Shandong Airlines Co., Ltd.
Independent Auditors' Report
Ruihua Shen Zi[2017] No.4845002
Content
A. Independent Auditors'Report········································································ 1 B. Audited Financial Statements
通讯地址：北京市东城区永定门西滨河路8号院7号楼中海地产广场西塔5-11层
Postal Address:5-11/F,West Tower of China Overseas Property Plaza, Building 7,NO.8,Yongdingmen
Xibinhe Road, Dongcheng District, Beijing
邮政编码（PostCode）：100077
电话（Tel）：+86(10)88095588传真（Fax）：+86(10)88091190
IndependentAuditor’s Report
Ruihua Shen Zi[2017] No.4845002 To The Board of Directors of Shandong Airlines Co.,Ltd.：
We have audited the accompanying financial statements of Shandong Airlines Co., Ltd. (hereafter, Shandong Airlines), which comprise the consolidated and separate statements of financial position as at 31 December 2016, the consolidated and separate statements of comprehensive income, the consolidated and separate statements of cash flows and the consolidated and separate statements of changes in shareholders' equity for the year then ended and a summary of significant accounting policies and other explanatory notes.
ⅠManagement’s responsibility for the financial statements
Management of Shandong Airlines is responsible for the preparation and fair presentation of financial statements. This responsibility includes: (1) preparation of financial statements in accordance with Enterprise Accounting Standards of China and for the purpose of fair presentation; (2) designing, implementing and maintaining internal control necessary to the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
ⅡAuditors’ responsibility
Our responsibility is to express an opinion on those financial statements based on our audit. We conducted our audit in accordance with the Chinese Certified Public Accountants' Auditing Standards (hereafter, the Standards). The Standards require that we comply with Chinese Certified Public Accountants Ethical Requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.
An audit involves the performance of audit procedures to obtain audit evidence relevant to the amounts and disclosures in the financial statements. The procedures selected depend on judgment of the Certified Public Accountants (hereafter, the CPAs), including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the CPAs consider internal control relevant to theentity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Ⅲ Audit opinion
In our opinion, the financial statements of Shandong Airlines have been prepared in accordance with the Enterprise Accounting Standards of China and present fairly, in all material respects, the consolidated and separate financial position of Shandong Airlines Co., Ltd. as at 31 December 2016 and its consolidated and separate financial performance and cash flows for the year then ended.
Ruihua Certified Public Accountants Certified Public Accountants
Yang Yunhui
China. Beijing Certified Public Accountants
Guo Yuefeng
28 March 2017
II. Audited Financial Statement
Statement in Financial Notes are carried in RMB/CNY
1. Consolidated Statement of Financial Position
Prepared by Shandong Airlines Co., Ltd
2016-12-31
In RMB
||||
|-|-|-|
|Item|Closing balance|Opening balance|
|Current assets:|||
|Monetary funds|791,255,686.65|1,415,399,630.60|
|Settlement provisions|||
|Capital lent|||
|Financial liability measured by fair|||
|value and with variation reckoned into|||
|current gains/losses|||
|Derivative financial liability|||
|Notes receivable|||
||322,774,169.85|255,782,921.88|
|Accounts receivable|||
|Accounts paid in advance|249,136,244.95|154,897,777.19|
|Insurance receivable|||
|Reinsurance receivables|||
|Contract reserve of reinsurance|||
|receivable|||
|Interest receivable|||
|Dividend receivable||4,381,900.00|
|Other receivables|351,000,324.78|280,489,032.02|
|Purchase restituted finance asset|||
|Inventories|120,965,243.56|112,307,440.99|
|Divided into assets held for sale|||
|Non-current asset due within one|||
|year|||
|Other current assets|59,685,735.09|46,425,506.53|
|Total current assets|1,894,817,404.88|2,269,684,209.21|
|Non-current assets:|||
|Loans and payments on behalf|||

||||
|-|-|-|
|Finance asset available for sales|271,872,182.34|221,122,773.92|
|Held-to-maturity investment|||
|Long-term account receivable|||
|Long-term equity investment|||
|Investment property|||
|Fixed assets|7,093,233,151.79|7,156,258,169.93|
|Construction in progress|2,250,500,462.35|2,062,310,572.89|
|Engineering material|||
|Disposal of fixed asset|||
|Productive biological asset|||
|Oil and gas asset|||
|Intangible assets|114,203,753.20|115,405,609.56|
|Expense on Research and|||
|Development|||
|Goodwill|||
|Long-term expenses to be|475,562,660.08|446,508,148.36|
|apportioned|||
|Deferred income tax asset|641,785,173.89|453,818,799.19|
|Other non-current asset||23,794,314.90|
|Total non-current asset|10,847,157,383.65|10,479,218,388.75|
|Total assets|12,741,974,788.53|12,748,902,597.96|
|Current liabilities:|||
|Short-term loans|||
|Loan from central bank|||
|Absorbing deposit and interbank|||
|deposit|||
|Capital borrowed|||
|Financial liability measured by fair|||
|value and with variation reckoned into|1,155,815.80|3,370,447.62|
|current gains/losses|||
|Derivative financial liability|||
|Notes payable||25,299,479.50|
|Accounts payable|1,688,094,861.09|1,128,629,695.55|
|Accounts received in advance|699,319,553.05|432,216,409.37|
|Selling financial asset of|||
|repurchase|||
|Commission charge and|||
|commission payable|||

||||
|-|-|-|
|Wage payable|454,375,029.19|455,788,600.48|
|Taxes payable|138,661,805.16|105,147,871.19|
|Interest payable|2,430,456.90|3,638,536.32|
|Dividend payable|11,940.00|11,940.00|
|Other accounts payable|401,854,436.21|355,629,762.77|
|Reinsurance payables|||
|Insurance contract reserve|||
|Security trading of agency|||
|Security sales of agency|||
|Divided into liability held for sale|||
|Non-current liabilities due within 1|987,644,012.02|1,487,011,320.66|
|year|||
|Other current liabilities|||
|Total current liabilities|4,373,547,909.42|3,996,744,063.46|
|Non-current liabilities:|||
|Long-term loans|1,799,601,767.54|2,887,701,872.70|
|Bonds payable|||
|Including: preferred stock|||
|Perpetual capital|||
|securities|||
|Long-term account payable|2,534,202,090.26|2,366,241,176.93|
|Long-term wages payable|94,130,651.51|84,214,087.72|
|Special accounts payable|||
|Projected liabilities|||
|Deferred income|58,439,521.16|15,795,524.10|
|Deferred income tax liabilities|45,880,020.58|33,192,668.48|
|Other non-current liabilities|||
|Total non-current liabilities|4,532,254,051.05|5,387,145,329.93|
|Total liabilities|8,905,801,960.47|9,383,889,393.39|
|Owner’s equity:|||
|Share capital|400,000,000.00|400,000,000.00|
|Other equity instrument|||
|Including: preferred stock|||
|Perpetual capital|||
|securities|||
|Capital public reserve|75,410,363.70|75,410,363.70|

||||
|-|-|-|
|Less: Inventory shares|||
|Other comprehensive income|131,880,061.76|93,555,005.44|
|Reasonable reserve|||
|Surplus public reserve|423,424,327.64|370,981,095.40|
|Provision of general risk|||
|Retained profit|2,805,458,074.96|2,425,066,740.03|
|Total owner’s equity attributable toparent company|3,836,172,828.06|3,365,013,204.57|
|Minority interests|||
|Total owner’s equity|3,836,172,828.06|3,365,013,204.57|
|Total liabilities and owner’s equity|12,741,974,788.53|12,748,902,597.96|

 Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
2. Consolidated Statement of Comprehensive Income
In RMB
||||
|-|-|-|
|Item|Current Period|Last Period|
|I. Total operating income|13,742,365,545.56|12,108,963,139.11|
|Including: Operating income|13,742,365,545.56|12,108,963,139.11|
|Interest income|||
|Insurance gained|||
|Commission charge and commission|||
|income|||
|II. Total operating cost|13,216,283,996.73|11,569,608,100.59|
|Including: Operating cost|11,890,173,404.59|10,199,586,342.94|
|Interest expense|||
|Commission charge and commission|||
|expense|||
|Cash surrender value|||
|Net amount of expense of|||
|compensation|||
|Net amount of withdrawal of|||
|insurance contract reserve|||
|Bonus expense of guarantee slip|||
|Reinsurance expense|||

||||
|-|-|-|
|Operating tax and extras|46,017,200.74|50,222,475.22|
|Sales expenses|674,961,176.53|713,698,896.12|
|Administration expenses|333,943,862.70|280,697,316.52|
|Financial expenses|261,876,586.15|319,822,620.05|
|Losses of devaluation of asset|9,311,766.02|5,580,449.74|
|Add: Changing income of fair|||
||2,214,631.82|-1,810,736.85|
|value(Loss is listed with “-”)|||
|Investment income (Loss is listed|||
||17,359,703.12|35,503,600.77|
|with “-”)|||
|Including: Investment income on|||
|||-17,729,201.91|
|affiliated company and joint venture|||
|Exchange income (Loss is listed|||
|with “-”)|||
|III. Operating profit (Loss is listed with|||
||545,655,883.77|573,047,902.44|
|“-”)|||
|Add: Non-operating income|168,716,626.89|139,759,804.28|
|Including: Disposal gains of|||
||68,054.80|454,266.84|
|non-current asset|||
|Less: Non-operating expense|4,998,459.07|1,799,031.90|
|Including: Disposal loss of|||
||3,459,280.00|1,402,588.79|
|non-current asset|||
|IV. Total Profit (Loss is listed with “-”)|709,374,051.59|711,008,674.82|
|Less: Income tax expense|176,539,484.42|178,747,681.78|
|V. Net profit (Net loss is listed with “-”)|532,834,567.17|532,260,993.04|
|Net profit attributable to owner’s of|||
||532,834,567.17|532,260,993.04|
|parent company|||
|Minority shareholders’ gains and|||
|losses|||
|VI. Net after-tax of other comprehensive|||
||38,325,056.32|34,631,831.18|
|income|||
|Net after-tax of other comprehensive|||
|income attributable to owners of parent|38,325,056.32|34,631,831.18|
|company|||
|(I) Other comprehensive income|||
|items which will not be reclassified|263,000.00|-5,281,000.00|
|subsequently to profit of loss|||
|1. Changes as a result of|||
||263,000.00|-5,281,000.00|
|re-measurement of net defined benefit|||

||||
|-|-|-|
|plan liability or asset|||
|2. Share of the other|||
|comprehensive income of the investee|||
|accounted for using equity method which|||
|will not be reclassified subsequently to|||
|profit and loss|||
|(II) Other comprehensive income|||
|items which will be reclassified|38,062,056.32|39,912,831.18|
|subsequently to profit or loss|||
|1. Share of the other|||
|comprehensive income of the investee|||
|accounted for using equity method which|||
|will be reclassified subsequently to profit|||
|or loss|||
|2. Gains or losses arising|||
|from changes in fair value of|38,062,056.32|39,912,831.18|
|available-for-sale financial assets|||
|3. Gains or losses arising|||
|from reclassification of held-to-maturity|||
|investment as available-for-sale financial|||
|assets|||
|4. The effect hedging portion|||
|of gains or losses arising from cash flow|||
|hedging instruments|||
|5. Translation differences|||
|arising on translation of foreign currency|||
|financial statements|||
|6. Other|||
|Net after-tax of other comprehensive|||
|income attributable to minority|||
|shareholders|||
|VII. Total comprehensive income|571,159,623.49|566,892,824.22|
|Total comprehensive income|||
||571,159,623.49|566,892,824.22|
|attributable to owners of parent Company|||
|Total comprehensive income|||
|attributable to minority shareholders|||
|VIII. Earnings per share:|||
|(i) Basic earnings per share|1.33|1.33|
|(ii) Diluted earnings per share|1.33|1.33|

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Sun Jingping
3. Consolidated Cash Flow
In RMB
||||
|-|-|-|
|Item|Current Period|Last Period|
|I. Cash flows arising from operating|||
|activities:|||
|Cash received from selling|||
|commodities and providing labor|15,292,555,234.22|13,450,288,283.26|
|services|||
|Net increase of customer deposit|||
|and interbank deposit|||
|Net increase of loan from central|||
|bank|||
|Net increase of capital borrowed|||
|from other financial institution|||
|Cash received from original|||
|insurance contract fee|||
|Net cash received from reinsurance|||
|business|||
|Net increase of insured savings and|||
|investment|||
|Net increase of amount from|||
|disposal financial assets that measured|||
|by fair value and with variation|||
|reckoned into current gains/losses|||
|Cash received from interest,|||
|commission charge and commission|||
|Net increase of capital borrowed|||
|Net increase of returned business|||
|capital|||
|Write-back of tax received|||
|Other cash received concerning|||
||250,348,958.09|162,874,095.46|
|operating activities|||
|Subtotal of cash inflow arising from|||
||15,542,904,192.31|13,613,162,378.72|
|operating activities|||
|Cash paid for purchasing|||
|commodities and receiving labor|9,817,458,407.43|8,591,292,349.65|
|service|||

||||
|-|-|-|
|Net increase of customer loans and|||
|advances|||
|Net increase of deposits in central|||
|bank and interbank|||
|Cash paid for original insurance|||
|contract compensation|||
|Cash paid for interest, commission|||
|charge and commission|||
|Cash paid for bonus of guarantee|||
|slip|||
|Cash paid to/for staff and workers|2,335,621,670.49|1,917,771,707.59|
|Taxes paid|668,268,335.05|449,591,891.48|
|Other cash paid concerning|||
||294,499,790.92|230,048,586.99|
|operating activities|||
|Subtotal of cash outflow arising from|||
||13,115,848,203.89|11,188,704,535.71|
|operating activities|||
|Net cash flows arising from operating|||
||2,427,055,988.42|2,424,457,843.01|
|activities|||
|II. Cash flows arising from investing|||
|activities:|||
|Cash received from recovering|||
|||200,800,000.00|
|investment|||
|Cash received from investment|||
||23,018,666.90|8,790,345.41|
|income|||
|Net cash received from disposal of|||
|fixed, intangible and other long-term|1,819,289.52|92,325,889.51|
|assets|||
|Net cash received from disposal of|||
|subsidiaries and other units|||
|Other cash received concerning|||
|investing activities|||
|Subtotal of cash inflow from investing|||
||24,837,956.42|301,916,234.92|
|activities|||
|Cash paid for purchasing fixed,|||
||2,170,224,417.98|2,182,192,631.16|
|intangible and other long-term assets|||
|Cash paid for investment|||
|Net increase of mortgaged loans|||
|Net cash received from|||

||||
|-|-|-|
|subsidiaries and other units obtained|||
|Other cash paid concerning|||
||1,277,063.78|2,693,748.52|
|investing activities|||
|Subtotal of cash outflow from investing|||
||2,171,501,481.76|2,184,886,379.68|
|activities|||
|Net cash flows arising from investing|||
||-2,146,663,525.34|-1,882,970,144.76|
|activities|||
|III. Cash flows arising from financing|||
|activities|||
|Cash received from absorbing|||
|investment|||
|Including: Cash received from|||
|absorbing minority shareholders’|||
|investment by subsidiaries|||
|Cash received from loans|296,000,000.00|1,104,981,104.70|
|Cash received from issuing bonds|||
|Other cash received concerning|||
||1,221,674,080.70|1,619,738,784.33|
|financing activities|||
|Subtotal of cash inflow from financing|||
||1,517,674,080.70|2,724,719,889.03|
|activities|||
|Cash paid for settling debts|2,074,680,400.72|1,940,752,605.33|
|Cash paid for dividend and profit|||
||200,798,539.33|222,540,239.21|
|distributing or interest paying|||
|Including: Dividend and profit of|||
|minority shareholder paid by|||
|subsidiaries|||
|Other cash paid concerning|||
||188,394,977.32|174,680,444.93|
|financing activities|||
|Subtotal of cash outflow from financing|||
||2,463,873,917.37|2,337,973,289.47|
|activities|||
|Net cash flows arising from financing|||
||-946,199,836.67|386,746,599.56|
|activities|||
|IV. Influence on cash and cash|||
|equivalents due to fluctuation in|41,663,429.64|26,423,996.44|
|exchange rate|||
|V. Net increase of cash and cash|||
||-624,143,943.95|954,658,294.25|
|equivalents|||
|Add: Balance of cash and cash|||
||1,415,399,630.60|460,741,336.35|
|equivalents at the period -begin|||

||||
|-|-|-|
|VI. Balance of cash and cashequivalents at the period -end|||
||791,255,686.65|1,415,399,630.60|

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
4. Consolidated Statement of Changes in Equity
This Period
In RMB
|||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
||This Period|||||||||||||
||Owners’ equity attributable to parent company|||||||||||||
|||Other||||||||||||
|||equity instrument||||||||||||
|Item||||||||||||Minorit|Total|
|||||||Less:|Other|||Provisio||||
||Share||Perpet|||||Reason||||y|owners’|
||capital|Prefer|ual||Capitalreserve|Inventory|comprehensive|able|Surplusreserve|n ofgeneral|Retained profit|interests|equity|
|||red|capita|Other||shares|income|reserve||risk||||
||||l|||||||||||
|||stock||||||||||||
||||securi|||||||||||
||||ties|||||||||||
||400,00||||||||||2,425,0||3,365,0|
|I. Balance at the|||||75,410,||93,555,||370,981|||||
||0,000.||||||||||66,740.||13,204.|
|end of the last year|||||363.70||005.44||,095.40|||||
||00||||||||||03||57|
|Add:||||||||||||||
|Changes of||||||||||||||
|accounting policy||||||||||||||
|Error||||||||||||||
|correction of the||||||||||||||
|last period||||||||||||||
|Enterprise||||||||||||||
|combine under||||||||||||||
|the same control||||||||||||||
|Other||||||||||||||
||400,00||||||||||2,425,0||3,365,0|
|II. Balance at the|||||75,410,||93,555,||370,981|||||
|beginning of this|0,000.||||||||||66,740.||13,204.|
||||||363.70||005.44||,095.40|||||
|year|00||||||||||03||57|
|III. Increase/||||||||||||||
||||||||38,325,||52,443,||380,391||471,159|
|Decrease in this||||||||||||||
|year (Decrease is|||||||056.32||232.24||,334.93||,623.49|
|listed with “-”)||||||||||||||
|(i) Total|||||||38,325,||||532,834||571,159|
|comprehensive||||||||||||||
||||||||056.32||||,567.17||,623.49|
|income||||||||||||||
|(ii) Owners’||||||||||||||
|devoted and||||||||||||||

|||||
|-|-|-|-|
|decreased capital||||
|1.Common shares||||
|invested by||||
|shareholders||||
|2. Capital invested||||
|by holders of other||||
|equity instruments||||
|3. Amount||||
|reckoned into||||
|owners equity with||||
|share-based||||
|payment||||
|4. Other||||
|||-152,44|-100,00|
||52,443,|||
|(III) Profit||||
|||3,232.2|0,000.0|
|distribution|232.24|||
|||4|0|
||52,443,|-52,443,||
|1. Withdrawal of||||
|surplus reserves|232.24|232.24||
|2. Withdrawal of||||
|general risk||||
|provisions||||
|||-100,00|-100,00|
|3. Distribution for||||
|owners (or||0,000.0|0,000.0|
|shareholders)||0|0|
|4. Other||||
|(IV) Carrying||||
|forward internal||||
|owners’ equity||||
|1. Capital reserves||||
|conversed to||||
|capital (share||||
|capital)||||
|2. Surplus reserves||||
|conversed to||||
|capital (share||||
|capital)||||
|3. Remedying loss||||
|with surplus||||
|reserve||||
|4. Other||||
|(V) Reasonable||||
|reserve||||
|1. Withdrawal in||||
|the report period||||
|2. Usage in the||||
|report period||||

||||||||
|-|-|-|-|-|-|-|
|(VI)Others|||||||
||400,00||||2,805,4|3,836,172,828.06|
|IV. Balance at the||75,410,|131,880|423,424|||
|end of the report|0,000.||||58,074.||
|||363.70|,061.76|,327.64|||
|period|00||||96||

 Last Period
In RMB
|||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
||Last Period|||||||||||||
||Owners’ equity attributable to the parent Company|||||||||||||
|||Other|||Capital||||Surplus||Retaine|||
|||equity instrument||||||||||||
|||||||||||||Minorit||
|Item||||||||||||||
||Share||Perpetual|||Less:Invento|Othercompre|Reasonable||Provision of||yinterest|Totalowners’|
||capital|Preferred|capital|Other|reserve|ryshares|hensiveincome|reserve|reserve|generalrisk|d profit|s|equity|
|||stock||||||||||||
||||securi|||||||||||
||||ties|||||||||||
||400,00||||||||||2,025,5||2,878,1|
||||||75,410,||58,923,||318,250|||||
|I. Balance at the||||||||||||||
||0,000.||||||||||35,984.||20,380.|
|end of the last year|||||363.70||174.26||,857.40|||||
||00||||||||||99||35|
|Add:||||||||||||||
|Changes of||||||||||||||
|accounting policy||||||||||||||
|Error||||||||||||||
|correction of the||||||||||||||
|last period||||||||||||||
|Enterprise||||||||||||||
|combine under the||||||||||||||
|same control||||||||||||||
|Other||||||||||||||
||400,00||||||||||2,025,5||2,878,1|
|II. Balance at the|||||75,410,||58,923,||318,250|||||
|beginning of this|0,000.||||||||||35,984.||20,380.|
||||||363.70||174.26||,857.40|||||
|year|00||||||||||99||35|
|III. Increase/||||||||||||||
||||||||34,631,||52,730,||399,530||486,892|
|Decrease in this||||||||||||||
|year (Decrease is|||||||831.18||238.00||,755.04||,824.22|
|listed with “-”)||||||||||||||
|(i) Total|||||||34,631,||||532,260||566,892|
|comprehensive||||||||||||||
||||||||831.18||||,993.04||,824.22|
|income||||||||||||||
|(ii) Owners’||||||||||||||
|devoted and||||||||||||||
|decreased capital||||||||||||||
|1.Common shares||||||||||||||
|invested by||||||||||||||
|shareholders||||||||||||||

||||||||
|-|-|-|-|-|-|-|
|2. Capital invested|||||||
|by holders of other|||||||
|equity instruments|||||||
|3. Amount|||||||
|reckoned into|||||||
|owners equity with|||||||
|share-based|||||||
|payment|||||||
|4 Other|||||||
||||||-132,73||
|||||52,730,||-80,000,|
|(III) Profit|||||||
||||||0,238.0||
|distribution||||238.00||000.00|
||||||0||
|||||52,730,|-52,730,||
|1. Withdrawal of|||||||
|surplus reserves||||238.00|238.00||
|2. Withdrawal of|||||||
|general risk|||||||
|provisions|||||||
|3. Distribution for|||||-80,000,|-80,000,|
|owners (or|||||||
||||||000.00|000.00|
|shareholders)|||||||
|4. Other|||||||
|(IV) Carrying|||||||
|forward internal|||||||
|owners’ equity|||||||
|1. Capital reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|2. Surplus reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|3. Remedying loss|||||||
|with surplus|||||||
|reserve|||||||
|4. Other|||||||
|(V) Reasonable|||||||
|reserve|||||||
|1. Withdrawal in|||||||
|the report period|||||||
|2. Usage in the|||||||
|report period|||||||
|(VI)Others|||||||
||400,00||||2,425,0|3,365,0|
|IV. Balance at the||75,410,|93,555,|370,981|||
|end of the report|0,000.||||66,740.|13,204.|
|||363.70|005.44|,095.40|||
|period|00||||03|57|

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
5. Statement of Financial Position
In RMB
||||
|-|-|-|
|Item|Closing balance|Opening balance|
|Current assets:|||
||761,645,065.66|1,401,853,786.39|
|Monetary funds|||
|Financial liability measured by fair|||
|value and with variation reckoned into|||
|current gains/losses|||
|Derivative financial liability|||
|Notes receivable|||
|Accounts receivable|322,884,254.40|251,589,118.43|
|Account paid in advance|248,747,945.46|153,733,245.51|
|Interest receivable|||
|Dividends receivable||4,381,900.00|
|Other receivables|394,481,947.14|323,753,261.30|
|Inventories|120,965,243.56|112,307,440.99|
|Divided into assets held for sale|||
|Non-current assets maturing within|||
|one year|||
|Other current assets|59,685,735.09|46,425,506.53|
|Total current assets|1,908,410,191.31|2,294,044,259.15|
|Non-current assets:|||
|Available-for-sale financial assets|271,872,182.34|221,122,773.92|
|Held-to-maturity investments|||
|Long-term receivables|||
|Long-term equity investments|106,000,685.43|106,000,685.43|
|Investment property|||
|Fixed assets|7,000,694,540.06|7,055,065,593.26|
|Construction in progress|2,250,424,462.35|2,062,234,572.89|
|Project materials|||
|Disposal of fixed assets|||
|Productive biological assets|||

||||
|-|-|-|
|Oil and natural gas assets|||
|Intangible assets|100,261,260.93|101,074,925.84|
|Research and development costs|||
|Goodwill|||
|Long-term deferred expenses|475,562,660.08|446,508,148.36|
|Deferred income tax assets|641,017,982.18|453,010,410.16|
|Other non-current assets||23,794,314.90|
|Total non-current assets|10,845,833,773.37|10,468,811,424.76|
|Total assets|12,754,243,964.68|12,762,855,683.91|
|Current liabilities:|||
|Short-term borrowings|||
|Financial liability measured by fair|||
|value and with variation reckoned into|1,155,815.80|3,370,447.62|
|current gains/losses|||
|Derivative financial liability|||
|Notes payable||25,299,479.50|
|Accounts payable|1,702,743,063.11|1,139,113,395.22|
|Accounts received in advance|693,918,823.76|425,229,854.14|
|Wage payable|450,079,741.59|449,749,937.20|
|Taxes payable|137,221,799.65|103,940,014.68|
|Interest payable|2,430,456.90|3,638,536.32|
|Dividend payable|11,940.00|11,940.00|
|Other accounts payable|425,862,312.50|380,180,859.11|
|Divided into liability held for sale|||
|Non-current liabilities due within 1|||
||987,644,012.02|1,487,011,320.66|
|year|||
|Other current liabilities|||
|Total current liabilities|4,401,067,965.33|4,017,545,784.45|
|Non-current liabilities:|||
|Long-term loans|1,799,601,767.54|2,887,701,872.70|
|Bonds payable|||
|Including: preferred stock|||
|Perpetual capital|||
|securities|||
|Long-term account payable|2,534,202,090.26|2,366,241,176.93|

||||
|-|-|-|
|Long-term wages payable|94,130,651.51|84,214,087.72|
|Special accounts payable|||
|Projected liabilities|||
|Deferred income|58,439,521.16|15,795,524.10|
|Deferred income tax liabilities|45,880,020.58|33,192,668.48|
|Other non-current liabilities|||
|Total non-current liabilities|4,532,254,051.05|5,387,145,329.93|
|Total liabilities|8,933,322,016.38|9,404,691,114.38|
|Owners’ equity:|||
|Share capita|400,000,000.00|400,000,000.00|
|Other equity instrument|||
|Including: preferred stock|||
|Perpetual capital|||
|securities|||
|Capital public reserve|86,911,168.71|86,911,168.71|
|Less: Inventory shares|||
|Other comprehensive income|131,880,061.76|93,555,005.44|
|Reasonable reserve|||
|Surplus reserve|422,763,623.11|370,320,390.87|
|Retained profit|2,779,367,094.72|2,407,378,004.51|
|Total owner’s equity|3,820,921,948.30|3,358,164,569.53|
|Total liabilities and owner’s equity|12,754,243,964.68|12,762,855,683.91|

 Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
6. Statement of Comprehensive Income
In RMB
||||
|-|-|-|
|Item|Current Period|Last Period|
|I. Operating income|13,715,153,317.42|12,088,523,588.18|
|Less: Operating cost|11,883,288,895.95|10,195,787,859.35|
|Operating tax and extras|44,130,493.73|49,894,195.77|
|Sales expenses|674,961,176.53|713,698,896.12|
|Administration expenses|326,189,363.91|272,307,927.95|
|Financial expenses|261,933,134.34|319,882,738.89|

||||
|-|-|-|
|Losses of devaluation of asset|9,476,555.32|5,517,603.31|
|Add: Changing income of fair|||
||2,214,631.82|-1,810,736.85|
|value(Loss is listed with “-”)|||
|Investment income (Loss is|||
||17,359,703.12|35,503,600.77|
|listed with “-”)|||
|Including: Investment income|||
|||-17,729,201.91|
|on affiliated company and joint venture|||
|II. Operating profit (Loss is listed|||
||534,748,032.58|565,127,230.71|
|with “-”)|||
|Add: Non-operating income|168,710,639.01|139,759,441.46|
|Including: Disposal gains of|||
||64,854.80|453,904.02|
|non-current asset|||
|Less: Non-operating expense|4,994,421.07|1,663,627.60|
|Including: Disposal loss of|||
||3,455,242.00|1,388,386.05|
|non-current asset|||
|III. Total Profit (Loss is listed with|||
||698,464,250.52|703,223,044.57|
|“-”)|||
|Less: Income tax expense|174,031,928.07|175,920,664.61|
|IV. Net profit (Net loss is listed with|||
||524,432,322.45|527,302,379.96|
|“-”)|||
|V. Net after-tax of other comprehensive|||
||38,325,056.32|34,631,831.18|
|income|||
|(I) Other comprehensive income|||
|items which will not be reclassified|263,000.00|-5,281,000.00|
|subsequently to profit of loss|||
|1. Changes as a result of|||
|re-measurement of net defined benefit|263,000.00|-5,281,000.00|
|plan liability or asset|||
|2. Share of the other|||
|comprehensive income of the investee|||
|accounted for using equity method|||
|which will not be reclassified|||
|subsequently to profit and loss|||
|(II) Other comprehensive income|||
|items which will be reclassified|38,062,056.32|39,912,831.18|
|subsequently to profit or loss|||
|1. Share of the other|||
|comprehensive income of the investee|||
|accounted for using equity method|||
|which will be reclassified subsequently|||

||||
|-|-|-|
|to profit or loss|||
|2. Gains or losses arising|||
|from changes in fair value of|38,062,056.32|39,912,831.18|
|available-for-sale financial assets|||
|3. Gains or losses arising|||
|from reclassification of held-to-maturity|||
|investment as available-for-sale|||
|financial assets|||
|4. The effect hedging|||
|portion of gains or losses arising from|||
|cash flow hedging instruments|||
|5. Translation differences|||
|arising on translation of foreign|||
|currency financial statements|||
|6. Other|||
|VI. Total comprehensive income|562,757,378.77|561,934,211.14|
|VII. Earnings per share:|||
|(i) Basic earnings per share|||
|(ii) Diluted earnings per share|||

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
7. Statement of Cash Flows
In RMB
||||
|-|-|-|
|Item|Current Period|Last Period|
|I. Cash flows arising from operating|||
|activities:|||
|Cash received from selling|||
|commodities and providing labor|15,258,749,693.82|13,429,749,687.19|
|services|||
|Write-back of tax received|||
|Other cash received concerning|||
||249,661,725.51|162,801,165.42|
|operating activities|||
|Subtotal of cash inflow arising from|||
||15,508,411,419.33|13,592,550,852.61|
|operating activities|||
|Cash paid for purchasing|||
|commodities and receiving labor|9,826,140,303.09|8,600,632,282.93|
|service|||

||||
|-|-|-|
|Cash paid to/for staff and workers|2,315,580,568.87|1,901,307,673.50|
|Taxes paid|661,815,142.14|443,278,621.72|
|Other cash paid concerning|||
||294,240,359.26|220,894,486.70|
|operating activities|||
|Subtotal of cash outflow arising from|||
||13,097,776,373.36|11,166,113,064.85|
|operating activities|||
|Net cash flows arising from operating|||
||2,410,635,045.97|2,426,437,787.76|
|activities|||
|II. Cash flows arising from investing|||
|activities:|||
|Cash received from recovering|||
|||200,800,000.00|
|investment|||
|Cash received from investment|||
||23,018,666.90|8,790,345.41|
|income|||
|Net cash received from disposal of|||
|fixed, intangible and other long-term|1,816,869.52|92,325,246.19|
|assets|||
|Net cash received from disposal of|||
|subsidiaries and other units|||
|Other cash received concerning|||
|investing activities|||
|Subtotal of cash inflow from investing|||
||24,835,536.42|301,915,591.60|
|activities|||
|Cash paid for purchasing fixed,|||
||2,169,865,832.31|2,181,604,686.27|
|intangible and other long-term assets|||
|Cash paid for investment|||
|Net cash received from|||
|subsidiaries and other units|||
|Other cash paid concerning|||
||1,277,063.78|2,693,748.52|
|investing activities|||
|Subtotal of cash outflow from investing|||
||2,171,142,896.09|2,184,298,434.79|
|activities|||
|Net cash flows arising from investing|||
||-2,146,307,359.67|-1,882,382,843.19|
|activities|||
|III. Cash flows arising from financing|||
|activities|||
|Cash received from absorbing|||
|investment|||

||||
|-|-|-|
|Cash received from loans|296,000,000.00|1,104,981,104.70|
|Cash received from issuing bonds|||
|Other cash received concerning|||
||1,221,674,080.70|1,619,738,784.33|
|financing activities|||
|Subtotal of cash inflow from financing|||
||1,517,674,080.70|2,724,719,889.03|
|activities|||
|Cash paid for settling debts|2,074,680,400.72|1,940,752,605.33|
|Cash paid for dividend and profit|||
||200,798,539.33|222,540,239.21|
|distributing or interest paying|||
|Other cash paid concerning|||
||188,394,977.32|174,680,444.93|
|financing activities|||
|Subtotal of cash outflow from financing|||
||2,463,873,917.37|2,337,973,289.47|
|activities|||
|Net cash flows arising from financing|||
||-946,199,836.67|386,746,599.56|
|activities|||
|IV. Influence on cash and cash|||
|equivalents due to fluctuation in|41,663,429.64|26,423,996.44|
|exchange rate|||
|V. Net increase of cash and cash|||
||-640,208,720.73|957,225,540.57|
|equivalents|||
|Add: Balance of cash and cash|||
||1,401,853,786.39|444,628,245.82|
|equivalents at the period -begin|||
|VI. Balance of cash and cash|||
||761,645,065.66|1,401,853,786.39|
|equivalents at the period -end|||

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
8. Statement of Changes in Equity
This Period
In RMB
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
||This Period|||||||||||
|||Other||||||||||
|||equity instrument||||||||||
||||||||Other||||Total|
|Item|Share||Perpetu||Capital|Less:|comprehe|Reasonab|Surplus|Retaine||
|||||||Inventory|||||owners’|
||capital||al||reserve||nsive|le reserve|reserve|d profit||
|||Preferre|capital|Other||shares|income||||equity|
|||d stock||||||||||
||||securiti|||||||||
||||es|||||||||

||||||||
|-|-|-|-|-|-|-|
||||||2,407,3||
||400,000,|86,911,16|93,555,00|370,320,3||3,358,164|
|I. Balance at the|||||||
||||||78,004.||
|end of the last year|000.00|8.71|5.44|90.87||,569.53|
||||||51||
|Add: Changes|||||||
|of accounting|||||||
|policy|||||||
|Error|||||||
|correction of the|||||||
|last period|||||||
|Other|||||||
||||||2,407,3||
|II. Balance at the|400,000,|86,911,16|93,555,00|370,320,3||3,358,164|
|beginning of this|||||78,004.||
||000.00|8.71|5.44|90.87||,569.53|
|year|||||51||
|III. Increase/|||||||
||||38,325,05|52,443,23|371,989|462,757,3|
|Decrease in this|||||||
|year (Decrease is|||6.32|2.24|,090.21|78.77|
|listed with “-”)|||||||
|(i) Total|||38,325,05||524,432|562,757,3|
|comprehensive|||||||
||||6.32||,322.45|78.77|
|income|||||||
|(ii) Owners’|||||||
|devoted and|||||||
|decreased capital|||||||
|1.Common shares|||||||
|invested by|||||||
|shareholders|||||||
|2. Capital invested|||||||
|by holders of other|||||||
|equity instruments|||||||
|3. Amount|||||||
|reckoned into|||||||
|owners equity with|||||||
|share-based|||||||
|payment|||||||
|4. Other|||||||
||||||-152,44||
|||||52,443,23||-100,000,|
|(III) Profit|||||||
||||||3,232.2||
|distribution||||2.24||000.00|
||||||4||
|||||52,443,23|-52,443,||
|1. Withdrawal of|||||||
|surplus reserves||||2.24|232.24||
|2. Distribution for|||||-100,00||
|||||||-100,000,|
|owners (or|||||0,000.0||
|||||||000.00|
|shareholders)|||||0||
|3. Other|||||||
|(IV) Carrying|||||||
|forward internal|||||||

||||||||
|-|-|-|-|-|-|-|
|owners’ equity|||||||
|1. Capital reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|2. Surplus reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|3. Remedying loss|||||||
|with surplus|||||||
|reserve|||||||
|4. Other|||||||
|(V) Reasonable|||||||
|reserve|||||||
|1. Withdrawal in|||||||
|the report period|||||||
|2. Usage in the|||||||
|report period|||||||
|(VI)Others|||||||
||||||2,779,3|3,820,921,948.30|
|IV. Balance at the|400,000,|86,911,16|131,880,0|422,763,6|||
|end of the report|||||67,094.||
||000.00|8.71|61.76|23.11|||
|period|||||72||

Last period
In RMB
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
||Last period|||||||||||
|||Other||||||||||
|||equity instrument||||||||||
||||||||Other||||Total|
|Item|Share||Perpetu||Capital|Less:|comprehe|Reasonab|Surplus|Retaine||
|||||||Inventory|||||owners’|
||capital||al||reserve||nsive|le reserve|reserve|d profit||
|||Preferre|capital|Other||shares|income||||equity|
|||d stock||||||||||
||||securiti|||||||||
||||es|||||||||
|||||||||||2,012,8||
||400,000,||||86,911,16||58,923,17||317,590,1||2,876,230|
|I. Balance at the||||||||||||
|||||||||||05,862.||
|end of the last year|000.00||||8.71||4.26||52.87||,358.39|
|||||||||||55||
|Add: Changes||||||||||||
|of accounting||||||||||||
|policy||||||||||||
|Error||||||||||||
|correction of the||||||||||||
|last period||||||||||||
|Other||||||||||||
|II. Balance at the||||||||||||
||400,000,||||86,911,16||58,923,17||317,590,1|2,012,8|2,876,230|
|beginning of this||||||||||||

||||||||
|-|-|-|-|-|-|-|
|year|000.00|8.71|4.26|52.87|05,862.|,358.39|
||||||55||
|III. Increase/|||||||
||||34,631,83|52,730,23|394,572|481,934,2|
|Decrease in this|||||||
|year (Decrease is|||1.18|8.00|,141.96|11.14|
|listed with “-”)|||||||
|(i) Total|||34,631,83||527,302|561,934,2|
|comprehensive|||||||
||||1.18||,379.96|11.14|
|income|||||||
|(ii) Owners’|||||||
|devoted and|||||||
|decreased capital|||||||
|1.Common shares|||||||
|invested by|||||||
|shareholders|||||||
|2. Capital invested|||||||
|by holders of other|||||||
|equity instruments|||||||
|3. Amount|||||||
|reckoned into|||||||
|owners equity with|||||||
|share-based|||||||
|payment|||||||
|4. Other|||||||
||||||-132,73||
|||||52,730,23||-80,000,0|
|(III) Profit|||||||
||||||0,238.0||
|distribution||||8.00||00.00|
||||||0||
|||||52,730,23|-52,730,||
|1. Withdrawal of|||||||
|surplus reserves||||8.00|238.00||
|2. Distribution for|||||||
||||||-80,000,|-80,000,0|
|owners (or|||||||
||||||000.00|00.00|
|shareholders)|||||||
|3. Other|||||||
|(IV) Carrying|||||||
|forward internal|||||||
|owners’ equity|||||||
|1. Capital reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|2. Surplus reserves|||||||
|conversed to|||||||
|capital (share|||||||
|capital)|||||||
|3. Remedying loss|||||||
|with surplus|||||||
|reserve|||||||
|4. Other|||||||

||||||||
|-|-|-|-|-|-|-|
|(V) Reasonable|||||||
|reserve|||||||
|1. Withdrawal in|||||||
|the report period|||||||
|2. Usage in the|||||||
|report period|||||||
|(VI)Others|||||||
||||||2,407,3||
|IV. Balance at the|400,000,|86,911,16|93,555,00|370,320,3||3,358,164|
|end of the report|||||78,004.||
||000.00|8.71|5.44|90.87||,569.53|
|period|||||51||

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian Person in charge of Accounting Institution: Sun Jingping
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Shandong Airlines Co., Ltd.
Notes to the Financial Statements
for the Year Ended 31 December 2016
(All amounts are expressed in CNY unless otherwise stated)
Note 1 Corporation profile
Shandong Airlines Co., Ltd. (hereafter, the Company) is a foreign-invested limited liability company incorporated in thePeople’s Republic of China. The Company was incorporated through the restructuring project jointly initiated by Shandong Airlines Group Co., Ltd. (hereafter, SDA Group), Inspur Co., Ltd. (previously known as Inspur Electronic Information Industry Group Company(浪潮电子信息产业集团公司), Shandong Hualu Group Co., Ltd, Shandong Group Corp. of Fisheries Enterprises and Luyin Investment Group(鲁银投资集团股份有限公司) following the approval (LuTiGaiQiZi(1999)No.88(鲁体改企字(1999)第88号)) granted by the Economic Reform Commission of Shandong Province(山东省经济体制改革委员会) on July 29th, 1999. Shandong Airlines Group Co., Ltd. acquired 259,204,000 state-owned corporate shares(国有法人股), with CNY 1.00 at par, of the Company by transferring its air transportation operation and the related assets and liabilities to the Company on November 25th, 1999. Inspur Co., Ltd., Shandong Hualu Group Co., Ltd. and Shandong Group Corp. of Fisheries Enterprises each acquired 199,000 state-owned corporate shares, with CNY 1.00 at par, by cash investment of CNY 200,000.00 each on November 26th, 1999. Luyin Investment Group acquired 199,000 domestic corporate shares(国内法人股), with CNY 1.00 at par, by cash investment of CNY 200,000.00 on November 26th, 1999.
The Company issued 140,000,000 domestically listed shares denominated in foreign currency(境内上市外资股) (hereafter, B share(s)), with par value at CNY 1.00 each and issue price at HKD 1.58 each, on August 28th, 2000 upon the approval(ZhengJianFaXingZi[2000]No.116(证监发行字[2000]116号)) granted by the China Securities Regulatory Commission on August 22nd, 2000; and, the Company was listed on the Shenzhen Stock Exchange on September 12th, 2000. Immediately after the issuance of the B shares, the capital of the Company increased to CNY 400,000,000.00.
The Agreement of Share Transfer(《股份转让协议》) signed by SDA Group and China National Aviation Holding Company (hereafter, China Aviation Group) on February 28th, 2004 authorised the transfer of 91,200,000 shares of the Company, equal to22.8% shareholding, from SDA Group to China Aviation Group. Immediately after the share transfer, SDAGroup’s shareholding in the Company was42.00%. In November 2004, the Board of Directors of the Company, in accordance with the approval(GuoZiChanQuan[2004]No.956(国资产权[2004]956号：《关于中国航空集团公司将受让山东航空股份有限公司国有股的合同实施转让有关问题的批复》)) issued by the State-owned Assets Supervision and Administration Commission of the State Council, authorised China Aviation Group to transfer the state-owned corporate shares received from SDA Group
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 to Air China Co., Ltd. (hereafter, Air China). As so provided inGuoZiChanQuan[2004]No.956, the rights and obligation attributable to China Aviation Group as specified in the Agreement of Share Transfer shall be afforded by Air China. The change of share ownership was registered at the China Securities Depository and Clearing Corporation Limited Shenzhen Office by SDA Group and Air China on December 3rd, 2004; And, 91,200,000 shares of the Company then became held by Air China.
Legal representative of the Company: SUN, Xiujiang
Place of registration: Shandong Jinan Yaoqiang International Airport
Address of headquarter: Shandong Airlines Centre, 5746– East 2nd Ring Road, Jinan, Shandong
The Company is permitted to undertake international and domestic passenger and cargo transportation, hotel and beverage related operation (limited to operation through branch); provision of aircraft maintenance, training of civil aviation pilots and air crew, insurance brokerage; inter-airline agenting, and principal operation related ground services; sales of airborne material and equipments, grocery, food, health food, art work, souvenir, etc.; retailing of tobacco products (limited to Qingdao Red-Crowned Crane Hotel); lease of airborne material and equipments; venue rental, private house rental, business services, hotel accommodation agents and ticket agents; conference services; transportation agency; air cargo storage; and aviation pilot provision (for other domestic airlines). (The operating activities listed herein does not involve operation related to commodity that are subject to State Administered Trading(国营贸易管理),but involve operation related to commodity that are subject to quotas , licence requirements, which are restricted to obtain permission before the operation)(the project that subjects to the approval in accordance with the law, can carry out business activities only after the approval of the relevant departments to carry out business activities).
The financial statements of the Company has been approved by the board of directors on 28 Mar 2017. 2 subsidiaries of the Company are included in the consolidated financial statements in 2016, see Note 8 "The equity in other main entities". No change of scope of consolidation from last year.
The Company operates in the industry of transportation.
Note 2 Basis for preparation of the financial statements
The financial statements of company have been prepared on basis of going concern in conformity with Chinese Accounting Standards for Business Enterprises and the Accounting Systems for Business Enterprises issued by the Ministry of Finance ofPeople’s Republic of China (Ministry of Finance issued order No.33, the Ministry of Finance revised order No.76) on15 February 2006, and revised Accounting Standards (order 41 of the Ministry of Finance) and Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No.15– General Provisions on Financial Reports (2014 Revision) issued by the China Securities Regulatory Commission (CSRC).
According to the relevant accounting regulations in Chinese Accounting Standards for Business Enterprises, the
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 company has adopted the accrual basis of accounting. Held-for-sale non-current assets are measured at the lower of its book value at its classification date and fair value minus expected disposal costs. Where assets are impaired, provisions for asset impairment are made in accordance with relevant requirements.
Note 3 Statement of Compliance with Enterprise Accounting Standards
The financial statements of the company are recognized and measured in accordance with the regulations in the Chinese Accounting Standards for Business Enterprises and they give a true and fair view of the financial position, business result and cash flow of the Company as of 31 December 2016. In addition, the financial statements of the company comply, in all material respects, with the revised disclosing requirements for financial statements and the Compilation Rules for Information Disclosure by Companies Offering Securities to the PublicNo.15—General Provisions on Financial Reports (2014 Revision) issued by China Securities Regulatory Commission (CSRC) in 2014.
Note 4 Important Accounting Principles and Accounting Estimates
The Company and subsidiaries are principally engaged in air transportation. The Company and subsidiaries in accordance with the actual production and management features, according to the relevant provisions of Accounting Standards, to make a number of specific accounting policies and accounting estimates for other transactions and events of revenue recognition, see Note 4.21 “Revenue” for the description. For description of significant accounting judgments and estimates made by management, see Note 4.28 “Significant accounting judgments and estimates”.
4.1 Accounting period
The accounting period of the Company is classified as interim period and annual period. Interim period refers to the reporting period shorter than a complete annual period. The accounting period of the Company is the calendar year from January 1 to December 31.
4.2 Operating cycle
Normal business cycle is realized by the Company in cash or cash equivalents from the purchase of assets for processing until. The company has a 12 -month operating cycle, and its assets and liabilities as liquidity criteria for the classification.
4.3 Monetary Unit
Yuan (CNY) is the currency of the primary economic environment in which the Company and its domestic subsidiaries operate. Therefore, the Company and its domestic subsidiaries choose CNY as their functional currency. The Company adopts CNY to prepare its functional statements.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.4 Business combination
A business combination is a transaction or event that brings together two or more separate entities into one reporting entity. Business combinations are classified into business combinations involving enterprises under common control and business combinations not involving enterprises under common control.
4.4.1 Business combination involving entities under common control
A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory.
For a business combination involving enterprises under common control, the party that, on the combination date, obtains control of another enterprise participating in the combination is the absorbing party, while that other enterprise participating in the combination is a party being absorbed. Combination date is the date on which the absorbing party effectively obtains control of the party being absorbed.
The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being combined at the combination date. The difference between the carrying amount of the net assets obtained and the carrying amount of consideration paid for the combination (or the total face value of shares issued) is adjusted to the capital premium (or share premium) in the capital reserve. If the balance of the capital premium (or share premium) is insufficient, any excess is adjusted to retained earnings.
The cost of a combination incurred by the absorbing party includes any costs directly attributable to the combination shall be recognized as an expense through profit or loss for the current period when incurred.
4.4.2 Business combination involving entities not under common control
A business combination involving enterprises not under common control is a business combination in which all of the combining enterprises are not ultimately controlled by the same party or parties both before and after the business combination.
For a business combination not involving enterprises under common control, the party that, on the acquisition date, obtains control of another enterprise participating in the combination is the acquirer, while that other enterprise participating in the combination is the acquiree. Acquisition date is the date on which the acquirer effectively obtains control of the acquiree.
For a business combination not involving enterprise under common control, the combination cost including the sum of fair value, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer. The intermediary expenses incurred by the acquirer in respect of auditing, legal services, valuation and consultancy services etc and other associated administrative expenses attributable to the business combination are recognized in profit or loss when they are incurred.
The transaction cost arose from issuing of equity securities or liability securities shall be initially recognized as equity securities or liability securities.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 The contingent consideration related to the combination shall be booked as combination cost at the fair value at the acquisition date. If, within the 12 months after acquisition, additional information can prove the existence of related information at acquisition date and the contingent consideration need to be adjusted, goodwill can be adjusted.
Combination cost of theacquirer’s interest and identifiable net assets of the acquirer acquired through the business combination shall be measured by the fair value at the acquisition date. Where the cost of combination exceeds theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the difference shall be recognized as goodwill. Where the cost of combination is less than theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the difference shall be accounted for according to the following requirements: (i) the acquirer shall reassess the measurement of the fair values of theacquiree’s identifiable assets, liabilities and contingent liabilities and measurement of the cost of combination; (ii) if after that reassessment, the cost of combination is still less than theacquirer’s interest in the fair values of theacquiree’s identifiable net assets, the acquirer shall recognize the remaining difference immediately in profit or loss for the current period.
Where the temporary difference obtained by the acquirer was not recognized due to inconformity with the conditions applied for recognition of deferred income tax, if, within the 12 months after acquisition, additional information can prove the existence of related information at acquisition date and the expected economic benefits on the acquisition date arose from deductible temporary difference by the acquiree can be achieved, relevant income tax assets can be recognized, and goodwill offset. If the goodwill is not sufficient, the difference shall be recognized as profit of the current period.
Apart from above, the differences shall be taken into profit or loss of the current period if the recognition of deferred income tax assets is related to the combination.
For a business combination not involving enterprise under common control, which achieved in stages that involves multiple exchange transactions, according to “The notice of the Ministry of Finance on the issuance of Accounting Standards Interpretation No. 5” (CaiKuai[2012] No. 19) and Article55 of “Accounting Standards for Business Enterprises No.33 - Consolidated Financial Statements” on the “package deal” criterion (see Note 4.5.2), to judge the multiple exchange transations whether they are the"package deal". If it belong to the “package deal” in reference to the preceding paragraphs of this section and the Notes described in 4.13 “long-term investment” accounting treatment, if it does not belong to the “package deal” to distinguish the individual financial statements and the consolidated financial statements related to the accounting treatment: In the individual financial statements, the total value of the book valueoftheacquiree's equity investment before the acquisition date and the cost of new investment at the acquisition date, as the initial cost of the investment, the acquiree's equity investment before the acquisition date involved in other comprehensive income, in the disposal of the investment will be in other comprehensive income associated with the use of infrastructure and the acquiree directly related to the disposal of assets or liabilities of the same accounting treatment (that is,
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 except in accordance with the equity method of accounting in the defined benefit plan acquiree is remeasured net changes in net assets or liabilities other than in the corresponding share of the lead, and the rest into the current investment income).
In the combination financial statements, the equity interest in the acquiree previously held before the acquisition date re-assessed at the fair value at the acquisition date, with any difference between its fair value and its carrying amount is recorded as investment income.The previously-held equity interest in the acquiree involved in other comprehensive income and other comprehensive income associated with the purchase of the foundation should be used party directly related to the disposal of assets or liabilities of the same accounting treatment (that is, except in accordance with the equity method of accounting in the acquiree is remeasured defined benefit plans other than changes in net liabilities or net assets due to a corresponding share of the rest of the acquisition date into current investment income).
4.5 Preparation of the consolidated financial statements
4.5.1 The scope of consolidation
The scope of consolidation for the consolidated financial statements is determined on the basis of control. Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its operating activities. The scope of consolidation includes the Company and all of the subsidiaries. Subsidiary is an enterprise or entity under the control of the Company.
Once the change in the relevant facts and circumstances leading to the definition of the relevant elements involved in the control of the change, the company will be re-evaluated.
4.5.2 Preparation of the consolidated financial statements
The subsidiary of the Company is included in the consolidated financial statements from the date when the control over the net assets and business decisions of the subsidiary is effectively obtained, and excluded from the date when the control ceases.
For a subsidiary disposed of by the Company, the operating results and cash flows before the date of disposal (the date when control is lost) are included in the consolidated income statement and consolidated statement of cash flows, as appropriate. For a subsidiary disposed during the period, no adjustment is made to the opening balance of the consolidated financial statements.
For a subsidiary acquired through a business combination not under common control, the operating results and cash flows from the acquisition (the date when the control is obtained) are included in the consolidated income statement and consolidated statement of cash flows, as appropriated; no adjustment is made to the opening balance and comparative figures in the consolidated financial statements.
Where a subsidiary and a party being absorbed in a merger by absorption was acquired during the reporting period, through a business combination involving enterprises under common control, the financial statements of the subsidiary are included in the consolidated financial statements. The results of operations and cash flow are
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts, from the date that common control was established, and the opening balances and the comparative figures of the consolidated financial statements are restated.
When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company makes necessary adjustments to the financial statements of the subsidiary based on theCompany’s own accounting period or accounting policies. Where a subsidiary was acquired during the reporting period through a business combination not under common control, the financial statements was reconciliated on the basis of the fair value of identifiable net assets at the date of acquisition. Intra-Group balances and transactions, and any unrealized profit or loss arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.
Minority interest and the portion in the net profit or loss not attributable to the Company are presented separately in the consolidated balance sheet withinshareholders’/owners’ equity and net profit. Net profit or loss attributable to minority shareholders in the subsidiaries is presented separately as minority interest in the consolidated income statement below the net profit line item.
When the amount of loss for the current period attributable to the minority shareholders of a subsidiary exceeds the minorityshareholders’ portion of the opening balance ofshareholders’/equity of the subsidiary, the excess is allocated against the minority interests.
When the Company loses control of a subsidiary due to the disposal of a portion of an equity investment or other reasons, the remaining equity investment is re-measured at its fair value at the date when control is lost. The difference between 1) the total amount of consideration received from the transaction that resulted in the loss of control and the fair value of the remaining equity investment and 2) the carrying amounts of the interest in the formersubsidiary’s net assets immediately before the loss of the control is recognized as investment income for the current period when control is lost. Other comprehensive income related to the former subsidiary's equity investment, using the foundation and the acquiree directly related to the disposal of the same assets or liabilities are accounted when the control is lost(ie, in addition to the former subsidiary is remeasured at the net defined benefit plan or changes in net assets and liabilities resulting from, the rest are transferred to the current investment income). The retained interest is subsequently measured according to the rules stipulated in the - “Chinese Accounting Standards for Business Enterprises No.2 - Long-term equity investment” or “Chinese Accounting Standards for Business Enterprises No.22 - Determination and measurement of financial instruments”. See Note 4.13 Long-term equity investments and Note 4.9 Financial instruments for details.
The company through multiple transactions step deal with disposal of the subsidiary's equity investment until the loss of control, need to distinguish between equity until the disposal of a subsidiary's loss of control over whether the transaction is package deal. Terms of the transaction disposition of equity investment in a subsidiary, subject to the following conditions and the economic impact of one or more of cases, usually indicates that several
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 transactions should be accounted for as a packagedeal:①these transactions are considered simultaneously, or in the case of mutual influence made,②these transactions as a whole in order to achieve a complete business results;③the occurrence of a transaction depends on occurs at least one other transaction;④a transaction look alone is not economical, but when considered together with other transaction is economical. If they does not belong to the package deal, each of them separately, as the case of a transaction in accordance with “without losing control over the disposal of a subsidiary part of a long-term equity investments“ (see Note 4.10.2, 4)) and “due to the disposal of certain equity investments or other reasons lost control of a subsidiary of the original” (see previous paragraph) principles applicable accounting treatment. Until the disposal of the equity investment loss of control of a subsidiary of the transactions belonging to the package deal, the transaction will be used as a
disposal of a subsidiary and the loss of control of the transaction. However, before losing control of the price of each disposal entitled to share in the net assets of the subsidiary 's investment corresponding to the difference between the disposal, recognized in the consolidated financial statements as other comprehensive income, loss of control over the transferred together with the loss of control or loss in the period.
4.6 Joint arrangement
A joint arrangement is an arrangement of which two or more partieshave joint control.A joint arrangement is either a joint operation or a joint venture, depending of the rights and obligation of the Company in the joint arrangement. A joint operation is a joint arrangement whereby the Company has rights to the assets, andobligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the Company has rights to the net assets of thearrangement.
The Company accounts for joint ventures using the equity method, see Note 4.13.2.2 for details.
The company, a joint operator, recognises in relation to its interest in a jointoperation:(a)its assets, including its share of any assets held jointly;(b)its liabilities, including its share of any liabilities incurred jointly;(c)its revenue from the sale of its share of the output arising from thejoint operation;(d)its share of the revenue from the sale of the output by the jointoperation; and (e)its expenses, including its share of any expenses incurred jointly.
When the Company enters into a transaction with a joint operation in which it is ajoint operator, such as a sale or contribution of assets, the Company, prior to disposal of the assets to a third party by the joint
operation,recognises gains and losses resulting from such a transaction onlyto the extent of the other parties's interests in the joint operation.When there is evidence of a reduction in the net realisablevalue of the assets to be sold or contributed to the joint operation, or of animpairment loss of those assets which is in line with provision stipulated by CAS 8, those losses arerecognised fully by the Company.When there is evidence of a reduction in the net realisablevalue of the assets to be purchased or of an impairment loss of those assets, the Company shall recognise its share of those losses.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.7 Cash equivalent
Cash and cash equivalents of the Company include cash on hand, ready usable deposits and investments
having short holding term (normally will be due within three months from the day of purchase), with strong
liquidity and easy to be exchanged into certain amount of cash that can be measured reliably and have low risks of change.
4.8 Foreign exchange
4.8.1 Translation in foreign exchange transactions
The foreign currency transactions are recorded, on initial recognition in the functional currency, by applying[the spot exchange rate on the date of the transaction / an exchange rate that approximates the actual spot exchange rate on the date oftransaction]. The exchange of foreign currency and transactions related to the foreign exchange are translated at the spot exchange rate.
4.8.2 Translation of monetary foreign currency and non-monetary foreign currency
At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. All the exchange differences thus resulted are taken to profit or loss, except for①those relating to foreign currency borrowings specifically for construction and acquisition of qualifying assets, which are capitalized in accordance with the principle of capitalization of borrowing costs,②hedging accounting, the exchange difference related to hedging instruments for the purpose of net oversea operating investment is recorded in the comprehensive income till the date of disposal and recognized in profit or loss of the period; exchange difference from changes of other account balance of foreign currency monetary items,③available-for-trade is recorded into profit or loss except for amortized cost.
Non-monetary foreign currency items measured at historical cost shall still be translated at the spot exchange rate prevailing on the transaction date, and the amount denominated in the functional currency is not changed. Non-monetary foreign currency items measured at fair value are translated at the spot exchange rate prevailing at the date when the fair values are determined. The exchange difference thus resulted are recognized in profit or loss for the current period or as capital reserve.
4.8.3 The translation of financial statement in foreign currency
When the consolidated financial statements include foreign operation(s), if there is a foreign currency monetary item constituting a net investment in a foreign operation, exchange difference arising from changes in exchange rates are recognized as “exchange differences arising on translation of financial statements denominated in foreign currencies” inowner’s equity, and in profit or loss for the period upon disposal of the foreign operation. The Group translates the financial statements of its foreign operations into CNY by following rules. Assets and liabilities in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; all equity items except for retained earnings are translated at the spot exchange rates at the dates on which such items occur; income and expenses in income statement are translated at the spot exchange rates at the date of
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 transaction; the opening retained earnings is the closing retained earnings of the last period after translation; the closing balance of retained earnings is calculates and presented in the basis of each translated income statements and profit distribution item; the difference arising between the assets and liabilities andshareholders’ equity shall be booked as translation difference of foreign currency statements, and shall be presented as a separate component of equity in the balance sheet. On a loss of control overGroup’s oversea operation due to disposal, the Company transfers the accumulated or proportionate share of the accumulated exchange difference arising on translation of financial statements of this oversea operation attributable to theowners’ equity of the Company and presented undershareholders’ equity, to profit or loss in the period in which the disposal occurs.
Foreign currency cash flows and cash flow of oversea subsidiaries are translated at the spot exchange rates on the date of cash flows.The effect of exchange rate changes on cash is separately presented as an adjustment item in the cash flow statement.
The opening and actual amount of last year are presented in the financial statement after translation
At the disposal of all of the company's ownership interest in a foreign operation, or due to the disposal of part of the equity investment or other reasons, the loss of control over a foreign operation, the project owner's equity in the balance sheet listed under the relevant overseas operations attributable to statements of the parent company 's shareholders' equity of foreign currency translation differences, all transferred to the disposal of the income statement.
At the disposal of part of the equity investment or other causes lower hold percentage overseas business interests, but does not lose control over a foreign operation, and disposal of the foreign operation section related to foreign currency translation differences attributable to minority interests, is not transferred to the income statement. At the disposal of a foreign operation as part of the equity joint venture or joint ventures, foreign currency financial statements of the foreign operation and the associated translation difference in proportion to dispose of the foreign operation into the disposal of the income statement.
4.9 Financial instruments
4.9.1 Determination of financial assets andliabilities’ fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in anarm’s length transaction. For a financial instrument which has an active market, the Company uses quoted price in the active market to establish its fair value. The quoted price in the active market refers to the price that can be regularly obtained from exchange market, agencies, industry associations, pricing authorities; it represents the fair market trading price in the actual transaction.
For a financial instrument which does not have an active market, the Company establishes fair value by using a valuation technique. Valuation techniques include using recentarm’s length market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 same, discounted cash flow analysis and option pricing models.
The Company measures initially and subsequently the fair value of an interest rate swap at the value of acompetitor’s interest rate swap quoted by a recognised financial institution as at theCompany’s balance sheet date in accordance with the principle of consistency.
4.9.2 Classification, recognition and measurement of financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. On initial recognition, theCompany’s financial assets are classified into one of the four categories, including financial assets at fair value though profit or loss, held-to maturity investments, loans and receivables and available-for-trade financial assets. A financial asset is recognized initially at fair value. In the case of financial assets at fair value through profit or loss, relevant transaction costs are immediately charged to the profit and loss of the current period; transaction costs relating to financial assets of other categories are included in the amount initially recognized.
1) Financial assets at fair value through profit or loss:
Including financial assets held-for-trade and financial assets designated at fair value through profit or loss.
Financial asset held-for-trade is the financial asset that meets one of the following conditions:
A. the financial asset is acquired for the purpose of selling it in a short term;
B. the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits;
C. the financial asset is a derivative, except for a derivative that is designated and effective hedging instrument, or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price from an active market) whose fair value cannot be reliably measured. For such kind of financial assets, fair values are adopted for subsequent measurement.
Financial asset is designated on initial recognition as at fair value through profit or loss only when it meets one of the following conditions:
A. the designation eliminates or significantly reduces the inconsistency in the measurement or recognition of relevant gains or losses that would otherwise arise from measuring the financial instruments on different bases. B. a Group of financial instruments is managed and its performance is evaluated on a fair value basis, and is reported to theenterprise’s key management personnels. Formal documentation regarding risk management or investment strategy has prepared.
Financial assets at fair value through profit or loss are subsequently measured at the fair value. Any gains or losses arising from changes in the fair value and any dividends or interest income earned on the financial assets are recognized in the profit or loss.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 2) Investment held-to maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. Such kind of financial assets are subsequently measured at amortized cost using the effective interest method. Gains or losses arising from derecognition, impairment or amortization are recognized in profit or loss for the current period.
Effective interest rate is the rate that exactly discounted estimated future cash flows through the expected life of the financial asset or financial liability or, where appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Company shall estimate future cash flow considering all contractual terms of the financial asset or financial liability without considering future credit losses, and also consider all fees paid or received between the parties to the contract giving rise to the financial asset and financial liability that are an integral part of the effective interest rate, transaction costs, and premiums or discounts, etc.
3) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed determinable payment that are not quoted in an active market. Financial assets classified as loans and receivables by the Company include note receivables, account receivables, interest receivable dividends receivable and other receivables.
Loans and receivables are subsequently measured at amortized cost using the effective interest method. Gain or loss arising from derecognition, impairment or amortization is recognized in profit or loss.
4) Financial assets available-for-trade
Financial assets available-for-trade include non-derivative financial assets that are designated on initial recognition as available for trade, and financial assets that are not classified as financial assets at fair value through profit or loss, loans and receivables or investment held-to-maturity.
Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in the fair value are recognized as other comprehensive income and included in the capital reserve, except that impairment losses and exchange differences related to amortized cost of monetary financial assets denominated in foreign currencies are recognized in profit or loss, until the financial assets are derecognized, at which time the gains or losses are released and recognized in profit or loss.
Interests obtained and dividends declared by the investee during the period in which the financial assets available-for-trade are held, are recognized in investment gains.
4.9.3 Impairment of financial assets
The Group assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets that measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is provided for the impairment.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 1) Impairment on held-to maturity investment, loans and receivables
The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of value of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment loss recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not exceed the amortized cost of the financial assets without provisions of impairment loss on the reserving date.
2) Impairment loss on available-for-trade financial assets
Where the fair value of the equity instrument investment drops significantly or not contemporarily according to the integrated relevant factors, an available-for-trade financial asset is impaired.
When an available-for-trade financial asset is impaired, the cumulative loss arising from declining in fair value that had been recognized in capital reserve shall be removed and recognized in profit or loss. The amount of the cumulative loss that is removed shall be difference between the acquisition cost with deduction of recoverable amount less amortized cost, current fair value and any impairment loss on that financial asset previously recognized in profit or loss.
If, after an impairment loss has been recognized, there is objective evidence that the value of the financial asset is recovered, and it is objectively related to an event occurring after the impairment loss was recognized, the initial impairment loss can be reversed and the reserved impairment loss on available-for-trade equity instrument is recorded in the profit or loss, the reserved impairment loss on available-for-trade debt instrument is recorded in the current profit or loss.
The equity instrument where there is no quoted price in an active market, and whose fair value cannot be reliably measured, or impairment loss on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument shall not be reversed.
4.9.4 Recognition and measurement of financial assets transfer
The Group derecognizes a financial asset when one of the following conditions is met:
1) the rights to receive cash flows from the asset have expired;
2) the enterprise has transferred its rights to receive cash flows from the asset to a third party under a pass-through arrangement; or
3) the enterprise has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of the asset, but has transferred control of the asset.
If the enterprise has neither retained all the risks and rewards from the financial asset nor control over the asset, the asset is recognized according to the extent it exists as financial asset, and correspondent liability is recognized. The extent of existence refers the level of risk by the financial asset changes the enterprise is facing.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 For a transfer of a financial asset in its entirety that satisfies the derecognition criteria, (a). the carrying amount of the financial asset transferred; and (b) the sum of the consideration received from the transfer and any cumulative gain or loss that had been recognized in other comprehensive income, is recognized in profit or loss. If a part of the transferred financial asset qualifies for derecognition, the carrying amount of the transferred financial asset is allocated between the part that continues to be recognized and the part that is derecognized, based on the relative fair value of those parts. The difference between (a) the carrying amount allocated to the part derecognized; and (b) the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to the part derecognized which has been previously recognized in other comprehensive income, is recognized in profit or loss.
4.9.5 Classification and measurement of financial liabilities
TheGroup’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through profit or loss and other financial liabilities. For financial liabilities at fair value through profit or loss, relevant transaction costs are immediately recognized in profit or loss for the current period, and transaction costs relating to other financial liabilities are included in the initial recognition amounts.
1) Financial liabilities measured by the fair value and the changes recorded in profit or loss
The classification by which financial liabilities held-for-trade and financial liabilities designed at the initial recognition to be measured by the fair value follows the same criteria as the classification by which financial assets held-for-trade and financial assets designed at the initial recognition to be measured by the fair value and their changes are recorded in the current profit or loss.
For the financial liabilities measured by the fair value and changes recorded in the profit or loss, fair values are adopted for subsequent measurement. All the gains or losses on the change of fair value and the expenses on dividends or interests related to these financial liabilities are recognized in profit or loss for the current period. 2) Other financial liabilities
Derivative financial liabilities that linked with equity instruments, which do not have a quoted price in an active market and their fair value cannot be measured reliably, is subsequently measured by cost Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains or losses arising from derecognition or amortization is recognized in profit or loss for the current period.
3) Financial guarantee contracts
For financial guarantee contracts that are not designated as at fair value through profit or loss,they are, after initial recognition, subsequently measured at the higher of: (i) the amount determined according to the principles of Accounting Standards for Business Enterprises No. 13 - Contingencies, and (ii) the amount initially recognized less the accumulated amortization determined according to the principles of Accounting Standards for Business Enterprises No. 14 - Revenue.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.9.6 Derecognition of financial liabilities
The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or part of it) is discharged or cancelled or has expired. An agreement between the Company (an existing borrower) and existing lender to replace original financial liability with a new financial liability with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new liability.
When the Company derecognizes a financial liability or a part of it, it recognizes the difference between the carrying amount of the financial liability (or part of the financial liability) derecognized the consideration paid (including any non-cash assets transferred or new financial liabilities assumed) in profit or loss.
4.9.7 Derivatives and embedded derivatives
Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss.
An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; and (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Company is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss.
4.9.8 Offsetting financial assets and financial liabilities
When the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset.
4.9.9 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The consideration received from issuing equity instruments, net of transaction costs, are added toshareholders’ equity. All types of distribution (excluding stock dividends) made by the Company to holders of equity instruments are deducted fromshareholders’ equity. The Group does not recognize any changes in the fair value of equity instruments.
4.10 Receivables
The receivables by the Company include account receivables, and other receivables.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.10.1 Criteria for recognition of bad debts:
The Company carries out an inspection on the balance sheet date. Where there is any objective evidence proving that the receivables have been impaired, an impairment provision shall be made:
1) A serious financial difficulty occurs to the issuer or debtor;
2) The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the principal, etc.;
3) The debtor will probably become bankrupt or carry out other financial reorganizations;
4) Other objective evidences showing the impairment of the receivables.
4.10.2 Method for bad debts provision
1) Provisions of bad debts in account receivables that is individually significant.
Individual receivables equal to or higher than5% of total receivables are classified as receivables of individual significance.
For an account receivable that is individually significant, the asset is individually assessed for impairment, the impairment loss is recognized at the difference between the present value of future cash flow less the carrying amount, and provision is made accordingly.
2) Provisions of bad debts in account receivables that individually insignificant items with similar credit risk characteristics that have significant risk:
A.Evidence of credit risk characteristics
Whether the financial asset is individually significant or not individually significant, it is included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment. Such credit risk reflects the repayment of all due amount under the contract, and is related to the estimation of future cash flow expected to be derived from the assets.
Evidence of portfolios:
Item Basis
Receivables not individually assessed for impairment are categorised on the basis of credit risk. Provision for bad debts for each category of Categorisation by nature of
receivables is recognised at the actual rate of loss for the previous receivables
year of the same or similar category bearing similar credit risk characteristics after adjustment for the current year circumstances. B.Provision by credit risk characteristics
During the Company impairment test, the amount of bad debts provisions is determined by the assessed result from the experience of historical loss and current economic status and the existing loss in the estimated account receivables according to the set of account receivables and credit risk characteristic.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Provisions for difference portfolios:
Item Provision
Categorisation by nature of receivables Percentage of carrying amount
a. Portfolio 1 by Aging analysis
Percentage of carrying amount for Percentage of carrying amount for
recognition of allowance for bad Category recognition of allowance for bad debt
debt applicable to other applicable to accounts receivable
receivables
Categorisation by nature of receivables 5% 5%
3) Provisions of bad debts that is individually insignificant.
For the account receivables not individually significant, the Company assesses the account receivables individually for impairment when are of following characteristics: if there is objective evidence indicating the impairment, the impairment loss is recognized at the difference between the present value of future cash flow less the carrying amount, and provision is made accordingly. For examples: receivables of individual insignificance bears differing credit risk characteristics to other receivables of individual insignificance account receivables with related parties; account receivables under litigations or arbitrations, or account receivables with obvious indication that debtor cannot fulfill the obligation of repayment.
4.10.3 The reversal of bad debts provision
If there is objective evidence of recovery in value of account receivables, and the recovery can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss. However, the reversal shall not result in a carrying amount that exceeds what the amortized cost would have been had the impairment loss not been recognized at the date the impairment is reversed.
4.11 Inventories
4.11.1 Classification of inventory
TheCompany’s inventory mainly include air materials and low-valueconsumables.。
4.11.2 Valuation method of inventories upon delivery
Inventories are initially carried at the actual cost. The actual cost of inventories transferred out is assigned by using first-in, first out (FIFO) method.
4.11.3 Basis for determining net realizable value of inventories and provision methods for decline in value of inventories
Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of clear evidence obtained, and takes into consideration the purpose of holding
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 inventories and effect of post balance sheet events.
At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable value is below the cost of inventories, a provision for decline in value of inventories is made. The provision for inventories decline in value is determined normally by the difference of the cost of individual item less its realizable value. For large quantity and low value items of inventories, provision for decline in value is made based on categories of inventories. For items of inventories relating to a product line that are produced and marketed in the same geographical area, have the same or similar end users or purposes, and cannot be practicably evaluated separately from other items in that product line provision for decline in value is determined on an aggregate basis.
After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written down below cost no longer exist so that the net realizable value of inventories is higher than their cost, the original provision for decline in value is reversed and the reversal is included in profit or loss for the period.
4.11.4 The perpetual inventory system is maintained for stock system.
4.11.5 Amortization method for low cost and short-lived consumable items and packaging materials.
Low cost and short-lived consumable items are amortized using immediate write-off method; packaging materials are amortized using immediate write-off method.
4.12 Held-for-sale assets
A non-current asset is classified as held-for-sale if all of the following conditions are satisfied:
a. the asset is immediately sellable at its current condition per usual sales term applicable to the type of assets to which it belongs;
b. the Company's has completed official decision to dispose the asset;
c. the Company has entered into irrevokable sales contract with the purchaser; and
d. the sales will be completed within one year.
Amortization or depreciation of the held-for-sale asset ceases at the time of classification. The asset is measured at the lower of its book value and its classification date fair value minus disposal costs upon classification. Held-for-sale non-current assets include individual assets and disposal groups. If a disposal group satisfy the conditions of the asset group defined by CAS 8 - Asset Impairment and includes goodwill arising from business combination allocated in accordance with CAS 8 or the disposal group is an operation with an asset group, the disposal group include goodwill arising from business combination.
Individual non-current assets held for sale and assets of disposal groups held for sale are collectively presented on the (consolidated) statement of financial position as a line item of current assets. Liabilities of disposal groups held for sale are collectively presented on the (consolidated) statement of financial position as a line item of current liabilities.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 A held-for-sale asset or held-for-sale disposal group is reclassified from held-for-sale when the conditions for classification of the asset (disposal group) as held-for-sale are no longer satisfied and is measured at the lower of its classification date book value minus cumulative depreciation, amortization and impairment as if it has not been reclassified as held-for-sale and it recoverable amount as of the date on which the conditions for classification of the asset (disposal group) as held-for-sale are no longer satisfied.
4.13 Long-term equity investments
Long-term equity investments referred to in this section refer to the Company invested entity has control, joint control or significant influence over the long-term equity investments. The Company invested does not have control, joint control or significant influence over the long-term equity investments as financial assets available for sale or at fair value and the changes included financial assets through profit or loss, which refer to the accounting policies in Note 4. 9 “financial Instruments”.
Joint control is the Company control over an arrangement in accordance with the relevant stipulations are common, related activities and the arrangement must be after sharing control participants agreed to the decision-making. Significant influence is the Company s financial and operating policies of the entity has the right to participate in decision-making, but can not control or with other parties joint control over those policies.
4.13.1 Determination of Investment cost
The cost of a long-term equity investment acquired through business combination under common control is
measured at the acquirer's share of the combination date book value of the acquiree's net equity in the ultimate controller's consolidated financial statements. The difference between the cost and book value of cash paid, non-monetary assets transferred and liabilities assumed is adjusted to capital reserves, and to retained earnings if capital reserves is insufficient. If the consideration is transferred by way of issuing equity instruments, the face value of the equity instruments issued is recognised in share capital and the difference between the cost of the face value of the equity instruments issued is adjusted to capital reserves, and to retained earnings if capital reserves is insufficient.
The cost of a long-term equity investment acquired through business combination not under common control is the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued.
All expenses incurred directly associated with the acquisition by the acquirer, including expenditure of audit, legal services, valuation and consultancy and other administrative expenses, are recognised in profit or loss for the period during which the acquisition occurs.
Long-term equity investments acquired not through business combination are measured at cost on initial
recognition. Depending on the way of acquisition, the cost of acquisition can be the total cash paid, the fair value of equity instrument issued, the contract price, the fair value or book value of the assets given away in the case of non-monetary asset exchange, or the fair value of the relevant long-term equity investments. The cost of
acquisition of a long-term equity investment acquired not through business combination also includes all directly
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 associated expenses, applicable taxes and fees, and other necessary expenses.
4.13.2 Subsequent Measurement
To be invested joint control ( except constitute common operator ) or long-term equity investments significant influence are accounted for using the equity method. In addition, the Company's financial statements using the cost method of accounting for long-term equity can exercise control over the investee.
1) Cost method of accounting for long-term equity investments
Under the cost method, a long-term equity investment is measured at initial investment cost. Except for cash dividends or profits declared but not yet paid that are included in the price or consideration actually paid upon acquisition of the long-term equity investment, investment income is recognized in the period in accordance with the attributable share of cash dividends or profit distributions declared by the investee.
2) Equity method of accounting for long-term equity investments
Where the initial investment cost of a long-term equity investment exceeds the investingenterprise’s interest in the fair values of theinvestee’s identifiable net assets at the time of acquisition, no adjustment shall be made to the initial investment cost.
The carrying amount of an long-term equity investment measured using the equity method is adjusted by the Company's share of the investee's net profit and other comprehensive income, which is recognised as investment income and other comprehensive income respectively. The carrying amount of an long-term equity investment measured using the equity method is reduced by profit distribution or cash dividends announced by the investee. The carrying amount of an long-term equity investment measured using the equity method is also adjusted by the investee's equity movement other than net profit, other comprehensive income and profit distribution, which is adjusted to capital reserves. The net profit of the investee is adjusted by the fair value of the investee's identifiable assets as at acquistion. The financial statements and hence the net profit and other comprehensive income of an investee which does not adopt accounting policies or accounting period uniform with the Company is adjusted by the Company's accounting policies and accounting period. The Company's share of unrealised profit or loss arising from related party transactions between the Company and an associate or joint venture is deducted from investment income. Unrealised loss arising from related party transactions between the Company and an associate or joint venture which is associated with asset impairment is not adjusted. Where assets transferred to an associate or joint venture which form part of the Company's investment in the investee but which does not enable the Company obtain control over the investee, the cost of the additional investment acquired is measured at the fair value of assets transferred and the difference between the cost of the additional investment and the book value of the assets transferred is recognised in profit or loss. Where assets transferred to an associate or joint venture form an operation, the difference between the consideration received and the book value of the assets transferred in recognised in profit or loss. Where assets transferred from an associate or joint venture form an operation, the transaction is accounted for in accordance
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 with CAS 20 - Business Combination, any gain or loss is reocgnised in profit or loss.
The Company's share of an investee's net loss is limited by the sum of the book value of the long-term equity investment and other net long-term investments in the investees. Where the Company has obligation to share additional net loss of the investee, the estimated share of loss recognised as accrued liabilities and investment loss. Where the Company has unrecognised share of loss of the investee when the investee generates net profit, the Company's unrecognised share of loss is reduced by the Company's share of net profit and when the Company's unrecognised share or loss is eliminated in full, the Company's share of net profit, if any, is recognised as investment income.
For long-term equity investments in associates and joint ventures which had been held by the Company before its first time adoption of Accounting Standards for Business Enterprises as of Jan 1 2007, where the initial investment cost of a long-term equity investment exceeds theCompany’s interest in theinvestee’s net assets at the time of acquisition, the excess is amortized and is recognized in profit or loss on a straight line basis over the original remaining life.
3) Acquisition of minority interest
The difference between newly increased equity investment due to acquisition of minority interests and portion of net asset cumulatively calculated from the acquisition date is adjusted as capital reserve. If the capital reserve is not sufficient to absorb the difference, the excess are adjusted against returned earnings.
4) Disposal of long-term equity investment
Where the parent company disposes long-term investment in a subsidiary without a change in control, the difference in the net asset between the amount of disposed long-term investment and the amount of the consideration paid or received is adjusted to theowner’s equity. If the disposal of long-term investment in a subsidiary involves loss of control over the subsidiary, the related accounting policies in Note 4.5.2 applies. For disposal of long-term equity investments in any situation other than the fore-mentioned situation, the difference between the book value of the investment disposed and the consideration received is recognised in profit or loss. Where a long-term equity investment is measured by the equity method both before and after part disposal of the investment, cumulative other comprehensive income relevant to the investment recognised prior to the acquistion is treated in the same manner that the investee disposes the relevant assets or liabilities proportionate to the disposal. The investee's equity movement other than net profit, other comprehensive income and profit distribution is reocgnised in profit or loss proportionate to the disposal.
Where a long-term equity investment is measured at cost both before and after part disposal of the investment, cumulative other comprehensive income relevant to the investment recognised, as a result of accounting by equity method or recognition and measurement principles applicable to financial instruments, prior to the Company's acquisition of control over the investee is treated in the same manner that the investee disposes the relevant assets or liabilities and recognised in profit or loss proportionate to the disposal. The investee's equity
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 movement other than net profit, other comprehensive income and profit distribution, as a result of accounting by equity method, is reocgnised in profit or loss proportionate to the disposal.
Where the Company's control over an investee is lost due to partial disposal of investment in the investee and the Company continues to have significant influence over the investee after the partial disposal, the investment in measured by the equity method in the Company's separate financial statements; where the Company's control over an investee is lost due to partial disposal of investment in the investee and the Company ceases to have significant influence over the investee after the partial disposal, the investment in measured in accordance with the recognition and measurement principles applicable to financial instruments in the Company's separate financial statements and the difference between the fair value and the book value of the remaining investment at the date of loss of control is recognised in profit or loss. Cumulative other comprehensive income relevant to the investment recognised, as a result of accounting by equity method or recognition and measurement principles applicable to financial instruments, prior to the Company's acquisition of control over the investee is treated in the same manner that the investee disposes the relevant assets or liabilities on the date of loss of control. The investee's equity movement other than net profit, other comprehensive income and profit distribution, as a result of accounting by equity method, is reocgnised in profit or loss when control is lost. Where the remaining investment is measured by equity method, the fore-mentioned other comprehensive income and other equity movement are recognised in profit or loss proportionate to the disposal; Where the remaining investment is measured in accordance with the recognition and measurement principles applicable to financial instruments, the fore-mentioned other comprehensive income and other equity movement are recognised in profit or loss in full. Where the Company's joint control or significant influence over an investee is lost due to partial disposal of investment in the investee, the remaining investment in the investee is measured in accordance with the recognition and measurement principles applicable to financial instruments, the difference between the fair value and the book value of the remaining investment at the date of loss of joint control or significant influence is recognised in profit or loss.Cumulative other comprehensive income relevant to the investment recognised, as a result of accounting by equity method, prior to the partial disposal is treated in the same manner that the investee disposes the relevant assets or liabilities on the date of loss of joint control or significant influence. The investee's equity movement other than net profit, other comprehensive income and profit distribution is reocgnised in profit or loss when joint control or significant influence is lost.
Where the Company's control over an investee is lost through multiple disposals and the multiple disposals shall be viewed as one single transaction, the multiple disposals is accounted for one single transaction which result in the Company's loss of control over the investee. Each difference between the consideration received and the book value of the investment disposed is recognised in other comprehensive income and reclassified in full to profit or loss at the time when control over the investee is lost.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.14 Fixed assets
4.14.1 The conditions of recognition
Fixed assets refers to the tangible assets that are held for the sake of producing commodities, rendering labor service, renting or business management and their useful life is in excess of one fiscal year.
4.14.2 The method for depreciation
Fixed assets are stated at cost and consider the impact of expected costs of abandoning the initial measurement. From the following month of state of intended use, depreciation method of the straight-line method is used for different categories of fixed assets to take depreciation. The recognition of the classification, useful life and estimated residual rate are as follows:
Estimated residual
Category Expected useful life Depreciation(%)value(%)
Houses and building 27-33 5.00 2.88-3.52 Key components and power
15-20 5.00 4.75-6.33 supports of aircraft engine
Replacement parts of engine 3-5 0.00 20-33.33 Equipments, electronic devices and
4-10 5.00 9.5-23.75 furniture
High value rotables 15-18 0.00 5.56-6.67 Transportation vehicles 5-10 5.00 9.5-19.00 Expected net residual value of fixed assets is the balance of the Company currently obtained from the disposal of the asset less the estimated costs of disposal amount, assuming the asset is out of useful life and state the expected service life in the end.
4.14.3 Measurement and recognition of fixed assets
Impairment and provisions of fixed assets are disclosed on Note 4.16.
4.14.4 Fixed Assets under finance leases
A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.
Fixed assets that are held under finance leases shall be depreciated by applying the same policy as that for the fixed assets owned by the Company. If it can be reasonably determined that the ownership of the leased assets can be obtained at the end of the lease period, the leased assets are depreciated over their useful lives; otherwise, the leased assets are depreciated over the shorter of the lease terms and the useful lives of the leased assets.
4.14.5 Others
A fixed asset is recognized only when the economic benefits associated with the asset will probably flow to the
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Company and the cost of the asset can be measured reliably. Subsequent expenditure incurred for a fixed asset that meet the recognition criteria shall be included in the cost of the fixed asset, and the carrying amount of the component of the fixed asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in profit or loss in the period in which they are incurred.
The revenue from selling or transferring, or disposing a fixed asset is booked into profit and loss after deduction of carrying value and related tax.
The Company conducts a review of useful life, expected net realizable value and depreciation methods of the fixed asset at least on an annual base. Any change is regarded as change in accounting estimates.
4.15 Construction in progress
Construction in progress is measured at its actual cost. The actual costs include various construction expenditures during the construction period, borrowing costs capitalized before it is ready for intended use and other relevant costs. Construction in progress is transferred to a fixed asset when it is ready for intended use. Testing method for provision impairment of construction in progress and accrued method for provision impairment please refer to Note 4.19.
4.16 Borrowing costs
Borrowing costs include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings.
The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized. The amounts of other borrowing costs incurred are recognized as an expense in the period in which they are incurred. Qualifying assets are asset (fixed assets, investment property and inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale.
Where funds are borrowed for a specific-purpose, the amount of interest to be capitalized is the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or any investment income on the temporary investment of those funds. Where funds are borrowed for a general-purpose, the amount of interest to be capitalized on such borrowings is determined by applying a weighted average interest rate to the weighted average of the excess amounts of accumulated expenditure on the asset over and above the amounts of specific-purpose borrowings
During the capitalization period, exchange differences related to a specific-purpose borrowing denominating in foreign currency are all capitalized. Exchange differences in connection with general-purpose borrowings are recognized in profit or loss in the period in which they are incurred.
Assets qualified for capitalization are the fixed assets, investment properties or inventories which need a long time of construction or production activities before ready for intended used or sale.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted by activities other than those necessary to prepare the asset for its intended use or sale, when the interruption is for a continuous period of more than 3 months. Borrowing costs incurred during these periods recognized as an expense for the current period until the acquisition, construction or production is resumed.
4.17 Intangible assets
4.17.1 Intangible asset
The term “intangible asset” refers to the identifiable non-monetary assets without physical shape, possessed or controlled by enterprises.
The intangible assets are initially measured by its cost. Expenses related to intangible assets, if the economic benefits related to intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded as cost of intangible assets. The expenses other than this shall be booked in the profit or loss when they occur.
Land use rights that are purchased by the Company are accounted for as intangible assets. Buildings, such as plants that are developed and constructed by the Company, and relevant land use rights and buildings, are accounted for as intangible assets and fixed assets, respectively. Payments for the land and buildings purchased are allocated between the land use rights and the buildings; if they cannot be reasonably allocated, all of the land use rights and buildings are accounted for as fixed assets.
When an intangible asset with a definite useful life is available for use, its original cost less net residual value and any accumulate impairment losses is amortized over its estimated useful life using the straight-line method . An intangible asset with an indefinite useful life is not amortized.
For an intangible asset with a definite useful life, the Company reviews the useful life and amortization method at the end of the period, and makes adjustment when necessary.. An additional review is also carried out for useful life of the intangible assets with indefinite useful life. If there is evidence showing the foreseeable limit period of economic benefits generated to the enterprise by the intangible assets, then estimate its useful life and amortize according to the policy of intangible assets with definite useful life.
4.17.2 the expenditure of research and development
The expenditures for its internal research and development projects of the Company shall be classified into research expenditures and developmentexpenditures.
The research expenditures shall be recorded into the profits and losses of the current period when they are incurred.
Development expenditures in internal research and development projects shall be recognized as intangible assets where they satisfy all of the following conditions:
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016①Technical feasibility of completing the intangible asset so that it will be available for use or sale;
②Intention to complete the intangible asset and use or sell it;
③How the intangible asset will generate economic benefits, including the ability to demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
④Availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;
⑤Ability to measure reliably the expenditure that is attributable to the intangible asset during its development. The expenses which can not be distinguished between research and development stage, shall be recorded into the profit or loss for the current period.
4.17.3 Impairment testing methods and recognition of impairment provision of intangible assets
Impairment and provisions of intangible assets are disclosed on Note 4.19.
4.18 Deferred charges
Deferred charges represent expenses incurred that should be borne and amortized over the current and
subsequent period (together of more than one year). Deferred charges are amortized by using straight line
method. Such as expenses forpilots’ initial trainings, those expenses are amortized at 10 years according to their benefit period respectively.
4.19 Impairment of long-term assets
Non-financial assets with non-current nature include fixed assets, construction in progress, intangible assets with definite useful lives, investment properties measured by cost methods and long-term equity investment on
subsidiaries, jointly operations. The Company assesses whether there are any indicators of impairment for all non-financial assets at the balance sheet date, and impairment test is carried out and recoverable value is
estimated if such an indicator exits. Goodwill and intangible assets with indefinite useful lives, as well as
intangible assets not ready for use, are tested for impairment annually regardless of indicators of impairment. Impairment of loss is calculated and provisions taken by the difference if the recoverable value of the assets is lower than the book value. The recoverable value is the higher of estimated present value of the future expected cash flows from the asset and net fair value of the asset less disposed cost. The fair value of asset is determined by the sales agreement price within anarm’s length transaction. In case there is no sales agreement, but there is active market of assets, the fair value can be determined by the selling price. If there is neither sales agreement nor active market, the fair value of the asset can be estimated based on the best information obtained.
Disposal expenses include expenses related to the legislation, taxes, transportations and the direct expense for the asset to be ready for sale. When calculating the present value of expected future cash flows from an asset or asset Group, the management shall estimate the expected future cash flows from the asset or asset Group and choose a suitable discount rate in order to calculate the present value of those cash flows.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Provision for asset impairment is calculated and determined on the individual basis. If the recoverable of
individual asset is hard to estimate, the recoverable amount can be determined by the asset Group where
subject asset belongs. Asset Group is the smallest set of assets that can have cash flow in independently.
The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the present value of the future expected cash flows from the asset Groups or sets of asset Groups to which the goodwill is allocated. Estimating the present value requires the Company to make an estimate of the
expected future cash flows from the asset Groups or sets of asset Groups and also choose a suitable discount rate in order to calculate the present value of those cash flows. Once the loss from above asset impairment is recognized, the recoverable part cannot be reserved in the subsequent periods.
4.20 Employee Benefits
The employee benefits of the company include short-term employee benefits, post-employment benefits,
termination benefits and other long-term employee benefits:
Short-term employee benefits includes wages, bonuses, allowances and subsidies, welfare, health insurance , maternity insurance, work injury insurance, housing funds, labor union funds, employee education funds,
non-monetary benefits and etc. Short-term employee benefits are recognised as liabilities and profit or loss
account or the costs associated with the asset during the accounting period when employees actually provide services,. The non -monetary benefits are measured at fair value.
Post-employment benefits include defined contribution plans and defined benefit plans. Defined contribution plan which includes the basic pension, unemployment insurance and annuities shall be recognised as cost of related assets or profit or loss. Projected unit credit cost method (“PUC”) was used by independent actuaries engaged by the Company to determine the present value of the defined benefit obligations with unbiased and consistent actuarial assumptions regarding population variables and financial variables. Defined benefit obligation was
presented with the present value and the related current service cost was accounted into current profit or loss. When the Company terminates the labor relationship with employees prior to the employment contracts, or
encourages employees to accept voluntary redundancy compensation proposals in this company, a provision shall be recognised for the compensation arising from the termination of employment relationship with employees at the time when the Company can not unilaterally withdraw layoff proposal termination benefits provided due to termination of employment, or the company ensures the costs related to the payment for termination benefits related to the restructuring, which one is early to confirm employee benefits liabilities, and recorded as profit or loss. However, if termination benefits can not be fully paid aftert welve months of the reporting date,, the liability shall be processed in accordance with other long-term employee benefits.
Retirement plan adopts the same principles as the termination benefits . The salaries and insurance to be paid from the date when employees stop providing services to the date of normal retirementshall be recognised in profit or loss (termination benefits) when satisfying the requirements of a provision..
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Other long-term employee benefits provided by the company to employees that is in line with defined contribution plans shall adopt the accounting treatment in accordance with defined contribution plans, otherwise the
accounting treatment of defined benefit plans..
4.21 Revenue
4.21.1 Revenue from rendering of service
① The Company recognise revenue from rendering of air service for carriage of passengers when the service is rendered or when an unused ticket expires. The sale of a ticket does not constitute revenue. An unused ticket expires on the annual anniversary of its sale. Tickets sold but of which the service is not yet rendered are
recognised in current liabilities as Advances from customers. If service is rendered through code sharing,
revenue arising from the service provision is apportioned amongst parties to the code sharing agreement. The revenue arising from code sharing is also recognised when the service is rendered.
② The Company company recognise air cargo revenue from rendering of air service for carriage of cargo when the service is rendered
③ Revenue arising from other air service rendering is recognised when the service rendering is completed.
4.21.2 Royalty Revenue
According to the contract or agreement, the revenue is recognized on an accrual basis.
4.21.3 Interest Income
The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the enterprise's cash is used by others and the actual interest rate.
4.22 Government Grants
Government grants are transfer of monetary assets and non-monetary assets from the government to the
Company at no consideration, excluding the capital invested by the government as equity owner. Government grant can be classified as grant related to the assets and grants related to the income. Government grants
obtained by the Company which are relevant to construction or acquisition of long-term assets are classified as asset-related government grants; all other government grants are classified as revenue-related government
grants. For government grants without speficied beneficiary, the Company performs classification in accordance with the following criteria.
4.22.1 Where a grant is obtained for a specified project, the grant is spitted into asset-related and revenue
related portions proportionate to the project's investment to expense ratio; the classification is reviewed on each balance sheet date and revised if necessary.
4.22.2 Where a grant is obtained for general purpose, the grant as a whole is classified as a revenue-related government grant.
If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable. If a government grant is in the form of a non-monetary asset, it is measured at fair value. If the fair
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 value cannot be reliably determined, it is measured at a nominal amount. A government grant measured at a nominal amount is recognized immediately in profit or loss for the period.
A government grant related to an asset is recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent period, the grant is recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized. If the grant is a
compensation for related expenses or losses already incurred, the grant is recognized immediately in profit or loss for the period.
For repayment of a government grant already recognized, if there is a related deferred income, the repayment is offset against the carrying amount of the deferred income, and any excess is recognized in profit or loss for the period. If there is no related deferred income, the repayment is recognized immediately in profit or loss for the period.
4.23 Deferred tax assets and deferred tax liabilities
4.23.1 Income tax for the current period
At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, according to the requirements of tax laws. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Company expects at the balance sheet date, to recover the assets or settle the liabilities.
At the balance sheet date, current income tax liabilities or assets for the current and prior periods, are measured at the amount expected to be paid (or recovered) according to the requirements of tax laws. The calculation for income tax expenses in the current period is based on the taxable income according to the related tax laws after adjustment to the accounting profit of the reporting period.
4.23.2 Deferred income tax assets and liabilities
For temporary differences between the carrying amount of certain assets or liabilities and their tax base, or
between the nil carrying amount of those items that are not recognized as assets or liabilities and their tax base that can be determined according to tax laws, deferred tax assets and liabilities are recognized using the balance sheet liability method.
For temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction, no deferred tax asset or liability is recognized. For taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, no deferred income tax liability related is recognized except where the Company is able to control the timing of reversal of the temporary difference and it is probable that the temporary difference will not reverse
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 in the foreseeable future.
All deferred income tax liabilities arising from taxable temporary differences except the ones mentioned above are recognized.
For temporary deductible differences associated with the initial recognition of an asset or liability arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or
deductible losses) at the time of transaction, no deferred tax asset is recognized.
For taxable temporary deductible differences associated with investments in subsidiaries and associates, and interests in joint ventures, no deferred income tax asset related is recognized if it is impossible to reversal the temporary difference in the foreseeable future, or it is not probable to obtain taxable income which can be used for the deduction of the temporary difference in the future.
Except mentioned above, the Company recognizes other deferred income tax assets that can deduct temporary differences to the extent that it is probable that taxable profits will be available against which the deductible
temporary differences can be utilized.
For the deductible losses and tax credit that can be carried forward, deferred tax assets for deductible temporary differences are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized.
At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates according to tax laws, that are expected to apply in the period in which the asset is realized or the liability is settled.
At the balance sheet date, the Company reviews the carrying amount of deferred tax assets. If it is no longer probable that sufficient taxable profit will be available in future periods to allow the benefits of the deferred tax assets to be used, the Company reduces the carrying amount of deferred tax assets. The amount of such
reduction is reversed when it becomes probable that sufficient taxable profit will be available
4.23.3 Income tax expenses
Income tax expenses consist of current income tax and deferred income tax.
The expenses from income tax and deferred income tax, as well as the revenue, shall be recorded into profit or loss in current accounting period, except expense for income tax of the current period and deferred income tax that booked into other income or equity and adjusted carrying value of deferred income tax goodwill arose from business combination.
4.23.4 Income tax offset
When we have the legal right, and have intended to, to make settlement with net amount, or through the asset acquisition and liability fulfillment simultaneously, the Company shall present the net value from the offset
between current income tax asset and current income tax liability in the financial statement.
When the Company has the legal right to make a settlement with the current income tax asset and current
income tax liability, and the deferred income tax asset and deferred income tax liability are related to the same
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 taxable subject under the same tax payer, or related to different taxable subject, but the intension of net value settlement in regard of the current income tax asset and current income tax liability, the Company shall present net value after the offset of deferred income tax asset and deferred income tax liability.
4.24 Leases
A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred. An operating lease is a lease other than a finance lease.
4.24.1 The Company as Lessee under operating Lease
Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of the related asset or charged to profit or loss for the current period. The contingent rents shall be recorded in the profit or loss of the period in which they actually arise.
4.24.2 The Company as Leasor under operating Lease
Lease income from operating leases shall be recognized by the leasor in profit or loss on a straight-line basis over the lease term. Initial direct cost of significance in amount shall be capitalized when incurred. If another basis is more systematic and rational, that basis may be used. Contingent rents are credited to profit or loss in the period in which they actually arise.
4.24.3 The Company as Lessee under financing Lease
For an asset that is held under a finance lease, at the lease commencement, the leased asset is recorded at the lower of its fair value at the lease commencement and the present value of the minimum lease payments, and the minimum lease payment is recorded as the carrying amount of the long-term payables; the difference between the recorded amount of the leased asset and the recorded amount of the payable is accounted for as unrecognized finance charge, Initial direct costs incurred by the lessee during the process of negotiating and securing the lease agreement shall be added to the amount recognized for the leased asset.
The net amount of minimum lease payment deducted by the unrecognized finance shall be separated into long-term liabilities and long-term liability within one year for presentation.
Unrecognized finance charge shall be computed by the effective interest method during the lease term. Contingent rent shall be booked into profit or loss when actually incurred.
4.24.4 In the case of the leasor of a financing lease
For an asset that is leased out under a finance lease, the aggregate of the minimum lease receipts at the inception of the lease and the initial direct costs is recorded as a finance lease receivable, and unguaranteed residual value is recorded at the same time; the difference between the aggregate of the minimum lease receipt, initial direct costs, and unguaranteed residual value, and the aggregate of their present values, is recognized as unearned finance income, which is amortized using the effective interest rate method over each period during the lease term.
Finance lease receivable less unearned finance income shall be separated into long-term liabilities and long-term
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 liability within one year for presentation.
Unearned finance income shall be computed by the effective interest method during the lease term. Contingent rent shall be credited into profit or loss in which actually incurred.
4.25 Regular repair and substantial repair
Regular repair expenditure of own aircrafts and aircrafts acquired under a financial lease is accounted for through profit or loss for the period in which it is incurred. Substantial repair expenditure eligible for capitalisation is capitalised when incurred and recognised as replacement cost of non-current assets and depreciated over a reasonable length of time. Substantial repair expenditure of aircrafts under an operating lease incurred before the lease expiry date is amortised on the basis of air hours over the lease period.
4.26 Changes in major accounting policies and accounting estimates
4.26.1 change of accounting policies
There is no significant change of accounting policies for the company during the reporting period.
4.26.2 change of accounting estimates
There is no significant change of accountingestimates for the company during the reporting period.
4.27 Correction of prior period errors
There is no significant change of previous accounting errors for the Company during the reporting period.
4.28 Significant account judgment and estimates
The Company is required to make judgments, estimates and assumptions about the carrying amounts of items in the financial statements that cannot be measured accurately, due to the internal uncertainties of operation activities. These judgments, estimates and assumptions are based on historical experiences of theCompany’s management as well as other factors that are considered to be relevant. These judgments, estimates and assumptions may affect value of the financial statements in revenue, expenses, assets and liabilities and the disclosure of contingency at the balance sheet date. However, the result derived from those uncertainties in estimates may lead significant adjustments to the carrying amounts of the assets or liabilities affected in the future.
The Company has reviewed the judgments, estimates and assumptions regularly on the basis of going concern. Where the changes in accounting estimates only affect the period when changes occurred, and they are recognized within the same period. Where the changes in accounting estimates affect both current period and future period, the changes are recognized within the period of change and future period.
At balance sheet date, the followings are the significant areas where the Company needs to make judgment, estimates and assumptions over the value of items in the financial statements:
4.28.1 Classification of lease
The Company classifies leases as operating lease and financing lease according to the rule stipulated in the Accounting Standard for Business Enterprises No. 21--Leasing-. The management shall make analysis and
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 judgment on whether the risks and rewards related to the title of leased assets has been transferred to the leaser, or whether the Company has substantially held the risks and rewards related to the ownership of leased assets. 4.28.2 Allowance for bad debt
According to the relevant accounting policies of the Company in receivables, allowance method is used for baddebt’s calculation. The impairment of receivables is calculated based on the assessment of recoverable of receivables. Assurance of receivable impairment needs judgments and estimations from the management. The difference between actual results and original estimates shall have impact on the carrying amount of receivables and receivable bad debt provisions or the reverse during the change of estimation.
4.28.3 Impairment of inventories
The Company measures inventories by the lower of cost and realizable net value according to the accounting policies in regard of inventories and provisions for decline in value of inventories is made if the cost is higher than their net realizable value, and obsolete and slow-movement inventories. Inventories decline in value to net realizable value is the estimated selling price in the ordinary course of business. Net realizable value is determined on the basis of clear evidence obtained, and takes into consideration the purposes of holding inventories and effect of post balance sheet events. The difference between the actual result and the original estimates shall have impact on reverse of the carrying amount of the inventories and their decline in value or provisions during the period of change.
4.28.4 The fair value of financial instruments
For a financial instrument which has no active market, the Company establishes fair value by using various valuation methods, including of discounted cash flow analysis model. The Company needs to estimate future cash flow, credit risk, volatility and relationship during the valuation and choose appropriate discount rate. Such assumptions have uncertainties and their changes shall have impact on the fair value of financial instruments. 4.28.5 Impairment of non-financial, non-current assets
The Company assesses whether there are any indicators of impairment for all non-current assets other than financial assets at the balance sheet date. For an intangible asset that has indefinite useful life, impairment test is made in addition to the annual impairment test if there is any indication of impairment. For non-current assets other than financial assets, impairment test is made when there is any indication that its account balance cannot be recovered.
Impairment exists when the recoverable amount of an asset is the higher of its fair value less cost of disposal and present value of the future cash flows expected to be derived from the asset.
Net value between the difference of fair value and disposal cost is determined by reference of the price of similar product in a sale agreement in anarm’s length transaction or an observable market price less the additional cost directly attributable to the disposal of the asset.
When estimating the present value of future cash flow, significant judgments are made over theasset’s
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 production, selling price and relevant operating expenses, and discount rate used to calculate present value. All available materials that are considered to be relevant shall be used in the estimation of recoverable value. These materials include estimations of production, selling price and operating expenses based on reasonable and supportable assumptions.
The Company makes an impairment test for goodwill at least at each year end. This requires an estimation of present value of future cash flow of the assets or assets group where goodwill has been allocated. The Company shall makes estimation on the future cash flow derived from assets or assets group and determine an appropriate discount rate for the present value of future cash flow when the estimation of present value of future cash flow is made.
4.28.6 Depreciation and amortization
Investment property, fixed assets and intangible assets are depreciated and amortized using the straight-line method over their useful lives after taking into account residual value. The useful lives are regularly reviewed to determine the depreciation and amortization costs charged in each reporting period. The useful lives are determined based on historical experience of similar assets and the estimated technical changes. If there is an indication that there has been a change in the factor used to determine the depreciation or amortization, the rate of depreciation or amortization is revised.
4.28.7 Deferred tax assets
The Company shall recognize all unused tax losses as deferred tax assets to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. This requires the management of the Company make a lot of judgments over the estimation of time period, value and tax planning strategies when future taxable profit incurs so that the value of deferred tax assets can be determined.
4.28.8 Income tax
There are some transactions where ultimate tax treatments and calculations have uncertainties in theCompany’s everyday operation. Whether it is possible for some items to make expenditure before tax needs approval from competent tax authorities. If there is any difference between finalized determination value and their initial estimations value, the difference shall have the impact on the income tax and deferred income tax of the current period during the final determination.
4.28.9 Aircraft operating lease and engine overhaul expenses
Aircraft operating lease and engine overhaul expenses are accrued and charged to profit or loss in accordance with the expected maintenance cycle, based on flight hours, flight cycles overhaul period and the amount of the cost of repairs which may occur. These estimates are largely based on past historical data about the same or similar types of aircraft and engines repairance. The withholding amount and overhaul costs may be affected by different judgments and estimates and affect current profit or loss.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 4.28.10 Defined benefit plan
The defined benefit plan implemented and maintained by the Company includes post-employment benefits plan. The provided welfare costs under the above defined benefit plan was calculated by expected cumulative unit credit method according to various actuarial assumptions, and were recognized during the employee service providing period. Actuarial Assumptions include but not limited to discount rate, mortality rate, and etc.. The discount rate is on the basis of management's review of national debt, and mortality rate depends on the mortality rate adopted by the China life insurance industry. Supplemental information of defined benefit plan see Note 6.28.
Note 5 Taxation
5.1 Major taxes and tax rate
Tax Tax rate(%)
Enterprise income tax Business tax is calculated according to the taxable income(note1)
The VAT is calculated as the difference between output tax(11% of the
taxable revenue) and deductible input tax for the period, and the tax rates Value added tax are6%,11% or17%(note 2). The output tax is calculated using the sales of goods and taxable services income (including transportation and ground services revenue).
Business tax Business tax is calculated at3%-5% of taxable turnover(note 3).
Property tax is calculated by the nature of house property and is collected Property tax
by ad valorem or specific duties according to the tax rules .
Urban maintenance and Urban maintenance and construction tax is calculated at7% of business tax construction tax and VAT.
Education surcharge Education surcharge is calculated at3% of business tax and VAT.
Local education Surcharge Local education Surcharge is calculated at2% of business tax and VAT. Civil aviation development fund shall be calculated using the collection standard of the relevant category of flight routes, maximum departure Civil aviation development weight and flight distance adopted by the civil aviation industry. According Fund to “Interim measures for the administration of the administration of civil aviation development fund”《民航发展基金征收使用管理暂行办法》.
Note 1: According to the provision of National Development and Reform Commission([2014]15), the branch membership of our company in Western China can get a reduced rate of15% to pay corporate income tax, when
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 its international and domestic air passenger and cargo transport projects are in line with the " Catalogue of
Encouraged Industries in WesternRegion”(《西部地区鼓励类产业目录》). All companies in mainland China are subject to a corporate income tax rate of25%.
Note 2: Prior to 1 August 2013, revenue arising from air transportation was taxable for business tax at the rate of3%. As from 1 August 2013, revenue arising from air transportation become VAT taxable per the Notice of Pilot Conversion of Sales-tax-to-VAT for the Transportation Sector and Certain Contemporary Service Sectors by the Ministry of Finance and State Administration of Taxation(Caishui[2013]37).（《财政部、国家税务总局关于在全国开展交通运输业和部分现代服务业营业税改征增值税试点税收政策的通知》（财税[2013]37号））.
Note 3: From January to April 2016, the taxable income tax of business tax which is calculated according to the tax law shall be taxed at3%-5%. According to relevant provisions of "the notice on the full implementation of pilot for replacing the business tax by VAT "(caishui[2016]36（)《关于全面推开营业税改征增值税试点的通知》（财税[2016]36号））, issued by the Ministry of Finance and the State Administration of Taxation, vat is levied replacing the business tax since May 1, 2016.
5.2 Tax incentives
5.2.1. Zero VAT rate applies to entities and individuals within the Chinese territory that provide international transportation services, research and development services and designing services provided to foreign entities, roundtrip transportation services between Hongkong, Marcau,and Taiwan, as well as transportion services provided in Hongkong, Marcau, and Taiwan per the Notice of Pilot Conversion of Sales-tax-to-VAT for the Transportation Sector and Certain Contemporary Service Sectors by the Ministry of Finance and State Administration of Taxation(Caishui[2013]No.37)(财税[2013]37号《财政部、国家税务总局关于在全国开展交通运输业和部分现代服务业营业税改征增值税试点税收政策的通知》)..
5.2.2. Per the Notice of Continuous Implementation of Transitional Business Tax Exemption Policy for Cross-boarder Lease Contracts of Equipment andMachinery(CaiShui[2011]No.48)(财税[2011]48号《关于跨境设备租赁合同继续实行过渡性营业税免税政策的通知》) jointly issued by the Ministry of Finance and the State Adnimistration of Taxation on June 30, 2011 and approved by the State Council, the transitional operating tax exemption applicable to revenue received by overseas leasor(s) to lease contracts (applicable to both financing lease and operating lease) of machinery and equipment import leasing involving domestic leasee(s) and overseas leasor(s) entered into prior to and remaining in force as at December 31, 2008 continues to apply from January 1, 2010 to the expiry date of the relevant contract. The Ministry of Finance and the State Adnimistration of Taxation, "the notice on the full implementation of pilot for replacing the business tax by VAT "(caishui[2016]36)（《关于全面推开营业税改征增值税试点的通知》（财税[2016]36号））. “(Appendix
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 3)The provision of Transitional Policy of pilot for replacing the business tax byVAT”.（附件3《营业税改征增值税试点过渡政策的规定》）. 6. The VAT preferential policies will be implemented during the pilot, expect the projects which have established deadlines and the fifth provision. If the pilot taxpayers have enjoyed the tax preferential policy of business tax before the day replacing business tax with VAT, during the remaining preferential tax policy term, they should enjoy the relevant vat preferential according to this provision.
Note 6 Notes to significant elements of the consolidated financial statements
Unless otherwise stated, the meaning of "B/f", "C/f", "Current year", "Prior year" in the following notes (incl. Notes to elements of the separate financial statements) is "1st January 2016", "31st December 2016", "the year ended 31st December 2016", and "the year ended 31st December 2015" respectively.
6.1 Monetary funds
Item C/f B/f
Cash at hand: 182,606.18 178,959.16 Bank deposit: 791,073,080.47 1,415,220,671.44 Other monetary funds:
Total 791,255,686.65 1,415,399,630.60 Including: the total amount of deposit abroad 1,604,517.22 2,232,804.96 6.2 Accounts receivables
6.2.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Accounts receivable of individual significance and 228,116,251.34 67.45 228,116,251.34 subject to individual impairment assessment
Accounts receivable subject to impairment assessment 92,078,562.91 27.23 4,603,928.14 5.00 87,474,634.77 by credit risk characteristics of a portfolio
Accounts receivable of individual insignificance but 18,006,401.64 5.32 10,823,117.90 60.11 7,183,283.74 subject to individual impairment assessment
Total 338,201,215.89 100.00 15,427,046.04 4.70 322,774,169.85 (Continued)
C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Accounts receivable of individual significance and 156,501,058.00 59.44 156,501,058.00
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
subject to individual impairment assessment
Accounts receivable subject to impairment assessment
by credit risk characteristics of a portfolio 94,755,329.85 35.99 4,737,766.49 5.00 90,017,563.36 Accounts receivable of individual insignificance but
subject to individual impairment assessment 12,030,208.57 4.57 2,765,908.05 22.99 9,264,300.52 Total 263,286,596.42 100.00 7,503,674.54 2.85 255,782,921.88① Accounts receivable of individual significance and subject to individual impairment assessment
C/f
Rate of
Debtor Allowance
Carrying amount allowance Reason for allowance for bad debt
(%)
No indication of impairment Air China 111,220,493.07
upon individual assessment No indication of impairment BSP-CHINA 59,213,818.83
upon individual assessment No indication of impairment Accounting Center of China Aviation 57,681,939.44
upon individual assessment Total 228,116,251.34
② Accounts receivable subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate ofallowance(%) Portfolio by nature 92,078,562.91 4,603,928.14 5.00
Total 92,078,562.91 4,603,928.14 5.00
③ Accounts receivable of individual insignificance but subject to individual impairment assessment
C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance bad debt allowance(%)
impairment upon
Debtor#1
8,057,209.85 8,057,209.85 100.00
individual assessment BSP-TAIWAN 2,937,548.86
No indication of
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance bad debt allowance(%)
impairment upon
individual assessment No indication of
UATP 2,275,133.99
impairment upon
individual assessment impairment upon
Kun Peng Airlines Co., Ltd. 1,849,400.00 1,849,400.00 100.00
individual assessment Non recoverable upon BSP-JAPAN 1,517,337.02
individual assessment impairment upon
CR Airways 916,508.05 916,508.05 100.00
individual assessment No indication of
BSP-CAMBODIA 172,325.12
impairment upon
individual assessment No indication of
ARC 158,157.05
impairment upon
individual assessment No indication of
BSP-THAILAND 92,031.53
impairment upon
individual assessment No indication of
BSP-GERMANY 30,750.17
impairment upon
individual assessment Total
18,006,401.64 10,823,117.90 60.11
6.2.2 Recognisation, recovery or reversal of allowance for bad debt
The amount of allowance for bad debts recognised during the year is CNY7,923,371.50.
6.2.3 Top five accounts receivables by debtors
The total amount of top five accounts receivables summarised by debtors as at the end of current year is CNY 270,497,027.26, accounting for79.98% of the total accounts receivable as at the end of current year, the total corresponding allowance for bad debts is CNY2,119,038.79.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 6.3 Prepayments
6.3.1 Disclosure by age
C/f B/f
Age
Amount % Amount %
Within 1 year 248,363,327.89 99.69 154,068,748.52 99.46 1 to 2 years 50,862.40 0.02 337,815.97 0.22 2 to 3 years 231,761.96 0.09
Over 3 years 490,292.70 0.20 491,212.70 0.32 Total 249,136,244.95 100.00 154,897,777.19 100.00 6.3.2 Details of top five prepayments
The total amount of top five prepayments as at the end of current year is CNY 100,773,613.19, accounting for40.45% of the total advance to suppliers.
6.4 Dividends receivable
6.4.1 Disclosure by item
Item C/f B/f
Sichuan Airlines 4,381,900.00 Total 4,381,900.00 6.5 Other receivables
6.5.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Other receivables of individual
significance and subject to
353,220,633.95 76.34 108,431,670.15 30.70 244,788,963.80 individual impairment
assessment
Other receivables subject to
subject to impairment
65,822,034.03 14.22 3,291,101.71 5.00 62,530,932.32 assessment by credit risk
characteristics of a portfolio
Other receivables of individual
insignificance but subject to
43,680,428.66 9.44 43,680,428.66 individual impairment
assessment
Total 462,723,096.64 100.00 111,722,771.86 24.14 351,000,324.78
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 (Continued)
B/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Other receivables of individual
significance and subject to
267,542,239.69 68.46 106,461,110.62 39.79 161,081,129.07 individual impairment
assessment
Other receivables subject to
subject to impairment
77,465,334.20 19.82 3,873,266.72 5.00 73,592,067.48 assessment by credit risk
characteristics of a portfolio
Other receivables of individual
insignificance but subject to
45,815,835.47 11.72 45,815,835.47 individual impairment
assessment
Total 390,823,409.36 100.00 110,334,377.34 28.23 280,489,032.02① Other receivables of individual significance and subject to individual impairment assessment
C/f
Rate of
Debtor Allowance for
Carrying amount allowance Reason for allowance bad debt
(%)
No indication of
Debtor#1 i m p a ir m e n t u p o n
114,069,866.40
individual assessment Shandong Rainbow Commercial Jet im p a irm e n t u po n
101,551,717.65 101,551,717.65 100.00
Co., Ltd. individual assessment im p a irm e n t a ss e s s m e n t Debtor#2
79,570,006.50 3,978,500.33 5.00
by portfolio
im p a irm e n t a ss e s s m e n t Debtor#3
58,029,043.40 2,901,452.17 5.00
by portfolio
Total
353,220,633.95 108,431,670.15 30.70
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016② Other receivables subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate ofallowance(%) Portfolio by nature 65,822,034.03 3,291,101.71 5.00 Total 65,822,034.03 3,291,101.71 5.00③ Other receivables of individual insignificance but subject to individual impairment assessment
C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance bad debt allowance(%)
No indication of
Debtor#1 19,423,600.00 im pairment upon
individual assessment No indication of
Air China 6,250,133.00 im pairment upon
individual assessment No indication of
Debtor#2 4,758,782.00 im pairment upon
individual assessment No indication of
Debtor#3 3,900,000.00 im pairment upon
individual assessment No indication of
Debtor#4 1,553,182.17 im pairment upon
individual assessment No indication of
Debtor#5 1,414,505.19 im pairment upon
individual assessment No indication of
Debtor#6 1,387,400.00 im pairment upon
individual assessment No indication of
Debtor#7 1,354,680.00
impairment upon
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Debtor Allowance for Rate of
Carrying amount Reason for allowance bad debt allowance(%)
individual assessment No indication of
Shandong Air New Media Co., Ltd. 1,027,044.28 im pairment upon
individual assessment No indication of
Debtor#8 554,707.92 im pairment upon
individual assessment No indication of
Debtor#9 553,166.41 im pairment upon
individual assessment No indication of
Shenzhen Airlines Co., Ltd. 468,173.37 im pairment upon
individual assessment No indication of
Debtor#10 416,030.94 impairment upon
individual assessment No indication of
Debtor#11 405,052.90 impairment upon
individual assessment Taikoo (Shandong) Aircraft No indication of
Engineering Company 198,526.00 impairment upon
Limited individual assessment No indication of
Shandong XiangYu Air
15,444.48 im pairment upon
Technology Co., Ltd.
individual assessment Total 43,680,428.66
6.5.2 Recognisation, recovery or reversal of allowance for bad debt
The amount of allowance for bad debts recovered or reversed during the current year is CNY 1,388,394.52.
6.5.3 Disclosure by nature
Category C/f B/f
Deposits 151,888,719.29 107,918,479.76 Others 310,834,377.35 282,904,929.60
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Total 462,723,096.64 390,823,409.36 6.5.4 Top five other receivables
Allowance for Debtor Nature C/f Aging %
bad debt Debtor#1 Deposits 114,069,866.40 Within 1 year
24.65
Shandong Rainbow Commercial Jet
Others Over 4 years
21.95
Co., Ltd. 101,551,717.65 101,551,717.65 Debtor#2 Others 79,570,006.50 Within 2 years
17.20
3,978,500.33 Debtor#3 Others 58,029,043.40 Within 3 years
12.54
2,901,452.17 Debtor#4 Deposits 19,423,600.00 Within 5 years
4.19
Total 372,644,233.95 80.53 108,431,670.15 6.6 Inventories
C/f
Type Impairment
Gross carrying amount Net carrying amount allowance
Consumable air quipements 115,711,019.94 115,711,019.94 Low-value consumables 3,930,799.75 3,930,799.75 Materials 1,323,423.87 1,323,423.87 Total 120,965,243.56 120,965,243.56 (Continued)
B/f
Type Impairment
Gross carrying amount Net carrying amount allowance
Consumable air quipements 108,152,915.54 108,152,915.54 Low-value consumables 3,141,642.16 3,141,642.16 Materials 1,012,883.29 1,012,883.29 Total 112,307,440.99 112,307,440.99 6.7 Other current assets
Type C/f B/f
VAT deductible 59,685,735.09 39,291,476.46 Income tax overpaid 7,134,030.07 Total 59,685,735.09 46,425,506.53
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 6.8 Financial assets available for sale
6.8.1 General information
C/f B/f
Category Net carrying Net carrying Carrying amount Impairment Carrying amount Impairment
amount amount Available for sale equity instruments
Including: measured by fair value 190,210,082.34 190,210,082.34 139,460,673.92 139,460,673.92 measured by cost 81,662,100.00 81,662,100.00 81,662,100.00 81,662,100.00 Total 271,872,182.34 271,872,182.34 221,122,773.92 221,122,773.92 6.8.2 Financial assets available for sale measured by fair value at the end of current year
Available for sale equity
Category Total
instruments
Cost of equity instruments 6,690,000.00 6,690,000.00 Fair value 190,210,082.34 190,210,082.34 Accumulated changes in the fair value recognised
into other comprehensive income 183,520,082.34 183,520,082.34 Impairment amount
6.8.3 Financial assets available for sale measured by cost at the end of current year
Carrying amounts as at 31/12/2015 Impairment
Cash Increase Increase
Decrease Decrease Shareholding in Dividend Investee in in
B/f in current C/f B/f in current C/f investee(%) for current current current
year year year year year
Sichuan Airlines 35,000,000.00 35,000,000.00 10.00 15,736,285.82 Jinan
International
Airport 46,662,100.00 46,662,100.00 2.53 734,928.08 Total 81,662,100.00 81,662,100.00 16,471,213.90 6.9 Long-term equity investments
Category B/f Allowance b/f Currency year movement(+, -)
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Investment gains
and losses Other comprehensive Other Additional Investment
recognised under income changes investment reduction
the equity adjustment in equity method
Associates
Shandong
Rainbow
22,500,000.00 22,500,000.00
Commercial
Jet Co., Ltd.
Total 22,500,000.00 22,500,000.00
(Continued)
Currency year movement(+, -)
Category Declared cash Allowance C/f Allowance c/f Others
dividends or profits recognised
Investment in associates
Shandong Rainbow
Commercial Jet Co., Ltd. 22,500,000.00 22,500,000.00 Total 22,500,000.00 22,500,000.00 6.10 Fixed assets
6.10.1 General information
Houses and Aircrafts and High-value Transportation
Items Others Total buildings engines rotables vehicles
1. Cost:
1.1 Balance as at 31/12/2015 358,411,470.20 10,041,861,037.02 667,498,748.25 68,916,652.12 176,777,010.04 11,313,464,917.63 1.2 Increased in current year 3,534,450.00 644,459,535.83 57,969,008.25 2,214,684.25 18,967,723.04 727,145,401.37 (1) Purchase 3,534,450.00 339,573,652.18 57,969,008.25 2,214,684.25 18,967,723.04 422,259,517.72 (2) Transferred from
304,885,883.65 304,885,883.65 construction in-progress
(3) Transferred from merger
and acquisitions
(4) Others
1.3 Decreased in
2,675,743.34 195,929,218.41 7,141,379.72 2,198,919.76 4,773,039.95 212,718,301.18 current year
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Houses and Aircrafts and High-value Transportation
Items Others Total buildings engines rotables vehicles
(1) Disposal or scrap 2,675,743.34 195,929,218.41 7,141,379.72 2,198,919.76 4,773,039.95 212,718,301.18 (2) Others
1.4 Balance as at 31/12/2016 359,270,176.86 10,490,391,354.44 718,326,376.78 68,932,416.61 190,971,693.13 11,827,892,017.82 2. Accumulated Depreciation
2.1 Balance as at 31/12/2015 71,319,328.50 3,698,527,093.34 249,163,286.61 35,214,239.86 89,410,704.17 4,143,634,652.48 2.2 Increased in current year 11,665,366.90 714,111,509.49 37,700,090.76 5,075,199.53 16,407,738.11 784,959,904.79 (1) Accrual 11,665,366.90 714,111,509.49 37,700,090.76 5,075,199.53 16,407,738.11 784,959,904.79 2.3 Decreased in current year 1,088,989.54 195,929,218.41 3,988,355.74 1,940,287.64 3,813,713.43 206,760,564.76 (1) Disposal or scrap 1,088,989.54 195,929,218.41 3,988,355.74 1,940,287.64 3,813,713.43 206,760,564.76 (2) Others
2.4. Balance as at 31/12/2016 81,895,705.86 4,216,709,384.42 282,875,021.63 38,349,151.75 102,004,728.85 4,721,833,992.51 3. Impairment allowance
3.1 Balance as at 31/12/2015 13,572,095.22 13,572,095.22 3.2 Increased in current year
(1) Accrual
3.3 Decreased in current year 747,221.70 747,221.70 (1) Disposal or scrap 747,221.70 747,221.70 (2) Others
3.4 Balance as at 31/12/2016 12,824,873.52 12,824,873.52 4. Carrying amount
4.1 Carrying amount as at 31/12/2016 277,374,471.00 6,273,681,970.02 422,626,481.63 30,583,264.86 88,966,964.28 7,093,233,151.79 4.2 Carrying amount as at 31/12/2015 287,092,141.70 6,343,333,943.68 404,763,366.42 33,702,412.26 87,366,305.87 7,156,258,169.93 6.10.2 Fixed assets acquired under financial leases
Accumulated Impairment
Category Cost Carrying amount Depreciation allowance
Aircrafts and engines 2,192,909,859.90 1,047,651,447.97 1,145,258,411.93 Total 2,192,909,859.90 1,047,651,447.97 1,145,258,411.93 6.10.3 Fixed assets pending ownership registration
Item Carrying amount Reason for pending
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Item Carrying amount Reason for pending
Operational support building of Yantai Penglai
59,925,312.42 Ownership registration in process
International Airport
Land rented from Jinan Air Control, not Jinan cargo arrival and departure warehouses 12,854,531.53
eligible for ownership registration
Impairment allowance of fixed assets is CNY 12,824,873.52 as at 31/12/2016, with no additional amount of allowance for fixed assets impairment recognised during the year.
6.11 Construction in progress
6.11.1 General information
C/f B/f
Items Impairment Impairment
Carrying amount Net carrying amount Carrying amount Net carrying amount allowance allowance
Factory building
137,792,677.66 137,792,677.66 126,277,951.14 126,277,951.14 project
Prepayment
2,110,159,957.73 2,110,159,957.73 1,933,285,252.31 1,933,285,252.31 for aircrafts
Construction of
2,547,826.96 2,547,826.96 2,747,369.44 2,747,369.44 information system
Total 2,250,500,462.35 2,250,500,462.35 2,062,310,572.89 2,062,310,572.89 6.11.2 Significant projects
Transferred to
Current year
Project Budget B/f fixed assets in Other decrease C/f
increase
current year
Administrative
office of Xiamen 195,000,000.00 121,804,542.80 14,802,453.69 136,606,996.49 branch
Aircraft asset
introduction 15,004,922,602.00 1,933,285,252.31 1,641,362,621.46 304,885,883.65 1,159,602,032.39 2,110,159,957.73 project
Total 15,199,922,602.00 2,055,089,795.11 1,656,165,075.15 304,885,883.65 1,159,602,032.39 2,246,766,954.22 (Continued)
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Weight Including:
Including:Transferred Including:Transferred
of cost to Stage of Cumulative interests Capitalisation
into leaseback into fixed assets Source of Items date in completion interests capitalized rate applicable to
assets during the during the current finance budgeted capitalised during the the current year
current year year
cost current year
Administrative
office of Not current70.05%
Xiamen completed assets branch
Loans from Aircraft asset Finance Not
introduction14.06% 2.895%-3.8246% Institutions applicable
project and current 77,345,661.29 5 0 ,732,661.23 7,960,619.85 54,466,022.01 assets Total 77,345,661.29 5 0 ,732,661.23 7,960,619.85 54,466,022.01
Note: The cumulative amount of interests capitalized as at 31/12/2015 is 81,572,920.36, the amount of current year is 54,466,022.01, including 7,960,619.85 transferred into fixed assets and 50,732,661.23 transferred into leaseback assets during the current year, the cumulative amount of interests capitalized as at 31/12/2016 is 77,345,661.29.
6.11.3 Recognization of impairment allowance for construction in progress
No sign of construction in progress impairment occurred as at 31/12/2016, no impairment provision shall be recognised.
6.12 Intangible assets
6.12.1 General information
Items Land rights Software Total
1. Cost:
1.1 Balance as at 31/12/2015 108,347,341.13 24,196,624.41 132,543,965.54 1.2 Increased in current year 4,661,372.11 4,661,372.11 (1) Purchase
(2) Diversion of construction 4,661,372.11 4,661,372.11 (3) Increased from business combination
1.3 Decreased in current year
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Items Land rights Software Total
(1) Disposal
1.4 Balance as at 31/12/2016 108,347,341.13 28,857,996.52 137,205,337.65 2. Accumulated amortization
2.1 Balance as at 31/12/2015 11,181,225.30 5,957,130.68 17,138,355.98 2.2 Increased in current year 2,403,584.27 3,459,644.20 5,863,228.47 (1) Accrual 2,403,584.27 3,459,644.20 5,863,228.47 2.3 Decreased in current year
(1) Disposal
2.4 Balance as at 31/12/2016 13,584,809.57 9,416,774.88 23,001,584.45 3. Impairment allowance
3.1 Balance as at 31/12/2015
3.2 Increased in current year
(1) Accrual
3.3 Decreased in current year
(1) Disposal
3.4 Balance as at 31/12/2016
4. Carrying amount
4.1 Carrying amount as at 31/12/2016 94,762,531.56 19,441,221.64 114,203,753.20 4.2 Carrying amount as at 31/12/2015 97,166,115.83 18,239,493.73 115,405,609.56 6.12.2 Land rights with pending ownership registration
No case of land rights with pending ownership registration was identified as of 31/12/2016.
6.13 Goodwill
6.13.1 General information
Current year Current year
increase decrease
Investee B/f From C/f
business Disposal
combination
Qingdao Feisheng 10,220,816.22 10,220,816.22 Total 10,220,816.22 10,220,816.22 6.13.2 Impairment allowance
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Current year Current year
Investee B/f increase decrease C/f
Accrual Disposal
Qingdao Feisheng 10,220,816.22 10,220,816.22 Total 10,220,816.22 10,220,816.22 6.14 Deferred charges
Current year Current year
Item B/f Other decrease C/f
increase amortization
Pilot training 423,768,628.75 111,110,220.91 75,488,264.78 459,390,584.88 Decoration expenditure 18,887,498.03 139,263.05 6,299,555.54 12,727,205.54 Modification costs for
aircraft leasing 3,852,021.58 407,151.92 3,444,869.66 Total 446,508,148.36 111,249,483.96 82,194,972.24 475,562,660.08 6.15 Deferred tax assets and deferred tax liabilities
6.15.1 Deferred tax assets
C/f B/f
Deductible
Item Deductible temporary
Deferred tax assets temporary Deferred tax assets difference
difference
Allowance for bad debt 127,149,817.90 31,787,454.48 117,838,051.88 29,459,512.97 Impairment allowance for
fixed assets 12,824,873.52 3,206,218.38 13,572,095.22 3,393,023.81 Fair value movement of
financial liabilities held
for trading 1,155,815.80 288,953.95 3,370,447.62 842,611.91 Provisions 2,398,351,341.80 599,587,835.45 1,644,962,585.43 411,240,646.36 Employment benefits
payable 13,339,322.51 3,334,830.63 19,736,492.42 4,934,123.11 Deferred income 14,319,523.98 3,579,881.00 15,795,524.10 3,948,881.03 Total 2,567,140,695.51 641,785,173.89 1,815,275,196.67 453,818,799.19 6.15.2 Deferred tax liabilities
C/f B/f
Item
Deductible temporary Deferred tax Deductible temporary Deferred tax
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 difference liabilities difference liabilities Changes in fair value of
financial assets available 183,520,082.34 45,880,020.58 132,770,673.92 33,192,668.48 for sale
Total 183,520,082.34 45,880,020.58 132,770,673.92 33,192,668.48 6.16 Other non-current assets
Item C/f B/f
Unrealized gains and losses of operating lease
23,794,314.90 from aircraft leaseback
Total 23,794,314.90 6.17 Financial liabilities measured by fair value with changes in fair value recognised in profit or loss Item Fair value c/f Fair value b/f
Interest rate swaps 1,155,815.80 3,370,447.62 Total 1,155,815.80 3,370,447.62 The immature interest rate swaps held by the Company had a principal amount of USD 59,735,862.80 as at 31/12/2016; bankers confirmed that the reporting date fair value of these interest rate swaps is CNY-1,155,815.80.
6.18 Notes payable
Type C/f B/f
Commercial acceptance 25,299,479.50 Total 25,299,479.50 6.19 Accounts payable
6.19.1 General information
Item C/f B/f
Aircraft maintenance costs 463,956,451.17 169,842,647.39 Fuel cost 197,231,462.72 157,915,325.68 Landing fee 333,773,372.93 312,636,408.52 Aircraft service cost 345,104,581.50 185,358,946.55 Flight catering 82,266,721.74 74,222,899.49 Computer booking fee 35,600,521.61 87,277,689.83 Lease rental 7,978,905.87 6,906,064.64 Others 222,182,843.55 134,469,713.45 Total 1,688,094,861.09 1,128,629,695.55
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 6.19.2 No significant account payable due for more than 1 year as at the reporting date.
6.20 Advance from customers
Item C/f B/f
Ticket clearing 671,930,813.96 418,599,325.09 Advanced payment for tickets 4,811,444.78 5,221,967.36 Others 22,577,294.31 8,395,116.92 Total 699,319,553.05 432,216,409.37 6.21 Employee benefits payable
6.21.1 Disclosure by classification
Current year Current year
Item B/f C/f
increase decrease
1. Short-term employee benefits 455,788,600.48 2,158,626,862.64 2,160,040,433.93 454,375,029.19 2. Post-employment benefits 182,644,165.36 182,644,165.36
3. Termination benefits 133,447.36 133,447.36
4. Other long-term employee
benefits within one year
Total 455,788,600.48 2,341,404,475.36 2,342,818,046.65 454,375,029.19 6.21.2 Disclosure by classification of short-term employee benefits
Current year Current year
Item B/f C/f
increase decrease
1. Wages, salaries and subsidies 411,749,614.06 1,917,868,017.65 1,916,389,359.03 413,228,272.68 2. Employee welfare 36,512,500.09 36,512,500.09
3. Social insurance: 70,358,802.56 70,358,802.56
Including: Medical insurance 55,762,590.55 55,762,590.55
Employment injury
4,425,771.41 4,425,771.41
insurance
Maternity insurance 6,149,689.13 6,149,689.13
Disabled security
4,020,751.47 4,020,751.47
payments
4.Housing provident fund 22,494.00 62,962,328.56 62,837,388.56 147,434.00 5.Labour union fee and employee
19,736,492.42 43,265,213.78 49,662,383.69 13,339,322.51 education fee
6. Short-term paid absences 24,280,000.00 27,660,000.00 24,280,000.00 27,660,000.00
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Current year Current year
Item B/f C/f
increase decrease
7. Short-term profit-sharing plan
Total 455,788,600.48 2,158,626,862.64 2,160,040,433.93 454,375,029.19 6.21.3 Disclosure by defined contribution plan
Item B/f Current year increase Current year decrease C/f
1. Basic pension 115,425,415.85 115,425,415.85
2.Unemployment insurance 6,444,183.43 6,444,183.43
3. Annuity payment 60,774,566.08 60,774,566.08
Total 182,644,165.36 182,644,165.36
The company participated in basic pension and unemployment insurance in accordance with the regulations. Based on the insurance program, a percentage of total wages of employees were paid to the account separately. Except for the fee paid, enterprise annuity was deposited to annuity management institution by a percentage of monthly payment base, which was determined by seniority pay and post salary.
6.22 Taxes and fees payable
Tax (Fee) C/f B/f
VAT 775,322.54 184,449.99 Business tax 1,315,631.25 Urban construction and maintenance tax 171,124.16 661,316.27 Education surcharge 123,863.13 473,042.24 Enterprise income tax 4,877,426.27 545,653.46 Property tax 170,078.07 170,078.07 Land tax 221,139.00 224,139.00 Personal income tax 22,838,989.34 8,767,613.18 stamp duty 2,553,371.69 1,805,107.26 Civil aviation development fund 106,835,140.08 90,906,945.13 Others 95,350.88 93,895.34 Total 138,661,805.16 105,147,871.19 6.23 Interests payable
Item C/f B/f
Interest on long-term borrowings with repayment by installments 2,430,456.90 3,638,536.32 Total 2,430,456.90 3,638,536.32
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 6.24 Other payables
6.24.1 Disclosure by nature
Item C/f B/f
Payable for construction projects 30,515,708.94 36,254,846.11 Payable for down payments 91,264,426.66 77,019,458.72 Payables associated with aircraft purchase 3,949,505.02 9,475,078.50 Taxes deducted at source 80,231,680.37 50,487,172.46 Others 195,893,115.22 182,393,206.98 Total 401,854,436.21 355,629,762.77 6.24.2 Significant other payables due for more than 1 year
Creditor Amount Reason for pending settlement
Air China 20,000,000.00 M argin deposit to be settled upon expiry of immature wet lease
Total 20,000,000.00
6.25 Non-current liabilities due within one year
Category C/f B/f
Long-term borrowings due within one year (Note 6.26) 836,269,451.50 1,342,283,640.89 Bonds payable due within one year
Long-term payables due within one year (Note 6.27) 144,580,142.52 138,796,767.49 Long-term employee benefits payable due within one
year (Note 6.28) 6,794,418.00 5,930,912.28 Total 987,644,012.02 1,487,011,320.66 6.26 Long-term borrowings
Category C/f B/f
Mortgage loan
Secured loans 2,027,940,287.04 2,589,468,383.99 Guaranteed loans
Credit loans 607,930,932.00 1,640,517,129.60 Less: Long-term borrowings due within one year (Note 6.25) 836,269,451.50 1,342,283,640.89 Total 1,799,601,767.54 2,887,701,872.70 Note:① Class and amount of mortgage assets see Note 6.49 assets with imposed restriction on ownership.② Interest rates as at 31/12/2016 of the above-mentioned long-term borrowings range from1.9741%-5.0200%.
6.27 Long-term payables
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Category C/f B/f
Financial lease rental payables 921,300,803.04 1,024,970,371.19 Maintenance payables for aircrafts and engines held under operating lease 2,217,672,688.43 1,644,962,585.43 Less: Financial lease rental payables due within one year (Note 6.25) 144,580,142.52 138,796,767.49 Less: Maintenance payables for aircrafts and engines held under
operating lease due within one 460,191,258.69 164,895,012.20 year (Note 1)
Total 2,534,202,090.26 2,366,241,176.93 Note : Maintenance payables for aircrafts and engines held under operating lease due within one year had been included in accounts payable.
6.28 Long-term employee benefits payable
6.28.1 General information
Item C/f B/f
Post-employment benefits-net defined benefit liability 100,925,069.51 90,145,000.00 Less: long-term staff remuneration payable due within one year (Note 6.25) 6,794,418.00 5,930,912.28 Total 94,130,651.51 84,214,087.72 6.28.2 Movements
① Defined benefit obligation
Item C/f B/f
(1) Net Defined Benefit Asset/(Liability) at End of Prior Period 90,145,000.00 75,838,000.00 (2) Defined benefit costs recognised
17,918,069.51 14,938,000.00 into current profit or loss
1. Current Service Cost
2. Past Service Cost 15,302,069.51 12,194,000.00 3. Settlement (Gain)/Loss
4. Net Interest/(Income) on Net Defined Benefit Liability/(Asset) 2,616,000.00 2,744,000.00 (3) Defined benefit costs recognised
263,000.00 -5,281,000.00 into other comprehensive income
1. Actuarial gains/(losses) 263,000.00 -5,281,000.00 (4) Other movements 6,875,000.00 5,912,000.00 1. Settlement payment
2. Benefits Paid Directly by Employer 6,875,000.00 5,912,000.00 (5) Net defined benefit asset/(liability) at end of current year 100,925,069.51 90,145,000.00
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016② Actuarial Assumptions
Item 31st December, 2015 31st December, 2016 Discount Rate 3.00% 3.25%
China Life Insurance Mortality Rate 2000-2003 Mortality Rate
(Annuity)
Cost of Living Adjustments for Retired Cadres and
0.00%
Retirees
Cost of Living Adjustments for Internal Retirees 0.00%
Cost of Living Adjustments for Dependants 0.00%
6.29 Deferred income
Current year Current year
Item B/f C/f
increase decrease
Unrealized gains and losses of
operating lease from aircraft 45,946,398.21 1,826,401.03 44,119,997.18 leaseback
Designated subsidy for snow disaster 1,989,958.34 499,500.00 1,490,458.34 Designated subsidy for civil aviation
13,805,565.76 976,500.12 12,829,065.64 energy-saving program
Total 15,795,524.10 45,946,398.21 3,302,401.15 58,439,521.16 Details of government grants:
the amount included in
Current year Other
Item B/f non-operating income C/f
increase changes
for current year
Designated subsidy for
1,989,958.34 499,500.00 1,490,458.34 snow disaster
Designated subsidy for
civil aviation 13,805,565.76 976,500.12 12,829,065.64 energy-saving program
Total 15,795,524.10 1,476,000.12 14,319,523.98 Note : The increasing amount of unrealized gains and losses of operating lease from aircraft leaseback in this year includes the amount of other non-current assets as at 31/12/2015, which is CNY 23,794,314.90.
6.30 Share capital
Category B/f Currency year movement(+, -) C/f
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Coversion
Share Bonus
Amount % from Others Subtotal Amount % issue issue
reserves
1. Shares with
restriction on
disposal
1.1 State-held shares
1.2 Shares held by
259,801,000.00 64.95 259,801,000.00 64.95 state-owned entities
1.3 Shares held by
199,000.00 0.05 199,000.00 0.05 other domestic investors
Including: Held by
199,000.00 0.05 199,000.00 0.05 institutional investors
Held by
non-institutional investors
1.4 Shares held by
foreign investors
Including: Held by
institutional investors
Held by
non-institutional investors
Subtotal of shares with
260,000,000.00 65.00 260,000,000.00 65.00 restriction on disposal
2. Floating shares
2.1 Ordianry shares
issued in CNY
2.2 Shares issued in
domestic stock market in 140,000,000.00 35.00 140,000,000.00 35.00 foreign currency
2.3 Shares issued in
foreign market in foreign
currency
2.4 Others
Subtotal of floating shares 140,000,000.00 35.00 140,000,000.00 35.00 Total 400,000,000.00 100.00 400,000,000.00 100.00
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 6.31 Capital reserves
Current year Current year
Category B/f C/f
increase decrease
Share premium 67,618,282.54 67,618,282.54 Other capital reserves 7,792,081.16 7,792,081.16 Total 75,410,363.70 75,410,363.70 6.32 Other comprehensive income
Total amount in current year
Less:
previously
recognised in After tax After tax
Amount for
Item B/f other Less: Income attributable to attributable C/f the year
comprehensive tax expense the parent to minority
before tax
income company shareholders
transferred into
profit or loss
1.Other
comprehensive
income will be
-6,023,000.00 263,000.00 263,000.00 -5,760,000.00 reclassified into
income or loss
in the future
Including:
remeasurement
of net assets or
-6,023,000.00 263,000.00 263,000.00 -5,760,000.00 net liabilities of
defined benefit
plans
2.Other
comprehensive
income
reclassifiable to
99,578,005.44 50,749,408.42 12,687,352.10 38,062,056.32 137,640,061.76 profit or loss in
subsequent
periods
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Total amount in current year
Less:
previously
recognised in After tax After tax
Amount for
Item B/f other Less: Income attributable to attributable C/f the year
comprehensive tax expense the parent to minority
before tax
income company shareholders
transferred into
profit or loss
Gains and
losses from
changes in fair
value of
99,578,005.44 50,749,408.42 12,687,352.10 38,062,056.32 137,640,061.76 financial assets
available for
sale
Total of other
comprehensive
93,555,005.44 51,012,408.42 12,687,352.10 38,325,056.32 131,880,061.76 income
6.33 Surplus reserves
Current year Current year
Category B/f C/f
increase decrease
Statutory surplus reserve 370,981,095.40 52,443,232.24 423,424,327.64 Total 370,981,095.40 52,443,232.24 423,424,327.64 Notes: according to the Company Law and the Articles of Association,10% of net profit was transferred to statutory surplus reserve.
The company may make allocations to the discretionary surplus reserve from the after-tax profits after making allocations to the statutory surplus reserve from the after-tax profits. Approved surplus reserves can be released to recover losses or for conversion into share capital.
6.34 Retained earnings
Items Current year Prior year
Pre-adjustment balance brought forward 2,425,066,740.03 2,025,535,984.99 Total adjustment to retained earnings b/f(+, -)
Retained earnings b/f after adjustment 2,425,066,740.03 2,025,535,984.99 Add: Net profit attributable to shareholders of the parent 532,834,567.17 532,260,993.04
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Items Current year Prior year
Pre-adjustment balance brought forward 2,425,066,740.03 2,025,535,984.99 Other transfer
Less: Appropriation to statutory surplus reserve 52,443,232.24 52,730,238.00 Appropriation to discretionary surplus reserve
General reserve
Ordinary dividends declared 100,000,000.00 80,000,000.00 Bonus issue
Balance carrying forward 2,805,458,074.96 2,425,066,740.03 6.35 Operating revenues and costs
Current year Prior year
Category
Operating revenues Operating costs Operating revenues Operating costs Principal business 13,383,512,531.78 11,888,575,339.12 11,935,727,711.34 10,193,994,230.65 Other business 358,853,013.78 1,598,065.47 173,235,427.77 5,592,112.29 Total 13,742,365,545.56 11,890,173,404.59 12,108,963,139.11 10,199,586,342.94 6.36 Tax and surcharges
Item Current year Prior year
Business tax 4,633,662.56 9,216,831.59 Urban maintenance and construction tax 18,430,505.70 22,135,656.88 Education surcharge and others 22,953,032.48 18,869,986.75 Total 46,017,200.74 50,222,475.22 Notes: Applicable rates for business tax and surcharges see Note 5 Taxation.
6.37 Sales expenses
Category Current year Prior year
Agency fees 267,742,409.14 372,905,765.90 Employment benefits 178,332,207.47 158,090,438.04 Computer booking 100,918,601.79 86,702,081.37 Online payment 40,788,727.39 23,986,458.37 Sales expense of annual tickets 1,047,985.94 1,345,688.25 Lease rental 16,362,885.25 14,628,692.68 Advertisement fees 20,250,896.90 10,693,634.28 Administrative office expenses 3,862,339.59 4,060,310.97 Travel expenses 5,202,704.24 4,220,849.07
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Category Current year Prior year
System and network 9,597,413.64 8,393,041.43 BSP data processing 3,499,362.04 1,881,198.97 Depreiciation 1,599,442.92 1,614,214.81 Others 25,756,200.22 25,176,521.98 Total 674,961,176.53 713,698,896.12 6.38 General and administrative expenses
Category Current year Prior year
Employment benefits 183,786,142.00 146,652,861.99 Lease rental 19,625,100.23 16,859,132.71 Business entertainment costs 4,937,359.74 5,894,332.28 Depreiciation 14,628,022.94 13,145,398.37 Taxes and fees 2,020,031.01 7,605,886.97 Administrative office expenses 4,709,058.67 3,950,502.67 Technology development costs 11,007,809.25 10,522,258.65 Amortisation of intangibles 5,863,228.47 5,143,696.48 Water, electricity charges 12,220,258.07 11,226,671.68 Outsourcing fee 21,970,938.61 11,418,859.77 Others 53,175,913.71 48,277,714.95 Total 331,923,831.69 280,697,316.52 Note: In accordance with "Vat accounting treatment provisions" (Accounting[2016]22), the tax from May to December this year is disclosed in Tax and surcharges.
6.39 Financial costs
Category Current year Prior year
Interest expenses 126,981,176.69 162,478,745.82 Less: Interest income 17,637,929.77 18,783,142.89 Exchange difference 147,625,889.91 174,944,031.89 Bank charges and others 4,907,449.32 1,182,985.23 Total 261,876,586.15 319,822,620.05 6.40 Loss on asset impairment
Category Current year Prior year
Allowance for bad debt 9,311,766.02 5,580,449.74 Total 9,311,766.02 5,580,449.74 6.41 Gain from changes in fair value
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Source Current year Prior year
Interest rate swaps 2,214,631.82 -1,810,736.85 Total 2,214,631.82 -1,810,736.85 6.42 Investment income
Category Current year Prior year Income from holding of financial assets available for sale 18,636,766.90 11,345,875.41 Income from long-term equity investment income of equity method -17,729,201.91 Income from disposal of long-term equity investment 45,119,181.79 Income from financial assets measured by fair value with changes in
-1,277,063.78 -3,232,254.52 fair value recognised in profit or loss
Total 17,359,703.12 35,503,600.77 6.43 Non-operating income
Included in current Category Current year Prior year year non-recurring profit and loss Gain on non-current asset disposals 68,054.80 454,266.84 68,054.80 Including: Gain on fixed asset disposals 68,054.80 454,266.84 68,054.80 Government grants (See details of government
149,937,201.77 113,608,585.59 149,937,201.77 grants below)
Others 18,711,370.32 25,696,951.85 18,711,370.32 Total 168,716,626.89 139,759,804.28 168,716,626.89 Details of government grants:
related to the assets/ Government assitance Current year Prior year
related to the income Airline subsidies 118,668,610.66 75,278,575.00 related to the income
Energy-saving reward from ministry of
19,420,000.00 22,890,000.00 related to the income
finance
Designated subsidy for snow disaster 499,500.00 499,500.00 related to the assets
Designated subsidy for civil aviation
976,500.12 976,500.12 related to the assets
energy-saving program
Others 10,372,590.99 13,964,010.47 related to the income
Total 149,937,201.77 113,608,585.59
Note: Government grants are mainly referred to subsidy income received from government departments, which
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 was used to support the development of aviation business.
6.44 Non-operating expenses
Included in current Category Current year Prior year year non-recurring profit and loss Loss on non-current asset disposals 3,459,280.00 1,402,588.79 3,459,280.00 Including: Loss on fixed asset disposals 3,459,280.00 1,402,588.79 3,459,280.00 Others 1,539,179.07 396,443.11 1,539,179.07 Total 4,998,459.07 1,799,031.90 4,998,459.07 6.45 Income tax expenses
6.45.1 Income tax expenses
Items Current year Prior year
Current income tax expense 364,505,859.12 162,461,842.97 Deferred tax -187,966,374.70 16,285,838.81 Total 176,539,484.42 178,747,681.78 6.45.2 Reconciliation of account profit and income tax expenses
Items Current year
Profit before tax 709,374,051.59 Income tax computed in accordance with the applicable tax rate 177,343,512.90 Income tax computed in accordance with the applicable tax rate -1,714,919.19 Impact of non-taxable income -4,659,191.73 Impact of non-deductible costs, expenses and losses 5,570,082.44 Income tax expenses 176,539,484.42 6.46 Other comprehensive income
Please see Note 6. 32 for detail.
6.47 Notes to the consolidated statement of cash flows
6.47.1 Other cash receipts relating to operating activities
Category Current year Prior year
Government grants 148,461,201.65 112,132,585.47 Interest income on bank deposit 17,637,929.77 18,783,142.89 Cash receiptes from non-operating income 18,711,370.32 24,220,951.73 Cash receiptes from operating balance 65,538,456.35 7,737,415.37
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Category Current year Prior year
Total 250,348,958.09 162,874,095.46 6.47.2 Other cash payments relating to operating activities
Category Current year Prior year
Bank charges 45,696,176.71 25,169,443.60 Cash payments for non-operating expenses 1,539,179.07 396,443.11 Cash payments for operating balance 33,184,794.98 24,589,548.35 Cash payments for sales and general and administrative expenses 214,079,640.16 179,893,151.93 Total 294,499,790.92 230,048,586.99 6.47.3 Other cash payments relating to investing activities
Category Current year Prior year
Cash payments of settlement of interest rate swaps
1,277,063.78 2,693,748.52 Total 1,277,063.78 2,693,748.52 6.47.4 Other cash receipts relating to financing activities
Category Current year Prior year
Cash receipts for disposal of purchase rights on aircrafts
(which became acquired under operating lease instead of purchase) 1,221,674,080.70 1,619,738,784.33 Total 1,221,674,080.70 1,619,738,784.33 6.47.5 Other cash payments relating to financing activities
Category Current year Prior year
Cash payments for aircraft financial lease rental 188,394,977.32 174,680,444.93 Total 188,394,977.32 174,680,444.93 6.48 Supplementary information to the consolidated statement of cash flows
6.48.1 Supplementary information to the statement of cash flows
Items Current year Prior year① Reconciliation of cash flows from operating activities to net
profit:
Net profit 532,834,567.17 532,260,993.04 Add: Loss on asset impairment 9,311,766.02 5,580,449.74 Depreciation of fixed assets, oil and gas assets, biological assets
held for production 784,959,904.79 681,095,870.34 Amortisation of intangible assets 5,863,228.47 5,143,696.48 Amortisation of Long-term deferred expenditure 82,194,972.24 72,256,495.12
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Items Current year Prior year Loss on non-current assets disposal (gain presented by "-" prefix) 3,391,225.20 948,321.95 Loss on scrap of fixed assets (gain presented by "-" prefix)
Loss on fair value changes (gain presented by "-" prefix) -2,214,631.82 1,810,736.85 Financial costs (gain presented by "-" prefix) 273,896,782.70 338,327,086.22 Investment loss (gain presented by "-" prefix) -17,359,703.12 -35,503,600.77 Decrease of deferred tax assets (increase presented by "-" prefix) -187,966,374.70 16,285,838.81 Increase of deferred tax liabilities (increase presented by "-" prefix)
Decrease of inventories (increase presented by "-" prefix) -8,657,802.57 -155,668.54 Decrease of operating receivables (increase presented by "-" prefix) -200,802,727.26 -56,231,115.12 Increase of operating payables (decrease presented by "-" prefix) 1,143,177,781.30 855,829,502.76 Others 8,427,000.00 6,809,236.13 Net cash flows generated from operating activities 2,427,055,988.42 2,424,457,843.01②Significant investing and financing activities involve no cash:
Debt-to-capital conversion
Convertible loan due within one year
Fixed assets acquired under financial lease
③ Movement of cash and cash equivalents:
Cash as at 31/12/2016 791,255,686.65 1,415,399,630.60 Less: Cash as at 31/12/2015 1,415,399,630.60 460,741,336.35 Add: Cash equivalents as at 31/12/2016
Less: Cash equivalents as at 31/12/2015
Net increase of cash and cash equivalents -624,143,943.95 954,658,294.25 6.48.2 Composition of cash and cash equivalents
Items Current year Prior year①Cash 791,255,686.65 1,415,399,630.60 Including: Cash at hand 182,606.18 178,959.16 Demand bank deposit 791,073,080.47 1,415,220,671.44 Demand other monetary funds
Demand deposit in the Central Bank
Deposit in peer firms
Loan to peer firms
②Cash equivalents
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Items Current year Prior year Including: Debt instrument matured within three months
……
④ Cash and cash equivalents as at 31/12/2016 791,255,686.65 1,415,399,630.60 Including: restricted cash and cash equivalents in parent company or subsidiary
Note: Cash and cash equivalents excluding restricted cash and cash equivalents in parent company or subsidiary.
6.49 Assets with imposed restriction on ownership
Category C/f Reason of restriction
Assets pledged as security 4,111,592,599.72
Aircrafts and engines 4,111,592,599.72 P ledge as security for borrowings Other form of restriction: 1,145,258,411.93
Aircrafts and engines 1,145,258,411.93 A ssets acquired under financial lease Total 5,256,851,011.65
6.50 Foreign currency monetary items
Original amount as at Foreign exchange Translated amount as at Item
31/12/2016 rate 31/12/2016
Monetary funds
Including: -USD 17,123,723.15 6.9370 118,787,267.49 -EUR
-GBP
-CAD 10.00 5.1406 51.41 -Hwan 31,288,733.00 0.0058 181,474.65 -TWD 6,545,734.00 0.2174 1,423,042.57 Prepayments
Including: -USD 35,231,815.35 6.9370 244,403,103.08 Other receivables
Including: -USD 21,813,197.98 6.9370 151,318,154.39 Accounts payable
Including: -USD 1,936,402.58 6.9370 13,432,824.70 -EUR 16,014.36 7.3068 117,013.73 -JPY 4,620,819.00 0.0596 275,359.23
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Original amount as at Foreign exchange Translated amount as at Item
31/12/2016 rate 31/12/2016
Other payables
Including: -USD 11,365,157.04 6.9370 78,840,094.41 Non-current liabilities due within one year
Including: -USD 123,872,414.52 6.9370 859,302,939.53 Long-term borrowings
Including: -USD 220,268,382.23 6.9370 1,528,001,767.54 Long-term payables
Including: -USD 65,250,782.93 6.9370 452,644,681.17 Note 7: Change of scope of consolidation
No change of scope of consolidation from last year.
Note 8: The equity in other main entities
8.1 The equity in subsidiaries
8.1.1 The construction of the group
Place Holding proportion%
Place of Nature
Subsidiaries of Acquired method
operation of business Directly Indirectly
registration
Shandong aviation
Logistics
Logistics Ltd Qingdao, Qingdao,
and 100.00 acquired through investment (hereafter, Qingdao Shandong Shandong
storage
Logistics)
Qingdao Feisheng
International Aviation Acquired through business Training Technology Qingdao, Qingdao, Pilot combination not under 100.00
Development Co., Ltd Shandong Shandong training common
(hereafter, Qingdao control
Feisheng)
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 8.2 The equity in associates
8.2.1 Significant associates
Holding proportion% The accounting Place
Place of Nature treatment of Associates of
operation of business Directly Indirectly investments in registration
associates Shandong Rainbow Jinan, Jinan, Aero
45.00 Equity method Commercial Jet Co., Ltd. Shandong Shandong transportation
8.2.2 Key financial information of significant associate- Shandong Rainbow Commercial Jet Co., Ltd.
Item Dec 31th, 2016/Year 2016 Dec 31th, 2015/Year 2015 Current assets 1,820,781.43 1,832,244.32 Non-current assets 25,856.24 27,224.00 Total assets 1,846,637.67 1,859,468.32 Current liabilities 167,765,813.33 167,765,813.33 Non-current liabilities
Total liabilities 167,765,813.33 167,765,813.33 Minority interests
Equity attributable to shareholders of the parent -165,919,175.66 -165,906,345.01 Pro rata share of the net assets calculated
Adjusting events
- Goodwill
-Unrealized profits from internal transaction
-Others
Book value of equity investments in associates
Fair value of publicly quoted equity investments in
associates
Operating income
Net profit -12,830.65 -44,335.70
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Item Dec 31th, 2016/Year 2016 Dec 31th, 2015/Year 2015 Net profit from discontinued operations
Other comprehensive income
Total comprehensive income
Dividends received from associates during the year
8.2.3 Excess loss occurred by associates
Cumulative Unrecognized losses of Cumulative Associates unrecognized losses current year (Share of unrecognized losses of prior year net profit of current year) of current year Shandong Rainbow Commercial Jet Co.,
-74,657,835.01 -5,773.79 -74,663,608.80 Ltd.
Note 9 The risk associated with financial instruments
The main financial instruments of the Company including equity investments, loans, accounts receivable, accounts payable etc., please see Note 6 for detail of related items. The risk associated with financial instruments, and risk management policies which the company use to reduce these risks are described below. The management of the Company manages and supervises the risks to ensure that the risks can be controlled within a limited range.
Sensitivity analysis techniques are adopted by the Company to analyse the impact of reaonsable and possible changes of risk variables on the profit and loss or shareholders' equity for the current period. While risk variables seldomly change in isolation, and the correlation among variables will have a significant effect on the ultimate impact of the change of one risk variable. Therefore, the following content is based on the assumption that changes in each variable is independent.
9.1 The targets and policies of risks management
The target of risks management is to obtain the proper balance between the risks and benefits, to reduce the negative impact that caused by the risk of the Company to the lowest level, and to maximize the benefits of shareholders and other equity investors. Based on the targets of risk management, the basic strategy of theCompany’s risk management is to identify and analyse the risks which are faced by the Company, establish suitable risk tolerance baseline and proceed the risk management, and supervise a variety of risks timely and reliably, and control the risk within a limited range.
9.1.1 Market Risk
(1) Foreign exchange risk
Foreign exchange risk refers to the risk of loss due to exchange rate fluctuations generally. The company bears
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 the foreign exchange risk primarily concerned with USD, and uses USD for pricing or settlement in the field of main financing business, operating leases, financing leasing. On 31 December 2016, except the following assets or liabilities in Note 6.50 are recorded in foreign currency, the others are recorded in CNY. Foreign exchange risk of the assets and liabilities in foreign currencies may have an impact on the Company's performance of operation.
(2) Interest rate risk - the risk of changes in cash flow
The risk of changes in cash flows of a financial instrument due to interest rate is mainly concerned with the floating rate of bank borrowings (see Note 6.26,6.27). The company's policy is to maintain a floating interest rate on the borrowings.
(3) Other price risk
Financial assets available for sale and financial assets held-for-trade held by the company should be measured at fair value on the balance sheet date. For the reason that, the company bears the risk of changes in the stock market.
9.1.2. Credit Risk
As at the statement date, the maximum risk that could cause theCompany’s financial losses mainly comes from default of the other party of the contract, which includes:
The carrying amount of financial assets recognised in the Consolidated statement of financial position; for financial instruments measured by fair value, the book value reflects its risk exposure but not the maximum risk exposure, which will vary with changes in the fair value in the future.
In order to reduce credit risk, the Company set up a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that the necessary measures be taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure fully provision for bad debts recognised for the money that cannot be recovered. Therefore the Company's management believes theCompany’s credit risk has been greatly reduced.
The Company's circulating funds were deposited in banks with high credit ratings, so that the credit risk of circulating funds was low.
9.1.3 Liquidity risk
When managing liquidity risk,theCompany’s management believes maintaining adequate cash and cash equivalents, and monitoring that at same time, in order to meet the needs of operation of the Company, and to reduce the impact of fluctuations in cash flows.The management of the Company monitors the use of bank borrowings and ensure to abide by loan agreements.
Note 10 Disclosure of the fair value
10.1 The fair value at the end of current year of assets and liabilities which are measured by fair value
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 The fair value at the end of current year
The third
The first level The second level
Item level
measured by measured by fair Total measured
fair value value
by fair value
1. Continuous measurement by fair
value
1.1 financial assets available for sale 190,210,082.34 190,210,082.34 (1) Equity instruments investment 190,210,082.34 190,210,082.34 Total amount of assets continuous
190,210,082.34 190,210,082.34 measurement by fair value
2. Financial liabilities measured at fair
value with changes in fair value 1,155,815.80 1,155,815.80 recognised in profit or loss
Interest rate swaps 1,155,815.80 1,155,815.80 Total amount of liabilities
continuous measurement by fair 1,155,815.80 1,155,815.80 value
10.2 Determined on the basis of continuous and noncontinuous first level for fair value measurement of the market of project
Financial assets available for sale of continuous measurement by fair value is the investment in TravelSky Technology Limited, whose fair value was determined based on the closing price for the stock market in Hong Kong Stock Exchange on balance sheet date.
10.3 Determined on the basis of continuous and noncontinuous second level for fair value measurement of the market of project
Fair value measurement basis of interest rate swaps which was continuously measured by fair value is quotes from counterparty banks on the fair value of interest rate swaps.
Note 11 Related parties and related party transaction
11.1 Major investors
Shareholding
Voting right in Place of Nature of in the
Investor Registered capital the Company registration operation Company
(%)
(%)
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Shareholding
Voting right in Place of Nature of in the
Investor Registered capital the Company registration operation Company
(%)
(%)
Investment and
management of
SDA Group Jinan 580,000,000.00 42.00 42.00 aero
transportation
Aero
Air China Beijing 13,084,751,004.00 22.80 22.80 transportation
Note: SDA Group and Air China is the first and second largest shareholder of the Company respectively. Air China is the largest shareholder of SDA Group; AirChina’s shareholding and voting right in SDA Group is49.406% and49.406% respectively.
11.2 Subsidiaries
See Note 8.1 for subsidiaries.
11.3 Associates
See Note 8.2 for associates.
11.4 Other related parties
Other related party Relationship to the Company
Taikoo (Shandong) Aircraft Engineering Company Limited Controlled by major investors
Shandong XiangYu Air Technology Co., Ltd. Controlled by major investors
Shandong Rainbow Commercial Jet Co., Ltd. Controlled by major investors
Shandong Air New Media Co., Ltd. Controlled by major investors
Air China Import& Export Co., Ltd. Controlled by major investors
Zhejiang Aviation Service Co., Ltd. Controlled by major investors
Air China Shanghai Aviation Service Co., Ltd. Controlled by major investors
Beijing Golden Phoenix Human Resources Service Co., Ltd. Controlled by major investors
CATIC Industrial Co., Ltd. Controlled by major investors
Air Macau Controlled by major investors
Air China Offshore Holding Company Controlled by major investors
Air China Hongkong Development Limited Controlled by major investors
Beijing Airlines Co., Ltd. Controlled by major investors
China International Aviation Shantou Industrial Development Controlled by major investors
Corporation
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Other related party Relationship to the Company
Chengdu Fukai Aircraft Engineering Services Limited Controlled by major investors
Beijing Aircraft Maintenance and Engineering Corporation Controlled by major investors
Air China Cargo Co., Ltd. Controlled by major investors
China Aviation Group Finance Co., Ltd. Controlled by major investors
Shenzhen Airlines Co., Ltd. Controlled by major investors
Dalian Airlines Co., Ltd. Controlled by major investors
China International Airlines Inner Mongolia Co., Ltd. Controlled by major investors
Kunming Airlines Ltd Controlled by major investors
Sichuan international aero engine maintenance Co., Ltd. jointly operated by major investors SkyWorks Capital Asia Ltd. jointly operated by major investors ACT Cargo (USA), Inc. jointly operated by major investors Shanghai Pudong International Airport West Public Cargo Terminal jointly operated by major investors Co., Ltd.
Ji'an Beijing Aviation Asset Management Co., Ltd. jointly operated by major investors Shanghai International Airport Ground Service Co., Ltd. jointly operated by major investors 11.5 Related party transactions
11.5.1 Purchase of goods and services
Related party Transaction Current year Prior year
Office lease rental and
SDA Group 29,933,839.56 30,527,418.15 catering
Taikoo (Shandong) Aircraft
Aircraft maintenance 53,489,045.18 69,735,539.72 Engineering Company Limited
Shandong XiangYu Air
Repairment 62,803,828.70 59,312,132.56 Technology Co., Ltd.
Air China Ground service 27,902,903.35 23,438,134.17 Air China Repairment 516,583.34 21,280,619.93 Purchase / lease of aircraft
Air China 65,317.62
materials
Air China Agency service 12,634,460.02 12,560,221.97 Air China Irregular flight expenditure 14,336,654.51 11,324,626.20 Air China Training service 1,143,000.00 Shenzhen Airlines Co., Ltd. Training service 411,698.12
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Related party Transaction Current year Prior year
Shenzhen Airlines Co., Ltd. Agency service 1,778,151.48 173,125.51 Purchase / lease of aircraft
Shenzhen Airlines Co., Ltd. 23,980.28
materials
Air China Cargo Co., Ltd. Ground service 3,051,710.01 2,902,157.36 Beijing Aircraft Maintenance and
Repairment 46,912,099.74 19,609,357.04 Engineering Corporation
Beijing Aircraft Maintenance and Purchase / lease of aircraft
82,930.04
Engineering Corporation materials
Beijing Aircraft Maintenance and
Ground service 28,354,445.95 17,385,910.85 Engineering Corporation
Sichuan International Aero Engine
Repairment 266,883,899.60 139,922,734.58 Maintenance Co., Ltd.
Chengfu FuKai Aircraft
Repairment 6,765,978.17 7,439,482.42 Engineering Co., Ltd.
Shandong Air New Media Co., Aircraft offerings and
14,165,444.80
Ltd. advertising fees
Beijing Golden Phoenix Human
Ground service 1,802,736.00
Resources Service Co., Ltd.
Shenzhen Airlines Co., Ltd. Catering 930,225.00
Air China Import& Export Co.,
Taxes of aircraft materials 9,700.60
Ltd.
Total 572,443,933.95 417,166,158.58 11.5.2 Sales of goods and vendering of services
Related party Transaction Current year Prior year
Air China Ground service 2,967,241.10 367,140.31 Simulator maintenance /
Air China
House rental income 10,283,400.00
Sale /rent of aircraft
Air China
materials 19,373.16
Air China Irregular flight expenditure 5,410.00
Air China Agency service 6,406,068.26 1,747,484.66 Air China Cargo Co., Ltd. Warehouse rent income 2,800.00
Beijing Aircraft Maintenance and Sale /rent of aircraft 222,101.94
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Related party Transaction Current year Prior year
Engineering Corporation materials
Shenzhen Airlines Co., Ltd. Agency service 636,161.44 396,672.50 Shenzhen Airlines Co., Ltd. Ground service 302,000.00 159,160.00 Sale /rent of aircraft
Shenzhen Airlines Co., Ltd.
materials 392,823.37
Shenzhen Airlines Co., Ltd. Irregular flight expenditure 5,750.00
Dalian Airlines Co., Ltd. Ground service 56,969.93
Dalian Airlines Co., Ltd. Irregular flight expenditure 165,015.00
Flight support services
Qingdao Airlines Co., Ltd.
revenue 1,191,758.45 Taikoo (Shandong) Aircraft
Sale of aircraft materials
Engineering Company Limited 279,891.59 286,966.38 Shandong XiangYu Air
Sale of aircraft materials
Technology Co., Ltd. 105,257.45 6,830,489.31 Shandong Air New Media Co.,
Media resource fee
Ltd. 17,193,467.69
Total 39,043,730.93 10,979,671.61 11.5.3 Lease between related parties
The Company as leasee
Leasor Leased asset Current year Prior year
Qingdao Airlines Co. Aircrafts 9,200,000.00 Total 9,200,000.00 11.5.4 Related Party borrowing funds demolition
Related Party Borrowing money Beginning date Due date Descriptionborrowing：
Balance as at China National Aviation Finance
296,000,000.00 2016-6-20 2026-6-20 31/12/2016 CNY Co., Ltd.
281,200,000.00 11.5.5 Remuneration to key management personel
Item Current year Prior year
Remuneration to key management personel CNY 11.1861 million CNY 7.8380 million 11.5.6 Other related party transactions
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Related party Transaction Current year Prior year
Air China Wet lease 282,331,884.00 453,634,566.00 Air China Code sharing -111,859.52 3,275,195.22 Frequent flyer
Air China 130,718,573.22 61,675,975.36 cooperation
Air China Cargo Co., Ltd. Code sharing for cargo 712,369.96 863,741.04 Total 413,650,967.66 519,449,477.62 11.6 Related party balances
11.6.1 Receivables
C/f B/f
Related party Allowance for Allowance for Carrying amount Carrying amount
bad debt bad debt Accounts receivable
Air China 111,220,493.07 64,912,116.42
Air China Cargo Co., Ltd. 2,994,845.77
Taikoo (Shandong) Aircraft Engineering
186,120.00
Company Limited
Total 111,220,493.07 68,093,082.19
Other receivables
Air China 6,250,133.00 5,067,826.76
Shenzhen Airlines Co., Ltd. 468,173.37 740.00
Shandong Rainbow Commercial Jet
101,551,717.65 101,551,717.65 101,551,717.65 101,551,717.65 Co., Ltd.
Shandong XiangYu Air Technology Co.,
15,444.48 19,858.85
Ltd.
Taikoo (Shandong) Aircraft Engineering
198,526.00 854,742.74
Company Limited
Shandong Air New Media Co., Ltd. 1,027,044.28
Total 109,511,038.78 101,551,717.65 107,494,886.00 101,551,717.65 11.6.2 Payables
Related party C/f B/f
Accounts payable
Shandong XiangYu Air Technology Co., Ltd. 2,451,618.94
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Related party C/f B/f
Taikoo (Shandong) Aircraft Engineering Company Limited 1,279,779.59 6,848,765.73 Air China 190,287,022.82 99,480,295.38 Air China Cargo Co., Ltd. 260,935.50 259,754.60 Beijing Golden Phoenix Human Resources Service Co., Ltd. 161,838.00
Shenzhen Airlines Co., Ltd. 208,826.20
Aircraft Maintenance and Engineering Corporation (Ameco
10,860,743.99 7,760,074.07 Beijing)
Sichuan International Aero Engine Maintenance Co., Ltd. 64,482,126.00 31,226,775.59 Chengfu FuKai Aircraft Engineering Co., Ltd. 1,414,020.82 Total 269,992,891.04 146,989,686.19 Other payables
SDA Group 6,041,798.09 3,565,944.65 Air China 20,000,000.00 20,000,000.00 Shenzhen Airlines Co., Ltd. 1,850,144.00 Taikoo (Shandong) Aircraft Engineering Company Limited 245,400.00 245,400.00 Total 26,287,198.09 25,661,488.65 Note 12 Commitments
12.1 Signifcant commitments
12.1.1 Capital commitment
Item C/f B/f
Firm contracts not recognized in the financial statements
- Commitment to acquire non-current assets 18,276,050,022.59 18,228,453,171.55 - large outsourcing contract
- External investment commitments
Total 18,276,050,022.59 18,228,453,171.55 12.1.2 Operating lease
Information of irrevocable operating lease contracts as at the reporting date:
Item C/f B/f
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Minimum lease rental for irrevocable operating lease contracts
Within one year from the reporting date 2,290,232,032.00 1,868,704,859.20 Within two years from the reporting date 2,155,144,647.15 1,790,568,747.56 Within three years from the reporting date 2,125,539,777.15 1,667,161,566.37 Subsequent years 11,553,366,310.20 9,900,119,169.07 Total 18,124,282,766.50 15,226,554,342.19 Note: As of 31/12/2016, the balance of unexpired bond issued by this company is CNY 43,354,600.00, USD 89,738,600.00.
12.1.3 Other commitment
No other significant commitments of the Company need to be disclosed as at 31/12/2016.
Note 13 Post balance sheet date events
13.1 Post balance sheet date profit appropriation
The Proposal for Profit Appropriation for the Year ended 31 December 2016 of distributing cash dividend of CNY 3.00 (gross) per 10 shares for the 400 million shares outstanding as at the reporting date, which in total amounts to CNY 120,000,000.00, was approved by the 2th Meeting of the 6th Term of Board of Directors of the Company held on 28 March 2017; the Proposal was pending the approval of the General Meeting of stockholders of the Company.
Note 14 Other significant events
14.1 Pension Plan
No significant change of the annuity program occurred for current year, see note 6.21, 6.28.
Note 15 Notes to elements of the separate financial statements
15.1 Accounts receivable
15.1.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Accounts receivable of individual
significance and subject to individual 228,079,021.34 68.01 228,079,021.34 impairment assessment
Accounts receivable subject to
impairment assessment by credit risk 88,170,349.23 26.29 4,408,517.46 5.00 83,761,831.77 characteristics of a portfolio
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Accounts receivable of individual
insignificance but subject to individual 19,100,611.14 5.70 8,057,209.85 42.18 11,043,401.29 impairment assessment
Total 335,349,981.71 100.00 12,465,727.31 3.83 322,884,254.40 (Continued)
B/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Accounts receivable of individual significance
and subject to individual 155,464,398.00 60.75 155,464,398.00 impairment assessment
Accounts receivable subject to
impairment assessment by credit risk 86,102,003.17 33.65 4,305,100.16 5.00 81,796,903.01 characteristics of a portfolio
Accounts receivable of individual
insignificance but subject to individual 14,327,817.42 5.60 14,327,817.42 impairment assessment
Total 255,894,218.59 100.00 4,305,100.16 1.68 251,589,118.43① Accounts receivable of individual significance and subject to individual impairment assessment
C/f
Rate of
Debtor Allowance for
Carrying amount allowance Reason for allowance bad debt
(%)
No indication of
BSP-CHINA 111,183,263.07 impairment upon
individual assessment No indication of
Air China 59,213,818.83 impairment upon
individual assessment No indication of
Accounting Center of China Aviation 57,681,939.44 impairment upon
individual assessment
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Rate of
Debtor Allowance for
Carrying amount allowance Reason for allowance bad debt
(%)
Total 228,079,021.34
② Accounts receivable subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance(%) Portfolio by nature 88,170,349.23 4,408,517.46 5.00 Total 88,170,349.23 4,408,517.46 5.00③ Accounts receivable of individual insignificance but subject to individual impairment assessment
C/f
Rate of
Debtor Carrying Allowance for
allowance Reason for allowance amount bad debt
(%)
Impairment upon individual Debtor#1 8,057,209.85 8,057,209.85 100.00
assessment
No indication of impairment Shandong aviation Logistics Ltd 3,860,117.55
upon individual assessment No indication of impairment BSP-TAIWAN 2,937,548.86
upon individual assessment No indication of impairment UATP 2,275,133.99
upon individual assessment No indication of impairment BSP-JAPAN 1,517,337.02
upon individual assessment No indication of impairment BSP-CAMBODIA 172,325.12
upon individual assessment No indication of impairment ARC 158,157.05
upon individual assessment No indication of impairment BSP-THAILAND 92,031.53
upon individual assessment No indication of impairment BSP-THAILAND 30,750.17
upon individual assessment Total 19,100,611.14 8,057,209.85 42.18
15.1.2 Recognisation, recovery or reversal of allowance for bad debt
The amount of allowance for bad debts recognised during the year is CNY8,160,627.15.
15.1.3 Top five accounts receivables by debtors
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 The total amount of top five accounts receivables summarized by debtors as at the end of current year is CNY 270,459,797.26, accounting for80.65% of the total accounts receivable as at the end of current year, the total corresponding allowance for bad debts is CNY2,119,038.79.
15.2 Other receivables
15.2.1 Disclosure by category
C/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Other receivables of individual
significance and subject to individual
impairment assessment 398,743,770.11 78.79 108,431,670.15 27.19 290,312,099.96 Other receivables subject to subject to
impairment assessment by credit risk
characteristics of a portfolio 63,673,072.13 12.58 3,183,653.61 5.00 60,489,418.52 Other receivables of individual
insignificance but subject to individual
impairment assessment 43,680,428.66 8.63 43,680,428.66 Total 506,097,270.90 100.00 111,615,323.76 22.05 394,481,947.14 (Continued)
B/f
Category Carrying amount Allowance for bad debt
Book value Amount % Amount %
Other receivables of individual
significance and subject to individual
impairment assessment 311,471,122.15 71.76 106,461,110.62 34.18 205,010,011.53 Other receivables subject to subject to
impairment assessment by credit risk
characteristics of a portfolio 76,765,699.27 17.69 3,838,284.97 5.00 72,927,414.30 Other receivables of individual
insignificance but subject to individual
impairment assessment 45,815,835.47 10.55 45,815,835.47 Total 434,052,656.89 100.00 110,299,395.59 25.41 323,753,261.30① Other receivables of individual significance and subject to individual impairment assessment
Debtor C/f
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Rate of
Carrying Allowance for
allowance Reason for allowance amount bad debt
(%)
No indication of
Debtor#1 114,069,866.40 impairment upon
individual assessment Shandong Rainbow Commercial Jet impairment upon
101,551,717.65 101,551,717.65 100.00
Co., Ltd. individual assessment impairment assessment Debtor#2 79,570,006.50 3,978,500.33 5.00
by portfolio
impairment assessment Debtor#3 58,029,043.40 2,901,452.17 5.00
by portfolio
No indication of
Shandong Air Logistics Co., Ltd. 45,523,136.16 impairment upon
individual assessment Total 398,743,770.11 108,431,670.15 27.19
② Other receivables subject to impairment assessment by portfolio
C/f
Portfolio
Carrying amount Allowance for bad debt Rate of allowance(%) Portfolio by nature 63,673,072.13 3,183,653.61 5.00
Total 63,673,072.13 3,183,653.61 5.00
③ Other receivables of individual insignificance but subject to individual impairment assessment
C/f
Rate of
Debtor Carrying Allowance for
allowance Reason for allowance amount bad debt
(%)
No indication of
Debtor#1 19,423,600.00 impairment upon
individual assessment No indication of
Air China 6,250,133.00 impairment upon
individual assessment No indication of
Debtor#2 4,758,782.00
impairment upon
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Rate of
Debtor Carrying Allowance for
allowance Reason for allowance amount bad debt
(%)
individual assessment No indication of
Debtor#3 3,900,000.00 impairment upon
individual assessment No indication of
Debtor#4 1,553,182.17 impairment upon
individual assessment No indication of
Debtor#5 1,414,505.19 impairment upon
individual assessment No indication of
Debtor#6 1,387,400.00 impairment upon
individual assessment No indication of
Debtor#7 1,354,680.00 impairment upon
individual assessment No indication of
Shandong Air New Media Co., Ltd. 1,027,044.28 impairment upon
individual assessment No indication of
Debtor#8 554,707.92 impairment upon
individual assessment No indication of
Debtor#9 553,166.41 impairment upon
individual assessment No indication of
Shenzhen Airlines Co., Ltd. 468,173.37 impairment upon
individual assessment No indication of
Debtor#10 416,030.94
impairment upon
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f
Rate of
Debtor Carrying Allowance for
allowance Reason for allowance amount bad debt
(%)
individual assessment No indication of
Debtor#11 405,052.90 impairment upon
individual assessment No indication of
Taikoo (Shandong) Aircraft Engineering
198,526.00 impairment upon
Company Limited
individual assessment No indication of
Shandong XiangYu Air Technology Co.,
15,444.48 impairment upon
Ltd.
individual assessment Total 43,680,428.66
15.2.2 Recognisation, recovery or reversal of allowance for bad debt
The amount of allowance for bad debts recovered or reversed during the current year is CNY 1,315,928.17.
15.2.3 Disclosure by nature
Category C/f B/f
Deposits 149,790,973.93 107,675,329.76 Others 356,306,296.97 326,377,327.13 Total 506,097,270.90 434,052,656.89 15.2.4 Top five other receivables
Allowance for Debtor Nature C/f Aging %
bad debt Debtor#1 Deposits 114,069,866.40 Within 1 year 22.54
Shandong Rainbow Commercial
Others 101,551,717.65 Over 4 years 20.07 101,551,717.65 Jet Co., Ltd.
Debtor#2 Others 79,570,006.50 Within 2 years 15.72 3,978,500.33 Debtor#3 Others 58,029,043.40 Within 3 years 11.47 2,901,452.17 Shandong aviation Logistics Ltd Others 45,523,136.16 Over 5 years 8.99
Total 398,743,770.11 78.79 108,431,670.15 15.3 Long-term equity investments
15.3.1 Disclosure by category
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 C/f B/f
Item Impairment Net carrying Impairment
Carrying amount Carrying amount Net carrying amount allowance amount allowance
Investments in
subsidiaries 106,000,685.43 106,000,685.43 106,000,685.43 106,000,685.43 Investments in
associates 22,500,000.00 22,500,000.00 22,500,000.00 22,500,000.00
Total 128,500,685.43 22,500,000.00 106,000,685.43 128,500,685.43 22,500,000.00 106,000,685.43 15.3.2 Investments in subsidiaries
Current
Current year Allowance Year-end Investee B/f year C/f
decrease recognized allowance increase
Shandong aviation
Logistics Ltd 48,323,205.97 48,323,205.97
Qingdao Feisheng
International Aviation
Training Technology
Development Co., Ltd 57,677,479.46 57,677,479.46
Total 106,000,685.43 106,000,685.43
15.3.3 Investments in associates
Currency year movement(+, -)
Investment gains
Impairment
Investee B/f Additional Investment and losses Other comprehensive Other changes allowance
investment reduction recognized under income adjustment in equity the equity method
Associates
Shandong
Rainbow
Commercial Jet
Co., Ltd. 22,500,000.00 22,500,000.00
Total 22,500,000.00 22,500,000.00
(Continued)
Investee Currency year movement(+, -) C/f Year-end
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Declared cash allowance dividends or Allowance recognized Others
profits
Associates
Shandong Rainbow
Commercial Jet Co., 22,500,000.00 22,500,000.00 Ltd.
Total 22,500,000.00 22,500,000.00 15.4 Operating revenues and costs
Current year Prior year
Category
Operating revenues Operating costs Operating revenues Operating costs Principal business 13,356,300,303.64 11,881,690,830.48 11,915,288,160.41 10,190,195,747.06 Other business 358,853,013.78 1,598,065.47 173,235,427.77 5,592,112.29 Total 13,715,153,317.42 11,883,288,895.95 12,088,523,588.18 10,195,787,859.35 15.5 Investment income
Category Current year Prior year Income from long-term equity investments measured at cost 18,636,766.90 11,345,875.41 Income from long-term equity investment income of equity method -17,729,201.91 Income from disposal of long-term equity investment 45,119,181.79 Income from long-term equity investment income of equity method -1,277,063.78 -3,232,254.52 Total 17,359,703.12 35,503,600.77 Note 16 Supplementary information
16.1 Non-recurring profit and loss
Category Current year Description Gains from disposals of non-current assets after expending impairment
-3,391,225.20
provisions
Exceeded-authority approved, non-official approved or accidental tax
repayment and relief
Government grants recognised through profit or loss for the current reporting
period, excluding grants which are closely related to theCompany’s operating
149,937,201.77
activities and of which the quota or approval is eligible for automatic renewal in
accordance with relevant regulations
Financial resource usage fees charged on non-financial institution recognised
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 Category Current year Description through profit or loss for the current reporting period
Gains arising from bargain purchase in business combination and investments
in associates and joint ventures
Non-monetary asset exchange
Consigned investment and asset management
Impairment provision resulting from force majeure, eg. natural desasters
Reorganisation
Reorganisation expenditure
Unfair transactions
Net profits or losses achieved by an acquired under-common-control entity
during the period from the start of the period to the acquisition date
Gains or losses arising from contingent events unconnected with the
Company’s daily operating activities
Fair value changes of tradable financial assets and tradable financial liabilities
held and gains or losses arising from disposals of tradable financial assets, tradable
937,568.04
financial liabilities and available-for-sale financial assets, excluding hedging
contracts relevant to theCompany’s daily operating activities
Reversal of impairment provision for accounts receivables eligible for
individual impairment assessment
Gains or losses arising from consigned borrowings
Fair value changes of property investments subsequently measured at fair
value
One-off adjustment of profit or loss for the current reporting period in
accordance with tax and accounting laws and regulations
Consignment income arising from consigned operations
Income and expenses other than items listed above 17,172,191.25
Other gains or losses satisfying the definition of extraordinary gains or losses
Subtotal 164,655,735.86
Less: Impact of income tax 41,398,528.97
Less: Impact on non-controlling interest
Total 123,257,206.89
Note: Positive amounts and negative amounts in non-recurring categories mean income and expense or loss respectively.
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016 The Company recognised non-recurring categories of activities in accodance with the Explanatory Announcement regarding Information Disclosure by Publicly Listed Company No. 1 - Non-recurring Profit and Loss (Zhengjianhui Gonggao[2008] No.43).
16.2 Rate of return on net assets and earnings per share
Earnings per share (CNY/share) Profit catetory Weighted average rate of RONA
Basic EPS Diluted EPS Net profit attributable to ordinary shareholders 14.88% 1.33 1.33 Recurring profit or loss attributable to ordinary
shareholders 11.44% 1.02 1.02
Shandong Airlines Co., Ltd. Notes to the Financial Statements for the Year Ended 31 December 2016