Konka Group Co., Ltd. FINANCIAL REPORT

For the Six Months Ended 30 June 2026

（Un-audited）

Legal representative: Wu Jianjun Head of the accounting work:Yu Huiliang Head of the accounting department: WANG Linhu

I. Independent Auditor’s Report

Whether the semi-annual report has been audited

□ Yes √ No

The semi-annual financial report of the Company was unaudited.

II. Financial Statements

Unit of the currency for the financial statements and the notes thereto: RMB

1. Consolidated Balance Sheet

Prepared by: Konka Group Co., Ltd. June 30, 2026

Unit: RMB

Legal representative: Wu Jianjun Chief Finance Officer: Yu Huiliang Head of Accounting Agency: Wang Lihu

2. Balance sheet of the parent company

Unit: RMB

Unit: RMB

3. Consolidated income statement

Legal representative: Wu Jianjun Chief Finance Officer: Yu Huiliang Head of Accounting Agency: Wang Lihu

4. Income Statement of the parent company

Unit: RMB

5. Consolidated Statement of Cash Flows

Unit: RMB

6. Statement of Cash Flows of the Parent Company

Unit: RMB

7. Consolidated Statements of Changes in Owners’ Equity

Current amount

Unit: RMB

Amount of last year

Unit: RMB

8. Statements of Changes in Owners’ Equity of the parent company

Current amount

Unit: RMB

Amount of last year

Unit: RMB

III. Company profile

1. Konka Group Co., Ltd. (hereinafter referred to as the “Company” or the “Group” when including subsidiaries), is a joint-stock limited company reorganized from the former Shenzhen Konka Electronic Co., Ltd. in August 1991 upon approval of the People’s Government of Shenzhen Municipality, and has its ordinary shares (A-share and B-share) listed on Shenzhen Stock Exchange with prior consent from the People’s Bank of China Shenzhen Special Economic Zone Branch. On August 29, 1995, the Company was renamed to “Konka Group Co., Ltd.” (unified social credit code: 914403006188155783) with its main business electronic industry. Now the headquarters locates in No. 28, No. 12 Keji South Road, Science & Technology Park, Yuehai Street, Nanshan District, Shenzhen, Guangdong Province.

2. Share capital

After the distribution of bonus shares, allotments, increased share capital and new shares issued over the years, as of June 30, 2026, the Company has issued a total of 2,407,945,408.00 shares (denomination of RMB1 per share) with a registered capita of RMB2,407,945,408.00.

3. Nature of the Company's business and main operating activities

The Group was mainly engaged in consumer electronics and semiconductor businesses, conducting the production and sales of colour TVs, white TVs, optoelectronic display, storage and printed circuit Boards, etc.

4. The financial statements were approved for issue by the Board of Directors of the Company on August 27, 2026.

IV. Scope of the consolidated financial statements

The scope of the Group's consolidated financial statements covers 104 subsidiaries, such as Shenzhen Konka Electronics Technology Co., Ltd., Anhui Konka Electronics Co., Ltd., and Dongguan Konka Electronics Co., Ltd.

For details, please refer to Note X "Changes in the Consolidation Scope" and Note XI "Equity in Other Entities" herein.

Checklist of Company Name and Abbreviations in this Report

V. Basis for preparation of financial statements

1. Basis for preparation

The Group's financial statements were prepared in accordance with the Accounting Standards for Business Enterprises promulgated by the Ministry of Finance as well as guidelines on accounting standards for business enterprises, announcements on interpreting the accounting standards for business enterprises and other related regulations (hereinafter collectively referred to as the "Accounting Standards for Business Enterprises"), as well as the disclosure regulations of the General Provisions on Financial Reporting No. 15 for Companies Publicly Issuing Securities (revised in 2023) by the China Securities Regulatory Commission (hereinafter referred to as the "CSRC").

2. Going concern

The Group evaluated its ability to continue as a going concern for the 12 months from the end of the Reporting Period and found no matters or circumstances that raised significant doubts about its ability to continue as a going concern. Therefore, the financial statements have been presented on a going concern basis.

VI. Significant accounting policies and accounting estimates

Specific accounting policies and accounting estimates: The specific accounting policies and accounting estimates formulated by the Group according to the actual production and operation characteristics include provisions for bad debts of accounts receivable, provisions for inventory depreciation, depreciation of fixed assets, revenue recognition and measurement, etc.

1. Statement of compliance with the Accounting Standards for Business Enterprises

The financial statements prepared by the Group are in compliance with the Accounting Standards for Business Enterprises, which factually, accurately and completely present the Company's and the Group's financial positions on June 30, 2026, business results and cash flows, and other relevant information for the half year of 2026.

2. Fiscal period

The Group's fiscal period starts from January 1 to December 31 of the Gregorian calendar.

3. Operating cycle

The normal operating cycle refers to the period from the purchase of assets for processing to the realization of cash or cash equivalents by the Group. An operating cycle for the Group is 12 months, which is also the classification criterion for the liquidity of its assets and liabilities.

4. Recording currency

The Company uses RMB as the recording currency. Subsidiaries of the Group determine their functional currency according to the main economic environment in which they operate. When preparing the financial statements, the Group converts them into RMB according to the method described in VI. 10(2) Conversion of foreign currency financial statements.

5. Determination methods and selection basis for materiality threshold

The Group prepares and discloses financial statements adhering to the principle of materiality. The disclosures in the notes to the financial statements cover matters involving judgments about materiality criteria, the methods for determining materiality thresholds, and the bases for selecting these criteria:

6. Accounting treatments for business combinations under common control and those not under common control

(1) Business combinations under common control

A business combination involving entities 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.

As the combining party, the assets and liabilities obtained by the Group in a business combination under the same control shall be measured on the basis of their book value in the final controlling party on the combining date. The difference between the book value of the net assets acquired and the book value of the consideration paid for the combination (or the total par value of the shares issued) is used to adjust the capital reserves; In case the capital reserves are insufficient to cover the difference, the retained earnings will be adjusted.

(2) Business combinations not under common control

A business combination involving entities 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 combination.

As purchaser, the identifiable assets, liabilities and contingent liabilities of the acquiree acquired in the business combination under different control shall be measured at fair value on the acquisition date. The difference of the combination costs in excess of the fair value of the identifiable net assets acquired from the acquiree shall be recognized as goodwill; If the combination costs are less than the fair value of the identifiable net assets acquired from the acquiree in the combination, the fair values of the identifiable assets, liabilities and contingent liabilities acquired from the combination and the combination costs shall be reviewed first. After review, if the combination costs are still less than the fair value, the difference shall be included in the current non-operating revenue of the combination.

7. Criteria for determining control and preparation methods for consolidated financial statements

The scope of consolidation for the consolidated financial statements of the Group is based on control, including the Company and all its subsidiaries (including enterprises, divisible parts of investees, and structured entities controlled by the Company). The Group assesses control based on whether it has power over the investee, has exposure or rights to variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor's returns.

The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Group during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Group and subsidiaries.

The impact of internal transactions between the Company and its subsidiaries, as well as between subsidiaries and each other, was offset in consolidation. The shares of the subsidiary's owner's equity that do not belong to the parent Group and the shares of minority shareholders' equity in current net profit and loss, other comprehensive income and total comprehensive income shall be respectively listed in the consolidated financial statement "Minority shareholders' equity, minority shareholders' profit and loss, other comprehensive income that belongs to minority shareholders and total comprehensive income that belongs to minority shareholders".

For subsidiaries acquired through business combinations under the same control, their operating results and cash flows are included in the consolidated financial statements from the beginning of the current merger period. When preparing the comparative consolidated financial statements, the relevant items in the financial statements of the previous year shall be adjusted as if the consolidated reporting entity had existed since the final controlling party began to control it.

Where equity interests in an investee under common control are acquired step by step through multiple transactions, ultimately resulting in a business combination, the accounting treatment applied in the consolidated financial statements shall be additionally disclosed in the reporting period in which control is obtained. For example, where the equity of an investee under common control is acquired in stages through multiple transactions, ultimately resulting in a business combination, when preparing the consolidated financial statements, adjustments are made as if the entity had existed in its current state from the time the ultimate controlling party obtained control. When preparing comparative financial statements, the relevant assets and liabilities of the acquiree are consolidated into the Group's comparative consolidated financial statements, limited to a point in time not earlier than when both the Group and the acquiree were under the control of the same ultimate controlling party. The net assets increased as a result of the combination are used to adjust the relevant items under owner's equity in the comparative financial statements. To avoid double-counting the value of the acquiree's net assets, for any long-term equity investment held by the Group before the combination is achieved, the related profit or loss, other comprehensive income, and other changes in net assets recognized from the later of the date the original equity was acquired and the date the Company and the acquiree came under the control of the same ultimate controlling party, up to the combination date, shall be offset against the opening retained earnings and current profit or loss of the comparative reporting period, respectively.

For subsidiaries acquired through business combination under the different control, the operating results and cash flow shall be included in the consolidated financial statements from the date when the Group obtains the control right. When preparing the consolidated financial statements, the financial statements of the subsidiaries shall be adjusted on the basis of the fair value of the identifiable assets, liabilities and contingent liabilities determined on the acquisition date.

Where the equity of an investee not under common control is acquired in stages through multiple transactions, ultimately resulting in a business combination, the accounting treatment in the consolidated financial statements shall be additionally disclosed in the reporting period in which control is obtained. For a business combination achieved in stages, where equity interests in the acquiree are obtained through multiple transactions and ultimately result in a business combination not under common control, the previously held equity interest shall be remeasured at its fair value on the acquisition date. Any difference between the fair value and its carrying amount shall be recognized in current investment income; With respect to the previously held equity interest in the acquiree, any amounts recognized in other comprehensive income under the equity method, as well as other changes in owners equity other than net profit or loss, other comprehensive income and profit distributions, shall be reclassified to current investment income in the period of the acquisition date. However, this excludes other comprehensive income arising from remeasurement of the net defined benefit liability or asset of the investee.

When the Group disposes of a portion of its long-term equity investment in a subsidiary without losing control, the difference in the consolidated financial statements between the proceeds from the disposal and the subsidiary's share of net assets, calculated continuously from the acquisition date or combination date, corresponding to the disposed long-term equity investment, is adjusted against capital premium or share premium. If the capital reserve is insufficient to absorb the difference, retained earnings are adjusted.

If the Group loses control over an investee due to reasons such as the disposal of a portion of its equity investment, when preparing the consolidated financial statements, the remaining equity is remeasured at its fair value on the date of loss of control. The difference between the total of the consideration received from the disposal of equity and the fair value of the remaining equity, minus the share of the original subsidiary's net assets calculated continuously from the acquisition or combination date based on the original shareholding percentage, is recognized in investment income for the period in which control is lost, and goodwill is derecognized at the same time. Other comprehensive income and other items related to the original equity investment in the subsidiary are reclassified to investment income for the current period upon loss of control.

If the Group disposes of its equity investment in a subsidiary in stages through multiple transactions until control is lost, and if these transactions are part of a single transaction package, all transactions shall be accounted for as a single transaction of disposing of a subsidiary and losing control; However, the difference between the disposal proceeds and the share of net assets of the subsidiary corresponding to the investment disposed of for each disposal prior to the loss of control shall be recognised as other comprehensive income in the consolidated financial statements, and shall be reclassified to investment income in the period in which control is lost.

8. Classification of joint venture arrangements and accounting treatments for

joint operations

The Group classifies joint arrangements into joint operations and joint ventures. For a joint operation, the Group, as a joint operator, recognizes the assets and liabilities that it holds and bears in the joint operation, and recognizes the jointly-held assets and jointly-borne liabilities according to the Group’s stake in the joint operation; recognizes relevant income and expense according to the Group’s stake in the joint operation. When the Group purchases or sells the assets not constituting business with the joint operation, the Group only recognized the share of the other joint operators in the gains and losses arising from the transaction.

9. Cash and cash equivalents

Cash in the Group's statement of cash flows refers to cash on hand and unrestricted deposits. For the purpose of the statement of cash flows, cash equivalents refer to highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value with a holding period of not more than 3 months.

10. Foreign currency transactions and translation of foreign currency financial statements

(1) Foreign currency transactions

Foreign currency transactions of the Group are initially recognized at the exchange rate at the beginning of the month of the transaction date (usually referring to the middle rate of the foreign exchange rate announced by the People's Bank of China on the day, the same below), converting the foreign currency amount into the functional currency amount. On the balance sheet date, the monetary items in foreign currency were converted into RMB at the spot exchange rate on balance sheet date. Except the exchange difference arising from special foreign-currency borrowing for the purpose of construction or production of assets meeting capitalization conditions treated in the principle of capitalization, the conversion difference was directly included in the current gains/losses.

(2) Translation of foreign currency financial statements

When preparing the consolidated financial statements, the Group translates the financial statements of overseas operations into RMB, in which: assets and liabilities in the foreign currency balance sheet are translated at the spot exchange rate on the balance sheet date; Owners' equity items, except for "undistributed profits", are translated at the spot exchange rate when the business occurs; The income and expense items in the income statement are translated at the average exchange rate of the current period (the average exchange rate of the month) on the date when the transactions occur. The conversion difference of foreign currency statements arising from the aforementioned conversion was presented in other comprehensive income item. The foreign currency cash flow was converted at the average exchange rate for the period (monthly average exchange rate) of the cash flow occurrence date. The amount of exchange rate change influence on cash was independently presented in cash flow statement.

11. Financial instruments

(1) Recognition and derecognition of financial instruments

The Group recognizes a financial asset or liability when it becomes a party of the relevant financial instrument contract.

If the following conditions are met, a financial asset (or a part of a financial asset, or a part of a group of similar financial assets) shall be derecognized, that is, the previously recognized financial asset shall be transferred from the balance sheet: 1) the right to receive the cash flows of the financial asset expires; 2) When the financial assets are transferred, the Group has transferred almost all the risks and rewards of ownership of the financial assets; 3) When a financial asset is transferred, the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, nor retains control over the financial asset.

In case of current obligation of financial liabilities (or partial financial liabilities) being terminated, derecognition of such financial liabilities (or partial financial liabilities) is conducted by the Group. If the Group (borrower) concludes an agreement with the lender to replace existing financial liabilities with new ones and contact terms of new financial liabilities are different from those of existing financial liabilities, derecognition of existing financial liabilities and recognition of new financial liabilities shall be conducted. In case of material alteration of contract terms of existing financial liabilities (partial financial liabilities) by the Group, derecognition of existing financial liabilities and recognition of new financial liabilities as per modified terms shall be conducted. In case of derecognition of financial liabilities (partial financial liabilities), the Group includes the balance between its book value and payment consideration into the current profit or loss.

All regular acquisitions or sales of financial assets are recognized and derecognized on a transaction date basis.

(2) Classification and measurement method of financial assets

At initial recognition, the Group's financial assets are classified into financial assets measured at amortized cost, financial assets measured at fair value through other comprehensive income, and financial assets measured at fair value through current profit or loss according to the Group's business model for managing financial assets and the contractual cash flow characteristics of financial assets. All affected related financial assets will be reclassified if and only when the Group changes its business model for managing financial assets.

The Group classified the financial assets meeting the following conditions at the same time as financial assets at amortized cost: ①The business mode of the Group to manage the financial assets targets at collecting the contractual cash flow. ②The contract of the financial assets stipulates that the cash flow generated in the specific date is the payment of the interest based on the principal and outstanding principal amount. These financial assets are initially measured at fair value, and relevant transaction cost is included into the initially recognized amount; subsequent measurement is carried out at amortized cost. Except for those designated to be hedge items, the difference between the initial recognized amount and the amount due shall be amortized at actual interest rate and their amortization, impairment and exchange gain and loss as well as gains or losses arising from derecognition shall be recorded into the current profit or loss.

The Group classifies the financial assets meeting the following conditions simultaneously as financial assets measured at fair value through other comprehensive income: ① the business model for managing this financial asset aims at both collecting contractual cash flows and selling the financial asset. ②The contract of the financial assets stipulates that the cash flow generated in the specific date is the payment of the interest based on the principal and outstanding principal amount. These financial assets initially measured at fair value and relevant transaction cost shall be included into the initial recognized amount. Except for those designated as hedged items, any other gains or losses arising from such financial assets, except for credit impairment losses or gains, exchange profit or loss, and interest on the financial asset calculated using the effective interest rate method, is included in other comprehensive income; When financial assets are derecognized, the accumulated gains or losses previously included in other comprehensive income shall be transferred from other comprehensive income and included in the current profit or loss.

The Group recognizes interest income according to the effective interest rate method. Interest income is calculated and determined according to the book balance of the financial asset multiplied by the actual interest rate, except for the following circumstances: ① For the financial asset with credit impairment that has been purchased or originated, from the initial recognition, the interest income is calculated and determined according to the amortized cost of the financial asset and the actual interest rate adjusted by credit. ② For financial assets purchased or originated that have not suffered credit impairment but have suffered credit impairment in subsequent periods, the interest income shall be calculated and determined according to the amortized cost and actual interest rate of the financial assets in subsequent periods.

The Group designates non-trading equity instrument investments as financial assets measured at fair value through other comprehensive income. Such designation, once made, may not be revoked. The non-trading equity instrument investments designated by the Group to be measured at fair value through other comprehensive income are initially measured at fair value, and the relevant transaction costs are included in the initial recognition amount; Except for dividends obtained (except for the recovery of investment costs) which are included in the current profit and loss, other relevant gains and losses (including exchange profit or loss) are included in other comprehensive income and shall not be subsequently transferred to the current profit or loss. Except for dividends (excluding those belonging to recovery of investment cost) which shall be recorded into the current profit or loss, other relevant gains and losses (including exchange gains and losses) shall be recorded into other comprehensive income and cannot be transferred into the current profit or loss subsequently. When derecognized, the accumulated gains or losses originally recorded into other comprehensive income shall be transferred out into retained earnings. Equity instrument investments measured at fair value through other comprehensive income included: Equity investments to be held in the long term as planned by the Group for strategic purpose, with no control, joint control or significance influence, and with no active market quotation.

For financial assets other than those classified as financial assets measured at amortized cost and financial assets measured at fair value through other comprehensive income. The Group classifies them as financial assets measured at fair value through current profit or loss. These financial assets are initially measured at fair value, and the relevant transaction costs are directly included in the current profit or loss. Gains or losses arising from these financial assets is recorded into the current profit or loss.

The contingent consideration recognized by the Group in the business combination not under the same control which constitutes a financial asset is classified as the financial assets measured at fair value through current profit or loss.

(3) Classification, recognition basis and measurement method of financial liabilities

The Group’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through profit or loss and other financial liabilities.

Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities and financial liabilities designated at the initial recognition to be measured by the fair value and their changes are recorded in the current profit or loss. The subsequent measurement shall be at fair value and gains or losses arising from changes in fair value and the dividends and interest expense related to the financial liability shall be the current profit or loss.

Other financial liabilities shall be subsequently measured at amortized cost with actual interest rate. The Group classifies financial liabilities except for the following items as financial liabilities at amortized cost: ①Financial liabilities at fair value through profit or loss including held-for-trading financial liabilities (including the derivative instruments belonging to financial liabilities) and designated financial liabilities at fair value through profit or loss. ②Financial liabilities arising from the transfer of financial assets not meeting the derecognition conditions or continuous involvement in the transferred financial assets. ③Financial guarantee contract not belonging to cases of above ① or ② and loan commitments at interest rate lower than the market rate not belonging to the case in ①.

The Group treats the financial liability arising from contingent consideration recognized as the purchase party in the business combination not under the same control at fair value and changes thereof shall be recorded into the current profit or loss.

(4) Impairment of financial instruments

Based on expected credit loss, the Group recognizes impairment and provisions for losses on financial assets measured at amortized cost, debt investments measured at fair value with changes in fair value recognized in other comprehensive income, contract assets, lease receivables, loan commitments, and financial guarantee contracts.

1) Measurement of expected credit loss

Expected credit losses refer to the weighted average of credit losses of financial instruments that are weighted by the risk of default. Credit loss refers to the difference between all receivable contract cash flows and all expected cash flows that are discounted to the present value based on the original actual interest rate the present value of all cash shortfall.

Expected credit loss throughout the lifespan refers to the expected credit loss caused by all possible default events that may occur during the expected lifespan of a financial instrument. Expected credit loss in the next 12 months refers to the expected credit loss caused by a financia instrument default event that may occur within 12 months after the balance sheet date (if the expected lifespan of the financial instrument is less than 12 months, the actual expected lifespan applies), which is a part of the expected credit loss during the entire lifespan.

For accounts receivable, notes receivable, receivables financing, contract assets and other receivables arising from daily operating activities such as sales of goods and rendering of labor services, if they do not contain significant financing components, the Group adopts a simplified measurement method to measure the loss provision at the amount equivalent to the expected credit loss during the entire lifespan.

For lease receivables, receivables containing significant financing components and contract assets, the Group adopts the simplified measurement method to measure the loss provision at the amount equivalent to the expected credit loss over the entire lifespan.

For financial assets other than those to which the simplified measurement approach is applied (such as debt investments, other debt investments, and other receivables), as well as loan commitments and financial guarantee contracts, the Group applies the general approach (a three-stage model) to measure the allowance for expected credit losses. On each balance sheet date, the Group assesses whether there is significant increase in credit risk since initial recognition. If the credit risk has not increased significantly since initial recognition, it is in the first stage. In this case, the Group accrues the loss provision at the amount equivalent to the expected credit loss in the next 12 months, and calculates the interest income according to the book balance and the effective interest rate; if the credit risk has increased significantly since initial recognition but credit impairment has not occurred, it is in the second stage. In this case, the Group accrues the loss provision at an amount equivalent to the expected credit loss during the entire lifespan, and calculates the interest income according to the book balance and the effective interest rate; if a credit impairment occurs after initial recognition, it is in the third stage. In this case, the Group accrues the loss provision at an amount equivalent to the expected credit loss over the entire lifespan, and calculates the interest income at amortized cost and effective interest rate.

For financial instruments with low credit risk on the balance sheet date, the Group assumes that there is no significant increase in their credit risk since initial recognition. Regarding the Group's criteria for determining significant increases in credit risk and the definition of assets with credit impairment, please refer to Note XIII. 1 (2) for disclosure.

When the Group uses the expected credit loss model to assess the impairment of financial instruments and contract assets, the expected changes in the debtors' credit risk are inferred based on historical repayment data and in combination with economic policies, macroeconomic indicators, industry risks and other factors. Different estimates may affect the provision for impairment, therefore, the provision for impairment already made may not be equal to the actual amount of impairment loss in the future.

2) Portfolio category and determination basis of provision for impairment made by portfolio with credit risk characteristics

The Group assesses the expected credit loss of financial instruments on an individual and portfolio basis. When assessing on a portfolio basis, the Group divides financial instruments into different groups based on common credit risk characteristics. The common credit risk characteristics adopted by the Group include: type of financial instrument, credit risk rating, and aging of receivables.

3) Judgment criteria for individual provision for impairment of bad debts based on individual basis

If the credit risk characteristics of a certain customer are significantly different from those of other customers in the portfolio, or if the credit risk characteristics of that customer have changed significantly, such as amounts due from related parties; Receivables that are in dispute with the counterparty or involve litigation or arbitration; Receivables for which there are clear indications that the debtor is highly unlikely to be able to fulfill its repayment obligations, etc.

4) Write-off of provision for impairment

When the Group no longer reasonably expects to recover all or part of the cash flows from financial asset contracts, the Group directly reduces the carrying amount of the financial asset. If a written-off financial asset is recovered subsequently, the recovered amount is recognized in profit or loss for the period of recovery as a reversal of impairment loss.

(5) Recognition basis and measurement method of financial asset transfers

The Group derecognizes the financial assets that meet one of the following conditions: ① the contractual right to receive the cash flow from the financial assets is terminated; ② The financial assets have been transferred, and the Group has transferred almost all the risks and rewards of ownership of the financial assets; ③ The financial assets have been transferred, and the Group has neither transferred nor retained almost all risks and rewards of ownership of the financial assets, nor has it retained control over the financial assets.

If the overall transfer of financial assets fulfills the requirements for derecognition, the difference between the book value of the transferred financial assets and the sum of the consideration received due to the transfer and the corresponding derecognition part of the accumulated amount of fair value changes originally directly included in other comprehensive income (the contract terms involving the transferred financial assets stipulate that the cash flow generated on a specific date is only the payment of the principal and interest based on the unpaid principal amount) shall be included in the current profits and losses.

If the partial transfer of financial assets satisfies the conditions for termination confirmation, the entire book value of the transferred financial assets will be apportioned between the termination confirmation portion and the non-termination confirmation portion according to their relative fair values, and the consideration received for the transfer And the amount corresponding to the termination of the recognition of the cumulative amount of changes in fair value originally included in other comprehensive income that should be apportioned to the derecognition part And the payment of interest based on the outstanding principal amount), and the difference between the total book value of the aforesaid financial assets allocated is included in the current profit and loss.

(6) Distinction between financial liabilities and equity instruments and related treatment methods

The Group distinguishes the financial liabilities and equity instruments according to the following principles: (1) If the Group cannot unconditionally avoid performing a contractual obligation by delivering cash or other financial assets, the contractual obligation meets the definition of financial liabilities. Although some financial instruments do not explicitly include the terms and conditions of the obligation to deliver cash or other financial assets, they may indirectly form contractual obligations through other terms and conditions. (2) If a financial instrument must be settled with or can be settled with the Group's own equity instrument, it is necessary to consider whether the Group's own equity instrument used to settle the instrument is used as a substitute for cash or other financial assets, or to enable the holder of the instrument to enjoy the residual equity in the assets of the issuer after deducting all liabilities. If the former, the instrument is a financial liability of the issuer; if the latter, the instrument is an equity instrument of the issuer. In some cases, a financial instrument contract requires the Group to use or use its own equity instrument to settle the financial instrument, in which the amount of contractual rights or contractual obligations is equal to the number of its own equity instruments available or to be delivered multiplied by its fair value at the time of settlement, regardless of whether the amount of contractual rights or obligations is fixed, whether it is entirely or partially based on changes in variables other than the market price of the Group's own equity instruments, the contract shall be classified as a financial liability.

In classifying financial instruments (or their components) in the consolidated statement, the Group has taken into account all terms and conditions reached between the Group members and the holders of financial instruments. If the Group as a whole undertakes the obligation to deliver cash, other financial assets or settle accounts in other ways that cause the instrument to become a financial liability due to the instrument, the instrument shall be classified as a financial liability.

If financial instruments or their components are financial liabilities, the Group will include interest, dividends (or dividends), gains or losses, and gains or losses arising from redemption or refinancing, etc. in the current profits and losses.

If financial instruments or their components are equity instruments, when they are issued (including refinancing), repurchased, sold or cancelled, the Group will treat them as changes in equity and will not recognize changes in the fair value of equity instruments.

(7) Offset of financial assets and financial liabilities

The Group’s financial assets and liabilities shall be separately presented in the balance sheet and not set off each other. However, when the following conditions are met simultaneously, the net amount after mutual offset is presented in the balance sheet: (1) the Group has the legal right to offset the recognized amount, and such legal right is currently enforceable; (2) the Group plans to settle them on a net basis, or realize the financial assets and settle the financial liabilities at the same time.

12. Notes receivable

For notes receivable, the Group shall measure the provision for loss based on the specific expected credit loss during the entire period of existence. According to the credit risk characteristics thereof, except those with separate evaluation of credit risk, notes receivable can be divided into different combinations:

13. Accounts receivable

For account receivable and contract assets excluding significant financing composition, the Group shall measure the provision for loss according to the specific expected credit loss amount within the entire period of existence.

For account receivable, contract assets and lease payment receivable including significant financing composition, the Group shall always measure the provision for loss according to the specific expected credit loss amount within the period of existence.

Except the account receivable and contract assets whose credit risks shall be separately evaluated, the Group shall divide them into different combinations based on the specific credit risks:

14. Receivables financing

The Group’s accounts receivable financing is based on expected credit losses, and provision is made for depreciation reserves in accordance with the expected credit loss measurement method for notes receivable.

15. Other receivables

The Group measures the provision for losses of other receivables as below: ① for financial assets with no significant increase in credit risk since initial recognition, the Group measures the provision for loss according to the amount of expected credit loss in the next 12 months; ② for financial assets whose credit risk has increased significantly since initial recognition, the Group measures the provision for loss at an amount equivalent to the expected credit loss of the financial instrument during the entire lifespan; ③ for purchased or internally generated financial assets which have undergone credit impairment, the Group measures the provision for loss at an amount equivalent to the expected credit loss over the entire lifespan. Except other receivables whose credit risks shall be separately evaluated, the Group shall divide them into different combinations based on the specific credit risk features:

16. Contract assets

(1) Recognition methods and standards for contract assets

Contract assets refer to the right of the Group to receive consideration after transferring goods to customers, and this right depends on factors other than the passage of time. If the Group sells two clearly distinguishable products to customers, it has the right to receive payment because one of the products has been delivered, but the payment is also dependent on the delivery of the other product, the Group has the right to receive payment as a contract assets.

(2) Determination methods and accounting treatments of expected credit losses of contract assets

The method for determining the expected credit losses of contract assets involves measuring the impairment losses of contract assets by referencing the method used for the impairment loss measurement of receivables as previously described.

The Group calculates the expected credit loss of contract assets on the balance sheet date. If the expected credit loss is greater than the book amount of the current provision for impairment of contract assets, the Group recognizes the difference as an impairment loss by debiting “impairment loss on assets” and crediting “provision for impairment of contract assets”. If the expected credit loss is greater than the book value of the current contract asset impairment provision, the Group will recognize the difference as an impairment loss and debit the "asset impairment loss". Credited "Contract asset impairment provision". On the contrary, the Group recognizes the difference as an impairment gain and keeps the opposite accounting records.

If the Group actually incurs credit loss and determines that the relevant contract assets cannot be recovered, and the write-off is approved, the "provision for impairment of contract assets" is debited and the "contract assets" is credited according to the approved write-off amount. If the write-off amount is greater than the provision for losses that has been made, the difference is debited into "losses from asset impairment".

17. Inventories

The Group's inventories mainly include raw materials, products in process, semi-finished products, Products on hand, and entrusted processing materials.

The perpetual inventory system is adopted, and inventories are valued at actual cost upon acquisition; the actual cost of inventories that have undergone requisition and dispatch is determined by weighted average method. Low-value consumables and packaging are amortized through the one-off charge-off method.

For merchandise inventories directly for sale, such as finished goods, goods in process and materials for sale, their net realizable values are determined at the estimated selling prices of the inventories minus the estimated selling expenses and relevant taxes and surcharges; the net realizable value of material inventory held for production purposes is determined by subtracting the estimated costs to be incurred until completion, estimated sales expenses, and related taxes from the estimated selling price of the finished products produced. For inventories with large quantity and low unit price, the provision for inventory depreciation is made according to the inventory category; for inventories related to the product series produced and sold in the same area, with the same or similar end use or purpose, and difficult to be measured separately from other items, the provision for inventory depreciation is made on a consolidated basis.

The net realizable value refers, in the ordinary course of business, to the account after deducting the estimated cost of completion, estimated sale expense and relevant taxes from the estimated sale price of inventories. The net realizable value of inventories shall be fixed on the basis of valid evidence as well as under consideration of purpose of inventories and the effect of events after the balance sheet date.

After withdrawing the depreciation reserves for inventories, if the factors, which cause any write-down of the inventories, have disappeared, causing the net realizable value of inventories is higher than its book value; the amount of write-down shall be reversed from the original amount of depreciation reserve for inventories. The reversed amount shall be included in the profits and losses of the current period.

18. Long-term receivables

By determining whether the credit risk of long-term account receivables increases remarkably after the initial recognition, the Group shall measure the impairment loss based on the specific expected credit loss in the following 12 months or during the entire period of existence. Except long-term account receivables whose credit risks shall be separately evaluated, the Group shall divide them into different combinations based on the specific credit risk features:

19. Long-term equity investments

The Group's long-term equity investments are mainly investments in subsidiaries and associates.

The Group’s judgment on joint control is based on the fact that all participants or a combination of participants collectively control the arrangement and that the policies of the activities related to the arrangement shall be unanimously agreed by those participants who.

The Group is generally considered to have a significant influence on the investee when it owns, directly or indirectly through a subsidiary, above 20% but below 50% of the voting rights of the investee. If the Group holds less than 20% of the voting rights of the investee, it also needs to judge whether the Group has a significant influence on the investee by taking into account the facts and circumstances such as having representatives on the board of directors or similar authority of the investee, or participating in the process of formulating financial and operating policies of the investee, or having major transactions with the investee, or sending management personnel to the investee, or providing key technical information to the investee.

If control over the investee is formed, it is a subsidiary of the Group. For long-term equity investment acquired through business combination under the same control, the initial investment cost of the long-term equity investments is recorded at the merger date based on the acquisition of the merged party's share of the book value of the net assets of the ultimate controller in the consolidated financial statement. If the book value of the net assets of the merged party on the merger date is negative, the cost of long-term equity investments is determined as zero.

If the equity of the investee under the same control is acquired in stages through multiple transactions to eventually result in a business combination, additional disclosures of the treatment of long-term equity investments in the parent Group's financial statements shall be made in the Reporting Period in which control is obtained. For example, if the business combination that is ultimately formed through multiple transactions to acquire the equity of the investee under the same control belongs to a package deal, the Group shall conduct accounting treatment to treat each transaction as a single transaction to acquire control. If the transaction is not a package deal, the initial investment cost of the long-term equity investment is based on the share of the book value of the net assets of the merged party in the consolidated financial statements of the ultimate controller at the merger date. The difference between the initial investment cost and the sum of the book value of the long-term equity investment before the merger plus the book value of the new consideration paid for further acquisition of shares at the merger date shall offset against capital reserve; and where capital reserve is insufficient to be offset, the retained earnings shall be adjusted.

For long-term equity investment acquired through business combination not under the same control, the initial investment cost shall be the consolidation cost.

If the equity of the investee not under the same control is acquired in stages through multiple transactions to eventually result in a business combination, additional disclosures of the cost treatment of long-term equity investments in the parent Group's financial statements shall be made in the Reporting Period in which control is obtained. For example, if the business combination that is ultimately formed through multiple transactions to acquire the equity of the investee not under the same control belongs to a package deal, the Group shall conduct accounting treatment to treat each transaction as a single transaction to acquire control. If the transaction is not a package deal, the sum of the book value of the equity investment originally held plus the cost of the new investment shall be the initial investment cost calculated in accordance with the cost method. If the equity held prior to the purchase date is accounted by the equity method, the relevant other comprehensive income accounted by the original equity method shall not be adjusted. The same basis of accounting as that used for the direct disposal of the related assets or liabilities by the investee is used for the disposal of the investment. If the equity held before the purchase date is designated as the financial assets measured at fair value through other comprehensive income, the cumulative gains or losses of the equity originally recognized in other comprehensive income shall be transferred from other comprehensive income and recognized in retained earnings; For financial assets measured at fair value through current profit or loss, the gains or losses of the equity originally included in the profit or loss from changes in fair value need not be transferred to investment income. If the equity held prior to the purchase date is an investment for other equity instruments, the changes in fair value of the equity investment accumulated in other comprehensive income before the purchase date shall be transferred to the retained earnings.

Except above long-term equity investments obtained through business combinations, long-term equity investments obtained through cash payments are recognized as investment costs based on the actual purchase price paid; For long-term equity investments acquired by issuing equity securities, the fair value of the issued equity securities is taken as the investment cost; For long-term equity investments invested by investors, the value agreed in the investment contract or agreement shall be taken as the investment cost.

The Group calculates its investments in subsidiaries through the cost method and its investments in joint ventures and associate enterprises through the equity method.

For long-term equity investments calculated by the cost method for subsequent measurement, the book value of the cost of long-term equity investments shall be increased by the fair value of the cost amount paid for the additional investment and relevant transaction costs incurred when the additional investment is made. Cash dividends or profits declared by the investee are recognized as investment income for the current period in accordance with the due amount.

For the long-term equity investment whose subsequent measurement adopts the cost method, when the additional investment is made, the book value of the long-term equity investment cost is increased according to the fair value of the cost amount paid by the additional investment and the relevant transaction expenses. In recognizing the share of net profit or loss of an investee, the fair value of the identifiable assets of the investee at the time of investment acquisition is used as the basis for recognizing the net profit of the investee in accordance with the Group's accounting policies and accounting periods, with the offsetting of the portion of gains and losses on internal transactions with associates and joint ventures that are attributable to the investor based on the proportion of the investor's ownership interest, and the net profit of the investee is recognized after adjustments are made to the net profit of the investee.

For the long-term equity investment with equity method for subsequent measurement, the book value of the long-term equity investment will increase or decrease with the change of the owner's equity of the invested entity. When confirming the share of the net profit and loss of the investee, the net profit and loss of the investee shall be calculated based on the fair value of the identifiable assets of the investee at the time of obtaining the investment, in accordance with the accounting policies and accounting period of the Group, and offset the internal transaction profit and loss between the joint venture and the joint venture according to the shareholding ratio Profit is recognized after adjustment.

If common control or significant influence over an investee is lost due to the disposal of a portion of the equity investment, etc., the remaining equity interest after disposal is reclassified to be accounted for in accordance with the relevant provisions of the guidelines for the recognition and measurement of financial instruments, and the difference between the fair value of the remaining equity interest at the date of the loss of common control or significant influence and its book value is recognized in current profit or loss. For long-term equity investment accounted by equity method, other comprehensive income accounted by the original equity method shall be accounted on the same basis as the investee's direct disposal of relevant assets or liabilities when the equity method is terminated, and the owner's equity shall be recognized due to other changes in owner's equity of the investee except net profit and loss, other comprehensive income and profit distribution When the equity method is terminated, all of them shall be transferred into the current investment income.

In case that the control over the investee is lost due to the disposal of part of the long-term equity investments, if the remaining equity after disposal can exercise joint control or significant influence on the investee, the accounting method is changed to equity method. The difference between the book value of the disposal equity and the disposal consideration shall be included in the investment income, and the remaining equity is adjusted as if it were accounted for using the equity method from the time of acquisition; if the remaining equity after disposal is insufficient for exercising joint control or significant influence on the investee, accounting treatment shall be made in accordance with the relevant provisions of the recognition and measurement standards for financial instruments. The difference between the book value of the disposed equity and the disposal consideration shall be included in the investment income, and the difference between the fair value and the book value of the remaining equity on the date of loss of control is included in the current profit or loss.

If the transaction from step-by-step disposal of equity to loss of control right does not belong to package transaction, accounting treatment shall be carried out for each transaction separately. If it is a "package deal", each transaction will be treated as a transaction of disposal of subsidiaries and loss of control. However, before the loss of control, the difference between the disposal price of each transaction and the book value of the long-term equity investment corresponding to the disposed equity will be recognized as other comprehensive income, and when the control is lost, it will be transferred to the current account of loss of control Period profit and loss.

20. Investment properties

The term “investment property” refers to the real estate held for generating rent and/or capital appreciation. Investment property of the Group include the right to use any land which has already been rented; the right to use any land which is held and prepared for transfer after appreciation; and the right to use any building which has already been rented. In addition, if the Board of Directors (or similar organizations) makes a written resolution to use the vacant buildings held by the Group for operating lease and the holding intention will not change in a short time, they will also be listed as investment real estate.

The initial measurement of the investment property shall be made at its cost. For subsequent expenses related to the investment property, if the economic benefits related to the asset are likely to flow in and the cost can be measured reliably, they are included in the cost of the investment property. Other subsequent expenses are included in the current profit or loss when incurred.

The Group shall make a follow-up measurement to the investment property by employing the cost pattern on the date of the balance sheet. An accrual depreciation or amortization shall be made for the investment property in the light of the accounting policies of the use right of buildings or lands.

For details of impairment test method and withdrawal method of impairment provision of investment property, please refer to Note VI. 26. "Long-term assets impairment".

The Group's investment real estate adopts the average life method for depreciation or amortization. The expected service life, net residual value rate and annual depreciation (amortization) rate of all kinds of investment real estate shall refer to the depreciation policy of buildings in fixed assets and the amortization policy of land use right in intangible assets.

When owner-occupied real estate or inventories are changed into investment property or investment property is changed into owner-occupied real estate, of which book value prior to the change shall be the entry value after the change.

When an investment property is changed to an owner-occupied real estate, it would be transferred to fixed assets or intangible assets at the date of such change. When an owner-occupied real estate is changed to be held to earn rental or for capital appreciation, the fixed asset or intangible asset is transferred to investment property at the date of such change. When a property is converted to an investment property measured using the cost model, the book value before conversion is taken as the entry value after conversion; When a property is converted into an investment property measured at fair value, the fair value on the conversion date is recognized as the entry value after conversion.

An investment property is derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The amount of proceeds on sale, transfer, retirement or damage of an investment property less its carrying amount and related taxes and expenses is recognized in profit or loss in the period in which it is incurred.

21. Fixed assets

The Group’s fixed assets are tangible assets held for the production of goods, provision of services, rental or operation management and have a useful life of more than one year.

Fixed assets should be recognized when it is probable that the economic benefits associated with them will be incorporated into the Group and their cost can be measured reliably. The Group’s fixed assets include buildings and constructions, machinery and equipment, electronic equipment,

transportation equipment, and other equipment.

The Group depreciates all fixed assets by straight-line method, except for fully depreciated fixed assets that continue to be used and land that is separately valued. The straight-line depreciation method (SLD) is adopted. The classified depreciation life, estimated net residual value rate and depreciation rate of the Group's fixed assets are as follows:

The estimated useful life, estimated net salvage value and depreciation method of fixed assets are reviewed at the end of each year. Accounting estimation methods are used when changes are required.

22. Construction in progress

The cost of construction in progress is determined based on actual project expenditures, including all necessary project expenditures incurred during construction, borrowing costs to be capitalized before the project reaches its predetermined usable state, and other related expenses, etc.

On the date when the construction in progress reaches its intended useable state, fixed assets are carried forward at the estimated value based on the project budget, cost or actual cost of the project, etc. Depreciation starts from the following month, and the difference in the original value of fixed assets is adjusted after the completion of the final accounting procedures.

Construction in progress is transferred to fixed assets upon reaching the predetermined usable state, with the criteria as follows:

23. Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets as part of the cost of those assets. Other borrowing costs are recognized as expenses in the current period. The assets that meet the capitalization conditions determined by the Group include the borrowing costs of fixed assets, investment real estate and inventories that need more than one year of acquisition and construction or production activities to reach the expected serviceable or marketable status. Capitalization starts when asset expenditures have been incurred, borrowing costs have been incurred, or necessary purchasing, construction, or production activities have begun to bring the assets to their intended usable or marketable status; when the acquired and constructed, or produced assets that meet the capitalization conditions have reached the working condition for their intended use or sale, the capitalization is ceased, and the borrowing costs incurred thereafter is included in the current profit or loss. If there is an abnormal interruption in the acquisition, construction or production of assets that meet the capitalization conditions and the interruption lasts for more than 3 consecutive months, the capitalization of borrowing costs will be suspended until the acquisition, construction or production of assets starts again.

During each accounting period within the capitalization process, the Group recognizes the capitalization amount of borrowing costs using the following method: for specialized borrowings, the capitalization amount is based on the actual interest expenses incurred in the current period, after deducting the interest income earned from unused borrowing funds deposited in the bank or investment income earned from temporary investments; where general borrowings are used, they shall be determined by multiplying the weighted average of asset disbursements of the part of accumulated asset disbursements exceeding special borrowings by the capitalization rate of used general borrowings, and the capitalization rate is calculated and determined according to the weighted average interest rate of the general borrowings.

24. Right-of-use assets

The right-of-use assets refer to the right of the Group as the lessee to use the leased assets during the lease term.

(1) Initial measurement

After the commencement date of the lease term, the Group uses the cost for initial measurement of right-of-use assets. The cost includes the following four items: ① initial measurement amount of the lease liabilities; ② lease payment amount paid on or before the start date of the lease term. If there is any lease incentives, the lease incentives that have been enjoyed are deducted; ③ the initial direct costs incurred, i.e. the incremental costs incurred in obtaining the lease agreement; ④ the cost expected to be incurred for dismantling and removing the leased assets, restoring the site where the leased assets are located, or restoring the leased assets to the state agreed upon in the lease terms, except for those incurred for the production of inventory.

(2) Subsequent measurement

After the commencement date of the lease term, the Group adopts the cost model to carry out follow-up measurement of the right-of-use assets, that is, the right-of-use assets are measured at cost less accumulated depreciation and accumulated impairment losses. If the Group re-measures the lease liabilities according to the relevant provisions of the lease standards, the book value of the right-of-use assets shall be adjusted accordingly.

(3) Depreciation of right-of-use assets

From the commencement date of the lease term, the Group has accrued depreciation on the right-of-use assets. Right-of-use assets are usually depreciated from the month when the lease term begins. The accrued depreciation amount is included in the cost of related assets or current profits and losses according to the use of the right-of-use assets.

When determining the depreciation method of the right-of-use assets, the Group makes a decision based on the expected consumption mode of the economic benefits related to the right-of-use assets, and accrues depreciation for the right-of-use assets on the straight-line method.

When determining the depreciation life of right-of-use assets, the Group follows the following principles: if it can be reasonably determined that the ownership of the leased assets will be obtained at the expiration of the lease term, the depreciation is accrued over the remaining service life of the leased assets; if it can not be reasonably determined that the ownership of the leased asset can be obtained at the expiration of the lease term, the depreciation is accrued over the shorter of the lease term or the remaining service life of the leased asset.

(4) Impairment of right-of-use assets

If the right-of-use assets are impaired, the Group carries out subsequent depreciation according to the book value of the right-of-use assets after deducting the impairment loss.

25. Intangible assets

Intangible assets of the Group include land use rights, patented technologies, non-patented technologies, etc. They are measured at the actual cost on acquisition. Specifically, for purchased intangible assets, the actual price paid and other relevant expenses are taken as the actual cost; for intangible assets invested by investors, the value agreed in the investment contract or agreement is taken as the actual cost. However, if the value agreed in the contract or agreement is not fair, the actual cost is determined according to the fair value; For intangible assets such as patents acquired from a merger not under the same control, if they were owned the acquired party but not recognized in its financial statements, they shall be recognized as intangible assets at fair value upon initial recognition of the acquired party's assets.

(1) Service life and basis for determination, estimates, amortization method or review procedure

Intangible assets of the Group include land use rights, patented technologies, non-patented technologies, etc. They are measured at the actual cost on acquisition. Specifically, for purchased intangible assets, the actual price paid and other relevant expenses are taken as the actual cost; for intangible assets invested by investors, the value agreed in the investment contract or agreement is taken as the actual cost. However, if the value agreed in the contract or agreement is not fair, the actual cost is determined according to the fair value; For intangible assets such as patents acquired from a merger not under the same control, if they were owned the acquired party but not recognized in its financial statements, they shall be recognized as intangible assets at fair value upon initial recognition of the acquired party's assets.

(2) Scope of R&D expenditures and related accounting treatments

The scope of the Group's R&D expenditures includes salaries of R&D personnel, direct input costs, depreciation and amortization, design fees, equipment testing fees, fees for R&D outsourced to external parties, and other expenses.

The Group classifies its internal research and development project expenditures into expenditure on the research phase and expenditure on the development phase, based on the nature of the expenditures and the degree of uncertainty in whether the R&D activities will result in an intangible asset. Expenditure on the research phase are recognized in profit or loss when incurred. Expenditure on the development phase are capitalized when all of the following conditions are met:

①The Group has assessed the technical feasibility of completing the intangible asset so that it will be available for use or sale;

② The Group intends to complete the intangible asset and use or sell it;

③ It is probable that the intangible asset will generate future economic benefits.

④ The Group has the adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset;

⑤ The expenditure attributable to the development phase of the intangible asset can be measured reliably. Development phase expenditures not meeting these capitalization criteria are recognized in profit or loss for the current period when incurred.

26. Impairment of long-term assets

For non-current non-financial Assets of fixed assets, projects under construction, intangible assets with limited service life, investing real estate with cost model, long-term equity investment of subsidiaries, cooperative enterprises and joint ventures, the Group should judge whether decrease in value exists on the date of balance sheet. Recoverable amounts should be tested for decrease in value if it exists. Goodwill, intangible assets with uncertain service life and other non-accessible intangible assets should be tested for impairment at the end of each year, regardless of whether there is any indication of impairment.

Impairment of non-current assets other than financial assets (except goodwill)

If the recoverable amount is less than book value in impairment test results, the provision for impairment of differences should include in impairment loss. Recoverable amounts would be the higher of net value of asset fair value deducting disposal charges or present value of predicted cash flow. The fair value of the assets is determined according to the sales agreement price in fair transactions; If there is no sales agreement but there is an active market for the asset, the fair value is determined based on the buyer's offer for the asset; If there is neither sales agreement nor an active market for the asset, the fair value is estimated based on the accessible optimum information. Disposal expenses include legal fees, taxes, cartage or other direct expenses of merchantable Assets related to asset disposal. Present value of predicted asset cash flow should be determined by the proper discount rate according to Assets in service and predicted cash flow of final disposal. Asset depreciation reserves should be calculated on the basis of single Assets. If it is difficult to predict the recoverable amounts for single Assets, recoverable amounts should be determined according to the belonging asset group. Asset group is the minimum asset combination producing cash flow independently.

27. Impairment of goodwill

In impairment test, book value of the business reputation in financial report should be shared to beneficial asset group and asset group combination in collaboration of business combinations. It is shown in the test that if recoverable amounts of shared business reputation asset group or asset group combination are lower than book value, it should determine the impairment loss. Impairment loss amount should firstly be deducted and shared to the book value of business reputation of asset group or asset group combination, then deduct book value of all assets according to proportions of other book value of above assets in asset group or asset group combination except business reputation.

The methodology, parameters and assumptions for the goodwill impairment test are detailed in Note VIII. 19.

After the asset impairment loss is determined, recoverable value amounts would not be returned in future.

28. Long-term deferred expenses

The Long-term deferred expenses of the Group including renovation cost, mold cost and so on shall be amortized evenly during the benefit period. If these long-term deferred expenses cannot benefit the future accounting period, the amortized value of this item that has not been amortized shall be transferred to the current profit or loss.

29. Contract liabilities

Liabilities of contracts refer to the Group's obligation to transfer goods to customers due to the consideration received or receivable from customers. Before the transfers, if the customer has paid the consideration or if the Group has obtained the right to unconditionally collect the contract consideration, the liabilities of contracts shall be recognized based on the amount received or receivable at the earlier point between the actual payment by the customer and the payment due.

30. Employee compensation

Salaries of staff of the Group include short-term salary, post-employment benefits, termination compensation, and other long-term benefits.

Short-term salary mainly includes wages, bonuses, allowances and subsidies, as well as employee benefits, medical insurance, maternity insurance, employment injury insurance, housing provident fund, labor union expenses, and staff education expenses, and non-monetary benefits. During the accounting period when the employees provide services, the actual short-term compensation is recognized as a liability that shall be included in the current profit and loss or the cost of related assets according to the beneficiary.

The post-employment benefits mainly include the basic endowment insurance, etc. They are divided into defined contribution plans and defined benefit plans in accordance with the risks and obligations undertaken by the Group. According to the defined contribution plan, the deposit paid to a separate entity in exchange for the services provided by the employees during the accounting period on the balance sheet date is recognized as liabilities, and shall be included in the current profit and loss or the cost of related assets according to the beneficiary. If the Group has a defined benefit plan, the specific accounting method should be explained.

When terminating labour relations before expiration of contract, or layoffs with compensations, and the Group cannot terminate the labour relations unilaterally or reduce the dismissal welfare, remuneration and liabilities produced from the dismissal welfare should be determined and included in current profits and losses when determining the costs of dismissal welfare and recombination. However, dismissal welfare not fully paid within 12 months after annual reporting period should be handled the same as other long-term employees’ payrolls.

The inside employee retirement plan is treated by adopting the same principle with the above dismiss ion welfare. The Group would recorded the salary and the social security insurance fees paid and so on from the employee’s service termination date to normal retirement date into current profits and losses (dismissal welfare) under the condition that they meet the recognition conditions of estimated liabilities.

The other long-term welfare that the Group offers to the staffs, if met with the setting drawing plan, should be accounting disposed according to the setting drawing plan, while the rest should be disposed according to the setting revenue plan.

31. Lease liabilities

（1） Initial measurement

The Group initially measures the lease obligation at the present value of the lease payments outstanding at the lease commencement date.

1) Lease payments

Lease payment amount refers to the amount paid by the Group to the lessor in relation to the right to use the leased asset during the lease term, including: ① fixed payment amount and substantially fixed payment amount, with lease incentives (if any) deducted from the relevant amount; ② The amount of variable lease payments that depend on an index or ratio, which is determined at the time of initial measurement based on the index or ratio at the commencement date of the lease term; ③ The exercise price of the call option when the Group reasonably determines that the call option will be exercised; ④ The amount needs to be paid for exercising the lease termination option when the lease term reflects that the Group will exercise the option to terminate the lease; ⑤ The amount expected to be paid according to the residual value of the guarantee provided by the Group.

2) Rate of discount

When calculating the present value of the lease payments, the Group uses the interest rate implicit in lease as the rate of discount, which is the interest rate at which the sum of the present value of the lessor's lease receipts and the present value of the unsecured residual value equals the sum of the fair value of the leased asset and the lessor's initial direct expenses. If the Group fails to determine the interest rate implicit in lease, the incremental interest rate on borrowing will be used as the rate of discount. The incremental interest rate on borrowing shall mean the interest rate payable by the Group to borrow funds under similar mortgage conditions during similar periods to acquire assets close to the value of the right-of-use assets under similar economic circumstances. The interest rate is related to the following matters: ① the Group's own situation, that is, the company's solvency and credit status; ② the term of the "borrowings", i.e. the lease term; ③ The amount of "borrowed" funds, i.e. the amount of the lease liability; ④ "Collateral conditions", i.e. the nature and quality of the subject assets; ⑤ Economic circumstances, including the jurisdiction in which the lessee is located, pricing currency, time of contract signing, etc. The incremental borrowing rate is based on the Group's latest asset-based lending interest rate for similar assets and adjusted to take into account the above factors.

（2） Subsequent measurement

After the commencement date of the lease term, the Group subsequently measures the lease liability according to the following principles: ① increase the carrying amount of the lease liability when recognizing interest on the lease liability; ② when the lease payment is made, the book amount of the lease liability is reduced; ③ when the lease payment changes due to revaluation or lease change, the book value of the lease liability is re-measured.

The Group calculates the interest expenses of the lease obligations during each period of the lease term at a fixed periodic interest rate, and includes them (except those that shall be capitalized) in profit or loss for the current period. Periodic rate refers to the rate of discount adopted by the Group when initially measuring lease liabilities, or the revised rate of discount adopted by the Group when lease liabilities need to be remeasured according to the revised rate of discount due to changes in lease payments or lease changes.

（3） Re-measurement

After the lease commencement date, the Group re-measures the lease liability based on the present value of the changed lease payment and adjusts the book value of the right-of-use assets accordingly when the following circumstances occur. If the carrying amount of the right-of-use asset has been reduced to zero, but the lease liability still needs to be further reduced, the Group recognizes the remaining amount in profit or loss for the current period. ① there have been changes in substantially fixed payments (in which case the original discount rate is adopted); ② there have been changes in the estimated payable amount of the guarantee residual value (in which case, the original discount rate is adopted); ③ there have been changes in the index or ratio used to determine the lease payments (in which case the revised discount rate is adopted); ④ there have been changes in the valuation results of the call option (in which case the revised discount rate is adopted); ⑤ there have been changes in the evaluation results or actual exercise of the option to renew or terminate the lease (in which case, the revised discount rate is adopted).

32. Estimated liabilities

When an obligation related to a contingency meets the following conditions simultaneously, it is recognized as an estimated liability: (1) the obligation is a present obligation undertaken by the Group; (2) the performance of the obligation is likely to result in an outflow of economic benefits; (3) the amount of the obligation can be reliably measured.

The projected liabilities are initially measured in accordance with the optimal estimate of the necessary expenses for the fulfillment of the current obligation, with the risks related to contingent matters, uncertainty, the time value of money, and other factors taken into consideration. The Group reviews the current best estimate of the provisions for contingent liabilities at the balance sheet date and adjusts the carrying amount of the provision as necessary.

When all or some of the expenses necessary for the liquidation of an provisions of an enterprise is expected to be compensated by a third party, the compensation should be separately recognized as an asset only when it is virtually certain that the reimbursement will be obtained. Besides, the amount recognized for the reimbursement should not exceed the book value of the estimated liabilities.

33. Preferred shares, perpetual bonds and other financial instruments

Preferred shares and perpetual debt classified as debt instruments shall be initially measured at their fair value less transaction costs, and subsequently measured at amortized cost using the effective interest rate method. Interest expenses or dividend distributions thereon shall be accounted for in accordance with borrowing costs. Gains or losses arising from their repurchase or redemption shall be recognized in profit or loss for the current period.

For preferred shares and perpetual bonds classified as equity instruments, the consideration received upon issuance, net of transaction costs, is added to owners' equity. Their interest expense or dividend distributions are treated as profit distribution, and any repurchase or cancellation is treated as a change in equity.

34. Income

(1) General principles

The Group has fulfilled the performance obligations in the contract, that is, when the customer obtains control of the relevant goods or services, revenue is recognized. Obtaining control over related goods or services means being able to lead the use of the goods or the provision of such services and obtain almost all of the economic benefits from it.

Performance obligation refers to the Group's commitment in a contract to transfer clearly distinguishable goods to the customer. A performance obligation of the Group is deemed as an obligation to be fulfilled within a certain period of time if one of the following conditions is met; Otherwise, the performance obligation is satisfied at a point in time:

① The customer obtains and consumes the economic benefits brought by the Group's performance at the same time as the Group performs the contract;

② The customer is capable of controlling the goods under construction during the performance of the Group;

③ The goods produced during the performance of the Group have irreplaceable uses, and the Group is entitled to collect payments for the cumulative performance of the contract during the entire contract period.

For performance obligations performed within a certain period of time, the Group recognizes revenue according to the performance progress during that period. When the performance progress cannot be reasonably determined, if the cost incurred by the Group is expected to be compensated, the revenue shall be recognized according to the amount of the cost incurred until the performance progress can be reasonably determined.

For performance obligations performed at a certain point in time, the Group recognizes revenue at the point in time when the customer obtains control of the relevant goods or services. When determining whether a customer has obtained control over goods, the Group considers the following indications:

① The Group has the current right to receive the payment for the goods, that is, the customer has the current obligation to pay for the goods;

② The Group has transferred the legal ownership of the goods to the customer, that is, the customer already has legal ownership of the goods;

③ The Group has physically transferred the goods to the customer, that is, the customer has physically taken possession of the goods;

④ The Group has transferred the significant risks and rewards pertaining to the ownership of the goods to the customer, that is, the customer has obtained the significant risks and rewards;

⑤ The customer has accepted the good or service, etc.;

⑥ Other signs indicating that the customer has gained control of the goods.

The Group's right to consideration in exchange for goods or services that the Group has transferred to a customer is presented as a contract asset. An impairment loss is recognized for contract assets based on expected credit losses. The Group's unconditional right to receive consideration from a customer is presented as a receivable. The Group's obligation to transfer goods or services to a customer for which the Group has received or is receivable consideration from the customer is presented as a contract liability.

(2) Income measurement principles

1)If the contract contains two or more performance obligations, at the commencement date of the contract, the Group will allocate the transaction price to each single performance obligation based on the relative proportion of the stand-alone selling price of the goods or services promised under each single performance obligation. Revenue is measured at the transaction price of each single performance obligation.

2)The transaction price is the amount of consideration that the Company expects to be entitled to receive due to the transfer of goods or services to customers, excluding payments collected on behalf of third parties and payments expected to be returned to customers. The transaction price recognised by the Group does not exceed the amount for which it is highly probable that cumulative revenue already recognised will not be significantly reversed when the related uncertainties are resolved. Amounts expected to be refunded to the customer are treated as a liability and not included in the transaction price.

3)Where a contract contains variable consideration, such as cash discounts and price protection included in certain contracts between the Group and its customers, the Group determines the best estimate of variable consideration using the expected value method or the most likely amount method. However, the transaction price including variable consideration is constrained to an amount that, in relation to the cumulative revenue already recognised, is highly probable not to result in a significant reversal when the related uncertainties are resolved.

4) For consideration payable to a customer, the Group deducts such consideration from the transaction price and reduces current revenue at the later of when the related revenue is recognised and when the consideration is paid (or promised to be paid) to the customer, unless the consideration payable is in exchange for other distinct goods or services obtained from the customer.

5)For sales with sales return clauses, when the customer obtains control of the relevant goods, the Group recognizes the revenue at the amount of consideration expected to be received due to the transfer of goods to the customer, and recognizes the amount expected to be refunded due to sales return as estimated liabilities; In addition, the balance of the expected book value of the returned goods at the time of transfer less the expected cost of recovering the goods (including the impairment of the value of the returned goods) is recognized as an asset, i.e. the return cost receivable. The net amount of the above asset cost is carried forward according to the book value of the transferred goods at the time of assignment. On each balance sheet date, the Group re-estimates the future sales returns and re-measures the aforementioned assets and liabilities.

6) If there is a significant financing component in the contract, the Group shall determine the transaction prices according to the payable amount that is assumed to be paid in cash by the customer when the customer obtains the right of control over goods or service. The difference between the transaction price and the promised consideration in the contract is amortized over the contract period using the effective interest method, with the discount rate being the one that discounts the nominal amount of the contract consideration to the cash selling price of the goods. On the starting date of the contract, the Group expects that the time between the customer's acquisition of control of the goods or services and the customer's payment of the price will not exceed one year, regardless of the significant financing components in the contract.

7)According to contractual agreements, legal provisions, etc., the Group provides quality assurance for the products sold and the assets built. For guarantee-type quality assurance to assure customers that the goods sold meet the established standards, the Group conducts accounting treatment in accordance with "contingent events-estimated liabilities". For service-type quality assurance where a separate service is provided in addition to the assurance to the customer that the goods sold meet the established standards, the Group treats it as a single performance obligation and apportions a portion of the transaction price to the service-type quality assurance based on the relative proportions of the separate selling prices of the goods and the service-type quality assurance provided and recognizes revenue when the customer obtains control of the service. When assessing whether the quality assurance provides a separate service in addition to ensuring that the products sold meet the established standards, the Group considers whether the quality assurance is a legal requirement, the quality assurance period, and the nature of the Group's commitment to perform the tasks.

8) When a contract modification occurs between the Group and a customer: ① if the modification adds distinct construction services and the contract price increases by an amount that reflects the standalone selling price of the additional construction services, the Group accounts for the contract modification as a separate contract; ② If the contract modification does not meet the criteria in ①, and the construction services transferred before the modification date are distinct from those not yet transferred, the Group accounts for the modification as a termination of the original contract. The remaining performance obligations of the original contract and the modification are combined and treated as a new contract. ③ If the contract modification does not meet the criteria in①, and the construction services transferred before the modification date are not distinct from those not yet transferred, the Group accounts for the modification as part of the original contract. The effect of the modification on revenue previously recognized is recognized as an adjustment to revenue in the period in which the modification occurs.

(3) Specific method

The revenue of the Group mainly consists of the operating revenue from main business and other business income.

① Revenue Recognized on time

The Group's sales of household appliances, electronic components, etc., belong to the performance obligation performed at a certain point in time.

Recognition conditions for income from domestic sales of goods and overseas direct sales of goods: The Group has delivered the product to the customer in accordance with the contract and the customer has received the product, the payment has been recovered or the receipt of payment has been obtained, and the relevant economic benefits are likely to flow in. The main risks and rewards have been transferred, and the legal ownership of the goods has been transferred.

Conditions for confirming the income of exported goods: The Group has declared the products for export according to the contract, obtained the bill of lading, and delivered the goods to the carrier entrusted by the purchaser. The payment has been recovered or the receipt of payment has been obtained and relevant economic benefits are likely to flow in. The main risks and rewards of commodity ownership have been transferred, and the legal ownership of commodities has been transferred.

② Income confirmed according to the performance progress

The Group's business contracts with customers for project construction, operating leases, etc. are performance obligations performed within a certain period of time, and revenue is recognized according to the progress of the performance.

35. Contract costs

(1) Method of determining the amount of assets related to contract costs

The Group’s assets related to contract costs include contract performance costs and contract acquisition costs.

Contract performance cost refers to the cost incurred by the Group to perform a contract. If the contract performance cost does not fall within the scope of other accounting standards for business enterprises and meets the following conditions at the same time, it is recognized as an asset under contract performance cost: this cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing expenses, costs clearly borne by the customer as well as other costs incurred only due to this contract; This cost enriches the Group's future resources to meet its performance obligations; This cost is expected to be recovered.

Contract acquisition cost refers to the incremental cost incurred by the Group to obtain the contract that are expected to be recovered. It is recognized as an asset under contract acquisition cost; if the amortization period of the asset does not exceed one year, the asset is included in the current profit or loss when the amortization occurs. Incremental cost refers to the cost (such as sales commission, etc.) that the Group will not incur without obtaining the contract. The Group's expenses incurred in obtaining the contract, other than the expected incremental cost that can be recovered (such as travel expenses incurred regardless of whether the contract is obtained, etc.), are included in the current profit and loss when they are incurred, but it is clearly borne by the customer except.

(2) Amortization of assets related to contract costs

The Group’s assets related to contract costs are amortized on the same basis as the commodity revenue recognition related to the asset and included in the current profit and loss.

(3) Impairment of assets related to contract costs

When determining the impairment loss of assets related to contract costs, the Group first determines the impairment loss of other assets related to the contract recognized in accordance with other relevant accounting standards for business enterprises; if its book value is higher than the difference between the remaining consideration expected to be obtained by the Group from the transfer of the goods related to the asset and the estimated cost to be incurred for the transfer of the relevant goods, the excess shall be provided for impairment and recognized as asset impairment loss.

If the depreciation factors of the previous period have changed, and the aforementioned difference is higher than the book value of the asset, the original provision for asset impairment shall be reversed and included in the current profit and loss, but the book value of the asset after the reversal shall not exceed Assuming no provision for impairment is made, the book value of the asset on the date of reversal.

36. Government subsidies

The government grants of the Group are divided into asset-based government grants and income-based government grants. Specifically, asset-based government grants refer to the government grants obtained by the Group for the purpose of purchasing, constructing or otherwise forming long-term assets; income-based government grants refer to those other than asset-based government grants. If the beneficiaries are not specified in government documents, the Group will make the distinction according to the aforesaid principle. Beneficiaries which are difficult to categorize shall be classified as income-based government grants as a whole.

If the government subsidies are monetary assets, they shall be measured at the amount actually received. For a subsidy allocated according to a fixed quota standard, or when there is conclusive evidence at the end of the year that the relevant conditions stipulated in the financial support policies can be met and the financial support funds are expected to be received, the subsidy shall be measured according to the amount receivable; if the government grants are non-monetary assets, they are measured at fair value. Where the fair value cannot be reliably obtained, the grant is measured at a nominal amount (RMB1).

Asset-based grants shall be used to offset the book value of related assets or presented as deferred income, and shall, over the life of the related asset, be included in the current profits and losses by the equal amortization method.

If the related asset is sold, transferred, scrapped, or damaged before the end of its useful life, its deferred income that has not been distributed shall be transferred to the current profit and loss of asset disposal.

Income-based grants that are used to compensate related costs or losses in subsequent periods shall be deemed as deferred income and shall be included in the current profits and losses during the period when the related costs or losses are recognized. Government grants related to routine activities shall be included in other income in accordance with the nature of the transaction. Government grants not related to routine activities shall be included in non-operating revenue and expenditure.

The Group obtains interest grants on policy-related concessional loans in two different ways: the interest subsidy funds are allocated by the government either to the lending bank or directly to the Group. The respective accounting treatment is carried out as follows:

(1) Where the government allocates the funds to the lending bank, and the bank provides a loan to the Group at a policy-related preferential interest rate, the actual amount of the loan received is taken as the entry value, and the borrowing costs are calculated based on the loan principal and the policy-related preferential interest rate.

(2) Where the government allocates the funds directly to the Group, the grants are offset against borrowing costs.

Where the government grants that the Group has recognized in accounting need to be returned, the accounting treatment in the current period is carried out as follows:

1) If the book value of an asset is offset on initial recognition, the book value will be adjusted.

2) If there is a related deferred income, the carrying balance of the related deferred income shall be offset, and any excess shall be recognized in profit or loss for the current period.

3) Under any other circumstances, the grants will be included in profit or loss in the current period.

37. Deferred tax assets/deferred tax liabilities

The Group's deferred tax assets and deferred tax liabilities are calculated and recognized based on the difference (temporary difference) between the tax base and book value of the assets and liabilities. In the case of deductible losses that can be deducted from taxable income in subsequent years in accordance with the provisions of the tax laws, the corresponding deferred tax assets are recognized. In the case of temporary differences arising from the initial recognition of goodwill, the corresponding deferred income tax liabilities are not recognized. With respect to temporary differences arising from the initial recognition of an asset or liability in a transaction which isn’t a business combination and which affects neither accounting profit nor taxable income (or deductible losses), the corresponding deferred tax assets and deferred tax liabilities are not recognized. On the balance sheet date, the deferred tax assets and deferred tax liabilities are measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled.

The Group recognizes deferred tax assets to the extent of the taxable income which it is most likely to obtain and which can be deducted from deductible temporary differences, deductible losses and tax credits.

38. Leases

（1） Identification of Leases

The term "lease" refers to a contract whereby the lessor transfers the right of use regarding the leased asset(s) to the lessee within a specified time in exchange for consideration. On the commencement date of the contract, the Group assesses whether the contract is a lease or contains a lease. If a party to the contract transfers the right allowing the control over the use of one or more assets that have been identified within a certain period, in exchange for a consideration, such contract is a lease or includes a lease. In order to determine whether a party to the contract transfers the right allowing the control over the use of the identified assets for a certain period of time, the Group assesses whether the customers in the contract are entitled to obtain almost all the economic benefits arising from the use of the identified assets during the use period, and have the right to dominate the use of the identified assets during the use period.

If a contract contains multiple single leases at the same time, the Group will split the contract, and conduct accounting treatment of each single lease respectively. If a contract contains both lease and non-lease parts at the same time, the Group will split the lease and non-lease parts for accounting treatment.

（2） The Group as a Lessee

1) Lease Recognition

On the lease commencement date, the Group recognizes the right-of-use assets and lease obligations in respect of the lease. For the recognition and measurement of right-of-use assets and lease liabilities, please refer to Note VI "24. Right-of-use assets" and "31. Lease liabilities".

2) Lease Modification

A lease change refers to a change in the scope, consideration, and term of lease outside the original contract clauses, including the addition or termination of the one or several rights to use lease assets, and the extension or reduction of the lease term specified in the contract. The effective date of lease change refers to the date when both parties reach an agreement on lease change.

If there is any change in the lease and the following conditions are met at the same time, the Group shall account for the lease change as a separate lease: ① the lease change expands the lease scope or extends the lease term by adding the right to use one or more leased assets; ② The increased consideration is equivalent to the amount of the separate price of the expanded part of the lease scope or the extended part of the lease term adjusted according to the contract situation.

If the lease change is not accounted for as a separate lease, on the effective date of the lease change, the Group amortizes the consideration of the contract after the change in accordance with the relevant provisions of the lease standards and re-determine the lease term after the change; the revised discount rate is used to discount the changed lease payment to remeasure the lease liabilities. When calculating the present value of the lease payment after the change, the Group uses the interest rate implicit in the lease for the remaining lease period as the discount rate; where the interest rate implicit in the lease for the remaining lease term cannot be determined, the Group adopts the lessee's incremental borrowing rate on the effective date of the lease change as the discount rate. If the interest rate implicit in lease cannot be determined, the Group adopts the incremental borrowing rate of the lessee on the effective date of the lease change as the rate of discount. With regard to the impact of the above-mentioned lease liability adjustment, the Group conducts accounting treatment according to the following situations: ① The lessee will correspondingly reduce the book value of the right-of-use assets and include the profit or loss of the lease terminated in part or whole in the current profit or loss, if the lease change narrows the scope of lease or shortens the lease term. ② The lessee will correspondingly adjust the book value of the right-of-use assets, if other lease changes result in the re-measurement of the lease obligation.

3) Short-term and low-value asset leases

For short-term leases with a lease term not exceeding 12 months and low-value asset leases with lower value when single leased assets are brand new assets, the Group chooses not to recognize right-of-use assets and lease liabilities. The Group includes the payments of short-term and low-value asset leases incurred during each period of the lease term in the profit or loss for the current period or the cost of relevant assets by the straight-line method.

（3） The Group as a lessor

On the basis that (1) the contract assessed is a lease or includes a lease, the Group, as the lessor, classifies leases into finance leases and operating leases on the lease commencement date.

If a lease substantially transfers virtually all risks and rewards associated with ownership of the leased asset, the lessor classifies the lease as a finance lease and leases other than finance leases as operating leases.

If a lease falls in one or more of the following circumstances, the Group usually classifies it as a finance lease: ① the ownership of the leased asset will be transferred to the lessee at the expiration of the lease term; ②The lessee has the option to purchase the leased asset, and the purchase price is low enough compared with the fair value of the leased asset when the option is expected to be exercised, so it can be reasonably determined that the lessee will exercise the option on the lease commencement date; ③ Although the ownership of the asset will not be transferred, the lease term covers most of the service life of the leased asset; ④ On the lease commencement date, the current value of the lease receipts is almost equal to the fair value of the leased assets; ⑤ The leased asset can only be used by the lessee if no major modification is made due to its special nature. If a lease has one or more of the following signs, the Group may also classify it as a finance lease: ① If the lessee cancels the lease, the losses caused to the lessor by the cancellation of the lease are to be borne by the lessee; ② Gains or losses arising from fluctuations in the fair value of the residual value of the asset are attributable to the lessee; ③The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.

1) Accounting treatment for finance leases

Initial measurement

On the commencement date of the lease term, the Group recognizes the finance lease receivables for the finance lease and derecognizes the leased asset of the finance lease. It recognizes the net investment in the lease as the entry value of the finance lease, when initially measuring the finance lease receivable.

The net investment in the lease is the sum of the net value of the unguaranteed residual value and the lease receivable not received on the commencement date of the lease term at the interest rate implicit in lease. Lease receipts refer to the amount that the lessee shall collect from the lessee due to the transfer of the right to use the leased asset during the lease term, including: ① fixed payments and substantially fixed payments to be paid by the lessee; If there are lease incentives, the relevant amount of lease incentives shall be deducted; ② The amount of variable lease payments dependent on an index or ratio. This amount is determined at the time of initial measurement based on the index or ratio at the commencement date of the lease term; ③ The exercise price of a purchase option, if it is reasonably certain that the lessee will exercise that option; ④ The amount to be paid by the lessee for exercising the option to terminate the lease, provided that the lease term reflects that the lessee will exercise of the option to terminate the lease; ⑤ The residual value of the guarantee provided by the lessee, the party related to the lessee, or an independent third party economically capable of fulfilling the guarantee obligation to the lessor.

Subsequent measurement

The Group calculates and confirms the interest income at a fixed periodic rate in each period in the lease term. Periodic rate refers to the rate of discount implicit in lease adopted to determine the net investment in the lease (in the case of sublease, if the interest rate implicit in lease of sublease cannot be determined, the rate of discount implicit in original lease is adopted (adjusted according to the initial direct expenses related to sublease)), or the revised rate of discount determined in accordance with the relevant provisions where the change of the finance lease is not accounted for as a separate lease and meets the condition that the lease will be classified as a finance lease if the change became effective on the lease commencement date.

Accounting treatment of lease change

If there is a change in a finance lease and the following conditions are met at the same time, the Group shall account for the change as a separate lease: ① the change expands the scope of the lease by adding the right to use one or more leased assets; ② The increased consideration is equivalent to the amount of the separate price of the expanded part of the lease scope adjusted according to the contract situation.

If the change of finance lease is not accounted for as a separate lease, and the condition that the lease will be classified as an operating lease if the change takes effect on the lease commencement date is met, the Group will account for it as a new lease from the effective date of the lease change, and take the net lease investment before the effective date of the lease change as the book value of the leased asset.

2) Accounting treatment for operating leases

Treatment of rent

During each period of the lease term, the Group recognizes lease receipts from operating leases as rental income on a straight-line basis.

Incentives provided

If the Group provides a rent-free period, it allocates the total rentals over the entire lease term without deducting the rent-free period by the straight-line method, and also recognizes rental income during the rent-free period. If certain expenses of the lessee are borne, the Group allocates the balance of rental income over the lease term after such expenses are deducted from the gross

rental income.

Initial direct expenses

Initial direct expenses incurred by the Group in connection with operating leases shall be capitalized to the cost of the leased underlying asset and recorded in the profits and losses of the current period in stages over the lease term on the same basis of recognition as rental income.

Depreciation

For fixed assets in assets under operating lease, the Group adopts the depreciation policy for similar assets to accrue depreciation; For other assets under operating lease, a systematic and reasonable method is adopted for amortization.

Variable lease payments

Variable lease payments made by the Group in relation to operating leases that are not included in the lease receivable are included in the current profit or loss when they are actually incurred.

Change of operating leases

If an operating lease changes, the Group will regard it as a new lease for accounting treatment from the effective date of the change. The advance receipt or the lease receivable related to the lease prior to the change is recognized as the payment receivable of the new lease.

39. Fair value measurement

The Group measures equity instrument investments at fair value on each balance sheet date. Fair value refers to the price that can be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.

For assets and liabilities measured or disclosed at fair value in the financial statements, the fair value level to which they belong is determined according to the lowest level input that is significant to the fair value measurement as a whole: Level 1 inputs refer to unadjusted quoted prices in the active market for the same assets or liabilities that can be obtained on the measurement date; Level 2 inputs refer to inputs other than Level 1 inputs that are directly or indirectly observable for the relevant assets or liabilities; Level 3 inputs are the unobservable inputs of related assets and liabilities.

On each balance sheet date, the Group re-evaluates the assets and liabilities continuously measured at fair value recognized in the financial statements to determine whether there is a conversion between the levels of fair value measurement.

40. Major changes in accounting policies and accounting estimates

(1) Major changes in accounting policies

The Group had no changes in accounting policies during the current period

(2) Major changes in accounting estimates

The Group had no changes in accounting estimates during the current period

VII. Taxation

1. Main tax types and tax rates

Notes to the taxpayers with different enterprise income tax rates

Remarks: According to the Temporary Provisions of Income Tax of Trans-boundary Tax Payment Enterprises by State Taxation Administration, resident enterprises without business establishment or places of legal persons should be tax payment enterprises with the administrative measures of enterprise income tax of “unified computing, level-to-level administration, local prepayment, liquidation summary, and finance transfer”. It came into force from January 1, 2008. According to the above methods, the Company’s sales branch companies in each area will hand in the enterprise income tax in advance from January 1, 2008 and will be final settled uniformly by the Company at the year-end.

2. Tax incentives

(1) According to the announcement of the State Taxation Administration No. 12 of 2023: small low-profit enterprises shall reduce the taxable income amount by 25% and pay the enterprise income tax at the tax rate of 20%, which shall be continued until 31 December 2027. Resource tax (excluding water resource tax), urban maintenance and construction tax, property tax, urban land use tax, stamp duty (excluding stamp duty on securities transactions), farm land occupation tax, education surcharge and local education surcharge shall be levied by half on small-scale VAT taxpayers, small low-profit enterprises and individually-owned businesses from January 1, 2023 to December 31, 2027. The Company's subsidiaries, Yibin Konka Intelligent, Anlu Konka, Kangjiatong, Nantong Konka, Digital Technology, Xiaojia Technology, Shanghai Konka, Guizhou Konka New Materials, Ji'an Konka, Xi'an Konka Intelligent, Zhejiang Konka Technology Industry, Konka North China, Zhitong Technology, Songyang Konka Intelligent, and Liaoyang Kangshun Renewable enjoyed the aforementioned tax incentive policies during the Reporting Period.

(2) On October 28, 2025, Anhui Konka, a subsidiary of the Company, obtained the Certificate of High-Tech Enterprise jointly issued by the Department of Science and Technology of Anhui Province, the Department of Finance of Anhui Province, and the Anhui Provincial Tax Service of the State Taxation Administration, with the certificate number GR202534004181, which is valid for three years. According to relevant tax regulations, Anhui Konka will enjoy the relevant tax incentives for high-tech enterprises for three consecutive years from 2025 to 2027, paying enterprise income tax at a preferential rate of 15%.

(3) On October 28, 2025, Anhui Tongchuang, a subsidiary of the Company, obtained the Certificate of High-Tech Enterprise jointly issued by the Department of Science and Technology of Anhui Province, the Department of Finance of Anhui Province, and the Anhui Provincial Tax Service of the State Taxation Administration, with the certificate number GR202534002702, which is valid for three years. According to relevant tax regulations, Anhui Tongchuang will enjoy the relevant tax incentives for high-tech enterprises for three consecutive years from 2025 to 2027, paying enterprise income tax at a preferential rate of 15%.

(4) On December 19, 2025, Bokang Precision, a subsidiary of the Company, obtained the Certificate of High-Tech Enterprise jointly issued by the Department of Science and Technology of Guangdong Province, the Department of Finance of Guangdong Province, and the Guangdong Provincial Tax Service of the State Taxation Administration, with the certificate number GR202544008694 and validity period of three years. According to relevant tax regulations, Bokang Precision will enjoy the relevant tax incentives for high-tech enterprises for three consecutive years from 2025 to 2027, paying enterprise income tax at a preferential rate of 15%.

(5) On December 25, 2025, Electronic Technology, a subsidiary of the Company, received the Certificate of High-Tech Enterprise jointly issued by the Shenzhen Science and Technology Innovation Committee, the Shenzhen Finance Bureau, and the Shenzhen Tax Service of the State Taxation Administration, with the certificate number GR202544205959, which is valid for three years. According to relevant tax regulations, Electronic Technology will enjoy the relevant tax incentives for high-tech enterprises for three consecutive years from 2025 to 2027, paying enterprise income tax at a preferential rate of 15%.

(6) On November 19, 2024, Xingda Hongye, a subsidiary of the Company, obtained the Certificate of High-Tech Enterprise jointly issued by the Department of Science and Technology of Guangdong Province, the Department of Finance of Guangdong Province, and the Guangdong Provincial Tax Service of the State Taxation Administration, with the certificate number GR202444002600, which is valid for three years. According to relevant tax regulations, Xingda Hongye will enjoy the relevant tax incentives for high-tech enterprises for three consecutive years from 2024 to 2026, paying enterprise income tax at a preferential rate of 15%.

(7) In accordance with the Announcement on the Renewal of the Enterprise Income Tax Policy for Western Development Enterprises (Ministry of Finance, State Taxation Administration, National Development and Reform Commission Announcement No. 23 of 2020), an enterprise established in the western region who is mainly engaged in an industry specified in the Catalogue of Encouraged Industries in the Western Region and whose main business income accounts for over 60% of its gross income in the current year, is entitled to a reduced enterprise income tax rate of 15%. Chengdu Konka Electronic, a subsidiary of the Company, is eligible for this preferential tax policy.

(8) According to the CS [2011] No. 100 published by the Ministry of Finance and the State Taxation Administration, for the VAT general taxpayers who sell their self-developed and produced software products, the VAT shall be levied at the rate of 13%, and then the portion of the actual VAT burden exceeding 3% shall be refunded immediately upon collection. The Company's subsidiary, Electronic Technology, enjoys this preferential policy.

VIII. Notes to items in consolidated financial statements

1. Monetary funds

2. Financial assets held for trading

3. Notes receivable

(1) Presentation of notes receivable by category

(2) Listed by withdrawal methods for provision for bad debts

Provision for expected credit losses on commercial acceptance draft based on aging in the portfolio

(Continued)

(3) Provision for bad debts accrued, recovered or reversed for the current period

(4) The Company's pledged notes receivable at the end of the period

No notes receivable were pledged at the end of the current period.

(5) Notes receivable endorsed or discounted by the Company and not yet due on the balance sheet date at the end of the period

(6) Actual write-off of notes receivable for the current period

No notes receivable were actually written off in the current period.

4. Accounts receivable

(1) Accounts receivable listed by aging

(2) Listed by withdrawal methods for provision for bad debts

(Continued)

1） Provision set aside for bad debts of accounts receivable by single item

2） Provision set aside for bad debts of accounts receivable by portfolio

(3) Provision for bad debts accrued, recovered or reversed for the current period

(Continued)

Remarks: The amount of other changes during the current period includes a decrease of RMB 12,529,035.85 resulting from foreign exchange rate movements.

(4).Actual write-off of accounts receivable for the current period

No accounts receivable were actually written off in the current period.

(5) Top five accounts receivable by the debtor in terms of the ending balance and contract assets

The total amount of accounts receivable with top five ending balance categorized by debtors in the current period was RMB 1,086,005,807.89, accounting for 37.82% of the total ending balance of accounts receivable. The total ending balance of provision for bad debts correspondingly set aside was RMB 803,666,036.71.

5. Contract assets

(1) Details of contract assets

(2) Listed by withdrawal methods for provision for bad debts

(Continued)

Provision set aside for bad debts of contract assets by portfolio

(3) Provision for bad debts accrued, recovered or reversed for the current period

(4).Actual write-off of contract assets for the current period

There were no contract assets actually written off in the current period.

6. Receivables financing

7. Other receivables

(1) Classification of other receivables by nature

(2) Other receivables listed by aging

(3) Classified presentation of other receivables by provisioning methods of bad debts

(Continued)

1） Provision set aside for bad debts of other receivables by portfolio

2） Provision set aside for bad debts of other receivables by the general expected credit loss model

Remarks: the first stage is that credit risk has not increased significantly since initial recognition. For other receivables with an aging portfolio and a low-risk portfolio within one year, the loss provision is measured according to the expected credit losses in the next 12 months.

The second stage is that credit risk has increased significantly since initial recognition but credit impairment has not yet occurred. For other receivables with an aging portfolio and a low-risk portfolio that exceed one year, the loss provision is measured based on the expected credit losses for the entire duration.

The third stage is the credit impairment after initial confirmation. For other receivables of credit impairment that have occurred, the loss provision is measured according to the credit losses that have occurred throughout the duration.

(4) Provision for bad debts accrued, recovered or reversed for the current period

(Continued)

Remarks: The amount of other changes during the current period includes a decrease of RMB 19,530,773.44 resulting from foreign exchange rate movements.

(5) Other receivables actually written off in the current period

There were no other receivables actually written off in the current period.

(6) Other receivables of the top five ending balances collected by debtor

The total amount of other receivables with top five ending balance categorized by debtors in the current period was RMB 3,375,742,641.27, accounting for 62.82% of the total ending balance of other receivables. The total en ding balance of provision for bad debts correspondingly set aside was RMB 2,966,580,596.02.

8. Advances to suppliers

(1) Advances to suppliers are listed by aging

Remarks: The amount of advances to suppliers of the Group aged over one year at the end of the period was RMB 4,332,512.28, accounting for 10.70% of the total ending balance of advances to suppliers, which are mainly unreceived goods or unsettled payments.

(2) Advances to suppliers status of the top five year-end balances collected by prepaid objects

The total amount of the top five advances to suppliers in the ending balance categorized by payees in the current period was RMB 26,809,853.77, accounting for 66.21% of the total ending balance of advances to suppliers.

9. Inventories

(1) Inventories Classification

(Continued)

(2) Provision for inventory depreciation

(Continued)

Note: Other decreases for the year were due to exchange rate movements.

Specific basis for determining the realizable net value and reasons for reversal or write-off of the provision for inventory depreciation and impairment provision for contract performance costs during the current period:

10. Other current assets

11. Other equity instrument investments

(1) Other equity instrument investments

(2) Derecognition in the current period

During the Reporting Period, the Group had no derecognition of other equity instrument investments.

12、Long-term equity investments

Associates:

13. Other non-current financial assets

14. Investment properties

（1） Investment properties measured at cost

（2） Impairment test of investment properties measured at cost

No provision for impairment of investment properties was made during the current period.

（3） Investment properties measured at fair value

There were no investment properties measured at fair value of the Group.

（4） Investment property converted and measured at fair value in the current period

There was no investment property converted and measured at fair value in the current period.

（5） Investment properties for which property right certificates have not yet been issued

（6） Investment properties with restricted ownership or use right

15. Fixed assets

（1） Fixed assets

(2) Temporarily idle fixed assets

(3)Fixed assets leased out through operating leases

(4) Fixed assets without certificate of title

(5) Fixed assets with restricted ownership or use right

16. Construction in progress

（1） Construction in progress