Company: XHG
Filing Date: 2025-01-22
Form Type: 20-F
Source: 0001213900-25-005499
Chunk: 125

Company: XChange TEC.INC
Filing Date: 2025-01-22
Form: 20-F
Item: Item 5
Chunk 125
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 available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters
that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process,
our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others
in their application.

An accounting policy is considered critical if
it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is
made and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably
likely to occur, could materially impact the combined and consolidated financial statements.

When reading our consolidated financial statements,
you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such
policies and the sensitivity of reported results to changes in conditions and assumptions.

Our critical accounting policies and practices
include the following: (i) fair value; (ii) income tax; and (iii) discontinued operations. See Note 2 - Summary of Principal Accounting
Policies to our consolidated financial statements included elsewhere in this annual report for the disclosure of these accounting policies
in details. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial
statements.

Fair value

We define fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider
the principal or most advantageous market in which we would transact and we consider assumptions that market participants would use when
pricing the asset or liability.

The established fair value hierarchy requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. The three levels of inputs may be used to measure fair value include:

  Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.  

  Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for sim...  

  Level 3 applies to assets or liabilities for which there are unobservable