enterprise, the Company named in TsannKuen China (Xiamen) Ltd., firstly, invested by the Fordchee (Hongkong) Co., Ltd., EUPA Industry Corporation Limited and Hong Kong Fillman investment Co., Ltd.. On 16 February 1993, with the approval of the Ministry of Foreign Trade and Economic Co-operation, the Company was reorganized into an incorporated company and was renamed as TsannKuen (China) Enterprise Co., Ltd. In June 1993, the Company issued 40,000,000 new shares pursuant to an international placing and public offer and these new shares (“B shares”) were then listed on the Shenzhen Stock Exchange on 30 June 1993. According to the “Intended Implementation of Share Reducing Proposal” of the 5th extraordinary board of director of 2012 and the 3rd extraordinary shareholders’ general meeting of 2012, obtained the consent from the Investment Promotion Bureau of Xiamen which is authorized by the Ministry of Commerce and the approval documents ”The Approval by Investment Promotion Bureau of Xiamen to Consent the Capital Reduction of TsannKuen (China) Enterprise Co., Ltd”(IPB audit [2012] NO. 698), as the base 1,112,350,077 shares of the total original share capital, for implementation of share reducing model that all registered shareholders who was recorded on 28 December 2012 with the proportion 6:1 to reduce the shares. After the implementation of share reducing model, total share capital was reduced from 1,112,350,077 shares to 185,391,680 shares of the company. Until 30 June 2021, the Company’s share capital is CNY 185,391,680. Following The Ministry of Commerce of the People’s Republic of China approved (The No. [2005]3107 “Agreed in Principle to the Ministry of Commerce on TsannKuen (China) Enterprise Co., Ltd. Shares Traded Sponsor of the Approval”), On 6 December 2006, the Company received the [2006] No.266 file “The notice of TsannKuen (China) Enterprise Co., Ltd, concerning the Approval of non-listed Foreign Shares Traded” from China Securities Regulatory Commission. The China Securities Regulatory Commission agreed 700,476,830 unlisted shares (account for 62.97% of the share capital) held by the Company’s 60 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements shareholders, EUPA Industry Corporation Limited, Fordchee Development Limited, and Fillman Investment Limited to transfer into B shares. On 29 November 2007, these B shares could be listed and exercised on Shenzhen Stock Exchange. Up to 30 June 2021, total B shares held by the three legal shareholders (EUPA Industry Corporation Limited, Fordchee Development Limited, and Fillman Investment Limited) are 82,830,966 shares after the implementation of share reducing model (Accounts for 44.68% of the share capital). Legal representative: Cai Yuansong Place of registration: No.88 Xinglong Road, Huli Industrial District, Xiamen, Fujian Province The parent: STAR COMGISTIC CAPITAL CO.,LTD. The Company operates within the electrical machinery and equipment manufacturing industry. The industry of the company: electrical machinery and equipment manufacturing. The Company was involved in the following operating activities: developing, manufacturing household appliances, electronics, light industrial products, modern office supplies. Design and manufacture of molds associated with these products in domestic and international sales of the company's products and after-sales service. Wholesale and retail household appliances, electronic products, electrical equipment, office supplies, kitchen utensils, pre-packaged food (limited to branches), import and export related business and provide after-sales service (the above description do not involve state trading commodity goods, involving quota license management products are according to the relevant provisions of the State for the regulations application). The financial statements approved by the resolution of the Board of Directors on 3 August 2021. 1.2 Scope and changes of consolidated financial statements 10 subsidiaries were included in the scope of consolidation as of 30 June 2021, please see Note 7 INTEREST IN OTHER ENTITIES for details. 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS 2.1 Basis of 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 61 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Business Enterprises – Interpretations and other relevant provisions (collectively known as “Accounting Standards for Business Enterprises, issued by Ministry of Finance of PRC”). In addition, the Company complies 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) to disclose its financial information. 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 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. 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, truthfully and completely reflecting the Company’s financial position as of 30 June 2021, 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 year of the Company is from January 1 to December 31 in calendar year. 3.3 Operating Cycle Normal business cycle is realised by the Company as the period starting from the purchase of processing assets to the realization of cash or cash equivalents. The company has a 12-month operating cycle, and its assets and liabilities as liquidity criteria for the classification. 3.4 Functional Currency The Company takes Renminbi Yuan (“CNY”) as the functional currency. The Company’s overseas subsidiaries choose the currency of the primary economic environment in which the subsidiaries operate as the functional currency. 3.5Accounting Treatment of Business Combinations under and not under Common Control 62 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. Refer to Note 3.6 (6) for accounting treatment of business combination under common control by step acquisitions. 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 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: 3.5.2.1 It 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; 3.5.2.2 If, 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. Refer to Note 3.6.6 or the accounting treatment of business combination under the same control by step acquisitions. 3.5.3 Treatment of business combination related costs 63 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 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 requirement as the parent company is an investment entity 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: 3.6.2.1 Obtains funds from one or more investors for the purpose of providing those investors with investment management services; 3.6.2.2 Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and 3.6.2.3 Measures 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 64 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 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. 3.6.3.1 Like items of assets, liabilities, equity, income, expenses, and cash flows of the parent are combined with those of the subsidiaries. 3.6.3.2 The carrying amount of the parent’s investment in each subsidiary is eliminated (off-set) against the parent’s portion of equity of each subsidiary. 3.6.3.3 Eliminate 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. 3.6.3.4 Adjust special transactions from the perspective of the group. 3.6.4 Method of preparation of the consolidated financial statements when subsidiaries are acquired or disposed in the reporting period 3.6.4.1 Acquisition of subsidiaries or business 3.6.4.1.1 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 65 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 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. 3.6.4.1.2 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. 3.6.4.3 Disposal of subsidiaries or business 3.6.4.3.1 When preparing the consolidated statements of financial position, the opening balance of the consolidated statements of financial position shall not be adjusted. 3.6.4.3.2 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. 3.6.4.3.3 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 3.6.5.1 Long-term equity investment held by the subsidiaries to the Company shall be recognised as treasury stock of the Company, which offsets 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 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. 3.6.5.2 Due to not belonging to paid-in capital (or share capital) and capital reserve, and 66 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.6.5.3 If 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. 3.6.5.4 Unrealised 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. 3.6.5.5 If 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. 3.6.6 Accounting for Special Transactions 3.6.6.1 Purchasing 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. 67 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.6.6.2 Gaining control over the subsidiary in stages through multiple transactions 3.6.6.2.1 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 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. 3.6.6.2.2 Business combination not under common control in stages 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. 68 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.6.6.3 Disposal 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 absorb the difference, any excess shall be offset against retained earnings. 3.6.6.4 Disposal of investment in subsidiaries with a loss of control 3.6.6.4.1 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. 3.6.6.4.2 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 69 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 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. 3.6.6.5Diluting 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. 70 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.7 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. 3.8 Foreign Currency Transactions and Translation of Foreign Currency Financial Statements 3.8.1 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). 3.8.2 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. 3.8.3 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: 3.8.3.1 The 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 incurred. 71 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.8.3.2The 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. 3.8.3.3 Foreign 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. 3.8.3.4 The 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. 3.9 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. 3.9.1 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: 3.9.1.1 The rights to the contractual cash flows from a financial asset expire 3.9.1.2 The 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 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 purchase or sale of financial assets is a transaction under a contract whose terms require delivery of the asset within the time frame established 72 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements generally by regulations or convention in the marketplace concerned. Trade date is the date at which the entity commits itself to purchase or sell an asset. 3.9.2 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: 3.9.2.1 Financial asset at amortised cost 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 amortisation under effective interest rate method or impairment are recognised in current profit or loss. 3.9.2.2 Financial 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 73 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 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. 3.9.2.3 Financial asset at fair value through profit or loss (FVTPL) Financial asset except for abovementioned 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 profit or loss. 3.9.3 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: 3.9.3.1 Financial 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. 3.9.3.2 Loan 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 74 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.9.3.3 Financial liabilities at amortised cost 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: 3.9.3.3.1 If the Company has no unconditional right to avoid delivering cash or another financial instrument to fulfill a contractual obligation, this contractual obligation meets 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, yet they may include contractual obligation indirectly through other terms and conditions. 3.9.3.3.2 If 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 the 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 whether 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). 3.9.4 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 75 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements fair value shall be recognized as an asset, and with a negative fair value shall be recognised as a liability. 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. 3.9.5 Impairment of financial instrument The Company shall recognise a loss allowance based on expected credit losses for financial asset that is measured at amortised cost, debt investment at fair value through other comprehensive income, contract asset, lease receivable, loan commitment, and financial guarantee contract. 3.9.5.1 Measurement 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, which is all cash shortfalls, discounted at the original effective interest rate or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets. 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 76 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 instruments 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 (ie, impairment loss not been deducted). For financial instruments at stage 3, interest revenue shall be calculated by applying the effective interest rate to the amortised costs 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 the amount that equals to the lifetime expected credit losses. 3.9.5.1.1 Receivables/Contract Assets For the notes receivable, accounts receivable, other receivables, accounts receivable financing, contract assets 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, contract assets, 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, contract assets, and long-term receivables shall 77 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements be divided into several groups based on similar credit risk characteristics and calculate collectively on the expected credit loss. The determination basis of groups is as following: a. Notes Receivables The Company measures the loss impairment in accordance with the amount equivalent to the lifetime expected credit losses for notes receivables. The notes receivables are divided into different groups based on credit risk characteristics: Item Basis for determining the groups Bank acceptance bill The acceptor is a bank with less credit risk. Commercial acceptance bill According to the credit risk of the acceptor, it should be the same as the “accounts receivable” combination. b. Accounts Receivables For accounts receivables that do not contain significant financing components, the Company measures the loss impairment in accordance with the amount equivalent to the expected credit loss in the whole duration. For accounts receivables and lease receivables that contain significant financing components, the Company continuously chooses to measure the loss impairment in accordance with the amount equivalent to the expected credit loss in the whole duration. Other than the accounts receivable whose credit risk is assessed individually, the other accounts receivables are grouped based on their credit risk characteristics: Group Basis for determining the groups This group uses the accounts receivables aging as the credit risk Aging of Accounts Receivables characteristics. Related party relationships (except for evidencing that they cannot Related parties be received). c. Other Receivables The Company assesses whether the credit risk of other receivables has significantly increased since initial recognition, and utilizes the amount equivalent to the expected credit loss in the next 12 months or the whole duration to measures the impairment loss accordingly. Besides the other receivables that have individually assessed credit risk, the rest of the other receivables are classified into different groups based on their credit risk characteristics: Group Basis for determining the groups Deposit guarantee This group of receivables includes deposit receivables, advances on 78 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Group Basis for determining the groups behalf of others and quality guarantee deposits to be collected in daily activities. This group is the declared export tax refund funds that have not been Export tax refund received. This group uses the age of accounts receivable as the credit risk Open credits characteristics. Related party relationships (except for evidencing that they cannot Related parties be covered) 3.9.5.1.2 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. 3.9.5.2 Low credit risk If the financial instrument has a low risk of default, and the borrower has a strong capacity to meet 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, then the financial instrument is considered to have low credit risk. 3.9.5.3 Significant 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; 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; 79 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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; 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; e) Significant change that are expected to reduce the borrower’s economic incentive to make scheduled contractual payments; 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; g) Significant changes in the expected performance and behaviour of the borrower; 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. 3.9.5.4 Credit-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. Evidence that a financial asset is credit-impaired include observable data about the following events: 80 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 enter bankruptcy or other financial reorganization; 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. 3.9.5.5 Presentation 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 or 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. 3.9.5.6 Write-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. 3.9.6 Transfer of financial assets Transfer of financial assets refers to following two situations: Transfers the contractual rights to receive the cash flows of the financial asset; 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. 3.9.6.1 Derecognition 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 81 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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: The carrying amount of transferred financial asset; 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: The carrying amount (measured at the date of derecognition) allocated to the part derecognised; 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). 3.9.6.2 Continuing 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 82 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.9.6.3 Continue 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. 3.9.7 Offsetting financial assets and financial liabilities Financial assets and financial liabilities shall be presented separately in the statement of financial position and shall not offset each other. When the following conditions are met, 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. In accounting for a transfer of a financial asset that does not qualify for derecognition, the Company shall not offset the transferred asset with the associated liability. 3.9.8 Determination of fair value of financial instruments Refer to Note 3.10 for determination of financial assets and financial liabilities. 3.10 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 83 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.10.1 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 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 are 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. 3.10.2 Fair value hierarchy To Company establishes a fair value hierarchy that categorises the inputs to valuation techniques used to measure fair value into three levels. 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. 84 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.11 Inventories 3.11.1 Classification of inventories Inventories are finished goods or products held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services, including raw materials, work in progress, semi-finished goods, finished goods, low value consumption goods, goods in transit, etc. 3.11.2 Measurement method of cost of inventories sold or used The cost of inventories used or sold is determined on the weighted average basis. 3.11.3 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. 3.11.4 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 recognised as provision for impairment of inventory, and recognised in current profit or loss. Net realizable value of the inventory should be determined on the basis of reliable evidence obtained, and factors such as purpose of holding the inventory and impact of post balance sheet event shall be considered. 3.11.4.1 The net realizable value of finished goods, products and materials for direct sale is determined at estimated selling prices less estimated selling expenses and relevant taxes and surcharges in normal operation process. The net realizable value for inventories held to execute sales contract or service contract is calculated on the basis of contract price. If the quantities of inventories specified in sales contracts are less than the quantities held by the Company, the net realizable value of the excess portion of inventories shall be based on general selling prices. Net realizable value of materials held for sale shall be measured based on market price. 3.11.4.2 For materials in stock need to be processed, in the ordinary course of production and business, net realisable value is determined at the estimated selling price less the estimated costs of completion, the estimated selling expenses and relevant taxes. If the net realisable value of the finished products produced by such materials is higher than the cost, the materials shall be measured at cost; if a decline in the price of materials indicates that the cost of the finished products exceeds its net realisable value, the materials are measured 85 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements at net realisable value and differences shall be recognised at the provision for impairment. 3.11.4.3 Provisions for inventory impairment are generally determined on an individual basis. For inventories with large quantity and low unit price, the provisions for inventory impairment are determined on a category basis. 3.11.4.4 If any factor rendering write-downs of the inventories has been eliminated at the reporting date, the amounts written down are recovered and reversed to the extent of the inventory impairment, which has been provided for. The reversal shall be included in profit or loss. 3.11.5 Amortisation method of low-value consumables Low-value consumables: One-off writing off method is adopted. Package material: One-off writing off method is adopted. 3.12 Contract Assets and Contract Liabilities The Company presents contract assets or contract liabilities in the balance sheet in accordance with the relationship between performance obligations and customer payments. The Company has the right to charge for the transfer of goods or services to customers (and the right depends on factors other than the passage of time) are presented as contract assets. The company's obligations to transfer goods or provide services to customers for consideration received or receivable from customers are presented as contract liabilities. Refer to Note 3.9 for the determination and accounting treatments of the company's expected credit loss of contract assets. Contract assets and contract liabilities are presented separately in the balance sheet. Contract assets and contract liabilities under the same contract are presented as net amount. If the netted amount has the debit balance, then it is reported as "contract assets" or "other non-current assets" based on its liquidity; if the netted amount has a credit balance, it is listed in the item of "contract liabilities" or "other non-current liabilities" based on its liquidity. Contract assets and contract liabilities under different contracts shall not offset each other. 3.13 Contract Cost Contract costs contain contract enforcement costs and contract acquisition costs. The cost incurred by the Company for the enforcement of the contract is recognized as an asset as the contract enforcement cost when the following conditions are simultaneously met: 3.13.1 The cost is directly related to a current or anticipated contract, including direct labor, direct materials, manufacturing expenses (or similar expenses), costs clearly borne by the 86 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements customer, and other costs incurred solely due to the contract. 3.13.2 The cost increases the company's future resources for fulfilling contract enforcement obligations. 3.13.3 The cost is expected to be recovered. The incremental cost incurred by the Company in order to obtain the contract is expected to be recovered, and shall be recognized as an asset as the cost of obtaining the contract. Assets related to contract costs are amortised on the same basis as the revenue recognition of goods or services related to the asset; however, if the amortisation period of contract acquisition costs does not exceed one year, the Company will include the contract costs in the current profits and losses at occurrence. If the book value of the assets related to the contract cost is higher than the difference between the following two items, the Company will make provision for impairment of the excess part and recognize it as an asset impairment loss, and further consider whether to withdraw losses related to the contract estimated liabilities: 3.13.3.1 The remaining consideration expected to be obtained due to the transfer of goods or services related to the asset; 3.13.3.2 Estimate the cost that will incur for the transfer of the related goods or services. If the aforementioned asset impairment provision is subsequently reversed, the book value of the asset after the reversal shall not exceed the book value of the asset on the date of reversal under the assumption that no impairment provision is made. For the contract enforcement cost recognized as an asset, the amortisation period shall not exceed one year or a normal business cycle at initial recognition, and shall be presented in the "inventory" item. The amortisation period exceeds one year or a normal business cycle at the initial recognition, shall be presented in “other non-current assets”. The contract acquisition cost recognized as an asset shall be reported in "other current assets" when the amortisation period does not exceed one year or one normal business cycle at the time of initial recognition, and reported in the item of "other non-current assets" when the amortisation period exceeds one year or one normal business cycle at the time of initial recognition. 3.14 Long-term Equity Investments Long-term equity investments refer to equity investments where the Company 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. 87 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.14.1 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. 3.14.2 Determination of initial investment cost 3.14.2.1 Long-term equity investments generated in business combinations 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 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. For a business combination involving enterprises under common control, if the Company 88 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 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. 3.14.2.2 For long-term equity investments acquired not through the business combination, the investment cost shall be determined based on the following requirements: 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. For long-term equity investments acquired through issuance of equity securities, the initial cost is the fair value of the issued equity securities. 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 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. 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. 3.14.2.3 Subsequent measurement and recognition of profit or loss 89 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.14.2.3.1 Cost 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. 3.14.2.3.2 Equity method For Long-term equity investment recognised at equity method, cost of the long-term equity investment shall be recognized based on the following conditions: 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 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 90 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 other equity instrument investment, the difference between the fair value and the book value, as well as the accumulated gains or losses previously recorded in other comprehensive income, shall be transferred out of other comprehensive income, and recognized into retained earnings in the current period when the equity method is adopted. 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 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. 3.14.2.4 Methods of impairment and provision for impairment The asset impairment method for the investment in subsidiaries, joint ventures and joint ventures is shown in Note 3.20. 3.15 Investment Property 3.15.1 Classification of investment properties Investment properties are properties to earn rentals or for capital appreciation or both, including: 3.15.1.1 Land use right leased out 3.15.1.2 Land held for transfer upon appreciation 3.15.1.3 Buildings leased out 3.15.2 The measurement model of investment property The Company adopts the cost model for subsequent measurement of investment properties. Refer to Note 3.20 for provision for impairment. The Company calculates the depreciation or amortisation based on the net amount of investment property cost less the accumulated impairment and the net residual value using 91 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements straight-line method. Investment property is depreciated or amortised in accordance with the policy consistent with that of buildings or land use rights. 3.16 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. 3.16.1 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: 3.16.1.1 It is probable that the economic benefits relating to the fixed assets will flow into the Company; 3.16.1.2 The 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. 3.16.2 Depreciation methods of fixed assets The Company begins to depreciate the fixed asset from the next month after it is available for intended use using the 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 of fixed assets are listed as followings: Depreciation Residual Estimated useful Annual depreciation Category method rates (%) life (year) rates (%) Buildings and Straight-line method 7.00-10.00 20 4.50-4.65 constructions Machinery equipment Straight-line method 0.00 5-15 6.67-20.00 Electrical equipment, Straight-line method 0.00 5-6 16.67-20.00 molde, and other Vehicles Straight-line method 0.00 6 16.67 Improvement Amortisation shall be made according to expenditure of leased Straight-line method 0.00 the shorter of benefit period and lease fixed assets period For the fixed assets with impairment provided, the impairment provision should be excluded from the cost when calculating depreciation. The Company reviews the useful life, estimated net residual value and depreciation method 92 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements of the fixed assets. Estimated useful life of the fixed assets shall be adjusted if it is changed compared to the original estimation. 3.17 Construction in Progress 3.17.1 Classification of construction in progress Construction in progress is measured on an individual project basis. 3.17.2 Recognition criteria and timing of transfer from construction in progress to fixed assets 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. 3.18 Borrowing Costs 3.18.1 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: 2.18.1.1 Expenditures for the asset are being incurred; 2.18.1.2 Borrowing costs are being incurred, and; 2.18.1.3 Acquisition, 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 93 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.18.2 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. 3.19 Intangible Assets 3.19.1 Intangible assets Intangible asset refers to the identifiable non-monetary assets without physical shape, possessed or controlled by enterprises. The intangible assets are initially measured by its cost. Expenses related to intangible assets, if the economic benefits related to intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded as cost of intangible assets. The expenses other than this shall be booked in the profit or loss when they occur. Land use rights purchased by the Company are accounted as intangible assets. Buildings such as plants that are developed and constructed by the Company, and relevant land use rights and buildings, are accounted as intangible assets and fixed assets, respectively. Payments for the land and buildings purchased are allocated between the land use rights and the buildings; if they cannot be reasonably allocated, all the land use rights and buildings are accounted as fixed assets. When intangible assets with definite useful lives are available for use, the original cost less net residual value and any accumulate impairment losses is amortised over its estimated useful life using the straight-line method. Intangible assets with indefinite useful life are not amortised. For intangible assets with finite useful life, the estimated useful life and amortisation 94 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements method are reviewed annually at the end of each reporting period and adjusted when necessary. An additional review is also carried out for useful life of the intangible assets with indefinite useful life. 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. 3.19.2 Research and development costs The company's internal research and development project expenditures are categorized into research phase expenditures and development phase expenditures. 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, otherwise shall be recognised in profit or loss when incurred: 3.19.2.1 Technical feasibility of completing the intangible assets so that they will be available for use or sale; 3.19.2.2 Its intention to complete the intangible asset and use or sell it; 3.19.2.3 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; 3.19.2.4 The availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; 3.19.2.5 Its ability to measure reliably the expenditure attributable to the intangible asset. The costs cannot be distinguished into the search phase and the development phase is recognised in profit or loss for the period in which it incurred. 3.19.3 Impairment of intangible assets Refer to Note 3.20 for impairment and provisions of intangible assets. 3.20 Impairment of Long-Term Assets Impairment loss of long-term equity investment in subsidiaries, associates and joint ventures, investment properties, fixed assets and constructions in progress subsequently measured at cost, productive biological assets, intangible assets, goodwill, the rights and interests of proved mining areas of petroleum and natural gas and wells and other relevant facilities measured at cost (excluding inventories, investment properties measured at fair value, deferred tax assets, financial assets), 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 95 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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, goodwill 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. 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. 3.21 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 deferred expenses are amortized on a straight-line basis during the expected 96 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements benefit period. 3.22 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”. 3.22.1 Short-term employee benefits 3.22.1.1 Employee basic salary (salary, bonus, allowance, subsidy) The Company recognises, in the accounting period in which an employee provides service, 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. 3.22.1.2 Employee 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 if it is a non-monetary benefits. 3.22.1.3 Social 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. 3.22.1.4 Short-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 97 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements recognise relevant employee benefit of non-accumulating paid absences when the absences actually occurred. 3.22.1.5 Short-term profit-sharing plan The Company shall recognise the related employee benefits payable under a profit-sharing plan when both of the following conditions are satisfied: 3.22.1.5.1 The Company has a present legal or constructive obligation to make such payments as a result of past events; 3.22.1.5.2 A reliable estimate of the amounts of employee benefits obligation arising from the profit- sharing plan can be made. 3.22.2 Post-employment benefits 3.22.2.1 Defined 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. 3.22.2.2 Defined benefit plan 3.22.2.2.1 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. 3.22.2.2.2 The net defined benefit liability or asset The net defined benefit liability or asset is the deficit or surplus recognised as the present 98 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements value of the defined benefit obligation less the fair value of plan assets. 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. 3.22.2.2.3 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 or 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. 3.22.2.2.4 The amount recognised in other comprehensive income Changes in the net liability or asset of the defined benefit plan resulting from the remeasurements including: Actuarial gains and losses, which are the changes in the present value of the defined benefit obligation resulting from experience adjustments or the effects of changes in actuarial assumptions; Return on plan assets, excluding amounts included in net interest on the net defined benefit liability or asset; Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability or asset. Remeasurements of the net defined benefit liability or 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. 3.22.3 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 the reporting period, at the earlier of the following dates: 3.22.3.1 When the Company cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal. 3.22.3.2 When 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 99 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.22.4 Other long-term employee benefits 3.22.4.1 Meet 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. 3.22.4.2 Meet 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: Service costs; Net interest cost for net liability or asset of other long-term employee benefits 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. 3.23 Estimated Liabilities 3.23.1 Recognition criteria of estimated liabilities The Company recognises the estimated liabilities when obligations related to contingencies satisfy all the following conditions: 3.23.1.1 That obligation is a current obligation of the Company; 3.23.1.2 It is likely to cause any economic benefit to flow out of the Company as a result of performance of the obligation; and 3.23.1.3 The amount of the obligation can be measured reliably. 3.23.2 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 evidence indicates 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. 100 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.24 Revenue recognition principle and measurement 3.24.1 General principle Revenue is the total inflow of economic benefits formed in the company's daily activities that will increase shareholders' equity and does not relate to the capital invested by shareholders. The Company has fulfilled the performance obligation in the contract, that is, the revenue is recognised when the customer obtains the control right of relevant goods. To obtain the control right of the relevant commodity means to be able to dominate the use of the commodity and obtain almost all the economic benefits from it. If there are two or more performance obligations in the contract, the Company will allocate the transaction price to each performance obligation based on the relative proportion of the separate selling price of the goods or services promised by each performance obligation on the start date of the contract, and measure the income based on the transaction price allocated to each single performance obligation. The transaction price refers to the amount of consideration that the Company is expected to be entitled to receive due to the transfer of goods or services to customers, excluding payments collected on behalf of third parties. When determining the transaction price of the contract, the Company determines the transaction price according to the terms of the contract and in combination with its historical practices. When determining the transaction price, the Company takes into account the influence of variable considerations, significant financing elements in the contract, the non-cash considerations, the considerations payable to customers and other factors. The Company determines the transaction price including variable consideration at an amount that does not exceed the amount at which the accumulated recognized income is unlikely to have a significant reversal when the relevant uncertainty is eliminated. If there is a significant financing component in the contract, the Company will determine the transaction price based on the amount payable in cash when the customer obtains the control right of the commodity. The difference between the transaction price and the contract consideration will be amortised by the effective interest method during the contract period. If the interval between the control right transfer and the customer's payment is less than one year, the company will not consider the financing component. If one of the following conditions is met, the performance obligation shall be fulfilled within a certain period of time; otherwise, the performance obligation shall be fulfilled at a certain point of time: 101 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 3.24.1.1 The customer obtains and consumes the economic benefits brought by the Company's fulfillment of contract when the Company performs the obligations; 3.24.1.2 The customer can control the commodities under construction during the Company's execution of the contract; 3.24.1.3 The commodities produced by the Company during the performance of the contract have irreplaceable uses, and the Company has the right to collect payment for the cumulative performance part that has been completed so far during the entire contract period. For performance obligations fulfilled within a certain period of time, the Company recognises revenue in accordance with the performance progress during that period, except where the performance progress cannot be reasonably determined. The Company determines the progress of the performance of services in accordance with the input method (or output method). When the progress of the contract performance cannot be reasonably determined, if the cost incurred by the Company is expected to be compensated, the revenue shall be recognised according to the amount of the cost incurred until the progress of the contract performance can be reasonably determined. For performance obligations fulfilled at a certain point in time, the Company recognises revenue at the point when the customer obtains control of the relevant commodities. The Company considers the following signs when judging whether a customer has obtained control of goods or services: 3.24.1.4 The Company has the current right to receive payment for the goods or services, that is, the customer has the current obligation to pay for the goods; 3.24.1.5 The Company has transferred the legal ownership of the goods to the customer, that is, the customer has the legal ownership of the goods; 3.24.1.6 The Company has transferred the goods in kind to the customer, that is, the customer has possessed the goods in kind; 3.24.1.7 The company has transferred the main risks and rewards of the ownership of the goods to the customers, that is, the customers have obtained the main risks and rewards of the ownership of the goods; 3.24.1.8 The customer has accepted the goods or services. 3.24.2 Specific methods The specific methods of the Company's revenue recognition are as follows: 3.24.2.1 Commodity sales contract The sales contract between the Company and the customer includes the performance 102 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements obligation of transferring the goods, which belongs to the performance obligation at a certain point in time. Recognition of exporting revenue must meet the following conditions: The Company recognizes revenue for exporting goods based on the sales contracts or sales orders, regardless of the sales model adopted. The Company has shipped the products according to the contract and gone through the customs declaration and export procedures; the payment for goods has been recovered or the receipt has been obtained, and the relevant economic benefits are likely to flow in; the main risks and rewards of the ownership of the goods have been transferred, and the legal ownership of the goods has been transferred. Recognition of domestic sales product revenue must meet the following conditions: the Company has delivered the products to the customer according to the contract and the customer has accepted the products; the payment has been recovered or the receipt of payment has been obtained, and the relevant economic benefits are likely to flow in; the main risks and rewards of the ownership of the goods have been transferred, and the legal ownership of the goods has been transferred. Treatment of sales return: according to the general rules of international trade, the adoption of FOB and CIF settlement indicates that the buyer has accepted the purchased goods at the place of shipment, and the relevant risks have been undertaken by the buyer after the acceptance and shipment. Therefore, the Company does not make provision for the above matters separately, but directly records them into the profits and losses in the current period. Processing of product claims: the estimated claim expense rate is calculated based on the actual claim amount in the past two years (excluding special claims) as a percentage of the annual sales revenue, and accrued at period end based on the current sales revenue and the estimated claim expense rate to recognize the claim expenses for products sold in the current period. 3.24.2.2 Service contract The performance obligation of the service contract between the Company and the customer. Since the customer obtains and consumes the economic benefits brought by the Company’s performance at the same time as the Company fulfills the contract, the Company recognises it as a performance obligation performed within a certain period of time, and amortized equally during the service provision period. 3.24.2.3 Construction contract For the performance obligation of the construction contract between the Company and the customer, since the customer can control the goods under construction in the process of the 103 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Company's performance, the Company takes it as the performance obligation to perform in a certain period of time, and recognizes the income according to the performance progress, except that the performance progress cannot be reasonably determined. The Company determines the progress of the performance of providing services in accordance with the output method. The progress of the performance shall be determined according to the proportion of the completed contract workload to the expected total contract workload. On the balance sheet date, the Company re-estimates the progress of completed performance or completed services to reflect the changes in performance. 3.25 Government Grants 3.25.1 Recognition of government grants A government grant shall not be recognized until there is reasonable assurance that: 3.25.1.1 The Company will comply with the conditions attaching to them; and 3.25.1.2 The grants will be received. 3.25.2 Measurement of government grants Monetary grants from the government shall be measured at amount received or receivable. The non-monetary grants from the government shall be measured at their fair value or at the nominal value of CNY 1.00 when reliable fair value is not available. 3.25.3 Accounting for government grants 3.25.3.1 Government 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. The government subsidies related to assets offset the book value of related assets, and shall 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. 3.25.3.2 Government grants related to income Government grants not related to assets are classified as government grants related to income. Government grants related to income are accounted for in accordance with the following criteria: 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 104 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 or loss (or write down related expenses). 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 parts, 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. 3.25.3.3 Repayment 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. 3.26 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. 3.26.1 Recognition of deferred tax assets 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 realized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: Is not a business combination; and At the time of the transaction, affects neither accounting profit nor taxable profit (tax loss) The Company shall recognise a deferred tax asset for all deductible temporary differences 105 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements arising from investments in subsidiaries, associates, and joint ventures, only to the extent that, it is probable that: The temporary difference will reverse in the foreseeable future; and 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. 3.26.2 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. 3.26.2.1 No deferred tax liability shall be recognised for taxable temporary differences arising from: The initial recognition of goodwill; or 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 tax loss. 3.26.2.2 An 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: The Company is able to control the timing of the reversal of the temporary difference; and It is probable that the temporary difference will not reverse in the foreseeable future. 3.26.3 Recognition of deferred tax liabilities or assets involved in special transactions or events 3.26.3.1 Deferred 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 106 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements asset shall be recognised, and simultaneously, goodwill recognised in the business combination shall be adjusted based on relevant deferred tax expense (or income). 3.26.3.2 Items 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. 3.26.3.3 Unused tax losses and unused tax credits 3.26.3.3.1 Unsused 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 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. 3.26.3.3.2 Unsused tax losses and unused tax credits arising from 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. 3.26.3.4 Temporary difference generated in consolidation elimination When preparing consolidated financial statements, if temporary difference between carrying 107 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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. 3.26.3.5 Share-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 equity. 3.27 Leases 3.27.1 Identification of a lease At inception of a contract, the Company assesses 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 an identified asset 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 assesses 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 the right to direct the use of the identified asset 3.27.2 Identification of separate leases If a contract contains multiple separate leases, the Company divides the contract and perform separate accounting treatment for each separate lease. The right to use an identified asset is a separate lease component if simultaneously: a) the lessee can benefit from use of the asset either on its own or together with other resources that are readily available to the lessee; and b) the asset is neither highly dependent on, nor highly interrelated with, other assets in the contract. 3.27.3 Accounting treatment of a lease in which the Company is the lessee On its commencement date, the Company recognizes a lease that has a lease term of 12 months or less and does not contain a purchase option as a short-term lease, and recognizes a lease for which the underlying asset is of low value when it is brand new as a lease of a low-value asset. If the Company subleases an asset leased, or expects to sublease an asset leased, the head lease does not qualify as a lease of a low-value asset. For short-term leases and leases of a low-value asset, the Company chooses not to recognize the right-of-use assets and lease liabilities, and to, within the lease term, recognize such leases in the costs of relevant assets or profit or loss for the current period. Except for short-term leases and leases of low-value assets, which are treated using a 108 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements simplified approach, for each lease, the Company recognizes the right-of-use assets and lease liabilities on the commencement date of the lease term. a) Right-of-use assets A right-of-use asset refers to the lessee's right to use the leased asset during the lease term. On the commencement date of the lease term, a right-of-use asset is initially measured at cost. The cost comprises: A. the amount of the initial measurement of the lease liability; B. any lease payments made on 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 recognizes and measures the costs according to the recognition standard and measurement method applicable to expected liabilities. Costs that are incurred to produce inventories are included into the cost of inventories. A right-of-use asset is depreciated on a straight-line basis. If it is impossible to reasonably determine that the ownership of the leased asset will be acquired when the lease term expires, the depreciation life of a right-of-use asset shall be the lease term or the remaining service life of the leased asset, whichever is shorter. b) Lease liabilities Lease liabilities shall be initially measured at the present value of the lease payments which have not been made by the lease commencement date. Lease payments include: A. fixed payments and in-substance fixed payments, less any lease incentives receivable; B. variable lease payments that depend on an index or a rate; C. the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; 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 under residual value guarantees provided by the lessee. When the present value of lease payments is calculated, the lease payments are discounted using the interest rate implicit in the lease, or, if that rate can be determined, using the Company's incremental borrowing rate / the loan interest rate quoted in the market in the same period. The difference between the amount of lease payments and their present value is regarded as unrecognized financing expenses, and interest expenses are recognized using the discount rate of the recognized present value of lease payments during each period of the lease term and recognized in profit and loss for the current period. Variable lease payments not included in the measurement of the lease liability are recognized in profit and loss for the current period when actually incurred. After the lease commencement date, the Company remeasures the lease liability at the changed present value of lease payments and adjusts the book value of the right-of-use asset when any change occurs in in-substance fixed payments, in amounts expected to be payable under residual value guarantees, in the index or rate used to determine the lease payments, or in the result of assessment or actual exercise of the purchase option, renewal option or termination option. 3.27.4 Accounting treatment of a lease in which the Company is the lessor On the lease commencement date, the lease amount is recognized in profit or loss for the current period in stages on a straight-line basis during the lease term. 3.27.5 Accounting treatment of lease modifications a) Lease modifications accounted for as a separate lease 109 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements The Company accounts for a lease modification as a separate lease if simultaneously: A. the modification increases the scope of the lease by adding the right to use one or more underlying assets; and B. the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price. b) Lease modifications not accounted for as a separate lease A. The Company is the lessee On the effective date of the lease modification, the Company re-determines the lease term and remeasure the lease liability by discounting the revised lease payments after the modification using a revised discount rate. When the present value of lease payments after the modification is calculated, the discount rate is determined as the interest rate implicit in the lease for the remainder of the lease term, or, if that rate can be determined, the incremental borrowing rate on the effective date of the lease modification. As for the impact of the said adjustment to the lease liability, accounting treatment shall be conducted as follows: The Company decreases the carrying amount of the right-of-use asset for lease modifications that decrease the scope of the lease or shorten the lease term, and recognize in profit or loss for the current period any gain or loss relating to the partial or full termination of the lease; The Company makes corresponding adjustment to the carrying amount of the right-of-use asset for all other lease modifications. B. The Company is the lessor The Company accounts for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. 3.28 Significant account judgment and estimates The Company continuously evaluates the important accounting estimates and key assumptions adopted based on historical experience and other factors, including reasonable expectations of future events. Important accounting estimates and key assumptions that are likely to lead to significant adjustment risk of the book value of assets and liabilities in the next accounting year are listed as follows: 3.28.1 Classification of financial assets The significant judgments involved in determining the classification of financial assets include the analysis of business model and contract cash flow characteristics. The Company determines the business model of managing financial assets at the level of financial asset portfolio, which considers factors including the price evaluation and the reporting method of the performance of financial assets to key management personnel, the risks affecting the performance of financial assets and their management methods, as well as the method for relevant business management personnel to obtain remuneration, and so on. When evaluating whether the contractual cash flow of financial assets is consistent with the 110 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements basic lending arrangement, the Company has the following significant judgments: whether the principal may be due to early repayment and other reasons, which may lead to changes in the time distribution or amount during the duration; whether the interest only includes the time value of money, credit risk, other basic borrowing risks, and the consideration of costs and profits. For example, does the early repayment reflect only the unpaid principal and the interest based on the unpaid principal, as well as the reasonable compensation paid for early termination of the contract. 3.28.2 Measurement of expected credit losses of accounts receivable The company uses accounts receivable default exposure and expected credit loss rate to calculate the expected credit loss of accounts receivable, and determines the expected credit loss rate based on the default probability and default loss rate. When determining the expected credit loss rate, the Company uses internal historical credit loss and other data, combined with current conditions and forward-looking information to adjust the historical data. When considering forward-looking information, the indicators used by the Company include the risk of economic downturn, changes in the external market environment, technological environment, and customer conditions. The Company regularly monitors and reviews assumptions related to the calculation of expected credit losses. 3.28.3 Impairment of inventories The Company measures inventories by the lower of cost and realizable net value according to the accounting policies in regards of inventories, and makes impairment provision for the inventories that have higher costs than net realizable value, as well as obsolete and slow-movement inventories. Inventory impairment to net realizable value is based on assessing the saleability of inventories and their net realizable value. Appraisal of inventory impairment requires management to make judgments and estimates on the basis of obtaining conclusive evidence, and considering the purpose of holding inventory, the impact of post balance sheet events and other factors. The difference between the actual results and the original estimates shall have impact on the book value of the inventories and the reversal of the impairment provisions during the period when the estimates are change. 3.28.4 The fair value of financial instruments For financial instruments without active trading market, the Company determines their fair value through various valuation methods. The valuation methods include discounted cash flow model analysis and other. During the valuation, the Company shall estimate the future cash flows, credit risks, market volatility and correlation, and select the appropriate discount rate. Such assumptions are uncertain and their changes shall have impact on the fair value of 111 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements financial instruments. If the equity instrument investment or contract has a public offer, the Company does not take the cost as the best estimate of its fair value. 3.28.5 Impairment of non-current assets The Company accesses whether there are signs of possible impairment of non-current assets other than financial assets on the balance sheet date. For intangible assets with uncertain service lives, additional impairment tests are carried out in addition to the annual impairment test when there are signs of impairment. Other non-current assets other than financial assets shall be tested for impairment when there are indications that their book value are not recoverable. Impairment exists when the book value of the asset or asset group is higher than the recoverable amount, that is, the higher of the net amount of the fair value minus the disposal expenses and the present value of the estimated future cash flow. 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 on the output, selling price, related operating costs of the asset (or asset group) and the discount rate used in calculating the present value. The Company shall use all relevant information available, including the forecast of production, selling price and related operating costs based on reasonable and supportable assumptions to estimate the recoverable amount. The Company tests for goodwill impairment at least annually. This requires estimations of the present value of the future cash flow of the asset group or combination of asset groups to which goodwill is allocated. When predicting the present value of the future cash flows, the Company needs to predict the cash flows generated by the future asset group or the combination of asset groups, and select the appropriate discount rate to determine the present value of the future cash flow. 3.28.6 Depreciation and amortization The Company shall depreciate or amortise the investment properties, fixed assets and intangible assets using the straight-line method within their service lives after considering their residual value. The Company regularly reviews their service lives to determine the depreciation and amortization expenses charged in each reporting period. The Company determines the useful lives based on historical experience of similar assets and the estimated technical update. If there is indication that there has been a significant change in the factor 112 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements used to determine the depreciation or amortization, the depreciation and amortization expenses will be adjusted in future periods. 3.28.7 Deferred tax assets The group shall recognise 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. 3.28.8 Income tax In the Company's normal operating activities, there are some transactions where ultimate tax treatments and calculations are uncertain. Whether there are 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. 3.28.9 Internal retirement benefits and supplementary retirement benefits The amount of internal retirement benefits and supplementary retirement benefits expenses and liabilities of the Company is determined based on various assumptions. These assumptions include discount rates, growth rates for average medical expenses, growth rates for retired and retired personnel subsidies, and other factors. Differences between the actual results and assumptions will be confirmed immediately when incurred and included in the current year's expenses. Although the management believes that reasonable assumptions have been adopted, changes in actual experience values and assumptions will still affect the Company's internal retirement benefits and supplementary retirement benefits expenses and balance of liabilities. 3.29 Changes in Significant Accounting Policies and Accounting Estimates 3.29.1 Significant changes in accounting polices The Ministry of Finance issued “Accounting Standards for Business Enterprises No. 21 – Leases” in December 2018, requiring the enterprises listed both at home and aboard and the enterprises listed overseas with their financial statements prepared in accordance with the International Financial Reporting Standards or the Accounting Standards for Business Enterprises to implement it since 1 January 2019, and other enterprises implementing the Accounting Standards for Business Enterprises to carry out it since 1 January 2021. As 113 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements required by the new lease standards, the Company decides to implement it since 1 January 2021 and adjust relevant contents of accounting policies. The above accounting policy changes were approved by the Company's first board meeting of 2021 held on 12 January 2021. 3.29.2 Significant changes in accounting estimates The Company has no significant changes in accounting estimates for the reporting period. 3.29.3 Adjustments of the financial statements at the beginning of the reporting period for the first-year adoption of new lease standards. 114 Ts a n n K u e n ( C h i n a ) E n t e r p r i s e C o . , L t d . Notes to the financial statements Consolidated Financial Statements Items 31-Dec-20 1-Jan-21 Adjustment Items 31-Dec-20 1-Jan-21 Adjustment Current assets: Current liabilities Cash and cash equivalents 707,794,598.20 707,794,598.20 Short-term borrowings 16,345,141.13 16,345,141.13 Held-for-trading financial assets 720,821,900.00 720,821,900.00 Held-for-trading financial liabilities Derivative financial assets Derivative financial liabilities Notes receivable Notes payable 7,521,531.97 7,521,531.97 Accounts receivable 431,006,560.62 431,006,560.62 Accounts payable 874,962,887.93 874,962,887.93 Accounts receivable financing Advances from customers 6,853,100.03 6,853,100.03 Advances to suppliers 2,622,554.07 2,622,554.07 Contract liabilities 25,605,755.71 25,605,755.71 Other receivables 31,938,548.59 31,938,548.59 Employee benefits payable 51,262,265.67 51,262,265.67 Including: Interests receivable Taxes payable 20,238,247.17 20,238,247.17 Dividend receivable Other payables 52,803,158.48 52,803,158.48 Inventories 255,052,077.36 255,052,077.36 Including: Interests payables Contract assets Dividend payables Assets classified as held for sale Liabilities classified as held for sale Non-current assets maturing Non-current liabilities maturing 64,360,133.28 64,360,133.28 within one year within one year Other current assets 18,634,037.60 18,634,037.60 Other current liabilities Total current assets 2,167,870,276.44 2,167,870,276.44 0 Total current liabilities 1,055,592,088.09 1,119,952,221.37 64,360,133.28 Non-current assets: Non-current liabilities: Debt investments Long-term borrowings Other debt investments Bonds payable Long-term receivables Including: Preference share Long-term equity investments Perpetual capital securities Other equity instrument 40,000.00 40,000.00 Lease liabilities 522,567,850.44 522,567,850.44 investment Other non-current financial assets Long-term payables Investment properties 21,255,610.91 21,255,610.91 Long-term employee benefits payable 312,775.91 312,775.91 Fixed assets 164,338,962.07 164,338,962.07 Estimated liabilities 115 Ts a n n K u e n ( C h i n a ) E n t e r p r i s e C o . , L t d . Notes to the financial statements Items 31-Dec-20 1-Jan-21 Adjustment Items 31-Dec-20 1-Jan-21 Adjustment Construction in progress 728,529.68 728,529.68 Deferred income Productive biological assets Deferred tax liabilities 51,425,551.57 51,425,551.57 Oil and gas assets Other non-current liabilities - Use rights assets 586,927,983.72 586,927,983.72 Total non-current liabilities 51,738,327.48 574,306,177.92 522,567,850.44 Intangible assets 29,346,312.82 29,346,312.82 Total liabilities 1,107,330,415.57 1,694,258,399.29 586,927,983.72 Research and development Owners’ equity expenditure Goodwill Share capital 185,391,680.00 185,391,680.00 Long-term deferred expenses 6,831,730.07 6,831,730.07 Other equity instruments Deferred tax assets 15,590,322.49 15,590,322.49 Including: Preference shares Other non-current assets 2,044,702.30 2,044,702.30 Perpetual capital securities Total non-current assets 240,176,170.34 827,104,154.06 586,927,983.72 Capital reserves 296,808,965.79 296,808,965.79 Less: Treasury stock Other comprehensive income 1,823,063.03 1,823,063.03 Specific reserves Surplus reserves 49,087,662.68 49,087,662.68 Retained earnings 330,918,755.61 330,918,755.61 Total owner’s equity attributable to 864,030,127.11 864,030,127.11 parent company Non-controlling interests 436,685,904.10 436,685,904.10 Total owners’ equity 1,300,716,031.21 1,300,716,031.21 Total assets 2,408,046,446.78 2,994,974,430.50 586,927,983.72 Total liabilities and owners' equity 2,408,046,446.78 2,994,974,430.50 586,927,983.72 Explanation of adjustment: With the implementation of the new lease standards in 2021, except for short-term leases and low-value assets leases, as for all leases, the use rights assets and lease liabilities shall be recognized, in addition, the lease liabilities due within one year shall be reclassified into the item of non-current liabilities due within one year. 116 Ts a n n K u e n ( C h i n a ) E n t e r p r i s e C o . , L t d . Notes to the financial statements Financial Statements of Parent Company Assets 31-Dec-20 1-Jan-21 Adjustment Liabilities and owners’ equity 31-Dec-20 1-Jan-21 Adjustment Current assets: Current liabilities Cash and cash equivalents 7,767,004.93 7,767,004.93 Short-term borrowings Held-for-trading financial assets Held-for-trading financial liabilities Derivative financial assets Derivative financial liabilities Notes receivable Notes payable Accounts receivable 2,710,138.48 2,710,138.48 Accounts payable 31,990,751.46 31,990,751.46 Accounts receivable financing Advances from customers 1,101,005.38 1,101,005.38 Advances to suppliers 32,124.35 32,124.35 Contract liabilities 224,884.11 224,884.11 Other receivables 3,311,425.63 3,311,425.63 Employee benefits payable 7,903,368.21 7,903,368.21 Including: Interests receivable Taxes payable 1,896,604.41 1,896,604.41 Dividend receivable Other payables 168,453,443.56 168,453,443.56 Inventories 1,457,947.89 1,457,947.89 Including: Interests payables Contract asset Dividend payables Assets classified as held for sale Liabilities classified as held for sale Non-current assets maturing within one Non-current liabilities maturing within one 314,470.64 314,470.64 year year Other current assets Other current liabilities Total current assets 15,278,641.28 15,278,641.28 Total current liabilities 211,570,057.13 211,884,527.77 314,470.64 Non-current assets: Non-current liabilities: Debt investments Long-term borrowings Other debt investments Bonds payable Long-term receivables Including: Preference share Long-term equity investments 923,414,701.56 923,414,701.56 Perpetual capital securities Other equity instrument investment 40,000.00 40,000.00 Lease liabilities 489,312.99 489,312.99 Other non-current financial assets Long-term payables Investment properties 25,202,712.69 25,202,712.69 Long-term employee benefits payable Fixed assets 606,019.76 606,019.76 Estimated liabilities Construction in progress Deferred income 117 Ts a n n K u e n ( C h i n a ) E n t e r p r i s e C o . , L t d . Notes to the financial statements Assets 31-Dec-20 1-Jan-21 Adjustment Liabilities and owners’ equity 31-Dec-20 1-Jan-21 Adjustment Productive biological assets Deferred tax liabilities Oil and gas assets Other non-current liabilities Use rights assets 803,783.63 803,783.63 Total non-current liabilities - 489,312.99 489,312.99 Intangible assets Total liabilities 211,570,057.13 212,373,840.76 803,783.63 Research and development expenditure Owners’ equity Goodwill Share capital 185,391,680.00 185,391,680.00 Long-term deferred expenses 641,932.25 641,932.25 Other equity instruments Deferred tax assets 3,961,079.97 3,961,079.97 Including: Preference shares Other non-current assets Perpetual capital securities Total non-current assets 953,866,446.23 954,670,229.86 803,783.63 Capital reserves 271,490,289.82 271,490,289.82 Less: Treasury stock Other comprehensive income Specific reserves Surplus reserves 49,087,662.68 49,087,662.68 Retained earnings 251,605,397.88 251,605,397.88 Total owners’ equity 757,575,030.38 757,575,030.38 Total assets 969,145,087.51 969,948,871.14 803,783.63 Total liabilities and owners' equity 969,145,087.51 969,948,871.14 803,783.63 Explanation of adjustment: With the implementation of the new lease standards in 2021, except for short-term leases and low-value assets leases, as for all leases, the use rights assets and lease liabilities shall be recognized, in addition, the lease liabilities due within one year shall be reclassified into the item of non-current liabilities due within one year. 3.29.4 Retroactive adjustments to comparative data of prior years when first adoption of new lease standards in 2021 The Company has no retroactive adjustments to comparative data of prior years when first adoption of new lease standards. 118 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 4. Taxation 4.1Major Categories of Tax and Tax Rates Applicable to the Company Categories of tax Basis of tax assessment Tax rate Calculates output tax based on the tax rate of taxable income, Value added tax and calculates the value-added tax based on the difference after 5, 6, 9, 13 (VAT) deducting the deductible input tax in the current period Urban maintenance Payable turnover tax, tax exemption 7 and construction tax Educational Payable turnover tax, tax exemption 3 surcharge Local education Payable turnover tax, tax exemption 2 surcharge Enterprise income Taxable profits 25 tax 4.2 Tax rates of income tax of different subsidiaries are stated as below: 4.2.1 TsannKuen (Zhangzhou) Enterprise Co., Ltd. (hereafter, TKL) Categories of tax Basis of tax assessment Tax rate Calculates output tax based on the tax rate of taxable income, Value added tax and calculates the value-added tax based on the difference after 0, 5, 6, 9, 13 deducting the deductible input tax in the current period Urban maintenance Payable turnover tax, tax exemption 5 and construction tax Educational Payable turnover tax, tax exemption 3 surcharge Local education Payable turnover tax, tax exemption 2 surcharge Enterprise income Taxable profits 15 tax The export sales of products and raw materials are subject to tax exemption, credit and refund policies, and the value-added tax rate is 0%. 4.2.2 TsannKuen China (Shanghai) Enterprise Co., Ltd. (hereafter, TKS) Categories of tax Basis of tax assessment Tax rate Calculates output tax based on the tax rate of taxable income, and Value added tax calculates the value-added tax based on the difference after 5, 9, 13 deducting the deductible input tax in the current period 119 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Categories of tax Basis of tax assessment Tax rate Urban maintenance Payable turnover tax, tax exemption 5 and construction tax Educational Payable turnover tax, tax exemption 3 surcharge Local education Payable turnover tax, tax exemption 2 surcharge Enterprise income Taxable profits 25 tax 4.2.3 Tsannkuen Edge Intelligence Co., Ltd. (hereafter, TKEI) Categories of tax Basis of tax assessment Tax rate Calculates output tax based on the tax rate of taxable income, Value added tax and calculates the value-added tax based on the difference after 5 deducting the deductible input tax in the current period Enterprise income Taxable profits 20 tax 4.2.4 Pt. Star Comgistic Indonesia (hereafter, SCI) Categories of tax Basis of tax assessment Tax rate Calculates output tax based on the tax rate of taxable income, Value added tax and calculates the value-added tax based on the difference after 10 deducting the deductible input tax in the current period Enterprise income Taxable profits 25 tax 4.3 Preferential tax policy According to the principle of “The Notice Regarding to Fujian Province 2020 Second Group of High Technology Enterprise Review” (Mingkegao No. [2020]29), TKL was identified as Fujian Province High Technology Enterprise (Certification No. GR202035002032), valid from the year 2020 to 2022. The enterprise income tax of this period is calculated at 15%. 120 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5.1 Cash and Cash Equivalents Items 30 June 2021 1 January 2021 Cash on hand 897,767.56 875,000.35 Cash in bank 699,975,880.58 671,926,206.33 Other monetary funds 43,880,872.37 34,993,391.52 Total 744,754,520.51 707,794,598.20 Including:The total amount deposited overseas 33,258,376.76 11,312,975.48 The total amount with restricted use rights due to 38,652,259.04 34,993,391.52 mortgage, pledge or freeze 5.2 Held-for-trading financial assets Items 30 June 2021 1 January 2021 Financial assets measured at fair value through Profit or 552,835,416.66 720,821,900.00 Loss 1,956,500.00 20,821,900.00 Including: Derivative financial assets 550,878,916.66 700,000,000.00 Structured Deposit Investment Total 552,835,416.66 720,821,900.00 Note: Derivative financial is forward foreign exchange settlement and sale contracts signed by the Company with financial institutions. 5.3 Accounts Receivables 5.3.1 Accounts receivable by aging Aging 30 June 2021 1 January 2021 436,835,095.64 435,535,426.84 Within one year 422,215,413.52 384,591,893.80 Including: Within 90 days 91 – 180 days 14,175,793.87 50,777,968.04 350,863.78 165,565.00 181 – 270 days 93,024.47 271 – 365 days 1-2 years 2-3 years Over 3 years 5,000.00 5,000.00 436,840,095.64 435,540,426.84 Subtotal 3,310,143.52 4,533,866.22 Less: provision for bad debt Total 433,529,952.12 431,006,560.62 5.3.2 Accounts receivable by bad debt provision method 121 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 30 June 2021 Book balance Provision for bad debt Category Carrying Provision ratio Amount Proportion (%) Amount amount (%) Provision for bad debt recognised 0.00 0.00 0.00 0.00 0.00 individually Provision for bad debt recognized 436,840,095.64 100.00 3,310,143.52 0.76 433,529,952.12 collectively 434,765,097.31 99.52 3,310,143.52 0.76 431,454,953.79 Including: Portfolio by age 2,074,998.33 0.48 0.00 0.00 2,074,998.33 Portfolio by related parties 436,840,095.64 100.00 3,310,143.52 0.76 433,529,952.12 Total (Continued) 1 January 2021 Book balance Provision for bad debt Category Proportion Provision Carrying amount Amount Amount (%) ratio (%) Provision for bad debt recognised 0.00 0.00 0.00 0.00 0.00 individually Provision for bad debt recognized 435,540,426.84 100.00 4,533,866.22 1.04 431,006,560.62 collectively 433,328,896.48 99.49 4,533,866.22 1.05 428,795,030.26 Including: Portfolio by age 2,211,530.36 0.51 0.00 0.00 2,211,530.36 Portfolio by related parties 435,540,426.84 100.00 4,533,866.22 1.04 431,006,560.62 Total Specific instructions for provision for bad debts: Accounts receivables with bad debt provision are recognised by portfolio by age 30 June 2021 Aging Book balance Provision for bad debt Provision ratio (%) Not overdue 410,663,477.87 2,052,837.79 0.50 Overdue 1 – 30 days 23,505,499.54 1,057,747.47 4.50 Overdue 31 – 60 days 492,310.44 98,462.08 20.00 Overdue 61 – 90 days 4,933.24 2,219.96 45.00 Overdue more than 90 days 98,876.22 98,876.22 100.00 Total 434,765,097.31 3,310,143.52 0.76 (Continued) 122 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 1 January 2021 Aging Book balance Provision for bad debt Provision ratio (%) Not overdue 392,745,091.77 1,963,725.46 0.50 Overdue 1 – 30 days 36,596,667.51 1,646,850.01 4.50 Overdue 31 – 60 days 3,638,927.08 727,785.43 20.00 Overdue 61 – 90 days 277,645.12 124,940.32 45.00 Overdue more than 90 days 70,565.00 70,565.00 100.00 Total 433,328,896.48 4,533,866.22 1.05 Accounts receivables with bad debt provision are recognised by portfolio by related parties 30 June 2021 Accounts Receivables Provision for bad debt Provision ratio (%) Reason for Book balance provision Portfolio by related 2,074,998.33 0.00 0.00 parties 2,074,998.33 0.00 0.00 Total (Continued) 1 January 2021 Accounts Receivables Provision for bad debt Provision ratio (%) Reason for Book balance provision Portfolio by related 2,211,530.36 0.00 0.00 parties Total 2,211,530.36 0.00 0.00 Basis for the amount of bad debt provision in the current period: Refer to Note 3.9 for the recognition criteria and explanation of the provision for bad debts based on groups. 5.3.3 Changes of provision for bad debt during the reporting period Changes during the reporting period Category 1 January 2021 Recovery or 30 June 2021 Provision Write-off Other reversal Provision for bad 4,533,866.22 0.00 1,208,617.28 0.00 15,105.42 3,310,143.52 debt by group Total 4,533,866.22 0.00 1,208,617.28 0.00 15,105.42 3,310,143.52 5.3.4 There is no accounts receivable write-off during the reporting period 5.3.5 Top five closing balances by entity 123 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Entity Accounts receivable Proportion (%) Bad debt provision No. 1 151,203,936.30 34.61 1,013,080.41 No. 2 92,505,999.90 21.18 542,917.39 No. 3 62,257,060.87 14.25 290,399.35 No. 4 33,083,881.43 7.57 209,266.53 No. 5 20,951,358.32 4.80 104,469.81 Total 360,002,236.82 82.41 2,160,133.49 5.4 Advances to Suppliers 5.4.1 Advances to suppliers by aging Aging 30 June 2021 1 January 2021 Amount Proportion (%) Amount Proportion (%) Within one year 2,047,006.73 100.00 2,622,554.07 100.00 Total 2,047,006.73 100.00 2,622,554.07 100.00 5.4.2 Top five closing balances by entity The total amount of the top five vendors with the largest prepaid amounts by the Company at the end of the reporting period is CNY 1,422,293.17, accounting for 69.48% of the total amount of the prepayment at the end of the reporting period. 5.5 Other Receivables 5.5.1 Other receivables by category Items 30 June 2021 1 January 2021 0.00 0.00 Interest receivable 0.00 0.00 Dividend receivable 22,368,439.05 31,938,548.59 Other receivables 22,368,439.05 31,938,548.59 Total 5.5.2 Interest receivable None 5.5.3 Dividends receivable None 5.5.4 Other Receivables 5.5.4.1 Other receivables by aging Aging 30 June 2021 1 January 2021 21,081,832.84 30,566,672.96 Within one year 20,696,232.84 30,331,697.53 Including: Within 90 days 260,000.00 86,800.00 91 – 180 days 56,800.00 87,375.43 181 – 270 days 124 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Aging 30 June 2021 1 January 2021 68,800.00 60,800.00 271 – 365 days 137,502.00 62,600.00 1-2 years 0.00 364,556.15 2-3 years 1,440,237.22 1,134,501.09 Over 3 years 22,659,572.06 32,128,330.20 Subtotal 291,133.01 189,781.61 Less: provision for bad debt 22,368,439.05 31,938,548.59 Total 5.5.4.2 Other receivables by nature Nature 30 June 2021 1 January 2021 14,500,000.00 25,064,584.54 Export tax refund 6,795,525.84 5,625,222.17 Other open credits 1,159,263.05 1,236,358.34 Deposit 204,783.17 202,165.15 Due from related parties 22,659,572.06 32,128,330.20 Subtotal 291,133.01 189,781.61 Less: Provision for bad debt 22,368,439.05 31,938,548.59 Total 5.5.4.3 Other receivables by provision for bad debt Stage 1 Stage 2 Stage 3 Expected credit loss Expected credit loss Expected credit Provision for bad debt for the whole duration for the whole duration Total loss for the next (no credit (Credit impairment 12 months impairment) has occurred) 189,781.61 0.00 0.00 189,781.61 Closing balance as of 1/1/2021 Carrying amount of other —— —— —— —— receivables in current period on 1/1/2021 0.00 0.00 0.00 0.00 Turn to stage 2 0.00 0.00 0.00 0.00 Turn to stage 3 0.00 0.00 0.00 0.00 Turn back to stage 2 0.00 0.00 0.00 0.00 Turn back to stage 1 101,351.40 0.00 0.00 101,351.40 Recognition 0.00 0.00 0.00 0.00 Reversal 0.00 0.00 0.00 0.00 Used 125 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Stage 1 Stage 2 Stage 3 Expected credit loss Expected credit loss Expected credit Provision for bad debt for the whole duration for the whole duration Total loss for the next (no credit (Credit impairment 12 months impairment) has occurred) 0.00 0.00 0.00 0.00 Written off 0.00 0.00 0.00 0.00 Other movements 291,133.01 0.00 0.00 291,133.01 Closing balance as of 30/6/2021 5.5.4.4 Provision for bad debt recognized, recovered or reversed Changes during the reporting period 1 January Category Recovery or 30 June 2021 2021 Provision Write-off Other reversal Provision for bad debt 0.00 0.00 0.00 0.00 0.00 0.00 recognised individually Provision for bad debt 189,781.61 101,351.40 0.00 0.00 0.00 291,133.01 recognized by portfolio Total 189,781.61 101,351.40 0.00 0.00 0.00 291,133.01 5.5.4.5 There are no other receivables write-off during the reporting period 5.5.4.6 Top five closing balances by entity Proportion of the Provisio Balance at 30 June balance to the total Entity name Nature Aging n for 2021 other receivables bad debt (%) Zhangzhou Taiwan Investment Export tax refund 14,500,000.00 1-90 days 63.99 zone Tax Bureau of SAT State Grid Fujian Longhai Electric charge 3,444,792.85 1-90 days 15.20 Power Supply Co., Ltd. Store Bound LLC Ocean freight 651,515.40 1-90 days 2.88 China Export & Credit Insurance Corporation Fujian Deposit 648,450.00 Over 3 years 2.86 Branch PT.PLN(PER SERO) Deposit 410,813.05 Over 3 years 1.81 Total 19,655,571.30 86.74 0.00 5.6 Inventories 5.6.1 Inventories by category 126 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 30 June 2021 1 January 2021 Items Provision for Carrying Provision for Carrying Book balance Book balance impairment amount impairment amount 118,908,667.03 11,491,860.71 107,416,806.32 100,787,147.78 14,006,349.34 86,780,798.44 Raw materials 3,689,086.86 0.00 3,689,086.86 21,018,640.91 21,018,640.91 Work in process Consigned 14,430,662.08 0.00 14,430,662.08 0.00 processing material Self-manufactured 39,171,573.53 1,000,088.39 38,171,485.14 20,946,038.00 1,000,088.39 19,945,949.61 semi-finished goods 137,700,148.80 10,791,783.28 126,908,365.52 134,905,753.88 11,506,798.79 123,398,955.09 Finished goods Consigned finished 0.00 0.00 0.00 0.00 goods Low-value 618,568.45 0.00 618,568.45 837,653.40 837,653.40 consumables 2,264,550.74 0.00 2,264,550.74 3,070,079.91 0.00 3,070,079.91 Materials in transit 316,783,257.49 23,283,732.38 293,499,525.11 281,565,313.88 26,513,236.52 255,052,077.36 Total 5.6.2 Provision for impairment Increase in Decrease in 31 December 2020 current year current year Item 1 January 2021 30 June 2021 Impact of changes Recovered or Impact of changes in Accrual exchange rates in exchange rates Written off Raw material 14,006,349.34 0.00 198.22 2,493,798.05 20,888.80 11,491,860.71 Self-manufacture d semi-finished 1,000,088.39 0.00 0.00 0.00 0.00 1,000,088.39 goods Finished goods 11,506,798.79 90,332.22 0.00 798,755.36 6,592.37 10,791,783.28 Total 26,513,236.52 90,332.22 198.22 3,292,553.41 27,481.17 23,283,732.38 5.7 Other Current Assets Items 30 June 2021 1 January 2021 9,782,096.97 7,818,199.72 Input tax to be deducted 20,787,032.16 10,815,837.88 Financial investment Total 30,569,129.13 18,634,037.60 Note: Financial investments are mainly bank financial products purchased by Company with idle funds. 5.8 Other equity instrument investment 5.8.1 General information of other equity instrument investment Items 30 June 2021 1 January 2021 40,000.00 40,000.00 Non-trading equity instrument investment 127 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 40,000.00 40,000.00 Total 5.9 Investment Properties 5.9.1 Investment properties accounted for using cost model Building and Land use rights Construction Items Total in progress plants Initial cost: Balance on 1 January 2021 64,309,127.61 29,260,577.51 0.00 93,569,705.12 Increase during the reporting period 337,666.76 0.00 0.00 337,666.76 1. Acquisition 0.00 0.00 0.00 0.00 2. Transfer from inventories /fixed 337,666.76 0.00 0.00 337,666.76 assets /construction in progress 3. Impact of changes in exchange rate 0.00 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 0.00 1. Disposal 0.00 0.00 0.00 0.00 2. Other transferred out 0.00 0.00 0.00 0.00 3. Impact of changes in exchange rate 0.00 0.00 0.00 0.00 Balance on 30 June 2021 64,646,794.37 29,260,577.51 0.00 93,907,371.88 Accumulated depreciation and amortisation: Balance on 1 January 2021 56,773,556.57 15,540,537.64 0.00 72,314,094.21 Increase during the reporting period 569,631.63 311,055.90 0.00 880,687.53 1. Accrual or amortization 268,551.89 311,055.90 0.00 579,607.79 2. Transfer from fixed assets 301,079.74 0.00 0.00 301,079.74 3. Impact of changes in exchange rate 0.00 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 0.00 1. Disposal 0.00 0.00 0.00 0.00 2. Other transferred out 0.00 0.00 0.00 0.00 3. Impact of changes in exchange rate Balance on 30 June 2021 57,343,188.20 15,851,593.54 0.00 73,194,781.74 Provision for impairment: Balance on 1 January 2021 0.00 0.00 0.00 0.00 Increase during the reporting period 0.00 0.00 0.00 0.00 1. Accrual or amortization 0.00 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 0.00 128 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Building and Land use rights Construction Items Total in progress plants 1. Disposal 0.00 0.00 0.00 0.00 2. Other 0.00 0.00 0.00 0.00 Balance on 30 June 2021 0.00 0.00 0.00 0.00 Carrying amount: Balance on 30 June 2021 7,303,606.17 13,408,983.97 0.00 20,712,590.14 Balance on 1 January 2021 7,535,571.04 13,720,039.87 0.00 21,255,610.91 5.9.2 Investment properties without certificate of title Item Carrying amount Reason Lvyuan three country villa 678,284.65 Note: Lvyuan three country villa is the houses with limited property rights purchased by the TsannKuen China (Shanghai) Enterprise Co., Ltd. which is the subsidiary of the Company from Shanghai Lvsheng Real Estate Development Co., Ltd. in 1999, and there has no land expropriation. Shanghai Lvsheng Real Estate Development Co., Ltd. and Shanghai Jiading district, Huangdu town Lvyuan community residents' committees issued the certificate jointly to prove the right of this property belongs to TsannKuen China (Shanghai) Enterprise Co., Ltd. in January 2006. 5.10 Fixed Assets 5.10.1 Fixed assets by category Items 30 June 2021 1 January 2021 157,027,732.21 164,338,962.07 Fixed assets 0.00 0.00 Disposal of fixed assets 157,027,732.21 164,338,962.07 Total 129 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.10.2 Fixed assets 5.10.2.1 General information of fixed assets Electronic devices, Improvement expense Items Houses and buildings Machineries Vehicles Total modules and others of leased fixed assets Initial cost: Balance on 1 January 2021 93,647,826.29 161,565,309.12 869,881,721.37 19,026,933.04 57,061,893.94 1,201,183,683.76 Increase during the reporting period -223,420.01 610,057.39 14,474,271.37 -30,532.85 -55,412.62 14,774,963.28 0.00 899,405.14 14,734,847.42 10,852.97 0.00 15,645,105.53 (i) Acquisition (ii) Transfer from construction in progress 0.00 0.00 0.00 0.00 0.00 0.00 (iii) Transfer from investment properties 0.00 0.00 0.00 0.00 0.00 0.00 (iii) Impact of changes in exchange rates -223,420.01 -289,347.75 -260,576.05 -41,385.82 -55,412.62 -870,142.25 Decrease during the reporting period 516,984.46 289,249.63 52,791,926.09 0.00 0.00 53,598,160.18 (i) Disposal 179,317.70 289,249.63 52,791,926.09 0.00 0.00 53,260,493.42 (ii) Transfer to investment properties 337,666.76 0.00 0.00 0.00 0.00 337,666.76 (iii) Impact of changes in exchange rates 0.00 0.00 0.00 0.00 0.00 0.00 Balance on 30 June 2021 92,907,421.82 161,886,116.88 831,564,066.65 18,996,400.19 57,006,481.32 1,162,360,486.86 Accumulated depreciation: Balance on 1 January 2021 55,486,006.84 92,998,389.56 776,255,543.11 15,758,307.09 55,431,456.07 995,929,702.67 Increase during the reporting period 1,696,690.67 3,271,840.42 14,355,210.50 516,852.30 481,804.06 20,322,397.95 (i) Provision 1,820,824.42 3,447,819.88 14,526,471.41 543,072.30 535,470.10 20,873,658.11 (ii) Transfer from investment properties 0.00 0.00 0.00 0.00 0.00 0.00 (iii) Impact of changes in exchange rates -124,133.75 -175,979.46 -171,260.91 -26,220.00 -53,666.04 -551,260.16 130 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Electronic devices, Improvement expense Items Houses and buildings Machineries Vehicles Total modules and others of leased fixed assets Decrease during the reporting period 323,270.28 451,389.40 49,203,459.63 6,503.32 0.00 49,984,622.63 (i) Disposal 22,190.54 451,389.34 49,203,459.63 6,503.32 0.00 49,683,542.83 (ii) Transfer from investment properties 301,079.74 0.00 0.00 0.00 0.00 301,079.74 (iii) Impact of changes in exchange rates 0.00 0.06 0.00 0.00 0.00 0.06 Balance on 30 June 2021 56,859,427.23 95,818,840.58 741,407,293.98 16,268,656.07 55,913,260.13 966,267,477.99 Provision for impairment: Balance on 1 January 2021 0.00 20,150,939.56 20,720,129.36 6,382.26 37,567.84 40,915,019.02 Increase during the reporting period 0.00 1,011,098.73 93,702.89 3,764.71 -101.16 1,108,465.17 (i) Provision 0.00 1,041,598.63 108,007.27 3,817.02 0.00 1,153,422.92 (iii) Impact of changes in exchange rates 0.00 -30,499.90 -14,304.38 -52.31 -101.16 -44,957.75 Decrease during the reporting period 0.00 11,291.17 2,946,916.36 0.00 0.00 2,958,207.53 (i) Disposal 0.00 11,291.17 2,946,916.36 0.00 0.00 2,958,207.53 Balance on 30 June 2021 0.00 21,150,747.12 17,866,915.89 10,146.97 37,466.68 39,065,276.66 Carrying amount: Balance on 30 June 2021 36,047,994.59 44,916,529.18 72,289,856.78 2,717,597.15 1,055,754.51 157,027,732.21 Balance on 1 January 2021 38,161,819.45 48,415,980.00 72,906,048.90 3,262,243.69 1,592,870.03 164,338,962.07 131 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.10.2.2 Idle fixed assets Accumulated Provision for Carrying Item Initial cost depreciation impairment amount Machineries 45,886,586.22 27,997,561.94 17,889,024.28 0.00 Electronic device, 133,200,801.93 123,172,238.06 9,978,448.14 50,115.73 modules, and others Vehicles 98,548.53 93,616.49 4,932.04 0.00 Improvement expense of 2,448,321.34 2,420,939.46 27,381.88 0.00 fixed assets Total 181,634,258.02 153,684,355.95 27,899,786.34 50,115.73 5.10.2.3 Fixed assets without certificate of title Items Carrying amount Reason Lvyuan three country villa 161,496.34 Qingying garden 119,284.52 Legal procedures in process Note: Lvyuan three country villa is the houses with limited property rights purchased by the TsannKuen China (Shanghai) Enterprise Co., Ltd. which is the subsidiary of the Company from Shanghai Lvsheng Real Estate Development Co., Ltd. in 1999, and there has no land expropriation. Shanghai Lvsheng Real Estate Development Co., Ltd. and Shanghai Jiading district, Huangdu town Lvyuan community residents' committees issued the certificate jointly to prove the right of this property belongs to TsannKuen China (Shanghai) Enterprise Co., Ltd. in January 2006. 5.11 Construction in Progress 5.11.1 Construction in progress by category Items 30 June 2021 1 January 2021 Construction in progress 4,487,009.02 728,529.68 Construction materials 0.00 0.00 Total 4,487,009.02 728,529.68 5.11.2 Construction in progress 5.11.2.1 General information of construction in progress Items 30 June 2021 1 January 2021 Provision Provision for Carrying Book Carrying Book balance for impairment amount balance amount impairment Sporadic 4,487,009.02 0.00 4,487,009.02 728,529.68 728,529.68 project Total 4,487,009.02 0.00 4,487,009.02 728,529.68 0.00 728,529.68 132 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.12 Use Rights Assets Houses and buildings Vehicles Total Items Initial cost: 586,022,598.38 905,385.35 586,927,983.73 Balance on 1 January 2021 41,847.20 386.86 42,234.06 Increase during the reporting period (i) Leases 0.00 0.00 0.00 41,847.20 386.86 42,234.06 (ii) Impact of changes in exchange rates 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 (i) Disposal (ii) Impact of changes in exchange rates 0.00 0.00 0.00 586,064,445.58 905,772.21 586,970,217.79 Balance on 30 June 2021 Accumulated depreciation: 0.00 0.00 0.00 Balance on 1 January 2021 9,931,097.22 455,797.57 10,386,894.79 Increase during the reporting period 9,926,858.94 455,775.01 10,382,633.95 (i) Provision 4,238.28 22.56 4,260.84 (ii) Impact of changes in exchange rates 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 (i) Disposal 0.00 0.00 0.00 (ii) Impact of changes in exchange rates 9,931,097.22 455,797.57 10,386,894.79 Balance on 30 June 2021 Provision for impairment: 0.00 0.00 0.00 Balance on 1 January 2021 0.00 0.00 0.00 Increase during the reporting period 0.00 0.00 0.00 (i) Provision 0.00 0.00 0.00 (ii) Impact of changes in exchange rates 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 (i) Disposal 133 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Houses and buildings Vehicles Total Items 0.00 0.00 0.00 (ii) Impact of changes in exchange rates 0.00 0.00 0.00 Balance on 30 June 2021 Carrying amount: 576,133,348.37 449,974.63 576,583,323.00 Balance on 30 June 2021 586,022,598.38 905,385.35 586,927,983.73 Balance on 1 January 2021 5.13 Intangible Assets 5.13.1 General information of intangible assets 134 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Land use rights Software Total Initial cost: 18,282,356.61 50,077,949.73 68,360,306.34 Balance on 1 January 2021 0.00 3,552,093.44 3,552,093.44 Increase during the reporting period 0.00 3,552,000.00 3,552,000.00 1. Acquisition 0.00 93.44 93.44 2. Impact of changes in exchange rate 280,036.08 0.00 280,036.08 Decrease during the reporting period 0.00 0.00 0.00 1. Disposal 280,036.08 0.00 280,036.08 2. Impact of changes in exchange rate 18,002,320.53 53,630,043.17 71,632,363.70 Balance on 30 June 2021 Accumulated depreciation and amortisation: 4,664,431.31 34,349,562.21 39,013,993.52 Balance on 1 January 2021 308,138.85 3,939,414.33 4,247,553.18 Increase during the reporting period 308,138.85 3,939,353.61 4,247,492.46 1. Accrual 0.00 60.72 60.72 2. Impact of changes in exchange rate 73,582.09 0.00 73,582.09 Decrease during the reporting period 0.00 0.00 0.00 1. Disposal 73,582.09 0.00 73,582.09 2. Impact of changes in exchange rate 4,898,988.07 38,288,976.54 43,187,964.61 Balance on 30 June 2021 Provision for impairment: 0.00 0.00 0.00 Balance on 1 January 2021 0.00 0.00 0.00 Increase during the reporting period 0.00 0.00 0.00 1. Accrual 0.00 0.00 0.00 2. Impact of changes in exchange rate 0.00 0.00 0.00 Decrease during the reporting period 0.00 0.00 0.00 1. Disposal 0.00 0.00 0.00 2. Impact of changes in exchange rate 0.00 0.00 0.00 Balance on 30 June 2021 Carrying amount: 13,103,332.46 15,341,066.63 28,444,399.09 Balance on 30 June 2021 13,617,925.30 15,728,387.52 29,346,312.82 Balance on 1 January 2021 135 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.14 Long-term Deferred Expenses Increase during the Other 30 June 2021 Items 1 January 2021 Amortisation reporting period decrease Telecommunications 48,643.06 66,037.74 10,418.46 0.00 104,262.34 project expenses Houses and buildings 6,683,390.42 6,123,221.46 1,820,049.35 0.00 10,986,562.53 renovation expenses Wall projects of 3 99,696.59 0.00 31,483.20 0.00 68,213.39 phases Total 6,831,730.07 6,189,259.20 1,861,951.01 0.00 11,159,038.26 5.15 Deferred Tax Assets and Deferred Tax Liabilities 5.15.1 Deferred tax assets before offsetting 30 June 2021 1 January 2021 Deductible Deferred tax Deductible Deferred tax Items temporary assets temporary assets differences differences Provision for asset 55,827,945.62 9,365,068.92 59,565,618.38 9,996,562.15 impairment Provision for credit 2,503,335.05 386,598.29 3,144,069.54 478,564.04 impairment Use rights assets 5,150,395.75 772,559.36 Unrealized intragroup 298,001.44 74,500.36 284,635.52 71,158.88 profit 11,086,492.25 1,797,096.24 12,221,158.78 2,001,465.13 Accrued expenses 276,092.12 55,218.42 272,562.30 54,512.47 Payroll liability 3,474,676.80 3,050,009.44 11,952,239.29 2,988,059.82 Undistributed deficit Financial liabilities held 753,600.00 113,040.00 0.00 0.00 for trading 79,370,539.03 15,614,091.03 87,440,283.81 15,590,322.49 Total 5.15.2 Deferred tax liabilities before offsetting 30 June 2021 1 January 2021 Deductible Deferred tax Deductible Deferred tax Items temporary liabilities temporary liabilities differences differences 193,170,474.36 48,292,618.59 193,170,474.36 48,292,618.59 Policy relocation 136 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 30 June 2021 1 January 2021 Deductible Deferred tax Deductible Deferred tax Items temporary liabilities temporary liabilities differences differences Financial assets held 2,366,222.22 354,933.33 20,821,900.00 3,123,285.00 for trading 48,864.33 9,772.90 48,239.76 9,647.98 Others 195,585,560.91 48,657,324.82 214,040,614.12 51,425,551.57 Total 5.15.3 Unrecognized deferred tax assets Items 30 June 2021 1 January 2021 6,521,063.42 7,862,637.16 Provision for asset impairment 1,097,941.48 1,579,578.29 Provision for credit impairment 14,539,054.59 15,032,275.03 Accrued expenses 3,035,370.92 9,600,380.92 Payroll liability 64,800,849.60 125,592,039.85 Undistributed deficit 89,994,280.01 159,666,911.25 Total Note: The list above is not recognized as deductible temporary differences and recoverable losses due to the uncertainty of whether sufficient taxable income will be obtained in the future. 5.15.4 Deductible losses not recognised as deferred tax assets will expire in the following periods: Items 30 June 2021 1 January 2021 0.00 59,954,740.54 Year 2021 4,779,439.07 4,828,378.89 Year 2022 15,427,022.83 16,003,668.47 Year 2023 14,603,168.32 14,837,857.89 Year 2024 Year 2025 493,480.77 2,056,451.61 Year 2026 to 2031 29,497,738.61 27,910,942.45 Total 64,800,849.60 125,592,039.85 Note: The annual loss of Tsannkuen Edge Intelligence Co., Ltd. continues to make up for a maximum period of 10 years. 137 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.16 Other Non-current Assets 30 June 2021 1 January 2021 Items Book Provision for Carrying Provision for Carrying Book balance balance impairment amount impairment amount Prepaid mold fee 5,025.64 0.00 5,025.64 46,275.64 0.00 46,275.64 Prepaid equipment fee 791,389.60 0.00 791,389.60 1,998,426.66 0.00 1,998,426.66 796,415.24 0.00 796,415.24 2,044,702.30 0.00 2,044,702.30 Total 5.17 Short-term Borrowings 5.17.1 Disclosure of short-term borrowings by category Items 30 June 2021 1 January 2021 Pledged loan 0.00 16,345,141.13 Credit loan 29,118,135.68 0.00 Total 29,118,135.68 16,345,141.13 5.18 Held-for-Trading Financial Liabilities Items 30 June 2021 1 January 2021 Held-for-trading financial liabilities 753,600.00 0.00 Including: Derivative financial liabilities 753,600.00 0.00 753,600.00 0.00 Total Note: Derivative financial liabilities are forward foreign exchange settlement/sale contracts signed by the Company with the financial institutions. 5.19 Notes Payable Items 30 June 2021 1 January 2021 Bank acceptance bills 7,457,554.16 7,521,531.97 Total 7,457,554.16 7,521,531.97 Note: There are no expired notes payable that have not been paid as at the end of current year. 5.20 Accounts Payable 5.20.1 Accounts payable by nature Items 30 June 2021 1 January 2021 Within 1 year 761,316,284.29 871,081,181.47 Over 1 year 4,374,560.55 3,881,706.46 Total 765,690,844.84 874,962,887.93 138 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.20.2 Significant accounts payable with aging of over one year Items 30 June 2021 Reason Ningbo Chaochao Electrical 500,237.01 Quality disputes Equipment Co., Ltd. Total 500,237.01 5.21 Advances from Customers 5.21.1 Details of advances from customers Items 30 June 2021 1 January 2021 Within 1 year 4,008,246.69 3,404,910.00 Over 1 year 3,541,831.67 3,448,190.03 Total 7,550,078.36 6,853,100.03 5.22 Contract Liabilities 5.22.1 Details of contract liabilities Items 30 June 2021 1 January 2021 Within 1 year 16,881,535.32 25,605,755.71 Over 1 year 1,178,777.39 0.00 Total 18,060,312.71 25,605,755.71 5.23 Employee Benefits Payable 5.23.1 Details of employee benefits payable Increase during the Decrease during the 30 June 2021 Items 1 January 2021 reporting period reporting period Short-term employee 51,114,418.96 143,647,312.26 154,954,266.01 39,807,465.21 benefits Post-employment benefits-defined 147,846.71 5,810,476.88 5,804,259.07 154,064.52 contribution plans Termination benefits 0.00 0.00 0.00 0.00 Other benefits due 0.00 0.00 0.00 0.00 within one year Total 51,262,265.67 149,457,789.14 160,758,525.08 39,961,529.73 5.23.2 Short-term employee benefits Decrease during Increase during the 30 June 2021 Items 1 January 2021 the reporting reporting period period Salaries, bonuses, 38,769,148.35 129,509,504.03 140,158,174.17 28,120,478.21 allowances and subsidies 0.00 5,911,440.48 5,911,440.48 0.00 Employee benefits 553,971.19 5,516,270.82 5,478,578.43 591,663.58 Social insurance 523,734.07 4,053,242.88 4,016,585.01 560,391.94 Including: Health 139 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Decrease during Increase during the 30 June 2021 Items 1 January 2021 the reporting reporting period period insurance 0.00 1,210,801.91 1,210,547.11 254.80 Injury insurance 30,237.12 252,226.03 251,446.31 31,016.84 Birth insurance Housing 9,604,605.92 2,787,300.44 2,842,460.88 9,549,445.48 accumulation fund Labour union funds 0.00 405,148.90 405,148.90 0.00 and employee education funds Short-term absence 2,186,693.50 -482,352.41 158,463.15 1,545,877.94 pay Other short-term 0.00 0.00 0.00 0.00 employee benefits 51,114,418.96 143,647,312.26 154,954,266.01 39,807,465.21 Total 5.23.3 Defined contribution plans 1 January Increase during the Decrease during the 30 June 2021 Items 2021 reporting period reporting period Basic endowment 147,835.21 5,648,021.65 5,642,060.74 153,796.12 insurance Unemployment 11.50 162,455.23 162,198.33 268.40 insurance 0.00 0.00 0.00 0.00 Enterprise annuity 147,846.71 5,810,476.88 5,804,259.07 154,064.52 Total Note: The Company participates in the endowment insurance and unemployment insurance plan established by the government, according to these plans, the Company pays planed fees to the Company’s location. In addition to the monthly fee deposit, the Company no longer bears further payment obligations. Corresponding expenses are expensed as incurred or costs related assets. 140 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.24 Taxes Payable Items 30 June 2021 1 January 2021 Enterprise income tax 11,093,239.69 16,319,231.37 Value added tax (VAT) 296,457.90 180,939.30 Individual income tax 714,027.85 797,007.65 Educational surcharge 557,401.60 729,009.84 City construction tax 557,401.44 729,009.73 2,693,533.02 1,483,049.28 Other 15,912,061.50 20,238,247.17 Total 5.25 Other Payables 5.25.1 Other payables by category Items 30 June 2021 1 January 2021 0.00 0.00 Interest payable 0.00 0.00 Dividend payable 47,612,534.58 52,803,158.48 Other payable 47,612,534.58 52,803,158.48 Total 5.25.2 Other payables 5.25.2.1 Other payables by nature Items 30 June 2021 1 January 2021 34,756,422.63 39,088,143.93 Within 1 year 12,856,111.95 13,715,014.55 Over 1 year 47,612,534.58 52,803,158.48 Total 5.25.2.2 Significant other payables with aging over one year Items 30 June 2021 Reason 10,001,683.97 Deposit Return upon termination of contract 10,001,683.97 Total 5.26 Non-current Liabilities Maturing within One Year Items 30 June 2021 1 January 2021 Lease liabilities maturing within one year 81,310,298.16 64,360,133.28 Total 81,310,298.16 64,360,133.28 5.27 Lease Liabilities Items 30 June 2021 1 January 2021 Lease liabilities 517,740,534.06 522,567,850.44 Total 517,740,534.06 522,567,850.44 5.28 Long-term Employee Benefits Payable 141 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.28.1 General information of long-term employee benefits payable Items 30 June 2021 1 January 2021 Post-employment benefits-net 339,285.03 312,775.91 liability under defined benefit plans 339,285.03 312,775.91 Total 5.28.2 Changes in defined benefit plans Present value of the defined benefit obligation: Items 30 June 2021 1 January 2021 Balance at the beginning of the reporting 312,775.91 425,896.17 period Cost recognised in current profit or loss 26,309.07 19,118.67 Cost recognised in other comprehensive -93,635.32 income Other changes: 200.05 -38,603.61 (i) Consideration paid in settlements (ii) Payment of benefits -3,850.39 -12,498.64 (iii) Others 4,050.44 -26,104.97 Balance at the end of the reporting period 339,285.03 312,775.91 5.29 Share Capital Changes during the reporting period (+,-) Item 1 January 2021 Bonus Capitalisation 30 June 2021 New issues Others Subtotal issues of reserves Number of 185,391,680.00 185,391,680.00 total shares 5.30 Capital Reserves Increase during Decrease during Item 1 January 2021 the reporting the reporting 30 June 2021 period period Capital premium 210,045,659.80 0.00 0.00 210,045,659.80 (share premium) Other capital 86,763,305.99 0.00 0.00 86,763,305.99 reserves Total 296,808,965.79 0.00 0.00 296,808,965.79 142 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.31 Other Comprehensive Income Current year Less: previously Less: previously After tax recognised in other recognised in other After tax Item 1 January 2021 Amount for the year Less: Income attributable to 30 June 2021 comprehensive income comprehensive income attributable to the before tax tax expense minority transferred into profit transferred into parent company shareholders or loss retained earnings 1. Other comprehensive income will not be 31,583.27 107,315.12 0.00 0.00 17,885.85 67,071.95 22,357.32 98,655.22 reclassified to profit or loss Including: Changes of remeasurement of the 31,583.27 107,315.12 17,885.85 67,071.95 22,357.32 98,655.22 defined benefit plan Other comprehensive income will not be reclassified into profit or loss under equity method 2. Items will be reclassified to profit or 1,791,479.76 -1,162,520.27 0.00 0.00 0.00 -871,890.20 -290,630.07 919,589.56 loss 143 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Including: Other comprehensive income will be reclassified into profit or loss under equity method The gains/(losses) on changes in fair value of financial assets classified as held for sale The gains/(losses) on reclassification of held-to-maturity investments into financial assets held for sale The effective portion of the gains /(losses) on cash flow hedge Exchange differences on translating foreign 1,791,479.76 -1,162,520.27 0.00 0.00 0.00 -871,890.20 -290,630.07 919,589.56 operations Total 1,823,063.03 -1,055,205.15 0.00 0.00 17,885.85 -804,818.25 -268,272.75 1,018,244.78 144 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.32 Surplus Reserves Increase during the Decrease during the Item 1 January 2021 30 June 2021 reporting period reporting period Statutory surplus 49,087,662.68 0.00 49,087,662.68 0.00 reserves Total 49,087,662.68 0.00 0.00 49,087,662.68 Note: Pursuant to the Company Law of the People's Republic of China and Articles of Association, the Company appropriates 10% of net profit to the statutory surplus reserves. If the accumulated amount of the statutory surplus reserve reaches more than 50% of the registered capital of the Company, it shall not be withdrawn. After the Company accrues the statutory surplus reserve, the Company can accrue any surplus reserve fund. Upon approval, the discretionary surplus reserve fund may be used to cover future losses or increase in share capital. 5.33 Retained Earnings Same period of Items Reporting period last year Balance at the end of last period before adjustments 330,918,755.61 218,523,906.99 Adjustments for the opening balance (increase /(decrease)) 0.00 0.00 Balance at the beginning of the reporting period after adjustments 330,918,755.61 218,523,906.99 Add: net profit attributable to owners of the parent company for 60,417,688.12 139,522,190.75 the reporting period Less: appropriation to statutory surplus reserves 0.00 8,588,174.13 Appropriation to discretionary surplus reserves 0.00 0.00 Provision for general risk reserves 0.00 0.00 Payment of ordinary share dividends 27,808,752.00 18,539,168.00 Common stock dividends converted to share capital 0.00 0.00 Balance at the end of the reporting period 363,527,691.73 330,918,755.61 5.34 Revenue and Cost of Sales Reporting period Same period of last year Items Revenue Costs of sales Revenue Costs of sales Principal activities 1,158,460,531.19 1,001,472,212.98 757,335,293.08 629,443,740.55 Other activities 38,828,475.92 12,774,066.71 35,679,291.28 14,768,639.19 Total 1,197,289,007.11 1,014,246,279.69 793,014,584.36 644,212,379.74 145 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.34.1 Revenue from principal activities (by industry or business) Industry (business) Reporting period Same period of last year Revenue Costs of sales Revenue Costs of sales Household 1,158,460,531.19 1,001,472,212.98 757,335,293.08 629,443,740.55 appliances industry 1,158,460,531.19 1,001,472,212.98 757,335,293.08 629,443,740.55 Total 5.34.2 Revenue from principal activities (by product) Industry (business) Reporting period Same period of last year Revenue Costs of sales Revenue Costs of sales 849,986,846.00 737,816,873.51 500,877,565.26 420,064,627.39 Catering and Cooking 205,547,120.00 183,542,832.34 184,127,407.97 155,260,103.89 Home helper 85,696,036.63 71,774,401.71 61,420,124.34 49,375,486.17 Tea/Coffee makers 17,230,528.56 8,338,105.42 10,910,195.51 4,743,523.10 Others 1,158,460,531.19 1,001,472,212.98 757,335,293.08 629,443,740.55 Total 5.34.3 Revenue from principal activities (by region) Region Reporting period Same period of last year Revenue Costs of sales Revenue Costs of sales 38,902,178.40 33,221,857.34 28,906,788.68 22,885,334.91 Australia 7,248,920.64 6,224,631.25 7,955,700.50 6,226,660.31 Africa 648,414,462.43 562,093,573.29 356,754,688.62 299,305,059.17 America 246,816,658.92 214,191,136.16 188,723,058.75 154,324,305.81 Europe 217,078,310.80 185,741,014.94 174,995,056.53 146,702,380.35 Asia 1,158,460,531.19 1,001,472,212.98 757,335,293.08 629,443,740.55 Total 5.35 Taxes and Surcharges Items Reporting period Same period of last year 1,595,326.72 2,137,451.88 City construction tax 1,567,618.73 2,096,333.38 Educational surcharge 1,004,553.58 819,140.23 Property tax 199,423.38 195,373.38 Land use tax 564,148.83 369,698.25 Stamp duty 6,334.90 13,038.96 Other 4,937,406.14 5,631,036.08 Total 5.36 Selling and Distribution Expenses 146 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Reporting period Same period of last year 20,473,444.99 11,010,454.87 Export expenses 6,642,171.48 6,507,450.80 Employee remunerations 821,073.40 2,140,389.33 Claims experiment expenses Sales commission and after sales service fees 1,641,846.46 1,388,868.34 Rental expenses 54,825.80 230,514.71 Travel expenses 139,505.66 280,735.87 Advertisements charges and sales promotion 596,489.79 631,856.12 Administrative expenses 84,232.60 78,301.91 Transportation expenses 33,780.54 78,416.80 Others 316,626.91 348,756.77 Total 30,803,997.63 22,695,745.52 5.37 General and Administrative Expenses Items Reporting period Same period of last year Employee remunerations 15,742,532.34 26,155,163.04 Depreciation and amortization of assets 6,980,910.30 3,656,458.29 Rental expenses 151,555.16 6,307,423.07 Insurance expenses 3,646,458.57 1,169,009.36 Administrative expenses 537,963.60 663,709.80 Travel expenses 1,315,546.62 1,362,500.23 Consultant fees 1,435,672.10 1,788,301.33 Maintenance expenses 2,381,801.65 1,763,412.45 Others 3,698,209.07 3,460,455.01 Total 35,890,649.41 46,326,432.58 5.38 Research and Development Expenses Items Reporting period Same period of last year Employee remunerations 18,442,982.42 18,255,109.89 Test expenses 2,712,303.71 3,053,587.41 Depreciation and amortization of assets 5,039,131.13 3,979,176.22 Certification expenses 714,345.41 1,227,419.06 Rental expenses 515,862.86 849,333.70 Patent expenses 1,027,396.70 1,503,219.91 Travel expenses 63,637.52 215,272.89 Maintenance expenses 230,366.47 264,882.64 Consultant fees 668,013.80 404,256.48 Others 891,224.61 1,066,599.56 Total 30,305,264.63 30,818,857.76 147 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.39 Finance Expenses Items Reporting period Same period of last year 384,699.22 151,742.56 Interest expenses 8,020,668.61 12,388,999.10 Less: Interest income 6,270,272.90 -2,810,752.26 Foreign exchange losses 897,414.28 588,814.60 Bank charges Unrecognized financing expenses 13,430,569.40 0.00 Total 12,962,287.19 -14,459,194.20 5.40 Other Income Items Same period Related to assets Reporting period of last year /income 1. Government grant recognised in other income 1,764,476.00 2,260,574.12 Related to income Including: Government grant related to deferred income Government grant related to deferred income Government grant directly recognised in current 1,764,476.00 2,260,574.12 Related to income profit or loss 2. Others related to daily operation activities and recognised in other income Including: Charges of withholding individual income tax Additional deduction of input tax Income from debt restructuring Total 1,764,476.00 2,260,574.12 Details of government grant recognised in other income: Recognized in current Items extraordinary gains and Reporting period Same period of last year losses Export credit insurance 0.00 436,989.00 0.00 subsidy Patent subsidies 0.00 100,000.00 0.00 Exhibition subsidies 0.00 37,000.00 0.00 Employment 8,189.19 134,445.12 8,189.19 stabilization subsidies Enterprise R&D 1,714,500.00 1,552,140.00 1,714,500.00 investment subsidies 148 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Recognized in current Items extraordinary gains and Reporting period Same period of last year losses Commissions on the three authorized tax 41,786.81 0.00 41,786.81 collection commissions Total 1,764,476.00 2,260,574.12 1,764,476.00 5.41 Investment Income Items Reporting period Same period of last year Investment income from disposal of 26,859,400.00 1,339,489.00 held-for-trading financial assets Investment income from financial products 8,682,062.36 6,540,398.04 35,541,462.36 7,879,887.04 Total 5.42 Gains on Changes in Fair Values Sources of gains on changes in fair value Reporting period Same period of last year -17,986,483.34 -2,301,689.00 Held-for-trading financial assets -18,865,400.00 -2,301,689.00 Including: changes in fair value of derivatives Structural deposits 878,916.66 -753,600.00 594,600.00 Held-for-trading financial liabilities -18,740,083.34 -1,707,089.00 Total 5.43 Impairment Loss of Credit Items Reporting period Same period of last year Bad debt of accounts receivables 1,208,617.28 -1,438,633.36 Bad debt of other receivables -101,351.40 308,889.59 1,107,265.88 -1,129,743.77 Total 5.44 Impairment Loss of Assets Items Reporting period Same period of last year Impairment of inventories -90,332.22 -6,037,359.61 Impairment of fixed assets -1,153,422.92 -2,014,785.07 Total -1,243,755.14 -8,052,144.68 5.45 Gains from Disposal of Assets Recognized in current Items Same period of Reporting period extraordinary gains and losses last year Gains from disposal of 996,128.23 279,810.12 996,128.23 fixed assets Total 996,128.23 279,810.12 996,128.23 149 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.46 Non-operating Income 5.46.1 Details of non-operating income Recognized in current Items Reporting period Same period of last year extraordinary gains and losses Other 1,568,968.09 2,794,509.46 1,568,968.09 Total 1,568,968.09 2,794,509.46 1,568,968.09 5.47 Non-operating Expenses Recognized in current Items Reporting Same period of last extraordinar period year y gains and losses Loss from damage or scrapping of non-current 53.90 216.93 53.90 assets Including: fixed assets 53.90 216.93 53.90 Intangible assets 0.00 0.00 0.00 Donations 19,328.07 0.00 19,328.07 25,183.34 0.00 25,183.34 Fines 0.00 211,554.74 0.00 Others 44,565.31 211,771.67 44,565.31 Total 5.48 Income Tax Expenses 5.48.1 Details of income tax expenses Items Reporting period Same period of last year 11,140,962.47 6,299,170.64 Current tax expenses -2,791,414.26 1,527,931.22 Deferred tax expenses 8,349,548.21 7,827,101.86 Total 5.48.2 Reconciliation of accounting profit and income tax expenses Items Same period of Reporting period last year 89,093,019.19 59,903,358.50 Profit before tax 22,278,558.11 8,428,492.30 Income tax expense at the statutory /applicable tax rate -7,580,913.71 -7,332,687.87 Effect of different tax rate of subsidiaries -508,460.84 -1,306,289.59 Adjustments of impact from prior period income tax Effect of income that is exempt from taxation -5,334.05 131,796.54 Effect of non-deductible costs, expenses or losses 150 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Same period of Reporting period last year Effect of previously unrecognized deductible losses -1,868,038.05 recognised as deferred tax assets Effect of deductible temporary differences and deductible -1,296,427.43 10,047,895.35 losses not recognised as deferred tax assets Changes in balance of the beginning of the year deferred tax asset/liabilities due to tax rate adjustment -2,669,835.82 -2,142,104.87 R&D expenses plus deduction 8,349,548.21 7,827,101.86 Income tax expenses 5.49 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, refer to Note 5.31 Other Comprehensive Income. 5.50 Notes to the Statement of Cash Flow 5.50.1 Other cash received relating to operating activities Items Reporting period Same period of last year Government grants 1,792,695.78 2,260,574.12 Interests income 1,925,400.37 1,244,863.72 Rent income 29,544,466.49 28,367,596.27 Funds in current account and others 12,097,503.75 4,144,726.67 Total 45,360,066.39 36,017,760.78 5.50.2 Other cash payments relating to operating activities Items Reporting period Same period of last year Penalties and donations 44,569.79 0.00 Bank charges 897,414.28 588,814.60 Sales expenses, general and administrative expenses, 89,966,081.05 60,358,993.42 and research and development expenses paid by cash Current accounts and others 5,147,643.50 4,570,222.81 Total 96,055,708.62 65,518,030.83 5.50.3 Other cash received relating to investing activities Items Reporting period Same period of last year Time deposits recovered after maturity for the purpose 170,037,164.75 240,268,714.80 to earn interest income in financial institutions Total 170,037,164.75 240,268,714.80 151 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 5.50.4 Other cash payments relating to investing activities Items Reporting period Same period of last year Time deposits in financial institutions for the purpose 261,195,424.54 490,025,153.46 of earning interest income Total 261,195,424.54 490,025,153.46 5.50.5 Other cash received relating to financing activities Items Reporting period Same period of last year Security deposit of L/C 12,876,842.79 0.00 Total 12,876,842.79 0.00 5.50.6 Other cash payments relating to financing activities Items Reporting period Same period of last year Security deposit of L/C 16,535,710.31 6,775,024.51 Total 16,535,710.31 6,775,024.51 5.51 Supplementary Information to the Statement of Cash Flows 5.51.1 Supplementary information to the statement of cash flows Supplementary information Same period of Reporting period last year 1. Adjustments of net profit to cash flows from operating activities: Net profit 80,743,470.98 52,076,256.64 Add: Provisions for impairment of assets -1,243,755.14 8,052,144.68 Impairment loss of credit 1,107,265.88 1,129,743.77 Depreciation of fixed assets, oil and gas asset and productive 21,453,265.90 25,227,353.40 biological assets Depreciation of use rights assets 10,382,633.95 0.00 Amortisation of intangible assets 4,247,492.46 3,562,674.32 Amortisation of long-term deferred expenses 1,861,951.01 1,365,412.08 Gains on disposal of fixed assets, intangible assets, and other -996,128.23 -279,810.12 long-term assets Loss on scrapping of fixed assets 53.90 216.93 Gains on changes in fair value 18,740,083.34 1,707,089.00 Finance income -5,646,924.11 -4,562,969.14 Investment income -35,541,462.36 -7,879,887.04 Decreases in deferred tax assets -23,768.54 1,861,637.41 152 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Supplementary information Same period of Reporting period last year Increases in deferred tax liabilities -2,768,226.75 -340,258.34 Increases in inventories -35,217,943.61 50,826,332.09 Increases in operating receivables 7,622,265.38 -23,651,070.40 Increases in operating payables -127,694,733.46 -137,106,741.42 Others 0.00 0.00 Net cash flows from operating activities -62,974,459.40 -28,011,876.14 2. Significant investing and financing activities not involving cash receipts and payments: Conversion of debt into capital Convertible corporate bonds maturing within one year Fixed assets acquired under finance leases 3. Net increases in cash and cash equivalents: Cash equivalents at the end of the reporting period 615,026,388.14 334,822,611.51 Less: Cash equivalents at the beginning of the reporting 672,801,206.68 639,623,201.98 period Add: Cash equivalents at the end of the reporting period Less: Cash equivalents at the beginning of the reporting period Net increase in cash and cash equivalents -57,774,818.54 -304,800,590.47 5.51.2 The components of cash and cash equivalents Items Reporting Same period of last period year 615,026,388.14 334,822,611.51 1. Cash 897,767.56 961,400.21 Including: Cash on hand 614,128,620.58 333,861,211.30 Cash in bank available for immediate use 0.00 0.00 Other monetary funds available for immediate use Deposit in the central banks available for immediate 0.00 0.00 use 0.00 0.00 Deposit in peer firms 0.00 0.00 Loan to peer firms 0.00 0.00 2. Cash equivalents 0.00 0.00 Including: Bond investments maturing within three months 153 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Reporting Same period of last period year 3. Cash and cash equivalents at the end of the reporting 615,026,388.14 334,822,611.51 period Note 1: Cash and cash equivalents exclude the restricted cash and cash equivalents in parent company or subsidiary. Note 2: On 30 June 2021, the amount of cash and cash equivalents in the statement of cash flows was CNY 615,026,388.14, and the balance of monetary funds of balance sheet was CNY 744,754,520.51. The difference of CNY 129,728,132.37 was caused by deducting the security deposit of pledge loan of CNY 22,750,000.00, the deposit for letter of credit of CNY 15,902,259.04 from the cash and cash equivalents in the statement of cash flows and the time deposits in financial institutions for the purpose of earning interest income belonging to bank deposits. 5.52 Restricted Assets Item Carrying amount on 30 June 2021 Reason Other monetary funds 22,750,000.00 Security deposit of pledge loan Other monetary funds 15,902,259.04 Security deposit for letter of credit Other monetary funds 5,228,613.33 Time deposits over 90 days Bank deposits 85,847,260.00 Time deposits over 90 days Total 129,728,132.37 5.53 Foreign Currency Monetary Items 5.53.1 Details for foreign currency monetary items: Carrying amount in foreign currency Exchange Carrying amount in CNY on Items on 30 June 2021 rate 30 June 2021 Cash and cash equivalents Including: USD 26,025,130.17 6.460100 168,124,943.43 JPY 75,527,438.42 0.058428 4,412,917.17 IDR 12,378,230,166.76 0.000445 5,512,281.56 EUR 297,496.16 7.686200 2,286,614.99 GBP 9,419.63 8.941000 84,220.91 HKD 35,449.72 0.832080 29,497.01 HUF 81,016.00 0.021866 1,771.50 Total 180,452,246.57 Short-term borrowings Including: USD 4,500,000.00 6.460100 29,070,450.00 154 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Carrying amount in foreign currency Exchange Carrying amount in CNY on Items on 30 June 2021 rate 30 June 2021 Total 29,070,450.00 Accounts receivables Including: USD 66,771,409.49 6.460100 431,349,982.45 IDR 728,630,636.00 0.000445 324,474.27 JPY 46,481,496.00 0.058428 2,715,820.85 Total 434,390,277.57 Accounts payables Including: USD 19,528,354.18 6.460100 126,155,120.84 EUR 327,857.17 7.686200 2,519,975.78 HKD 257,993.01 0.832080 214,670.82 JPY 11,275,641.65 0.058428 658,813.19 IDR 1,114,181,563.08 0.000445 496,168.06 Total 130,044,748.69 Other receivables Including: USD 108,650.00 6.460100 701,889.87 IDR 1,432,839,164.00 0.000445 638,072.87 NTD 1,154,086.00 0.231938 267,676.40 Total 1,607,639.14 Other payables Including: USD 436,702.93 6.460100 2,821,144.60 IDR 539,643,550.43 0.000445 240,314.42 Total 3,061,459.02 5.54 Government Grants 5.54.1 Government grants related to assets 155 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Recognised in current profit or loss or Presented items that presented in directly as deduct of related cost recognised in current Item Amount the statement profit or loss or Same period of financial Reporting period directly as deduct of of last year position related cost Equipment investment Fixed assets 37,281.82 37,281.82 Cost of sales subsidies 5.54.2 Government grants related to income Recognised in current profit or loss Presented or directly as deduct of related cost items that Items presented recognised in in the statement current profit Items Amounts of financial Same period or loss or Reporting period position of last year directly as deduct of related cost Patent subsidy 0.00 Other income 0.00 100,000.00 Other income Exhibition subsidy 0.00 Other income 0.00 37,000.00 Other income Employment stabilization 10,292.73 Other income 10,292.73 134,445.12 Other income subsidies Export credit insurance 0.00 Other income 0.00 436,989.00 Other income subsidies R&D expenses 1,714,500.00 Other income 1,714,500.00 1,552,140.00 Other income subsidies Commissions on the three authorized tax 39,683.27 Other income 39,683.27 0.00 Other income collection commissions Total 1,764,476.00 1,764,476.00 2,260,574.12 6. CHANGES IN THE SCOPE OF CONSOLIDATION None 156 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 7. INTERESTS IN OTHER ENTITIES 7.1 Interests in Subsidiaries 7.1.1 Composition of corporate group Percentage of equity Principal place Registered interests by the Name of subsidiary Nature of business Methods of acquisition of business City Company (%) Direct Indirect Manufactures TsannKuen (Zhangzhou) Acquired through Zhangzhou Zhangzhou home electronic 75.00 75.00 Enterprise Co., Ltd.(TKL) establishment appliance Manufactures Acquired through TsannKuen China (Shanghai) Shanghai Shanghai home electronic 46.875 62.50 business combination Enterprise Co., Ltd. (TKS) appliance under common control TsannKuen (Zhangzhou) Manufactures Acquired through South Port Electronics Zhangzhou Zhangzhou home electronic 56.25 75.00 establishment Enterprise Co., Ltd. (TKN) appliance Shanghai Canxing Trading Sales of home Acquired through Shanghai Shanghai 56.25 100.00 Co.,Ltd (STD) electronic establishment Xiamen Tsannkuen Property Acquired through Xiamen Xiamen Property services 100.00 100.00 Services Co., Ltd. (TKW) establishment Acquired through East Sino Development Investment, Hong Kong Hong Kong 75.00 100.00 business combination Limited. (East Sino) Trading under common control Manufactures Acquired through Pt.Star Comgistic Indonesia Indonesia Indonesia home electronic 75.00 100.00 business combination (SCI) appliance under common control Pt.Star Comgistic Property Real estate Acquired through Development Indonesia Indonesia Indonesia 75.00 100.00 development establishment (SCPDI) Acquired through Orient Star Investments Investment, business Hong Kong Hong Kong 75.00 100.00 Limited (OSI) Trading combination not under common control Tsannkuen Edge Intelligence Acquired through Taiwan Taiwan Industrial design 75.00 100.00 Co., Ltd. (TKEI) business combination 157 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Percentage of equity Principal place Registered interests by the Name of subsidiary Nature of business Methods of acquisition of business City Company (%) Direct Indirect under common control 7.1.2 Significant non-wholly owned subsidiaries Dividends Proportion of Profit or loss declared to Non-controlling ownership attributable to non- distribute to interests at the Name of subsidiary interest held by controlling interests non-controlling end of the non- controlling during the reporting interests during reporting interests period the reporting period period TKL 25.00 16,812,899.35 38,273,165.52 335,961,939.55 TKS 53.13 2,284,884.42 125,984,461.25 SCI 25.00 1,045,203.29 37,213,484.95 TKEI 25.00 222,151.92 4,721,928.94 7.1.3 Main financial information of significant non-wholly owned subsidiaries 30 June 2021 Name of Current Non-current subsidiary Current assets Non-current assets Total assets Total liabilities liabilities liabilities TKL 1,731,031,145.72 1,080,305,918.96 2,811,337,064.68 946,677,748.02 520,811,558.46 1,467,489,306.48 TKS 279,010,974.61 8,775,092.05 287,786,066.66 2,346,226.89 48,292,618.59 50,638,845.48 SCI 149,305,074.30 68,348,464.72 217,653,539.02 68,799,599.21 - 68,799,599.21 TKEI 20,454,877.90 4,847,680.48 25,302,558.38 4,593,622.54 1,821,220.09 6,414,842.63 (Continued) 1 January 2021 Name of Non-current Current Non-current subsidiary Current assets Total assets Total liabilities assets liabilities liabilities TKL 1,940,114,137.32 461,271,522.51 2,401,385,659.83 968,573,551.91 3,123,285.00 971,696,836.91 TKS 274,648,848.79 8,783,159.66 283,432,008.45 2,293,127.59 48,292,618.59 50,585,746.18 SCI 140,047,331.70 67,251,146.96 207,298,478.66 100,318,398.62 100,318,398.62 TKEI 18,999,605.00 2,456,721.00 21,456,326.00 3,371,583.52 322,423.88 3,694,007.40 158 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements (Continued) Reporting period Name of Total Net cash flows from subsidiary Revenue Net profit/(loss) comprehensive operating activities income TKL 1,058,761,873.20 67,251,597.38 - 14,397,993.13 TKS 443,045.44 4,300,958.91 - -623,006.04 SCI 147,750,531.08 4,180,813.15 - 8,819,500.58 TKEI 5,245,258.15 888,607.66 - 1,440,343.11 (Continued) The same period of last year Name of Total Net cash flows from subsidiary Revenue Net profit/(loss) comprehensive operating activities income TKL 715,492,117.08 45,608,044.19 40,240,655.81 TKS 475,388.40 3,251,209.60 3,537,815.91 SCI 83,292,609.62 -1,142,763.48 -6,414,480.36 TKEI 5,077,370.67 -34,300.74 -900,971.02 7.2 Transactions which Resulted in Change of Equity Interests in a Subsidiary without Loss of Control None 8. RISKS RELATED TO FINANCIAL INSTRUMENTS The main financial instruments of the Company include equity investments, debt investments, loans, accounts receivable, accounts payable and etc., please see Note 5 for detail of related items. The risks associated with financial instruments and the risk management policies which the Company uses 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. The Company uses sensitivity analysis techniques to analyze the possible impact of reasonable and possible changes in risk variables on current profits and losses or shareholder equity. Since any risk variable rarely changes in isolation, and the correlation between variables will have a significant effect on the final impact of the change of a certain risk variable, the following contents are based on the assumption that the change of each 159 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements variable is carried out independently. 8.1 The targets and policies of risks management The target of the Company's risk management is to achieve an appropriate balance between risks and returns, reduce the negative impact of risks on the Company's operating performance to the lowest level, and maximize the interests of shareholders and other equity investors. Based on this risk management objective, the basic strategy of the Company’s risk management is to determine and analyze the various risks faced by the Company, to establish suitable risk tolerance baseline and conduct risk management, and to supervise various risks timely and reliably, so the risks are controlled within a limited range. 8.1.1 Market risk 8.1.1.1 Foreign exchange risk The main exchange rate risk of the Company comes from the foreign currency assets and liabilities held by the Company and its subsidiaries that are not denominated in its functional currency. The Company bears the foreign exchange risk primarily concerned with USD, JPY, IDR, EUR, HKD and NTD. Three of the Company’s subsidiaries use foreign currencies for purchasing and sales, including SCI uses USD for purchasing and sales, SCPDI uses IDR for purchasing and sales, TKEI uses NTD for purchasing and sale. Other than the three subsidiaries mentioned above, other major business activities of the Company are priced and settled in CNY. 8.1.1.1.1 As of 30 June 2021, the main foreign exchange exposure of the Company’s foreign currency assets and liabilities are as follows (For presentation purpose, the exposures are presented in CNY and transferred at the spot rate of the balance sheet date): Items 30 June 2021 1 January 2021 Cash and cash equivalent 180,452,246.57 184,142,487.23 Accounts receivable 434,390,277.57 462,881,138.22 Other receivables 1,607,639.14 812,189.04 Short-term loan 29,070,450.00 16,345,141.13 Accounts payable 130,044,748.69 102,150,272.47 Other payables 3,061,459.02 3,506,599.56 The Group purchases foreign currency forward contracts to reduce the foreign exchange risk, and foreign currency forward contracts shall be based on the amount of foreign currency assets. 160 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 8.2 Credit Risk On 30 June 2021, the maximum credit risk exposure that may cause financial loss of the Company mainly comes from the loss of financial assets of the company caused by the failure of the other party to perform its obligations and the financial guarantee undertaken by the Company, including: The book amount of financial assets recognized in the consolidated balance sheet; for financial instruments at fair value, the book value reflects their risk exposure, but not the maximum risk exposure, and the maximum risk exposure will change as their fair value changes in the future. To reduce credit risks, the Company has established a team responsible for determining the credit limit, conducting credit approval, and implementing other monitoring procedures to ensure that necessary measures are taken to recover overdue claims. In addition, the Company reviews the recovery of each single receivable on each balance sheet date to ensure that adequate provision for bad debt is made for uncollectible amounts. As a result of the implemented procedures, the management of the Company believes that the credit risk assumed by the company has been greatly reduced. The Company's circulating funds are deposited in banks with higher credit ratings, so the credit risk of circulating funds is low. 8.2.1 Aging analysis of financial assets that are overdue and not impaired The Company does not have any financial assets that are overdue and not impaired. 8.2.2 Analysis of financial assets that have suffered an individual impairment The Company does not have any single impairment financial assets. 8.3 Liquidity Risk When managing liquidity risk, the Company’s management believes that maintaining adequate cash and cash equivalents, and monitoring that at the same time, in order to meet the needs of operation of the Company, and to reduce the impact of fluctuations in cash flows. The management of the Company monitors the use of bank borrowings and ensures to abide by the loan agreements. 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 161 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 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 at 30 June 2021 Fair value at 30 June 2021 Items Level 1 Level 2 Level 3 Total Recurring fair value measurements (a) Held-for-trading financial assets (i) Financial assets at fair value 552,835,416.66 552,835,416.66 through profit or loss Debt instruments 550,000,000.00 550,000,000.00 Equity instruments Derivatives 2,835,416.66 2,835,416.66 (b) Other investments in equity instruments (c) Other non-current financial assets Total assets measured at fair value 552,835,416.66 552,835,416.66 on a recurring basis (d) Held-for-trading financial liabilities (i) Financial liabilities at fair value 753,600.00 753,600.00 through profit or loss Including: held-for-trading bonds 753,600.00 753,600.00 Derivatives Others Total liabilities measured at fair 753,600.00 753,600.00 value on a recurring basis 9.2 Determination for the Quoted Prices of Fair Value Measurement in Level 1 on a Recurring or Nonrecurring Basis The fair value measurement is based on the valuation provided by the bank where the unsettled forward foreign exchange is located on the balance sheet date. 162 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 10. RELATED PARTIES AND RELATED PARTY TRANSACTIONS 10.1 General Information of the Parent Company Percentage of Registered Voting rights in Registered Nature of the equity interests Name of the parent capital (NTD ten the Company address business in the thousand) (%) Company (%) Manufactures STAR COMGISTIC and sales 300,000.00 42.90 44.68 Taiwan CAPITAL CO., LTD. electrical equipment Note: The ultimate controlling party of the Company is STAR COMGISTIC CAPITAL CO., LTD. 10.2 General Information of Subsidiaries Refer to Notes 7 INTERESTS IN OTHER ENTITIES for details of the subsidiaries. 10.3 Other Related Parties of the Company Name Relationship with the Company Thermaster Electronic (Xiamen) Ltd. The company is directly controlled by the key management and closed family members TsannKuen Enterprise Co., Ltd. Same actual controller Gold mine chain enterprise Co., Ltd Same actual controller Xiamen Wuhuama Restaurant Ultimate holding company have equity Management Co., Ltd. Canxing International Travel Service Same actual controller Co., Ltd 10.4 Related Party Transactions 10.4.1 Purchases or sales of goods, rendering or receiving of services Purchases of goods, receiving of services: Whether Content Reporting Approval Same period Related parties exceed trade of transaction period trade credit of last year credit or not Thermaster Electronic Purchase of 22,612,282.43 40,000,000.00 No 14,049,564.67 (Xiamen) Ltd. goods TsannKuen Enterprise Purchase of 2,423.83 0.00 Yes 2,630.42 Co., Ltd. goods Gold mine chain Purchase of 438.48 0.00 Yes 210.75 163 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Whether Content Reporting Approval Same period Related parties exceed trade of transaction period trade credit of last year credit or not enterprise Co., Ltd goods STAR COMGISTIC Purchase of 0.00 0.00 No 223.21 CAPITAL CO., LTD. goods Total 22,615,144.74 40,000,000.00 14,052,629.05 Sales of goods and rendering of services: Content Related parties Reporting period Same period of last year of transaction Sales of 5,515,612.66 2,901,040.95 STAR COMGISTIC CAPITAL CO., LTD. goods Total 5,515,612.66 2,901,040.95 10.4.2 Leases The Company as lessor: The lessee Type of Lease rental Lease rental assets recognized in recognized in current period prior period Xiamen Wuhuama Restaurant Management Co., Ltd. Property 0.00 21,588.89 Total 0.00 21,588.89 The Company as lessee The lessor Type of Lease rental Lease rental assets recognized in recognized in prior current period period STAR COMGISTIC CAPITAL CO., LTD. Property 581,987.16 592,801.84 Total 581,987.16 592,801.84 10.4.3 Transfers of assets and debt restructuring None 10.4.4 Key management personnel compensation Currency: Ten thousand yuan Item Reporting period Same period of last year Key management personnel 182.76 154.55 compensation 10.4.5 Other related party transactions 164 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Content of Same period of Reporting Related parties period last year transaction Quality claim 808,795.31 0.00 STAR COMGISTIC CAPITAL CO., LTD. payment Canxing International Travel Service Co., Ltd Accept service 0.00 18,072.06 Gold mine chain enterprise Co., Ltd Provide labor service 0.00 26,795.39 Total 808,795.31 44,867.45 10.5 Receivables and Payables with Related Parties 10.5.1 Receivables 30 June 2021 1 January 2021 Items Book Bad debt Book Bad debt balance provision balance provision Accounts receivable STAR COMGISTIC CAPITAL CO., LTD. 2,074,998.33 2,211,530.36 Total 2,074,998.33 2,211,530.36 Other receivables STAR COMGISTIC CAPITAL CO., LTD. 204,783.17 202,165.15 Total 204,783.17 202,165.15 10.5.2 Payables Items 30 June 2021 1 January 2021 Accounts payable Thermaster Electronic (Xiamen) Ltd 12,629,840.28 14,561,684.71 Total 12,629,840.28 14,561,684.71 Other payables TsannKuen Enterprise Co., Ltd. 0.00 1,521.28 STAR COMGISTIC CAPITAL CO., LTD. 0.00 533,432.11 Total 0.00 534,953.39 11. COMMITMENTS AND CONTINGENCIES 11.1 Significant Commitments 165 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 11.1.1 Lease commitments: Items 30 June 2021 1 January 2021 Minimum lease payments under non-cancellable operating leases: 3,638.00 3,638.00 Within 1 year 3,638.00 3,638.00 1-2 years 3,638.00 3,638.00 2-3 years 109,133.00 109,133.00 Subsequent years 120,047.00 120,047.00 Total 11.1.2 Other commitments None 11.2 Contingencies Significant contingencies existing at the balance sheet date: As of 30 June 2021, The Company has no significant contingencies need to be disclosed. 12. EVENTS AFTER THE REPORTING PERIOD None 13. NOTES TO THE MAIN ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT COMPANY 13.1 Accounts Receivable 13.1.1 Accounts receivable by aging 30 June 2021 1 January 2021 Aging 978,177.70 2,748,224.01 Within 1 year 961,088.54 2,397,992.02 Including: 1 – 90 days 6,348.64 250,231.99 91 – 180 days 5,740.53 100,000.00 181 – 270 days 4,999.99 271 – 365 days 1-2 years 2-3 years 5,000.00 5,000.00 Over 3 years 983,177.70 2,753,224.01 Subtotal 24,278.26 43,085.53 Less: Provision for bad debt 958,899.44 2,710,138.48 Total 166 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 13.1.2 Accounts receivable by bad debt provision method 30 June 2021 Book balance Provision for bad debt Category Proport Carrying Provision Amount ion Amount amount ratio (%) (%) Provision for bad debt recognised individually Provision for bad debt 983,177.70 100 24,278.26 2.47 958,899.44 recognised collectively 983,177.70 100 24,278.26 2.47 958,899.44 Including: Portfolio by age Portfolio by related parties 983,177.70 100 24,278.26 2.47 958,899.44 Total (Continued) 1 January 2021 Book balance Provision for bad debt Category Carrying Proporti Provision Amount Amount amount on (%) ratio (%) Provision for bad debt recognised individually Provision for bad debt recognised 2,753,224.01 100 43,085.53 1.56 2,710,138.48 collectively 2,708,902.92 98.39 43,085.53 1.59 2,665,817.39 Including: Portfolio by age 44,321.09 1.61 44,321.09 Portfolio by related parties 2,753,224.01 100 43,085.53 1.56 2,710,138.48 Total Specific instructions for provision for bad debts: accounts receivable with bad debt provision recognised collectively by aging 30 June 2021 Aging Book balance Provision for bad debt Provision ratio (%) 957,759.62 4,236.60 0.44 Not overdue 0.00 Overdue 1 – 30 days 3,328.92 665.78 20.00 Overdue 31 – 60 days 4,933.24 2,219.96 45.00 Overdue 61 – 90 days 17,155.92 17,155.92 100.00 Overdue more than 90 days 983,177.70 24,278.26 2.47 Total 167 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements (Continued) 1 January 2021 Aging Book balance Provision for bad debt Provision ratio (%) 2,089,752.42 10,448.76 0.50 Not overdue 614,150.50 27,636.77 4.50 Overdue 1 – 30 days 0.00 Overdue 31 – 60 days 0.00 Overdue 61 – 90 days 5,000.00 5,000.00 100.00 Overdue more than 90 days 2,708,902.92 43,085.53 1.59 Total Accounts receivable with bad debt provision recognised collectively by related parties 1 January 2021 Accounts receivable Reason Book balance Provision for bad debt Provision ratio (%) 44,321.09 0.00 0.00 Portfolio by related parties 44,321.09 0.00 0.00 Total Refer to Note 3.9 for the recognition criteria and explanation of the provision for bad debts collectively by groups. 13.1.3 Bad debt provision recognized, recovered or reversed during the reporting period Changes during the reporting period 1 January 30 June Category Recovery or 2021 Others 2021 Provision Write-off reversal Provision for bad debt 43,085.53 18,807.27 24,278.26 recognised collectively 43,085.53 0.00 18,807.27 0.00 0.00 24,278.26 Total 13.1.4 On 30 June 2021, top five closing balances by entity Proportion of the balance to the total Entity name Balance at 30 June 2021 Provision for bad debt accounts receivable (%) No. 1 559,534.50 56.91 2,797.67 No. 2 209,790.12 21.34 1,048.95 No. 3 100,000.00 10.17 500.00 No. 4 58,985.00 6.00 294.93 No. 5 29,450.00 3.00 147.25 Total 957,759.62 97.42 4,788.80 13.2 Other Receivables 168 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 13.2.1 Other receivables by category Items 30 June 2021 1 January 2021 Interest receivable Dividend receivable 2,606,132.25 3,311,425.63 Other receivables 2,606,132.25 3,311,425.63 Total 13.2.2 Interest receivable None 13.2.3 Dividends receivable None 13.2.4 Other receivables 13.2.4.1 Other receivables by aging Aging 30 June 2021 1 January 2021 Within 1 year 2,528,832.25 3,235,576.23 Including: 1 – 90 days 2,457,032.25 3,135,074.23 91 – 180 days 33,000.00 38,800.00 181 – 270 days 0.00 52,902.00 271 – 365 days 38,800.00 8,800.00 1-2 years 61,702.00 2-3 years 0.00 102,300.00 Over 3 years 102,300.00 Subtotal 2,692,834.25 3,337,876.23 Less: Provision for bad debt 86,702.00 26,450.60 Total 2,606,132.25 3,311,425.63 13.2.4.2 Other receivables by nature Nature 30 June 2021 1 January 2021 Other open credits 729,594.75 428,739.55 Deposit 100,000.00 100,000.00 Due from related parties 1,863,239.50 2,809,136.68 Subtotal 2,692,834.25 3,337,876.23 Less: Provisions for bad debt 86,702.00 26,450.60 Total 2,606,132.25 3,311,425.63 169 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 13.2.4.3 Bad debt provision Stage 1 Stage 2 Stage 3 Lifetime Lifetime expected Bad debt provision 12-month expected credit losses Total expected credit credit losses (not losses (credit-impair credit-impair ed) ed) 26,450.60 26,450.60 Balance at 1 January 2021 Balance at 1 January 2021 recognised in —— —— —— —— the reporting period 0.00 Transfer to stage 2 0.00 Transfer to stage 3 0.00 Transfer back to stage 2 0.00 Transfer back to stage 1 60,251.40 60,251.40 Provision 0.00 Recovery 0.00 Reversal 0.00 Write-off 0.00 Other changes 86,702.00 0.00 0.00 86,702.00 Balance on 30 June 2021 13.2.4.4 Bad debt provision recognized, recovered or reversed during the reporting period Changes during the reporting period 1 January 30 June Category Recovery or 2021 Others 2021 Provision Write-off reversal Provision for bad debt 0.00 recognised individually Accounts receivable with 26,450.60 60,251.40 86,702.00 provision for bad debt recognised collectively Total 26,450.60 60,251.40 0.00 0.00 0.00 86,702.00 170 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 13.2.4.5 Other receivables write-off during the reporting period Proportion of Balance as of the balance to Entity name Nature Aging 30 June 2021 the total other receivables (%) HARRIS|BRICKEN| Litigation 52,902.00 1 – 2 years 1.96 MCVAY SLIWOSKI,LLP 50,000.00 Over 5 years 1.86 Alipay Deposit Xiamen TsannKuen Flagship 50,000.00 4 – 5 years 1.86 Deposit Store Alipay Guangzhou Intellectual 20,000.00 270 – 365 days 0.74 Litigation Property Court Ningbo Intermediate People’s Litigation 18,800.00 270 – 365 days 0.70 Court Total 191,702.00 7.12 13.3 Long-term Equity Investments 30 June 2021 1 January 2021 Provision Provision Items Book Carrying for Carrying amount Book balance for balance amount impairment impairment Subsidiaries 923,414,701.56 923,414,701.56 923,414,701.56 923,414,701.56 Joint ventures and associates Total 923,414,701.56 923,414,701.56 923,414,701.56 923,414,701.56 171 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 13.3.1 Investments in subsidiaries Provision Provision Increase Decrease for for during the during the impairment Investees 1 January 2021 30 June 2021 impairment reporting reporting during the at 30 June period period reporting 2021 period TsannKuen (Zhangzhou) 921,914,701.56 921,914,701.56 Enterprise Co., Ltd.(TKL) Xiamen Tsannkuen Property Services Co., Ltd. 1,500,000.00 1,500,000.00 (“TKW”) Total 923,414,701.56 923,414,701.56 13.4 Revenue and Cost of Sales The Reporting period The same period of last year Items Revenue Costs of sales Revenue Costs of sales Principal activities 4,468,620.54 3,254,215.03 14,652,175.88 12,982,449.80 Other activities 22,646,556.50 16,180,892.83 24,729,431.68 16,760,794.10 Total 27,115,177.04 19,435,107.86 39,381,607.56 29,743,243.90 13.5 Investment Income Items The Reporting period The same period of last year Investment income from long-term equity 114,819,496.58 79,185,554.77 investments under equity method 114,819,496.58 79,185,554.77 Total 14. SUPPLEMENTARY INFORMATION 14.1 Extraordinary Gains or Losses Items Amount Description Losses on disposal of non-current assets (inclusive of 996,128.23 impairment allowance write-offs) Tax refunds or reductions with ultra vires approval or without official approval documents Government grants recognised in current profit or loss (except government grants that is closely related to 1,764,476.00 operations and determined based on a fixed scale 172 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Amount Description according to the national unified standard) Funds occupation fee recognised in current profit or loss from non-financial companies The excess of attributable fair value of net identifiable assets over the consideration paid for subsidiaries, associates, or joint ventures recognised by the Company Gains/(losses) generated from non-monetary asset exchange Gains /(losses) on entrusted investments or asset managements Provision for impairment of each asset due to force majeure such as a natural disaster Gains /(losses) on debt restructuring Corporate restructuring charge, such as expenditure for staff resettlement and integration cost Gains /(losses) from excess of fair value in non-arm’s length transactions Net gains /(losses) of subsidiaries arising from business combination under common control from the beginning of the reporting period till the combination date Gains /(losses) arising from contingencies other than those related to principal activities of the Company Gains /(losses) arising from changes in fair value of held-for-trading financial assets, derivative financial Mainly investment assets, held-for-trading financial liabilities and derivative income from sale of financial liabilities during the holding period and forward foreign 16,801,379.02 exchange contracts, investment income arising from disposal of gains on changes of fair value and income held-for-trading financial assets, derivative financial of financial products assets, held-for-trading financial liabilities, derivative financial liabilities and other debt investment except 173 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements Items Amount Description effective hedging transactions related to the Company's principal activities Reversal of provision for impairment of contract assets and accounts receivable tested for impairment individually Gains /(losses) arising from entrusted loans to other entities Gains /(losses) arising from changes in fair value of investment properties adopting fair value model for subsequent measurement Impact of one-off adjustment to current profit or loss based on the requirements of taxation and accounting laws and regulations Custody fee income from entrusted operations Other non-operating income/expenses except for items 1,524,402.78 mentioned above Other extraordinary gains/(losses) defined Total extraordinary gains/(losses) 21,086,386.03 Less: tax effect 3,543,149.21 Net extraordinary gains/(losses) 17,543,236.82 Less: net extraordinary gains/(losses) attributable to 5,159,529.30 non-controlling interest Net extraordinary gains/(losses) attributable to ordinary 12,383,707.52 shareholders Note: The symbol"+" in the non-recurring profit and loss item represents income, and "-" represents loss or expenditure. The Company recognised the extraordinary gains or losses in accordance with the Explanatory Announcement regarding Information Disclosure by Publicly Listed Company No. 1 - Non-recurring Profit and Loss (CSRC announcement [2008] No.43). 174 Tsann Kuen (China) Enterprise Co., Ltd. Notes to the financial statements 14.2 Return on Net Assets and Earnings Per Share (‘EPS’) Weighted average EPS Profit for the reporting period return on net assets Diluted (Yuan per Basic (Yuan per share) (%) share) Net profit attributable to ordinary 6.76 0.33 0.33 shareholders Net profit attributable to ordinary shareholders after extraordinary 5.41 0.26 0.26 gains and losses 14.3 Supplementary Information on Changes in Accounting Policies Please see Note 3.29 “Changes in Significant Accounting Policies and Accounting Estimates” for details. Name of the Company: TsannKuen (China) Enterprise Co., Ltd. Date: 3 August 2021 175