TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements December 31, 2014 and 2013 (With Independent Auditors Report

TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements 2014 and 2013 (With Independent Auditors Report Thereon) ~1~

Independent Auditors Report The Board of Directors TAIWAN SEMICONDUCTOR CO., LTD.: We have audited the accompanying consolidated balance sheets of TAIWAN SEMICONDUCTOR CO., LTD. and its subsidiaries as of 2014 and 2013, and the related consolidated statements of comprehensive income, changes in stockholders equity, and cash flows for the years ended 2014 and 2013. These consolidated financial statements are the responsibility of the Group s management. Our responsibility is to issue an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those regulations and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of TAWAIN SEMICONDUCTOR CO., LTD. and its subsidiaries as of 2014 and 2013, and its financial performance and cash flows for the years ended 2014 and 2013, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the R.O.C. Financial Supervisory Commission. TAIWAN SEMICONDUCTOR CO., LTD. has prepared parent-company-only financial statements as of and for the years ended 2014 and 2013, on which we have expressed an unqualified opinion. KPMG CPA: Gau, Wey-Chuan Chou, Pao-Lian Taipei, Taiwan, R.O.C March 25, 2015 The accompanying financial statements are not intended only to present the financial position, results of operations, and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The auditors report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and financial statements, the Chinese version shall prevail.

Consolidated Balance Sheets 2014, and 2013 (expressed in thousands of New Taiwan dollars) 2014 2013 Assets Amount % Amount % Current assets: Cash and cash equivalents (note 6(a)) $ 2,554,950 29 2,249,445 27 Financial assets measured at fair value through profit or loss current (note 6(b)) 140,928 2 661 - Notes receivable, net (note 6(c)) 20,418-17,676 - Accounts receivable, net (note 6(c)) 1,506,946 17 1,483,067 19 Other receivables 75,975 1 124,107 1 Current tax assets 5,510-2,052 - Inventories (note 6(d)) 1,107,596 12 1,125,352 13 Prepaid expenses 188,594 2 239,977 3 5,600,917 63 5,242,337 63 Non-current assets: Property, plant and equipment (note 6(e)) 3,080,700 35 3,034,925 37 Intangible assets (note 6(f)) 19,695-16,024 - Deferred tax assets (note 6(k)) 36,826-36,847 - Other financial assets non-current 17,433-17,437 - Other non-current assets 156,235 2 41,822-3,310,889 37 3,147,055 37 Total assets $ 8,911,806 100 8,389,392 100 2014 2013 Liabilities and Stockholders Equity Amount % Amount % Current liabilities: Short-term borrowings (note 6(g)) $ 284,850 4 418,198 6 Financial liabilities measured at fair value through profit or loss current (note 6(b)) 2,867 - - - Notes payable 8,419-12,348 - Accounts payable 945,388 12 952,232 14 Other payables 534,152 6 433,622 5 Current tax liabilities 132,777 1 120,255 1 Product warranty obligations (note 6(i)) 4,498-2,710 - Long-term borrowings due within one year (note 6(g)) 16,400-16,400 - Capital lease liabilities current (note 6(h)) 18,226-17,513 - Other current liabilities 15,952-16,800-1,963,529 23 1,990,078 26 Non-current liabilities: Long-term borrowings (note 6(g)) 77,900 1 94,300 1 Employee benefits (note 6(j)) 36,098-35,252 - Deferred tax liabilities (note 6(k)) 262,545 3 107,606 1 Capital lease liabilities non-current (note 6(h)) 311,548 3 321,133 4 688,091 7 558,291 6 Total liabilities 2,651,620 30 2,548,369 32 Stockholders equity attributable to parent (note 6(l)): Common stock 2,436,143 27 2,442,818 29 Capital surplus 962,403 11 963,292 11 Retained earnings: Legal reserve 396,505 4 357,749 4 Special reserve 302,150 3 302,150 4 Unappropriated earnings 1,296,150 15 1,029,812 12 1,994,805 22 1,689,711 20 Other stockholders equity 140,319 2 41,256 - Treasury stock (247,383) (3) (151,065) (2) Total stockholders equity attributable to parent 5,286,287 59 4,986,012 58 Non-controlling interests 973,899 11 855,011 10 Total stockholders equity 6,260,186 70 5,841,023 68 Total liabilities and stockholders equity $ 8,911,806 100 8,389,392 100 See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income January 1 to 2014 and 2013 (expressed in thousands of New Taiwan dollars, except for earnings per common share) 2014 2013 Amount % Amount % Sales revenue $ 7,738,870 101 7,169,651 101 Less: Sales returns and allowances 98,483 1 87,370 1 Net sales revenue (note 6(d)) 7,640,387 100 7,082,281 100 Cost of goods sold 5,187,530 69 5,010,281 71 Gross profit 2,452,857 31 2,072,000 29 Operating expenses: Selling 653,552 9 609,161 9 Administrative 346,959 5 307,645 4 Research and development 148,579 2 140,170 2 1,149,090 16 1,056,976 15 Operating income 1,303,767 15 1,015,024 14 Non-operating income and expenses: Finance expense (22,783) - (32,019) - Interest revenue 16,252-16,984 - Other income 30,738-19,713 - Gain on disposal of investments 841-466 - Foreign exchange gains 52,764 1 54,688 1 Loss on disposal of property, plant and equipment (6,922) - (127,548) (2) Gain (loss) on financial assets (liabilities) measured at fair value through profit (loss) (2,349) - 1,041 - Reversal of impairment gain (loss) 1,534 - (2,182) Miscellaneous disbursements (3,975) - (3,162) - 66,100 1 (72,019) (1) Income before income tax 1,369,867 16 943,005 13 Income tax expense (note 6(k)) 454,263 6 276,685 4 Consolidated net income 915,604 10 666,320 9 Other comprehensive income: Exchange differences on translation of foreign subsidiaries, before income tax 108,302 1 127,756 2 Less: Income tax relating to components of other comprehensive income 2,265-3,812 - Other comprehensive income, net of tax 106,037 1 123,944 2 Comprehensive income $ 1,021,641 11 790,264 11 Net income attributable to: Owners of the parent $ 597,080 6 387,567 5 Non-controlling interests 318,524 4 278,753 4 $ 915,604 10 666,320 9 Comprehensive income attributable to: Owners of the parent $ 696,143 8 499,806 7 Non-controlling interests 325,498 3 290,458 4 $ 1,021,641 11 790,264 11 Basic earnings per common share (note 6(n)) $ 2.51 1.61 Diluted earnings per common share (note 6(n)) $ 2.48 1.60 See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in Stockholders Equity January 1 to 2014 and 2013 (expressed in thousands of New Taiwan dollars) Common stock Capital surplus Stockholders equity attributable to owners of the parent Other stockholders Retained earnings equity Legal reserve Special reserve Unappropriated earnings Accumulated translation adjustment Treasury stock Total equity attributable to owners of the Non-controlling parent interests Total stockholders equity Balance as of January 1, 2013 $ 2,439,968 950,684 341,155-1,082,487 (70,983) (23,310) 4,720,001 693,502 5,413,503 First-time application of IFRS for provision of special reserve - - - 302,150 (302,150) - - - - - Appropriation of earnings: Provision of legal reserve - - 16,594 - (16,594) - - - - - Cash dividends - - - - (121,498) - - (121,498) - (121,498) Net income - - - - 387,567 - - 387,567 278,753 666,320 Other comprehensive income - - - - - 112,239-112,239 11,705 128,944 Total comprehensive income - - - - 387,567 112,239-499,806 290,458 790,264 Share-based payment employee stock options - 4,301 - - - - - 4,301-4,301 Employee stock options exercised 2,850 958 - - - - - 3,808-3,808 Subsidiaries purchase of treasury stock - - - - - - (127,755) (127,755) - (127,755) Changes in the number of affiliates using equity method - 7,349 - - - - - 7,349-7,349 Changes in non-controlling interests - - - - - - - - (128,949) (128,949) Balance as of January 1, 2014 $ 2,442,818 963,292 357,749 302,150 1,029,812 41,256 (151,065) 4,986,012 855,011 5,841,023 Appropriation of earnings: Provision of legal reserve - - 38,756 - (38,756) - - - - - Cash dividends - - - - (291,986) - - (291,986) - (291,986) Net income - - - - 597,080 - - 597,080 318,524 915,604 Other comprehensive income - - - - - 99,063-99,063 6,974 106,037 Total comprehensive income - - - - 597,080 99,063-696,143 325,498 1,021,641 Share-based payment employee stock options - 3,027 - - - - - 3,027-3,027 Retirement of treasury shares (10,000) (13,310) - - - - 23,310 - - - Employee stock options exercised 3,325 1,054 - - - - - 4,379-4,379 Adjustments of capital surplus for company's cash dividends received by subsidiaries - 6,836 - - - - - 6,836-6,836 Purchase of treasury stock - - - - - - (119,628) (119,628) - (119,628) Changes in the number of affiliates using equity method - 1,504 - - - - - 1,504-1,504 Changes in non-controlling interests - - - - - - - - (206,610) (206,610) Balance as of 2014 $ 2,436,143 962,403 396,505 302,150 1,296,150 14,319 (247,383) 5,286,287 973,899 6,260,186 See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows 2014 and 2013 (expressed in thousands of New Taiwan dollars) 2014 2013 Cash flows from operating activities: Income before income tax $ 1,369,867 943,005 Adjustments: Adjustments for the non-cash effects of items of income and expenses: Depreciation expense 313,027 367,035 Amortization expense 6,259 5,921 Bad debt expense 3,962 447 Net loss (gain) on financial assets or liabilities at fair value through loss (profit) 2,349 (1,041) Interest expense 20,721 29,563 Interest income (16,252) (16,984) Share-based payments 3,027 4,301 Loss on disposal of property, plant and equipment 6,922 127,548 Disposal gain on financial assets (841) (466) Impairment loss on non-financial assets (1,534) 2,182 Others 1,419 460 Allowance for sales returns and discounts 10,113 10,641 Total adjustments for the non-cash effects of items of income and expenses 349,172 529,607 Net change in operating assets and liabilities: Net change in operating assets: Decrease (increase) in financial assets measured at fair value through profit or loss (139,342) 20,560 Decrease (increase) in notes receivable (2,742) 11,601 Increase in accounts receivable (37,954) (261,900) Decrease (increase) in other receivable 48,137 (23,901) Decrease in inventories 17,756 65,293 Decrease (increase) in prepayments 133,807 (58,887) Decrease (increase) in other financial assets 4 (895) Total net change in operating assets 19,666 248,129 Net change in operating liabilities: Decrease in notes payable (3,929) (9,717) Increase (decrease) in accounts payable (6,844) 90,395 Increase in other payable 101,015 66,891 Increase (decrease) in other current liabilities 940 (3,070) Increase (decrease) in provisions non-current 846 (11,125) Total net change in operating liabilities 92,028 133,374 Total net change in operating assets and liabilities 111,694 (114,755) Total adjustments 460,866 414,852 Cash inflows from operating activities 1,830,733 1,357,857 Interest received 16,247 16,745 Income taxes paid (290,239) (204,212) Net cash provided by operating activities 1,556,741 1,170,390 Cash flows from investing activities: Disposal of financial assets carried at cost 434 765 Acquisition of property, plant and equipment (210,912) (199,855) Disposal of property, plant and equipment 3,213 20,628 Acquisition of intangible assets (9,620) (3,567) Decrease (increase) in other non-current assets (114,413) 1,528 Increase in prepayment for equipment (205,840) - Net cash used in investing activities (537,138) (180,501) Cash flows from financing activities: Increase (decrease) in short-term loans (133,348) 96,607 Repayments in long-term loans (16,400) (422,554) Decrease in capital lease liabilities (25,272) (24,921) Payments of cash dividends (285,150) (121,498) Employee stock options exercised 4,379 3,808 Purchase of treasury stock (119,628) (127,755) Interest paid (4,806) (13,110) Change in non-controlling interests (206,610) (128,949) Net cash used in financing activities (786,835) (738,372) Effect of exchange rate changes 72,737 69,864 Net increase in cash and cash equivalents 305,505 321,381 Cash and cash equivalents, beginning of period 2,249,445 1,928,064 Cash and cash equivalents, end of period $ 2,554,950 2,249,445 See accompanying notes to consolidated financial statements.

2014 and 2013 (amounts expressed in thousands of New Taiwan dollars, unless otherwise specified) 1. Organization and principal activities TAIWAN SEMICONDUCTOR CO., LTD. (the Company) was incorporated in January 1979 under the Company Act of the Republic of China. Its major business activities are the manufacture and sale of rectifiers and bar code printers. The Company s common stock has been officially listed and traded on the GreTai Securities Market starting from February 2000. In order to improve operating efficiency and industry competitiveness from specialization, the Company restructured its business and organization. The Company separated its bar code printer business unit from itself and transferred it to establish TSC Auto ID Technology Co., Ltd. (TSC Auto ID). The board of directors meeting approved August 1, 2007, as the date of record of the split. The Company and its subsidiaries are referred to as the Group. The Group primarily is involved in the manufacture and sale of rectifiers and bar code printers. 2. Approval date and procedures of the consolidated financial statements These consolidated financial statements were authorized for issuance by the board of directors on March 25, 2015. 3. New standards and interpretations not yet adopted (a) International Financial Reporting Standards 2013 endorsed by the Financial Supervisory Commission, R.O.C., but not yet in effect In accordance with Ruling No. 1030010325 issued by the Financial Supervisory Commission ( FSC ) on April 3, 2014, companies listed for trading on the stock exchange or over-the-counter market or for registration as emerging stock should adopt the IFRS 2013 (excluding IFRS 9 Financial Instruments) endorsed by the FSC beginning in 2015. The new standards and amendments which were announced by the International Accounting Standards Board ( IASB ) are as follows:

2 New standards and amendments Limited exemption from comparative IFRS 7 disclosures for first-time adopters (amendment to IFRS 1) Severe hyperinflation and removal of fixed dates for first-time adopters (amendment to IFRS 1) Government loans (amendment to IFRS 1) Disclosures Transfer of financial assets (amendment to IFRS 7) Disclosures Offsetting financial assets and financial liabilities (amendment to IFRS 7) IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement Presentation of items of other comprehensive income (amendment to IAS 1) Deferred tax: recovery of underlying assets (amendment to IAS 12) Amended IAS 19 Employee Benefits Amended IAS 27 Separate Financial Statements Amended IAS 32 Offsetting financial assets and financial liabilities IFRIC 20 Stripping costs in the production phase of a surface mine Effective date per IASB 2010.7.1 2011.7.1 2013.1.1 2011.7.1 2013.1.1 2013.1.1(Investment entities: January 1, 2014) 2013.1.1 2013.1.1 2013.1.1 2012.7.1 2012.1.1 2013.1.1 2013.1.1 2014.1.1 2013.1.1 Based on the Company s assessment, the adoption of IFRS 2013 has no significant effect on the interim financial statement except for the following items: i) IAS 19 Employee Benefits The amendments to IAS 19 require companies to calculate a net interest amount by applying the discount rate to the net defined benefit liability or asset to replace the interest cost and expected return on plan assets used in the previous IAS 19. In addition, the amendments eliminate the accounting treatment of either the corridor approach or the immediate recognition of actuarial gains and losses in profit or loss when they occur, and instead require companies to recognize all actuarial gains and losses immediately through other comprehensive income. The past service cost, on the other hand, will be expensed immediately when it is incurred and will no longer be amortized over the average period before meeting vesting conditions on a straight-line basis. In addition, an entity can no longer withdraw an offer of termination benefits or recognize the related restructuring costs of early termination as termination benefits. All termination benefits are recognized in liabilities and expenses. In addition, the amendments also require a broader disclosure of defined benefit plans. In compliance with the standard above, non-controlling interests decreased by $1,791,

3 accrued pension liabilities increased by $5,889, and retained earnings decreased by $4,098 on January 1, 2014; non-controlling interests decreased by $765, accrued pension liabilities decreased by $138, and retained earnings increased by $842 on 2014; operating expenses decreased by $34 and non-controlling interests increased by $27 for the twelve months ended 2014. ii) IAS 1 Presentation of Financial Statements The primary amendment of IAS 1 was requiring profit or loss and other comprehensive income to be presented together, requiring entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently, and requiring tax associated with items presented before tax to be shown separately for each of the two groups of other comprehensive income items. The Group will follow the amendment of IAS 1 to present the comprehensive income statement. iii) IFRS 12 Disclosure of Interests in Other Entities IFRS 12 combines all related standards regarding the disclosures of financial reports of subsidiaries, joint ventures, associates, and non-consolidated entities. The Group will additionally disclose the information on consolidated and non-consolidated entities. iv) IFRS 13 Fair Value Measurement IFRS 13 defines the meaning of fair value and sets the method of calculation and the presentation of measurement of fair value. After assessing the standard, the Group does not expect any significant influence on financial condition and performance, and will follow IFRS 13 to additionally disclose the information on measurement of fair value. (b) International Financial Reporting Standards issued by the IASB but not yet endorsed by the FSC A summary of the new standards and amendments issued by the IASB but not yet included in the IFRS 2013 endorsed by the FSC: New standards and amendments Effective date per IASB IFRS 9 Financial Instruments 2018.1.1 Amendments to IFRS 10 and IAS 28 Sales or 2016.1.1 Contributions of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10, IFRS 12 and IAS 28 Investment 2016.1.1 Entities: Applying the Consolidation Exception Amendments to IFRS 11 Accounting for Acquisitions of 2016.1.1 Interests in Joint Operations IFRS 14 Regulatory Deferral Accounts 2016.1.1 IFRS 15 Revenue from Contracts with Customers 2017.1.1

4 New standards and amendments Effective date per IASB Amendments to IFRS 1 Disclosures for first-time adopters 2016.1.1 Amendments to IAS 16 and IAS 38 Clarification of 2016.1.1 Acceptable Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer 2016.1.1 Plants Amendments to IAS 19 Employee contributions to 2014.7.1 defined benefit plans Amendments to IAS 27 Equity Method in Separate 2016.1.1 Financial Statements Amendments to IAS 36 Recoverable Amount Disclosures 2014.1.1 for Non-Financial Assets Amendments to IAS 39 Novation of Derivatives and 2014.1.1 Continuation of Hedge Accounting IFRIC 21 Levies 2014.1.1 The Group is assessing the influence on financial condition and performance of the above standards and interpretations. The Group will disclose the related influence when the assessment is finished. 4. Significant accounting policies The significant accounting policies presented in the consolidated financial statements are summarized as follows. The significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements. (a) Statement of compliance These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to the Regulations), and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to as the IFRSs endorsed by the FSC). (b) Basis of consolidation i) Basis of measurement The consolidated financial statements have been prepared on a historical cost basis except for the following material items in the statement of financial position: 1) Financial instruments measured at fair value through profit or loss are measured at fair value;

5 2) Available-for-sale financial assets are measured at fair value; 3) Liabilities for cash-settled share-based payment arrangements are measured at fair value; 4) Inventories are measured at the lower of cost and net realizable value; 5) The defined benefit asset is recognized as plan assets, plus unrecognized past service cost, less the present value of the defined benefit obligation. ii) Functional and presentation currency The functional currency of each entity is determined based on the primary economic environment in which the entity operates. The Company s consolidated financial statements are presented in New Taiwan dollars, which is the Company s functional currency. All financial information presented in New Taiwan dollars has been rounded to the nearest thousand. (c) Basis of consolidation i) The consolidated financial statements comprise the Company and its subsidiaries (the Group). The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. 1) Changes in ownership interest Changes in the Group s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

6 ii) List of subsidiaries in the consolidated financial statements Name of Investor Name of subsidiary Principal activity 2014 Shareholding 2013 The Company Ever Energetic Int'l Ltd. (Ever Energetic) Holding company and general import and export business 100.00% 100.00% The Company Ever Winner Int'l Co., Ltd. Holding company and general 100.00% 100.00% (Ever Winner) import and export business The Company Skyrise Int'l Ltd. (Skyrise) Holding company and general import and export business 100.00% 100.00% The Company Taiwan Semiconductor General import and export business 100.00% 100.00% Europe GmbH (TSCE) The Company Taiwan Semiconductor Trading of rectifiers 100.00% 100.00% Japan Ltd. (TSCJ) The Company Taiwan Semiconductor Holding company and trading of 25.22% 25.22% (H.K.) Co., Ltd. (TSCH) rectifiers The Company TSC Auto ID Technology Manufacture and sale of 36.94% 37.10% Co., Ltd. (TSC Auto ID) bar code printers Ever Energetic Taiwan Semiconductor (H.K.) Co., Ltd. (TSCH) Holding company and trading of rectifiers 36.96% 36.96% Ever Energetic TSC America, Inc. (TSCA) Trading of rectifiers 75.00% 75.00% Ever Winner Taiwan Semiconductor (H.K.) Co., Ltd. (TSCH) Trading of rectifiers 37.82% 37.82% Ever Winner TSC America, Inc. (TSCA) Trading of rectifiers 25.00% 25.00% Ever Winner Shanghai Great Trading of rectifiers 100.00% 100.00% Technology Trading Co., Ltd. (TSCC) TSCH TAIWANSEMI Trading of rectifiers -% -% (Shenzhen) Co., Ltd. (TSCZ) TSCH Yangxin Everwell Electronic Co., Ltd. (Yangxin Everwell) Manufacture and sale of rectifiers 100.00% 100.00% TSCH TSC Auto ID TSC Auto ID TSC Auto ID TSCAE TSCAE TSC HK Tianjin Everwell Technology Co., Ltd. (Tianjin Everwell) TSC Auto ID Technology EMEA GmbH (TSCAE) TSC Auto ID (H.K.) Ltd. (TSC HK) TSC Auto Technology America Inc. (TSCAA) TSC Auto ID Technology ME, Ltd. FZE (TSCAD) TSC Auto ID Technology Spain, S.L. (TSCAS) Tianjin TSC Auto ID Technology Co., Ltd. (TTSC) iii) Subsidiaries impairment Manufacture and sale of wafers Trading of bar code printers and other parts Holding company and general import and export business Trading of bar code printers and other parts Trading of bar code printers and other parts Trading of bar code printers and other parts Manufacture and sale of bar code printers and other parts TSCZ closed down its business during the year 2013 with a liquidation date of July 17, 2013. The liquidation process has already been completed. iv) Unlisted subsidiaries in the consolidated financial statements: None. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

7 (d) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group s entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss except for differences in available-for-sale equity investment, which are recognized in other comprehensive income arising on the retranslation. ii) Foreign operations The assets and liabilities of foreign operations are translated to the Group s functional currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated to the Group s functional currency at the average rate. Foreign currency differences are recognized in other comprehensive income and presented in the foreign currency translation reserve (translation reserve) in equity. (e) Classification of current and non-current assets and liabilities An entity shall classify an asset as current when: i) It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; ii) It holds the asset primarily for the purpose of trading; iii) It expects to realize the asset within twelve months after the reporting period; or iv) The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other assets as non-current. An entity shall classify a liability as current when:

8 i) It expects to settle the liability in its normal operating cycle; ii) It holds the liability primarily for the purpose of trading; iii) The liability is due to be settled within twelve months after the reporting period; or iv) The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other liabilities as non-current. (f) Cash and cash equivalents Cash and cash equivalents include cash on hand, due from banks, demand deposits, and highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. A time deposit qualifies as a cash equivalent when it is readily convertible to known amounts of cash, is subject to an insignificant risk of changes in value, and is held for the purpose of shortterm cash commitments rather than for investment or other purposes. Bank overdrafts that are repayable on demand and form an integral part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. (g) Financial instruments Financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instruments. i) Financial assets The Group classifies financial assets into the following categories: financial assets at fair value through profit or loss, receivables, and available-for-sale financial assets.

9 1) Financial assets at fair value through profit or loss Financial assets (liabilities) are classified as held for trading if they have been acquired principally for the purpose of selling or repurchasing in the near term. The derivative financial instruments held by the Group, except for those designated as effective hedging derivative instruments, are classified into this category. This type of financial asset is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which take into account any dividend and interest income, are recognized in profit or loss. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade-date accounting. 2) Receivables Receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables and other receivables. Such assets are recognized initially at fair value, plus any directly attributable transaction costs. Subsequent to initial recognition, receivables are measured at amortized cost using the effective interest method, less any impairment losses other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade-date accounting. 3) Impairment of financial assets The financial assets which are not measured at fair value through profit or loss shall be assessed for impairment at each reporting date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment.

10 All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries, and the amount of loss incurred, adjusted for management s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than those suggested by historical trends. An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversible in subsequent periods. An impairment loss in respect of a financial asset is deducted from the carrying amount except for trade receivables, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of a receivable written off is recorded in the allowance account. Changes in the amount of the allowance account are recognized in profit or loss. ii) Financial liabilities and equity instruments 1) Financial liabilities measured at fair value through profit or loss This type of financial liabilities is classified as held-for-trading financial liabilities or financial liabilities designated as at fair value through profit or loss. These liabilities are recognized initially at fair value, with transaction costs taken directly to the income statement, and are subsequently re-measured at fair value. Gains and losses from changes in the fair value of such liabilities (including interest expenses) are reported in profit or loss of financial assets and liabilities measured at fair value through profit or loss in the comprehensive income statement. 2) Other financial liabilities Financial liabilities not classified as held for trading or designated as at fair value through profit or loss, which comprise loans and borrowings, and trade and other payables, are measured at fair value plus any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method.

11 (h) Inventories 3) Offsetting of financial assets and liabilities The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. The cost of inventories includes all necessary costs of purchase, costs of conversion, and other costs in bringing the inventories to a salable and useable location and condition. The fixed production overhead is allocated to the finished goods and work in progress based on the normal capacity of production facilities. Variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. At each period-end, inventories are measured at the lower of cost or net realizable value. The cost of inventories is based on the weighted-average-cost formula. Net realizable value is calculated based on the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses at the end of the period. (i) Property, plant and equipment i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as those of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses. ii) Subsequent cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred.

12 iii) Depreciation (j) Leases The depreciable amount of an asset is determined after deducting the asset s residual amount, and it shall be allocated on a systematic basis over the asset s useful life. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period shall be recognized in profit or loss. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life. Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 1) Buildings and improvements: 3~55 years. 2) Machinery and equipment: 2~15 years. 3) Transportation equipment: 3~6 years. 4) Office equipment and others: 3~15 years. Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change(s) is accounted for as a change in accounting estimate. Leases in which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. On initial recognition, the lease asset is measured at an amount equal to the lower of its fair value or the present of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. Other leases are operating leases and are not recognized in the Group s statement of financial position.

13 Payments made under an operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (k) Intangible assets Other intangible assets that are acquired by the Group are measured at cost less accumulated amortization and any accumulated impairment losses. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. The amortizable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives (6 years) of intangible assets from the date that they are available for use. The residual value, amortization period, and amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as a change in accounting estimate. (l) Deferred expense The cost of purchased computer software will be deferred and amortized accordingly over the estimated useful life based on its future economic benefits. (m) Impairment Non-derivative financial assets The Group assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) may have been impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. The Group recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount. The Group reverses impairment losses recognized in prior periods for assets if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods. (n) Product warranty obligations A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (o) Treasury stock

14 The outstanding shares of the Company purchased back by it should be recorded as treasury stock at the purchasing cost before such shares are disposed of or retired. If treasury stock is disposed of afterward, the difference is recorded as capital surplus when the disposal price is higher than the carrying amount; when the situation is reversed, the difference is recorded as a reduction of capital surplus generated from treasury stock transactions, and any insufficiency is applied to retained earnings. The carrying amount of the treasury stock is calculated by using the weighted-average method, and determined individually by each repurchasing reason. When retiring treasury stock, common stock and capital surplus derived from paid-in capital in excess of par value should be eliminated proportionally. If the carrying amount of retired treasury stock is higher than the eliminated amount of common stock and capital surplus, then the difference is recorded as a reduction of capital surplus derived from treasury stock, with any insufficiency applied to retained earnings; when the situation is reversed, the difference is recorded as capital surplus. (p) Revenue recognition Revenue is recognized when titles to the products and the risks and rewards of ownership are transferred to the customers. Related costs and expenses matching the revenues are recognized as incurred. Allowances for estimated sales returns and discounts are provided in the period the related revenue is recognized based on historical experience. (q) Employee benefits i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date (market yields of highquality corporate bonds or government bonds) on bonds that have maturity dates approximating the terms of the Company s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited

15 to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss. The Group recognizes in other comprehensive income the actuarial gains and losses which exceed 10% of the defined benefit plan or the fair value of the plan asset based on the expected average remaining service years of the employees participating in the plan. The Group recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, any change in the present value of the defined benefit obligation, and any related actuarial gains or losses and past service cost that had not previously been recognized. iii) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

16 (r) Share-based payments The grant-date fair value of share-based payment awards granted to employees is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards whose related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes. (s) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the exceptions below: i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) at the time of the transaction. ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse. iii) Initial recognition of goodwill. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.

17 Deferred tax assets and liabilities may be offset against each other if the following criteria are met: i) The entity has the legal right to settle tax assets and liabilities on a net basis; and ii) The taxing of deferred tax assets and liabilities fulfills one of the scenarios below: 1) Levied by the same taxing authority; or 2) Levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. (t) Employees bonuses and directors and supervisors remuneration Employees bonuses and directors and supervisors remuneration appropriated by the Company and its domestic subsidiaries are accounted in accordance with the Company s articles of incorporation and are recorded as either operating costs or operating expenses. Any differences between the amount approved in the shareholders meeting and that recognized in the financial statements are accounted for as changes in accounting estimates and recognized as profit or loss. (u) Earnings per share The Group discloses the Company s basic and diluted earnings per share attributable to ordinary shareholders of the Company. The basic earnings per share are calculated as the profit attributable to the ordinary shareholders of the Company divided by the weighted-average number of ordinary shares outstanding. The diluted earnings per share are calculated as the profit attributable to ordinary shareholders of the Company divided by the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.