TAIWAN LAND DEVELOPMENT CORPORATION AND … · Taiwan Land Development Corporation (the “Company”) was established on June 30, 1964 as a government-operated Company and the principal

TAIWAN LAND DEVELOPMENT

CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2017 AND 2016

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For the convenience of readers and for information purpose only, the auditors’ report and the accompanying

financial statements have been translated into English from the original Chinese version prepared and used in

the Republic of China. In the event of any discrepancy between the English version and the original Chinese

version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and

financial statements shall prevail.

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

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December 31, 2017 December 31, 2016 Assets Notes AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 2,742,297 8 $ 3,022,827 9 1110 Financial assets at fair value

through profit or loss - current

6(2)

1,154 - 80 - 1144 Financial assets carried at cost -

current

4 - 4 - 1150 Notes receivable, net 120 - 3 - 1170 Accounts receivable, net 6(3) 8,796 - 6,510 - 1200 Other receivables 6(4) and 8 5,686,658 16 5,383,847 16 1220 Current income tax assets 1,590 - 2,847 - 130X Inventories, net 6(5) and 8 1,379,605 4 1,320,713 4 1410 Prepayments 7 228,612 - 244,299 1 1470 Other current assets 8 669,537 2 512,929 2 11XX Current Assets 10,718,373 30 10,494,059 32 Non-current assets

1546 Investments in debt instrument

without active market -

noncurrent

6(6)

11,146 - - - 1550 Investments accounted for under

equity method

6(7)

17,891 - 17,891 - 1600 Property, plant and equipment,

net

6(8) and 8

2,925,601 9 2,547,056 7 1760 Investment property, net 6(9) and 8 20,040,871 57 18,860,265 57 1780 Intangible assets, net 6(10) and 7 83,194 - 31,363 - 1840 Deferred income tax assets 6(29) 21,030 - 18,548 - 1900 Other non-current assets 6(11) and 8 1,370,797 4 1,231,993 4 15XX Non-current assets 24,470,530 70 22,707,116 68 1XXX Total assets $ 35,188,903 100 $ 33,201,175 100

(Continued)

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

The accompanying notes are an integral part of these consolidated financial statements.

~8~

December 31, 2017 December 31, 2016 Liabilities and Equity Notes AMOUNT % AMOUNT %

Current liabilities 2100 Short-term borrowings 6(12) $ 1,400,429 4 $ 1,401,823 4 2110 Short-term notes and bills payable 6(13) 185,829 1 186,344 - 2150 Notes payable 317,252 1 81,296 - 2170 Accounts payable 160,534 - 187,234 1 2200 Other payables 6(14) 1,673,629 5 2,278,029 7 2220 Other payables - related parties 7 1,000 - - - 2230 Current income tax liabilities 20,908 - - - 2300 Other current liabilities 6(15)(16)(17) 6,506,602 18 4,625,365 14 21XX Current Liabilities 10,266,183 29 8,760,091 26 Non-current liabilities 2530 Corporate bonds payable 6(16) 3,622,688 11 3,814,167 12 2540 Long-term borrowings 6(17) 2,193,376 6 1,960,464 6 2570 Deferred income tax liabilities 6(29) 774,763 2 713,154 2 2600 Other non-current liabilities 26,263 - 27,207 - 25XX Non-current liabilities 6,617,090 19 6,514,992 20 2XXX Total Liabilities 16,883,273 48 15,275,083 46 Equity attributable to owners of

parent 6(20)

Share capital 3110 Share capital - common stock 7,609,436 22 7,607,849 23 3150 Stock dividends to be distributed - - - - Capital surplus 6(21) 3200 Capital surplus 32,539 - 27,894 - Retained earnings 6(22) 3310 Legal reserve 989,037 3 965,381 3 3320 Special reserve 9,376,507 27 9,163,601 27 3350 Unappropriated retained earnings 475,092 1 236,562 1 Other equity interest 3400 Other equity interest 1,881 - 2,375 - 3500 Treasury stocks 6(20) ( 189,935) ( 1) ( 86,980) - 31XX Equity attributable to owners

of the parent

18,294,557 52 17,916,682 54 36XX Non-controlling interest 11,073 - 9,410 - 3XXX Total equity 18,305,630 52 17,926,092 54 Significant contingent liabilities

and unrecognised contract

commitments

9

Significant events after the

balance sheet date 11

3X2X Total liabilities and equity $ 35,188,903 100 $ 33,201,175 100

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars, except earnings per share amount)


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Year ended December 31 2017 2016

Items Notes AMOUNT % AMOUNT %

4000 Sales revenue 6(23) $ 768,479 100 $ 292,831 100 5000 Operating costs 6(5)(27) ( 127,335) ( 17) ( 145,135) ( 50) 5950 Net operating margin 641,144 83 147,696 50 Operating expenses 6(27)(28) 6100 Selling expenses ( 280,771) ( 37) ( 236,985) ( 81) 6200 General and administrative

expenses

( 534,201) ( 69) ( 488,722) ( 167) 6000 Total operating expenses ( 814,972) ( 106) ( 725,707) ( 248) 6900 Operating loss ( 173,828) ( 23) ( 578,011) ( 198) Non-operating income and

expenses

7010 Other income 6(24) 28,564 4 8,904 3 7020 Other gains and losses 6(25) 851,537 111 1,113,219 380 7050 Finance costs 6(26) ( 149,624) ( 20) ( 141,415) ( 48) 7000 Total non-operating

income and expenses

730,477 95 980,708 335 7900 Profit before income tax 556,649 72 402,697 137 7950 Income tax expense 6(29) ( 86,775) ( 11) ( 154,887) ( 53) 8200 Profit for the year $ 469,874 61 $ 247,810 84 Other comprehensive income Components of other

comprehensive income that

will be reclassified to profit or

loss

8361 Financial statement

translation differences of

foreign operations

($ 494) - ($ 3,359) ( 1) 8500 Total comprehensive income

for the year

$ 469,380 61 $ 244,451 83 Profit (loss), attributable to: 8610 Owners of the parent $ 475,092 62 $ 251,989 85 8620 Non-controlling interest ( 5,218) ( 1) ( 4,179) ( 1) $ 469,874 61 $ 247,810 84 Comprehensive income (loss)

attributable to:

8710 Owners of the parent $ 474,598 62 $ 248,630 84 8720 Non-controlling interest ( 5,218) ( 1) ( 4,179) ( 1) $ 469,380 61 $ 244,451 83 Basic earnings per share 6(30) 9750 Total basic earnings per

share

$ 0.63 $ 0.34 9850 Total diluted earnings per

share

$ 0.62 $ 0.33

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

Equity attributable to owners of the parent

Retained Earnings

Notes Share capital - common stock

Capital surplus, additional paid-

in capital Legal reserve Special reserve Unappropriated retained earnings

Financial statements translation

differences of foreign

operations Treasury stocks Total

Non-controlling

interests Total equity


~10~

2016 Balance at January 1, 2016 $ 7,258,813 $ 316,057 $ 761,373 $ 6,873,013 $ 2,683,961 $ 5,734 ($ 471,595 ) $ 17,427,356 $ 13,589 $ 17,440,945 Appropriation and distribution of earnings: 6(22) Legal reserve appropriated - - 204,008 - ( 204,008 ) - - - - - Special reserve appropriated - - - 2,290,588 ( 2,290,588 ) - - - - - Cash dividends of ordinary shares - - - - ( 142,426 ) - - ( 142,426 ) - ( 142,426 ) Stock dividends of ordinary shares 42,728 - - - ( 42,728 ) - - - - - Issuance of common stock from capital surplus 306,215 ( 306,215 ) - - - - - - - - Purchase of treasury shares 6(19)(21) - - - - - - ( 219,979 ) ( 219,979 ) - ( 219,979 ) Issuance of employee stock options 6(20) - 18,426 - - - - - 18,426 - 18,426 Treasury shares sold to employees 6(20)(21) - ( 376 ) - - ( 19,638 ) - 604,594 584,580 - 584,580 Conversion of convertible bonds 93 2 - - - - - 95 - 95 Profit for 2016 - - - - 251,989 - - 251,989 ( 4,179 ) 247,810 Change in cumulative translation adjustments - - - - - ( 3,359 ) - ( 3,359 ) - ( 3,359 ) Balance at December 31, 2016 $ 7,607,849 $ 27,894 $ 965,381 $ 9,163,601 $ 236,562 $ 2,375 ($ 86,980 ) $ 17,916,682 $ 9,410 $ 17,926,0922017 Balance at January 1, 2017 $ 7,607,849 $ 27,894 $ 965,381 $ 9,163,601 $ 236,562 $ 2,375 ($ 86,980 ) $ 17,916,682 $ 9,410 $ 17,926,092 Appropriation and distribution of earnings: 6(22) Legal reserve appropriated - - 23,656 - ( 23,656 ) - - - - - Special reserve appropriated - - - 212,906 ( 212,906 ) - - - - - Purchase of treasury shares 6(20) - - - - - - ( 310,252 ) ( 310,252 ) - ( 310,252 ) Issuance of employee stock options 6(19)(21) - 8,974 - - - - - 8,974 - 8,974 Treasury shares sold to employees 6(20)(21) - ( 4,430 ) - - - - 207,297 202,867 - 202,867 Conversion of convertible bonds 6(16)(21) 1,587 ( 18 ) - - - - - 1,569 - 1,569 Changes in ownership interests in subsidiaries 6(21) - 119 - - - - - 119 ( 119 ) - Profit for 2017 - - - - 475,092 - - 475,092 ( 5,218 ) 469,874 Change in cumulative translation adjustments - - - - - ( 494 ) - ( 494 ) - ( 494 ) Change in non-controlling interests - - - - - - - - 7,000 7,000 Balance at December 31, 2017 $ 7,609,436 $ 32,539 $ 989,037 $ 9,376,507 $ 475,092 $ 1,881 ($ 189,935 ) $ 18,294,557 $ 11,073 $ 18,305,630

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2017 2016

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CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax $ 556,649 $ 402,697 Adjustments

Adjustments to reconcile profit (loss)

Losses on financial assets at fair value through profit or

loss

6(2)

389 - Proceeds from disposal of financial assets at fair value

through profit or loss

6(25)

- ( 41 ) Depreciation 6(8)(27) 66,769 39,326 Impairment loss 6(25) 129 - Reversal of impairment loss 6(8)(25) ( 74 ) ( 825 ) Loss on disposal of property, plant and equipment 6(25) 115 14 Gain on fair value adjustment of investment properties 6(9)(25) ( 857,425 ) ( 1,112,681 ) Amortization 6(10)(27) 11,445 6,666 Interest income 6(24) ( 3,373 ) ( 2,854 ) Interest expense 6(26) 149,624 141,415 Compensation cost of share-based payments 6(19) 8,974 18,426 Changes in operating assets and liabilities

Changes in operating assets

Notes receivable, net ( 117 ) ( 3 ) Accounts receivable, net ( 1,378 ) ( 3,522 ) Other receivables, net ( 302,950 ) ( 276,058 ) Inventories ( 46,902 ) ( 103,069 ) Prepayments ( 46,769 ) ( 59,288 ) Changes in operating liabilities

Accounts payable ( 16,660 ) 22,759 Notes payable 6,089 ( 6,211 ) Other payables ( 401,071 ) ( 283,942 ) Other current liabilities 324 ( 9,309 ) Cash outflow generated from operations ( 876,212 ) ( 1,226,500 ) Interest received 2,942 2,946 Interest paid ( 309,723 ) ( 283,099 ) Income tax paid ( 5,483 ) ( 3,100 ) Net cash flows used in operating activities ( 1,188,476 ) ( 1,509,753 )

(Continued)

TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2017 2016


~12~

CASH FLOWS FROM INVESTING ACTIVITIES

(Acquisition) disposal of financial assets at fair value

through profit or loss

6(2) ($ 1,463 ) $ 4,041 Acquisition of financial assets at cost - ( 4 ) Increase in other assets - current ( 156,466 ) ( 134,774 ) Acquisition of investments in debt instruments without

active markets

6(6) ( 10,576 ) - Acquisition of property, plant and equipment 6(32) ( 233,643 ) ( 411,398 ) Proceeds from disposal of property, plant and

equipment

1,281 - Acquisition of investment properties 6(32) ( 275,396 ) ( 397,673 ) Acquisition of intangible assets 6(10) ( 60,717 ) ( 553 ) Increase in prepayments for business facilities - ( 2,131 ) Increase in refundable deposits ( 31,297 ) ( 210,426 ) Decrease in refundable deposits 44,377 238,009 Increase in other non-current financial assets ( 7,334 ) ( 12 ) Decrease in other non-current financial assets - 50,000 Increase in non-current financial assets ( 69,515 ) ( 45,467 ) Capitalised interest paid ( 105,411 ) ( 53,395 ) Net cash inflows from business combination 4,832 - Net cash flows used in investing activities ( 901,328 ) ( 963,783 )CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term loans 2,006,647 876,243 Repayment of short-term loans ( 2,008,041 ) ( 1,226,481 ) Increase in short-term notes and bills payable 515 212 Proceeds from issuance of bonds 6(16) - 2,818,750 Repayments of bonds 6(16) ( 500,000 ) - Proceeds from long-term debt 2,986,887 3,505,570 Repayment of long-term debt ( 569,340 ) ( 3,461,899 ) Increase in guarantee deposits received ( 944 ) ( 3,330 ) Payments to acquire treasury shares 6(20) ( 310,252 ) ( 219,979 ) Treasury shares sold to employees 202,867 584,580 Change in non-controlling interests 1,000 - Net cash flows from financing activities 1,809,339 2,873,666 Effect of exchange rate changes on cash and cash equivalents ( 65 ) ( 269 )Net (decrease) increase in cash and cash equivalents ( 280,530 ) 399,861 Cash and cash equivalents at beginning of year 3,022,827 2,622,966 Cash and cash equivalents at end of year $ 2,742,297 $ 3,022,827

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TAIWAN LAND DEVELOPMENT CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

1. HISTORY AND ORGANIZATION

Taiwan Land Development Corporation (the “Company”) was established on June 30, 1964 as a

government-operated Company and the principal business was land development. In July 1972, the

Company was renamed as “Taiwan Trust and Development Corporation” and its principal business

became financial services and land development. The Company became a listed Company in January

1999 after privatization.

To comply with the government’s “Second Financial Reformation Policy” and the rules of Trust

Enterprise Act, the Company sold its trust department through a public bidding in August 2005.

Consequently, the Company became a professional land development Company from a financial

institution with the approval of the Financial Supervisory Commission on September 13, 2005. The

stockholders subsequently resolved to change the Company name back to its original name “Taiwan

Land Development Corporation” on December 14, 2005 with the principal business of land development

and urban renewal development. The Company changed its type of industry in the Taiwan Stock

Exchange to Building Material and Construction after March 2006.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE PARENT COMPANY ONLY

FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March

28, 2018.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by FSC effective from 2017 are as follows:

Effective Date by

International

Standards Board

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:

applying the consolidation exception’

January 1, 2016

Amendments to IFRS 11, ‘Accounting for acquisition of interests in joint January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016

Amendments to IAS 1, ‘Disclosure initiative’ January 1, 2016

New Standards, Interpretations and Amendments

~14~

The above standards and interpretations have no significant impact to the Group’s financial condition

and financial performance based on the Group’s assessment.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as

follows:

Effective Date by

International

Standards Board

Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable methods

of depreciation and amortisation’

January 1, 2016

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016

Amendments to IAS 19, ‘Defined benefit plans: employee contributions’ July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financial statements’ January 1, 2016

Amendments to IAS 36, ‘Recoverable amount disclosures for non-financial January 1, 2014

Amendments to IAS 39, ‘Novation of derivatives and continuation of

hedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Annual improvements to IFRSs 2010-2012 cycle July 1, 2014

Annual improvements to IFRSs 2011-2013 cycle July 1, 2014

Annual improvements to IFRSs 2012-2014 cycle January 1, 2016


Effective Date by

International

Standards Board

Amendments to IFRS 2, ‘Classification and measurement of share-based

payment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with IFRS

4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018

IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from

contracts with customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017

Amendments to IAS 12, ‘Recognition of deferred tax assets for unrealised January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018


~15~

Except for the following, the above standards and interpretations have no significant impact to the

Group’s financial condition and financial performance based on the Group’s assessment.

A. IFRS 9, ‘Financial instruments’

Classification of debt instruments is driven by the entity’s business model and the contractual cash

flow characteristics of the financial assets, which would be classified as financial asset at fair value

through profit or loss, financial asset measured at fair value through other comprehensive income

or financial asset measured at amortised cost. Equity instruments would be classified as financial

asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception

to present in other comprehensive income subsequent changes in the fair value of an investment

in an equity instrument that is not held for trading.

When adopting the new standards endorsed by the FSC effective from 2018, the Group will apply

the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients

permitted under the statement. Further, the Group expects to adopt IFRS 15 using the modified

retrospective approach. The significant effects of applying the new standards as of January 1, 2018

are summarized below:

Explanation:

(a) In accordance with IFRS 9, the Group expects to reclassify financial assets at cost in the

amount of $4, by increasing financial assets at fair value through profit or loss in the amount

of $4.

Effective Date by

International

Standards Board

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 1,

‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS

12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle- Amendments to IAS 28,

‘Investments in associates and joint ventures’

January 1, 2018


Consolidated balance sheet 2017 version

Effect of

adoption of 2018 version

Affected items IFRSs amount new standards IFRSs amount Remark

December 31, 2018

Financial assets at fair value

through profit or loss $ - $ 11,349 $ 11,349 1 and 2

Financial assets at cost 4 ( 4) - 1

Investments in debt

instruments without active 11,146 ( 11,146) - 1 and 2

Total affected assets $ 11,150 $ 199 $ 11,349

~16~

(b) In accordance with IFRS 9, the Group expects to reclassify investments in debt instruments

without active market of $11,146, by increasing financial assets at fair value through profit or

loss and retained earnings in the amounts of $11,146 and $199, respectively.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs

as endorsed by the FSC are as follows:

Except for the following, the above standards and interpretations have no significant impact to the

Group’s financial condition and financial performance based on the Group’s assessment. The

quantitative impact will be disclosed when the assessment is complete.

IFRS

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard

requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with

terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors,

which is to classify their leases as either finance leases or operating leases and account for those two

types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements

are set out below. These policies have been consistently applied to all the periods presented, unless

otherwise stated.

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the

“Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International

Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC

Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

Effective date by

InternationalAccounting

New Standards, Interpretations and Amendments Standards Board

Amendments to IFRS 9, ‘Prepayment features with negative compensation’ January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between

an investor and its associate or joint venture’

To be determined by

InternationalAccounting

Standards Board

IFRS 16, ‘Leases’ January 1, 2019

IFRS 17, ‘Insurance contracts’ January 1, 2021

Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019

Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’ January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019

~17~

(2) Basis of preparation

A. Except for the following items, the consolidated financial statements have been prepared under

the historical cost convention:

(a) Financial assets and financial liabilities (including derivative instruments) at fair value through

profit or loss.

(b) Investment property is subsequently measured at fair value.

B. The preparation of financial statements in compliance with IFRSs requires the use of certain

critical accounting estimates. It also requires management to exercise its judgment in the process

of applying the Group’s accounting policies. The areas involving a higher degree of judgment or

complexity, or areas where assumptions and estimates are significant to the consolidated financial

statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:

(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are

all entities (including structured entities) controlled by the Group. The Group controls an entity

when the Group is exposed, or has rights, to variable returns from its involvement with the

entity and has the ability to affect those returns through its power over the entity. Consolidation

of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases

when the Group loses control of the subsidiaries.

(b) Inter-company transactions, balances and unrealised gains or losses on transactions between

companies within the Group are eliminated. Accounting policies of subsidiaries have been

adjusted where necessary to ensure consistency with the policies adopted by the Group.

(c) Profit or loss and each component of other comprehensive income are attributed to the owners

of the parent and to the non-controlling interests. Total comprehensive income is attributed to

the owners of the parent and to the non-controlling interests even if this results in the non-

controlling interests having a deficit balance.

(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing

control of the subsidiary (transactions with non-controlling interests) are accounted for as

equity transactions, i.e. transactions with owners in their capacity as owners. Any difference

between the amount by which the non-controlling interests are adjusted and the fair value of

the consideration paid or received is recognised directly in equity.

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B. Subsidiaries included in the consolidated financial statements:

Name of Name of Main Business December 31, December 31,

Investor Subsidiary Activities 2017 2016 Description

The

Company

Taiwan Innovation Urban renewal

services

100 100

Development

Corporation

Marketing and e-

commerce

(TIDC)

The

Company

Hsinchu Hill Garden 100 100

Corporation

The

Company

Taiwan Midtown

Development

Corporation

Real estate lease and

business Land

development of

Taichung

100 100

The

Company

Taiwan LanYung

Development

Corporation


business Land

development of Ilan

51 51

Real estate

management

TIDC Taiwan Commerce

Development

Corporation

Development of

Jinmen commerce

and leisure park

100 100

Real estate

managementRetail trading

TIDC Taiwan Envirotech

Development

Corporation(TEDC)

Information and

technology business

100 100

TIDC Taiwan City Urban renewal 100 100

Corporation

TIDC Hualien Ocean Forum

Corporation


business Hualien

Kuang Hua Lohas

Creative Park

development business

100 100

Ownership (%)

Land development of

Hsinpu Town in

Hsinchu

~19~

Note 1: The registration of joint ventures was completed on March 30, 2017.

Note 2: The registration was completed on May 15, 2017.

C. Subsidiaries not included in the consolidated financial statements: None.

D. Adjustments for subsidiaries with different balance sheet dates: None.

E. Significant restrictions: None.

F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which the entity operates (the “functional

currency”). The consolidated financial statements are presented in New Taiwan Dollars, which is the

Company’s functional and the Group’s presentation currency.

Name of Name of Main Business December 31, December 31,

Investor Subsidiary Activities 2017 2016 Description

TIDC Wind Lion Plaza

Corporation

General merchandise

retail

100 100

TIDC Nanguowoo International trade 100 100

TIDC Taiwan Talent

Development

Human capital

cultivation

100 100

TIDC Taikai Xiamen Trading Trading business 100 100

Corporation

TIDC Taiwan Wind Lion

Travel Service

Corporation

Travel agency related

business

100 100

Hotel management

Conference and

exhibition business

Da-Ding Constructing

Co. Ltd

(Da-Ding Constructing)

Tai-Gang Tea Factory

Co. Ltd

(Tai-Gang Tea Factory)

TEDC Construction

consulting and

construction

technology

51 - Note 1

TIDC Processing of

agricultural products

and wholesale of tea

66.67 - Note 2

TIDC Kinmen Forum

Corporation

100 100

Ownership (%)

~20~

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange

rates prevailing at the dates of the transactions or valuation where items are remeasured.

Foreign exchange gains and losses resulting from the settlement of such transactions are

recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-

translated at the exchange rates prevailing at the balance sheet date. Exchange differences

arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value

through profit or loss are re-translated at the exchange rates prevailing at the balance sheet

date; their translation differences are recognised in profit or loss. Non-monetary assets and

liabilities denominated in foreign currencies held at fair value through other comprehensive

income are re-translated at the exchange rates prevailing at the balance sheet date; their

translation differences are recognised in other comprehensive income. However, non-

monetary assets and liabilities denominated in foreign currencies that are not measured at fair

value are translated using the historical exchange rates at the dates of the initial transactions.

B. Translation of foreign operations

The operating results and financial position of all the group entities that have a functional currency

different from the presentation currency are translated into the presentation currency as follows:

(a) Assets and liabilities for each balance sheet presented are translated at the closing exchange

rate at the date of that balance sheet;

(b) Income and expenses for each statement of comprehensive income are translated at average

exchange rates of that period; and

(c)All resulting exchange differences are recognised in other comprehensive income.

(5) Classification of current and non-current items

The Group classifies assets and liabilities relating to the construction department as current and non-

current by its operating cycle (which is normally longer than one year). The following are the

classification criteria for other departments:

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are

classified as non-current assets:

(a) Assets arising from operating activities that are expected to be realised, or are intended to be

sold or consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realised within twelve months from the balance sheet date;

(d) Cash, excluding restricted cash and cash equivalents and those that are to be exchanged or

used to pay off liabilities more than twelve months after the balance sheet date.

~21~

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they

are classified as non-current liabilities:

(a) Liabilities that are expected to be settled within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be settled within twelve months from the balance sheet date;

(d) Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. Terms of a liability that could, at the option of the

counterparty, result in its settlement by the issue of equity instruments do not affect its

classification.

(6) Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets held for trading or financial

assets designated as at fair value through profit or loss on initial recognition. Financial assets are

classified in this category of held for trading if acquired principally for the purpose of selling in

the short-term. Derivatives are also categorized as financial assets held for trading unless they are

designated as hedges. Financial assets that meet one of the following criteria are designated as at

fair value through profit or loss on initial recognition:

(a) Hybrid (combined) contracts; or

(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

(c) They are managed and their performance is evaluated on a fair value basis, in accordance with

a documented risk management or investment strategy.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are

recognised and derecognised using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related

transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured

and stated at fair value, and any changes in the fair value of these financial assets are recognised

in profit or loss.

(7) Accounts receivable

Accounts receivable are created by the entity by selling goods or providing services to customers in

the ordinary course of business. Accounts receivable are initially recognised at fair value and

subsequently measured at amortised cost using the effective interest method, less provision for

impairment. However, short-term accounts receivable without bearing interest are subsequently

measured at initial invoice amount as the effect of discounting is immaterial.

(8) Consigned land development business

A. The government organizations consign land development business to the Company, and the

Company is also in charge of marketing the development in some cases.

~22~

B. During the consignment period, the Company, as a consignee, pays on behalf of consignors for

compensation fees of land collection, construction costs, supervision costs and inspection costs,

etc. Consignors compute interest payable on cost paid by the Company. When conducting

consigned land development business, including industrial parks, land restructuring and land

repurchase, costs are recognised pursuant to the agreements in each consignment contract and

contracts with contractors. When the proceeds from sale of land exceed the cost, in accordance

with Article 47 of Act for Industrial Innovation, developing organizations can make an agreement

on receiving certain portion of profit with the commission organizations. In the case of industrial

parks development, the Company recognises service income based on sales rate and progress of

construction, when meeting all the following criteria:

(a) Costs attributed to the contract can be reasonably confirmed.

(b) Except for the collectible costs, other contract costs can be reasonably estimated.

(c) The collectibility of service income can be reasonably confirmed.

C. Development costs are debited to the account “Land Development Receivables”, and receipts from

buyers are credited to the account “Other current liabilities – deposit for sale of industrial park

received in advance”, which are then offset with land development receivables when buyers settle

the last payment.

(9) Investments in debt instruments without active markets

A. Investments in debt instrument without active market are loans and receivables not originated by

the entity. They are bond investments with fixed or determinable payments that are not quoted in

an active market, and also meet all of the following conditions:

(a) Not designated on initial recognition as at fair value through profit or loss;

(b) Not designated on initial recognition as available-for-sale;

(c) Not for which the holder may not recover substantially all of its initial investment, other than

because of credit deterioration.

B. On a regular way purchase or sale basis, investments in debt instrument without active market are

recognised and derecognised using trade date accounting.

C. Investments in debt instruments without active market are initially recognised at fair value on the

trade date plus transaction costs and subsequently measured at amortised cost using the effective

interest method, less provision for impairment. Amortisation of a premium or a discount on such

assets is recognised in profit or loss.

~23~

(10) Impairment of financial assets

A. The Group assesses at each balance sheet date whether there is objective evidence that a financial

asset or a group of financial assets is impaired as a result of one or more events that occurred

after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an

impact on the estimated future cash flows of the financial asset or group of financial assets that

can be reliably estimated.

B. The criteria that the Group uses to determine whether there is objective evidence of an

impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor; or

(b) A breach of contract, such as a default or delinquency in interest or principal payments.

C. As the Group has assessed that there is objective evidence that the financial assets measured at

amortised cost are impaired, the amount of the impairment loss is measured as the difference

between the asset’s carrying amount and the present value of estimated future cash flows

discounted at the financial asset’s original effective interest rate, and is recognised in profit or

loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease

can be related objectively to an event occurring after the impairment loss was recognised, the

previously recognised impairment loss is reversed through profit or loss to the extent that the

carrying amount of the asset does not exceed its amortised cost that would have been at the date

of reversal had the impairment loss not been recognised previously. Impairment loss is

recognised and reversed by adjusting the carrying amount of the asset through the use of an

impairment allowance account.

(11) Derecognition of financial assets

The Group derecognises a financial asset when the contractual rights to receive the cash flows from

the financial asset expire.

(12) Lease receivables/ operating leases (lessor)

Lease income from an operating lease (net of any incentives given to the lessee) is recognised in

profit or loss on a straight-line basis over the lease term.

(13) Inventories

A. Except for land development agency, the Group’s inventories are land for construction,

construction in progress and land and buildings for sale.

B. Developmet costs are stated at cost, and qualified interest costs incurred during construction are

capitalised. Inventories are transferred to construction costs on ratio-of-area method consistently.

Inventories are transferred to property for self-use when they are for self-use. When the purpose

of use is changed and the inventories are then leased to others under operating leases, inventories

are transferred to investment property.

~24~

C. Buildings and land held for sale, construction in progress and land held for construction site are

evaluated at the lower of cost or net realisable value, and the individual item approach is used in

the comparison of cost and net realisable value.

D. Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

weighted-average method. The item by item approach is used in applying the lower of cost and

net realisable value.

(14) Investments accounted for using equity method/associates

A. Associates are all entities over which the Group has significant influence but not control. In

general, it is presumed that the investor has significant influence, if an investor holds, directly or

indirectly 20 percent or more of the voting power of the investee. Investments in associates are

accounted for using the equity method and are initially recognised at cost.

B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or

loss, and its share of post-acquisition movements in other comprehensive income is recognised

in other comprehensive income. When the Group’s share of losses in an associate equals or

exceeds its interest in the associate, including any other unsecured receivables, the Group does

not recognise further losses, unless it has incurred legal or constructive obligations or made

payments on behalf of the associate.

C. When changes in an associate’s equity that are not recognised in profit or loss or other

comprehensive income of the associate and such changes not affecting the Group’s ownership

percentage of the associate, the Company recognises change in ownership interests in the

associate in ‘capital surplus’ in proportion to its ownership.

D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent

of the Group’s interest in the associates. Unrealised losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred. Accounting policies of

associates have been adjusted where necessary to ensure consistency with the policies adopted

by the Group.

E. When the Group disposes its investment in an associate and loses significant influence over this

associate, the amounts previously recognised in other comprehensive income in relation to the

associate, are reclassified to profit or loss, on the same basis as would be required if the relevant

assets or liabilities were disposed of. If it retains significant influence over this associate, the

amounts previously recognised in other comprehensive income in relation to the associate are

reclassified to profit or loss proportionately in accordance with the aforementioned approach.

(15) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the

construction period are capitalised.

~25~

B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item

will flow to the Group and the cost of the item can be measured reliably. The carrying amount

of the replaced part is derecognised. All other repairs and maintenance are charged to profit or

loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are

depreciated using the straight-line method to allocate their cost over their estimated useful lives.

Each part of an item of property, plant, and equipment with a cost that is significant in relation

to the total cost must be depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if

appropriate, at each financial year-end. If expectations for the assets’ residual values and useful

lives differ from previous estimates or the patterns of consumption of the assets’ future economic

benefits embodied in the assets have changed significantly, any change is accounted for as a

change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and

Errors’, from the date of the change. The estimated useful lives of property, plant and equipment

are as follows:

(16) Leased assets/ operating leases (lessee)

A. Based on the terms of a lease contract, a lease is classified as a finance lease if the Group assumes

substantially all the risks and rewards incidental to ownership of the leased asset.

(a) A finance lease is recognised as an asset and a liability at the lease’s commencement at the

lower of the fair value of the leased asset or the present value of the minimum lease payments.

(b) The minimum lease payments are apportioned between the finance charges and the reduction

of the outstanding liability. The finance charges are allocated to each period over the lease

term so as to produce a constant periodic rate of interest on the remaining balance of the

liability.

(c) Property, plant and equipment held under finance leases are depreciated over their estimated

useful lives. If there is no reasonable certainty that the Group will obtain ownership at the

end of the lease, the asset shall be depreciated over the shorter of the lease term and its useful

life.

B. Payments made under an operating lease (net of any incentives received from the lessor) are

recognised in profit or loss on a straight-line basis over the lease term.

Buildings 55 years

Transportation equipment 5~15 years

Utility equipment 4~15 years

Machinery and equipment 5 years

Leasehold assets 5 years

Other equipment 4~10 years

Leasehold improvements 5 years

~26~

(17) Investment property

A. Investment property is property held to earn rent or increase value or for both (including property

under construction for the purpose). Investment property also includes land whose purpose of

use has not been decided and is thus considered as capital appreciation. Investment property is

transferred to property for self-use when it is for self-use. Investment property is transferred to

inventory when it is held-for-sale.

B. An investment property is stated initially at its cost and measured subsequently using the fair

value model. A gain or loss arising from a change in the fair value of investment property is

recognised in profit or loss.

(18) Intangible assets

A. Trademarks are stated at cost and amortised over the estimated life of 3 to 46 years using the

straight-line method.

B. Operating rights are stated at cost and amortised over the estimated life of 10 years using the

straight-line method.

C. Computer software is stated at cost and amortised on a straight-line basis over its estimated useful

life of 3 to 5 years.

(19) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there

is an indication that they are impaired. An impairment loss is recognised for the amount by which

the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher

of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for

recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment

loss is reversed. The increased carrying amount due to reversal should not be more than what the

depreciated or amortised historical cost would have been if the impairment had not been recognised.

(20) Borrowings

A. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings

are subsequently stated at amortized cost; any difference between the proceeds (net of transaction

costs) and the redemption value is recognised in profit or loss over the period of the borrowings

using the effective interest method.

B. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to

the extent that it is probable that some or all of the facility will be drawn down. In this case,

the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is

probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-

payment for liquidity services and amortized over the period of the facility to which it relates.

~27~

(21) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in

the ordinary course of business from suppliers. They are recognised initially at fair value and

subsequently measured at amortized cost using the effective interest method. However, short-term

accounts payable without bearing interest are subsequently measured at initial invoice amount as

the effect of discounting is immaterial.

(22) Financial liabilities and equity instruments

A. Ordinary corporate bonds payable

Ordinary corporate bonds issued by the Group are initially recognised at fair value, net of

transaction costs incurred. Ordinary corporate bonds are subsequently stated at amortised cost;

any difference between the proceeds (net of transaction costs) and the redemption value is

accounted for as the premium or discount on bonds payable and presented as an addition to or

deduction from bonds payable, which is amortised in profit or loss as an adjustment to the

‘finance costs’ over the period of bond circulation using the effective interest method.

B. Convertible corporate bonds payable

Convertible corporate bonds issued by the Group contain conversion options (that is, the

bondholders have the right to convert the bonds into the Group’s common shares by exchanging

a fixed amount of cash for a fixed number of common shares) and call options. The Group

classifies the bonds payable and derivative features embedded in convertible corporate bonds on

initial recognition as a financial asset or an equity instrument (‘capital surplus—stock warrants’)

in accordance with the substance of the contractual arrangement and the definitions of a financial

asset and an equity instrument. Convertible corporate bonds are accounted for as follows:

(a) Call options embedded in convertible corporate bonds are recognised initially at net fair value

as ‘financial assets at fair value through profit or loss’. They are subsequently remeasured

and stated at fair value on each balance sheet date; the gain or loss is recognised as ‘gain or

loss on valuation of financial assets at fair value through profit or loss’.

(b) Bonds payable of convertible corporate bonds is initially recognised at fair value and

subsequently stated at amortised cost. Any difference between the proceeds and the

redemption value is accounted for as the premium or discount on bonds payable and presented

as an addition to or deduction from bonds payable, which is amortised in profit or loss as an

adjustment to the ‘finance costs’ over the period of bond circulation using the effective

interest method.

(c) Conversion options embedded in convertible corporate bonds issued by the Group, which

meet the definition of an equity instrument, are initially recognised in ‘capital surplus-stock

warrants’ at the residual amount of total issue price less amounts of ‘financial assets at fair

value through profit or loss’ and ‘bonds payable—net’ as stated above. Conversion options

are not subsequently remeasured.

~28~

(23) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected

to be paid in respect of service rendered by employees in a period and should be recognized as

expenses in that period when the employees render service.

B. Pensions

For defined contribution plans, the contributions are recognised as pension expenses when they

are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a

cash refund or a reduction in the future payments.

C. Employees’ compensation, directors’ and supervisors’ remuneration

Employees’ compensation, directors’ and supervisors’ remuneration are recognized as expenses

and liabilities, provided that such recognition is required under legal obligation or constructive

obligation and those amounts can be reliably estimated. Any difference between the resolved

amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

If employee compensation is distributed by shares, the Group calculates the number of shares

based on the closing price at the previous day of the board meeting resolution.

(24) Employee share-based payment

For the equity-settled share-based payment arrangements, the employee services received are

measured at the fair value of the equity instruments granted at the grant date, and are recognized as

compensation cost over the vesting period, with a corresponding adjustment to equity. The fair

value of the equity instruments granted shall reflect the impact of market vesting conditions and

non-market vesting conditions. Compensation cost is subject to adjustment based on the service

conditions that are expected to be satisfied and the estimates of the number of equity instruments

that are expected to vest under the non-market vesting conditions at each balance sheet date. And

ultimately, the amount of compensation cost recognised is based on the number of equity

instruments that eventually vest.

(25) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit

or loss, except to the extent that it relates to items recognised in other comprehensive income or

items recognized directly in equity, in which cases the tax is recognized in other comprehensive

income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively

enacted at the balance sheet date in the countries where the Company and its subsidiaries operate

and generate taxable income. Management periodically evaluates positions taken in tax returns

with respect to situations in accordance with applicable tax regulations. It establishes provisions

where appropriate based on the amounts expected to be paid to the tax authorities. An additional

10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense

~29~

in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognised, using the balance sheet liability method, on temporary

differences arising between the tax bases of assets and liabilities and their carrying amounts in

the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises

from initial recognition of goodwill or of an asset or liability in a transaction other than a business

combination that at the time of the transaction affects neither accounting nor taxable profit or

loss. Deferred income tax is provided on temporary differences arising on investments in

subsidiaries, except where the timing of the reversal of the temporary difference is controlled by

the Group and it is probable that the temporary difference will not reverse in the foreseeable

future. Deferred income tax is determined using tax rates (and laws) that have been enacted or

substantially enacted by the balance sheet date and are expected to apply when the related

deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilized. At each balance

sheet date, unrecognized and recognized deferred income tax assets are reassessed.

(26) Treasury shares

Where the Group repurchases the Group’s equity share capital that has been issued, the consideration

paid, including any directly attributable incremental costs (net of income taxes) is deducted from

equity attributable to the Group’s equity holders. Where such shares are subsequently reissued, the

difference between their book value and any consideration received, net of any directly attributable

incremental transaction costs and the related income tax effects, is included in equity attributable to

the Group’s equity holders.

(27) Dividends

Dividends are recorded in the Group’s financial statements in the period in which they are approved

by the Group’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded

as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of

new shares issuance.

(28) Revenue recognition

A. Construction revenues

The Group’s activities involve developing and investing in fixed assets and mainly focus on

developing and selling residential and enterprise buildings. As the customer has limited ability

to influence the design or the customer can make little changes to basic design, the sale of

residential and enterprise buildings is considered as sale of goods. Revenue should be recognised

when the Group has delivered the goods to the customer, significant risks and rewards of

ownership have been transferred to the customer, the Group retains neither continuing managerial

involvement to the degree usually associated with ownership nor effective control over the goods

sold, the amount of sales revenue can be measured reliably and it is probable that the future

economic benefits associated with the transaction will flow to the entity.

~30~

B. Sales of services

The Group serves as an agent of land development on behalf of government organizations and is

responsible to sell partial development projects. Sales of services are recognised at the percentage

of completion when the following conditions are met:

(a) Amount of sales revenue can be measured reliably;

(b) It is probable that the future economic benefits associated with the transaction will flow to

the entity;

(c) Percentage of completion of transactions at the end of reporting period can be measured

reliably;

(d) Costs incurred and will incur to complete the transaction can be measured reliably.

Please refer to Note 4(6) for related revenue recognised.

C. Catering and entertainment income

Food service revenue and ticket revenue are recorded when the services are rendered. The Group

provides catering and film related entertainment services. Revenue is measured at the fair value

of the consideration received or receivable. Revenue is recorded when the amount can be reliably

measured and the economic benefit concerning the transactions can be accrued by the Group.

D. Sales of goods

The Group provides goods-related services. Revenue is measured at the fair value of the

consideration received or receivable taking into account of increment tax, returns, rebates and

discounts for the sale of goods to external customers in the ordinary course of the Group’s

activities. Revenue arising from the sales of goods should be recognised when the Group has

delivered the goods to the customer, the amount of sales revenue can be measured reliably and it

is probable that the future economic benefits associated with the transaction will flow to the entity.

The delivery of goods is completed when the significant risks and rewards of ownership have

been transferred to the customer, the Group retains neither continuing managerial involvement

to the degree usually associated with ownership nor effective control over the goods sold, and

the customer has accepted the goods based on the sales contract or there is objective evidence

showing that all acceptance provisions have been satisfied.

(29) Operating segments

The information on operating segments of the Group is consistent with the internal management

report which is prepared for the Chief Operating Decision-Maker. The Chief Operating Decision-

Maker is responsible for allocating resources to the operating segments and for evaluating their

performance.

~31~

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical

judgements in applying the Group’s accounting policies and make critical assumptions and estimates

concerning future events. Assumptions and estimates may differ from the actual results and are

continually evaluated and adjusted based on historical experience and other factors. Such assumptions

and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets

and liabilities within the next financial year; and the related information is addressed below:

(1) Realisability of deferred income tax assets

Deferred income tax assets are recognised only to the extent that it is probable that future taxable

profit will be available against which the deductible temporary differences can be utilised.

Assessment of the realisability of deferred income tax assets involves critical accounting judgements

and estimates of the management, including the assumptions of expected future sales revenue growth

rate and profit rate, available tax credits, tax planning, etc. Any variations in global economic

environment, industrial environment, and laws and regulations might cause material adjustments to

deferred income tax assets.

As of December 31, 2017, the Group recognised deferred income tax assets amounting to $21,030.

(2) As investment property is measured at fair value, the Group must determine the net fair value of

investment property such as land and buildings on balance sheet date using experts’ judgements and

estimates. The Group must adjust costs to fair value based on the valuation reports by experts. Such

assessment of investment property is principally based on the demand for the products within the

specified period in the future, trading trends of buildings and experts’ judgements and estimates, and

may influence the measurement of fair value. Therefore, there might be material changes to the

evaluation.

As of December 31, 2017, the Group has recognised investment property of $20,040,871.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

A. The Group transacts with a variety of financial institutions all with high credit quality to disperse

credit risk, so it expects that the probability of counterparty default is remote.

B. As of December 31, 2017 and 2016, details of cash and cash equivalents pledged to others as

collateral are provided in Note 8.

December 31, 2017 December 31, 2016

Cash on hand and revolving funds $ 4,150 $ 4,351

Checking accounts and demand deposits 2,738,147 3,018,476

$ 2,742,297 $ 3,022,827

~32~

(2) Financial assets at fair value through profit or loss

A. The Group recognised net loss of $389 and $0 on these financial assets for the years ended

December 31, 2017 and 2016, respectively,

B. The maximum exposure to credit risk at balance sheet date is the carrying amount of financial

assets at fair value through profit or loss.

C. The Group has no financial assets at fair value through profit or loss pledged to others.

(3) Accounts receivable

A. The Group’s accounts receivable that were neither past due nor impaired were fully performing

in line with the credit standards prescribed based on counterparties’ industrial characteristics, scale

of business and profitability.

B. As of December 31, 2017 and 2016, the Group had no accounts receivable that were past due but

not impaired.

C. Movement analysis of financial assets that were impaired is as follows:

(a) As of December 31, 2017 and 2016, the Group’s accounts receivable that were impaired

amounted to $14,120.

(b) Movements on the Group’s provision for impairment of accounts receivable are as follows:

Items December 31, 2017 December 31, 2016

Current items:

Financial assets held for trading

Derivative financial instruments-Bonds

payable 79$ 80$

Financial assets designated as at fair value

through profit or loss on initial recognition 1,075 -

Derivative financial instruments-Convertible

bonds 1,154$ 80$


Accounts receivable 22,916$ 20,630$

Less: Allowance for bad debts 14,120)( 14,120)(

8,796$ 6,510$

~33~

(4) Other receivables

Individual Group

provision provision Total

At January 1 14,120$ -$ 14,120$

Provision for impairment - - -

Reversal of impairment - - -

At December 31 14,120$ -$ 14,120$

Individual Group

provision provision Total

At January 1 14,120$ -$ 14,120$

Provision for impairment - - -

Reversal of impairment - - -

At December 31 14,120$ -$ 14,120$

2017

2016


Land development receivables 5,626,301$ 5,301,274$

Other receivables-other 76,530 82,573

Less: Allowance for bad debts 16,173)( -

5,686,658$ 5,383,847$

~34~

A. The details on land development receivables were as follows:

Accumulated

service income at

December 31, 2017 December 31, 2017 Consignors

Kuang Hua Lohas

Creative Park

$ 3,938,337 $ 825,886 Hualien County

Government

936,950 1,430,276 Kaohsiung City

Government

Taichung Port

Warehouse Park

17,432 176,632 Export

Processing

Zone, MOEA

Taichung City 1st

Precision Machinery

Innovation

Technology Park

118,776 2,861,454 Taichung City

Government

Taichung City 2nd

Precision Machinery

Innovation Technology

Park

- 971,943 Taichung City

Government

Taichung City, Feng

Chou High-Tech

Industrial Park

485,228 17,433 Taichung City

Government

Taichung City, Wen-

Shan Industrial Park


Government

Taichung Aviation

Industrial Park and

Astronavigation 89,884 7,388

Taichung City

Government

Less: Allowance for

bad debts ( 16,173) -Taichung City

Government

$ 5,610,128 $ 6,295,605

Kaohsiung Kangshan

Benzhou Industrial

~35~

Accumulated

service income at

December 31, 2016 December 31, 2016 Consignors

Kuang Hua Lohas

Creative Park

$ 3,773,882 $ 792,700 Hualien County

Government

Kaohsiung Kangshan

Benzhou Industrial

Park

897,902 1,430,264 Kaohsiung City

Government

Taichung Port

Warehouse Park

17,432 176,632 Export Processing

Zone, MOEA

Taichung City 1st

Precision Machinery


Park

40,680 2,851,667 Taichung City

Government

Taichung City 2nd

Precision Machinery


Park

- 467,699 Taichung City

Government

Taichung City, Feng

Chou High-Tech

Industrial Park


Government

Taichung City, Wen-

Shan Industrial Park


Government

Taichung Aviation

Industrial Park and

Astronavigation 89,884 7,388

Taichung City

Government

$ 5,301,274 $ 5,748,348

~36~

B. The movements on land development receivables for the year ended December 31, 2017 are as

follows:

The movements on land development receivables for the year ended December 31, 2016 are as

follows:

C. For the years ended December 31, 2017, and 2016, interests paid on behalf of consignors

recognised as deduction of interest expense were $173,550 and $172,710, respectively.

D. The Company had launched the construction and paid the related payment in advance based on

the agreement. However, the owner, Taichung Port Warehouse Park, refused to pay the related

payments, therefore the Company filed a lawsuit for the collection of the aforementioned

Beginning Ending

Items balances Additions balances

Kuang Hua Lohas Creative Park 3,773,882$ 164,455$ -$ 3,938,337$

Kaohsiung Kangshan Benzhou

Industrial Park

897,902 39,048 - 936,950

Taichung Port Warehouse Park 17,432 - 16,173)( 1,259

Taichung City 1st Precision

Machinery Innovation

Technology Park

40,680 78,096 - 118,776

Taichung City 2nd Precision


Technology Park

- 533,039 533,039)( -

Taichung City, Feng Chou High

-Tech Industrial Park

441,800 43,428 - 485,228

Others 129,578 - - 129,578

5,301,274$ 858,066$ 549,212)($ 5,610,128$

Collection/

decrease

Beginning Ending

Items balances Additions balances

Kuang Hua Lohas Creative Park 3,550,008$ 223,874$ -$ 3,773,882$

Kaohsiung Kangshan Benzhou

Industrial Park

857,976 39,926 - 897,902

Taichung Port Warehouse Park 17,432 - - 17,432

Taichung City 1st Precision


Technology Park

151,943 111,227 222,490)( 40,680

Taichung City 2nd Precision


Technology Park

- 84,338 84,338)( -

Taichung City, Feng Chou High

-Tech Industrial Park

398,880 42,920 - 441,800

Others 129,158 420 - 129,578

5,105,397$ 502,705$ 306,828)($ 5,301,274$

Collection/

decrease

~37~

payments in 2016. The Kaohsiung District Court ruled that the owners shall pay $1,188 to the

Company. Additionally, the 5% of interest will also be collected, which is calculated on the second

date of the indictment document delivered, and it will be ended once the debt is redeemed.

However, both parties are not satisfied with the court decision and they have filed an appeal. Since

the Company assessed that the likelihood of the payment to be recovered as remote, the Company

thus provided impairment loss on land development receivables for the Taichung Port Warehouse

Park amounting to $16,173.

E. The reasons for the Company not providing reserve allowance for uncollectible accounts are as

follows:

(a) The debtors of the land development receivables are government organizations, and the

possibility of non-payment is remote as of December 31, 2017 and 2016.

(b) According to the development contracts, proceeds from the sale and rental of the land are to

be used first to repay the land development receivables. In addition, the Company can also

claim for any related subsidies offered by the government to repay the development costs.

Therefore, there is no significant doubt or uncertainty on the collectability of the land

development receivables.

(c) The government is the subject of the development and also the owner of the land. Hence, the

collectability of the development costs is not associated with the market values of the land.

The inspected costs and prices are greater than costs already incurred and the land was sold on

inspected prices and the proceeds were all collected. When settling the industrial park revenues

and costs, in revenue-above-cost cases, the difference should be handed over to the industrial

parks development and management fund based on the “Statute for Industrial Innovation”

Article 47. Otherwise, the Company would be compensated by the fund according to the “Act

for Industrial Innovation.”

F. As of December 31, 2017 and 2016, the Group did not hold other receivables that were past due

but not impaired.

G. Please refer to Note 8 for the details of pledged land development receivables.

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(5) Inventories

A. The details of the Group’s inventories are as follows:

As of December 31, 2017 and 2016, the valuation allowance for lands and buildings available for

sale were $35,712 and $36,779, respectively.

B. Related loss on inventories:

C. Due to the change in real estate market recovery, the Group recognised reversal of allowance for

inventory obsolescence and market price decline amounting to $1,067 and $2,100 for the years

ended December 31, 2017 and 2016, respectively, which were in accordance with sale prices and

appraisal reports issued by independent appraisers.

D. Interest expense capitalized for the years ended December 31, 2017 and 2016 amounted to $11,990

and $14,653, respectively.

E. Please refer to Note 8 for the details of pledged inventories as of December 31, 2017 and 2016.

(6) Investments in debt instruments without active markets

A. For the years ended December 31, 2017 and 2016, the interest income recognized in profit or loss

from financial assets at amortised cost was $570 and $0, respectively.


Land 374,762$ 357,561$

Buildings 187,875 188,084

Construction in progress 756,485 735,974

Construction in progress 320 -

Merchandise inventory 94,419 74,864

Restaurant supplies 1,456 1,009

1,415,317 1,357,492

Less: allowance for price decline 35,712)( 36,779)(

1,379,605$ 1,320,713$

2017 2016

Land cost 399$ -$

Building cost 208 -

Cost of goods sold 64,714 73,683

Food service costs 27,367 27,217

Reversal of allowance for inventory

obsolescence and market price decline 1,067)( 2,100)(

91,621$ 98,800$

Years ended December 31,

Items December 31, 2017 December 31, 2016

Non-current items:

Convertible bonds 11,146$ -$

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B. On May 24, 2017, the Board of Directors resolved to invest $12,040 (US $4,000,000) in the

convertible bonds of the UK Company, Friday Labs.

C. As of December 31, 2017 and 2016, no investments in debt instruments without active market

were pledged as collateral.

(7) Investments accounted for using equity method

A. Taiwan Innovation Development Corp. and Dufry International AG have jointly established Dufry

TCDC Ltd. in March 2014. Taiwan Innovation Development Corp. has invested $29,400 and

acquired 49% of capital share. Dufry TCDC Ltd. engages in providing products and services at

Wind Lion Plaza, Kinmen. As of December 31, 2017 and 2016, the investment balance were both

$17,891. The share of loss of associates and joint ventures accounted for using equity method

were both $0 for the years ended December 31, 2017 and 2016.

B. The financial information of the Group is as follows:

2017 2016

At January 1 17,891$ 17,891$

Share of profit or loss of investments

accounted for using the equity method - -

At December 31 17,891$ 17,891$


Current assets 36,512$ 36,512$

Non-current assets - -

Current liabilities - -

Non-current liabilities - -

Total net assets 36,512$ 36,512$

Share in associate's net assets 17,891$ 17,891$

Goodwill - -

Carrying amount of the associate 17,891$ 17,891$

Dufry TCDC Ltd.

~40~

(8) Property, plant and equipment

Machinery

Transportation Utility and Leasehold Other Leasehold Construction in

Land Buildings equipment equipment equipment assets equipment improvements progress Total

At January 1, 2017

Cost 798,547$ 925,134$ 35,276$ 21,736$ 9,861$ 3,500$ 146,646$ 31,385$ 709,605$ 2,681,690$

Accumulated depreciation

and impairment - 46,237)( 6,338)( 12,473)( 1,249)( 2,115)( 37,212)( 29,010)( - 134,634)(

798,547$ 878,897$ 28,938$ 9,263$ 8,612$ 1,385$ 109,434$ 2,375$ 709,605$ 2,547,056$

2017

Opening net book amount 798,547$ 878,897$ 28,938$ 9,263$ 8,612$ 1,385$ 109,434$ 2,375$ 709,605$ 2,547,056$

Additions - - 1,412 2,566 3,326 - 10,976 1,417 425,351 445,048

Disposals - - 577)( - 614)( - 205)( - - 1,396)(

Transferred - - 1,175 - 1,425 875)( 1,462 1,173)( - 2,014

Depreciation charge - 40,207)( 3,341)( 2,525)( 1,882)( 510)( 17,726)( 578)( - 66,769)(

Reversal of

impairment loss - 74 - - - - - - - 74

Net exchange differences - 413)( 13)( - - - - - - 426)(

Closing net book amount 798,547$ 838,351$ 27,594$ 9,304$ 10,867$ -$ 103,941$ 2,041$ 1,134,956$ 2,925,601$

At December 31, 2017

Cost 798,547$ 924,622$ 36,925$ 23,229$ 11,531$ -$ 158,193$ 31,629$ 1,134,956$ 3,119,632$

Accumulated depreciation

and impairment - 86,271)( 9,331)( 13,925)( 664)( - 54,252)( 29,588)( - 194,031)(

798,547$ 838,351$ 27,594$ 9,304$ 10,867$ -$

Documents

TAIWAN LAND DEVELOPMENT CORPORATION AND … · Taiwan Land Development Corporation (the “Company”) was established on June 30, 1964 as a government-operated Company and the principal