The 2015 Annual Report of Konka Group Co., Ltd.
Auditor’s Report for Y2015
I. Auditor’s Report
II. Audited Financial Statements
1. Consolidated Balance Sheet
2. Consolidated Income Statement
3. Consolidated Cash Flow Statement
4. Consolidated Statement of Change in Owners’ Equity
5. Balance Sheet
6. Income Statement
7. Cash Flow Statement
8. Statement of Change in Owners’ Equity
9. Notes to the Financial Statements
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The 2015 Annual Report of Konka Group Co., Ltd.
Section X. Financial Report
I. Auditor’s Report
Type of audit opinions Standard unqualified opinions
Signing date of audit report 6 Apr. 2016
Name of audit institution Ruihua CPAs (LLP)
No. of audit report R-H-S-Z [2016] No.44040012
Name of CPA Shen Lingzhi, He Xiaojuan
Text of the Auditor’s Report
To the shareholders of Konka Group Co., Ltd.,
We have audited the accompanying financial statements of Konka Group Co., Ltd. (hereafter
referred to as “the Company”) and its subsidiaries (hereafter referred to as “the Group” in
general) which comprise the consolidated and company’s balance sheets as at 31 Dec. 2015,
and the consolidated and company’s income statements, the consolidated and company’s
cash flow statements and the consolidated and company’s statements of changes in owners’
equity for the year then ended and notes to these financial statements.
I. Management’s Responsibility for the Financial Statements
The management is responsible for the preparation of these financial statements in
accordance with the Accounting Standards for Business Enterprises. This responsibility
includes: (1) preparing financial statements according to the Accounting Standards for
Business Enterprises and make them a fair presentation; and (2) designing, implementing and
maintaining internal control relevant to the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
II. Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the China Standards on Auditing. Those
standards require that we comply with ethical requirements of China CPAs and plan and
perform the audit to obtain reasonable assurance whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation of the financial statements and
fair statement in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
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overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
III. Audit opinion
In our opinion, the financial statements have been prepared in accordance with the
Accounting Standards for Business Enterprises in all material respects and give a fair view of
the Company and its subsidiaries’ consolidated financial positions as at 31 Dec. 2015 and the
consolidated business results and cash flows for the year then ended, as well as the
Company’s financial positions as at 31 Dec. 2015 and business results and cash flows for the
year then ended.
CPA: Ruihua Certified Public Accountants (LLP)
CPA:
ChinaBeijing
6 Apr. 2016
II. Financial statements
Unit of statements in financial notes is: RMB Yuan
1. Consolidated balance sheet
Name of enterprise: Konka Group Co., Ltd.
Unit: RMB Yuan
Item 31 Dec. 2015 31 Dec. 2014
Current Assets:
Monetary funds 1,706,446,928.92 1,703,135,732.18
Settlement reserves
Intra-group lendings
Financial assets measured at
fair value of which changes are
33,196,377.28
recorded in current profits and
losses
Derivative financial assets
Notes receivable 2,880,860,750.44 3,819,417,076.37
Accounts receivable 2,048,813,439.34 2,259,293,207.16
Accounts paid in advance 193,664,620.66 315,150,044.57
Premiums receivable
Reinsurance premiums
receivable
Receivable reinsurance
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contract reserves
Interest receivable 7,426,409.52 1,885,727.36
Dividend receivable
Other accounts receivable 160,165,779.82 298,975,391.68
Financial assets purchased
under agreements to resell
Inventories 2,882,515,913.28 3,904,436,250.33
Assets held for sale
Non-current assets due within
1 year
Other current assets 647,311,938.45 568,020,200.48
Total current assets 10,560,402,157.71 12,870,313,630.13
Non-current assets:
Loans by mandate and
advances granted
Available-for-sale financial
311,974,282.66 245,033,609.00
assets
Held-to-maturity investments
Long-term accounts
receivable
Long-term equity investment 190,573,524.29 362,765,183.66
Investing real estate 227,718,178.53 233,349,452.80
Fixed assets 1,763,503,189.50 1,783,695,548.92
Construction in progress 207,854,180.88 159,604,884.09
Engineering materials
Disposal of fixed assets
Production biological assets
Oil-gas assets
Intangible assets 352,591,887.48 347,626,130.58
R&D expense
Goodwill 3,597,657.15 3,597,657.15
Long-term deferred expenses 82,846,982.07 25,792,805.06
Deferred income tax assets 549,305,508.01 259,516,396.26
Other non-current assets - 488,063,979.00
Total of non-current assets 3,689,965,390.57 3,909,045,646.52
Total assets 14,250,367,548.28 16,779,359,276.65
Current liabilities:
Short-term borrowings 4,150,773,195.76 5,145,712,436.91
Borrowings from Central
Bank
Customer bank deposits and
due to banks and other financial
institutions
Intra-group borrowings
Financial liabilities measured
at fair value of which changes
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are recorded in current profits
and losses
Derivative financial liabilities
Notes payable 929,176,857.06 911,355,028.47
Accounts payable 2,980,416,983.25 3,144,408,433.93
Accounts received in advance 349,784,807.32 302,904,453.86
Financial assets sold for
repurchase
Handling charges and
commissions payable
Payroll payable 279,631,258.71 299,272,715.05
Tax payable 92,097,951.90 112,557,005.85
Interest payable 20,552,763.14 22,872,418.43
Dividend payable
Other accounts payable 1,550,931,573.35 1,376,803,381.03
Reinsurance premiums
payable
Insurance contract reserves
Payables for acting trading of
securities
Payables for acting
underwriting of securities
Liabilities held for sale
Non-current liabilities due
573,398,959.65 1,525,465.53
within 1 year
Other current liabilities
Total current liabilities 10,926,764,350.14 11,317,411,339.06
Non-current liabilities:
Long-term borrowings 23,700,000.00 957,541,210.52
Bonds payable
Of which: preferred shares
Perpetual bonds
Long-term payables 30,133,333.37 30,029,990.10
Long-term payroll payables 23,435,856.86 28,554,734.16
Specific payables
Estimated liabilities 4,629,554.61
Deferred income 162,786,004.20 147,315,999.02
Deferred income tax
3,468,031.97 1,049,498.77
liabilities
Other non-current liabilities
Total non-current liabilities 248,152,781.01 1,164,491,432.57
Total liabilities 11,174,917,131.15 12,481,902,771.63
Owners’ equity:
Share capital 2,407,945,408.00 1,203,972,704.00
Other equity instruments
Of which: preferred shares
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The 2015 Annual Report of Konka Group Co., Ltd.
Perpetual bonds
Capital reserves 78,209,535.19 1,289,403,563.99
Less: Treasury stock
Other comprehensive income 3,155,744.00 16,171,477.91
Specific reserves
Surplus reserves 847,908,466.28 847,908,466.28
Provisions for general risks
Retained profits -522,836,282.66 746,022,758.89
Total equity attributable to
2,814,382,870.81 4,103,478,971.07
owners of the Company
Minority interests 261,067,546.32 193,977,533.95
Total owners’ equity 3,075,450,417.13 4,297,456,505.02
Total liabilities and owners’
14,250,367,548.28 16,779,359,276.65
equity
Legal representative: Liu Fengxi Person-in-charge of the accounting work: Xu Youshan
Person-in-charge of accounting firm: Xu Youshan
2. Balance sheet of the parent company
Unit: RMB Yuan
Item 31 Dec. 2015 31 Dec. 2014
Current Assets:
Monetary funds 502,899,530.83 993,131,773.08
Financial assets measured at
fair value of which changes are
7,184,035.29 -
recorded in current profits and
losses
Derivative financial assets
Notes receivable 2,635,643,772.62 3,664,117,423.56
Accounts receivable 1,417,915,276.56 1,539,295,976.29
Accounts paid in advance 372,509,871.77 349,343,179.42
Interest receivable 14,901,123.48 14,450,153.53
Dividend receivable - -
Other accounts receivable 938,447,798.08 988,199,630.05
Inventories 1,771,302,947.50 2,500,537,916.63
Assets held for sale
Non-current assets due within
1 year
Other current assets 530,272,796.83 201,280,204.53
Total current assets 8,191,077,152.96 10,250,356,257.09
Non-current assets:
Available-for-sale financial
271,924,282.66 218,983,609.00
assets
Held-to-maturity investments 352,000,000.00 600,000,000.00
Long-term accounts
- -
receivable
Long-term equity investment 1,621,195,118.22 1,608,674,456.09
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The 2015 Annual Report of Konka Group Co., Ltd.
Investing real estate 227,718,178.53 233,349,452.80
Fixed assets 512,933,612.51 534,363,754.80
Construction in progress 12,619,010.21 37,567,861.10
Engineering materials
Disposal of fixed assets
Production biological assets
Oil-gas assets
Intangible assets 88,336,594.02 76,397,532.51
R&D expense
Goodwill
Long-term deferred expenses 57,865,790.98 14,567,206.83
Deferred income tax assets 504,252,794.29 244,080,035.45
Other non-current assets - -
Total of non-current assets 3,648,845,381.42 3,567,983,908.58
Total assets 11,839,922,534.38 13,818,340,165.67
Current liabilities:
Short-term borrowings 1,022,612,362.58 244,808,594.52
Financial liabilities measured
at fair value of which changes
are recorded in current profits
and losses
Derivative financial liabilities
Notes payable 377,002,860.08 367,803,372.65
Accounts payable 5,173,897,087.35 7,871,208,959.66
Accounts received in advance 251,204,710.89 190,627,895.21
Payroll payable 118,684,992.99 146,758,331.08
Tax payable 31,360,675.68 5,081,943.95
Interest payable 7,761,519.53 5,406,211.20
Dividend payable - -
Other accounts payable 1,667,884,936.14 1,103,672,772.19
Liabilities held for sale
Non-current liabilities due
within 1 year
Other current liabilities
Total current liabilities 8,650,409,145.24 9,935,368,080.46
Non-current liabilities:
Long-term borrowings
Bonds payable
Of which: preferred shares
Perpetual bonds
Long-term payables
Long-term payroll payables
Specific payables
Estimated liabilities 4,629,554.61 -
Deferred income 88,668,785.51 80,679,738.96
Deferred income tax 1,935,167.63 -
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The 2015 Annual Report of Konka Group Co., Ltd.
liabilities
Other non-current liabilities
Total non-current liabilities 95,233,507.75 80,679,738.96
Total liabilities 8,745,642,652.99 10,016,047,819.42
Owners’ equity:
Share capital 2,407,945,408.00 1,203,972,704.00
Other equity instruments
Of which: preferred shares
Perpetual bonds
Capital reserves 46,505,607.34 1,250,283,488.79
Less: Treasury stock
Other comprehensive income 1,803,252.77 471,827.51
Specific reserves
Surplus reserves 847,908,466.28 847,908,466.28
Retained profits -209,882,853.00 499,655,859.67
Total owners’ equity 3,094,279,881.39 3,802,292,346.25
Total liabilities and owners’
11,839,922,534.38 13,818,340,165.67
equity
3. Consolidated income statement
Unit: RMB Yuan
Item 2015 2014
I. Total operating revenues 18,395,177,035.98 19,423,488,994.07
Including: Sales income 18,395,177,035.98 19,423,488,994.07
Interest income
Premium income
Handling charge and
commission income
II. Total operating costs 20,010,568,582.72 20,169,975,385.57
Including: Cost of sales 16,055,497,185.62 16,733,746,581.45
Interest expenses
Handling charge and
commission expenses
Surrenders
Net claims paid
Net amount withdrawn for
the insurance contract reserve
Expenditure on policy
dividends
Reinsurance premium
Taxes and associate
94,523,398.90 60,527,648.50
charges
Selling and distribution
2,448,337,549.43 2,414,468,187.73
expenses
Administrative expenses 695,731,013.59 686,930,373.50
Financial expenses 350,616,323.55 132,763,824.46
Asset impairment loss 365,863,111.63 141,538,769.93
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The 2015 Annual Report of Konka Group Co., Ltd.
Add: Gain/(loss) from change in
32,591,836.13 -
fair value (“-” means loss)
Gain/(loss) from investment
13,574,652.77 596,873,633.39
(“-” means loss)
Including: share of profits in
-18,793,708.66 316,248,002.07
associates and joint ventures
Foreign exchange gains (“-”
means loss)
III. Business profit (“-” means
-1,569,225,057.84 -149,612,758.11
loss)
Add: non-operating income 158,538,297.00 258,877,423.01
Including: Gains on
1,431,893.68 4,740,033.90
disposal of non-current assets
Less: non-operating expense 134,780,910.57 16,884,982.71
Including: Losses on
12,339,287.69 9,752,806.72
disposal of non-current assets
IV. Total profit (“-” means loss) -1,545,467,671.41 92,379,682.19
Less: Income tax expense -269,622,908.76 31,854,983.02
V. Net profit (“-” means loss) -1,275,844,762.65 60,524,699.17
Net profit attributable to
-1,256,819,314.51 52,623,527.86
owners of the Company
Minority shareholders’
-19,025,448.14 7,901,171.31
income
VI. After-tax net amount of other
-12,414,464.72 56,503.90
comprehensive incomes
After-tax net amount of
other comprehensive incomes
-13,015,733.91 -7,838.26
attributable to owners of the
Company
(I) Other comprehensive
incomes that will not be
reclassified into gains and losses
1. Changes in net
liabilities or assets with a defined
benefit plan upon
re-measurement
2. Enjoyable shares in
other comprehensive incomes in
investees that cannot be
reclassified into gains and losses
under the equity method
(II) Other comprehensive
incomes that will be reclassified -13,015,733.91 -7,838.26
into gains and losses
1. Enjoyable shares in
other comprehensive incomes in
investees that will be reclassified
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The 2015 Annual Report of Konka Group Co., Ltd.
into gains and losses under the
equity method
2. Gains and losses on
fair value changes of 928,330.73 516,457.28
available-for-sale financial assets
3. Gains and losses on
reclassifying held-to-maturity
investments into
available-for-sale financial assets
4. Effective hedging
gains and losses on cash flows
5. Foreign-currency
financial statement translation -13,944,064.64 -524,295.54
difference
6. Other
After-tax net amount of
other comprehensive incomes
601,269.19 64,342.16
attributable to minority
shareholders
VII. Total comprehensive
-1,288,259,227.37 60,581,203.07
incomes
Attributable to owners of the
-1,269,835,048.42 52,615,689.60
Company
Attributable to minority
-18,424,178.95 7,965,513.47
shareholders
VIII. Earnings per share
(I) Basic earnings per share -0.52 0.02
(II) Diluted earnings per
-0.52 0.02
share
Where business mergers under the same control occurred in this reporting period, the net
profit achieved by the merged parties before the business mergers was RMBXXX, with the
corresponding amount for the last period being RMBXXX.
Legal representative: Liu Fengxi Person-in-charge of the accounting work: Xu Youshan
Person-in-charge of accounting firm: Xu Youshan
4. Income statement of the Company
Unit: RMB Yuan
Item 2015 2014
I. Total sales 15,799,396,382.50 18,252,320,333.18
Less: cost of sales 14,456,947,091.06 16,442,313,600.22
Business taxes and
35,952,751.61 28,791,258.57
surcharges
Distribution expenses 1,754,767,878.82 1,891,815,304.69
Administrative expenses 365,394,474.96 445,985,722.14
Financial costs 32,911,021.52 57,149,270.99
Impairment loss 203,549,312.14 85,152,922.15
Add: gain/(loss) from change 7,184,035.29 -
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The 2015 Annual Report of Konka Group Co., Ltd.
in fair value (“-” means loss)
Gain/(loss) from
60,463,823.25 290,855,952.74
investment (“-” means loss)
Including: income form
investment on associates and -4,991,699.40 -3,679,122.32
joint ventures
II. Business profit (“-” means
-982,478,289.07 -408,031,792.84
loss)
Add: non-operating income 128,884,576.48 157,529,049.56
Including: Gains on
141,921.85 3,914,114.70
disposal of non-current assets
Less: non-operating expense 102,453,940.21 9,394,570.77
Including: Losses on
3,698,388.83 3,786,518.44
disposal of non-current assets
III. Total profit (“-” means loss) -956,047,652.80 -259,897,314.05
Less: Income tax expense -258,548,667.17 -59,623,917.51
IV. Net profit (“-” means loss) -697,498,985.63 -200,273,396.54
V. After-tax net amount of other
1,331,425.26 471,827.51
comprehensive incomes
(I) Other comprehensive
incomes that will not be
reclassified into gains and losses
1. Changes in net liabilities
or assets with a defined benefit
plan upon re-measurement
2. Enjoyable shares in
other comprehensive incomes in
investees that cannot be
reclassified into gains and losses
under the equity method
(II) Other comprehensive
incomes that will be reclassified 1,331,425.26 471,827.51
into gains and losses
1. Enjoyable shares in
other comprehensive incomes in
investees that will be
reclassified into gains and losses
under the equity method
2. Gains and losses on fair
value changes of
928,330.73 516,457.28
available-for-sale financial
assets
3. Gains and losses on
reclassifying held-to-maturity
investments into
available-for-sale financial
assets
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The 2015 Annual Report of Konka Group Co., Ltd.
4. Effective hedging gains
and losses on cash flows
5. Foreign-currency
financial statement translation 403,094.53 -44,629.77
difference
6. Other
VI. Total comprehensive
-696,167,560.37 -199,801,569.03
incomes
VII. Earnings per share
(I) Basic earnings per share
(II) Diluted earnings per
share
5. Consolidated cash flow statement
Unit: RMB Yuan
Item 2015 2014
I. Cash flows from operating
activities:
Cash received from sale of
commodities and rendering of 18,443,639,036.67 17,605,044,169.07
service
Net increase of deposits from
customers and dues from banks
Net increase of loans from the
central bank
Net increase of funds
borrowed from other financial
institutions
Cash received from premium
of original insurance contracts
Net cash received from
reinsurance business
Net increase of deposits of
policy holders and investment
fund
Net increase of disposal of
financial assets measured at fair
value of which changes are
recorded into current gains and
losses
Cash received from interest,
handling charges and
commissions
Net increase of intra-group
borrowings
Net increase of funds in
repurchase business
Tax refunds received 430,680,435.37 467,637,201.00
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The 2015 Annual Report of Konka Group Co., Ltd.
Other cash received relating
443,686,424.74 391,719,282.33
to operating activities
Subtotal of cash inflows from
19,318,005,896.78 18,464,400,652.40
operating activities
Cash paid for goods and
14,488,034,947.99 15,492,774,772.37
services
Net increase of customer
lendings and advances
Net increase of funds
deposited in the central bank
and amount due from banks
Cash for paying claims of the
original insurance contracts
Cash for paying interest,
handling charges and
commissions
Cash for paying policy
dividends
Cash paid to and for
1,738,319,265.97 1,747,390,336.65
employees
Various taxes paid 616,762,165.13 685,636,270.36
Other cash payment relating
1,185,289,035.03 1,178,984,455.07
to operating activities
Subtotal of cash outflows from
18,028,405,414.12 19,104,785,834.45
operating activities
Net cash flows from operating
1,289,600,482.66 -640,385,182.05
activities
II. Cash flows from investing
activities:
Cash received from
145,165,277.44 50,968,907.04
withdrawal of investments
Cash received from return on
23,260,902.17 334,535,622.04
investments
Net cash received from
disposal of fixed assets,
3,631,054.50 8,858,019.23
intangible assets and other
long-term assets
Net cash received from
disposal of subsidiaries or other 8,889.24 285,401,846.77
business units
Other cash received
3,646,914,849.00 2,424,872,043.31
relating to investing activities
Subtotal of cash inflows from
3,818,980,972.35 3,104,636,438.39
investing activities
Cash paid to acquire fixed
assets, intangible assets and 234,096,470.72 750,959,942.15
other long-term assets
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Cash paid for investment 78,306,112.00 249,170,764.00
Net increase of pledged loans
Net cash paid to acquire
subsidiaries and other business
units
Other cash payments relating
3,658,501,268.22 2,473,083,497.35
to investing activities
Subtotal of cash outflows from
3,970,903,850.94 3,473,214,203.50
investing activities
Net cash flows from investing
-151,922,878.59 -368,577,765.11
activities
III. Cash Flows from Financing
Activities:
Cash received from capital
78,701,328.03 15,700,000.00
contributions
Including: Cash received
from minority shareholder 71,151,328.03 15,700,000.00
investments by subsidiaries
Cash received from
2,937,450,105.14 4,234,914,268.82
borrowings
Cash received from issuance
- -
of bonds
Other cash received relating
118,110,469.89 576,957,141.70
to financing activities
Subtotal of cash inflows from
3,134,261,903.06 4,827,571,410.52
financing activities
Repayment of borrowings 4,071,657,524.17 3,208,016,241.44
Cash paid for interest
expenses and distribution of 140,363,063.80 116,250,848.36
dividends or profit
Including: dividends or
profit paid by subsidiaries to 1,343,265.96 -
minority shareholders
Other cash payments
176,394,710.03 623,498,389.16
relating to financing activities
Sub-total of cash outflows from
4,388,415,298.00 3,947,765,478.96
financing activities
Net cash flows from financing
-1,254,153,394.94 879,805,931.56
activities
IV. Effect of foreign exchange
rate changes on cash and cash -35,606,194.86 -2,095,568.53
equivalents
V. Net increase in cash and cash
-152,081,985.73 -131,252,584.13
equivalents
Add: Opening balance of
1,640,236,837.08 1,771,489,421.21
cash and cash equivalents
VI. Closing balance of cash and 1,488,154,851.35 1,640,236,837.08
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cash equivalents
6. Cash flow statement of the Company
Unit: RMB Yuan
Item 2015 2014
I. Cash flows from operating
activities:
Cash received from sale of
commodities and rendering of 12,246,114,167.03 12,298,684,620.60
service
Tax refunds received 179,546,436.62 223,273,103.54
Other cash received relating
1,745,067,849.17 739,787,761.18
to operating activities
Subtotal of cash inflows from
14,170,728,452.82 13,261,745,485.32
operating activities
Cash paid for goods and
10,398,532,975.42 10,722,090,404.58
services
Cash paid to and for
923,142,975.45 942,834,651.48
employees
Various taxes paid 270,882,083.75 296,880,208.93
Other cash payment relating
1,780,957,816.25 1,840,153,779.28
to operating activities
Subtotal of cash outflows from
13,373,515,850.87 13,801,959,044.27
operating activities
Net cash flows from operating
797,212,601.95 -540,213,558.95
activities
II. Cash flows from investing
activities:
Cash received from retraction
130,102,809.09
of investments
Cash received from return on
59,458,173.75 41,767,052.88
investments
Net cash received from
disposal of fixed assets,
57,765,301.70 7,769,133.70
intangible assets and other
long-term assets
Net cash received from
disposal of subsidiaries or other 301,267,191.25
business units
Other cash received relating
3,522,884,590.00 2,403,472,043.31
to investing activities
Subtotal of cash inflows from
3,770,210,874.54 2,754,275,421.14
investing activities
Cash paid to acquire fixed
assets, intangible assets and 48,440,040.10 89,183,657.42
other long-term assets
Cash paid for investment 196,857,096.00 215,523,300.00
Net cash paid to acquire
15
The 2015 Annual Report of Konka Group Co., Ltd.
subsidiaries and other business
units
Other cash payments relating
3,774,884,590.00 2,496,000,000.00
to investing activities
Subtotal of cash outflows from
4,020,181,726.10 2,800,706,957.42
investing activities
Net cash flows from investing
-249,970,851.56 -46,431,536.28
activities
III. Cash Flows from Financing
Activities:
Cash received from capital
contributions
Cash received from
61,422,000.00
borrowings
Cash received from issuance
of bonds
Other cash received relating
994,745,951.79 1,094,702,763.15
to financing activities
Subtotal of cash inflows from
1,056,167,951.79 1,094,702,763.15
financing activities
Repayment of borrowings 91,422,000.00
Cash paid for interest
expenses and distribution of 16,842,865.65 12,852,947.28
dividends or profit
Other cash payments
2,007,026,133.52 617,810,454.06
relating to financing activities
Sub-total of cash outflows from
2,115,290,999.17 630,663,401.34
financing activities
Net cash flows from financing
-1,059,123,047.38 464,039,361.81
activities
IV. Effect of foreign exchange
rate changes on cash and cash -1,310,869.10 -3,624,119.12
equivalents
V. Net increase in cash and cash
-513,192,166.09 -126,229,852.54
equivalents
Add: Opening balance of
991,459,790.62 1,117,689,643.16
cash and cash equivalents
VI. Closing balance of cash and
478,267,624.53 991,459,790.62
cash equivalents
16
The 2015 Annual Report of Konka Group Co., Ltd.
7. Consolidated statement of changes in owners’ equity
2015
Unit: RMB Yuan
2015
Equity attributable to owners of the Company
Other equity
instruments
Spe
Pr Pe Gen
Less: Other cifi
Item efe rp eral Minority Total owners’
Capital treas comprehen c Surplus Retained
Share capital rre etu O risk interests equity
reserve ury sive res reserve profit
d al th reser
stock incomes erv
sh bo er ve
e
are nd
s s
I. Balance at the
end of the 1,203,972,704.00 - - - 1,289,403,563.99 - 16,171,477.91 - 847,908,466.28 - 746,022,758.89 193,977,533.95 4,297,456,505.02
previous year
Add: change
of accounting - - - - - - - - - - - - -
policy
Correction
of errors in - - - - - - - - - - - - -
previous periods
Business
mergers under - - - - - - - - - - - - -
the same control
Other - - - - - - - - - - - - -
II. Balance at the
beginning of the 1,203,972,704.00 - - - 1,289,403,563.99 - 16,171,477.91 - 847,908,466.28 - 746,022,758.89 193,977,533.95 4,297,456,505.02
year
17
The 2015 Annual Report of Konka Group Co., Ltd.
III. Increase/
decrease in the
1,203,972,704.00 - - - -1,211,194,028.80 - -13,015,733.91 - - - -1,268,859,041.55 67,090,012.37 -1,222,006,087.89
period (“-”
means decrease)
(I) Total
comprehensive - - - - - - -13,015,733.91 - - - -1,256,819,314.51 -18,424,178.95 -1,288,259,227.37
incomes
(II) Capital
increased and
- - - - - - - - - - - 65,749,452.92 65,749,452.92
reduced by
owners
1. Common
shares increased - - - - - - - - - - - 65,749,452.92 65,749,452.92
by shareholders
2. Capital
increased by
holders of other - - - - - - - - - - - - -
equity
instruments
3. Amounts
of share-based
payments - - - - - - - - - - - - -
recognized in
owners’ equity
4. Other - - - - - - - - - - - - -
(III) Profit
- - - - - - - - - - -12,039,727.04 19,565,831.91 7,526,104.87
distribution
1.
Appropriations - - - - - - - - - - - - -
to surplus
18
The 2015 Annual Report of Konka Group Co., Ltd.
reserves
2.
Appropriations
- - - - - - - - - - - - -
to general risk
provisions
3.
Appropriations
- - - - - - - - - - -12,039,727.04 -1,343,265.96 -13,382,993.00
to owners (or
shareholders)
4. Other - - - - - - - - - - - 20,909,097.87 20,909,097.87
(IV) Internal
carry-forward of 1,203,972,704.00 - - - -1,203,972,704.00 - - - - - - - -
owners’ equity
1. New
increase of
capital (or share
1,203,972,704.00 - - - -1,203,972,704.00 - - - - - - - -
capital) from
capital public
reserves
2. New
increase of
capital (or share - - - - - - - - - - - - -
capital) from
surplus reserves
3. Surplus
reserves for - - - - - - - - - - - - -
making up losses
4. Other - - - - - - - - - - - - -
(V) Specific
- - - - - - - - - - - - -
reserve
19
The 2015 Annual Report of Konka Group Co., Ltd.
1.
Withdrawn for - - - - - - - - - - - - -
the period
2. Used in
- - - - - - - - - - - - -
the period
(VI) Other - - - - -7,221,324.80 - - - - - - 198,906.49 -7,022,418.31
IV. Closing
2,407,945,408.00 - - - 78,209,535.19 - 3,155,744.00 - 847,908,466.28 - -522,836,282.66 261,067,546.32 3,075,450,417.13
balance
2014
Unit: RMB Yuan
2014
Equity attributable to owners of the Company
Other equity
instruments
Sp
Pr Pe Gen
Less: Other eci
Item efe rp eral Minority Total owners’
Capital treas comprehen fic Surplus Retained
Share capital rre etu O risk interests equity
reserve ury sive res reserve profit
d al th reser
stock incomes erv
sh bo er ve
e
are nd
s s
I. Balance at the
end of the 1,203,972,704.00 - - - 1,314,409,687.82 - 16,179,316.17 - 847,908,466.28 - 705,438,958.07 193,008,519.16 4,280,917,651.50
previous year
Add: change
of accounting - - - - - - - - - -
policy
Correction
of errors in - - - - - - - - - -
previous periods
20
The 2015 Annual Report of Konka Group Co., Ltd.
Business
mergers under - - - - - - - - - -
the same control
Other - - - - - - - - - -
II. Balance at
the beginning of 1,203,972,704.00 - - - 1,314,409,687.82 - 16,179,316.17 - 847,908,466.28 - 705,438,958.07 193,008,519.16 4,280,917,651.50
the year
III. Increase/
decrease in the
- - - - -25,006,123.83 - -7,838.26 - - - 40,583,800.82 969,014.79 16,538,853.52
period (“-”
means decrease)
(I) Total
comprehensive - - - -7,838.26 - - - 52,623,527.86 7,965,513.47 60,581,203.07
incomes
(II) Capital
increased and
- - - - - - - - - - - -6,996,498.68 -6,996,498.68
reduced by
owners
1. Common
shares increased - - - - - - - - - -
by shareholders
2. Capital
increased by
holders of other - - - - - - - - - -
equity
instruments
3. Amounts
of share-based
- - - - - - - - - -
payments
recognized in
21
The 2015 Annual Report of Konka Group Co., Ltd.
owners’ equity
4. Other - - - - - - - - -6,996,498.68 -6,996,498.68
(III) Profit
- - - - - - - - - - -12,039,727.04 - -12,039,727.04
distribution
1.
Appropriations
- - - - - - - - - -
to surplus
reserves
2.
Appropriations
- - - - - - - - - -
to general risk
provisions
3.
Appropriations
- - - - - - - -12,039,727.04 - -12,039,727.04
to owners (or
shareholders)
4. Other - - - - - - - - - -
(IV) Internal
carry-forward of - - - - - - - - - - - - -
owners’ equity
1. New
increase of
capital (or share
- - - - - - - - - -
capital) from
capital public
reserves
2. New
increase of
- - - - - - - - - -
capital (or share
capital) from
22
The 2015 Annual Report of Konka Group Co., Ltd.
surplus reserves
3. Surplus
reserves for
- - - - - - - - - -
making up
losses
4. Other - - - - - - - - - -
(V) Specific
- - - - - - - - - - - - -
reserve
1.
Withdrawn for - - - - - - - - - -
the period
2. Used in
- - - - - - - - - -
the period
(VI) Other - -25,006,123.83 - - - - - - - -25,006,123.83
IV. Closing
1,203,972,704.00 - - - 1,289,403,563.99 - 16,171,477.91 - 847,908,466.28 - 746,022,758.89 193,977,533.95 4,297,456,505.02
balance
8. Statement of changes in owners’ equity of the Company
2015
Unit: RMB Yuan
2015
Other equity
instruments
Other Speci
Pref Perp Less:
Item Capital comprehe fic Surplus Retained Total owners’
Share capital erre etua treasur
Ot reserve nsive reser reserve profit equity
d l y stock
her incomes ve
shar bon
es ds
I. Balance at the end of the
1,203,972,704.00 1,250,283,488.79 - 471,827.51 - 847,908,466.28 499,655,859.67 3,802,292,346.25
previous year
Add: change of accounting - - - - - - - - - - -
23
The 2015 Annual Report of Konka Group Co., Ltd.
policy
Correction of errors in
- - - - - - - - - - -
previous periods
Other - - - - - - - - - - -
II. Balance at the beginning of
1,203,972,704.00 - - - 1,250,283,488.79 - 471,827.51 - 847,908,466.28 499,655,859.67 3,802,292,346.25
the year
III. Increase/ decrease in the
1,203,972,704.00 - - - -1,203,777,881.45 - 1,331,425.26 - - -709,538,712.67 -708,012,464.86
period (“-” means decrease)
(I) Total comprehensive
- - - - - - 1,331,425.26 - - -697,498,985.63 -696,167,560.37
incomes
(II) Capital increased and
1,203,972,704.00 - - - -1,203,972,704.00 - - - - - -
reduced by owners
1. Common shares
1,203,972,704.00 - - - -1,203,972,704.00 - - - - - -
increased by shareholders
2. Capital increased by
holders of other equity - - - - - - - - - - -
instruments
3. Amounts of
share-based payments - - - - - - - - - - -
recognized in owners’ equity
4. Other - - - - - - - - - - -
(III) Profit distribution - - - - - - - - - -12,039,727.04 -12,039,727.04
1. Appropriations to
- - - - - - - - - - -
surplus reserves
2. Appropriations to
- - - - - - - - - -12,039,727.04 -12,039,727.04
owners (or shareholders)
3. Other - - - - - - - - - - -
(IV) Internal carry-forward
- - - - - - - - - - -
of owners’ equity
1. New increase of - - - - - - - - - - -
24
The 2015 Annual Report of Konka Group Co., Ltd.
capital (or share capital) from
capital public reserves
2. New increase of
capital (or share capital) from - - - - - - - - - - -
surplus reserves
3. Surplus reserves for
- - - - - - - - - - -
making up losses
4. Other - - - - - - - - - - -
(V) Specific reserve - - - - - - - - - - -
1. Withdrawn for the
- - - - - - - - - - -
period
2. Used in the period - - - - - - - - - - -
(VI) Other - - - - 194,822.55 - - - - - 194,822.55
IV. Closing balance 2,407,945,408.00 - - - 46,505,607.34 - 1,803,252.77 - 847,908,466.28 -209,882,853.00 3,094,279,881.39
2014
Unit: RMB Yuan
2014
Other equity
instruments
Other Speci
Pref Perp Less:
Item Capital comprehe fic Surplus Retained Total owners’
Share capital erre etua treasur
Ot reserve nsive reserv reserve profit equity
d l y stock
her incomes e
shar bon
es ds
I. Balance at the end of the
1,203,972,704.00 - - - 1,250,133,590.04 - - - 847,908,466.28 711,968,983.25 4,013,983,743.57
previous year
Add: change of accounting
- - - - - - - - - - -
policy
Correction of errors in
- - - - - - - - - - -
previous periods
25
The 2015 Annual Report of Konka Group Co., Ltd.
Other - - - - - - - - - - -
II. Balance at the beginning of
1,203,972,704.00 - - - 1,250,133,590.04 - - - 847,908,466.28 711,968,983.25 4,013,983,743.57
the year
III. Increase/ decrease in the
- - - - 149,898.75 - 471,827.51 - - -212,313,123.58 -211,691,397.32
period (“-” means decrease)
(I) Total comprehensive
- - - - - - 471,827.51 - - -200,273,396.54 -199,801,569.03
incomes
(II) Capital increased and
- - - - - - - - - - -
reduced by owners
1. Common shares
- - - - - - - - - - -
increased by shareholders
2. Capital increased by
holders of other equity - - - - - - - - - - -
instruments
3. Amounts of
share-based payments - - - - - - - - - - -
recognized in owners’ equity
4. Other - - - - - - - - - - -
(III) Profit distribution - - - - - - - - - -12,039,727.04 -12,039,727.04
1. Appropriations to
- - - - - - - - - - -
surplus reserves
2. Appropriations to
- - - - - - - - - -12,039,727.04 -12,039,727.04
owners (or shareholders)
3. Other - - - - - - - - - - -
(IV) Internal carry-forward
- - - - - - - - - - -
of owners’ equity
1. New increase of capital
(or share capital) from capital - - - - - - - - - - -
public reserves
2. New increase of capital - - - - - - - - - - -
26
The 2015 Annual Report of Konka Group Co., Ltd.
(or share capital) from surplus
reserves
3. Surplus reserves for
- - - - - - - - - - -
making up losses
4. Other - - - - - - - - - - -
(V) Specific reserve - - - - - - - - - - -
1. Withdrawn for the
- - - - - - - - - - -
period
2. Used in the period - - - - - - - - - - -
(VI) Other - - - - 149,898.75 - - - - - 149,898.75
IV. Closing balance 1,203,972,704.00 - - - 1,250,283,488.79 - 471,827.51 - 847,908,466.28 499,655,859.67 3,802,292,346.25
27
The 2015 Annual Report of Konka Group Co., Ltd.
Konka Group Co., Ltd.
Notes of 2015 Financial Statement
(Monetary unit is RMB Yuan unless otherwise stated)
I. Company Profile
1. Establishment
Konka Group Co., Ltd. (hereinafter referred to as “Company” or “the Company”), is a
joint-stock limited company reorganized from the former Shenzhen Konka Electronic Co.,
Ltd. in August 1991 upon approval of the People’s Government of Shenzhen Municipality,
and has its ordinary shares (A-share and B-share) listed on Shenzhen Stock Exchange with
prior consent from the People’s Bank of China Shenzhen Special Economic Zone Branch. On
August 29, 1995, the Company, renamed to “Konka Group Co., Ltd.”, obtained corporate
business license (registration No.: 440301501121863) with its main business falling into
electronic industry. And now the headquarters locates in No. 28 of No. 12 of Keji South Rd.,
Science & Technology Park, Yuehai Street, Nanshan District, Shenzhen, Guangdong
Province.
2. Share Capital Changes upon Establishment
On November 27, 1991, with approval from the SRYFZ No. 102 [1991] document as issued
by the People’s Bank of China Shenzhen Special Economic Zone Branch, Shenzhen Konka
Electronic Co., Ltd., during December 8—December 31, 1991, has issued 128,869,000 RMB
ordinary shares (A-share) at a par value of RMB1.00 per share, of which the original net
assets were converted into 98,719,000 state-owned institutional shares, 30,150,000 new
shares were issued, including 26,500,000 circulating shares issued to the public and
3,650,000 staff shares issued to the staff of the Company.
On January 29, 1992, with approval from the SRYFZ No. 106 [1991] document as issued by
the People’s Bank of China Shenzhen Special Economic Zone Branch, Shenzhen Konka
Electronic Co., Ltd., during December 20, 1991— January 31, 1992, has issued to investors
abroad 58,372,300 RMB special shares (B-share) at a par value of RMB1.00 per share, of
which 48,372,300 shares held by the former foreign investor and founder—Hong Kong
Ganghua Electronic Group Co., Ltd. are converted into foreign legal person’s shares, and
10,000,000 B-shares are issued additionally.
On April 10, 1993, the Proposal on Profit Distribution and Dividend Payout 1992 was
adopted at the second general meeting of shareholders of the Company. With approval from
the SZBF No. 2 [1993] document as issued by Shenzhen Securities Regulatory Office, the
Company began to perform dividend policy for FY 1992 as of April 30, 1993: distributing
RMB 0.90 in cash plus 3.5 bonus shares for every 10 shares to all shareholders. The total
capital stock reached 187,473,150 shares after this distribution.
On April 18, 1994, the Proposal on Profit Distribution and Dividend Payout 1993 was
28
The 2015 Annual Report of Konka Group Co., Ltd.
adopted at the third general meeting of shareholders of the Company. With approval from the
SZBF No. 115 [1994] document as issued by Shenzhen Securities Regulatory Office, the
Company began to perform dividend policy for FY1993 as of June 10, 1994: distributing
RMB 1.10 in cash plus 5 bonus shares (including 4.4 profit bonus shares and 0.6 bonus share
capitalized from capital public reserve) for every 10 shares to all shareholders. The total
capital stock reached 281,209,724 shares after this distribution and capitalization from capital
public reserve.
On June 2, 1994, in accordance with the provisions that “staff shares could go public and be
transferred six months after listing”, as jointly promulgated by the State Commission for
Restructuring the Economic System and the State Council’s Securities Commission, the staff
shares of the Company was planned to be listed on the flow on June 6, 1994, with the prior
consent of Shenzhen Securities Regulatory Office and Shenzhen Stock Exchange.
On October 8, 1994, the Proposal on Negotiable Bonus Shares of B-Share Corporate
Shareholders 1992 was adopted at the 1994 interim general meeting of shareholders of the
Company. With approval from the SZBF No. 224 [1994] document as issued by Shenzhen
Securities Regulatory Office, the 16,930,305 bonus shares for FY 1992 granted to foreign
legal persons were listed and negotiated at B-share market on October 26, 1994.
On February 6, 1996, the Proposal on Share Allotment Modes 1996 was adopted at the 1996
interim general metering of shareholders of the Company. With approval from the SZBF No.
5 [1996] document as issued by Shenzhen Securities Regulatory Office, and reexamination
from the ZJPSZ No. 16 [1996] document and ZJGZ No. 2 [1996] document as issued by
China Securities Regulatory Commission, on July 16, 1996 and October 29, 1996, all
shareholders were respectively allotted three shares for every ten existing shares held at
RMB 6.28/A-share and HKD 5.85/B-share. Corporate shareholders took their respective
existing shares as bases for full subscription of the allocable shares. The total capital stock
reached 365,572,641 shares after this allotment.
On January 25, 1998, the Plan on Share Allotment 1998 was adopted at the 1998 interim
general meeting of shareholders of the Company. With approval from the ZZBZ No. 29
[1998] document as issued by Shenzhen Securities Regulatory Office, and ZJSZ No.64 [1998]
document as issued by China Securities Regulatory Commission, on July 15, 1998,
negotiable A-shares were allotted in proportion of 3:10 at RMB 10.50/A-share. For such
reasons as continued weakness in B-share secondary market (lower than share allotment
price), B-share negotiation and allotment plan was canceled, and the corporate shareholders
of the Company waived the preemptive right. The total capital stock reached 389,383,603
shares after this allotment.
On June 30, 1999, the Proposal on Profit Distribution and Capitalization from Capital Public
Reserve 1998 was adopted at the eighth general meeting of shareholders of the Company. On
August 20, 1999, the profit distribution for FY 1998 was carried out: all shareholders were
29
The 2015 Annual Report of Konka Group Co., Ltd.
presented RMB3.00 in cash for every 10 shares, plus 2 shares capitalized from capital public
reserve. The total capital stock reached 467,260,323 shares after this capitalization.
On June 30, 1999, the Plan on A-Share Issue for Capital Increase was adopted at the eighth
general meeting of shareholders of the Company. With approval from the ZJFXZ No.140
[1999] document as issued by China Securities Regulatory Commission, on November 1,
1999, 80,000,000 A-shares were additionally issued to the public at RMB15.50/share. The
total capital stock reached 547,260,323 shares after this additional issue.
On May 30, 2000, the Plan on Profit Distribution and Dividend Payout 1999 was adopted at
the ninth general meeting of shareholders of the Company. On July 25, 2000, the profit
distribution for FY 1999 was carried out: all shareholders were distributed RMB4.00 in cash
plus 1 bonus shares for every 10 shares. The total capital stock reached 601,986,352 shares
after this distribution.
On April 3, 2008, the 7th meeting of the sixth Board of Directors was convened, during
which the following resolutions were discussed and adopted: based on the total capital stock
of 601,986,352 shares for the year ended December 31, 2007, capitalization from capital
public reserve was made to all shareholders at a proportion of 1:1, namely 10 new shares for
every 10 existing shares. And the said resolution was subject to approval by the 2007 annual
general meeting of shareholders convened on May 26, 2008. The Company, in June 2008,
implemented the capitalization from capital public reserve and went through the formalities
for transfer registration with China Securities Depository and Clearing Corporation Limited.
On December 16, 2008, with approval from the SMGZF No. 2662 [2008] document as
issued by Shenzhen Bureau of Trade and Industry, the Company was agreed to increase its
share capital, and went through the formalities for registration of changes with the
administration for industry and commerce on April 10, 2009. The total capital stock reached
1,203,972,704 shares after change.
According to the regulations of the 2015 1st Extraordinary General Meeting and the revised
articles of the Company, the Company applied to increase the registered capital of
RMB1,203,972,704.00, which totally turned into capital reserve with the altered registered
capital of RMB2,407,945,408.00 and managed the industrial and commercial alternation
registration on 28 Jan. 2016 with the altered share capital of 2,407,945,408 shares.
3. Approved business scope: research and development, production and operation of such
household appliances as televisions, refrigerators, washing machines, and personal electronic
appliances; manufacturing and application of home AV, IPTV set-top boxes, digital TV
receivers (including ground receiving equipment of satellite television broadcasting), digital
products, mobile communication equipments and terminal products, daily-use electronic
products, automotive electronic products, satellite navigation systems, intelligent
30
The 2015 Annual Report of Konka Group Co., Ltd.
transportation systems, fire-fighting and security systems, office equipments, computers,
displays, large screen display systems; LED (OLED) back light, illumination, light-emitting
devices, and packaging thereof; Touch TV AIO, wireless broadcasting television transiting
equipment; electronic parts and components, moulds, plastic and rubber products, and
packing materials, design and in-door installation security products, monitoring products,
wireless and cable digital television system and system integration, and technical consultancy
and after-sale paid services of related products (except mobile phone, the other products in
the above business scope are manufactured in other places outside Shenzhen); Wholesale,
retail, import & export and relevant support services of the aforesaid products (including
spare parts) (Commodities subject to state trading management are not involved. Products
involved in quota, license management and other specified management shall be subject to
the relevant state provisions.); sale of self-developed technological achievements; provision
of maintenance services, technical consultant service for electronic products; ordinary cargo
transportation, domestic freight forwarding, warehousing services; consultancy on enterprise
management; and self-owned property leasing and management services, recovery of waste
electrical appliances and electronic products (excluding dissembling) (operated by branch
offices); and outsourcing services of information technology and business procedures by
means of undertaking services in the way of outsourcing, including management and
maintenance of system application, management of information technology, bank
background service, financial settlement, human resource service, software development, call
center, and data processing.
4. The Company and each subsidiary mainly engaged in the production and sales of
color TV, white household appliances, mobile phones and moulds and so on.
5.The financial statements are subject to the approval of the board of directors of the
company in April 6, 2016.
6. There were 45 subsidiaries included in the consolidation scope of 2015 of the Company,
and please refer to the Notes VIII. “Equities among other entities” for details. There were 8
subsidiaries increased and 2 decreased in the consolidation scope of the reporting period over
the last period of the Company, and the gains and losses as well as the cash flows of the
subsidiaries which be decreased before the date losing the control right should be recorded in
the consolidation of the reporting period and please refer to the Notes VII. “Changes of the
consolidation scope” for details.
7. A check list of corporate names and their abbreviations mentioned in this Report
Corporate name Abbreviation
Shenzhen Konka Telecommunications Technology Co., Ltd. Telecommunication Technology
31
The 2015 Annual Report of Konka Group Co., Ltd.
Corporate name Abbreviation
Shenzhen Konka Precision Mold Manufacturing Co., Ltd. Precision Mold
Shenzhen Konka Electronic Co., Ltd. Konka Electronic
Shenzhen Konka Information Network Co., Ltd. Information Network
Shenzhen Konka Plastic Products Co., Ltd. Plastic Products
Shenzhen Konka Housing Appliances Co., Ltd. Housing Appliances
Shenzhen Electronic Fittings Technology Co., Ltd. Fittings Technology
Mudanjiang Arctic Ocean Appliances Co., Ltd. Mudanjiang Appliances
Chongqing Konka Automotive Electronic Co., Ltd. Chongqing Electronic
Chongqing Qingjia Electronics Co., Ltd. Chongqing Qingjia
Anhui Konka Electronic Co., Ltd. Anhui Konka
Anhui Konka Household Appliances Co., Ltd. Anhui Household Appliances
Changshu Konka Electronic Co., Ltd. Changshu Konka
Kunshan Konka Electronic Co., Ltd. Kunshan Konka
Dongguan Konka Electronic Co., Ltd. Dongguan Konka
Dongguan Konka Packing Materials Co., Ltd. Dongguan Packing
Dongguan Konka Mould Plastic Co., Ltd. Dongguan Mould Plastic
Boluo Konka PCB Co., Ltd. Boluo Konka
Boluo Konka Precision Technology Co., Ltd. Boluo Precision
Konka (Nanhai) Development Center Nanhai Institute
Hong Kong Konka Co., Ltd. Hong Kong Konka
Konka Household Appliances
Konka Household Appliances Investment & Development Co., Ltd.
Investment
Konka Household Appliances
Konka Household Appliances International Trading Co., Ltd.
International Trading
KONKA AMERICA,INC. KONKA AMERICA
Konka (Europe) Co., Ltd. Konka Europe
Dongguan Xutongda Mould Plastic Co., Ltd. Xutongda
Shenzhen Konka Optoelectronic Technology Co., Ltd. Konka Optoelectronic
Shenzhen Wankaida Science and Technology Co., Ltd. Wankaida
Kunshan Kangsheng Investment Development Co., Ltd. Kunshan Kangsheng
Anhui Konka Tongchuang Household Appliances Co., Ltd. Anhui Tongchuang
Indonesia Konka Electronics Co., Ltd. Indonesia Konka
Shenzhen Shushida Logistics Service Co., Ltd. Shushida Logistics
Beijing Konka Electronic Co., Ltd. Beijing Konka Electronic
32
The 2015 Annual Report of Konka Group Co., Ltd.
Corporate name Abbreviation
Kunshan Jielunte Mould Plastic Co. , Ltd. Kunshan Jielunte
Wuhan Jielunte Mould Plastic Co. , Ltd. Wuhan Jielunte
Chuzhou Jielunte Mould Plastic Co. , Ltd. Chuzhou Jielunte
Shenzhen Konka Yishijie Commercial Display Co., Ltd. Konka Yishijie
Shenzhen Yishijie Commercial Display Service Co., Ltd. Yishijie Commercial
Xiamen Dalong Trading Co., Ltd. Xiamen Dalong
Usee Kangrong Culture Communication Co., Ltd. Usee Kangrong
Anhui Jiasen Precision Science and Technology Co., Ltd. Anhui Jiasen
Shenzhen Kangqiao Jiacheng Real Estate Investment Co., Ltd. Kangqiao Jiacheng
Konka Zhisheng Co., Ltd. Konka Zhisheng
Anhui Kaikai Shijie E-commerce Co., Ltd. Kaikai Shijie
Shenzhen E2info Internet Science and Technology Co., Ltd. E2info
Shenzhen Konka Mobile Internet Science & Technology Co., Ltd. Mobile Internet
Shenzhen Konka Business System Science & Technology Co., Ltd. Business Science & Technology
II. Basis for the preparation of financial statements
With the going-concern assumption as the basis and based on transactions and other events
that actually occurred, the Group prepared financial statements in accordance with Accounting Standards for Business Enterprises—Basic Standard> issued by the Ministry of Finance with Decree No. 33 and revised with Decree No. 76, the 41 specific accounting standards, the Application Guidance of Accounting Standards for Business Enterprises, the Interpretation of Accounting Standards for Business Enterprises and other regulations issued and revised from 15 Feb. 2006 onwards (hereinafter jointly referred to as “the Accounting Standards for Business Enterprises”, “China Accounting Standards” or “CAS”), as well as the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. In accordance with relevant provisions of the Accounting Standards for Business Enterprises, the Group adopted the accrual basis in accounting. Except for some financial instruments, where impairment occurred on an asset, an impairment reserve was withdrawn accordingly pursuant to relevant requirements. 33 The 2015 Annual Report of Konka Group Co., Ltd. III. Statement of Compliance with the Accounting Standards for Business Enterprises The financial statements prepared by the Group are in compliance with in compliance with the Accounting Standards for Business Enterprises, which factually and completely present the Company’s financial positions as at 31 Dec. 2015, business results and cash flows for the year of 2015, and other relevant information. In addition, the Company’s and the Group’s financial statements meet the requirements of disclosing financial statements and notes thereto stated in the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. IV. Important accounting policies and estimations The Company and each subsidiary formulated certain specific accounting policies and accounting estimates according to the actual production and operation characteristics and the regulations of the relevant ASBE on the transactions and events of the revenues recognition. For the details, please refer to each description of Notes IV. 22 “Revenues”. For the notes of the significant accounting judgment and estimations made by the management layer, please refer to Notes IV. 27 “Significant accounting judgment and estimations”. 1. Fiscal period The Group’s fiscal periods include fiscal years and fiscal periods shorter than a complete fiscal year. The Group’s fiscal year starts on 1 Jan. and ends on 31 Dec. of every year according to the Gregorian calendar. 2. Operating cycle A normal operating cycle refers to a period from the Group purchasing assets for processing to realizing cash or cash equivalents. An operating cycle for the Group is 12 months, which is also the classification criterion for the liquidity of its assets and liabilities. 3. Recording currency Renminbi is the dominant currency used in the economic circumstances where the Group and its domestic subsidiaries are involved. Therefore, the Group and its domestic subsidiaries use Renminbi as their bookkeeping base currency. As for the overseas subsidiaries of the Company-America Konka, European Konka and Indonesia Konka, should be respectively confirmed the US Dollar, Euro and Indonesia Rupiah as their recording currency according its major economic environment of their operating address; subsidiaries such as Hong Kong Konka, Konka Household Appliances International Trading，Konka Household Appliances Investment and Konka Zhisheng use HK Dollar as their recording currency. And the Group 34 The 2015 Annual Report of Konka Group Co., Ltd. adopted Renminbi as the bookkeeping base currency when preparing the financial statements for the reporting year. 4. Accounting treatment methods for business combinations under the same control or not under the same control Business combinations, it is refer to two or more separate enterprises merge to form a reporting entity transactions or events. Business combination is divided into under the same control and those non under the same control. (1) Business combinations under the same control A business combination under the same control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or the same parties both before and after the business combination and on which the control is not temporary. In a business combination under the same control, the party which obtains control of other combining enterprise(s) on the combining date is the combining party, the other combining enterprise(s) is (are) the combined party. The “combining date” refers to the date on which the combining party actually obtains control on the combined party. The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital (share premium) shall be adjusted. If the additional paid-in capital (share premium) is not sufficient to be offset, the retained earnings shall be adjusted. The direct cost for the business combination of the combining party shall be recorded into the profits and losses at the current period. (2) Business combinations not under the same control A business combination not under the same control is a business combination in which the combining enterprises are not ultimately controlled by the same party or the same parties both before and after the business combination. In a business combination not under the same control, the party which obtains the control on other combining enterprise(s) on the purchase date is the acquirer, and other combining enterprise(s) is (are) the acquiree. For a business combination not under the same control, the combination costs shall include the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree, the expenses for audit, legal services and assessment, and other administrative expenses, which are recorded into the profits and losses in the current period. The trading expenses for the equity securities or debt securities issued by the acquirer as the combination consideration shall be recorded into the amount of initial measurement of the equity securities or debt securities. The involved contingent consideration shall be recorded into the combination costs at its fair value on the acquiring date. Where new or further evidences emerge, within 12 months since the acquiring date, against the existing circumstances on the acquiring date and the contingent consideration thus needs to be adjusted, the combined goodwill shall be adjusted accordingly. The combination costs of the acquirer and the 35 The 2015 Annual Report of Konka Group Co., Ltd. identifiable net assets obtained by it in the combination shall be measured according to their fair values at the acquiring date. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. Where the combination costs are less then the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall re-examine the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquiree as well as the combination costs. If, after the reexamination, the combination costs are still less than the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall record the balance into the profits and losses of the current period. As for the deductible temporary differences the acquirer obtains from the acquiree which are not recognized into deferred income tax liabilities due to their not meeting the recognition standards, if new or further information shows that the relevant situation has existed on the acquiring date and the economic benefits brought by the deductible temporary differences the acquirer obtains from the acquiree on the acquiring date can be realized, they shall be recognized into deferred income tax assets and the relevant goodwill shall be reduced. Where the goodwill is not sufficient to be offset, the difference shall be recognized into the profits and losses in the current period. In other circumstances than the above, where the deductible temporary differences are recognized into deferred income tax assets on the acquiring date, they shall be recorded into the profits and losses in the current period. In a business combination not under same control realized by two or more transactions of exchange, according to about the 5th Notice about the Treasury Issuing the Accounting Standards for Enterprises (Finance accounting) [2012] No. 19 Criterion about the “package deal” (see note 4, 4 (2)), Whether the deals are “package deal” or not, belong to the “package deal”, see the previous paragraphs described in this section and note 4, 10 “long term equity investment transaction” and conduct accounting treatment, those not belong to the “package deal” distinguish between the individual financial statements and the consolidated financial statements and conduct relevant accounting treatment. In the individual financial statements, the sum of the book value and new investment cost of the Group holds in the acquiree before the acquiring date shall be considered as initial cost of the investment. Other related comprehensive gains in relation to the equity interests that the Group holds in the acquiree before the acquiring date shall be treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree’s re-measurement, the others shall be transferred into current investment gains). In the Group’s consolidated financial statements, as for the equity interests that the Group holds in the acquiree before the acquiring date, they shall be re-measured according to their fair values at the acquiring date; the positive difference between their fair values and carrying amounts shall be recorded into the investment gains for the period including the acquiring date. Other related comprehensive gains in relation to the equity interests that the Group holds in the acquiree before the acquiring date shall be treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree’s 36 The 2015 Annual Report of Konka Group Co., Ltd. re-measurement, the others shall be transferred into current investment gains on the acquiring date). 5. Methods for preparing consolidated financial statements (1) Principle for determining the consolidation scope The consolidation scope for financial statements is determined on the basis of control. The term “control” is the power of the Group upon an investee, with which it can take part in relevant activities of the investee to obtain variable returns and is able to influence the amount of returns. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries. A subsidiary is an enterprise or entity controlled by the Group. (2) Methods for preparing the consolidated financial statements Subsidiaries are fully consolidated from the date on which the Group obtains control on their net assets and operation decision-making and are de-consolidated from the date when such control ceases. As for a disposed subsidiary, its operating results and cash flows before the disposal date has been appropriately included in the consolidated income statement and cash flow statement; and as for subsidiaries disposed in the current period, the opening items in the consolidated balance sheet are not adjusted. For a subsidiary acquired in a business combination not under the same control, its operating results and cash flows after the acquiring date have been appropriately included in the consolidated income statement and cash flow statement, and the opening items and comparative items in the consolidated financial statements are not adjusted. For a subsidiary acquired in a business combination under the same control or a combined party obtained in a takeover, its operating results and cash flows from the beginning of the reporting period of the combination to the combination date have been appropriately included in the consolidated income statement and cash flow statement, and the comparative items in the consolidated financial statements are adjusted at the same time. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Group during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Group and subsidiaries. For a subsidiary acquired from a business combination not under the same control, the individual financial statements of the subsidiary are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant inter-group balances, transactions and unrealized profits are offset in the consolidated financial statements. The portion of a subsidiary’s shareholders’ equity and the portion of a subsidiary’s net profits and losses for the period not held by the Group are recognized as minority interests and minority shareholder profits and losses respectively and presented separately under shareholders’ equity and net profits in the consolidation financial statements. The portion of a subsidiary’s net profits and losses for the period that belong to minority interests is presented as the item of “minority shareholder profits and losses” under the bigger item of net profits in the consolidated financial statements. Where the loss of a subsidiary shared by minority shareholders exceeds the portion enjoyed by minority shareholders in the subsidiary’s opening owners’ equity, minority interests are offset. 37 The 2015 Annual Report of Konka Group Co., Ltd. Where the Group losses control on its original subsidiaries due to disposal of some equity investments or other reasons, the residual equity interests are re-measured according to the fair value on the date when such control ceases. The summation of the consideration obtained from the disposal of equity interests and the fair value of the residual equity interests, minus the portion in the original subsidiary’s net assets measured on a continuous basis from the acquisition date that is enjoyable by the Group according to the original shareholding percentage in the subsidiary, is recorded in investment gains for the period when the Group’s control on the subsidiary ceases. Other comprehensive incomes in relation to the equity investment in the original subsidiary are treated on the same accounting basis as the acquiree directly disposes the relevant assets or liabilities (that is, except for the changes in the net liabilities or assets with a defined benefit plan resulted from re-measurement of the original subsidiary, the rest shall all be transferred into current investment gains) when such control ceases. And subsequent measurement is conducted on the residual equity interests according to the No. 2 Accounting Standard for Business Enterprises —Long-term Equity Investments or the No. 22 Accounting Standard for Business Enterprises—Recognition and Measurement of Financial Instruments. For details, see note IV, 12 “long term equity investment” or 9 “financial instruments”. Where the Group losses control on its original subsidiaries due to step by step disposal of equity investments through multiple transactions, it need to distinguish the Group losses control on its subsidiaries due to disposal of equity investments whether belongs to a package deal. All the transaction terms, conditions and economic impact of the disposal of subsidiaries’ equity investment are in accordance with one or more of the following conditions, which usually indicate the multiple transactions, should be considered as a package deal for accounting treatment. ① These deals are at the same time or under the condition of considering the influence of each other to concluded; ② These transactions only be as a whole can achieve a complete business result; ③ The occurrence of a deal depends on at least one other transactions；④ A deal alone is not economical, it is economical with other trading together. Those not belong to a package deal, each of them a deal depends on circumstances respectively conduct accounting treatment in accordance with the applicable principles of “part disposal of subsidiaries of a long-term equity investment under the condition of not losing control on its subsidiaries” (see note IV 12, (2) ④) and “Where the Group losses control on its original subsidiaries due to disposal of some equity investments or other reasons” (See the front paragraph) relevant transactions of the Group losses control on its subsidiaries due to disposal of equity investments belonging to a package deal, considered as a transaction and conduct accounting treatment. However, Before losing control, every disposal cost and corresponding net assets balance of subsidiary of disposal investment are confirmed as other comprehensive income in consolidated financial statements, which together transferred into the current profits and losses in the lose of control , when the Group losing control on its subsidiary. 38 The 2015 Annual Report of Konka Group Co., Ltd. 6. Classification of joint arrangements and accounting treatment of joint operations A joint arrangement refers to an arrangement jointly controlled by two participants or above. The Group classifies joint arrangements into joint operations and joint ventures according to its rights and duties in the joint arrangements. A joint operation refers to a joint arrangement where the Group enjoys assets and has to bear liabilities related to the arrangement. A joint venture refers to a joint arrangement where the Group is only entitled to the net assets of the arrangement. The Group’s investments in joint ventures are measured at the equity method according to the accounting policies mentioned in Note IV. 12 (2) ② “Long-term equity investments measured at the equity method”. For a joint operation, the Group, as a joint operator, recognizes the assets and liabilities that it holds and bears in the joint operation, and recognizes the jointly-held assets and jointly-borne liabilities according to the Group’s stake in the joint operation; recognizes the income from sale of the Group’s share in the output of the joint operation; recognizes the income from sale of the joint operation’s outputs according to the Group’s stake in it; and recognizes the expense solely incurred to the Group and the expense incurred to the joint operation according to the Group’s stake in it. When the Group, as a joint operator, transfers or sells assets (the assets not constituting business, the same below) to the joint operation, or purchases assets from the joint operation, before the assets are sold to a third party, the Group only recognizes the share of the other joint operators in the gains and losses arising from the sale. Where impairment occurs to the assets as prescribed in Impairment>, the Group shall fully recognizes the loss for a transfer or sale of assets to a joint operation; and shall recognize the loss according to its stake in the joint operation for a purchase of assets from the joint operation. 7. Recognition standard for cash and cash equivalents In the Group’s understanding, cash and cash equivalents include cash on hand, any deposit that can be used for cover, and short-term (usually due within 3 months since the day of purchase) and high circulating investments, which are easily convertible into known amount of cash and whose risks in change of value are minimal. 8. Foreign currency businesses and translation of foreign currency financial statements (1) Accounting treatments for translation of foreign currency transactions As for a foreign currency transaction, the Company shall convert the amount in a foreign currency into amount in its bookkeeping base at the spot exchange rate (usually referring to the central parity rate announced by the People’s Bank of China, the same below) of the transaction date, while as for such transactions as foreign exchange or involving in foreign exchange, the Company shall converted into amount in the bookkeeping base currency at actual exchange rate the transaction is occurred. 39 The 2015 Annual Report of Konka Group Co., Ltd. (2) Accounting treatments for translation of foreign currency monetary items and non-monetary items On the balance sheet date, the foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The exchange difference 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 in the profits and losses in the current period, excluding the following situations: ① the exchange difference arising from foreign currency loans related to acquisition of fixed assets shall be treated at the principle of capitalization of borrowing costs; ② the exchange difference arising from the hedging instruments used for effective hedging of net overseas operation investments shall be recorded into other comprehensive incomes, and shall be recognized into current gains and losses when the net investments are disposed; and ③ the exchange difference arising from change in the book balance of foreign currency monetary items available for sale except the amortized costs shall be recorded into other comprehensive gains and losses. When it involves overseas business in preparing the consolidated financial statement, for the translation difference of foreign currency monetary items of net investment in overseas business arising from the change in exchange rate, it shall be recorded into the other comprehensive income; and be recorded into disposal gains and losses at current period when disposing overseas business. A foreign currency non-monetary item measured at the historical costs shall still be translated at the spot exchange rate on the transaction date. Where the foreign non-monetary items measured at the fair value shall be converted into amount in its bookkeeping base currency at spot exchange rate, the exchange gains and losses arising thereof shall be treated as change in fair value, and recorded into the current period gains and losses or as other comprehensive incomes. (3) Translation of foreign currency financial statements When it involves overseas business in preparing the consolidated financial statement, for the translation difference of foreign currency monetary items of net investment in overseas business arising from the change in exchange rate, it shall be recorded into the item of “difference of foreign currency financial statement translation” under the owners’ equity; and be recorded into disposal gains and losses at current period when disposing overseas business. The foreign currency financial statement of overseas business should be translated in to RMB financial statement by the following methods: The asset and liability items in the balance sheets shall be translated at a spot exchange rate on the balance sheet date. Among the owner’s equity items, except for the items as “undistributed profits”, other items shall be 40 The 2015 Annual Report of Konka Group Co., Ltd. translated at the spot exchange rate at the time when they are incurred. The income and expense items in the profit statements shall be translated at the spot exchange rate of the transaction date. The undistributed profits at year-begin is the undistributed profits at the end of last year after the translation; undistributed profits at year-end shall be listed as various distribution items after the translation; after the translation, the balance between assets and the sum of liabilities and owners’ equities shall be recorded into other comprehensive gains and losses as difference of foreign currency translation. Where an enterprise disposes of an overseas business without the control right, it shall shift the differences, which is presented under the items of the owner’s equities in the balance sheet and which arises from the translation of foreign currency financial statements relating to this overseas business, into the disposal profits and losses of the current period by all or proportion of the disposed overseas business. Foreign cash flow shall be translated at the spot exchange rate/the weighted average of the exchange rate of the current period of the date of cash flow incurred. The influence of exchange rate on the cash flow shall be adjustment item and individually listed in the cash flow statement. And the opening balance and the actual balance of last year shall be listed at the amounts after translation of foreign currency financial statement in last year. Where the control of the Group over an overseas operation ceases due to disposal of all or some of the Group’s owner’s equity in the overseas operation or other reasons, the foreign-currency statement translation difference belonging to the parent company’s owner’s equity in relation to the overseas operation which is stated under the shareholders’ equity in the balance sheet shall be all restated as gains and losses of the disposal period. Where the Group’s equity in an overseas operation decreases due to disposal of some equity investment or other reasons but the Group still has control over the overseas operation, the foreign-currency statement translation difference in relation to the disposed part of the overseas operation shall be recorded into minority interests instead of current gains and losses. If what’s disposed is some equity in an overseas associated enterprise or joint venture, the foreign-currency statement translation difference related to the overseas operation shall be recorded into the gains and losses of the current period of the disposal according to the disposal ratio. 9. Financial instruments The Group recognizes a financial asset or liability when it becomes a party of the relevant financial instrument contract. Financial assets and liabilities are measured at fair value in initial recognition. As for the financial assets and liabilities measured at fair value of which changes are recorded into current gains and losses, the relevant dealing expenses are directly recorded into gains and losses; and the dealing expenses on other kinds of financial assets and liabilities are included in the amounts initially recognized. (1) Determination of the fair value of main financial assets and financial liabilities Fair value refers to the price that a market participant shall receive for selling an asset or shall pay for transferring a liability in an orderly transaction on the measurement date. As for the financial assets or financial liabilities for which there is an active market, the quoted 41 The 2015 Annual Report of Konka Group Co., Ltd. prices in the active market shall be used to determine the fair values thereof. The quoted prices in the active market refers to the prices available from stock exchange, broker’s agencies, guilds, pricing organization and etc., which represent the actual trading price under equal transaction. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques, including the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc., to determine its fair value. (2) Classification, recognition and measurement of financial assets The purchase and sale of financial assets under the normal ways shall be recognized and stopped to be recognized respectively at the price of transaction date. Financial assets shall be classified into the following four categories when they are initially recognized: (a) the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, (b) the investments which will be held to their maturity; (c) loans and the account receivables; and (d) financial assets available for sale. ① The financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period Including transactional financial assets and the financial assets which are designated to be measured at their fair value when they are initially recognized and of which the variation is recorded into the profits and losses of the current period; The financial assets meeting any of the following requirements shall be classified as transactional financial assets：A. The purpose to acquire the said financial assets is mainly for selling them in the near future; B. Forming a part of the identifiable combination of financial instruments which are managed in a centralized way and for which there are objective evidences proving that the enterprise may manage the combination by way of short-term profit making in the near future; C. Being a derivative instrument, excluding the designated derivative instruments which are effective hedging instruments, or derivative instruments to financial guarantee contracts, and the derivative instruments which are connected with the equity instrument investments for which there is no quoted price in the active market, whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instruments. The financial assets meeting any of the following requirements shall be designated as financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period for initial recognition: A. the designation can eliminate or significantly reduce the difference of relevant gains and losses between recognition and measurement causing from different bases for measurement of financial assets; B. The official written documents for risk management and investment strategies of the enterprise have clearly stated that it shall ,manage, evaluate and report to important management personnel based on the fair value, about the financial assets group or the group of financial assets & liabilities which the financial assets are belong to. 42 The 2015 Annual Report of Konka Group Co., Ltd. For the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period shall continue to be measured by fair value, gains and losses of change in fair value, dividends and interest related with these financial assets should be recorded into gains and losses of current period. ② Held-to-maturity investment The term “held-to-maturity investment” refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of repo price and which the enterprise holds for a definite purpose or the enterprise is able to hold until its maturity. For the held-to-maturity investment adopting actual interest rate method, which is measured at the post-amortization costs, the profits and losses that arise when such financial assets or financial liabilities are terminated from recognition, or are impaired or amortized, shall be recorded into the profits and losses of the current period. The actual interest rate method refers to the method by which the post-amortization costs and the interest incomes of different installments or interest expenses are calculated in light of the actual interest rates of the financial assets or financial liabilities (including a set of financial assets or financial liabilities). The actual interest rate refers to the interest rate adopted to cash the future cash flow of a financial asset or financial liability within the predicted term of existence or within a shorter applicable term into the current carrying amount of the financial asset or financial liability. When the actual interest rate is determined, the future cash flow shall be predicted on the basis of taking into account all the contractual provisions concerning the financial asset or financial liability (the future credit losses shall not be taken into account).and also the various fee charges, trading expenses, premiums or reduced values, etc., which are paid or collected by the parties to a financial asset or financial liability contract and which form a part of the actual interest rate. ③ Loans and the accounts receivables Loans and the accounts receivables refer to non-derivative financial assets, which there is no quotation in the active market, with fixed recovery cost or recognizable. Financial assets that are defined as loans and the accounts receivables by the Group including notes receivables, accounts receivables, interest receivable, dividends receivable and other receivables etc.. Loans and the accounts receivables are made follow-up measurement on the basis of post-amortization costs employing the effective interest method. Gains or loss arising from the termination recognition, impairment occurs or amortization shall be recorded into the profits and losses of the current period. ④ Assets available for sales Assets available for sales including non-derivative financial asset that has been assigned as assets available for sales on the initial recognition and financial assets excluded those 43 The 2015 Annual Report of Konka Group Co., Ltd. measured at fair value and of which the variation into profits and losses of the current period, they are some financial assets, loans and accounts receivables, held-to-maturity investment. The cost at the period-end of the available-for-sale liabilities instruments should be confirmed according to its amortized cost method, that is the initially recognized amount which deduct the principal that had been repaid, to plus or minus the accumulative amortization amount formed by the amortization between the difference of the initially recognized amount and the amount on the due date that adopted the actual interest rate method, and at the same time deduct the amount after the impairment loss happened. The cost at the period-end of the available-for-sale liabilities instruments is its initial cost. Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in the fair value are recognized as other comprehensive income， and be carried forward when the said financial assets stopped recognition, then it shall be recorded into the profits and losses of the current period. But, the equity instrument investment which neither have quotation in the active market nor its fair value could not be reliable measured, as well as the derivative financial assets that concern with the equity instruments and should be settled through handing over to its equity instruments, should take the follow-up measurement according to the cost. Interest receive during the holding of assets available for sales and cash dividends with distribution announcement by invested companies, it shall be recorded into the profits and losses of the current period. (3) Impairment of financial assets The Group assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets that measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is provided for the impairment. The Group carries out a separate impairment test for every financial asset which is individually significant. As for a financial asset which is individually insignificant, an impairment test is carried out separately or in the financial asset group with similar credit risk. Where the financial asset (individually significant or insignificant) is found not impaired after the separate impairment test, it is included in the financial asset group with similar credit risk and tested again on the group basis. Where the impairment loss is recognized for an individual financial asset, it is not included in the financial asset group with similar credit risk for an impairment test. ① Impairment on held-to maturity investment, loans and receivables The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of value of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment loss recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not exceed the amortized cost of the financial assets without provisions of impairment loss on the reserving date. 44 The 2015 Annual Report of Konka Group Co., Ltd. ② Impairment of available-for-sale financial assets When it judged that the decrease of fair value of the available-for-sale equity instrument investment is serious and not temporarily after comprehensive considering relevant factors, it reflected that the available-for-sale equity instrument investment occurred impairment. Of which, the “serious decline” refers to the accumulative decline range of the fair value over 20%; while the “non-temporary decline” refers to the consecutive decline time of the fair value over 12 months. Where an available-for-sale financial asset is impaired, the accumulative losses arising from the decrease of the fair value of the capital reserve which is directly included are transferred out and recorded in the profits and losses for the current period. The accumulative losses transferred out are the balance obtained from the initially obtained cost of the said financial asset after deducting the principals as taken back, the amortized amount, the current fair value and the impairment loss originally recorded in the profits and losses. Where the impairment loss has been recognized for an available-for-sale financial asset, if, within the accounting periods thereafter, there is any objective evidence proving that the value of the said financial asset has been restored and the restoration is objectively related to the events that occur after the impairment loss was recognized, the originally recognized impairment loss is reversed. The impairment losses on the available-for-sale equity instrument investments are reversed and recognized as other comprehensive incomes, and the impairment losses on the available-for-sale liability instruments are reversed and recorded in the profits and losses for the current period. The impairment loss incurred to an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or incurred to a derivative financial asset which is connected with the said equity instrument investment and which must be settled by delivering the said equity investment, is not reversed. (4) Recognition and measurement of financial asset transfers Where a financial asset satisfies any of the following requirements, the recognition of it is terminated: ① The contractual rights for collecting the cash flow of the said financial asset are terminated; ② The said financial asset has been transferred and nearly all of the risks and rewards related to the ownership of the financial asset to the transferee; or ③ The said financial asset has been transferred. And the Group has ceased its control on the said financial asset though it neither transfers nor retains nearly all of the risks and rewards related to the ownership of the financial asset. Where the Group neither transfers nor retains nearly all of the risks and rewards related to the ownership of a financial asset, and it does not cease its control on the said financial asset, it recognizes the relevant financial asset and liability accordingly according to the extent of its continuous involvement in the transferred financial asset. The term "continuous involvement in the transferred financial asset" refers to the risk level that the enterprise faces resulting from the change of the value of the financial asset. 45 The 2015 Annual Report of Konka Group Co., Ltd. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following 2 items is recorded in the profits and losses of the current period: (1) The book value of the transferred financial asset; and (2) The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in other comprehensive incomes. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the book value of the transferred financial asset is apportioned between the portion whose recognition has been stopped and the portion whose recognition has not been stopped according to their respective relative fair value, and the difference between the amounts of the following 2 items is included into the profits and losses of the current period: (1) The summation of the consideration received from the transfer and the portion of the accumulative amount of changes in the fair value originally recorded in other comprehensive incomes which corresponds to the portion whose recognition has been stopped; and (2) The amortized carrying amounts of the aforesaid amounts. In respect of the assets using recourse to sell or using endorsement to transfer, the Group needs to determine whether almost all of the risks and rewards of the financial asset ownership are transferred. If almost all of the risks and rewards of the financial asset ownership had been transferred to the transferee, derecognize the financial assets. For almost all of the risks and rewards of the financial asset ownership retained, do not end to recognize the financial assets. For which neither transfer or retain almost all of the risks and rewards of the financial asset ownership, continuously judge whether the Company retain the control of the assets, and conduct accounting treatment according to the principle of mentioned in the previous paragraphs. (5) Classification and measurement of financial liabilities In the initial recognition, financial liabilities are divided into the financial liabilities measured at fair values and whose changes are recorded in current gains and losses and other financial liabilities. Financial liabilities are initially recognized at their fair values. As for a financial liability measured at fair value and whose changes are recorded in current gains and losses, the relevant trading expense is directly recorded in the profits and losses for the current period. As for other financial liabilities, the relevant trading expenses are recorded in the initially recognized amounts. ① Financial liabilities measured at fair values and whose changes are recorded in current gains and losses Such financial liabilities are divided into transactional financial liabilities and financial liabilities designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition under the same conditions where such financial assets are divided into transactional financial assets and financial assets designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition. Financial liabilities measured at fair values and whose changes are recorded in current gains and losses are subsequently measured at their fair values. Gains or losses arising from the fair value changes, as well as the dividend and interest expenses in relation to the said financial liabilities, are recorded in the profits and losses for the current period. 46 The 2015 Annual Report of Konka Group Co., Ltd. ② Other financial liabilities As for a derivative financial liability connected to an equity instrument for which there is not quoted price in an active market and whose fair value cannot be reliably measured and which must be settled by delivering the equity instrument, it is subsequently measured on the basis of costs. Other financial liabilities are subsequently measured according to the amortized cost using the actual interest rate method. Gains or losses arising from de-recognition or amortization of the said financial liabilities is recorded in the profits and losses for the current period. ③ Financial guarantee contract and loan commitment For the financial guarantee contracts which are not designated as a financial liability measured at its fair value and the variation thereof is recorded into the profits and losses of the current period, or the loan commitment which is not designated as a financial liability measured at its fair value and the variation thereof is recorded into the gains and losses that will be loaned lower than the market interest rate, which shall be initially recognized by fair value, and the subsequent measurement shall be made after they are initially recognized according to the higher one of the following: a. the amount as determined according to the Accounting Standards for Enterprises No. 13 – Contingencies; b. the surplus after accumulative amortization as determined according to the principles of the Accounting Standards for Enterprises No. 14 - Revenues is subtracted from the initially recognized amount. (6) De-recognition of financial liabilities Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. Where the Group (debtor) enters into an agreement with a creditor so as to substitute the existing financial liabilities by way of any new financial liability, and if the contractual stipulations regarding the new financial liability is substantially different from that regarding the existing financial liability, it terminates the recognition of the existing financial liability, and at the same time recognizes the new financial liability. Where the recognition of a financial liability is totally or partially terminated, the enterprise concerned shall include into the profits and losses of the current period for the gap between the book value which has been terminated from recognition and the considerations it has paid (including the non-cash assets it has transferred out and the new financial liabilities it has assumed) (7) Derivatives and embedded derivatives Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss. An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics 47 The 2015 Annual Report of Konka Group Co., Ltd. and risks of the host contract; and (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Company is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss. (8) Offsetting financial assets and financial liabilities When the Group has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. (9) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The Group issues (including refinancing), re-purchases, sells or written-offs the equity instrument as the disposing of the changes of the equity. The Group not recognized the changes of the fair value of the equity instrument. The transaction expenses related to the equity transaction would be deducted from the equity. All types of distribution (excluding stock dividends) made by the Group to holders of equity instruments are deducted from shareholders’ equity. The Group does not recognize any changes in the fair value of equity instruments. 10. Receivables Receivables include account receivables and other accounts receivables. (1) Recognition of provision for bad debts: The Group shall test the carrying amount of receivables on the balance sheet date. Where there is any objective evidence proving that such receivables have been impaired, an impairment provision shall be made. ① Debtor has serious financial difficult; ② Debtor goes against the contract clause (for instance, breach of faith or overdue paying interests or principal); ③ Debtors have a great probability of bankruptcy or other financial reorganization; ④ Other objective evidence proving such accounts receivable has been impaired; (2) Withdraw method of provision for bad debts 48 The 2015 Annual Report of Konka Group Co., Ltd. ① The recognition criteria and method of individual provision for bad debts of receivables that are individually significant The Group recognized the receivables with amount above RMB20 million and other receivables above 10 million as receivables with significant single amounts and withdrawn the provision for bad debts. The Group made an independent impairment test on receivables with significant single amounts; the financial assets without impairment by independent impairment test should be included in financial assets portfolio with similar credit risk to take the impairment test. Receivables was recognized with impairment should no longer be included in receivables portfolio with similar credit risk to take the impairment test. ② The recognition and method of provision for bad debts of receivables by credit risk portfolio A. Recognition of credit risk group Receivables that not individually significant and individually significant but without impairment by independent impairment test, are grouped on the basis of similarity and relevance of credit risk. This credit risk usually reflects the debtor’s ability to repay all the due accounts in accordance with contract for such assets, which also are related with the measurement on future cash flow of the examined assets. Recognition basic of different groups: Item Basic Divide the groups according to the credit risks characteristics of the Group 1: Aging group accounts receivable Group 2: Internal related party Divide the groups according to the credit risks characteristics of groups of the Company whether the creditor is the internal related party of the Company B. Withdrawal method of provision for bad debts recognized by credit risk group For the impairment test implemented by groups, the amount of provision for bad debts was appraised and recognized in accordance with the structure of accounts receivable group and similar characteristics of credit risk (the debtor’s ability to pay off the loans in accordance with the provisions of contract), experience of losses, current economic status and the predicted losses in the accounts receivable group. Withdrawal method of the bad debts provision of the different groups: Item Withdrawal method Group 1: Aging group Aging analysis method Group 2: Internal related party To make an independent impairment test and if there was no groups of the Company impairment, should not withdraw the bad debts provision. In the groups, adopting aging analysis method to withdraw bad debt provision: 49 The 2015 Annual Report of Konka Group Co., Ltd. Withdrawal proportion for Withdrawal proportion for other Age accounts receivable (%) accounts receivable (%) Within 1 year (including 1 year, similarly hereinafter) 2 2 1-2 years 5 5 2-3 years 20 20 3-4 years 50 50 4-5 years 50 50 Over 5 years 100 100 ③ Receivables with insignificant amount but being individually withdrawn the provision for bad debts The Group made independent impairment test on receivables with insignificant amount but with the following characteristics, if any objective evidence shows that the accounts receivable has been impaired, impairment loss shall be recognized on the basis of the gap between the current values of the future cash flow lower than its book value so as to withdraw provision for bad debts: A. Receivables have dispute with the other parties or involving lawsuit and arbitration; B. Receivables have obvious indication showing that the debtors are likely to fail to perform the duty of repayment, etc. (3) Reversal of provision for bad debts If there is any objective evidence proving that the value of the said receivables has been restored, and it is objectively related to the events occurred after such loss is recognized, the impairment-related losses as originally recognized shall be reversed and be recorded into the profits and losses of the current period. However, the reversed carrying amount shall not be any more than the post-amortization costs of the said accounts receivable on the day of reverse under the assumption that no provision is made for the impairment. 11. Inventory (1) Classification The Group’s inventories are classified as non-property inventories and property inventories. And the non-property inventories include raw materials, goods in process; merchandise on hand, goods delivered and circulating materials, etc; while the property inventories include property in process and finished property, etc. ① The finished property refers to the finished and held-for-sale property. ② The property in process (development costs) refers to the unfinished property with the development purpose for sale. 50 The 2015 Annual Report of Konka Group Co., Ltd. (2) Pricing method for outgoing inventories Pricing method: weighted average method The inventories shall be measured in light of their cost when obtained. The cost of inventory consists of purchase costs, processing costs and other costs. Inventory is accounted by weight average method upon receiving and giving. For merchandise on hand shall be accounted by planned cost, if the difference between planned cost of and actual cost of raw materials is accounted through the cost variance item, and the planned cost is adjusted to the actual cost according to the cost difference which the carryover and given-out inventory should shoulder in the period. The property inventories are initially measured at the costs, and the costs of the developed property include the land premium, expenditures for supporting infrastructures, expenditures for construction and installation projects, the borrowing costs before the completion of the developed project and other expenses occurred during the development process. ① The public supporting facilities recorded the development costs at the actual costs, the amortization upon completion was transferred to the costs of houses and other available-for-sale property, while as for the supporting facilities with operating value and beneficiary rights owned by the Group as well as available for individual sale and measurement, which shall be recorded into the “investment property” ② For the accounting policies on borrowing costs occurred for developing property, please refer to Note IV. 17 Pricing of “Borrowing Costs”. (3) Recognition basis of net realizable value and withdrawal method of depreciation reserves for inventories The net realizable value refers, in the ordinary course of business, to the account after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. The net realizable value of inventories shall be fixed on the basis of valid evidence as well as under consideration of purpose of inventories and the effect of events after balance-sheet-date. On the balance sheet date, the inventories shall be measured according to the cost or the net realizable value, whichever is lower. If the net realizable value is lower than the cost, it shall withdraw the depreciation reserves for inventories, which was withdrawn in accordance with the balance that the cost of individual inventory item exceeding the net realizable value. After withdrawing the depreciation reserves for inventories, if the factors, which cause any write-down of the inventories, have disappeared, causing the net realizable value of inventories is higher than its carrying amount; the amount of write-down shall be reversed from the original amount of depreciation reserve for inventories. The reversed amount shall 51 The 2015 Annual Report of Konka Group Co., Ltd. be included in the profits and losses of the current period. (4) The perpetual inventory system is maintained for stock system. (5) Amortization method of the low-value consumption goods and packing articles The low-value consumption goods should be amortized by one time amortization when acquiring and the packing articles are amortized by one time/gradation amortization when acquiring. 12. Long-term equity investments The long-term equity investments of this part refer to the long-term equity investments that the Group has control, joint control or significant influence over the investees. The long-term equity investment that the Group does not have control, joint control or significant influence over the investees, should be recognized as available-for-sale financial assets or be measured by fair value with the changes should be included in the financial assets accounting of the current gains and losses, and please refer the details of the accounting polices to Notes IV 9 “financial instrument”. Joint control, refers to the control jointly owned according to the relevant agreement on an arrangement by the Group and the relevant activities of the arrangement should be decided only after the participants which share the control right make consensus. Significant influence refers to the power of the Group which could anticipate in the finance and the operation polices of the investees, but could not control or jointly control the formulation of the policies with the other parties. (1) Recognition of investment costs As for long-term equity investments acquired by enterprise merger, if the merger is under the same control, the share of the book value of the owner’s equity of the merged enterprise, on the date of merger, is regarded as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne by the merging party shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. If the consideration of the merging enterprise is that it issues equity securities, it shall, on the date of merger, regard the share of the book value of the shareholder's equity of the merged enterprise on the consolidated financial statement of the ultimate control party as the initial cost of the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital stock, while the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. The equities of the combined party which respectively acquired through multiple transaction under the same control that ultimately form into the combination of the enterprises under the same control, should be disposed according whether belongs to package deal; if belongs to package deal, each transaction would be executed accounting treatment by the Company as a transaction of acquiring the control right. If not belongs to package deal, it shall, on the date of merger, regard the enjoyed share of the book value of the shareholder's equity of the merged enterprise on the consolidated financial statement of the ultimate control party as the initial cost of the long-term equity investment, and as for the difference between the initial investment cost of the long-term equity 52 The 2015 Annual Report of Konka Group Co., Ltd. investment and sum of the book value of the long-term equity investment before the combination and the book value of the consideration of the new payment that further required on the combination date, should adjust the capital reserve; if the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. The equity investment held before the combination date which adopted the equity method for accounting, or the other comprehensive income confirmed for the available-for-sale financial assets, should not have any accounting disposal for the moment. For the long-term investment required from the business combination under different control, the initial investment cost regarded as long-term equity investment on the purchasing date according to the combination cost, the combination costs shall be the sum of the fair values of the assets paid, the liabilities incurred or assumed and the equity securities issued by the Company. The equities of the acquirees which respectively acquired through multiple transaction that ultimately form into the combination of the enterprises under the different control, should be disposed according whether belongs to package deal; if belongs to package deal, each transaction would be executed accounting treatment by the Company as a transaction of acquiring the control right. If not belongs to package deal, the sum of the book value of the original held equity investment of the acquirees and the newly added investment cost should be regarded as the initial investment cost of the long-term equity investment that changed to be accounted by cost method. If the original held equity is calculated by cost method, the other relevant comprehensive income would not have any accounting disposal for the moment. If the original held equity investment is the financial assets available for sale, its difference between the fair value and the book value as well as the accumulative changes of the fair value that include in the other comprehensive income, should transfer into the current gains and losses. The commission fees for audit, law services, assessment and consultancy services and other relevant expenses occurred in the business combination by the combining party or the purchase party, shall be recorded into current profits and losses upon their occurrence; the transaction expense from the issuance of equity securities or bonds securities which are as consideration for combination by the combining party, should be recorded as the initial amount of equity securities and bonds securities. Besides the long-term equity investments formed by business combination, the other long-term equity investments shall be initially measured by cost, the cost is fixed in accordance with the ways of gaining, such as actual cash payment paid by the Group, the fair value of equity securities issued by the Group, the agreed value of the investment contract or agreement, the fair value or original carrying amount of exchanged assets from non-monetary assets exchange transaction, the fair value of the long-term equity investments, etc. The expenses, taxes and other necessary expenditures directly related with gaining the long-term equity investments shall also be recorded into investment cost. The long-term equity investment cost for those could execute significant influences on the investees because of appending the investment or could execute joint control but not form as control, should be as the sum of the fair value of the original held equity investment and the newly added investment cost recognized according to the No.22 of Accounting Standards for Business Enterprises—Recognition and Measurement of Financial Instrument. (2) Subsequent measurement and recognition of gains or losses A long-term equity investment where the investing enterprise has joint control (except for which forms into common operators) or significant influence over the investors should be measured by equity method. Moreover, long-term equity investment adopting the cost method in the financial statements, and which the Company has control on invested entity. 53 The 2015 Annual Report of Konka Group Co., Ltd. ① Long-term equity investment measured by adopting cost method The price of a long-term equity investment measured by adopting the cost method shall be included at its initial investment cost and append as well as withdraw the cost of investing and adjusting the long-term equity investment. The return on investment at current period shall be recognized in accordance with the cash dividend or profit announced to distribute by the invested entity, except the announced but not distributed cash dividend or profit included in the actual payment or consideration upon gaining the investment. ② Long-term equity investment measured by adopting equity method If the initial cost of a long-term equity investment is more than the Company's attributable share of the fair value of the invested entity's identifiable net assets for investment, the initial cost of the long-term equity investment may not be adjusted. If the initial cost of a long-term equity investment is less than the Company's attributable share of the fair value of the invested entity's identifiable net assets for investment, the difference shall be included in the current profits and losses and the cost of the long-term equity investment shall be adjusted simultaneously. When measured by adopting equity method, respectively recognize investment income and other comprehensive income according to the net gains and losses as well as the portion of other comprehensive income which should be enjoyed or be shared, and at the same time adjust the book value of the long-term equity investment; corresponding reduce the book value of the long-term equity investment according to profits which be declared to distribute by the investees or the portion of the calculation of cash dividends which should be enjoyed; for the other changes except for the net gains and losses, other comprehensive income and the owners’ equity except for the profits distribution of the investees, should adjust the book value of the long-term equity investment as well as include in the capital reserve. The investing enterprise shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity. If the accounting polices adopted by the investees is not accord with that of the Group, should be adjusted according to the accounting policies of the Group and the financial statement of the investees during the accounting period and according which to recognize the investment income as well as other comprehensive income. For the transaction happened between the Group and associated enterprises as well as joint ventures, if the assets launched or sold not form into business, the portion of the unrealized gains and losses of the internal transaction, which belongs to the Group according to the calculation of the enjoyed proportion, should recognize the investment gains and losses on the basis. But the losses of the unrealized internal transaction happened between the Group and the investees which belongs to the impairment losses of the transferred assets, should not be neutralized. The assets launched by the Group to the associated enterprises or the joint ventures if could form into business, the long-term equity investment without control right which acquired by the investors, should regard the fair value of the launched business as the initial investment cost the newly added long-term equity investment, and for the difference between the initial investment cost and the book value of the launched business, should be included into the current gains and losses with full amount. The assets sold by the Group to the associated enterprises or the joint ventures if could form into business, the difference between the acquired consideration and the book value of the business should be included in the current gains and losses with full amount. The assets purchased by the Group to the associated enterprises or the joint ventures 54 The 2015 Annual Report of Konka Group Co., Ltd. if could form into business, should be accounting disposed according to the regulations of No. 20 of ASBE—Business Combination, and should be recognized gains or losses related to the transaction with full amount. The Group shall recognize the net losses of the invested enterprise until the book value of the long-term equity investment and other long-term rights and interests which substantially form the net investment made to the invested entity are reduced to zero. However, if the Group has the obligation to undertake extra losses, it shall be recognized as the estimated liabilities in accordance with the estimated duties and then recorded into investment losses at current period. If the invested entity realizes any net profits later, the Group shall, after the amount of its attributable share of profits offsets against its attributable share of the un-recognized losses, resume recognizing its attributable share of profits. For the long-term equity investment held by the Group before the first execution of the new accounting criterion on 1 Jan. 2008 of the associated enterprises and joint ventures, if there is debit difference of the equity investment related to the investment, should be included in the current gains and losses according to the amount of the straight-line amortization during the original remained period. ③ Acquiring shares of minority interest In the preparation for the financial statements, the balance existed between the long-term equity investment increased by acquiring shares of minority interest and the attributable net assets on the subsidiary calculated by the increased shares held since the purchase date (or combination date), the capital reserves shall be adjusted, if the capital reserves are not sufficient to offset, the retained profits shall be adjusted. ④ Disposal of long-term equity investment In the preparation of financial statements, the Company disposed part of the long-term equity investment on subsidiaries without losing its controlling right on them, the balance between the disposed price and attributable net assets of subsidiaries by disposing the long-term equity investment shall be recorded into owners’ equity; where the Company losses the controlling right by disposing part of long-term equity investment on such subsidiaries, it shall treated in accordance with the relevant accounting policies in Note IV. 5 (2) — Method on preparation of combined financial statements. For other ways on disposal of long-term equity investment, the balance between the book value of the disposed equity and its actual payment gained shall be recorded into current profits and losses. For the long-term equity investment measured by adopting equity method, if the remained equity after disposal still adopts the equity method for measurement, the other comprehensive income originally recorded into owners’ equity should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees according to the corresponding proportion. The owners’ equity recognized owning to the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution of the investees, should be transferred into the current gains and losses according to the proportion. For the long-term equity investment which adopts the cost method of measurement, if the remained equity still adopt the cost method, the other comprehensive income recognized owning to adopting the equity method for measurement or the recognition and measurement standards of financial instrument before acquiring the control of the investees, should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed 55 The 2015 Annual Report of Konka Group Co., Ltd. by the investees and should be carried forward into the current gains and losses according to the proportion; the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution among the net assets of the investees which recognized by adopting the equity method for measurement, should be carried forward into the current gains and losses according to the proportion. For those the Group lost the control of the investees by disposing part of the equity investment as well as the remained equity after disposal could execute joint control or significant influences on the investees, should change to measure by equity method when compiling the individual financial statement and should adjust the measurement of the remained equity to equity method as adopted since the time acquired; if the remained equity after disposal could not execute joint control or significant influences on the investees, should change the accounting disposal according to the relevant regulations of the recognition and measurement standards of financial instrument, and its difference between the fair value and book value on the date lose the control right should be included in the current gains and losses. For the other comprehensive income recognized by adopting equity method for measurement or the recognition and measurement standards of financial instrument before the Group acquired the control of the investees, should execute the accounting disposal by adopting the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees when lose the control of them, while the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution among the net assets of the investees which recognized by adopting the equity method for measurement, should be carried forward into the current gains and losses according to the proportion. Of which, for the disposed remained equity which adopted the equity method for measurement, the other comprehensive income and the other owners’ equity should be carried forward according to the proportion; for the disposed remained equity which changed to execute the accounting disposal according to the recognition and measurement standards of financial instrument, the other comprehensive income and the other owners’ equity should be carried forward in full amount. For those the Group lost the control of the investees by disposing part of the equity investment, the disposed remained equity should change to calculate according to the recognition and measurement standards of financial instrument, and difference between the fair value and book value on the date lose the control right should be included in the current gains and losses. For the other comprehensive income recognized from the original equity investment by adopting the equity method, should execute the accounting disposal by adopting the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees when terminate the equity method for measurement, while for the owners’ equity recognized owning to the changes of the other owner’s equity except for the net gains and losses, other comprehensive income and the profits distribution of the investees, should be transferred into the current investment income with full amount when terminate adopting the equity method. The Group respectively disposes the equity investment of the subsidiaries through multiple transactions until lose the control right, if the above transactions belongs to the package deal, should execute the accounting disposal by regarding each transaction as a deal of disposing the equity investment of the subsidiaries until lose the control right, while the difference between each expenses of the disposal and the book value of the long-term equity investment in accord with the disposed equity before losing the control right, should firstly be recognized as other comprehensive income then be transferred into the current gains and losses of losing the control right along until the time when lose it. 56 The 2015 Annual Report of Konka Group Co., Ltd. 13. Investment real estates The term “investment real estates” refers to the real estate held for generating rent and/or capital appreciation. Investment real estates of the Group include the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. The initial measurement of the investment real estate shall be made at its cost. Subsequent expenditures incurred for an investment real estate is included in the cost of the investment real estate when it is probable that economic benefits associated with the investment real estate will flow to the Group and the cost can be reliably measured, otherwise the expenditure is recognized in profit or loss in the period in which they are incurred. The Group shall make a follow-up measurement to the investment real estates by employing the cost pattern on the date of the balance sheet. An accrual depreciation or amortization shall be made for the investment real estates in the light of the accounting policies of the use right of buildings or lands. For details of impairment test method and withdrawal method of impairment provision of investment real estates, please refer to Note IV. 16. Impairment of Non-current Non-financial Assets. When owner-occupied real estate or inventories are changed into investment real estate or investment real estate is changed into owner-occupied real estate, of which book value prior to the change shall be the entry value after the change. When an investment real estate is changed to an owner-occupied real estate, it would be transferred to fixed assets or intangible assets at the date of such change. When an owner-occupied real estate is changed to be held to earn rental or for capital appreciation, the fixed asset or intangible asset is transferred to investment real estate at the date of such change. If the fixed asset or intangible asset is changed into investment real estate measured by adopting the cost pattern, whose book value prior to the change shall be the entry value after the change; if the fixed asset or intangible asset is changed into investment real estate measured by adopting the fair value pattern, whose fair value on the date of such change shall be the entry value after the change An investment real estate is derecognized on disposal or when the investment real estate is permanently withdrawn from use and no future economic benefits are expected from its disposal. The amount of proceeds on sale, transfer, retirement or damage of an investment real estate less its carrying amount and related taxes and expenses is recognized in profit or loss in the period in which it is incurred. 14. Fixed assets (1) Conditions for recognition of fixed assets The term "fixed assets" refers to the tangible assets that simultaneously possess the features as follows: (a) they are held for the sake of producing commodities, rendering labor service, renting or business management; and (b) their useful life is in excess of one fiscal year. The fixed assets are only recognized when the relevant economic benefits probably flow in the Group and its cost could be reliable measured. The fixed assets should take the initial measurement according to the cost and at the same time consider the influences of the factors of the estimated discard expenses. (2) Depreciation methods of each fixed asset The fixed assets should be withdrawn and depreciation by straight-line depreciation within the useful life since the next month when the fixed assets reach the estimated available state. The useful life, estimated net salvage and the yearly discounted rate of each fixed asset are as 57 The 2015 Annual Report of Konka Group Co., Ltd. follows: Expected net Useful life Annual Category of fixed assets Method salvage value (Year) deprecation (%) (%) Housing and building Straight-line 20-40 10.00 2.25-4.50 depreciation Machinery equipment Straight-line 10.00 10 9.00 depreciation Electronic equipment Straight-line 10.00 5 18.00 depreciation Transportation vehicle Straight-line 10.00 5 18.00 depreciation Other equipment Straight-line 5 10.00 18.00 depreciation The “expected net salvage value” refers to the expected amount that the Group may obtain from the current disposal of a fixed asset after deducting the expected disposal expenses at the expiration of its expected useful life. (3) Testing method of impairment and withdrawal method of provision for impairment on fixed assets For details of the testing method of impairment and withdraw method of impairment provision for impairment on fixed assets, please refer to Note IV. 19 “Long-term assets impairment”. (4) Recognition basis, pricing and depreciation method of fixed assets by finance lease The “finance lease” shall refer to a lease that has transferred in substance all the risks and rewards related to the ownership of an asset. Its ownership may or may not eventually be transferred. The fixed assets by finance lease shall adopt the same depreciation policy for self-owned fixed assets. If it is reasonable to be certain that the lessee will obtain the ownership of the leased asset when the lease term expires, the leased asset shall be fully depreciated over its useful life. If it is not reasonable to be certain that the lessee will obtain the ownership of the leased asset at the expiry of the lease term, the leased asset shall be fully depreciated over the shorter one of the lease term or its useful life. (5) Other explanations The follow-up expenses related to a fixed asset, if the economic benefits pertinent to this fixed asset are likely to flow into the enterprise and its cost can be reliably measured, shall be recorded into cost of fixed assets and ultimately recognized as the book value of the replaced part; otherwise, they shall be included in the current profits and losses. Terminate to recognize the fixed assets when the fixed assets under the disposing state or be estimated that could not occur any economy benefits through using or disposing. When the Group sells, transfers or discards any fixed assets, or when any fixed assets of the Group is damaged or destroyed, the Group shall deduct the book value of the fixed assets as well as the relevant taxes from the disposal income, and include the amount in the current profits and losses. The Group shall check the useful life, expected net salvage value and depreciation method of 58 The 2015 Annual Report of Konka Group Co., Ltd. the fixed assets at the end of the year at least, if there is any change, it shall be regarded as a change of the accounting estimates. 15. Construction in progress Construction in process is measured at actual cost. Actual cost comprises construction costs, borrowing costs that are eligible for capitalization before the fixed assets being ready for their intended us and other relevant costs. Construction in process is transferred to fixed assets when the assets are ready for their intended use. For details of the testing method of impairment and withdraw method of impairment provision on construction in progress, please refer to Note IV. 19 “Long-term assets impairment”. 16. Borrowing costs The borrowing costs shall include interest on borrowings, amortization of discounts or premiums on borrowings, ancillary expenses, and exchange balance on foreign currency borrowings. When the borrowing costs can be directly attributable to the construction or production of assets eligible for capitalization, and the asset disbursements or the borrowing costs have already incurred, and the construction or production activities which are necessary to prepare the asset for its intended use or sale have already started, the capitalization of borrowing costs begins. When the asset eligible for capitalization under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. Other borrowing costs shall be recognized as expenses when incurred. The to-be-capitalized amount of interests shall be determined in light of the actual interests incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment; the enterprise shall calculate and determine the to-be-capitalized amount on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing. During the period of capitalization, the exchange balance on foreign currency special borrowings shall be capitalized; the exchange balance on foreign currency general borrowings shall be recorded into current profits and losses. The term “assets eligible for capitalization” refers to the fixed assets, investment real estate, inventories and other assets, of which the acquisition and construction or production may take quite a long time to get ready for its intended use or for sale. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. 17. Intangible assets (1) Pricing method, useful life and impairment test The term “intangible asset” refers to the identifiable non-monetary assets possessed or controlled by enterprises which have no physical shape. The intangible assets shall be initially measured according to its cost. The costs related with the 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 into the costs of intangible assets; otherwise, it shall be recorded into current profits and losses upon the occurrence. 59 The 2015 Annual Report of Konka Group Co., Ltd. The use right of land gained is usually measured as intangible assets. For the self-developed and constructed factories and other constructions, the related expenditures on use right of land and construction costs shall be respectively measured as intangible assets and fixed assets. For the purchased houses and buildings, the related payment shall be distributed into the payment for use right of land and the payment for buildings, if it is difficult to be distributed, the whole payment shall be treated as fixed assets. For intangible assets with a finite service life, from the time when it is available for use, the cost after deducting the sum of the expected salvage value and the accumulated impairment provision shall be amortized by straight line method during the service life. While the intangible assets without certain service life shall not be amortized. At the end of period, the Group shall check the service life and amortization method of intangible assets with finite service life, if there is any change, it shall be regarded as a change of the accounting estimates. Besides, the Group shall check the service life of intangible assets without certain service life, if there is any evidence showing that the period of intangible assets to bring the economic benefits to the enterprise can be prospected, it shall be estimated the service life and amortized in accordance with the amortization policies for intangible assets with finite service life. (2) R & D expenses The expenditures for internal research and development projects of an enterprise shall be classified into research expenditures and development expenditures. The research expenditures shall be recorded into the profit or loss for the current period. The development expenditures shall be confirmed as intangible assets when they satisfy the following conditions simultaneously, and shall be recorded into profit or loss for the current period when they don’t satisfy the following conditions. ① It is feasible technically to finish intangible assets for use or sale; ② It is intended to finish and use or sell the intangible assets; ③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; ④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⑤ The development expenditures of the intangible assets can be reliably measured. As for expenses that can’t be identified as research expenditures or development expenditures, the occurred R & D expenses shall be all included in current profits and losses. (3) Testing method of impairment and withdraw method of impairment provision of intangible assets For details of the testing method of impairment and withdraw method of impairment provision on intangible assets, see Notes IV. 19 “Long-term assets impairment”. 18. Amortization method of long-term deferred expenses Long-term deferred expenses refer to general expenses with the apportioned period over one 60 The 2015 Annual Report of Konka Group Co., Ltd. year (one year excluded) that have occurred but attributable to the current and future periods. Long-term deferred expense shall be amortized averagely within benefit period. 19. Impairment of long-term assets For non-current financial Assets of fixed Assets, projects under construction, intangible Assets with limited service life, investing real estate with cost model, long-term equity investment of subsidiaries, cooperative enterprises and joint ventures, the Group should judge whether decrease in value exists on the date of balance sheet. Recoverable amounts should be tested for decrease in value if it exists. Other intangible Assets of reputation and uncertain service life and other non-accessible intangible assets should be tested for decrease in value no matter whether it exists. If the recoverable amount is less than book value in impairment test results, the provision for impairment of differences should include in impairment loss. Recoverable amounts would be the higher of net value of asset fair value deducting disposal charges or present value of predicted cash flow. Asset fair value should be determined according to negotiated sales price of fair trade. If no sales agreement exists but with asset active market, fair value should be determined according to the Buyer’s price of the asset. If no sales agreement or asset active market exists, asset fair value could be acquired on the basis of best information available. Disposal expenses include legal fees, taxes, cartage or other direct expenses of merchantable Assets related to asset disposal. Present value of predicted asset cash flow should be determined by the proper discount rate according to Assets in service and predicted cash flow of final disposal. Asset depreciation reserves should be calculated on the basis of single Assets. If it is difficult to predict the recoverable amounts for single Assets, recoverable amounts should be determined according to the belonging asset group. Asset group is the minimum asset combination producing cash flow independently. In impairment test, book value of the business reputation in financial report should be shared to beneficial asset group and asset group combination in collaboration of business merger. It is shown in the test that if recoverable amounts of shared business reputation asset group or asset group combination are lower than book value, it should determine the impairment loss. Impairment loss amount should firstly be deducted and shared to the book value of business reputation of asset group or asset group combination, then deduct book value of all assets according to proportions of other book value of above assets in asset group or asset group combination except business reputation. After the asset impairment loss is determined, recoverable value amounts would not be returned in future. 20. Employee compensation Employee compensation of the Company mainly includes short-term employee compensation, departure benefits, demission benefits and other long-term employee compensation. Of which: Short-term compensation mainly including salary, bonus, allowances and subsidies, employee services and benefits, medical insurance premiums, birth insurance premium, industrial injury insurance premium, housing fund, labor union expenditure and personnel education fund, non-monetary benefits etc. The short-term compensation actually happened during the accounting period when the active staff offering the service for the Group should be recognized as liabilities and is included in the current gains and losses or relevant assets cost. Of which the non-monetary benefits should be measured according to the fair value. Welfare after demission mainly includes setting drawing plan. Defined contribution plans include basic endowment insurance, unemployment insurance and annuity. Deposited 61 The 2015 Annual Report of Konka Group Co., Ltd. amounts are charged to relevant asset costs or current profits and losses during the period in which they are incurred. Defined benefit plan of the Company is internal early retirement plan. According to anticipated accumulative welfare unit, the Company makes estimates by unbiased and consistent actuarial assumption for the demographic variables and financial variables, measures the obligations produced in defined benefit plans, and determines the vesting period. On balance sheet date, the Company will list all obligations in defined benefit plans as present value and include current service costs into current profits and losses. When terminating labor relations before expiration of contract, or layoffs with compensations, and the Company can not terminate the labor relations unilaterally or reduce the dimission welfare, remuneration and liabilities produced from the dimission welfare should be determined and included in current profits and losses when determining the costs of dismission welfare and recombination. However, dimission welfare not fully paid within 12 months after annual report period should be handled the same as other long-term employees’ payrolls. The inside employee retirement plan is treated by adopting the same principle with the above dismiss ion welfare. The group would recorded the salary and the social security insurance fees paid and so on from the employee’s service terminative date to normal retirement date into current profits and losses (dismiss ion welfare) under the condition that they meet the recognition conditions of estimated liabilities. The other long-term welfare that the Group offers to the staffs, if met with the setting drawing plan, should be accounting disposed according to the setting drawing plan, while the rest should be disposed according to the setting revenue plan. 21. Estimated liabilities The company should recognize the related obligation as a provision for liability when the obligation meets the following conditions: (1) That obligation is a present obligation of the enterprise; (2) It is probable that an outflow of economic benefits from the enterprise will be required to settle the obligation; (3) A reliable estimate can be made of the amount of the obligation. On the balance sheet date, an enterprise shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the Contingencies to measure the estimated liabilities in accordance with the best estimate of the necessary expenses for the performance of the current obligation. When all or some of the expenses necessary for the liquidation of an estimated liabilities of an enterprise is expected to be compensated by a third party, the compensation should be separately recognized as an asset only when it is virtually certain that the reimbursement will be obtained. Besides, the amount recognized for the reimbursement should not exceed the book value of the estimated liabilities. 22. Revenue (1) Revenue from selling goods No revenue from selling goods may be recognized unless the following conditions are met simultaneously: the significant risks and rewards of ownership of the goods have been transferred to the buyer by the enterprise; the enterprise retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; the relevant amount of revenue can be measured in a reliable way; the relevant economic benefits may flow into the enterprise; and the relevant costs incurred or to be incurred can be measured in a reliable way. 62 The 2015 Annual Report of Konka Group Co., Ltd. The recognition of revenue from commodities for the home market when shipping the goods: for good exported by way of FOB, the revenue shall be recognized once the goods were delivered to the carrier designated by the purchaser; for goods exported by way of CIF, the revenue shall be recognized once the goods reach the port of the purchase. (2) Providing labor services If the Group can reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method on the date of the balance sheet. The completed proportion of a transaction concerning the providing of labor services shall be decided by the proportion of the labor service already provided to the total labor service to provide. The outcome of a transaction concerning the providing of labor services can be measured in a reliable way, means that the following conditions shall be met simultaneously: ① The amount of revenue can be measured in a reliable way; ② The relevant economic benefits are likely to flow into the enterprise; ③ The schedule of completion under the transaction can be confirmed in a reliable way; and ④ The costs incurred or to be incurred in the transaction can be measured in a reliable way. If the outcome of a transaction concerning the providing of labor services cannot be measured in a reliable way, the revenue from the providing of labor services shall be recognized in accordance with the amount of the cost of labor services incurred and expected to be compensated, and make the cost of labor services incurred as the current expenses. If it is predicted that the cost of labor services incurred couldn’t be compensated, thus no revenue shall be recognized. Where a contract or agreement signed between Group and other enterprises concerns selling goods and providing of labor services, if the part of sale of goods and the part of providing labor services can be distinguished from each other and can be measured respectively, the part of sale of goods and the part of providing labor services shall be treated respectively. If the part of selling goods and the part of providing labor services can not be distinguished from each other, or if the part of sale of goods and the part of providing labor services can be distinguished from each other but can not be measured respectively, both parts shall be conducted as selling goods. (3) Recognition method of the sales revenues of real estate The Group had signed the sales contract with the real estate had completed and be examined qualified, and reached the referable using conditions agreed by the sales contract as well as at the same time the housing accounts had been recognized the realize of the sales revenues when received with full amount according to the sales contract. (4) Royalty revenue In accordance with relevant contract or agreement, the amount of royalty revenue should be recognized as revenue on accrual basis. (5) Interest revenue The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the Group’s monetary fund is used by others and the agreed interest rate. (6)Property leasing revenue For the recognition method of the property leasing revenue, please refer to Notes IV. 25. 63 The 2015 Annual Report of Konka Group Co., Ltd. 23. Government subsidies A government subsidy means the monetary or non-monetary assets obtained free by the Group from the government, but excluding the capital invested by the government as the owner of the enterprise. Government subsidies consist of the government subsidies pertinent to assets and government subsidies pertinent to income. If a government subsidy is a monetary asset, it shall be measured in the light of the received or receivable amount. If a government subsidy is a non-monetary asset, it shall be measured at its fair value. If its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount. The government subsidies measured at their nominal amounts shall be directly included in the current profits and losses. The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current profits and losses. The government subsidies pertinent to incomes shall be treated respectively in accordance with the circumstances as follows: those subsidies used for compensating the related future expenses or losses of the enterprise shall be recognized as deferred income and shall included in the current profits and losses during the period when the relevant expenses are recognized; or those subsidies used for compensating the related expenses or losses incurred to the enterprise shall be directly included in the current profits and losses. Where it is necessary to refund any government subsidy which has been recognized, it shall be treated respectively in accordance with the circumstances as follows: if there is the deferred income concerned, the book balance of the deferred income shall be offset against, but the excessive part shall be included in the current profits and losses; or if there is no deferred income concerned to the government subsidy, it shall be directly included in the current profits and losses. 24. Deferred income tax assets/deferred income tax liabilities (1) Income tax of the current period On the balance sheet date, for the current income tax liabilities (or assets) of the current period as well as the part formed during the previous period, should be measured by the income tax of the estimated payable (returnable) amount which be calculated according to the regulations of the tax law. The amount of the income tax payable which is based by the calculation of the current income tax expenses, are according to the result measured from the corresponding adjustment of the pre-tax accounting profit of 2014 which in accord to the relevant regulations of the tax law. (2) Deferred income tax assets and deferred income tax liabilities The difference between the book value of certain assets and liabilities and their tax assessment basis, as well as the temporary difference occurs from the difference between the book value of the items which not be recognized as assets and liabilities but could confirm their tax assessment basis according to the regulations of the tax law, the deferred income tax assets and the deferred income tax liabilities should be recognized by adopting liabilities law of the balance sheet. No deferred tax liability is recognized for a temporary difference arising from the initial recognition of goodwill, the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). Besides, no deferred tax assets is recognized for the taxable temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises, and the investing enterprise can control the time of the reverse of temporary differences as well as the temporary differences are unlikely to be reversed in the excepted 64 The 2015 Annual Report of Konka Group Co., Ltd. future. Otherwise, the Group should recognize the deferred income tax liabilities arising form other taxable temporary difference. No deferred taxable assets should be recognized for the deductible temporary difference of initial recognition of assets and liabilities arising from the transaction which is not business combination, the accounting profits will not be affected, nor will the taxable amount or deductible loss be affected at the time of transaction. Besides, no deferred taxable assets should be recognized for the deductible temporary difference related to the investments of the subsidiary companies, associated enterprises and joint enterprises, which are not likely to be reversed in the expected future or is not likely to acquire any amount of taxable income tax that may be used for making up such deductible temporary differences. Otherwise, the Company shall recognize the deferred income tax assets arising from a deductible temporary difference basing on the extent of the amount of the taxable income that is likely to be acquired to make up such deductible temporary differences For any deductible loss or tax deduction that can be carried forward to the next year, the corresponding deferred income tax asset shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss or tax deduction to be likely obtained. On the balance sheet date, the deferred income tax assets and the deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. The book value of deferred income tax assets shall be reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred income tax asset, the book value of the deferred income tax assets shall be written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. (3) Income tax expenses Income tax expenses include current income tax and deferred income tax. The rest current income tax and the deferred income tax expenses or revenue should be included into current gains and losses except for the current income tax and the deferred income tax related to the transaction and events that be confirmed as other comprehensive income or be directly included in the shareholders’ equity which should be included in other comprehensive income or shareholders’ equity as well as the book value for adjusting the goodwill of the deferred income tax occurs from the business combination. (4) Offset of income tax The current income tax assets and liabilities of the Group should be listed by the written-off net amount which intend to executes the net amount settlement as well as the assets acquiring and liabilities liquidation at the same time while owns the legal rights of settling the net amount. The deferred income tax assets and liabilities of the Group should be listed as written-off net amount when having the legal rights of settling the current income tax assets and liabilities by net amount and the deferred income tax and liabilities is relevant to the income tax which be collected from the same taxpaying bodies by the same tax collection and administration department or is relevant to the different taxpaying bodies but during each period which there is significant reverse of the deferred income assets and liabilities in the future and among which the involved taxpaying bodies intend to settle the current income tax and liabilities by net amount or are at the same time acquire the asset as well as liquidate the liabilities. 25. Leasing 65 The 2015 Annual Report of Konka Group Co., Ltd. Financing leasing virtually transferred the whole risks and leasing of the compensation related to the assets ownership and their ownership may eventually be transferred or maybe not. Other leasing except for the financing leasing is operating leasing. (1) Business of operating leases recorded by the Group as the lessee The rent expenses from operating leases shall be recorded by the lessee in the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs shall be recognized as the profits and losses of the current period. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (2) Business of operating leases recorded by the Group as the lessor The rent incomes from operating leases shall be recognized as the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs of great amount shall be capitalized when incurred, and be recorded into current profits and losses in accordance with the same basis for recognition of rent incomes over the whole lease term. The initial direct costs of small amount shall be recorded into current profits and losses when incurred. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (3) Business of finance leases recorded by the Group as the lessee On the lease beginning date, the Group shall record the lower one of the fair value of the leased asset and the present value of the minimum lease payments on the lease beginning date as the entering value in an account, recognize the amount of the minimum lease payments as the entering value in an account of long-term account payable, and treat the balance between the recorded amount of the leased asset and the long-term account payable as unrecognized financing charges. Besides, the initial direct costs directly attributable to the leased item incurred during the process of lease negotiating and signing the leasing agreement shall be recorded in the asset value of the current period. The balance through deducting unrecognized financing charges from the minimum lease payments shall be respectively stated in long-term liabilities and long-term liabilities due within 1 year. Unrecognized financing charges shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing charges. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (4) Business of finance leases recorded by the Group as the lessor On the beginning date of the lease term, the Group shall recognize the sum of the minimum lease receipts on the lease beginning date and the initial direct costs as the entering value in an account of the financing lease values receivable, and record the unguaranteed residual value at the same time. The balance between the sum of the minimum lease receipts, the initial direct costs and the unguaranteed residual value and the sum of their present values shall be recognized as unrealized financing income. The balance through deducting unrealized financing incomes from the finance lease accounts receivable shall be respectively stated in long-term claims and long-term claims due within 1 year. Unrecognized financing incomes shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing revenues. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. 26. Changes in main accounting policies and estimates (1) Change of accounting policies There was no any change of accounting policies of the Company in the reporting period. (2) Change of accounting estimates 66 The 2015 Annual Report of Konka Group Co., Ltd. There was no any change of accounting estimate of the Company in the reporting period. 27. Critical accounting judgments and estimates Due to the inside uncertainty of operating activity, the Group needed to make judgments, estimates and assumption on the book value of the accounts without accurate measurement during the employment of accounting policies. And these judgments, estimates and assumption were made basing on the prior experience of the senior executives of the Group, as well as in consideration of other factors. These judgments, estimates and assumption would also affect the report amount of income, costs, assets and liabilities, as well as the disclosure of contingent liabilities on balance sheet date. However, the uncertainty of these estimates was likely to cause significant adjustment on the book value of the affected assets and liabilities. The Group would check periodically the above judgments, estimates and assumption on the basis of continuing operation. For the changes in accounting estimates only affected on the current period, the influence should be recognized at the period of change occurred; for the changes in accounting estimates affected the current period and also the future period, the influence should be recognized at the period of change occurred and future period. On the balance sheet date, the Group needed to make judgments, estimates and assumption on the accounts in the following important items: (1) Categorization of leasing In accordance with Accounting Standards for Enterprises No. 21 – Leasing, the Group categorized the leasing into operating lease and finance lease. During the categorization, the management level needed to make analysis and judgment on whether all the risk and compensation related with the leased assets had been transferred to the leasee, or whether the Group had already undertaken all the risk and compensation related with the leased assets. (2) Provision for bad debts In accordance with the accounting policies of accounts receivable, the Group measured the losses for bad debts by adopting allowance method. The impairment of accounts receivable was based on the appraisal of the recoverability of accounts receivable. The impairment of accounts receivable was dependent on the judgment and estimates. The actual amount and the difference of previous estimates would affect the book value of accounts receivable and the withdrawal and reversal on provision for bad debts of accounts receivable during the period of estimates being changed. (3) Provision for falling price of inventories In accordance with the accounting policies of inventories, for the inventories that the costs were more than the net realizable value as well as out-of-date and dull-sale inventories, the Group withdrawn the provision for falling price of inventories on the lower one between costs and net realizable value. Evaluating the falling price of inventories needed the management level gain the valid evidence and take full consideration of the purpose of inventories, influence of events after balance sheet date and other factors, and then made relevant judgments and estimates. The actual amount and the difference of previous estimates would affect the book value of inventories and the withdrawal and reversal on provision for bad debts of inventories during the period of estimates being changed. (4) The fair value of financial instrument For the financial instruments without active market, the Group recognized the fair value by various methods. These evaluation methods included discounted cash flow mode analysis, etc. The Group needed to estimate the future cash flow, credit risk, fluctuation rate of market and relativity and other factors, as well as choose the property discount rate. Due to the 67 The 2015 Annual Report of Konka Group Co., Ltd. uncertainty of relevant assumptions, so their changes would affect the fair value of financial instrument. (5) Investment impairment held-to-maturity The decision whether executes the impairment of the investment held-to-maturity by the Company depends on the judgment of the management layer to a great extent. The objective evidences of the occurrence of the impairment include there is serious financial difficulties of the issuer which lead the financial assets could not be continued to deal in the active market and could not execute the clauses of the contracts (for example, to pay for the interests or the principal occurs default) and so on. When executing the judgment, the Company should assess the influences of the objective evidences of the occurrence of the impairment on the estimated future cash flow of the investment. (6) The impairment of financial assets available for sale The Group judged whether the financial assets available for sale were impaired relying heavily on the judgment and assumption of the management team, so as to decide whether recognized the impairment losses in the income statement. During the process of making the judgment and assumption, the Group needed to appraise the balance of the cost of the investment exceeding its fair value and the continuous period, the financial status and business forecast in a short period, including the industrial situation, technical reform, credit level, default rate and risk of counterparty. (7) Provision for impairment of non-financial non-current assets The Group made a judgment on the non-current assets other than financial assets whether they had any indication of impairment on the balance sheet date. For the intangible assets without finite service life, other than the annual impairment test, they should be subject to the impairment test when there was any indication of impairment. For other non-current non-financial assets, which should be subjected to impairment test when there was indication of impairment indicated that the book value can’t be recoverable. When the book value of the assets or assets portfolio was more than the recoverable amount, which was the higher one between the net amount of fair value after deducting the disposal expenses and the discounted amount of the estimated future cash flow, it means impairment incurred. The net amount of fair value after deducting the disposal expenses should be fixed the price in the sale agreement for similar assets in the fair transaction minus the increased costs directly attributable to the assets disposal. When estimated the discounted value of future cash flow, the Group needed to make important judgment on the output, selling price, relevant costs and the discount rate for calculating the discounted amount, etc. When estimated the recoverable amount, the Group would adopt all the available documents, including the prediction for relevant output, selling price and relevant operating costs arising from reasonable and supportive assumptions. The Group made the impairment test on goodwill at least one time per year, which required to predict the discounted amount of the future cash flow of the assets or assets portfolio with the distributed good will, for which, the Group needed to predict the future cash flow of the assets or assets portfolio, and adopt the property discounted rate to decide the discounted amount of future cash flow. (8) Depreciation and amortization For the investment real estate, fixed assets and intangible assets, the Group withdrew the depreciation and amortization by adopting the straight-line method during the service life after full consideration of the salvage value. The Group checked the service life periodically 68 The 2015 Annual Report of Konka Group Co., Ltd. so as to decide the amount of depreciation and amortization at each reporting period. The service life was fixed by the Group in accordance with the previous experience of the similar assets and the expected technical update. If there was any significant change on the previous estimates, the depreciation and amortization expenses should be adjusted. (9) Expenditures for development When fixing the amount of capitalization, the management level of the Group needed to make assumption on the predicted future cash flow, property discounted rate and estimated beneficiary period for relevant assets. (10) Deferred income tax assets Within the limit that it was likely to have sufficient taxable profits to offset the losses, the Group recognized the deferred income tax assets by all the unused tax losses, which needed the management level of the Group to estimate time and amount of the future taxable profits incurred with many judgments, as well as integrate strategy of tax payment, to decide the amount of deferred income tax assets which should be recognized. (11) Income tax During the routine operating activities, there were some uncertainty in the ultimate tax treatment and calculation for parts of transactions. Some accounts of such transaction could be listed as pre-tax expenditures only after the approval of taxation authorities. If there were any differences between the ultimate result of recognition for these taxation maters and their initial estimates, the differences would affect the current income tax and deferred income tax at the period of ultimate recognition. (12) Internal early retirement welfare and supplementary retirement welfare Amounts of expenditures and liabilities of internal early retirement welfare and supplementary retirement welfare should be determined according to assumption terms. Assumption terms include discount rate, average growth rate of medical costs, growth rate of subsidies for early retirement employees and retirees and other factors. The differences of actual results and assumption should be confirmed immediately and included into costs of current year. Although the management have adopted reasonable assumption terms, changes of actual experience value and assumption terms may affect the internal early retirement welfare, supplementary retirement benefits and balance of liabilities. (13) Estimated liabilities The Group made the estimation on product quality guarantee, predicted loss of contract and the fine for delayed delivery etc. and withdrew the relevant provision for estimated liabilities in accordance the provisions of contract, current knowledge and experience. Under the condition that the contingent event has formed a current duty and fulfilling the duty is likely to cause the economical interest outflow the Group, the Group measures the estimated liabilities in accordance with the best estimate of the necessary expenses for the performance of the current duty. The recognition and measurement of estimated liabilities were heavily relied on the judgment of the management team. During the process of making judgment, the Group needed to appraise the relevant risks, uncertainty and the time value of money and etc. Of which, the Group estimated the liabilities basing on the after-sale services commitments to the customers upon the sale, repair and reform of goods. When estimating the liabilities, the Group has fully taken the consideration of the latest repair experience, but which may not reflect the repair situation in the future. Any increase / decrease of the provision for estimated liabilities may affect the profits and losses in the future periods. 69 The 2015 Annual Report of Konka Group Co., Ltd. V. Taxation 1. Main taxes and tax rate Category of taxes Specific situation of the taxes rate Calculated the output tax at 17% of taxable income and paid the VAT by the amount after deducting the deductible withholding VAT at current period, of which the subsidiary Europe Konka of 21%, VAT Telecommunication Technology and the value-added service part of Mobile Internet brand of 6%, which see details to (3); Shushida Logistics of 11%, 6% which see details to (4); Calculated the added-value tax at 3% of the taxable income of E2info. Business tax Paid by 5% of taxable business income. Paid at 7% of the circulating tax actually paid, of which Dongguan Urban maintenance and Packing, Dongguan Konka, Dongguan Mould, Boluo Konka, Boluo construction tax Konka Precision, Xutongda and Kunshan Kangsheng of 5%. Paid at 25% of the taxable income, of which Hong Kong Konka, Konka Household Appliances Investment, Konka Household Appliances International Trading, and Konka Zhisheng of 16.5%, Wankaida, Telecommunication Technology, Precision Mould, Enterprise income tax Information Network, Chongqing Qingjia, Anhui Konka, Kunshan Konka, Dongguan Konka, Dongguan Mould, Xutongda and Business System of 15%, USA Konka of 28% and Europe Konka of 31%; E2info of 10%. Education surtax Paid at 3% of the circulating tax actually paid. Local education surtax Paid at 2% of the circulating tax actually paid. (1) In accordance with the Notice on Printing the Administration Method on Charging and Use of the Treatment Funds of Discarded Electronic Appliance and Electric Products issued by the Ministry of Finance, Ministry of Environmental Protection, National Development and Reform Commission, Ministry of Industry and Information, General Administration of Customs and National Taxation Bureau (CZ [2012] No. 34), and the Administration Method on Charging and Use of the Treatment Funds of Discarded Electronic Appliance and Electric Products issued by National Taxation Bureau (GJSWZJGG [2012] No. 41), the domestic manufacturer of the electrical appliances and electronic products of PRC started to pay the treatment funds for discarded electrical appliance and electronic products according the sales volume (trusted processing amount) and relevant charging standards from 1 Jul. 2012. According to the regulations, the Group’s charging standards were RMB13 per set of TV, RMB12 per set of refrigerator and RMB7 per set of washing machine. (2) According to regulations of Temporary Provisions of Income Tax of Trans-boundary Tax Payment Enterprises by State Administration of Taxation, resident enterprises without business establishment or places of legal persons should be tax payment enterprises with the 70 The 2015 Annual Report of Konka Group Co., Ltd. administrative measures of income tax of “unified computing, level-to-level administration, local prepayment, liquidation summary, and finance transfer”. It came into force from January 1, 2008. According to the above methods, the Company’s sales branch companies in each area will hand in the corporate income taxes in advance from 1 Jan. 2008 and will be final settled uniformly by the Company at the year-end. (3) The Company’s subsidiary, Shenzhen Konka Communication Technology Co., Ltd, is engaged in value-added services of brand costs. According to Notice of the Ministry of Finance and the State Administration of Taxation on the Pilot Work of Levying Value-Added Tax in Lieu of Business Tax in the Transportation Industry and Some Modern Service Industries in Beijing and Other Seven Provinces and Cities (CS[2012] No.71), added-value tax is levied from 1 Nov. 2012, with tax rate of 6%. (4) As for the transportation revenue of the logistic business of the Company’s subsidiary Shushida Logistics, in accordance with the Notice on Carrying out the Pilot of Change on Charging the Business Taxes of Transportation Industry and Partial Modern Service Industry to Value Added Taxes in Eight Provinces and Cities including Beijing issued by the Ministry of Finance and the National Taxation Bureau (CS [2012] No. 71) and other regulations, it was changed to charge the VAT since 1 Sept. 2012, with the tax rate of 3%. From 1 Jun. 2013, Shushida Logistics received the general taxpayer qualification with the VAT rate of the transportation revenue of 11% and the other service of 6%. 2. Tax preference and approved document (1) On 30 Sep. 2014, the subsidiary of the Company Shenzhen Konka Telecommunication Technology Co., Ltd. acquired the certificate of high-technology enterprises jointly issued by Shenzhen Science and technology Innovation Committee, Shenzhen Finance Committee, Shenzhen Provincial Office, SAT, and Shenzhen Local Taxation Bureau, with the certification number of GR201444201101 and the validity of three years. According to the relevant taxation regulations, the Telecommunication Technology could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2014 to 2016, and pay for the corporate income tax according to 15% of the preferential tax rate. (2) On 30 Sep. 2014, the subsidiary of the Company Konka Precision Mould Manufacture Co., Ltd. acquired the certificate of high-technology enterprises jointly issued by Shenzhen Science and technology Innovation Committee, Shenzhen Finance Committee, Shenzhen Provincial Office, SAT, and Shenzhen Local Taxation Bureau, with the certification number of GR201444201781 and the validity of three years. According to the relevant taxation regulations, the Precision Mould could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2014 to 2016, and pay for the corporate income tax according to 15% of the preferential tax rate. (3) On 22 Jul. 2013, the subsidiary of the Company Shenzhen Konka Information Network Co., Ltd. acquired the certificate of high-technology enterprises jointly issued by Shenzhen Science and technology Innovation Committee, Shenzhen Finance Committee, Shenzhen Provincial Office, SAT, and Shenzhen Local Taxation Bureau, with the certification number of GR201344200179 and the validity of three years. According to the relevant taxation regulations, the Information Network could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2013 to 2015, and pay for the corporate income tax according to 15% of the preferential tax rate. (4) The Company’s subsidiary—Chongqing Qingjia Electronics Co., Ltd. is levied the business income tax at the preferential tariff of 15% from 1 Jan. 2011 to 31 Dec. 2020 in accordance with CS (2011) No. 58 Notice on Relevant Tax Policies on Deeply Implementing 71 The 2015 Annual Report of Konka Group Co., Ltd. the western development strategy. (5) On 14 Oct., 2013, the subsidiary of the Company, Anhui Konka, received the certificate of high-technology enterprises (No.: GF2013342000298) awarded by Anhui Science and Technology Department, Anhui Department of Finance, Anhui State Taxation Bureau and Anhui Local Taxation Bureau. The period of validity is three years. According to taxation rules, Anhui Konka would enjoy the preferential tax privileges of high-technology enterprises from 2013 to 2015 and pay the enterprise income tax at the preferential rate of 15%. (6) On 5 Aug. 2014, the subsidiary of the Company, Kunshan Konka Electronics Co., Ltd. acquired the certificate of high-technology enterprises joint issued by Jiangsu Province Science and Technology Department, Department of Finance of Jiangsu Province, Jiangsu Province Municipal Office, SAT, and Jiangsu Local Taxation Bureau with the certification number of GF201432000413 and the validity of three years. According to the relevant taxation regulations, the Kunshan Konka could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2014 to 2016, and pay for the corporate income tax according to 15% of the preferential tax rate. (7) On 10 Oct. 2014, the subsidiary of the Company, Dongguan Konka acquired the certificate of high-technology enterprises joint issued by Guangdong Province Science and Technology Department, Department of Finance of Guangdong Province, Guangdong Province Municipal Office, SAT, and Guangdong Local Taxation Bureau with the certification number of GF201444001341 and the validity of three years. According to the relevant taxation regulations, the Dongguan Konka could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years since 2014, and pay for the corporate income tax according to 15% of the preferential tax rate. (8) On 18 Feb. 2016, according to the associated issued Notice of Announcing the Guangdong Hi-tech Enterprises of Guangdong Provincial Department of Science and Technology, Department of Finance of Guangdong Province, Guangdong Provincial Office, SAT and Guangdong Local Taxation Bureau by the above institutions, YKGZ [2016] No. 17, the subsidiary of the Company, Dongguan Mould Plastic and Shushida were recognized as the high-technology enterprises with the certificate number respectively were GR201544000549 and GF201544000193; and would enjoy the relevant preferential tax privileges of high-technology enterprises for continuous 3 years from 2015 to 2017 and pay the enterprise income tax at the preferential rate of 15%. (9) On 30 Sep. 2014, the Company’s subsidiary- Wankaida acquired the certificate of high-technology enterprises joint issued by Shenzhen Science and technology Innovation Committee, Shenzhen Finance Committee, Shenzhen Provincial Office, SAT, and Shenzhen Local Taxation Bureau with the certification number of GR201444201523 and the validity of three years. According to the relevant taxation regulations, the Anhui Tongchuang could enjoy the relevant preferential tax policy on the high-tech enterprise for continuous 3 years from 2012 to 2014, and pay for the corporate income tax according to 15% of the preferential tax rate. (10) The annual taxable income amount would be≤RMB0.2 million of the subsidiary of the Company- Shenzhen E2info Internet Science and Technology Co., Ltd. according to the income tax preferential policies of the small and micro businesses among the scope of the corporate income tax, and from 1 Jan. 2015 to 31 Dec. 2017, the income of which should be reduced to 50% before be included in the taxable income and pay the enterprise income tax at the preferential rate of 20%. (11) According to the Notice of the Corporate Income Tax Preferential Policy and the 72 The 2015 Annual Report of Konka Group Co., Ltd. Optimal Directory of Guangdong Hengqin New Zone, Fujian Pingtan Comprehensive Experimental Area and Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen by Ministry of Finance and SAT, CS [2014] No. 26, the subsidiary of the Company-Shenzhen Konka Business System Science & Technology Co., Ltd. would pay for the corporate income tax according to 15% of the preferential tax rate from 1 Jan. 2015 to 31 Dec. 2015. (12) According to the CS No. [2011] 100 Article issued by Ministry of Finance and State Administration of Taxation, if the ordinary VAT payer sells software products developed by itself, the VAT is levied at the rate of 17% and after that, the part of actual tax burden of VAT which exceeds 3% can enjoy the policy of refunding taxes immediately after levying taxes. The subsidiaries of the Company, Shenzhen Konka Telecommunication Technology Co., Ltd., Shenzhen Konka Information Network Co., Ltd., Shenzhen Wankaida Science and Technology Co., Ltd. and Shenzhen Konka Yishijie Commercial Display Co., Ltd. enjoy such favorable policy. VI. Notes on major items in consolidated financial statements of the Company Unless otherwise noted, the following annotation project (including the main projects annotation of the financial statement of the Company), the year-begin refers to 1 Jan. 2015, the year-end refers to 31 Dec. 2015 1. Monetary funds Item Closing balance Opening balance Cash on hand 4,217.37 5,118.98 Bank deposits 1,488,150,633.98 1,640,231,718.10 Other monetary funds 218,292,077.57 62,898,895.10 Total 1,706,446,928.92 1,703,135,732.18 Of which: total amount deposited in 205,900,491.11 149,716,988.11 overseas Notes: The closing balance of other monetary fund was the deposits of each margin deposit not withdrawn at any time. 2. Financial assets measured by fair value and the changes be included in the current gains and losses Item Closing balance Opening balance Income from agreement of forward 33,196,377.28 — foreign exchange purchase Total 33,196,377.28 — 3. Notes receivable (1)Notes receivable listed by category 73 The 2015 Annual Report of Konka Group Co., Ltd. Item Closing balance Opening balance Bank acceptance bill 2,879,244,863.46 3,785,443,076.37 Trade acceptance 1,615,886.98 33,974,000.00 Total 2,880,860,750.44 3,819,417,076.37 (2) Notes receivable pledged at the period-end Item Amount Bank acceptance bill 1,446,191,357.58 Total 1,446,191,357.58 Notes: Up to 31 Dec. 2015, the Company pledged the banker’s acceptance bill of the book value of RMB1, 446,191,357.58 for the comprehensive financing business such as handling the billing, letter of credit and the trading financing. (3) Notes receivable which had endorsed by the Company or had discounted and had not due on the balance sheet date at the year-end Amount of recognition Amount of recognition Item termination at the period-end termination at the period-end Bank acceptance bill 952,963,830.15 — Total 952,963,830.15 — 4. Accounts receivable (1) Accounts receivable classified by category Closing balance Book balance Bad debt provision Withdr Category Proportion awal Book value Amount Amount (%) proport ion (%) Accounts receivable with insignificant single amount for which bad debt 21,847,005.37 0.92 21,847,005.37 100.00 — provision separately accrued 74 The 2015 Annual Report of Konka Group Co., Ltd. Accounts receivable withdrawal of bad debt provision of by credit risks characteristics: Group 1: aging group 2,284,090,249.64 95.88 244,107,868.37 10.69 2,039,982,381.27 Subtotal of groups 2,284,090,249.64 95.88 244,107,868.37 10.69 2,039,982,381.27 Accounts receivable with insignificant single amount for which bad debt 76,251,927.24 3.20 67,420,869.17 88.42 8,831,058.07 provision separately accrued Total 2,382,189,182.25 100.00 333,375,742.91 13.99 2,048,813,439.34 (Continued) Opening balance Book balance Bad debt provision Withdra Category Proportion wal Book value Amount Amount (%) proportio n(%) Accounts receivable with insignificant single amount for which bad debt — — — — — provision separately accrued Accounts receivable withdrawal of bad debt provision of by credit risks characteristics: Group 1: aging group 2,516,702,016.18 98.95 259,303,584.71 10.30 2,257,398,431.47 Subtotal of groups 2,516,702,016.18 98.95 259,303,584.71 10.30 2,257,398,431.47 75 The 2015 Annual Report of Konka Group Co., Ltd. Accounts receivable with insignificant single amount for which bad debt 26,756,380.18 1.05 24,861,604.49 92.92 1,894,775.69 provision separately accrued Total 2,543,458,396.36 100.00 284,165,189.20 11.17 2,259,293,207.16 ①Accounts receivable with significant single amount for which bad debt provision separately accrued at the year-end Closing balance Accounts receivable (classified by Withdrawal Account Bad debt units) proportion ( Withdrawal reason receivable provision %) Difficult to recover, due to the Customera 21,847,005.37 21,847,005.37 100.00 bankruptcy of that company ②In the groups, accounts receivable adopting aging analysis method to withdraw bad debt provision: Closing balance Aging Withdrawal Account receivable Bad debt provision proportion Within 1 year 2,013,172,455.64 40,203,521.76 2.00 1 to 2 years 40,173,735.00 2,008,686.75 5.00 2 to 3 years 25,126,437.95 5,025,287.59 20.00 3 to 4 years 8,035,966.18 4,017,983.09 50.00 4 to 5 years 9,458,531.38 4,729,265.69 50.00 Over 5 years 188,123,123.49 188,123,123.49 100.00 Total 2,284,090,249.64 244,107,868.37 ③Top five of account receivable with insignificant single amount for which bad debt provision separately accrued Closing balance Accounts receivable (classified by Account Bad debt Withdrawal units) Withdrawal reason receivable provision proportion Had difficulty in Customer 1 17,867,121.02 17,867,121.02 100.00 operation 76 The 2015 Annual Report of Konka Group Co., Ltd. Involved with lawsuit Customer 2 12,166,047.60 12,166,047.60 100.00 dispute Involved with lawsuit Customer 3 8,223,935.99 4,111,968.00 50.00 dispute Involved with lawsuit Customer 4 6,260,260.93 5,554,486.27 88.73 dispute Involved with lawsuit Customer 5 3,408,394.19 2,045,036.51 60.00 dispute Total 47,925,759.73 41,744,659.40 (2) Bad debt provision withdrawal, reversed or recovered in the report period The withdrawal amount of the bad debt provision during the reporting period was of RMB 54,610,084.52; the amount of the reversed or collected part during the reporting period was of RMB5, 205,580.98, other decrease was RMB193, 949.83. (3) Top five of account receivable of closing balance collected by arrears party The total amount of top five of account receivable of closing balance collected by arrears party was RMB643, 509,696.39, 27.01% of total closing balance of account receivable, the relevant closing balance of bad debt provision withdrawn was RMB12, 870,193.93. 5. Prepayment (1) List by aging analysis: Closing amount Opening amount Book balance Book balance Aging Bad debt Bad debt Proportion Proporti Amount provision Amount provision (%) on (%) Within 1 192,024,479.90 92.75 527,017.04 312,558,414.85 96.34 863,929.20 year 1 to 2 years 1,037,032.15 3.04 406,683.12 5,069,017.23 1.56 1,952,958.31 2 to 3 years 3,154,864.60 0.85 1,716,100.63 735,503.34 0.23 396,003.34 Over 3 6,774,559.86 3.36 6,676,515.06 6,086,092.93 1.87 6,086,092.93 years Total 202,990,936.51 100.00 9,326,315.85 324,449,028.35 100.00 9,298,983.78 Notes: prepayments of significant amount and aged more than 1 year, of which the amount of RMB6,635,213.35 was the relevant materials which had quality problems and had not handle the accounts settlement as well as the material warehousing formalities, and the materials purchase account prepaid should be presented as the prepayments. (2) Top 5 of the closing balance of the prepayment collected according to the prepayment target 77 The 2015 Annual Report of Konka Group Co., Ltd. The total amount of top five of account receivable of closing balance collected by arrears party was RMB37, 240,245.94, 18.354% of total closing balance of account receivable. 6. Interest receivable (1) Category of interest receivable Item Closing balance Opening balance Fixed term deposit interest 7,325,298.41 1,885,727.36 Entrusted loan interest 101,111.11 — Total 7,426,409.52 1,885,727.36 7. Other accounts receivable (1) Other account receivable classified by category Closing balance Book balance Bad debt provision Withdra Category Proportion wal Book value Amount Amount (%) proportio n Other accounts receivable with insignificant single amount 183,881,677.62 51.78 171,132,382.98 93.07 12,749,294.64 for which bad debt provision separately accrued Other accounts receivable withdrawn bad debt provision according to credit risks characteristics Group 1: aging group 170,855,404.47 48.11 23,438,919.29 13.72 147,416,485.18 Subtotal of groups 170,855,404.47 48.11 23,438,919.29 13.72 147,416,485.18 Other accounts receivable with insignificant single amount 402,820.00 0.11 402,820.00 100.00 — for which bad debt provision separately accrued 78 The 2015 Annual Report of Konka Group Co., Ltd. Total 355,139,902.09 100.00 194,974,122.27 54.90 160,165,779.82 (Continued) Opening balance Book balance Bad debt provision Category Withdrawal Book value Proportion proportion ( Amount (%) Amount %) Other accounts receivable with insignificant single amount 18,115,952.51 5.45 5,405,926.42 29.84 12,710,026.09 for which bad debt provision separately accrued Other accounts receivable withdrawn bad debt provision according to credit risks characteristics Group 1: aging group 314,459,562.89 94.55 28,194,197.30 8.97 286,265,365.59 Subtotal of groups 314,459,562.89 94.55 28,194,197.30 8.97 286,265,365.59 Other accounts receivable with insignificant single amount — — — — — for which bad debt provision separately accrued Total 332,575,515.40 100.00 33,600,123.72 10.10 298,975,391.68 ① Other account receivable with insignificant single amount for which bad debt provision separately accrued Closing balance Other accounts receivable Withdrawal Other accounts Bad debt (unit） proportion Withdrawal reason receivable provision （%） Energy saving subsidy 152,402,680.00 152,402,680.00 100.00 Irrecoverable 79 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen Konka Video & Assessment Communication Systems 18,115,952.51 5,366,657.87 29.62 irrecoverable for full Engineering Co., Ltd. amount Irrecoverable, under Chongqng Konka Auto 13,363,045.11 13,363,045.11 100.00 bankruptcy Electronic Company liquidation Total 183,881,677.62 171,132,382.98 93.07 — ②In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: Closing balance Aging Other accounts Withdrawal proportion Bad debt provision receivable （%） Within 1 year 125,476,792.14 2,504,840.07 2.00 1 to 2 years 9,688,182.60 484,409.13 5.00 2 to 3 years 15,052,680.35 3,010,536.07 20.00 3 to 4 years 4,571,994.74 2,285,997.37 50.00 4 to 5 years 1,825,235.98 912,617.99 50.00 Over 5 years 14,240,518.66 14,240,518.66 100.00 Total 170,855,404.47 23,438,919.29 (2) Bad debt provision withdrawal, reversed or recovered in the report period The withdrawal amount of the bad debt provision during the reporting period was of RMB162,803,057.40; the amount of the reversed or collected part during the reporting period was of RMB682, 759.03, other decrease was RMB746, 299.82. (3) Top 5 of the closing balance of the other accounts receivable collected according to the arrears party Proportion of the total Name of year-end balance of Bad debt provision Nature Closing balance Aging the entity the accounts Closing balance receivable (%) Customer Energy saving A subsidy 152,402,680.00 1-2years, 2-3 years 42.91 152,402,680.00 Customer Export tax B refunds 18,334,262.62 Within 1 year 5.16 916,713.13 Property Customer administrative 6,413,845.45 Within 1 year 1.81 320,692.27 C expenses Customer Payment on Within 1 D behalf 6,202,366.00 year ,1-2years, 2-3 1.75 1,252,283.30 80 The 2015 Annual Report of Konka Group Co., Ltd. years Customer Payment for E land 2,570,568.00 1-2years, 2-3 years 0.72 937,254.00 Total 185,923,722.07 52.35 155,829,622.70 8. Inventory (1) Category of inventory Closing amount Of which: the Item Impairment of Book balance capitalized amount Book value inventories of the borrowings Development projects of the property: Development cost 270,136,005.18 — — 270,136,005.18 Development 194,778,406.05 3,693,784.24 — 194,778,406.05 products Subtotal 464,914,411.23 3,693,784.24 — 464,914,411.23 Non-development projects of the property: Raw materials 611,138,306.26 — 53,034,708.44 558,103,597.82 Raw materials 152,737,782.18 — 54,853,159.84 97,884,622.34 Inventory goods 1,960,267,024.10 — 199,769,581.12 1,760,497,442.98 Turnover materials 1,115,838.91 — — 1,115,838.91 Subtotal 2,725,258,951.45 — 307,657,449.40 2,417,601,502.05 Total 3,190,173,362.68 3,693,784.24 307,657,449.40 2,882,515,913.28 (Continued) Opening amount Of which: the Item Impairment of Book balance capitalized amount Book value inventories of the borrowings Development projects of the property: Development cost 433,431,258.26 708,392.08 — 433,431,258.26 81 The 2015 Annual Report of Konka Group Co., Ltd. Development products 184,288,149.21 4,786,589.71 — 184,288,149.21 Subtotal 617,719,407.47 5,494,981.79 — 617,719,407.47 Non-development projects of the property: Raw materials 1,299,997,072.71 — 331,916,902.96 968,080,169.75 Raw materials 384,479,782.98 — 174,801,078.20 209,678,704.78 Inventory goods 2,347,967,769.03 — 239,864,738.09 2,108,103,030.94 Turnover materials 854,937.39 — — 854,937.39 Subtotal 4,033,299,562.11 — 746,582,719.25 3,286,716,842.86 Total 4,651,018,969.58 5,494,981.79 746,582,719.25 3,904,436,250.33 (2) List of the development cost Starting Expected completion Name o f item Opening amount Closing amount time time of the next batch Shuiyue Zhouzhuang Project Y 2011 Completion by stages 433,431,258.26 268,056,798.18 Not yet Kangqiao Jiacheng Not yet started — 2,079,207.00 started Total 433,431,258.26 270,136,005.18 (3) List of the developed products Completion Name o f item Opening amount Increased Decreased Closing amount time Shuiyue Zhouzhuang Y 2014 184,288,149.21 2,710,216.34 107,315,291.21 79,683,074.34 Project(Phase I Residence) Shuiyue Zhouzhuang Y 2015 — 281,251,269.33 166,155,937.62 115,095,331.71 Project(Phase II Residence) Total 184,288,149.21 283,961,485.67 273,471,228.83 194,778,406.05 (4) Impairment of inventories Increased amount Decreased amount Item Opening balance Closing balance Withdrawal Other Reverse Write-off Raw 8,015,456. 331,916,902.96 18,922,271.43 — 289,789,009.06 53,034,708.44 materials 89 82 The 2015 Annual Report of Konka Group Co., Ltd. Raw 5,693,260. 174,801,078.20 219,137.28 — 114,473,795.51 54,853,159.84 materials 13 Inventory 239,864,738.09 81,517,733.07 — — 121,612,890.04 199,769,581.12 goods 13,708,71 Total 746,582,719.25 100,659,141.78 — 525,875,694.61 307,657,449.40 7.02 (5) Withdrawal provision basis of the falling price of the inventory and the reasons of the reserve or write-off Specific basis of withdrawal of Item Reasons for write-off falling price reserves of inventory The realizable net value was lower Raw materials Disposed in the current period than the inventory cost The realizable net value was lower Raw materials Disposed in the current period than the inventory cost The realizable net value was lower Inventory goods Disposed in the current period than the inventory cost (4) Closing balance of the inventory which includes capitalized borrowing expenses was RMB3, 693,784.24. 9. Other current assets Item Closing balance Opening balance Prepayments and deductible taxes 89,108,687.45 311,200,708.77 Entrust loans 50,000,000.00 50,000,000.00 Financial products 500,000,000.00 500,000.00 Unreached bank deposits 8,203,251.00 206,319,491.71 Total 647,311,938.45 568,020,200.48 Notes: the entrust loan was Anhui Electronic borrowed RMB50,000,000.00 to Chuzhou Tongchuang Construction Investment Co., Ltd. through Bank of China Limited, Chuzhou Branch, due to Anhui Electronic had sufficient capital, in order to improve capital service efficiency, both party signed Entrust Loan Extension Loan agreement based on the original contract with contract No.007 CZYWDZ of 2014, the extension period was three months, from 31 Dec. 2015 to 31 Mar. 2016. 83 The 2015 Annual Report of Konka Group Co., Ltd. 10. Available-for-sale financial assets (1) List of available-for-sale financial assets Closing balance Opening balance Item Depreciation Depreciation Book balance Book value Book balance Book value reserves reserves Available-for-sale equity 316,972,068.30 4,997,785.64 311,974,282.66 247,799,748.07 2,766,139.07 245,033,609.00 instruments Of which: measured at fair value 2,874,068.30 — 2,874,068.30 2,311,748.07 681,139.07 1,630,609.00 Measured by cost 314,098,000.00 4,997,785.64 309,100,214.36 245,488,000.00 2,085,000.00 243,403,000.00 Total 316,972,068.30 4,997,785.64 311,974,282.66 247,799,748.07 2,766,139.07 245,033,609.00 (2) Available-for-sale financial assets measured by fair value at the period-end Category Available-for-sale equity instruments Cost of the equity instruments 2,317,433.07 Fair value 556,635.23 Changed amount of the fair value accumulatively included in other comprehensive 1,237,774.30 income Withdrawn impairment amount — (3) Available-for-sale financial assets measured by cost at the period-end Book balance Investee Year-begin Increased Decreased Year-end Shenzhen Qianhai Qingsong Venture Capital Fund Enterprise 6,000,000.00 14,000,000.00 — 20,000,000.00 84 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen Tianyilian Science & Technology Co., Ltd. 4,800,000.00 — — 4,800,000.00 Shenzhen Yifan Interactive Science & Technology Co., Ltd. 9,500,000.00 — — 9,500,000.00 Shenzhen A Dot TV Co., Ltd. 5,750,000.00 — — 5,750,000.00 Feihong Electronics Co., Ltd. 1,300,000.00 — — 1,300,000.00 ZAEFI 100,000.00 — — 100,000.00 Shenzhen Chuangce Investment Development Co., Ltd. 485,000.00 — — 485,000.00 Shanlian Information Technology Engineering Center 5,000,000.00 — — 5,000,000.00 Shenzhen CIU Science & Technology Co., Ltd. 1,153,000.00 — — 1,153,000.00 Shenzhen Digital TV National Engineering Laboratory Co., Ltd. 6,000,000.00 — — 6,000,000.00 Shanghai National Engineering Research Center of Digital TV Co., Ltd. 2,400,000.00 — — 2,400,000.00 ChinaAMC - Jiayi Overseas Orientation Programs 203,000,000.00 — — 203,000,000.00 Hunan Vary Science & Technology Co., Ltd. — 47,230,000.00 — 47,230,000.00 Nobel Education Investment Development Co., Ltd. — 7,380,000.00 — 7,380,000.00 Chongqing Konka Eurotomotive — — — Electronic Co., Ltd. (See note VII.2.（9）) — Total 245,488,000.00 68,610,000.00 — 314,098,000.00 (Continued) 85 The 2015 Annual Report of Konka Group Co., Ltd. Depreciation reserves Shareholding proportion Cash bonus of the reporting Investee Year-begin Increased Decreased Year-end among the period investees Shenzhen Qianhai Qingsong Venture Capital Fund Enterprise — — — — 6.00 — Shenzhen Tianyilian Science & Technology Co., Ltd. — — — — 7.05 — Shenzhen Yifan Interactive Science & Technology Co., Ltd. — — — — 13.57 — Shenzhen A Dot TV Co., Ltd. — — — — 9.50 — Feihong Electronics Co., Ltd. 1,300,000.00 — — 1,300,000.00 8.33 — ZAEFI 100,000.00 — — 100,000.00 — — Shenzhen Chuangce Investment Development Co., Ltd. 485,000.00 — — 485,000.00 1.00 — Shanlian Information Technology Engineering Center — 1,639,190.80 — 1,639,190.80 9.62 — Shenzhen CIU Science & Technology Co., Ltd. 200,000.00 — — 200,000.00 11.50 — Shenzhen Digital TV National Engineering Laboratory Co., Ltd. — 1,273,594.84 — 1,273,594.84 6.00 — Shanghai National Engineering Research Center of Digital TV Co., Ltd. — — — — 4.26 — ChinaAMC - Jiayi Overseas Orientation Programs — — — — — 2,153,880.21 Hunan Vary Science & Technology Co., Ltd. — — — — 10.04 — 86 The 2015 Annual Report of Konka Group Co., Ltd. Nobel Education Investment Development Co., Ltd. — — — — 14.76 — Chongqing Konka Eurotomotive Electronic Co., Ltd. (See note VII.2.（9）) — — — — — — Total 2,085,000.00 2,912,785.64 — 4,997,785.64 — 2,153,880.21 (4) Changes of the impairment of the available-for-sale financial assets during the reporting period Category Available-for-sale equity instruments Balance of the withdrawn impairment at the period-begin 2,766,139.07 Withdrawn impairment balance at the period-begin 2,912,785.64 Of which: transferred from other comprehensive income — Decreased 681,139.07 Of which: recovered and reversed after the period of the fair value 681,139.07 Balance of the withdrawn impairment at the period-end 4,997,785.64 11. Long-term equity investment Increase/decrease in reporting period Investment profit Adjustment of and loss Investee Opening balance Additional Negative other recognized under Other equity changes investment investment comprehensiv the equity e income method 87 The 2015 Annual Report of Konka Group Co., Ltd. Subsidiary of joint venture Shenzhen Refund Optoelectronics Co., Ltd. 43,425,481.67 — — 2,378,983.32 — — Enraytek Optoelectronics Co., Ltd. 110,793,944.21 — — -16,120,186.21 — — Shenzhen Konka Energy Technology Co., Ltd. 3,649,728.08 — — — — — Shanghai Konka Green Science & Technology Co., Ltd. 197,758,604.87 — 124,800,000.00 -5,111,426.37 403,094.53 — Shenzhen Dekang Electronics Co., Ltd. 7,137,424.83 — — — — Zhuhai Jinsu Plastic Co., Ltd. — 6,210,000.00 — 58,920.60 — 183,267.00 Total 362,765,183.66 6,210,000.00 124,800,000.00 -18,793,708.66 403,094.53 183,267.00 (Continued) Increase/decrease in reporting period Closing balance of Investee Declaration of cash Withdrawn Closing balance Other impairment provision dividends or profits impairment provision Associated enterprise: Shenzhen Refund Optoelectronics Co., Ltd. 1,487,448.32 — — 44,317,016.67 — Enraytek Optoelectronics Co., Ltd. — 30,257,135.84 — 94,673,758.00 30,257,135.84 Shenzhen Konka Energy Technology Co., Ltd. — 3,649,728.08 — 3,649,728.08 3,649,728.08 Shanghai Konka Green Science & Technology Co., Ltd. — — — 68,250,273.03 — Shenzhen Dekang Electronics Co., Ltd. — — — 7,137,424.83 — Zhuhai Jinsu Plastic Co., Ltd. — — — 6,452,187.60 — 88 The 2015 Annual Report of Konka Group Co., Ltd. Total 1,487,448.32 33,906,863.92 — 224,480,388.21 33,906,863.92 Note: since the shenzhen konka energy technology co., LTD., continuing losses, as of December 31, 2015, its net worth is negative, according to the book value of full provision for impairment loss; Reflected the Enraytek Optoelectronics Co., Ltd., by way of assessment signs, there is possible assets impairment provision for impairment loss according to the difference between evaluating price and book value. 89 The 2015 Annual Report of Konka Group Co., Ltd. 12. Investment property Investment property adopted the cost measurement mode Construction in Item Houses and buildings Land use right Total progress I. Original book value 1.Opening balance 249,923,047.75 — — 249,923,047.75 2. Increased amount of the period — — — — 3.Decreased amount of the period — — — — Closing balance 249,923,047.75 — — 249,923,047.75 II. Accumulative depreciation and — — — — accumulative amortization 1.Opening balance 16,573,594.95 — — 16,573,594.95 2. Increased amount of the period 5,631,274.27 — — 5,631,274.27 (1) Withdrawal or amortization 5,631,274.27 — — 5,631,274.27 3.Decreased amount of the period — — — — Closing balance 22,204,869.22 — — 22,204,869.22 III. Depreciation reserves — — — — 1.Opening balance — — — — 2. Increased amount of the period — — — — 3.Decreased amount of the period — — — — 4.Closing balance — — — — IV. Book value — — — — 1. Closing book value 227,718,178.53 — — 227,718,178.53 2. Opening book value 233,349,452.80 — — 233,349,452.80 90 The 2015 Annual Report of Konka Group Co., Ltd. 13. Fixed assets (1) List of fixed assets Houses and Machinery equipment Electronic Transportation Other Item Total buildings equipment equipment I. Original book value 1.Opening balance 1,666,832,339.28 1,025,362,549.65 252,641,100.35 74,244,036.50 214,920,840.16 3,234,000,865.94 2. Increased amount of the 72,994,535.09 51,204,901.71 19,270,450.60 5,655,781.95 20,677,102.58 169,802,771.93 period (1) Purchase 6,072,522.58 46,355,267.49 18,669,505.56 5,474,108.36 17,035,522.26 93,606,926.25 (2) Transfer of project 66,922,012.51 4,849,634.22 600,945.04 181,673.59 3,641,580.32 76,195,845.68 under construction 3.Decreased amount of the 129,421,263.34 80,576,728.94 45,976,766.12 15,186,067.52 26,110,920.83 297,271,746.75 period (1) Disposal or Scrap 129,421,263.34 80,576,728.94 45,976,766.12 15,186,067.52 26,110,920.83 297,271,746.75 (2) Other — — — — — — 4.Closing balance 1,610,405,611.03 995,990,722.42 225,934,784.83 64,713,750.93 209,487,021.91 3,106,531,891.12 II. Accumulative depreciation 1.Opening balance 401,426,983.75 590,925,364.93 201,361,698.85 52,503,060.71 140,779,033.03 1,386,996,141.27 2. Increased amount of the 56,893,032.66 60,882,542.16 13,661,165.53 6,045,622.63 19,000,737.36 156,483,100.34 period (1) Withdrawal 56,893,032.66 60,882,542.16 13,661,165.53 6,045,622.63 19,000,737.36 156,483,100.34 91 The 2015 Annual Report of Konka Group Co., Ltd. 3.Decreased amount of the 92,491,301.56 68,883,330.10 41,068,075.82 12,586,323.43 23,329,729.40 238,358,760.31 period (1) Disposal or Scrap 92,491,301.56 68,883,330.10 41,068,075.82 12,586,323.43 23,329,729.40 238,358,760.31 (2) Other — — — — — — 4.Closing balance 365,828,714.85 582,924,576.99 173,954,788.56 45,962,359.91 136,450,040.99 1,305,120,481.30 III. Depreciation reserves - 1.Opening balance 53,124,316.45 6,198,654.13 1,628,053.45 899,230.59 1,458,921.13 63,309,175.75 2. Increased amount of the — 20,992,333.00 6,021,747.13 109,187.63 2,737,376.43 29,860,644.19 period (1) Withdrawal — 20,992,333.00 6,021,747.13 109,187.63 2,737,376.43 29,860,644.19 3.Decreased amount of the 51,117,567.15 1,122,857.24 2,335,953.13 45,072.30 640,149.80 55,261,599.62 period (1) Disposal or Scrap 51,117,567.15 1,122,857.24 2,335,953.13 45,072.30 640,149.80 55,261,599.62 (2) Other — — — — — — 4.Closing balance 2,006,749.30 26,068,129.89 5,313,847.45 963,345.92 3,556,147.76 37,908,220.32 IV. Book value - 1. Closing book value 1,242,570,146.88 386,998,015.54 46,666,148.82 17,788,045.10 69,480,833.16 1,763,503,189.50 2. Opening book value 1,212,281,039.08 428,238,530.59 49,651,348.05 20,841,745.20 72,682,886.00 1,783,695,548.92 (2) List of temporarily idle fixed assets Item Original book value Accumulative depreciation Depreciation reserves Book value Notes Houses and buildings 4,284,173.90 2,458,069.58 942,269.83 883,834.49 92 The 2015 Annual Report of Konka Group Co., Ltd. Machinery equipment 6,705,827.19 5,338,283.86 718,159.24 649,384.09 Electronic equipment 18,515,199.56 17,070,291.53 1,021,928.09 422,979.94 Transportation equipment 1,623,535.00 1,460,501.40 87,259.60 75,774.00 Other equipment 2,979,447.09 2,690,379.92 43,920.91 245,146.26 Total 34,108,182.74 29,017,526.29 2,813,537.67 2,277,118.78 93 The 2015 Annual Report of Konka Group Co., Ltd. (3) Fixed assets leased in from financing lease Accumulative Impairment provision Item Original book value Book value depreciation Machinery equipment 5,321,552.85 1,173,743.61 — 4,147,809.24 (4) Fixed assets leased out from operation lease Item Closing book value Houses and buildings 23,232,191.19 Total 23,232,191.19 (5) Details of fixed assets failed to accomplish certification of property Item Book value Reason Yikang building 48,324,645.35 Under processing Kangsheng Aquatic Club 20,343,430.96 Under processing Mudangjiang electric Has not obtained the state-owned land uses card, appliances etc. 12,187,010.26 can not to deal with house property card Jingyuan office building 12,725,226.98 Under processing Office building of Pang river street, Big East District, 9,426,356.36 Under processing Shenyang Office building of Kunming 5,432,239.86 Under processing Office building of Foshan 4,842,032.86 Under processing Office building of Changshu Has not obtained the state-owned land uses card, Konka Color TV etc. 1,826,104.32 can not to deal with house property card 14. Construction in progress (1) List of construction in progress Closing balance Opening balance Depreciati Depreciati Item Book balance on Book value Book balance on Book value reserves reserves Kunshan 138,816,397.92 — 138,816,397.92 57,267,807.74 — 57,267,807.74 hotel Kunshan 1,643,881.07 — 1,643,881.07 1,643,881.07 — 1,643,881.07 gallery Kunshan Jielunte new 4,801,714.50 — 4,801,714.50 29,459,670.93 — 29,459,670.93 factory Wuhan Jielunte 31,032,889.26 — 31,032,889.26 18,304,006.73 — 18,304,006.73 factory 94 The 2015 Annual Report of Konka Group Co., Ltd. construction Canteen project of the 4,035,058.76 — 4,035,058.76 — — — Tongchuang Industrial Park Chuzhou Jie lute factory 9,613,833.54 — 9,613,833.54 6,466,505.22 — 6,466,505.22 phase I construction Other small 17,910,405.83 — 17,910,405.83 46,463,012.40 — 46,463,012.40 projects Total 207,854,180.88 — 207,854,180.88 159,604,884.09 — 159,604,884.09 95 The 2015 Annual Report of Konka Group Co., Ltd. (2) Changes of significant construction in progress Amount that Amount that transferred Name o f Estimated transferred to Other decreased Opening balance Increased amount to fixed assets of the intangible assets of amount of the period Closing balance item number period the period Kunshan 441,600,000.00 57,267,807.74 81,548,590.18 — — — 138,816,397.92 hotel Kunshan 26,320,000.00 1,643,881.07 — — — — 1,643,881.07 gallery Kunshan Jielunte new 37,992,500.00 29,459,670.93 8,594,370.74 33,252,327.17 — — 4,801,714.50 factory Wuhan Jielunte 40,000,000.00 18,304,006.73 12,728,882.53 — — — 31,032,889.26 factory construction Canteen project of the 4,186,655.78 — 4,035,058.76 — — — 4,035,058.76 Tongchuang Industrial Park 96 The 2015 Annual Report of Konka Group Co., Ltd. Chuzhou Jie lute factory — 6,466,505.22 3,147,328.32 — — — 9,613,833.54 phase I construction Anhui Konka Electronic employee 21,049,600.00 — 20,508,465.44 20,508,465.44 — — — apartment building projects Other small — 46,463,012.40 20,490,246.57 22,435,053.07 10,621,478.28 15,986,321.79 17,910,405.83 projects Total 571,148,755.78 159,604,884.09 151,052,942.54 76,195,845.68 10,621,478.28 15,986,321.79 207,854,180.88 (Continued) Proportion Of which: the Accumulative Capitalization rate of estimated of the amount of the Project name Project progress amount of the interests of the Capital resources project capitalized interests of capitalized interests period accumulative input the period Kunshan gallery 6.25 6.25 — — — Self-owned fund Wuhan Jielunte factory 77.58 95.00 — — — Self-owned fund construction 97 The 2015 Annual Report of Konka Group Co., Ltd. Canteen project of the 96.38 76.60 — — — Self-owned fund Tongchuang Industrial Park Chuzhou Jielute factory — 90.00 — — — Self-owned fund phase I construction Anhui Konka Electronic employee apartment 97.43 100.00 — — — Self-owned fund building projects Loans to financial Kunshan hotel 31.58 31.58 810,165.16 — — institutions and self-owned fund 98 The 2015 Annual Report of Konka Group Co., Ltd. 15. Intangible assets (1) List of intangible assets Trademark Item Land use right Patent right registration Other Total expense I. Original book value 1.Opening balance 366,197,934.11 40,139,739.88 3,519,159.61 30,062,433.23 439,919,266.83 2. Increased amount of the — 31,264.96 — 17,833,356.38 17,864,621.34 period (1) Purchase — 31,264.96 — 7,211,878.10 7,243,143.06 (2) Transfer of project under — — — 10,621,478.28 10,621,478.28 construction 3.Decreased amount of the — — — 9,800.00 9,800.00 period (1) Disposal — — — 9,800.00 9,800.00 4.Closing balance 366,197,934.11 40,171,004.84 3,519,159.61 47,885,989.61 457,774,088.17 II. Accumulated amortization 1.Opening balance 40,380,243.37 32,123,987.40 3,364,176.89 13,523,645.98 89,392,053.64 2. Increased amount of the 8,338,831.53 831,399.43 35,845.25 3,692,788.23 12,898,864.44 period (1) Withdrawal 8,338,831.53 831,399.43 35,845.25 3,692,788.23 12,898,864.44 3.Decreased amount of the — — — 9,800.00 9,800.00 period (1) Disposal — — — 9,800.00 9,800.00 4.Closing balance 48,719,074.90 32,955,386.83 3,400,022.14 17,206,634.21 102,281,118.08 III. Depreciation reserves 99 The 2015 Annual Report of Konka Group Co., Ltd. 1.Opening balance — 2,901,082.61 — — 2,901,082.61 2. Increased amount of the — — — — — period (1) Withdrawal — — — — — 3.Decreased amount of the — — — — — period (1) Disposal — — — — — 4.Closing balance — 2,901,082.61 — — 2,901,082.61 IV. Book value 1. Closing book 317,478,859.21 4,314,535.40 119,137.47 30,679,355.40 352,591,887.48 value 2. Opening book 325,817,690.74 5,114,669.87 154,982.72 16,538,787.25 347,626,130.58 value (2) Details of fixed assets failed to accomplish certification of land use right Item Book value Reason Mudangjiang electric Left over by history appliances etc. 3,153,608.13 (3) Other notes The land use right of book value of intangible assets of the Company’s subsidiary Kunshan Konka Electronic Co., Ltd. was RMB78, 094,958.58 which was pledged for long term loan of RMB63,876,957.13. 16. Goodwill (1) Original book value of goodwill Increased Decreased Name of the investees or Formed Opening the events formed from the Closing balance balance Other Dispose Other goodwill business combination Anhui Konka 3,597,657.15 — — — — 3,597,657.15 Total 3,597,657.15 — — — — 3,597,657.15 (2) The method of impairment test and impairment provision, see note 19, IV. (3) As of 31 Dec. 2015, there was no book value of goodwill higher than recoverable amount. 17. Long-term unamortized expenses 100 The 2015 Annual Report of Konka Group Co., Ltd. Opening Increased Amortization Item Decrease Closing amount balance amount amount Renovation costs 9,557,434.43 23,314,451.15 7,090,610.84 — 25,781,274.74 Shoppe expense 10,280,675.07 38,695,322.84 15,843,815.43 — 33,132,182.48 Other 5,954,695.56 24,334,874.47 6,356,045.18 — 23,933,524.85 Total 25,792,805.06 86,344,648.46 29,290,471.45 — 82,846,982.07 18. Deferred income tax assets/deferred income tax liabilities (1) Deferred income tax assets Closing balance Opening balance Deductible Deductible Item Deferred income Deferred income temporary temporary tax assets tax assets difference difference Assets impairment provision 682,074,474.66 160,938,084.03 680,584,889.73 168,852,965.21 Unrealized internal sales gain and loss 75,656,622.48 18,914,155.62 45,585,627.57 11,396,406.89 Accrued expenses 114,093,986.59 28,165,776.55 92,847,148.47 23,119,888.96 Deferred income 98,649,185.43 23,704,256.37 91,852,218.96 21,845,806.74 Deductible losses 1,223,305,795.11 295,093,235.44 137,205,313.83 34,301,328.46 Other 89,960,000.00 22,490,000.00 — — Total 2,283,740,064.27 549,305,508.01 1,048,075,198.56 259,516,396.26 (2) Lists of deferred income tax liabilities Closing balance Opening balance Item Deductible Deferred income Deductible Deferred income temporary tax liabilities temporary difference tax liabilities difference Accelerated depreciation of fixed 10,219,095.65 1,532,864.34 6,996,658.49 1,049,498.77 assets Change of fair value of trading financial 7,184,035.28 1,796,008.82 — — assets Change in fair value of available-for-sale 556,635.24 139,158.81 — — financial assets Total 17,959,766.17 3,468,031.97 6,996,658.49 1,049,498.77 (3) List of unrecognized deferred income tax assets Item Closing balance Opening balance 101 The 2015 Annual Report of Konka Group Co., Ltd. Deductible temporary difference 385,065,293.90 416,383,521.99 Deductible losses 1,162,480,889.15 525,234,499.08 Total 1,547,546,183.05 941,618,021.07 19. Other non-current assets Item Closing balance Opening balance Prepayment for land — 488,063,979.00 Total — 488,063,979.00 20. Assets impairment provision Withdrawn Decreased impairment Reverse Item Opening balance Closing balance balance at the Write-off period-begin I. Bad debt provision 327,064,296.70 218,323,037.39 6,090,644.27 1,620,508.79 537,676,181.03 II.Impairme nt of 746,582,719.25 100,659,141.78 13,708,717.02 525,875,694.61 307,657,449.40 inventories III. Impairment provision of the available-for 2,766,139.07 2,912,785.64 681,139.07 — 4,997,785.64 -sale financial assets IV. Impairment provision of 63,309,175.75 29,860,644.19 — 55,261,599.62 37,908,220.32 the fixed assets V. Impairment provision of the 2,901,082.61 — — — 2,901,082.61 intangible assets VI. Long-ter m equity — 33,906,863.92 — — 33,906,863.92 investment Total 1,142,623,413.38 385,662,472.92 20,480,500.36 582,757,803.02 925,047,582.92 21. Short-term loans 102 The 2015 Annual Report of Konka Group Co., Ltd. Category of short-term loans Item Closing balance Opening balance Pledge loan — 10,000,000.00 Mortgage loan — — Guaranteed loan 1,196,103,036.53 1,563,972,365.24 Credit loan 2,954,670,159.23 3,571,740,071.67 Total 4,150,773,195.76 5,145,712,436.91 22. Notes payable Category Closing balance Opening balance Trade acceptance — 6,855,587.12 Bank acceptance bill 929,176,857.06 904,499,441.35 Total 929,176,857.06 911,355,028.47 Notes: RMB929, 176,857.06 will be due in next fiscal period. 23. Accounts payable (1) List of accounts payable Item Closing balance Opening balance Within 1 year 2,806,965,708.04 3,065,357,903.95 1 to 2 years 126,958,011.57 58,683,458.20 2 to 3 years 28,320,658.56 1,259,084.44 Over 3 years 18,172,605.08 19,107,987.34 Total 2,980,416,983.25 3,144,408,433.93 (2) Notes of the accounts payable aging over one year Item Closing balance Unpaid/ Un-carry-over reason Interior decoration 13,804,404.30 Unsettled Exterior components 5,038,769.40 Unsettled Building projects 2,902,005.96 Unsettled Total 21,745,179.66 24. Advance from customers (1) List of advance from customers Item Closing balance Opening balance Within 1 year 308,012,574.61 275,288,665.86 1 to 2 years 21,697,745.80 11,520,332.44 2 to 3 years 5,825,837.33 1,574,348.73 103 The 2015 Annual Report of Konka Group Co., Ltd. Over 3 years 14,248,649.58 14,521,106.83 Total 349,784,807.32 302,904,453.86 (2) Significant advance from customers aging over one year was prepayment of goods undelivered. (3) Advance receipts of houses Item Closing balance Opening balance Shuiyue Zhouzhuang Project(Phase I) 15,387,876.00 81,228,984.00 Shuiyue Zhouzhuang Project(Phase II) 8,542,534.36 13,509,507.91 合计 23,930,410.36 94,738,491.91 25. Payroll payable (1) List of Payroll payable Item Opening balance Increased Decreased Closing balance I. Short-term salary 296,701,946.79 1,624,244,622.09 1,649,465,363.42 271,481,205.46 II. Post-employment benefit-defined contribution 2,562,794.26 137,657,181.47 137,761,396.48 2,458,579.25 plans III. Termination benefits 7,974.00 10,701,417.05 5,017,917.05 5,691,474.00 IV. Other benefits due within — — — — one year Total 299,272,715.05 1,772,603,220.61 1,792,244,676.95 279,631,258.71 (2) List of Short-term salary Item Opening balance Increased Decreased Closing balance 1. Salary, bonus, allowance, subsidy 288,171,641.38 1,435,260,071.96 1,461,273,188.12 262,158,525.22 2. Employee welfare 1,111,472.13 62,543,230.95 62,397,521.82 1,257,181.26 3. Social insurance 1,526,026.37 63,685,606.33 63,274,297.61 1,937,335.09 Including: 1. Medical 1,285,679.34 53,414,120.10 53,306,965.10 1,392,834.34 insurance premiums Work-related injury 91,233.21 5,406,091.01 5,394,781.15 102,543.07 insurance Maternity insurance 149,113.82 4,865,395.22 4,572,551.36 441,957.68 4. Housing fund 1,504,548.35 33,021,559.27 33,029,409.53 1,496,698.09 5. Labor union budget and employee education budget 4,388,258.56 13,023,907.35 13,192,266.36 4,219,899.55 104 The 2015 Annual Report of Konka Group Co., Ltd. 6.Short-term absence with — — — — payment 7. Short-term profit sharing — — — — plan 8. Other — 16,710,246.23 16,298,679.98 411,566.25 Total 296,701,946.79 1,624,244,622.09 1,649,465,363.42 271,481,205.46 (3) List of drawing scheme Opening Item Increased Decreased Closing balance balance Basic pension benefits 2,437,546.24 130,593,613.81 130,901,578.79 2,129,581.26 Unemployment insurance 125,248.02 7,063,567.66 6,859,817.69 328,997.99 Annuity — — — — Total 2,562,794.26 137,657,181.47 137,761,396.48 2,458,579.25 The Company, in line with the requirement, participate the endowment insurance, unemployment insurance scheme and so on, according to the scheme, the Company monthly pay to the scheme in line with requirements of local government, except the monthly payment, the Company no longer shoulder the further payment obligation, the relevant expense occurred was recorded into current profits and losses or related assets costs. 26. Taxes payable Item Closing balance Opening balance VAT 13,316,492.43 24,559,393.58 Corporate income tax 15,106,336.81 42,937,116.01 Business tax 2,049,531.99 1,680,131.18 Urban maintenance and construction tax 1,392,874.16 801,349.04 Personal income tax 5,468,489.97 4,086,658.32 Education Surcharge 939,576.85 548,155.02 Flood control fund, fund for embankment, fund 2,220,266.89 for water conservancy and fund for river 1,286,346.53 management Fund for disposing abandoned appliances and 21,403,104.00 19,694,608.00 electronic products Other 32,843,695.16 14,320,831.81 Total 92,097,951.90 112,557,005.85 27. Interest payable 105 The 2015 Annual Report of Konka Group Co., Ltd. Item Closing balance Opening balance Loan interests 20,552,763.14 22,872,418.43 Total 20,552,763.14 22,872,418.43 28. Other accounts payable (1) Other accounts payable listed by nature of the account Item Closing balance Opening balance Accrued expenses 958,366,586.73 862,532,739.03 Margin 228,909,206.83 253,375,271.47 Intercourse funds 172,797,449.90 100,800,186.16 Payment on behalf 10,769,352.74 50,527,321.48 Other 180,088,977.15 109,567,862.89 Total 1,550,931,573.35 1,376,803,381.03 (2) Other significant accounts payable with aging over one year Unpaid/ Un-carry-over Item Closing balance reason Shanghai Shensy Logistics Co., Ltd. 3,800,000.00 Margin Guarantee money of Ningbo Huacai Electric Appliance Co., Ltd. 3,031,041.94 operation Shanghai Yongxin Color CRT Ltd. Co., Ltd. 2,075,485.15 Margin Total 8,906,527.09 29. Non-current liabilities due within 1 year Item Closing balance Opening balance Long-term loans due within 1 year(Note: 30) 573,341,856.11 — Long-term loans due within 1 year(Note: 31) 57,103.54 1,525,465.53 Total 573,398,959.65 1,525,465.53 30. Long-term loan Item Closing balance Opening balance Mortgage loan 63,776,957.13 51,976,957.13 Guaranteed loan 23,700,000.00 — Credit loan 509,564,898.98 905,564,253.39 Less: long-term loans due within 1 year(Note: 29) 573,341,856.11 — Total 23,700,000.00 957,541,210.52 Notes: the mortgage asset category and amount of mortgage loan see Notes 54. 106 The 2015 Annual Report of Konka Group Co., Ltd. 31. Long-term payable Item Closing balance Opening balance Chuzhou Tongchuang Jianshe Investment Co., 30,000,000.00 Ltd. 30,000,000.00 Accrued financial lease outlay 190,436.91 1,555,455.63 Less: Expired part due within 1 year (Note: 57,103.54 1,525,465.53 29) Total 30,133,333.37 30,029,990.10 32. Long term payroll payable (1) List of long term payroll payable Item Closing balance Opening balance I. Termination benefits-net liabilities of defined 23,435,856.86 contribution plans 28,554,734.16 II. Termination benefits — — III. Other long term welfare — — Total 23,435,856.86 28,554,734.16 (2) Changes of defined benefit plans ① Present worth of defined benefit plans obligation: Item Reporting period Last period I. Opening balance 28,554,734.16 — II. Defined benefit cost recorded into current profits 28,554,734.16 and losses — 1. Current service cost — 5,140,521.34 2. Previous service cost — 23,200,807.83 3. Settlement gains (loss “－”) — — 4. Net interest — 213,404.99 III. Other changes 5,118,877.30 — 1. Consideration of settlement of payment — — 2.Welfare had paid 5,118,877.30 — Balance at year- end 23,435,856.86 28,554,734.16 ②Notes to the influence of the content and related risk of defined benefit plans to the future cash flows, time and uncertainty of the Company: Due to upgrading and reconstruction of current work sites of the subsidiary, communication 107 The 2015 Annual Report of Konka Group Co., Ltd. technology, it is to adjust the labor relations according to Implementation Measures for Accompanying Employees in manufacturing system of Shenzhen Konka Communication Technology Co., Ltd on the premise to balance the Company’s and employees’ benefits and voluntary selection, Communication Technology provides early retirement plans for senior employees (employed before December 31, 1990 and signed non-fixed term labor contract with the Company or Communication Technology). The accumulative compensation paid to the internal early retirement pensions in future year is RMB34,931,714.55, the Company in line with Agreement of Internal Early Retirement Pension, in line with the standard of salary remaining the same, turnover rate of 0, the mortality rate of, fix standard of social security base payment remaining the same to test the present worth of defined benefit plans. The actual payment for the employee is influence by the actual turnover rate, death rate and the changes of minimum cardinality of social security. ③ Notes to analysis results of actuarial assumptions and sensibility of defined benefit plans Period-end of reporting Period-end of last Major assumptions estimated period period Treasury bond rate in same Discount rate — period Death rate 0% — Expected life expectancy Over legal emeritus age — Expected compensation growth rate 0% — 33. Accrued liabilities Item Opening balance Closing balance Formation reasons Pending litigation — 4,629,554.61 litigation Total — 4,629,554.61 34. Deferred income Formation Item Opening balance Increased Decreased Closing balance reasons Government 147,315,999.02 40,689,403.00 25,219,397.82 162,786,004.20 Amortization subsidies Total 147,315,999.02 40,689,403.00 25,219,397.82 162,786,004.20 108 The 2015 Annual Report of Konka Group Co., Ltd. Of which, items involved in government subsidies: Amount of newly Amount accrued in Related to the assets/ Item Opening balance Other changes Closing balance subsidy non-business income income Subsidies for equipment engineering 17,550,000.00 — 3,510,000.00 — 14,040,000.00 Related to the assets and technology Smart TV industry chain of Konka 12,800,000.00 — — — 12,800,000.00 Related to the assets Group Co., Ltd. Compensation for infrastructure 11,550,000.00 — — — 11,550,000.00 Related to the assets construction of Jielunte Supporting the next generation Internet intelligent terminal system 8,508,737.85 — — 600,000.00 7,908,737.85 Related to the assets research projects Fund for flat panel display industry in 6,499,999.94 — 2,000,000.04 — 4,499,999.90 Related to the assets year 2008 R&D of mating core chip based on 5,620,000.00 — — — 5,620,000.00 Related to the assets the terminal of AVS/DRA R&D and industrialization of new-type smart television with 5,256,893.21 — — — 5,256,893.21 Related to the assets man-machine interaction Key technology and industrialization 4,750,000.01 — 999,999.96 — 3,750,000.05 Related to the assets of LED Backlight of flat TV set 109 The 2015 Annual Report of Konka Group Co., Ltd. Industrialization project of large size 4,400,000.00 — 2,400,000.00 — 2,000,000.00 Related to the assets liquid crystal display module (LCM) Special Fund of Strategic Emerging Industry of Dongguan Financial 4,200,000.00 — 600,000.00 — 3,600,000.00 Related to the assets Bureau R&D and industrialization of large 3,600,000.00 — 2,400,000.00 — 1,200,000.00 Related to the assets size liquid crystal display module Funds for provincial scientific and technological innovation and special 3,000,000.00 — 521,739.12 — 2,478,260.88 Related to the assets guidance of achievements transfer of 2010 Special fund for 2010-2012 provincial 2,940,000.00 — 383,333.34 — 2,556,666.66 Related to the assets finance industrial technology R&D and industrialization of 2,869,999.89 — 1,640,000.04 — 1,229,999.85 Related to the assets integrated DTMB Government grant for Qianhai Project 2,800,000.00 — - — 2,800,000.00 Related to the assets Machine module integration subsidy 2,775,000.00 — 300,000.00 — 2,475,000.00 Related to the assets Supporting the research and development and industrialization of 2,600,000.00 — — — 2,600,000.00 Related to the assets synergy internet-connected digital products 110 The 2015 Annual Report of Konka Group Co., Ltd. TV application oriented and embedded operating system 2,470,000.00 — — — 2,470,000.00 Related to the assets development Industrialization technological transformation of large precise 2,259,541.37 — 349,620.44 — 1,909,920.93 Related to the assets multi-color injection mold based on green Manufacturing Research instruments subsidies 2,068,933.33 — 420,800.04 — 1,648,133.29 Related to the assets R&D and industrialization of new-type terminal application service 2,050,000.00 — 600,000.00 — 1,450,000.00 Related to the assets system of internet Research and development and industrialization of Dual channel new 2,030,000.00 — — — 2,030,000.00 Related to the assets 3 D smart TV Supporting triple play smart TV and 2,000,000.00 — 133,333.32 - 1,866,666.68 Related to the assets system support platform Shenzhen Finance Committee Konka — 8,170,000.00 — — 8,170,000.00 Related to the assets Group Smart TV Industry Project Konka next generation multimedia terminal technology engineering — 5,000,000.00 — — 5,000,000.00 Related to the assets laboratory project 111 The 2015 Annual Report of Konka Group Co., Ltd. Special fund for Scientifically Create — 4,500,000.00 — — 4,500,000.00 Related to the assets Committee technology PR project Mobile intelligent terminal new — 4,000,000.00 — — 4,000,000.00 Related to the assets application service system Economic, trade and information commission, 2015 Shenzhen — 3,000,000.00 — — 3,000,000.00 Related to the assets Industrial Design Center subsidy Deferred income-mobile intelligent terminal information security system — 2,400,000.00 — — 2,400,000.00 Related to the assets key Lean manufacturing execution system comprehensive integrated innovation — 2,000,000.00 — — 2,000,000.00 Related to the assets projects Other 21,146,588.06 11,619,403.00 5,254,856.87 — 27,511,134.19 Related to the assets Subtotal 135,745,693.66 40,689,403.00 21,513,683.17 600,000.00 154,321,413.49 Other 11,570,305.36 — 3,105,330.17 384.48 8,464,590.71 Related to the income Subtotal 11,570,305.36 — 3,105,330.17 384.48 8,464,590.71 Total 147,315,999.02 40,689,403.00 24,619,013.34 600,384.48 162,786,004.20 35. Share capital Increase/decrease in reporting period (+, -) Item Opening balance Newly issue Bonus Capitalization of Othe Subto Closing balance share shares public reserves r tal 112 The 2015 Annual Report of Konka Group Co., Ltd. The sum of shares 1,203,972,704.00 — — 1,203,972,704.00 — — 2,407,945,408.00 In line with the stipulations of the revision of the article of association and Resolution of the First Special Meeting of Shareholders , the Company applied to increase registration capital RMB1,203,972,704.00, which all increased by capital reserve, the registration capital after change was RMB2,407,945,408.00 On 28 Jan. 2016, the Company finished the change of industrial and commercial registration, the share number after change was 2,407,945,408 shares. 36. Capital reserves Item Opening balance Increased Decreased Closing balance Capital premium 1,211,366,082.55 — 1,203,972,704.00 7,393,378.55 Other capital reserves 78,037,481.44 194,822.54 7,416,147.34 70,816,156.64 Total 1,289,403,563.99 194,822.54 1,211,388,851.34 78,209,535.19 Note: the Capital reserve transfer into share capital which lead to the decrease of Capital premium of RMB1,203,972,704.00; due to the purchase of 49% of minority shareholder's equity of subsidiary Boluo Konka which lead to other capital reserve decreased RMB7,416,147.34. 37. Other comprehensive income Reporting period Less: Amount transferred into profit After-tax Opening Amount and loss in the current After-tax Item Less: income attribute to Closing balance balance incurred before period that recognized attribute to the tax expense minority income tax into other parent company shareholder comprehensive income in prior period I. Other comprehensive income cannot be reclassified into profits — — — — — — — and losses in future 113 The 2015 Annual Report of Konka Group Co., Ltd. II. Other comprehensive reclassified into profits — — — — — — — or losses Of which: other comprehensive income as per equity method — — — — — — — recognized into profit and loss in future Profits or losses of change in fair value of available-for-sale 516,457.28 1,237,774.30 — 309,443.57 928,330.73 — 1,444,788.01 financial assets Converted difference of the foreign currency financial 15,655,020.63 -13,342,795.45 — — -13,944,064.64 601,269.19 1,710,955.99 statement total 16,171,477.91 -12,105,021.15 — 309,443.57 -13,015,733.91 601,269.19 3,155,744.00 38. Surplus reserves Item Opening balance Increased Decreased Closing balance Statutory surplus reserves 593,846,200.71 — — 593,846,200.71 Discretionary surplus reserves 254,062,265.57 — — 254,062,265.57 Total 847,908,466.28 — — 847,908,466.28 Notes: Based on the regulations of the Corporation Law and Constitution, the Company should withdraw 10% of the statutory surplus reserves according to the net profits. If the accumulated amount of the statutory surplus reserves exceeded the 50% of the registered capital, the Company could no more withdraw. The Company, after withdraw statutory surplus reserves, can withdraw discretional surplus reserves, in line with the approval, the discretional 114 The 2015 Annual Report of Konka Group Co., Ltd. surplus reserves can be used for making up losses in previous year or increase share capital. 115 The 2015 Annual Report of Konka Group Co., Ltd. 39. Retained profits Item Reporting period Same period of last year Opening balance of retained profits before 746,022,758.89 737,991,722.40 adjustments Total opening balance of retained profits before — -32,552,764.33 adjustments (increase+, decrease -) Opening balance of retained profits after adjustments 746,022,758.89 705,438,958.07 Add: Net profit attributable to owners of the -1,256,819,314.51 52,623,527.86 Company Less: Withdrawal of statutory surplus reserves — — Withdrawal of discretional surplus reserves — — Dividend of common stock payable 12,039,727.04 12,039,727.04 Dividend of common stock transfer into share capital — — Closing retained profits -522,836,282.66 746,022,758.89 40. Revenues and operating costs 1. Revenue and Cost of Sales Reporting period Last period Item Revenue Operating costs Revenue Operating costs Main operations 17,261,298,403.20 15,019,583,475.18 19,075,390,465.68 16,469,623,287.80 Other operations 1,133,878,632.78 1,035,913,710.44 348,098,528.39 264,123,293.65 Total 18,395,177,035.98 16,055,497,185.62 19,423,488,994.07 16,733,746,581.45 (2) Main operations (Classified by product) Reporting period Same period of last year Product Operation revenue Operation cost Operation revenue Operation cost Color TV 14,697,422,135.45 12,516,818,815.26 12,590,931,785.71 11,006,357,581.37 business Mobile phone 1,587,898,794.07 1,443,167,712.05 790,942,197.54 748,974,690.95 business Consumer 1,277,294,037.34 1,106,574,443.35 appliances 1,569,786,771.56 1,276,893,910.52 business Other 2,309,637,648.39 1,987,357,292.34 1,512,775,498.82 1,403,062,317.14 Total 17,261,298,403.20 15,019,583,475.18 19,075,390,465.68 16,469,623,287.80 116 The 2015 Annual Report of Konka Group Co., Ltd. (3) Main operations (Classified by area) Reporting period Same period of last year Area Operation revenue Operation cost Operation revenue Operation cost Domestic sales 11,332,127,336.67 9,430,634,537.03 14,362,851,294.58 11,986,596,367.77 Overseas sales 5,929,171,066.53 5,588,948,938.15 4,712,539,171.10 4,483,026,920.03 Total 17,261,298,403.20 15,019,583,475.18 19,075,390,465.68 16,469,623,287.80 (4) The revenue of sales from the top five customers Proportion of total business Period Main operation revenue revenue (%) Y 2015 3,298,880,853.29 17.93 Y 2014 3,303,518,733.47 17.01 41. Business tax and surcharges Item Reporting period Last period Business tax 25,434,795.00 15,402,472.92 Urban maintenance and construction 25,484,992.48 31,858,403.10 tax Education Surcharge 13,911,746.90 11,910,616.10 Land VAT 12,908,502.64 — Local education surtax 9,615,001.74 7,161,448.26 Other 794,949.52 568,118.74 Total 94,523,398.90 60,527,648.50 Notes: the measurement standards of business tax and surcharges see Notes V. Tax 42. Sales expenses Item Reporting period Last period Salary 637,502,858.56 670,761,003.35 Promotional activities 422,601,760.68 342,953,340.20 Warranty fee 358,821,827.56 290,826,277.64 Logistic Fee 326,633,784.28 330,079,606.13 Advertising expense 266,849,899.18 323,941,757.16 Social security charges 99,423,394.48 80,653,020.90 Taxes and fund 73,865,498.94 86,628,594.20 Business travel charges 39,697,519.90 48,775,736.17 Rental charges 29,615,957.91 35,041,860.70 Employee welfare 19,492,036.66 21,422,207.70 117 The 2015 Annual Report of Konka Group Co., Ltd. Other 173,833,011.28 183,384,783.58 Total 2,448,337,549.43 2,414,468,187.73 43. Administrative expenses Item Reporting period Last period R&D expenses 229,397,281.19 219,325,677.28 Salary 174,464,266.91 165,516,874.48 Taxes and fund 36,087,894.16 29,473,516.24 Depreciation charge 33,156,228.75 31,483,976.08 Patent fee 22,836,537.65 20,976,257.96 Business entertainment expense 19,758,529.99 20,417,348.49 Social security charges 21,808,406.79 20,801,921.11 Business travel charges 13,515,296.14 16,121,368.20 Consulting fees 12,627,143.05 14,309,273.25 Employee welfare 11,611,229.54 14,359,210.35 Water & electricity fees 10,417,929.04 6,860,965.30 Labor-union expenditure 7,429,275.36 4,239,879.20 Other 102,620,995.02 123,044,105.56 Total 695,731,013.59 686,930,373.50 44. Financial expenses Item Reporting period Last period Interest expenses 165,242,581.67 143,547,683.34 Less: Interest income 58,996,071.96 52,265,939.36 Exchange gains and losses 228,619,830.03 35,174,225.81 Other 15,749,983.81 6,307,854.67 Total 350,616,323.55 132,763,824.46 45. Asset impairment loss Item Reporting period Last period Bad debt loss 212,232,393.12 13,263,816.09 Inventory falling price loss 86,950,424.76 76,797,683.87 Impairment losses of 200,000.00 2,912,785.64 available-for-sale financial assets Impairment losses of long-term 33,906,863.92 equity investment 118 The 2015 Annual Report of Konka Group Co., Ltd. Fixed assets impairment losses 29,860,644.19 51,277,269.97 Total 365,863,111.63 141,538,769.93 46. Gains on the changes in the fair value Source Reporting period Last period Financial assets measured by fair value and the changes be 32,591,836.13 — included in the current profits and losses Of which, gains on the changes in the fair value of derivative 32,591,836.13 — financial instruments Total 32,591,836.13 — 47. Investment income Item Reporting period Last period Long-term equity investment income accounted by equity -18,793,708.66 -7,901,784.31 method Investment income arising from disposal of long-term equity — 592,466,874.00 investments Investment income received from holding of 2,212,535.21 48,104.52 available-for-sale financial assets Investment income received from disposal of 48,859.12 — available-for-sale financial assets Equity investment income after losing control 8,290,862.30 — Income from trust management 21,816,104.80 12,260,439.18 Total 13,574,652.77 596,873,633.39 48. Non-operating gains The amount included in the Item Reporting period Last period current non-recurring gains and losses Total gains from disposal of non-current 1,431,893.68 4,740,033.90 1,431,893.68 assets Including: Gains from disposal of fixed 1,431,893.68 4,740,033.90 1,431,893.68 assets Gains from disposal of intangible assets — — — Government grants ( Details, see the 138,975,824.71 230,797,272.53 71,499,330.11 119 The 2015 Annual Report of Konka Group Co., Ltd. statement below, lists of government subsidies ) Income from compensation 4,620,972.98 3,459,744.68 4,620,972.98 Penalty income 5,753,390.97 5,782,597.32 5,753,390.97 Other 7,756,214.66 14,097,774.58 7,756,214.66 Total 158,538,297.00 258,877,423.01 91,061,802.40 Of which, government subsidies recorded into current profits and losses Same period of last Related to the assets/ Item Reporting period year income Deferred income 24,619,013.34 22,809,163.30 See note VI. 34 Software tax returns 67,476,494.60 155,396,179.33 Related to the income Financial Discounts 16,697,890.80 17,587,747.00 Related to the income Government financing 3,713,042.00 2,699,350.00 Related to the income The L/C export subsidies 2,711,014.00 1,248,573.00 Related to the income Post allowance 4,108,800.00 3,079,200.00 Related to the income Awards and subsidies 15,018,153.38 17,625,000.00 Related to the income Other 4,631,416.59 10,352,059.90 Related to the income Total 138,975,824.71 230,797,272.53 49. Non-operating expenses The amount included in the current Item Reporting period Last period non-recurring gains and losses Loss on disposal of non-current 12,339,287.69 9,752,806.72 12,339,287.68 assets Including: Loss on disposal of fixed 12,339,287.69 9,752,806.72 12,339,287.68 assets Losses from disposal of intangible — — — assets Compensation expenses 17,094,119.09 — 17,094,119.09 Penalty expenses 1,224,158.89 511,646.80 1,224,158.89 External donation expenses 1,449,348.77 3,697,606.64 1,449,348.77 Refundable energy saving 89,960,000.00 — 89,960,000.00 government subsidy 120 The 2015 Annual Report of Konka Group Co., Ltd. Other 12,713,996.13 2,922,922.55 12,713,996.14 Total 134,780,910.57 16,884,982.71 134,780,910.57 50. Income tax expense (1) Lists of income tax expense Item Reporting period Last period Current income tax expense 18,057,113.35 71,765,293.53 Deferred income tax expense -287,680,022.11 -39,910,310.51 Total -269,622,908.76 31,854,983.02 (2) Adjustment process of accounting profit and income tax expense Item Reporting period Total profits -1,545,467,671.41 Current income tax expense accounted by tax and relevant regulations -386,366,917.85 Influence of different tax rate suitable to subsidiary 44,915,029.68 Influence of income tax before adjustment -4,164,118.82 Influence of non taxable income -498,815.77 Influence of not deductable costs, expenses and losses 10,540,085.18 Influence of deductable losses of deferred income tax assets derecognized -57,071,289.45 used in previous period Influence of deductible temporary difference or deductible losses of deferred 137,397,674.39 income tax assets derecognized in reporting period. Changes of the balance of deferred income tax assets/ liabilities in previous — period due to adjustment of tax rate Influence of plus deducting costs -14,374,556.12 Income tax expense -269,622,908.76 51. Other comprehensive income See notes VI. 37 52. Supplementary information to cash flow statement (1) Other cash received relevant to operating activities Item Reporting period Last period Intercourse funds 144,699,799.50 111,968,538.65 Income from government subsidy 87,460,993.66 94,150,553.85 Bargain money and deposit 72,231,723.07 71,752,956.44 Interest income from bank deposits 51,113,129.24 53,255,954.05 121 The 2015 Annual Report of Konka Group Co., Ltd. Income from waste 17,420,360.55 19,084,574.26 Insurance indemnity income 34,877,755.30 12,433,636.17 Repayment of individual borrowing 9,781,562.99 9,278,645.25 Income from fine and penalty 3,098,865.44 1,678,292.56 Temporary received repair fund 1,284,765.81 1,672,413.78 Other 21,717,469.18 16,443,717.32 Total 443,686,424.74 391,719,282.33 (2) Other cash paid relevant to operating activities Item Reporting period Last period Expense for cash payment 963,497,935.43 945,208,628.95 Payment for pledges, guarantee and repair 113,287,169.86 128,466,550.07 Expense for bank handling charges 13,440,138.47 17,130,320.70 Employee reserve fund 30,468,528.61 20,729,008.95 Payment made on behalf 16,001,436.93 25,310,052.38 Donation expense 1,481,651.00 3,965,934.40 Compensation expense 13,036,082.41 189,014.66 Other expense 34,076,092.32 37,984,944.96 Total 1,185,289,035.03 1,178,984,455.07 (3) Other cash received relevant to investment activity Item Reporting period Last period Received financial product 3,152,200,000.00 2,422,400,000.00 Interest of land fund 488,063,979.00 — Purchase of new share 6,650,870.00 — Interest of equity transfer — 2,472,043.31 Total 3,646,914,849.00 2,424,872,043.31 (4) Other cash paid relevant to investment activity Item Reporting period Last period Purchase of financial product 3,651,700,000.00 2,422,900,000.00 Entrust loans — 50,000,000.00 Purchase of new share and capital transfer out 6,650,870.00 — Other 150,398.22 183,497.35 Total 3,658,501,268.22 2,473,083,497.35 (5) Other cash received relevant to financing activities 122 The 2015 Annual Report of Konka Group Co., Ltd. Item Reporting period Last period Receipt and return of pledged RMB fixed deposits upon 118,098,914.34 576,549,112.55 maturity Other 11,555.55 408,029.15 Total 118,110,469.89 576,957,141.70 (6) Other cash paid relevant to financing activities Item Reporting period Last period Pledged margin deposit 161,850,987.97 579,030,740.04 Financing lease — 1,755,444.00 Financing cost 14,543,722.06 42,712,205.12 Total 176,394,710.03 623,498,389.16 53. Supplementary information to cash flow statement (1) Information of net profit to net cash flows generated from operating activities Same period of last Supplementary materials Reporting period year 1. Reconciliation of net profit to net cash flows generated from operating activities Net profit -1,275,844,762.65 60,524,699.17 Add: Provision for impairment of assets 365,863,111.63 141,538,769.93 Depreciation of fixed assets, of oil-gas assets, of productive biological assets 162,114,374.61 145,659,620.62 Amortization of intangible assets 12,898,864.44 11,917,420.27 Long-term unamortized expenses 29,290,471.45 7,001,981.43 Losses on disposal of fixed assets, intangible assets and other long-term assets (gains: negative) 10,907,394.01 5,012,772.82 Losses on retirement of fixed assets — — Losses from variation of fair value -32,591,836.13 — Financial cost (gains: negative) 393,862,411.70 177,835,011.99 Investment loss (gains: negative) -13,574,652.77 -596,873,633.39 Decrease in deferred income tax assets (gains: negative) -289,789,111.75 -40,787,656.85 Increase in deferred income tax liabilities (“-” means decrease) 2,418,533.20 1,049,498.77 Decrease in inventory (gains: negative) 934,969,912.29 -290,565,252.54 Decrease in accounts receivable from operating activities (gains: negative) 1,198,719,245.19 -196,522,570.90 Increase in payables from operating activities (decrease: negative) -209,643,472.57 -66,175,843.37 123 The 2015 Annual Report of Konka Group Co., Ltd. Other — — Net cash flows generated from operating activities 1,289,600,482.65 -640,385,182.05 2. Investing and financing activities that do not involving cash receipts and payment: Liabilities transfer into capital — — Company bonus convertible due within one year — — Fix assets under financing lease — — 3. Net increase in cash and cash equivalents Closing balance of cash 1,488,154,851.35 1,640,236,837.08 Less: Opening balance of cash 1,640,236,837.08 1,771,489,421.21 Add: Closing balance of cash equivalents — — Less: Opening balance of cash equivalents — — Net increase in cash and cash equivalents -152,081,985.73 -131,252,584.13 (2) Cash and cash equivalents Item Closing balance Opening balance I. Cash 1,488,154,851.35 1,640,236,837.08 Including: Cash on hand 4,217.37 5,118.98 Bank deposit on demand 1,488,150,633.98 1,640,231,718.10 II. Cash and cash equivalents — — Of which: Bond investment due within three months — — III. Closing balance of cash and cash equivalents 1,488,154,851.35 1,640,236,837.08 Notes: the cash and cash equivalents exclude the restricted cash and cash equivalents the Company and the subsidiaries of the Group used. 54. The assets with the ownership or use right restricted 1. Closing book Item Restricted reason value Subtotal of assets for guarantee 78,094,958.58 On 12 Aug. 2013 the Company’s subsidiary Kunshan Kangsheng Investment Development Co., Ltd. signed Fixed Assets Loan Contract with CCB, Kunshan Branch, which agreed that the maximum Intangible assets 78,094,958.58 loan of secure claims of the contract was RMB 150 million, mortgaged the land used right of CKGY(2013 No. 1201211700. As of 31 Dec. 2015, the aforesaid book value of land use right of 124 The 2015 Annual Report of Konka Group Co., Ltd. RMB78, 094,958.58 (original book value RMB 88,201,364.97) was pledged for obtaining long term loan of RMB63, 776,957.13. Subtotal of assets with the ownership or use right restricted 1,664,483,435.15 form by other reason: Each margin deposit for security cannot be Other monetary funds 218,292,077.57 withdrawn at any time and Regular financial account. Notes receivable 1,446,191,357.58 Pledged in the bank for note financing Total 1,742,578,393.73 55. Foreign currency monetary items Foreign currency monetary items Closing foreign Closing convert to RMB Item Exchange rate currency balance balance Monetary capital 601,848,577.11 Including: USD 91,424,349.59 6.49360 593,673,156.50 EUR 46,703.40 7.09520 331,369.96 IDR 2,826,943,665.57 0.00047 1,328,663.52 GBP 1.32 9.61590 12.69 HKD 7,776,951.51 0.83778 6,515,374.44 Account receivable 815,878,908.86 Including: USD 125,008,637.60 6.49360 811,756,089.12 IDR 7,287,324.02 0.00047 3,425.04 HKD 4,636,217.64 0.83778 3,884,130.41 AUD 49,764.00 4.72760 235,264.29 Other accounts receivable 8,146,444.07 Including: USD 1,215,678.35 6.49360 7,894,128.93 EUR 26,524.37 7.09520 188,195.71 IDR 60,296.30 0.00047 28.34 HKD 76,501.10 0.83778 64,091.09 Accounts payable 210,433,968.02 Including: USD 14,776,344.13 6.4936 95,951,668.24 IDR 2,783.20 7.09520 19,747.36 125 The 2015 Annual Report of Konka Group Co., Ltd. HKD 136,626,026.43 0.83778 114,462,552.42 Short-term loans 1,757,449,703.28 Including: USD 223,060,815.74 6.49360 1,448,467,713.09 EUR 43,548,031.09 7.09520 308,981,990.19 VII. Changes of merge scope 1. The disposal of subsidiary Single disposal of investment to subsidiary that losing control The differences enjoyed of net assets share of the Equity subsidiary in The equity Method of Time of Recognition basis Name of the disposal corresponding disposal equity losing of the time of subsidiary proportio consolidated price disposal control losing control n (%) statements between the disposal of price and the disposal of investment Cancellation Konka (Nanhai) — 100.00 Cancel 2015-2-9 procedure was -491,110.76 Development Center completed (Continued) Amount related to Residual Book Profits or Recognition other Fair value equity value of losses of method and main comprehensive of residual proportion residual residual assumption of income transfer Name of the equity on on the date equity on equity fair value of into investment subsidiary the date of of losing the date of recalculated residual equity on profits or loss losing control losing in line with the date of losing of original control (%) control fair value control subsidiary equity investment Konka (Nanhai) — — — — — — Development Center 2. Other reasons for the changes in combination scope (1) Shenzhen Konka Precision Mold Manufacturing Co., Ltd and Mansfield Technology (Taiwan) Co., Ltd, our subsidiaries contributed capital jointly and founded Anhui Jiasen Precision Technology Co., Ltd on December 22, 2014. Its registered capital was RMB20 million, and it was paid in full amount by all the stockholders by September 30, 2015. In it, Shenzhen Konka Precision Mold Manufacturing Co., Ltd subscribed to RMB1.02 million, which occupied 51% of the registered capital by means of contribution in currency, 126 The 2015 Annual Report of Konka Group Co., Ltd. Mansfield Technology (Taiwan) Co., Ltd subscribed to RMB9.80 million, which occupied 49% of the registered capital by means of contribution in RMB. (2)The Company contributed capital with Shenzhen Kaikai Shijie Investment Partnership Enterprise (limited partnership) jointly and founded Anhui Kakai Shijie E-Commerce Co., Ltd on December 29, 2014, with a registered capital of RMB20 million. In it, the Company contributed RMB16 million, which occupied 80% of the registered capital. Shenzhen Kaikai Shijie Investment Partnership Enterprise (limited partnership) contributed RMB4.0 million, which occupied 20% of the registered capital. The Company has right of control over it, and included it into its merger scope from 1 Jan. 2015. (3) The Company contributed capital with Shenzhen Yizhonghui Technology Co., Ltd and Shenzhen Yizhonghe Technology Co., Ltd jointly and founded Shenzhen Yipingfang Network Technology Co., Ltd, with a registered capital of RMB20 million on January 9, 2015. In it, the Company contributed RMB19.20million, which occupied 96% of the registered capital, the other stockholders contributed RMB800, 000, which occupied 4% of the registered capital, but the capital had not been contributed by the date of the balance sheet. The Company has right of control over it, and included it into its merger scope from 12 Jan. 2015. (4)The Company contributed capital with OCT Group jointly and founded Shenzhen Kangqiaojiacheng Property Investment Co., Ltd, with a registered capital of RMB10 billion on January 9, 2015, which will be paid in full amount by all the stockholders by December 31, 2019. In it, the Company subscribed to RMB700 million by means of contribution in RMB, which occupied 70% of the registered capital, OCT Group contributed to RMB300 million by means of contribution in RMB, which occupied 30% of the registered capital. By the date of the balance sheet, the Company contributed RMB112 million, which occupied 11.20% of the registered capital; OCT Group contributed RMB48 million, which occupied 4.8% of the registered capital. The Company has right of control over it, and included it into its merger scope from 19 Jan. 2015. (5) Kangdian Investment Development Co., Ltd, a subsidiary of the Company, contributed capital jointly with KK Orient Limited and founded Konka Smarttech Limited on January 21, 2015, with a registered capital of HK$10million. In it, Kangdian Investment Development Co., Ltd contributed HK$6.10 million, which occupied 61% of the registered capital and Konka Smarttech Limited contributed HK$3.90 million, which occupied 39% of the registered capital. The Company has right of control over it, and included it into its merger scope from 21 Jan. 2015. 127 The 2015 Annual Report of Konka Group Co., Ltd. (6) Shenzhen Konka Yishijie Commercial Display Co., Ltd, a subsidiary of the Company contributed capital and founded Shenzhen Konka Yishijie Commercial Display Service Co., Ltd, a wholly-funded subsidiary under it on May 7, 2015, with a registered capital of RMB2.00 million. The Company has right of control over it, and included it into its merger scope from 7 May 2015. (7) As of the balance sheet date, the Company actual contributed RMB2.916 million, 24.3% of registration capital, Shenzhen KangzhuangJiasheng Investment Partnership (LP) contributed RMB0.621 million, 5.18% of registration capital. The Company has right of control over it, and included it into its merger scope from 25 Jun. 2015. (8) The company and Shenzhen Kangwei Investment Partnership (LP) has jointly incorporated Shenzhen Konka Telecommunications Technology Co., Ltd. with the registered capital of RMB 20 million on October 26, 2015, which shall be paid in full amount before June 30, 2016 by all the shareholders, of which, the company shall contribute RMB 10.20 million representing 51% of the registered capital; Shenzhen Kangwei Investment Partnership (LP) shall contribute RMB 9.80 million, representing 49% of the registered capital. As of the balance sheet date, the company actual investment 510 million yuan, accounted for 25.5% of the registered capital, Shenzhen City Kangwei investment partnership enterprise (limited partnership) actual investment of RMB 490 million yuan, 24.5% of the registered capital.The Company has right of control over it, and included it into its merger scope from 26 Oct. 2015. (9) On 27 Mar. 2015, Chongqing Jiangbei District People's Court had accepted application of cancellation of the subsidiary of the Company, the Company no longer had power to lead the relevant activities of Chongqing Electronic, since entering the cancellation procedure, it was excluded in the consolidated scope, and considering its net assets as zero reclassified into available for sale financial assets. VIII. Equity in other entities 1. Equity in subsidiary (1) The structure of the enterprise group Holding Main Registration Nature of percentage (%) Way of Name of the subsidiary operating place business Indirectl gaining place Directly y 128 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen Konka Shenzhen, Shenzhen, Manufacturi Set up or Telecommunications Technology 75.00 25.00 Guangdong Guangdong ng industry investment Co., Ltd. Shenzhen Konka Precision Shenzhen, Shenzhen, Manufacturi Set up or Mould Manufacturing Co., — 46.31 Guangdong Guangdong ng industry investment Ltd.① Electrical Shenzhen Konka Electronic Co., Shenzhen, Shenzhen, Set up or Appliances 100.00 — Ltd. Guangdong Guangdong investment Retail Shenzhen Konka Information Shenzhen, Shenzhen, Manufacturi Set up or 75.00 25.00 Network Co., Ltd. Guangdong Guangdong ng industry investment Shenzhen Konka Plastic Shenzhen, Shenzhen, Manufacturi Set up or 49.00 51.00 Products Co., Ltd. Guangdong Guangdong ng industry investment Shenzhen Konka Life Electronic Shenzhen, Shenzhen, Manufacturi Set up or 75.00 25.00 Co., Ltd. Guangdong Guangdong ng industry investment Shenzhen Konka Electronic Shenzhen, Shenzhen, Investment Set up or 75.00 25.00 Fittings Technology Co., Ltd. Guangdong Guangdong holding investment Mudanjiang, Mudanjiang, Mudanjiang Arctic Ocean Manufacturi Set up or Heilongjian Heilongjian 60.00 — Appliances Co., Ltd. ng industry investment g g Chongqing Konka Eurotomotive Manufacturi Set up or Chongqing Chongqing 57.00 — Electronic Co., Ltd. ng industry investment Chongqing Konka Electronic Manufacturi Set up or Chongqing Chongqing — 40.00 Co., Ltd.② ng industry investment Anhui Konka Electronic Co., Chuzhou, Chuzhou, Manufacturi Set up or 78.00 — Ltd. Anhui Anhui ng industry investment Anhui Konka Appliance Co., Chuzhou, Chuzhou, Manufacturi Set up or — 100.00 Ltd. Anhui Anhui ng industry investment Changshu Konka Electronic Co., Changshu, Changshu, Manufacturi Set up or — 60.00 Ltd. Jiangsu Jiangsu ng industry investment Kunshan Konka Electronic Co., Kunshan, Kunshan, Manufacturi Set up or 100.00 — Ltd. Jiangsu Jiangsu ng industry investment Dongguan Konka Electronic Co., Dongguan, Dongguan, Manufacturi Set up or 75.00 25.00 Ltd. Guangdong Guangdong ng industry investment 129 The 2015 Annual Report of Konka Group Co., Ltd. Dongguan Konka Packing Dongguan, Dongguan, Manufacturi Set up or — 100.00 Materials Co., Ltd. Guangdong Guangdong ng industry investment Dongguan Konka Mould Plastic Dongguan, Dongguan, Manufacturi Set up or — 59.73 Co., Ltd. Guangdong Guangdong ng industry investment Boluo， Boluo， Manufacturi Set up or Boluo Konka PCB Co., Ltd. — 51.00 Guangdong Guangdong ng industry investment Boluo Konka Precision Boluo， Boluo， Manufacturi Set up or — 100.00 Technology Co., Ltd. Guangdong Guangdong ng industry investment Hong Kong, Hong Kong, International Set up or Hong Kong Konka Co., Ltd. 100.00 — China China Trading investment Konka Household Appliances Hong Kong, Hong Kong, Investment Set up or Investment & Development Co., — 100.00 China China holding investment Ltd. Konka Household Appliances Hong Kong, Hong Kong, International Set up or — 100.00 International Trading Co., Ltd. China China Trading investment International Set up or KONKA AMERICA,INC. America America 100.00 — Trading investment Frankfurt, Frankfurt, International Set up or Konka (Europe) Co., Ltd. Germany, Germany, 100.00 — Trading investment Europe Europe Dongguan Xutongda Mould Dongguan, Dongguan, Manufacturi Set up or — 46.31 Plastic Co., Ltd.③ Guangdong Guangdong ng industry investment Shenzhen Konka Optoelectronic Shenzhen, Shenzhen, R&D Set up or 100.00 — Technology Co., Ltd. Guangdong Guangdong expenses investment Software Shenzhen Wankaida Science and Shenzhen, Shenzhen, Set up or developmen 100.00 — Technology Co., Ltd. Guangdong Guangdong investment t Kunshan Kangsheng Investment Kunshan, Kunshan, Set up or Real estate 100.00 — Development Co., Ltd. Jiangsu Jiangsu investment Anhui Konka Tongchuang Chuzhou, Chuzhou, Manufacturi Set up or Household Appliances Co., 100.00 — Anhui Anhui ng industry investment Ltd.④ Indonesia Konka Electronics International Set up or Indonesia Indonesia — 51.00 Co., Ltd. Trading investment 130 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen Shushida Logistics Shenzhen, Shenzhen, Set up or Logistics 100.00 — Service Co., Ltd. Guangdong Guangdong investment Sale of Beijing Konka Electronic Co., Set up or Beijing Beijing home 100.00 — Ltd. investment appliance Kunshan Jielunte Mould Plastic Kunshan, Kunshan, Manufacturi Set up or — 46.31 Co., Ltd.⑤ Jiangsu Jiangsu ng industry investment Wuhan Jielunte Mould Plastic Wuhan, Wuhan, Manufacturi Set up or — 46.31 Co., Ltd.⑤ Hubei Hubei ng industry investment Chuzhou Jielunte Mould Plastic Chuzhou, Chuzhou, Manufacturi Set up or — 46.31 Co., Ltd.⑤ Anhui Anhui ng industry investment Shenzhen Konka E-display Co., Shenzhen, Shenzhen, Manufacturi Set up or 60.00 — Ltd. Guangdong Guangdong ng industry investment Shenzhen E-display Service Co., Shenzhen, Shenzhen, Manufacturi Set up or 60.00 Ltd. Guangdong Guangdong ng industry investment Xiamen, Xiamen, Set up or Xiamen Dalong Trade Co., Ltd. Commerce — 69.23 Fujian Fujian investment Youshi Kangrong Cultural Set up or Tianjin Tianjin Other — 70.00 Communication Co., Ltd. investment Anhui Jiasen Precision Manufacturi Set up or Anhui Anhui — 23.62 Technology Co., Ltd.⑥ ng industry investment Shenzhen Kangqiaojiacheng Shenzhen, Shenzhen, Set up or Real estate 70.00 — Property Investment Co., Ltd Guangdong Guangdong investment Hong Kong, Hong Kong, Set up or Konka Smarttech Limited Other — 61.00 China China investment Anhui Kakai Shijie E-Commerce Set up or Anhui Anhui E-commerce 80.00 — Co., Ltd investment Shenzhen Yipingfang Network Shenzhen, Shenzhen, Information Set up or 96.00 — Technology Co., Ltd Guangdong Guangdong service investment Shenzhen Konka Commercial Shenzhen, Shenzhen, Set up or Commerce 81.00 — Systems Technology Co., Ltd Guangdong Guangdong investment Shenzhen Konka Mobile Internet Shenzhen, Shenzhen, Set up or Commerce 51.00 — Technology Co., Ltd. Guangdong Guangdong investment Notes: ① The Company holds 46.31% of shares of Shenzhen Konka Precision Mold 131 The 2015 Annual Report of Konka Group Co., Ltd. Manufacturing Co., Ltd., Konka Household Appliances Investment & Development Co., Ltd, a subsidiary company of the Company, is entrusted to manage 6.18% shares held by Shenzhen Dingshengxin Mould Technology Consultation Co., Ltd. After the entrustment, the percentage of voting rights of the Company increases to 52.49%. Therefore, the financial statements of Shenzhen Konka Precision Mold Manufacturing Co., Ltd. are combined into the consolidated financial statements. Xutongda is a wholly funded subsidiary of Dongguan Konka Mould Plastic Co., Ltd and is also combined into the consolidated financial statements. ② The Company holds 40.00% shares of Chongqing Qingjia Electronic Co., Ltd. that all senior managers of Chongqing Qingjia Electronic Co., Ltd. are appointed and dismissed by the Company. Among the directors, half of them or over half are dispatched directly or indirectly by the Company. Moreover, in Chongqing Qingjia, 70% to 80% of its products are sold to the Company and thus the Company has absolute influence and control over the production and operation of Chongqing Qingjia Electronic Co., Ltd., which is combined into the consolidated financial statement. ③ Shenzhen Konka Precision Mold Manufacturing Co., Ltd. held 100% equity of Dongguan Xutongda Mould Plastic Co., Ltd., and the Company is the actual controller of Dongguan Xutongda Mould Plastic Co., Ltd., for the Company indirectly held 46.31% shares and 52.49% voting right of Dongguan Xutongda Mould Plastic Co., Ltd., which is combined into the consolidated financial statement. ④ Anhui Tongchuang is a limited company jointly invested and established by the Company and Chuzhou Tongchuang Construction Investment Co., Ltd. (hereinafter refer to as “Tongchuang Construction”) with registration capital of RMB 180 million, of which each party invested in RMB 90 million respectively on contract. As to 31 Dec. 2013, Anhui Tongchuang with a paid-up capital of RMB 120 million (including paid-up capital of RMB 90 million of the Company, 75.00% of total paid-up capital; and paid-up capital of RMB 30 million of Tongchuang Construction, 25.00% of total paid-up capital ). According to contract sign by two parties, Tongchuang Construction has the rights of transferring stock ownership three years after the establishment of Anhui Tongchuang Company. Meanwhile, the Company can repurchase the said stock ownership and contracted with Tongchuang Investment Company that the Company shall receive fixed investment gains at 2% of actual capital invested by the Group annually. So the Company can conduct actual control to Anhui Tongchuang Company, and combines it into the consolidated financial statement. ⑤Shenzhen Konka Precision Mold Manufacturing Co., Ltd. held 100% equity of Kunshan 132 The 2015 Annual Report of Konka Group Co., Ltd. Jielunte, Wuhan Jielunte and ChuzhouJielunte, Shenzhen Konka Precision Mold Manufacturing Co., Ltd. was the actual controller of the Company which the Company indirectly held 46.31% share equity of Jielunte with voting right of 52.49%, and combines it into consolidated financial statement. ⑥Shenzhen Konka Precision Mold Manufacturing Co., Ltd. held 51.00% equity of Anhui Jiasen, Shenzhen Konka Precision Mold Manufacturing Co., Ltd. was the actual controller of the Company which the Company indirectly controlled Anhui Jiasen, and combines it into consolidated financial statement. (2) Significant not wholly owned subsidiary Shareholding The profits and Dividends Balance of proportion of losses arbitrate to distribute to minority Name of the subsidiary minority the minority minority shareholder at shareholder shareholders shareholder closing period Precision Mold 53.69 -5,199,362.20 — 38,315,045.54 Anhui Konka 22.00 1,263,128.50 — 61,438,567.39 Dongguan Konka Mould Plastic 40.27 -9,080,623.83 — 36,221,280.89 Co., Ltd. Dongguan Xutongda Mould 53.69 7,367,204.84 — 16,598,926.66 Plastic Co., Ltd. (3) The main financial information of significant not wholly owned subsidiary Closing balance Name Non-current Current Non-current current assets Total assets Total liabilities assets liabilities liability Precisi on 62,359,351.14 180,143,888.63 242,503,239.77 171,141,027.89 — 171,141,027.89 Mold Anhui 861,543,505.16 246,490,103.64 1,108,033,608.80 811,514,052.71 9,208,641.33 820,722,694.04 Konka Dongg uan Konka Mould 241,913,766.69 49,540,261.45 291,454,028.14 188,757,532.47 2,744,845.12 191,502,377.59 Plastic Co., Ltd. Dongg uan Xuton 89,259,620.16 7,778,641.52 97,038,261.68 60,855,982.82 266,587.53 61,122,570.35 gda Mould 133 The 2015 Annual Report of Konka Group Co., Ltd. Plastic Co., Ltd. (Continued) Opening balance Name Non-current Current Non-current current assets Total assets Total liabilities assets liabilities liability Precisi on 73,933,646.66 170,997,722.16 244,931,368.82 163,885,285.19 — 163,885,285.19 Mold Anhui 530,345,042.25 228,358,246.18 758,703,288.43 469,762,019.50 7,371,847.37 477,133,866.87 Konka Dongg uan Konka Mould 246,221,614.74 55,571,226.68 301,792,841.42 176,470,898.07 2,819,541.37 179,290,439.44 Plastic Co., Ltd. Dongg uan Xuton gda 82,414,688.51 10,115,814.00 92,530,502.51 70,336,314.72 — 70,336,314.72 Mould Plastic Co., Ltd. Reporting period Total Name Operation revenue Net profit comprehensive Operating cash flow income Precision 92,681,195.35 -9,683,871.75 -9,683,871.75 6,568,036.25 Mold Anhui Konka 5,226,927,921.25 5,741,493.20 5,741,493.20 -14,276,249.32 Dongguan Konka Mould 187,474,600.08 -22,550,751.43 -22,550,751.43 -38,473,275.48 Plastic Co., Ltd. Dongguan Xutongda 165,783,377.81 13,721,503.54 13,721,503.54 -7,819,375.13 Mould 134 The 2015 Annual Report of Konka Group Co., Ltd. Plastic Co., Ltd. (Continued) Last period Total Name Operation revenue Net profit comprehensive Operating cash flow income Precision 177,708,791.65 1,695,078.23 1,695,078.23 1,018,798.67 Mold Anhui Konka 4,505,390,088.43 1,528,671.19 1,528,671.19 65,694,893.41 Dongguan Konka Mould 280,476,981.47 11,391,059.19 11,391,059.19 42,523,300.53 Plastic Co., Ltd. Dongguan Xutongda Mould 154,952,772.16 10,192,895.26 10,192,895.26 14,313,157.43 Plastic Co., Ltd. 2. The transaction of the Company with its owner’s equity share changed but still controlling the subsidiary (1) Note to owner’s equity share changed in subsidiary During reporting period Shenzhen Shangyongtong Investment Development Co., Ltd. transfer its holdings of 49% minority equity of Boluo Konka to Fittings Technology, the transfer price was RMB9.5431 million, after the equity transfer, the Company held 100% equity of Boluo Konka. (2) The transaction’s influence to equity of minority shareholders and attributable to the owner's equity of the parent company Item Boluo Konka Purchase cost consideration -Cash 9,543,100.00 -Fair value of non-cash assets — Total of purchase cost consideration 9,543,100.00 Less: subsidiary net assets proportion calculated by share 2,126,952.66 proportion obtained Difference 7,416,147.34 Of which: Adjustment of capital reserves (- decrease) -7,416,147.34 135 The 2015 Annual Report of Konka Group Co., Ltd. Surplus reserves adjustments — Retained profits adjustments — 3. Equity in associated enterprise (1) Significant associated enterprise Holding percentage Accounting (%) treatment of the Main Subsidiary of Registratio investment of operating Nature of business associated enterprise n place joint venture or place Directly Indirectly associated enterprise Shenzhen Refund Production and sale Shenzhe Optoelectronics Co., Shenzhen of light emitting — 6.79 Equity method n Ltd. diode Enraytek Production and sale Optoelectronics Co., Shanghai Shanghai of light emitting — 28.04 Equity method Ltd. diode Shanghai Konka Production and sale Green Science & Shanghai Shanghai of light emitting 39.00 — Equity method Technology Co., Ltd. diode (2) Main financial information of significant associated enterprise Opening balance/ same period of last Closing balance/reporting period year Shanghai Konka Item Enraytek Shanghai Konka Enraytek Green Science & Optoelectronics Co., Green Science & Optoelectronics Co., Technology Co., Ltd. Technology Co., Ltd. Ltd. Ltd. current assets 643,665,278.09 124,548,698.88 268,409,318.77 476,703,490.64 Non-current assets 693,903,656.72 237,205,034.02 606,856,639.67 228,455,686.18 Total assets 1,337,568,934.81 361,753,732.90 875,265,958.44 705,159,176.82 Current liabilities 551,431,214.97 97,706,289.06 355,102,547.52 66,932,415.14 Non-current 556,666,832.72 86,797,751.49 232,930,605.06 119,562,409.62 liability Total liabilities 1,108,098,047.69 184,504,040.55 588,033,152.58 186,494,824.76 Minority interests -260,290.34 2,248,992.25 68.50 11,591,006.22 136 The 2015 Annual Report of Konka Group Co., Ltd. Equity attribute to the parent 229,731,177.46 175,000,700.10 287,232,737.36 507,073,345.84 company Portion of net assets calculated according to 64,416,622.16 68,250,273.03 80,536,808.37 197,758,604.87 proportion of shareholdings Adjusting events -Goodwill — — 30,257,135.84 — -Unrealized internal sales gain — — — — and loss -Other — — — — Book value of equity investment 64,416,622.16 68,250,273.03 110,793,944.21 197,758,604.87 to associated venture Fair value of equity investment of associate — — — — enterprises with public offer Operation revenue 165,482,576.55 120,572,337.08 150,182,731.09 112,916,555.92 Net profit -58,648,256.05 -21,424,479.94 -30,454,225.45 -8,403,704.69 Net profits of termination — — — — operation Other comprehensive — 1,033,575.71 — 152,885.18 income 137 The 2015 Annual Report of Konka Group Co., Ltd. Total comprehensive -58,648,256.05 -20,390,904.23 -30,454,225.45 -8,250,819.51 income Equity received from associated — — — — enterprises in reporting period IX. The risk related financial instruments Main financial instruments include monetary capital, accounts receivable and accounts payable. Refer to Note XI for the details of all financial instruments. Risks related to financial instruments and risk management policies to reduce risks are as follows. The management should control and monitor the risk exposure to ensure all risks within defined scope. The Company use sensitivity analysis technology to analyze the reasonable of risk variables, influence of probable changes to the current profits and Stockholders’ equity. Because rarely any risk variables change in isolation, and the correlation between variables for the eventual impact of the change of a risk variables will have a significant effect, thus, the aforesaid content was processing under the assumption of the change of each variable was conducted independently. (I) Risk management objectives and policies The goals of Company engaged in the risk management is to achieve the proper balance between the risks and benefits, reduced the negative impact to the Company operating performance risk to a minimum, maximized the profits of shareholders and other equity investors. Based on the risk management goal, the basic strategy of the Company's risk management is determine and analyze the various risks faced by the Company, set up the bottom line of risk and conducted appropriate risk management, and timely supervised various risks in a reliable way and controlled the risk within the range of limit. 1. Market risk (1) Foreign exchange risk Foreign exchange risk is referred to the risk incurred due to loss of changes in exchange rate. Foreign exchange risk refers to the risks that may lead to losses due to fluctuation in exchange rate. The foreign exchange risk borne by the Company is related to USD, EURO 138 The 2015 Annual Report of Konka Group Co., Ltd. and HKD, except the procurement and sales by US dollars for several subsidiaries such as the Company, Hong Kong Konka, American Konka, Konka Trading Europe Konka and Indonesia Konka which settled by USD, HKD and EURO for purchase and sale. Until December 31, 2015 (refer to Note VI 55, foreign monetary items), foreign exchange risks may affect the business performance produced by the assets and liabilities of the balance. The Company timely paid attention to the influence of change of the exchange rate to the Company's foreign exchange risk, which required the Group and others which conducted purchase and sale with settlement by foreign currency to purchase foreign currency long-term forward contract to lock the cost of purchase on forward date to reduce the risk exposure of foreign exchange. (2) Interest rate risk- cash flow change risk Cash flow change risk caused by financial instruments due to interest rate change is related to floating interest rate of bank loan. By establishing good relations with banks and reasonable planning of credit line, credit varieties and credit period, it is to guarantee sufficient band line of credit and satisfy all financial demands. Moreover, it is to reduce risks of interest rate uncertainty by shortening single loan term and establishing repayment terms. (3) Other price risk For the equity investment of other listed companies holding by the Company, the management considers that the market price risks are acceptable. Refer to Note VI, 10 Available-for-sale financial assets for equity investment of other listed companies holding by the Company. 2. Credit risk On 31 Dec. 2015, the biggest credit risk exposure may lead to the financial assets losses of the Company was mainly from the one party fail to perform its obligation, which included: book amount recognized in consolidated balance sheet: for financial instruments measured at fair value, the book value reflect its risk exposure, but not the biggest one, the biggest risk exposure will change along with the change of future fair value. In order the reduce the credit risk, the Company establish a group response for recognizing line of credit, conducting credit approval and other monitor procedures to ensure that the necessary measures were used to recycle expired claims. In addition, the Company at each balance sheet date, review every single receivables recycling situation, to ensure that the money unable to recycle withdrawn provision for bad debt fully. Thus, the Company management believed that have assume the credit risk the Company shouldered had been 139 The 2015 Annual Report of Konka Group Co., Ltd. greatly reduced. The company's working capital was in bank with higher credit rating, so credit risk of working capital was low. 3. Liquidity Risk When managing liquidity risk, the Company maintained the management’s believe that supervising the sufficient cash and cash equivalents to meet the operating demand of the Company and reduce the influence of the fluctuation of cash flow. X. The disclosure of the fair value 1. Closing fair value of assets and liabilities calculated by fair value Closing fair value Fair value Fair value Fair value Item measurement measurement measurement Total items at level items at level 1 items at level 2 3 I. Consistent fair value measurement (I) Financial assets calculated by fair value and changes record into — — — — current profits or losses Trading financial assets 33,196,377.28 — — 33,196,377.28 (II) Available-for-sale financial assets 1. Debt instruments — — — — investment 2. Equity instrument 2,874,068.30 — — 2,874,068.30 investment 3. Other — — — — Total assets of consistent 36,070,445.58 — — 36,070,445.58 fair value measurement Total assets of consistent fair value measurement — — — — 2. Market price recognition basis for consistent and inconsistent fair value measurement items at level 1 ① As of the end of reporting period, the Company in line with the difference of DF forward foreign exchange purchase cost( DF base price on balance sheet date) on assets balance sheet 140 The 2015 Annual Report of Konka Group Co., Ltd. and agreement DF forward foreign exchange purchase cost (DF exchange rate agreed) recognized as losses or profits ② As of the end of reporting period, the Company held 117,310.00 shares of stock A of Vanke, and their fair value at the end of the year was determined to be RMB2, 865,883.30 according to closing price of RMB24.43 for each share and held 500 shares of Suzhou Huayuan and their fair value at the end of the year was determined to be RMB8, 185.00 according to closing price of RMB16.37 for each share on 31 Dec., 2015. XI. Related party and related Transaction 1. Information of parent company Proportion of Proportion of share held by voting rights Name of parent Registration Registered parent owned by Nature of business company place capital company parent company against the against the Company (%) Company (%) Shenzhen OCT East Tourism, real estate, Shenzhen 6.3 billion 29.99 29.99 Co., Ltd. electronics industry Note: the final control party of the Company is State-owned Assets Supervision and Administration Commission 2. Information of subsidiary of the Company Details of information of subsidiary of the Company see note 1. Equity in subsidiary VIII 3. Information on the joint ventures of the Company The details of significant joint venture of the Company please refer to Notes VIII, 3.Equity in the joint venture. 4. Information on other related parties of the Company Name Relationship Shanghai OCT Investment Development Under the same actual controller Co., Ltd. Shanghai OCT Investment Development Under the same actual controller Co., Ltd. Shanghai Tianxiang OCT Investment Co., Under the same actual controller Ltd. Anhui Huali Packaging Co., Ltd. Under the same actual controller Shenzhen OCT Water and Power Co., Ltd Under the same actual controller 141 The 2015 Annual Report of Konka Group Co., Ltd. Shanghai Huali Packaging Co., Ltd Under the same actual controller Shenzhen Huayou Packaging Co., Ltd Under the same actual controller Shenzhen Huali Packing & Trading Co., Ltd Under the same actual controller Huali Packaging (Huizhou) Co., Ltd. Under the same actual controller Huizhou Huali Packaging Co., Ltd. Under the same actual controller Shenzhen Konka Video & Communication Under the same actual controller Systems Engineering Co., Ltd. Taizhou OCT Co., Ltd. Under the same actual controller Shenzhen OCT Real Estate Co., Ltd. Under the same actual controller Yunnan OCT Industry Co., Ltd. Under the same actual controller Shenzhen OCT Hotel Co., Ltd. Under the same actual controller Shenzhen OCT Property Management Co., Under the same actual controller Ltd. Shenzhen OCT Hotel Group Co., Ltd. Under the same actual controller Shenzhen Splendid China Development Co., Associated enterprise of the Company Ltd. Shenzhen the Windows of the world Co., Associated enterprise of the Company Ltd. Shenzhen Refund Optoelectronics Co., Ltd. Subsidiary of joint venture Enraytek Optoelectronics Co., Ltd. Subsidiary of joint venture Zhuhai Jinsu Plastic Co., Ltd. Subsidiary of joint venture Charm Media Co. , Ltd. Shareholder of the subsidiary 5. List of related-party transactions (1) Information on acquisition of goods and reception of labor service (unit: Yuan) ①Information on acquisition of goods and reception of labor service Related-party Content Reporting period Last period Shenzhen Refund Optoelectronics Purchase of raw 95,272,151.31 115,447,444.91 Co., Ltd. material Charm Media Co. , Ltd. Advertising expense 77,340,190.65 — Purchase of raw Anhui Huali Packaging Co., Ltd. 42,056,410.31 30,414,202.53 material Purchase of raw Shanghai Huali Packaging Co., Ltd 12,283,155.39 13,645,510.03 material Huali Packaging (Huizhou) Co., Ltd. Purchase of raw 10,931,552.82 11,499,212.38 142 The 2015 Annual Report of Konka Group Co., Ltd. material Shenzhen OCT Water and Power Co., Water and power 5,826,581.42 8,151,649.23 Ltd ②Information of sales of goods and provision of labor service Related-party Content Reporting period Last period Shanghai Konka Green Science & Processing fee, — 12,131,664.24 Technology Co., Ltd. auxiliary materials fee Shenzhen Refund Optoelectronics Selling materials 23,298,317.21 16,539,304.45 Co., Ltd. Charm Media Co. , Ltd. Advertising expense 62,111,300.23 — Taizhou OCT Co., Ltd. Selling LCDs — 35,000.00 Anhui Konka Green Science & Selling materials 4,137,079.29 — Technology Co., Ltd. Chengdu Tianfu OCT Industrial Maintenance costs 376,068.38 19,658.12 Development Co., Ltd. (2) Related-party guarantee ①The Company was guarantor: Execution Currenc Guarantee Actual using Secured party Start date End date accomplished y amount amount or not Anhui Tongchuang RMB 8,000.00 799.60 30/1/2015 29/1/2016 No (Note ①) Anhui Tongchuang RMB 2,000.00 1,000.00 2 /6/2015 1/6/2016 No (Note ①) Anhui Konka RMB 610.79 610.79 12/3/2015 12/3/2016 No (Note ②) Anhui Konka RMB 1,997.67 1,997.67 10/4/2015 10/4/2016 No (Note ②) Anhui Konka RMB 3,537.20 3,537.20 14/5/2015 14/5/2016 No (Note ②) Anhui Konka RMB 4,259.39 4,259.39 19/5/ 2015 19/5/ 2016 No (Note ②) 143 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen Konka E-display Commercial RMB 2,000.00 413.42 27/1/2015 27/1/2016 No Display Co., Ltd. (Note ③) Shenzhen Konka Telecommunica RMB 50,000.00 20,784.96 22/4/2015 21/4/2016 No tions Technology Co., Ltd. Shenzhen Konka Telecommunica RMB 10,000.00 — 28/1/2015 28/1/2016 No tions Technology Co., Ltd. Hong Kong USD 4,000.00 4,000.00 26/6/2015 26/6/2016 No Konka Co., Ltd. Hong Kong USD 2,470.00 2,470.00 23/3/2015 23/3/2016 No Konka Co., Ltd. Hong Kong USD 2,530.00 2,530.00 29 /5/ 2015 29/5/2016 No Konka Co., Ltd. Hong Kong USD 5,000.00 5,000.00 15/1/2014 14/2/2016 No Konka Co., Ltd. Hong Kong USD 3,090.00 3,090.00 17/9/2014 117/10/2016 No Konka Co., Ltd. Hong Kong RMB 43,300.00 43,300.00 23/11/2015 26/8/2016 No Konka Co., Ltd. Kunshan Jielunte RMB 3,000.00 2,370.00 No 29/9/2013 29/9/2016 (Note ④) Shenzhen Konka RMB 6,000.00 274.28 28/9/2015 28/2/2016 No Electronic Co., Ltd. ①Note: the minority shareholders of Anhui Tongchuang, ChuzhouTongchuang Investment Construction Co., Ltd. provided 50% counter-guarantee to the limit amount of guarantee of the Company. ② The minority shareholders of Anhui Tongchuang, ChuzhouState-owned Assets Operation Co., Ltd. provided 22% counter-guarantee to the limit amount of guarantee of the Company. ③Shenzhen E-display Capital Investment Partnership Business (LLP) provided 40% 144 The 2015 Annual Report of Konka Group Co., Ltd. counter-guarantee to the limit amount of guarantee of the Company. ④ The subsidiary of the Company Shenzhen Precision provided RMB30 million fixed assets loan guarantee for Kunshan Jielunte. (3) Rewards for the key management personnel Item Reporting period Last period Rewards for the key management personnel RMB15.9454 million RMB8.0290 million 6. Receivables and payables of related parties (1) Receivables Closing balance Opening balance Name o f item Book balance Bad debt Book balance Bad debt provision provision Account receivable: Shenzhen Refond Optoelectronics Co., 12,116,064.48 242,321.29 7,478,269.37 149,565.39 Ltd. Shanghai Konka Green Science and 10,963,614.12 548,180.71 10,963,653.88 219,273.08 Technology Co., Ltd. Shanghai OCT Investment 150,000.00 3,000.00 — — Development Co., Ltd. Shenzhen Konka Video & Communication Systems Engineering — — 1,260,956.45 25,219.13 Co., Ltd. Charm Media Co. , Ltd. 775,587.00 15,511.74 — — Chongqing Konka Eurotomotive — — 981,218.48 981,218.48 Electronic Co., Ltd. Total 24,986,484.08 1,790,232.22 19,702,879.70 394,057.60 Other account receivable:： Shenzhen Konka Video & Communication Systems Engineering 18,115,952.51 5,366,657.87 18,115,952.51 5,405,926.42 Co., Ltd. Chongqing Konka Eurotomotive — — 13,396,856.82 13,396,856.82 Electronic Co., Ltd. Shenzhen OCT Property Management 6,491,248.10 203,206.00 77,402.65 3,870.13 Co., Ltd. 145 The 2015 Annual Report of Konka Group Co., Ltd. Shenzhen OCT Water and Power Co., 1,198,932.32 23,978.65 776,572.25 15,531.45 Ltd. Shenzhen OCT Real Estate Co., Ltd. 1,053,706.86 1,033,282.36 1,209,064.86 1,209,064.86 Chengdu Tianfu OCT Industrial — — 440,000.00 8,800.00 Development Co., Ltd. Shenzhen Overseas Chinese Town Gas 80,000.00 80,000.00 80,000.00 80,000.00 Station Co., Ltd. 40,726,642.87 20,062,727.96 18,115,952.51 5,366,657.87 13,346,803.08 13,346,803.08 40,776,696.61 20,112,781.70 20,258,992.27 6,714,392.86 (2) Payables Name o f item Closing balance Opening balance Accounts payable: Shenzhen Konka Video & Communication 20,412,650.58 21,670,642.23 Systems Engineering Co., Ltd. Anhui Huali Packaging Co., Ltd. 4,160,761.50 9,801,227.07 Shenzhen Refund Optoelectronics Co., Ltd. 3,309,766.50 17,648,415.04 Shanghai Huali Packaging Co., Ltd 2,634,241.04 1,782,812.82 Huali Packaging (Huizhou)Co., Ltd. 1,747,011.10 1,050,557.07 Shenzhen Huali Packing & Trading Co., Ltd 1,078,005.09 1,078,005.09 Shenzhen Dekang Electronics Co., Ltd. 358,929.03 358,929.03 Total 33,701,364.84 53,390,588.35 Notes payable: Shenzhen Refund Optoelectronics Co., Ltd. 12,997,249.74 12,339,062.14 Anhui Huali Packaging Co., Ltd. 5,150,030.89 1,605,902.13 Huali Packaging (Huizhou)Co., Ltd. 988,662.81 5,143,401.86 Zhuhai Jinsu Plastic Co., Ltd. 186,000.04 — Shanghai Huali Packaging Co., Ltd 3,126,818.21 — Total 22,448,761.69 19,088,366.13 Accounts received in advance: Shenzhen the Windows of the world Co., — 81,000.00 Ltd. Charm Media Co. , Ltd. 126,000.00 — 146 The 2015 Annual Report of Konka Group Co., Ltd. Total 126,000.00 81,000.00 Other account payable: Anhui Huali Packaging Co., Ltd. 258,000.00 1,130,000.00 Shanghai Huali Packaging Co., Ltd 652,000.00 1,530,000.00 Huali Packaging (Huizhou)Co., Ltd. — 428,000.00 Shenzhen Refund Optoelectronics Co., Ltd. 51,135.00 51,135.00 Total 961,135.00 3,139,135.00 XII. Commitments and contingency 1. Significant commitments (1) Capital commitment Item Closing balance Opening balance Commitments signed but hasn’t been recognized in financial statements -- Commitment for constructing and purchasing — — long-term assets - Contract with large amount 184,797,300.59 150,424,982.66 - Foreign investment commitments — — Total 184,797,300.59 150,424,982.66 (2) Operating lease commitments As of the end of balance sheet date, the irrevocable operating lease commitments that the Company signed were as followed: Item Closing balance Opening balance Minimum lease payments of irrevocable operating lease 1 year after balance date 20,414,436.47 23,767,119.89 2 year after balance date 10,962,573.65 11,062,103.32 3 year after balance date 5,382,286.87 8,442,535.17 Future years 4,007,824.20 6,735,380.75 Total 40,767,121.19 50,007,139.13 2. Contingency 1. Contingent liabilities and its financial effect arising from unsettled litigation or arbitration ①Contingent liabilities and financial effects caused by pending litigation or arbitration On 4 Feb. 2013, the Company’s subsidiary Kunshan Konka signed Purchase Order (Hereinafter referred to as "PO") with Italy customer MOTOM ELECTRONICS GROUP 147 The 2015 Annual Report of Konka Group Co., Ltd. SPA (Hereinafter referred to as the "MEG"). The PO payment was 90 days L/C, L/C amount was $1.29744 million. MEG opened L/C which Kunshan Konka was beneficiary on 26 Feb, due to the problems of delivery time and related items, after the agreement of both parties, MEG respectively opened two revisions of L/C on 11 Mar. and 13 May. Then the Kunshan Konka entrusted Ningbo United International Freight Forwarding Co., Ltd. (Hereinafter referred to as the “Ningbo United”) to book space, and Ningbo United signed and issued the carrier's bill of lading of Econolines Ltd. (Hereinafter referred to as the “Econolines” (No. NGB1305005\GNB1305016\NGB1305034), the whole case handover with Container delivery conditions of CY TO CY) on 5, 14 and 19 May 2013. According to the verification, after the goods arrived to the port of destination in Italy, the empty cargo container had returned to the shipping company, but the full set of original bill of lading was still in Kunshan Konka; Ningbo United and Econolines’s behaviors of delivery of goods without original bill of lading had violated the "maritime law" and other relevant laws and regulations, Kunshan Konka had right to require Econolines return the goods. The total amount of the goods was $ 1,214,780.04, equivalents RMB 7,507,340.65, MEG received the goods but not pay the full amount of the goods to Kunshan Konka, the amount in arrear reached $1,100,000.00. Kunshan Konka entrusted Shanghai Jiajia Law firm to file a suit from Shanghai Maritime Court, requested Ningbo United and Econolines compensate for the loss of payment for goods USD1,099,423.52 and its interest; meanwhile bear the fees for acceptance and property preservation application fee on 15 Aug. 2013. On 26 May 2014, Shanghai Maritime Court made the first-instance judgment, which ordered Ningbo United and Econolines compensate for the loss of payment for goods USD1,099,423.52 and its interest, and bear the fees for acceptance and property preservation application fee In Jun. 2014 Ningbo United appealed to the Shanghai Higher People's Court against its sentence. On 24 Nov. 2014, the second trial had been made. During the second trial, the Kunshan Konka indicated that as of 31 May 2015, the company had received EUR100000 payment from the oversea receivers which would be deducted from the payment of goods of United and Econolines. Kunshan Konka were willing to give up the interest part of EUR100000 discounted by bank rate on the date of the second trial basing on USD1,099,423.52 in the first trial. On 16 Jul. 2015, Shanghai Higher People's Court made the second-instance judgment, which ordered Econolines compensate for the loss of payment for goods USD990, 253.50 (discounted by the middle of the euro against the dollar exchange rate of People's Bank of China on 16 Jul. 148 The 2015 Annual Report of Konka Group Co., Ltd. 2015) and bear the fees for acceptance, United bear the joint liability. ②The Company's subsidiary Nanchang Branch applied for property preservation for Tengda Electric Appliance Co., Ltd. due to the contract dispute. After the judgment from Nanchang Intermediate People's Court, RMB9, 918,725.43 of Tengda Electric Appliance Co., Ltd. was frozen and five houses were closed down. As of 31 Dec. 2015, Nanchang Branch's credit receivable from Tengda Electric Appliance Co., Ltd. was RMB8, 223,935.99? (2) Possible liabilities formed for providing debt guarantee for other institutions and their financial impacts The Company applied to China Construction Bank, Shenzhen Branch for a credit line of USD 50 million (about RMB305.68 million) on January 15, 2014 and China Construction Bank (Asia) Co., Ltd. provided a short-term loan of USD48.50 million to Hong Kong Konka on January 15, 2014, and the guarantee period was from January 15, 2014 to February 14, 2016. The Company applied to China Construction Bank, Shenzhen Branch for a credit line of USD30.90 million (about RMB188.9102 million) on Wednesday, September 17, 2014 and China Construction Bank (Asia) Co., Ltd. provided a short-term loan of USD29.97million to Hong Kong Konka on September 17, 2014, and the guarantee period was from Wednesday, September 17, 2014 to October 17, 2016. The Company signed a Credit Line Contract with the serial number of BJ2014Z241JTBB-1 with China Construction Bank, Shenzhen Branch on December 8, 2014, and provided a credit guarantee with a line of RMB200million for Anhui Konka Electronics Co., Ltd, and its guarantee term was from December 8, 2014 to December 7, 2017. The line is mainly used by Anhui Konka Electronics Co., Ltd. for the purposes of daily operating businesses such as opening and acceptance of letters of credit and acquiring financial loans from banks. By December 31, 2015, RMB104,050,587.54 had been used in this line. Chuzhou State-owned Assets Operation Co., Ltd, a minority stockholder of Anhui Konka provided 22% of counter guarantee of the line guaranteed by the Company. The Company provided a credit guarantee with a line of RMB300million for Anhui KonkaTongchuang Household Appliances Co., Ltd., and its guarantee term was from December 8, 2014 to December 7, 2017. The line is mainly used by Anhui KonkaTongchuang Household Appliances Co., Ltd. for the purposes of daily operating businesses such as opening and acceptance of letters of credit and acquiring financial loans from banks. By December 31, 2015, RMB29,996,000.00 had been used in this line. ChuzhouTongchuang Investment and Construction Co., Ltd., a minority stockholder of Toptry Electric Appliance Co., Ltd provided 50% of counter guarantee of the line guaranteed by the Company. The Company signed a Credit Line Contract with the serial number of BJ2014Z241JTBB-2 with China Construction Bank, Shenzhen Branch on December 8, 2014, and provided a credit guarantee with a line of RMB 300 million for KunshanKonka Electronic Co., Ltd., and its guarantee term was from December 8, 2014 to December 7, 2017. The line is mainly used by KunshanKonka Electronic Co., Ltd. for the purposes of daily operating such as acquiring financial loans from banks. By December 31, 2015, the amount in this line had been used. On January 27, 2015, the Company signed a Comprehensive Credit Line Contract with the serial number of 2015 SJTZEZ No 002 with China Minsheng Banking Corp., Ltd, and provided a credit guarantee with a max credit line of RMB48.00 million for Shenzhen Konka 149 The 2015 Annual Report of Konka Group Co., Ltd. E-display Co., Ltd. and its guarantee term was from January 27, 2015 to January27, 2016. By December 31, 2015, RMB4, 134,210.82 in this line had been used. On 23 Mar. 2015, the Company applied to China Development Bank, Shenzhen Branch for a credit line by letter of guarantee of USD24.7 million and provide guarantee for it on 23 Mar. 2015. DBS Bank (Hong Kong) Co., Ltd. provided short term loan of USD24.7 million to Hong Kong Konka, the guarantee period was from 23 Mar. 2015 to 22 Mar. 2016. The Company applied to Bank of China, Shenzhen Branch for a comprehensive credit line of RMB5.3 billion on April 21, 2015, and provided a credit guarantee of RMB500 million for Shenzhen Konka Telecommunications Technology Co., Ltd. with its comprehensive credit line of RMB500 million on April 22, 2015, and its guarantee term was from April 22, 2015 to April 21, 2016. The credit line is mainly used for the purposes of daily operating businesses such as acquiring financial loans from banks. By December 31, 2015, RMB 207,849,613.41 in this line had been used. The Company applied to China Development Bank, Shenzhen Branch for a credit line by letter of guarantee of USD25.30 million on May 29, 2015, and provided a credit guarantee for Hong Kong Konka Co., Ltd on May 29, 2015, and its guarantee term was from May 29, 2015 to May 29, 2016. The Company applied to China Minsheng Banking Corp., Ltd, Shenzhen Branch for a credit line by letter of guarantee of USD40 million (about RMB259.74 million) on June 26, 2015, and provided a credit guarantee of a line of RMB148 million for Hong Kong Konka Co., Ltd on June 26, 2015, and its guarantee term was from June 26, 2015 to June 25, 2016. The Company applied to Bank of China Limited, Shenzhen Nanshan Branch, for a credit line by letter of guarantee of RMB433 million on November 10, 2015, and China Construction Bank (Asia) Co., Ltd. provided a short-term loan of RMB420 million to Hongkong Konka and its guarantee term was from November 23, 2015 to August 26, 2016. By December 31, 2015, the Company opened commercial acceptance bills with a total amount of RMB 2,742,801.69 for Konka Electric Appliance Co., Ltd, which was used as pledge to open bank acceptance bills. In accordance with the Agreement on Opening Bank Acceptance Bills (2015 SJTZCS No. 126) signed by Konka Electric Appliance Co., Ltd and China Minsheng Banking Corp., Ltd, Shenzhen Branch, a bank acceptance bill with an amount of RMB2,742,801.69 was opened, and its contractual term was from October 9, 2015 to April 9, 2016. XIV. Events after balance sheet date 1. Profit distribution On 6 Apr. 2016, the Company held 13th Meeting of the 8th Board of Directors; the meeting reviewed and approved the proposal of not implementing the allocation of profits. (2) Significant related-party transactions In order to meet the need of current business development of the Company and reduce the financing cost, the Company held12th meeting of 8th Board of Directors on 2 Mar. 2016, the meeting reviewed and approved the Proposal on Application for the Entrusted Loan Amount from OCT Group Co., Ltd. The meeting agreed that the Company could apply entrust loans with amount no more than RMB5 billion from OCT Group Co., Ltd. in 2016,which withdrawn by stages, and the Company can sign entrust loan contract with bank and OCT 150 The 2015 Annual Report of Konka Group Co., Ltd. Group Co., Ltd. within the amount of RMB5 billion. The meeting also agreed that the interest rate of entrust loan was lower than the benchmark interest rate for loan of People's Bank of China at same period. The transaction involving the interest no more than RMB0.2 billion the Company should pay to OCT Group Co., Ltd. within one year. As for the aforesaid loan amount, the Company will in line with the actual demand of capital, and after reasonably measuring the capital cost, recognized the actual loan amount prudently. 3. Suspend the listing transfer of 60% equity of E-display On 13 Nov. 2015, the Company held the 8th Meeting of the 8th Board of Directors; the meeting reviewed and approved the Proposal on the Listing Transfer of 60% Equity of E-display. In line with the resolution of the Board, the Company, on 29 Jan. 2016, listing transferred its holding of 60% equity of Shenzhen Konka E-display Co., Ltd. with a price of RMB72.00 million at Shanghai United Assets and Equity Exchange. During the period of publicly listed, the interested transferee negotiated with the Company about the aforesaid transfer, but both party did not make an agreement on the significant items of the transfer contract. The Company decided to suspend listing transfer its holding of 60% equity of Shenzhen Konka E-display Co., Ltd. 4. The Company's subsidiary, Konka Household Appliances Investment signed agreement with Shenzhen Dingshengxin Mould Technology Consultation Co., Ltd. Since 1 Jan. 2016, Dingshengxin Mould Technology Consultation Co., Ltd. no longer entrusted Konka Household Appliances Investment managed its holding of 6.18% shares of Precision Mold, and since 1 Jan. 2016, the Company no longer control the Precision Mold which excluded into consolidated statements scope. 5. Plan of non-public issue of stock The Company plan to prepare the non-public issue of shares. Now the Company was negotiating with the potential objects upon the amount of non-public issue of stock, actively preparing the materials and sparing no effort to promote the relevant work. The relevant events were under processing and existing uncertainty. XV. Other significant events 1. Lease (1) The closing original price accumulated depreciation and accumulated impairment provision of all kinds of the rented fixed assets. Particulars of the financing lease of the rented fixed assets, please refer to note VI, 13, (3) (2) Minimum lease payment will be paid in future The remaining lease term The minimum lease 151 The 2015 Annual Report of Konka Group Co., Ltd. payment Within 1 year (including 1 year) 133,333.37 Over 1 year and within 2 years (including 2 year) 84,894.93 Total 218,228.30 (3) The balance of unrecognized financing charges, and the method used to allocate the unrecognized financing charges. As of the balance sheet date, the balance of unrecognized financing charges was RMB27, 791.39; amortization method is the actual interest rate method. (4) Category of fixed assets leased by operating lease, please refer to note VI, 13 (4) 2. The Company's subsidiary Mudajiang Konka. Changshu Konka was under liquidation. Chongqng Konka Auto Electronic Company was under liquidation by the court on 27 Mar. 2015, which was excluded into consolidated scope. 3. On 14 Dec. 2015, the Company held 9th meeting of the 8th Board of Directors, the meeting decided that the Company contributed RMB6 million to set up Shenzhen Konka Electronic Appliance Technology Co., Ltd. together with Charm Media Co., Ltd. The registration capital was RMB15 million, of which, Konka Group contributed cash of RMB6 million, held 40% equity of Shenzhen Konka Electronic Appliance Technology Co., Ltd., Management of Household Appliance contributed 4.5 million, held 30% equity and Charm Media Co., Ltd. contributed RMB4.5 million, held 30% equity. As of the issue date financial statements, the joint venture company hadn't been set up. 4. On 14 Dec. 2015, after the research of the 9th meeting of the 8th Board of Directors, the meeting decided that the Company contributed RMB20 million to set up NORINCO Konka Technology Co., Ltd. together with NORINCO North Electronics Research Institute Co., Ltd. and Beidou Project Team, of which, Konka Group contributed cash of RMB20 million, held 40% equity of NORINCO Konka Technology Co., Ltd., NORINCO North Electronics Research Institute Co., Ltd. contributed RMB20 million, held 40% equity and Beidou Project Team contributed RMB10 million, held 20% equity. As of the issue date financial statements, the joint venture company hadn't been set up. XVI. Notes of main items in the financial statements of the Company 1. Accounts receivable (1) Accounts receivable classified by category Closing balance Category Book balance Bad debt provision Book value Amount Proportion Amount Proportion 152 The 2015 Annual Report of Konka Group Co., Ltd. (%) (%) Accounts receivable with insignificant single amount for which bad — — — — — debt provision separately accrued Accounts receivable withdrawal of bad debt provision of by credit risks characteristics: Group 1: aging group 1,126,362,276.00 68.50 202,746,563.72 18.00 923,615,712.28 Group 2: related party 486,174,280.87 29.57 — — 486,174,280.87 group Subtotal of groups 1,612,536,556.87 98.06 202,746,563.72 12.57 1,409,789,993.15 Accounts receivable with insignificant single amount for which bad 31,826,201.74 1.94 23,700,918.33 74.47 8,125,283.41 debt provision separately accrued Total 1,644,362,758.61 100.00 226,447,482.05 13.77 1,417,915,276.56 (Continued) Opening balance Book balance Bad debt provision Category Proportion Proportion Book value Amount (%) Amount (%) Accounts receivable with insignificant single amount for which bad — — — — — debt provision separately accrued Accounts receivable withdrawal of bad debt provision of by credit risks characteristics: 153 The 2015 Annual Report of Konka Group Co., Ltd. Group 1: aging group 1,436,462,593.91 81.90 214,731,732.08 14.95 1,221,730,861.83 Group 2: related party 317,565,114.46 18.10 — — 317,565,114.46 group Subtotal of groups 1,754,027,708.37 100.00 214,731,732.08 12.24 1,539,295,976.29 Accounts receivable with insignificant single amount for which bad — — — — — debt provision separately accrued Total 1,754,027,708.37 100.00 214,731,732.08 12.24 1,539,295,976.29 ①In the groups, accounts receivable adopting aging analysis method to withdraw bad debt provision: Closing balance Aging Withdrawal Account receivable Bad debt provision proportion (%) Within 1 year 918,718,739.98 18,374,374.80 2.00 1 to 2 years 14,672,885.00 733,644.25 5.00 2 to 3 years 5,627,558.78 1,125,511.76 20.00 3 to 4 years 5,427,292.76 2,713,646.38 50.00 4 to 5 years 4,232,825.89 2,116,412.95 50.00 Over 5 years 177,682,973.59 177,682,973.58 100.00 Total 1,126,362,276.00 202,746,563.72 ②In the groups, accounts receivable adopting other methods to withdraw bad debt provision: Balance at year- end Name of the group Withdrawal Account receivable Bad debt provision proportion (%) Related party group 486,174,280.87 — — Total 486,174,280.87 — — ③Individual amount is not significant, but the first five accounts receivable to prepare for bad debts separately Closing balance Name of Account Withdrawal customer Bad debt provision Withdrawal reason receivable proportion 154 The 2015 Annual Report of Konka Group Co., Ltd. Involved with lawsuit Customer 1 8,223,935.99 4,111,968.00 50 dispute Involved with lawsuit Customer 2 3,408,394.19 2,045,036.51 60.00 dispute Involved with lawsuit Customer 3 2,207,440.84 1,607,440.84 72.82 dispute Involved with lawsuit Customer 4 2,050,248.88 2,050,248.88 100.00 dispute Involved with lawsuit Customer 5 1,733,797.99 1,733,797.99 100.00 dispute Total 17,623,817.89 11,548,492.22 (2) Bad debt provision withdrawal, reversed or recovered in the report period The withdrawn bad debt provision of 2015 was of RMB11, 715,749.97. (3) Top five of account receivable of closing balance collected by arrears party The total amount of top five of account receivable of closing balance collected by arrears party was RMB856, 883,933.28, 52.11% of total closing balance of account receivable, the relevant closing balance of bad debt provision withdrawn was RMB8, 451,063.98. 2. Other accounts receivable (1) Other account receivable classified by category Closing balance Book balance Bad debt provision Category Proportion Proportion Book value Amount (%) Amount (%) Other accounts receivable with insignificant single amount 173,028,147.62 15.48 160,278,852.98 92.63 12,749,294.64 for which bad debt provision separately accrued Other accounts receivable withdrawn bad debt — — — — — provision according to credit risks characteristics Group 1: aging group 75,906,726.27 6.79 19,005,412.74 31.11 56,901,313.53 Group 2: related party 868,797,189.91 77.73 — — 868,797,189.91 group Subtotal of groups 944,703,916.18 84.52 19,005,412.74 2.01 925,698,503.44 155 The 2015 Annual Report of Konka Group Co., Ltd. Other accounts receivable with insignificant single amount — — — — — for which bad debt provision separately accrued Total 1,117,732,063.80 100.00 179,284,265.72 16.04 938,447,798.08 (Continued) Opening balance Book balance Bad debt provision Category Proportion Proportion ( Book value Amount (%) Amount %) Other accounts receivable with insignificant single 31,507,969.28 3.07 18,797,943.19 59.66 12,710,026.09 amount for which bad debt provision separately accrued Other accounts receivable withdrawn bad debt provision — — — — — according to credit risks characteristics Group 1: aging group 629,814,580.00 61.3 20,473,350.81 3.25 609,341,229.19 Group 2: related party 366,148,374.77 35.63 — — 366,148,374.77 group Subtotal of groups 995,962,954.77 96.93 20,473,350.81 2.06 975,489,603.96 Other accounts receivable with insignificant single — — — — — amount for which bad debt provision separately accrued Total 1,027,470,924.05 100.00 39,271,294.00 3.82 988,199,630.05 156 The 2015 Annual Report of Konka Group Co., Ltd. ① Other accounts receivable with insignificant single amount for which bad debt provision separately accrued Closing balance Withdrawal Other accounts receivable (unit） Other accounts Bad debt proportion ( Withdrawal reason receivable provision %) 政策变化致无法收 Energy saving subsidy 141,549,150.00 141,549,150.00 100.00 回 Chongqng Konka Auto Electronic 13,363,045.11 13,363,045.11 100.00 停产拟出售 Company Shenzhen Konka Video & Communication Systems 18,115,952.51 5,366,657.87 29.62 评估减值 Engineering Co., Ltd. Total 173,028,147.62 160,278,852.98 92.63 ②In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: Closing balance Aging Other accounts Withdrawal Bad debt provision receivable proportion (%) Within 1 year 31,019,128.44 620,484.13 2.00 1 to 2 years 19,056,050.64 952,802.53 5.00 2 to 3 years 7,674,294.40 1,534,858.88 20.00 3 to 4 years 4,185,012.22 2,092,506.11 50.00 4 to 5 years 334,958.96 167,479.48 50.00 Over 5 years 13,637,281.61 13,637,281.61 100.00 Total 75,906,726.27 19,005,412.74 ③In the groups, accounts receivable adopting other methods to withdraw bad debt provision: Balance at year- end Name of the group Other accounts Withdrawal Bad debt provision receivable proportion (%) Related party group 868,797,189.91 — — Total 868,797,189.91 — — (2) Bad debt provision withdrawal, reversed or recovered in the report period The withdrawal amount of the bad debt provision during the reporting period was of RMB140,012,971.72; there was no amount of the reversed or collected part during the 157 The 2015 Annual Report of Konka Group Co., Ltd. reporting period. (3) Top 5 of the closing balance of the other accounts receivable collected according to the arrears party Proportion of the total Bad debt Name of the year-end balance of Nature Closing balance Aging provision entity the accounts Closing balance receivable (%) Within 1 Customer 1 Intercourse funds 204,028,944.44 18.25 year Energy saving 1-2years, Customer 2 141,549,150.00 12.66 141,549,150.00 subsidy 2-3 years Within 1 Customer 3 Intercourse funds 102,869,873.14 9.20 year Within 1 Customer 4 Intercourse funds 92,437,026.68 8.27 year Within 1 Customer 5 Intercourse funds 90,137,173.41 8.06 year Total 631,022,167.67 158 The 2015 Annual Report of Konka Group Co., Ltd. 3. Long-term equity investment 1. Long-term equity investment Closing balance Opening balance Item Depreciation Depreciation Book balance Book value Book balance Book value reserves reserves Investment to the 1,623,726,835.91 77,294,984.69 1,546,431,851.22 1,505,310,835.91 94,394,984.69 1,410,915,851.22 subsidiary Investment to joint 74,763,267.00 — 74,763,267.00 197,758,604.87 — 197,758,604.87 ventures Total 1,698,490,102.91 77,294,984.69 1,621,195,118.22 1,703,069,440.78 94,394,984.69 1,608,674,456.09 (2) Investment to the subsidiary Withdrawn impairment Closing balance of Investee Opening balance Increased Decreased Closing balance provision impairment provision Mudangjiang 36,000,000.00 — — 36,000,000.00 — 36,000,000.00 electric appliances Anhui Konka 122,780,937.98 — — 122,780,937.98 — — Dongguan Konka 274,783,988.91 — — 274,783,988.91 — — Hong Kong Konka 781,828.61 — — 781,828.61 — — Konka Europe 261,482.50 — — 261,482.50 — — Nanhai Konka 500,000.00 — 500,000.00 — — — Kunshan Konka 350,000,000.00 — — 350,000,000.00 — — Plasthetics 4,655,000.00 — — 4,655,000.00 — — Konka Household 10,732,485.69 — — 10,732,485.69 — 10,732,484.69 Appliances Telecommunication 90,000,000.00 — — 90,000,000.00 — — 159 The 2015 Annual Report of Konka Group Co., Ltd. Technology Konka America 8,062,500.00 — — 8,062,500.00 — 8,062,500.00 Information 22,500,000.00 — — 22,500,000.00 — 22,500,000.00 Network Shushida 31,500,000.00 — — 31,500,000.00 — — Chongqing 17,100,000.00 — 17,100,000.00 — — — Electronic Fittings Technology 48,750,000.00 — — 48,750,000.00 — — Kunshan 350,000,000.00 — — 350,000,000.00 — — Kangsheng Anhui Tongchuang 69,702,612.22 — — 69,702,612.22 — — Konka 10,000,000.00 — — 10,000,000.00 — — Optoelectronic Wankaida 10,000,000.00 — — 10,000,000.00 — — Beijing Konka 30,000,000.00 — — 30,000,000.00 — — Shushida Logistics 10,000,000.00 — — 10,000,000.00 — — Konka E-display 7,200,000.00 — — 7,200,000.00 — — Kaikai Shijie — 16,000,000.00 — 16,000,000.00 — — Kangqiao Jiacheng — 112,000,000.00 — 112,000,000.00 — — Commercial — 2,916,000.00 — 2,916,000.00 — — Technology Mobile Internet — 5,100,000.00 — 5,100,000.00 — — Total 1,505,310,835.91 136,016,000.00 17,600,000.00 1,623,726,835.91 — 77,294,984.69 (3) Investment to joint ventures Increase/decrease in reporting period Investee Opening balance Additional Negative Investment profit and loss Adjustment of other Other equity investment investment recognized under the equity comprehensive changes 160 The 2015 Annual Report of Konka Group Co., Ltd. method income Shanghai Konka Green Science & 197,758,604.87 — 124,800,000.00 -5,111,426.37 403,094.53 — Technology Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. — 6,210,000.00 — 119,726.97 183,267.00 Total 197,758,604.87 6,210,000.00 124,800,000.00 -4,991,699.40 403,094.53 183,267.00 (Continued) Increase/decrease in reporting period Closing balance Investee Declaration of cash dividends or Withdrawn impairment Closing balance of impairment Other profits provision provision Shanghai Konka Green Science & — — — 68,250,273.03 — Technology Co., Ltd. Zhuhai Jinsu Plastic Co., Ltd. — — — 6,512,993.97 — Total — — — 74,763,267.00 — 161 The 2015 Annual Report of Konka Group Co., Ltd. 4. Revenue and Cost of Sales 1. Revenue and Cost of Sales Reporting period Last period Item Revenue Operating costs Revenue Operating costs Main 12,994,682,247.47 11,233,692,241.60 10,542,892,396.23 9,238,043,128.65 operations Other 5,257,638,085.71 5,208,621,358.62 5,256,503,986.27 5,218,903,962.41 operations Total 15,799,396,382.50 14,456,947,091.06 18,252,320,333.18 16,442,313,600.22 (2) Main operations (Classified by industry) Reporting period Last period Industry Operation revenue Operation cost Operation revenue Operation cost Electronic 10,542,892,396.23 9,238,043,128.65 12,994,682,247.47 11,233,692,241.60 industry Total 10,542,892,396.23 9,238,043,128.65 12,994,682,247.47 11,233,692,241.60 (3) Main operations (Classified by product) Reporting period Last period Product Operation revenue Operation cost Operation revenue Operation cost Color TV business 10,063,529,629.38 8,800,695,399.60 12,389,008,246.36 10,671,963,381.66 Mobile phone business — — 25,260,750.08 21,695,401.37 Consumer appliances business 405,363,485.13 361,990,500.54 501,891,601.26 458,915,261.80 Other 73,999,281.72 75,357,228.51 78,521,649.77 81,118,196.77 Total 10,542,892,396.23 9,238,043,128.65 12,994,682,247.47 11,233,692,241.60 (4) Main operations (Classified by area) Reporting period Last period Area Operation revenue Operation cost Operation revenue Operation cost Domestic sales 9,247,233,574.48 7,955,639,997.50 11,011,476,670.78 9,284,752,004.46 Overseas sales 1,295,658,821.75 1,282,403,131.15 1,983,205,576.69 1,948,940,237.14 Total 10,542,892,396.23 9,238,043,128.65 12,994,682,247.47 11,233,692,241.60 (5) The revenue of sales from the top five customers Proportion of total business Period Main operation revenue revenue (%) Y 2015 3,735,430,268.71 23.64 162 The 2015 Annual Report of Konka Group Co., Ltd. Y 2014 3,035,222,295.61 16.63 5. Investment income Item Reporting period Last period Long-term equity investment income accounted by cost 2,014,898.95 — method Long-term equity investment income accounted by equity -4,991,699.40 -3,679,122.32 method Investment income arising from disposal of long-term -491,110.76 248,192,713.43 equity investments Investment income received from disposal of 13,215.02 — available-for-sale financial assets Investment income received from holding of 2,212,535.21 48,104.52 available-for-sale financial assets Income from trust management 61,705,984.23 46,294,257.11 Total 60,463,823.25 290,855,952.74 163 The 2015 Annual Report of Konka Group Co., Ltd. XVII. Supplementary materials 1. Items and amounts of extraordinary gains and losses Item Amount Explanation Gains/losses on the disposal of non-current assets -16,096,434.80 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 certain quotas or 71,499,330.11 amounts according to the government’s unified standards Capital occupation charges on non-financial enterprises that are 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 20,419,318.35 Asset impairment provisions due to acts of God such as natural disasters -144,808,654.70 Gains and losses from debt restructuring — Expenses on business reorganization, such as expenses on staff — arrangements, integration, etc. Gain/loss on the part over the fair value due to transactions with distinctly — unfair prices Current net gains and losses of subsidiaries acquired in business combination — under the same control from period-begin to combination date Profits or losses incurred from contingency of non-operating business. — Gain/loss from change of fair value of transactional assets and liabilities, and investment gains from disposal of transactional financial assets and 32,627,480.23 liabilities and available-for-sale financial assets, other than valid hedging related to the Company’s common businesses Reverse of bad debt provision of account receivable individually — conducting impairment test Gain/loss on entrustment loans 3,550,666.66 Gain/loss on change of the fair value of investing real estate of which the — 164 The 2015 Annual Report of Konka Group Co., Ltd. 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-operating income and expenses other than the above -104,311,044.28 Project confirmed with the definition of non-recurring gains and losses and -419,240.74 losses Subtotal -137,538,579.17 Income tax effects -14,549,153.86 Minority interests effects (after tax) 3,830,243.26 Total -126,819,668.57 Notes: the number “+” among the non-current gains and losses items refers to profits and revenues, while “-”referred to losses or expenditure. The recognition of the non-current gains and losses items was executed according to the regulations of No.1 of the Information Disclosure Explanatory Notice of the Companies Public Offering Securities-Non-current Gains and losses (Z-J-H-Announcement [2008] No. 43) . The amount of Item leased assets Reason involved Closely related to the normal operating business of the Company which met with the regulations of the state Software tax returns 67,476,494.60 policies as well as constantly enjoyed the governmental subsidies according to certain standard quotas or quantities 2. Return on equity (ROE) and earnings per share (EPS) Weighted average EPS（Yuan/share） Profit as of reporting period ROE (%) Basic EPS Diluted EPS Net profit attributable to common shareholders of -36.30 -0.5219 -0.5219 the Company Net profits attributed to the common shareholders -32.63 -0.4693 -0.4693 after deducting the non-current gains and losses 165
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