ACCOUNTANTS REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF COOKIES QUARTET HOLDINGS LIMITED AND INNOVAX CAPITAL LIMITED

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1 The following is the text of a report received from our Company s reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this document. ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF COOKIES QUARTET HOLDINGS LIMITED AND INNOVAX CAPITAL LIMITED Introduction We report on the historical financial information of Cookies Quartet Holdings Limited (the Company ) and its subsidiaries (together, the Group ) set out on pages I-3 to I-32, which comprises the combined statements of financial position of the Group as at 31 March 2016, 2017 and 2018, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows of the Group for each of the three years then ended (the Track Record Period ) and a summary of significant accounting policies and other explanatory information (together, the Historical Financial Information ). The Historical Financial Information set out on pages I-3 to I-32 forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [REDACTED] (the Document ) in connection with the initial listing of shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange ). Directors responsibility for the Historical Financial Information The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error. Reporting accountants responsibility Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 Accountants Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement. I-1

2 Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity s preparation of Historical Financial Information that give a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Company, as well as evaluating the overall presentation of the Historical Financial Information. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the Historical Financial Information gives, for the purposes of the accountants report, a true and fair view of the Group s financial position as at 31 March 2016, 2017 and 2018, and of the Group s financial performance and cash flows for the Track Record Period in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information. REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE Adjustments In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on pages I-3 have been made. Dividends We refer to Note 10 to the Historical Financial Information which contains information about the dividends paid by a subsidiary of the Company in respect of the Track Record Period. No historical financial statements for the Company No financial statements have been prepared for the Company since the Company is incorporated in a jurisdiction where there is no statutory audit requirement. [Deloitte Touche Tohmatsu] Certified Public Accountants Hong Kong [REDACTED] I-2

3 HISTORICAL FINANCIAL INFORMATION Preparation of Historical Financial Information Set out below is the Historical Financial Information which forms an integral part of this accountants report. [The Historical Financial Information in this report was prepared based on the financial statements of Cookies Quartet Limited ( Cookies Quartet ) for the Track Record Period. The financial statements have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the HKICPA and were audited by Lee & Chan, certified public accountants registered in Hong Kong in accordance with Hong Kong Standard on Auditing issued by the HKICPA.] The Historical Financial Information is presented in Hong Kong dollars (HK$) and all values are rounded to the nearest thousand (HK$ 000) except when otherwise indicated. I-3

4 COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year ended 31 March NOTES Revenue 6 94,499 81,628 80,674 Cost of sales (28,929) (24,243) (24,572) Gross profit 65,570 57,385 56,102 Selling and distribution expenses (10,065) (9,706) (11,311) Administrative and other operating expenses (27,780) (13,491) (14,872) Profit before taxation 27,725 34,188 29,919 Income tax expenses 9 (5,335) (4,716) (5,233) Profit and total comprehensive income for the year 8 22,390 29,472 24,686 I-4

5 COMBINED STATEMENTS OF FINANCIAL POSITION At 31 March NOTES Non-current assets Property, plant and equipment 13 1, ,004 Rental deposits 15 1,499 1,028 1,517 Deferred tax assets ,843 1,820 3,785 Current assets Inventories 14 3,299 2,663 2,891 Trade and other receivables 15 1,110 1,511 1,878 Tax recoverables 4,019 1,157 Bank balances and cash 16 6,918 8,272 11,850 15,346 12,446 17,776 Current liabilities Trade and other payables 17 4,379 2,710 3,862 Amounts due to directors 18 2,583 5,558 1,814 Tax payable 1,899 6,962 10,167 5,676 Net current assets 8,384 2,279 12,100 11,227 4,099 15,885 Capital and reserve Share capital 20 Retained profits 11,227 4,099 15,885 Total equity 11,227 4,099 15,885 I-5

6 COMBINED STATEMENTS OF CHANGES IN EQUITY Attributable to owners of the Company Share capital Retained profits Total At 1 April ,187 8,187 Profit and total comprehensive income for the year 22,390 22,390 Dividends recognised as distribution (Note 10) (19,350) (19,350) At 31 March 2016 and 1 April ,227 11,227 Profit and total comprehensive income for the year 29,472 29,472 Dividends recognised as distribution (Note 10) (36,600) (36,600) At 31 March 2017 and 1 April ,099 4,099 Profit and total comprehensive income for the year 24,686 24,686 Dividends recognised as distribution (Note 10) (12,900) (12,900) At 31 March ,885 15,885 I-6

7 COMBINED STATEMENTS OF CASH FLOWS Year ended 31 March OPERATING ACTIVITIES Profit before taxation 27,725 34,188 29,919 Adjustment for: Depreciation of property, plant and equipment 1, Operating cash flows before movements in working capital 28,900 34,949 30,567 (Increase) decrease in trade and other receivables and rental deposits (134) 70 (856) Decrease (increase) in inventories (228) (Decrease) increase in trade and other payables (2,828) (1,669) 1,152 Cash generated from operations 26,186 33,986 30,635 Income tax paid (9,586) (8,264) Income tax refunded 1,130 NET CASH FROM OPERATING ACTIVITIES 16,600 35,116 22,371 CASH USED IN AN INVESTING ACTIVITY Purchase of property, plant and equipment (16) (137) (2,149) FINANCING ACTIVITIES Dividends paid (19,350) (36,600) (12,900) Advance from directors 1,500 3,053 Repayment to directors (1,418) (78) (3,744) NET CASH USED IN FINANCING ACTIVITIES (19,268) (33,625) (16,644) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,684) 1,354 3,578 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 9,602 6,918 8,272 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR, REPRESENTED BY BANK BALANCES AND CASH 6,918 8,272 11,850 I-7

8 NOTES TO THE HISTORICAL FINANCIAL INFORMATION 1. GENERAL INFORMATION The Company was incorporated in Cayman Islands as an exempted company with limited liability on 4 July 2018 under the Company law of Cayman Islands. The addresses of the registered office and the principal place of business of the Company are set out in the section headed Corporate Information of the Document. The Company is an investment holding company and the principal activities of the Group are engaged in manufacturing of cookie products and operating of cookie retail stores in Hong Kong. The Historical Financial Information is presented in HK$ which is also the functional currency of the Company. 2. REORGANISATION AND BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION The Historical Financial Information has been prepared based on the accounting policies set out in Note 4 which conform with HKFRSs. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited ( Listing Rules ) and by the Hong Kong Companies Ordinance ( Companies Ordinance ). In preparation for listing of the Company s shares on the Stock Exchange (the Listing ), the entities in the Group underwent a group reorganisation (the Reorganisation ) which involves interspersing the Company and other investment holding companies. Prior to the Reorganisation, the Group s operating subsidiary, Cookies Quartet was equally owned by Ms. Kwan Yuen Tung ( Ms. Kwan ), Ms. Tse Ling ( Ms. Tse ) and Mr. Wong Yiu Man ( Mr. Wong ) who have always been acting in concert in respect of the operation of Cookies Quartet and therefore they are regarded as the Group s ultimate controlling shareholders (the Controlling Shareholder ). The principle steps of the Reorganisation are as follows: On 22 May 2018, CST Group Holdings Limited ( CST ) was incorporated in the British Virgin Islands ( BVI ) to act as the holding company of Ms. Tse, Ms. Kwan and Mr. Wong for their shareholding interests in the Company. Since its incorporation, CST is authorised to issue a maximum of 50,000 shares of a single class each with a par value of United States Dollars ( US$ ) On the date of incorporation, 1,000 shares were allotted and issued to each of Ms. Tse, Ms. Kwan and Mr. Wong, respectively and they each owned one third (approximately 33.33%) of the issued share capital of CST. On 4 July 2018, the Company was incorporated in the Cayman Islands as the holding company of the Group. The initial authorised share capital was HK$380,000 divided into 38,000,000 ordinary shares with a par value of HK$0.01 each. Upon incorporation, one share was allotted and issued to a third party subscriber, and such share was transferred to CST at par on the same day. Upon completion of the above, the Company became wholly-owned by CST. On 19 July 2018, Cookies Quartet Group Limited ( Cookies Quartet BVI ) was incorporated in the BVI with an authorised share capital of US$[50,000] divided into [50,000] share of US$[1.00] each. Upon its incorporation, [1,000] shares, representing 100% of the issued share capital of Cookies Quartet BVI were subscribed by the Company. Upon completion of subscription, Cookies Quartet BVI became a direct wholly-owned subsidiary of the Company. On 27 August 2018, Cookies Quartet BVI acquired the entire issued share capital of Cookies Quartet from Ms. Tse, Ms. Kwan and Mr. Wong at a consideration of HK$3, HK$3 and HK$3, respectively, which was determined with reference to the issued share capital of Cookies Quartet as at the date of such transfer. Such share transfers were properly and legally completed and settled on 27 August After completion of such acquisition, Cookies Quartet became an indirect wholly-owned subsidiary of the Company. Upon completion of the Reorganisation, the Company became the holding company of the Group. I-8

9 The Group resulting from the Reorganisation, which involves interspersing the Company and other investment holdings companies between the Controlling Shareholder and Cookies Quartet which have always been under the collectively control of the Controlling Shareholder prior to, upon and after the Reorganisation, is to be regard as a continuity entity. Accordingly, the combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for the Track Record Period have been prepared to present the financial performance and cash flows of the companies now comprising the Group, as if the group structure upon the completion of the Reorganisation had been in existence throughout the Track Record Period or since the respective dates of incorporation, which is a shorter period. The combined statements of financial position of the Group as at 31 March 2016, 2017 and 2018 have been prepared to present the assets and liabilities of the companies now comprising the Group as if the current group structure had been in existence at those dates, taken into account the respective dates of incorporation. 3. APPLICATION OF HKFRSS For the purpose of preparing and presenting the Historical Financial Information for the Track Record Period, the Group has consistently applied the accounting policies which conform with HKFRSs, Hong Kong Accounting Standards ( HKASs ), amendments and interpretations issued by HKICPA which are effective for the accounting periods beginning on 1 April 2017 throughout the Track Record Period. In addition, the Group has elected to early apply HKFRS 9 Financial Instruments and HKFRS 15 Revenue from Contracts with Customers and the related Amendments throughout the Track Record Period. New and amendments to HKFRSs and interpretations in issue but not yet effective: At the date of this report, HKICPA has issued the following new and revised standards and interpretations that have been issued but not yet effective. The Group has not early applied the following new and amendments to HKFRSs and interpretations that have been issued but not yet effective: HKFRS 16 Leases 2 HKFRS 17 Insurance Contracts 4 HK(IFRIC) Int 22 Foreign Currency Transactions and Advance Consideration 1 HK(IFRIC) Int 23 Uncertainty over Income Tax Treatments 2 Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions 1 Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts 1 Amendments to HKFRS 9 Prepayment Features with Negative Compensation 2 Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 3 Amendments to HKAS 19 Plan Amendment, Curtailment or Settlement 2 Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures 2 Amendments to HKAS 28 As part of the Annual Improvements to HKFRSs Cycle 1 Amendments to HKAS 40 Transfers of Investment Property 1 Amendments to HKFRSs Annual Improvements to HKFRSs Cycle Effective for annual periods beginning on or after 1 January 2018 Effective for annual periods beginning on or after 1 January 2019 Effective for annual periods beginning on or after a date to be determined Effective for annual periods beginning on or after 1 January 2021 Except for the new and amendments to HKFRSs mentioned below, the directors of the Company anticipate that the application of all other new and amendments to HKFRSs and interpretations will have no material impact on the Group s financial position and performance in the foreseeable future. HKFRS 16 Leases HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 Leases and the related interpretations when it becomes effective. I-9

10 HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, among others. The Group currently presents operating lease payments as operating cash flows. Upon application of HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by the Group. Furthermore, extensive disclosure are required by HKFRS 16. As at 31 March 2018, the Group has non-cancellable operating lease commitments of HK$12,287,000 as disclosed in Note 21. A preliminary assessment indicates that these arrangements will meet the definition of a lease. Upon application of HKFRS 16, the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases. In addition, the Group currently considers refundable rental deposits paid of HK$2,469,000 as at 31 March 2018 as rights under leases to which HKAS 17 applies. Based on the definition of lease payments under HKFRS 16, such deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such deposits may be adjusted to amortised cost and such adjustments are considered as additional lease payments. Adjustments to refundable rental deposits paid would be included in the carrying amount of right-of-use assets. Furthermore, the application of new requirements may result in changes in measurement, presentation and disclosures as indicated above. 4. SIGNIFICANT ACCOUNTING POLICIES The Historical Financial Information has been prepared in accordance with the following accounting policies which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Companies Ordinance. The Historical Financial Information has been prepared on the historical cost basis as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based Payment, leasing transactions that are within the scope of HKAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of Assets. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; I-10

11 Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the assets or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies are set out below. Basis of combination The Historical Financial Information incorporates the financial statements of the entities comprising the Group. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has ability to use it power to affect its returns. The Group reassess whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Combination of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed of during the year are included in the combined statements of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intra group assets and liabilities, equity, income, expenses and cash flows relating to transaction between members of the Group are eliminated in full on consolidation. Revenue recognition Revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition: Step 1: Identify the contract(s) with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation The Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. I-11

12 Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met the customer simultaneously receives and consumes the benefits provided by the Group s performance as the Group performs; the Group s performance creates and enhances an asset that the customer controls as the Group performs; or the Group s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service. Revenue from sale of cookie products is recognised at a point in time when control of the goods has transferred, being at the point the customer purchases the goods. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business and net of discounts. Inventories Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in, first-out method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis. Retirement benefit costs Payments to the Mandatory Provident Fund Scheme are recognised as an expense when employees have rendered services entitling them to the contributions. Short-term and other long-term employee benefits Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset. A liability is recognised for benefits accruing to employees (such as wages and salaries) after deducting any amount already paid. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. I-12

13 The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before taxation as reported in the combined statements of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Historical Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of each reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Property, plant and equipment Property, plant and equipment are stated in the combined statements of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any. Depreciation is recognised so as to write off the cost of assets less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. I-13

14 An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Impairment on tangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an asset individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less cost of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Provisions Provision are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. I-14

15 All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Classification of financial assets cost: Debt instruments that meet the following conditions are subsequently measured at amortised the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. loss. By default, all other financial assets are subsequently measured at fair value through profit or Amortised cost and effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) excluding expected credit losses ( ECL ), through the expected life of the debt instrument, or, where appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition. The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance. Impairment of financial assets The Group recognises a loss allowance for ECL on financial assets which are subject to impairment under HKFRS 9 (including trade receivables, other receivables and bank balances and cash. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognises lifetime ECL for trade receivables. The ECL on trade receivables is assessed individually and the credit losses is determined based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. I-15

16 For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL ( 12m ECL ). The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition instead of on evidence of a financial asset being credit-impaired at the reporting date or an actual default occurring. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of a financial instrument (referred to as Stage 2 and Stage 3). In contrast, 12m ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the end of each reporting period (referred to as Stage 1). Significant increase in credit risk In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the end of each reporting period with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. Forward-looking information considered includes the future prospects of the industries in which the Group s debtors operate, as well as consideration of various external sources of actual and forecast economic information that relate to the Group s core operations. In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition: an actual or expected significant deterioration in the financial instrument s external (if available) or internal credit rating; significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost; existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor s ability to meet its debt obligations; an actual or expected significant deterioration in the operating results of the debtor; and an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor s ability to meet its debt obligations. Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise. Despite the aforegoing, the Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the end of each reporting period. A financial instrument is determined to have low credit risk if i) the financial instrument has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Group considers a financial asset to have low credit risk when it has an internal or external credit rating of investment grade as per globally understood definition. The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due. I-16

17 Definition of default The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that receivables that meet either of the following criteria are generally not recoverable. when there is a breach of financial covenants by the counterparty; or information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group). Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. Credit-impaired financial assets A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: a) significant financial difficulty of the issuer or the borrower; b) a breach of contract, such as a default or past due event; c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; or d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation. Write-off policy The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets gross carrying amount at the end of each reporting period. For financial assets, the ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade receivables where the corresponding adjustment is recognised through a loss allowance account. Credit-impaired financial assets A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: significant financial difficulty of the issuer or the borrower; or a breach of contract, such as a default or past due event; or I-17

18 the lender(s) of the borrower, for economic or contractual reasons relating to the borrower s financial difficulty, having granted to the borrower a concession(s) that the lenders(s) would not otherwise consider; or it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation. If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12m ECL at the current reporting date. The Group recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. On derecognition of a financial asset measured at amortised cost, the difference between the asset s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group are recognised at the proceeds received, net of direct issue costs. Financial liabilities at amortised cost All financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability. The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. I-18

19 5. KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, which are described in Note 4, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting periods, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next twelve months. Inventories The management of the Group reviews an aging analysis at the end of each reporting period, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in operation. Estimation of net realisable value are based on the latest invoice prices and current market condition. Where the net realisable value is less than the carrying amount, impairment loss may arise. As at 31 March 2016, 2017 and 2018, the carrying amount of inventories is approximately HK$3,299,000, HK$2,663,000 and HK$2,891,000, respectively. 6. REVENUE Revenue represents the net amounts received and receivable arising from selling cookie products in Hong Kong. 7. SEGMENT INFORMATION The Group is principally engaged in cookie retail business in Hong Kong. This operating segment has been identified on the basis of internal management reports prepared in accordance with the Group s accounting policies set out in Note 4. The directors of the Company who are also the directors of the operating subsidiary have been identified as the chief operating decision makers ( CODM ). Other than revenue analysis, no operating results or other discrete financial information is available for the assessment of performance and allocation of resources. The CODM review the results of the Group as a whole to make decisions. Accordingly, other than entity wide information, no analysis of this single operating segment is presented. The operation of the Group constitutes one single operating segment and accordingly, no separate segment information is prepared. No segment assets and liabilities are presented as the CODM does not regularly review segment assets and liabilities. At a point in time Sale of cookie products 94,499 81,628 80,674 Since no revenue derived from sales to a single customer of the Group has individually accounted for over 10% of the Group s total revenue during each of the reporting periods presented, no information about major customers is presented. I-19