ACCOUNTANTS REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF MASTERMIND GROUP HOLDINGS LIMITED AND [REDACTED]

Transcription

1 The following is the text of a report, prepared for the sole purpose of inclusion in the [REDACTED], received from the independent reporting accountants of the Company, BDO Limited, Certified Public Accountants, Hong Kong. ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF MASTERMIND GROUP HOLDINGS LIMITED AND [REDACTED] Introduction We report on the historical financial information of Mastermind Group Holdings Limited (the Company ) and its subsidiaries (together the Group ) set out on pages IA-3 to IA-32, which comprises the combined statement of financial position as at 31 December, and the combined statement of profit or loss and other comprehensive income, the combined statement of changes in equity and the combined statement of cash flows for the period then ended (the Relevant 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 IA-3 to IA-32 forms an integral part of this report, which has been prepared for inclusion in the [REDACTED] of the Company dated [ ] (the [REDACTED] ) in connection with the proposed [REDACTED] of shares of the Company on the [REDACTED] of The [REDACTED] (the [REDACTED] ). 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 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 ( 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. IA-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 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 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, 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 December and of the Group s financial performance and cash flows for the Relevant Period in accordance with the basis of preparation and presentation set out in note 2 to the Historical Financial Information. REPORT ON MATTERS UNDER [REDACTED] AND [REDACTED] Adjustments In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IA-3 have been made. Dividends We refer to note 10 to the Historical Financial Information which states that no dividends have been paid by the Company in respect of the Relevant Period. No financial statements for the Company No financial statements have been prepared for the Company since its date of incorporation. [BDO Limited] Certified Public Accountants [Director s name] Practising Certificate no. [ ] Hong Kong, [Date] IA-2

3 I. 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 combined financial statements of the Group for the Relevant Period. The combined financial statements of the Group have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by HKICPA and were audited by us in accordance with HKSAs issued by HKICPA (the Underlying Financial Statements ). The Historical Financial Information is presented in Hong Kong Dollars ( HK$ ) and all values are rounded to the nearest thousand () except when otherwise indicated. COMBINED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Notes For the year ended Revenue 7(a) 65,447 Cost of sales (41,950) Gross profit 23,497 Other income and gains 7(b) 65 Selling and distribution costs (3,425) Administrative expenses (3,778) Profit before income tax 8 16,359 Income tax expense 9 (2,710) Profit for the year 13,649 Other comprehensive income Item that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operation (149) Other comprehensive income for the year (149) Total comprehensive income for the year 13,500 IA-3

4 COMBINED STATEMENT OF FINANCIAL POSITION Notes As at Non-current assets Property, plant and equipment Deposits paid 14 2,538 Total non-current assets 3,259 Current assets Trade receivables 15 3,327 Deposits, prepayments and other receivables 16 7,894 Amount due from a director 17 5,911 Cash and cash equivalents 18 16,523 Total current assets 33,655 Current liabilities Trade payables Accrued liabilities and other payables 20 8,425 Tax payable 235 Total current liabilities 8,851 Net current assets 24,804 Total assets less current liabilities 28,063 Non-current liability Deferred tax liability Total non-current liability 18 Net assets 28,045 Equity Share capital 22 Reserves 28,045 Total equity 28,045 IA-4

5 COMBINED STATEMENT OF CHANGES IN EQUITY Share capital Merger reserve* Exchange reserve* Retained earnings* Total At 1 January (219) 14,764 14,545 Profit for the year 13,649 13,649 Other comprehensive income for the year (149) (149) Total comprehensive income for the year (149) 13,649 13,500 At (368) 28,413 28,045 * These reserve balances comprised the reserve account as set out in the combined statement of financial position. IA-5

6 COMBINED STATEMENT OF CASH FLOWS Notes For the year ended Cash flows from operating activities Profit before income tax 16,359 Adjustments for: Interest income 7(b) (3) Depreciation of property, plant and equipment Provision for write-off of rental deposit Write-off of property, plant and equipment Operating profit before working capital changes 17,297 Increase in trade receivables (1,589) Decrease in deposits, prepayments and other receivables 1,023 Increase in trade payables 13 Decrease in accrued liabilities and other payables (168) Cash generated from operations 16,576 Income tax paid (3,476) Net cash generated from operating activities 13,100 Cash flows from investing activities Purchase of property, plant and equipment (107) Increase in amount due from a director (3,685) Bank interest received 3 Increase in deposits paid (2,538) Net cash used in investing activities (6,327) Net increase in cash and cash equivalents 6,773 Cash and cash equivalents at beginning of the year 9,885 Effect of exchange rate changes on cash and cash equivalents (135) Cash and cash equivalents at end of the year, representing cash and bank balances 16,523 IA-6

7 II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION 1. CORPORATE INFORMATION AND REORGANISATION (a) Corporate information The Company is a limited liability company incorporated in the Cayman Islands on 18 December 2017 under the Companies Law, Cap.22 of the Cayman Islands. The address of the Company s registered office and the principal place of business are disclosed in the section Corporate Information in the [REDACTED]. Through a group reorganisation, as more fully explained in the section headed History, Development and Reorganisation in the [REDACTED] (the Reorganisation ), the Company became the holding company of the companies now comprising the Group on [Date]. The principal activity of the Company is investment holding while its subsidiaries are principally engaged in design of point of sale products and provision of production management. (b) Reorganisation Pursuant to a group reorganisation carried out by the Group in preparation for the proposed [REDACTED] of shares of the Company on the [REDACTED], the Company became the holding company of the subsidiaries now comprising the Group on [Date]. Details of the Reorganisation are as set out in the section headed History, Development and Reorganisation in the [REDACTED]. Upon completion of the Reorganisation and as of the date of this report, the Company had direct or indirect interests in the following subsidiaries with limited liability: Name Place and date of incorporation Place of operation and principal activity Issued ordinary share capital/ registered capital Percentage of equity attributable to the Company Directly Indirectly Mastermind Group (Hong Kong) Limited ( Mastermind Holdings ) British Virgin Islands 10 January 2018 Investment holding US$1 100% Mastermind Manufacture Limited ( Mastermind Manufacture (Hong Kong) ) (i) Hong Kong 5 June 2012 Design of point of sale products and provision of production management HK$1 100% ( Dongguan Bosi ) (ii) Mainland China 30 September 2013 Production management and quality control of the manufacturing process of products HK$3,000, % Star Era Limited ( Star Era ) (iii) Hong Kong 5 August Property holding HK$8 100% Notes: (i) The statutory financial statements for the year ended, prepared under HKFRSs were audited by BDO Limited. IA-7

8 (ii) The statutory financial statements for the year ended, prepared in accordance with PRC General Accepted Accounting Principal were audited by, certified public accountant registered in the PRC. (iii) No audited statutory financial statements have been issued for Star Era as it is newly incorporated. 2. BASIS OF PREPARATION AND PRESENTATION OF HISTORICAL FINANCIAL INFORMATION Immediately prior to and after the Reorganisation, the Group s business was carried out by Mastermind Manufacture (Hong Kong) and its subsidiaries which were under control of and beneficially owned by Mr. Put Sai Kit, the ultimate controlling shareholder of the Group (the Controlling Shareholder ). Pursuant to the Reorganisation, Mastermind Manufacture (Hong Kong) and its subsidiaries are under the effective control of Mastermind Holdings, and ultimately the Company and the Controlling Shareholder. Accordingly, for the purpose of this report, the Historical Financial Information has been prepared on a combined basis by applying the principles of merger accounting as if the Reorganisation had been completed at the beginning of the Relevant Period. The combined statement of profit or loss and other comprehensive income, combined statement of changes in equity and combined statement of cash flows of the Group for the Relevant Period include the results and cash flows of all companies now comprising the Group as if the group structure upon the completion of the Reorganisation had been in existence throughout the Relevant Period, or since their respective dates of incorporation, where there is a shorter period. The combined statement of financial position of the Group as at 31 December has been prepared to present the assets and liabilities of the companies now comprising the Group as if the current group structure upon completion of the Reorganisation has been in existence at those dates taking into account the respective dates of incorporation, where applicable. No adjustment has been made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation. The Company has not been involved in any other business prior to the Reorganisation and its operations do not meet the definition of business. The Reorganisation is merely a reorganisation of the [REDACTED] business and does not result in any changes in business substance, nor in any management or controlling shareholders of the [REDACTED] business, before and after the Reorganisation. Accordingly, the financial information of the companies now comprising the Group is presented using the carrying value of the [REDACTED] business for the period present. Intercompany transactions, balances and unrealised gains/losses on transactions between group companies are eliminated on combination. The Historical Financial Information has been prepared in accordance with the accounting policies set out in note 4 below which conforms with Hong Kong Financial Reporting Standards ( HKFRSs ), which collective term includes Hong Kong Accounting Standards ( HKASs ) and related interpretations, promulgated by the HKICPA. In addition, the Historical Financial Information includes applicable disclosures requirement by [REDACTED] (the [REDACTED] ). All HKFRSs effective for the accounting period commencing from 1 January 2017, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the Historical Financial Information throughout the Relevant Period. The Historical Financial Information is presented in HK$. Items included in the financial information of each entity within the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity ( the functional currency ). The functional currency of the Company is HK$. The companies comprising the Group are operating in Hong Kong and Mainland China and their functional currencies are either HK$ or Renminbi ( RMB ). HK$ is used as the presentation currency of the Group. The Historical Financial Information is prepared on the historical cost basis. IA-8

9 3. ADOPTION OF HKFRSs For the purpose of preparing and presenting the Historical Financial Information for the Relevant Period, the Group has consistently applied all the new and revised HKFRSs, HKASs, amendments and interpretations issued by the HKICPA which are effective during the Relevant Period. At the date of this report, the HKICPA has issued the following new or revised HKFRSs, potentially relevant to the Group s Historical Financial Information, but are not yet effective and have not been early adopted by the Group. HKFRSs (Amendments) Annual Improvements 2014 Cycle 1 HKFRS 9 Financial Instruments 1 HKFRS 15 Revenue from Contracts with Customers 1 HKFRS 16 Leases 2 Amendment to HKFRS 2 Classification and Measurement of Share-Based Payment Transactions 1 Amendments to HKFRS 15 Revenue from Contracts with Customers (Clarifications to HKFRS 15) 1 HK(IFRIC)-Int 22 Foreign Currency Transactions and Advance Consideration 1 HK(IFRIC)-Int 23 Uncertainty Over Income Tax Treatments Effective for annual periods beginning on or after 1 January 2018 Effective for annual periods beginning on or after 1 January 2019 HKFRS 9 Financial Instruments HKFRS 9 introduces new requirements for the classification and measurement of financial assets. Debt instruments that are held within a business model whose objective is to hold assets in order to collect contractual cash flows (the business model test) and that have contractual terms that give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (the contractual cash flow characteristics test) are generally measured at amortised cost. Debt instruments that meet the contractual cash flow characteristics test are measured at Fair Value Through Other Comprehensive Income ( FVTOCI ) if the objective of the entity s business model is both to hold and collect the contractual cash flows and to sell the financial assets. Entities may make an irrevocable election at initial recognition to measure equity instruments that are not held for trading at FVTOCI. All other debt and equity instruments are measured at Fair Value Through Profit or Loss ( FVTPL ). HKFRS 9 includes a new expected loss impairment model for all financial assets not measured at FVTPL replacing the incurred loss model in HKAS 39 and new general hedge accounting requirements to allow entities to better reflect their risk management activities in financial statements. HKFRS 9 carries forward the recognition, classification and measurement requirements for financial liabilities from HKAS 39, except for financial liabilities designated at FVTPL, where the amount of change in fair value attributable to change in credit risk of the liability is recognised in other comprehensive income unless that would create or enlarge an accounting mismatch. In addition, HKFRS 9 retains the requirements in HKAS 39 for derecognition of financial assets and financial liabilities. The directors of the Company have reviewed the Group s financial assets as at and anticipate that the application of HKFRS 9 in the future may result in early recognition of credit losses based on expected loss model in relation to the Group s financial assets measured at amortised cost and is not likely to have other material impact on the results and financial position of the Group based on an analysis of the Group s existing business model. HKFRS 15 Revenue from Contracts with Customers The new standard establishes a single revenue recognition framework. The core principle of the framework is that an entity should recognise revenue 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 and services. HKFRS 15 supersedes existing revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction Contracts and related interpretations. IA-9

10 HKFRS 15 requires the application of 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 each performance obligation Step 5: Recognise revenue when each performance obligation is satisfied HKFRS 15 includes specific guidance on particular revenue related topics that may change the current approach taken under HKFRS. The standard also significantly enhances the qualitative and quantitative disclosures related to revenue. The directors of the Company anticipate that the application of HKFRS 15 in the future will not have a material impact on the amounts reported and disclosures made to the financial statements of the Group in the future based on the existing business model of the Group as at. HKFRS 16 Leases HKFRS 16, which upon the effective date will supersede HKAS 17 Leases and related interpretations, introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more 12 months, unless the underlying asset is of low value. Specifically, under HKFRS 16, a lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Accordingly, a lessee should recognise depreciation of the right-of use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows. Also, the right-of-use asset and the lease liability are initially measured on a present value basis. The measurement includes non cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or to exercise an option to terminate the lease. This accounting treatment is significantly different from the lessee accounting for leases that are classified as operating leases under the predecessor standard, HKAS 17. In respect of the lessor accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. As at, the Group has non-cancellable operating lease commitment of HK$692,000 as disclosed in note 24. A preliminary assessment indicates that these arrangements will meet the definition of a lease under HKFRS 16, and hence 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 upon the application of HKFRS 16. In addition, the application of new requirements may result in changes in measurement, presentation and disclosure as indicated above. The directors of the Company do not expect the adoption of HKFRS 16 as compared with the current accounting policy would result in significant impact on the result and the net financial position of the Group. Amendments HKFRS 15 Clarifications to HKFRS 15 Revenue from Contracts with Customers The amendments to HKFRS 15 included clarifications on identification of performance obligations; application of principal versus agent; licenses of intellectual property; and transition requirements. IA-10

11 Except for the above, the directors of the Company anticipate that the application of the other new and amendments to HKFRSs will have no material impact on the financial statements of the Group in the future. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the Historical Financial Information are summarised below. (a) Business combination The combined financial statements comprise the financial statements of the Company and its subsidiary. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the combined financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss. The results of subsidiaries acquired or disposed of during the year are included in the combined statement of profit or loss and other comprehensive income from the dates of acquisition or up to the dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. Acquisition of subsidiaries or businesses is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the acquisition-date fair value of assets transferred, liabilities incurred and equity interests issued by the Group, as the acquirer. The identifiable assets acquired and liabilities assumed are principally measured at acquisition-date fair value. The Group s previously held equity interest in the acquiree is re-measured at acquisition-date fair value and the resulting gains or losses are recognised in profit or loss. The Group may elect, on a transaction-by-transaction basis, to measure the non-controlling interests that represent present ownership interests in the subsidiary either at fair value or at the proportionate share of the acquiree s identifiable net assets. All other non-controlling interests are measured at fair value unless another measurement basis is required by HKFRSs. Acquisition related costs incurred are expensed unless they are incurred in issuing equity instruments in which case the costs are deducted from equity. Any contingent consideration to be transferred by the acquirer is recognised at acquisition-date fair value. Subsequent adjustments to consideration are recognised against goodwill only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss. Changes in the Group s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group s interest and the non-controlling interest are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of. Subsequent to acquisition, the carrying amount of non-controlling interests that represent present ownership interests in the subsidiary is the amount of those interests at initial recognition plus such non-controlling interest s share of subsequent changes in equity. Total comprehensive income is attributed to such non-controlling interests even if this results in those non-controlling interests having a deficit balance. IA-11

12 (b) Subsidiaries A subsidiary is an investee over which the Group is able to exercise control. The Group controls an investee if all three of the following elements are present: power over the investee, exposure, or rights, to variable returns from the investee, and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In the Company s statement of financial position, investments in subsidiaries are accounted for at cost less impairment. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received and receivable. Impairment testing of the investments in subsidiaries is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the combined financial statements of the investee s net assets including goodwill. (c) Property, plant and equipment Property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs, such as repairs and maintenance are recognised as an expense in profit or loss during the period in which they are incurred. Property, plant and equipment are depreciated so as to write off their cost or valuation net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives/annual depreciation rates are as follows: Leasehold land and buildings Over the terms of leases or 50 years, whichever is shorter Leasehold improvements Over the terms of leases or 5 years, whichever is shorter Computer and accessories 20% Furniture and equipment 20% 35% Motor vehicles 35% An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset s estimated recoverable amount. The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal. (d) Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases. The Group as lessee The total rentals payable under the operating leases are recognised in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease. IA-12

13 (e) Cash and cash equivalents Cash and cash equivalents include cash and bank balances, demand deposits and other short term highly liquid investments with original maturities of three months or less. (f) Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. (i) Financial assets The Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired. Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods to customers (trade debtors), and also incorporate other types of contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses. (ii) Impairment loss on financial assets The Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; granting concession to a debtor because of debtor s financial difficulty; or it becoming probable that the debtor will enter bankruptcy or other financial reorganisation. For loans and receivables An impairment loss is recognised in profit or loss and directly reduces the carrying amount of financial asset when there is objective evidence that the asset is impaired, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset. Impairment losses are reversed in subsequent periods when an increase in the asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. IA-13

14 (iii) Financial liabilities The Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred. Financial liabilities at fair value through profit or loss are initially measured at fair value and financial liabilities at amortised costs are initially measured at fair value, net of directly attributable costs incurred. Financial liabilities at amortised cost Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss. Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process. (iv) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period. (v) Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. (vi) Derecognition The Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39. Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. (g) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable, and where it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, it is recognised in the profit or loss of the Group as follows: (i) Revenue from sales of goods is recognised on transfer of risks and rewards of ownership, which is at the time of delivery and the title is passed to customer. (ii) Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate. (h) Income taxes Income taxes for the year comprise current tax and deferred tax. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period. IA-14

15 Deferred tax is calculated using the liability method on temporary differences at the end of reporting period between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit, including existing taxable temporary difference, will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss. Deferred tax liabilities are recognised for taxable temporary differences arising on investment in a subsidiary, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the end of reporting period. Current tax assets and current tax liabilities are presented in net if, and only if, (a) (b) the Group has the legally enforceable right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The Group presents deferred tax assets and deferred tax liabilities in net if, and only if, (a) (b) the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: (i) (ii) the same taxable entity; or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. (i) Foreign currency Transactions entered into by the group entities in currencies other than the currency of the primary economic environment in which they operate are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income. IA-15

16 On combination, income and expense items of foreign operations are translated into the presentation currency of the Group (i.e. HK$) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of reporting period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity as foreign exchange reserve (attributed to minority interests as appropriate). Exchange differences recognised in profit or loss of group entities separate financial statements on the translation of long-term monetary items forming part of the Group s net investment in the foreign operation concerned are reclassified to other comprehensive income and accumulated in equity as foreign exchange reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the profit or loss on disposal. (j) Employee benefits (i) Short term employee benefits Short term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Short term employee benefits are recognised in the year when the employees render the related service. (ii) Defined contribution retirement plan Contributions to defined contribution retirement plans are recognised as an expense in profit or loss when the services are rendered by the employees. (iii) Termination benefits Termination benefits are recognised on the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises restructuring costs involving the payment of termination benefits. (k) Impairment loss of non-financial assets Property, plant and equipment are subject to impairment testing. At the end of each reporting period, the Group reviews the carrying amounts of these assets to determine whether there is any indication that these assets carrying amount may not be recoverable. If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, to the extent 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 in prior years. A reversal of an impairment loss is recognised as income immediately. (l) Borrowing costs Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. IA-16

17 (m) Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive as a result of a past event, which will probably result in an outflow of economic benefits that can be reliably estimated. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. (n) Related parties (a) A person or a close member of that person s family is related to the Group if that person: (i) has control or joint control over the Group; (ii) has significant influence over the Group; or (iii) is a member of the key management personnel of the Group or of a parent of the Company. (b) An entity is related to the Group if any of the following conditions applies: (i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group s parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include: (i) that person s children and spouse or domestic partner; (ii) children of that person s spouse or domestic partner; and (iii) dependents of that person or that person s spouse or domestic partner. IA-17

18 (o) Segment reporting The Group identifies operating segments and prepares segment information based on the regular internal financial information reported to the executive directors for their decisions about resources allocation to the Group s business components and for their review of the performance of those components. The business components in the internal financial information reported to the executive directors are determined following the Group s major operations. The measurement policies the Group uses for reporting segment results under HKFRS 8 Operating Segments are the same as those used in its financial statements prepared under HKFRSs. 5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES In the application of the Group s accounting policies, the directors 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 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 In addition to information disclosed elsewhere in these combined financial statements, other key sources of estimation uncertainty that have a significant risk of resulting a material adjustment to the carrying amounts of assets and liabilities within next financial year are as follows: (a) Current tax Judgement is required in determining the amount of the provision for taxation and the timing of payment of the related taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax provisions in the periods in which such determination is made. (b) Impairment of receivables The Group makes provision for impairment losses on trade and other receivables based on assessments of the recoverability of the trade and other receivables, including the current creditworthiness and the past collection history of each debtor. Impairments arise where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment losses on trade and other receivables requires the use of judgement and estimates. Where the actual result is different from the original estimate, such difference will impact the carrying value of the trade and other receivables and doubtful debt expenses in the year in which such estimate has been changed. If the financial conditions of the debtors were to deteriorate, resulting in an impairment of their ability to make payments, additional provision may be required. 6. SEGMENT INFORMATION The Group determines its operating segments based on the reports reviewed by the chief operating decision-maker, being the executive directors of the Company, that are used to make strategic decisions. The Group has three reportable segments. The segments are managed separately as each business offers different products and services and requires different business strategies. The following summary describes the products in each of the Group s reportable segments: Display units: these include window display sets, counter display sets, feature stands and top-of-counter displays. IA-18

19 Retail fixtures: these include pieces of shop-in-shop fixtures including showcases, cabinets, towers, backwalls and cashier stands. Others: these include ancillary point of sale accessories (such as paper bags, cases, watch boxes, C-clips, holders and trays). Corporate income and expenses are not allocated to the operating segments as they are not included in the measure of the segment results that is used by the chief operating decision-maker for assessment of segment performance. The chief operating decision-maker makes decisions according to the operating results of each segment. No analysis of segment asset and segment liability is presented as the chief operating decision-maker does not regularly review such information for the purposes of resources allocation and performance assessment. Therefore, only segment revenue and segment results are presented. Year ended Retail Display units fixtures Others Total Reportable segment revenue 38,592 11,937 14,918 65,447 Reportable segment results 11,561 3,759 4,752 20,072 Other income and gains 65 Unallocated corporate expenses (3,778) Profit before income tax 16,359 Geographical information The following table provides an analysis of the Group s revenue from external customers and property, plant and equipment ( Specified non-current assets ). The revenue information below is based on the locations of the customers. The specified non-current assets are based on the physical locations of the assets. Revenue from external customers Year ended Specified non-current assets As at Hong Kong 26, Mainland China 1, Japan 8,962 Europe 22,729 North America 1,943 Others 3,944 39, , IA-19