report_UIH_AL2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases HKFRS 16 replaces HKAS 17, Leases, 4 16 and the related interpretations, HK(IFRIC) 15 17 4, Determining whether an arrangement 27 contains a lease, HK(SIC) 15, Operating leases - – incentives, and HK(SIC) 27, Evaluating the substance of transactions involving the - legal form of a lease. It introduces a single – accounting model for lessees, which requires a lessee to recognise a right-of-use asset - and a lease liability for all leases, except for leases that have a lease term of 12 months 12 or less (“short-term leases”) and leases 17 of low-value assets. The lessor accounting requirements are brought forward from HKAS 17 substantially unchanged. HKFRS 16 also introduces additional qualitative 16 and quantitative disclosure requirements which aim to enable users of the financial 16 statements to assess the effect that leases 17 have on the financial position, financial performance and cash flows of an entity. The Group has initially applied HKFRS 16 as from 1st July 2019. The Group has elected to use the modified retrospective approach and has therefore recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1st July 2019. Comparative information has not been restated and continues to be reported under HKAS 17. 100 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 16 (i) Application of new or revised HKFRSs 16 (Continued) 17 16 HKFRS 16, Leases (Continued) Further details of the nature and effect of a. the changes to previous accounting policies and the transition options applied are set out below: a. New definition of a lease The change in the definition of a lease mainly relates to the concept of control. HKFRS 16 defines a lease on the basis of whether a customer controls the use of an identified asset for a period of time, which may be determined by a defined amount of use. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use. The Group applies the new definition of a lease in HKFRS 16 only to contracts that were entered into or changed on or after 1st July 2019. For contracts entered into before 1st July 2019, the Group has used the transitional practical expedient to grandfather the previous assessment of which existing arrangements are or contain leases. Accordingly, contracts that were previously assessed as leases under HKAS 17 continue to be accounted for as leases under HKFRS 16 and contracts previously assessed as non-lease service arrangements continue to be accounted for as executory contracts. 寰宇娛樂文化集團有限公司 二零二零年年報 101

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) b. Lessee accounting and transitional b. impact 16 HKFRS 16 eliminates the requirement 17 for a lessee to classify leases as either operating leases or finance leases, 17 as was previously required by HKAS 17. Instead, the Group is required to 47 capitalise all leases when it is the lessee, including leases previously classified as operating leases under HKAS 17, other than those short-term leases and leases of low-value assets which are exempt. As far as the Group is concerned, these newly capitalised leases are primarily in relation to property, plant and equipment as disclosed in note 47. For an explanation of how the Group applies lessee accounting, see note 2.10(i). At the date of transition to HKFRS 16 (i.e. 2.10(i) 1st July 2019), the Group determined 16 the length of the remaining lease terms and measured the lease liabilities for the 2.97% leases previously classified as operating leases at the present value of the remaining lease payments, discounted using the relevant incremental borrowing rates at 1st July 2019. The weighted average of the incremental borrowing rates used for determination of the present value of the remaining lease payments was 2.97%. 102 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 16 16 (i) Application of new or revised HKFRSs 16 (Continued) 16 HKFRS 16, Leases (Continued) 12 b. Lessee accounting and transitional b. impact (Continued) To ease the transition to HKFRS 16, the Group applied the following recognition exemption and practical expedients at the date of initial application of HKFRS 16: (i) the Group elected not to apply (i) the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining lease term ends within 12 months from the date of initial application of HKFRS 16, i.e. where the lease term ends on or before 30th June 2020; 寰宇娛樂文化集團有限公司 二零二零年年報 103

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) b. Lessee accounting and transitional b. impact (Continued) (ii) 16 (ii) when measuring the lease liabilities at the date of initial application of HKFRS 16, the Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment); and (iii) when measuring the right-of- (iii) use assets at the date of initial 16 application of HKFRS 16, the Group relied on the previous assessment for onerous contract provisions as at 30th June 2019 as an alternative to performing an impairment review. 104 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 47 (i) Application of new or revised HKFRSs HK$’000 22,058 (Continued) (1,997) HKFRS 16, Leases (Continued) (10) b. Lessee accounting and transitional b. 20,051 impact (Continued) (659) The following table reconciles the 19,392 operating lease commitments as 7 disclosed in note 47 as at 30th June 2019 to the opening balance for lease 19,399 liabilities recognised as at 1st July 2019: Operating lease commitments – at 30th June 2019 – Less: commitments relating to leases exempt from capitalisation: – short-term leases and other leases with remaining lease term ending on or before 30th June 2020 – leases of low-value assets Less: total future interest expenses Present value of remaining lease payments, discounted using the incremental borrowing rate at 1st July 2019 Add: finance lease liabilities recognised as at 30th June 2019 Total lease liabilities recognised at 1st July 2019 寰宇娛樂文化集團有限公司 二零二零年年報 105

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) b. Lessee accounting and transitional b. impact (Continued) 16 The right-of-use assets in relation to 16 leases previously classified as operating leases have been recognised at an amount equal to the amount recognised for the remaining lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet at 30th June 2019. So far as the impact of the adoption of HKFRS 16 on leases previously classified as finance leases is concerned, the Group is not required to make any adjustments at the date of initial application of HKFRS 16, other than changing the captions for the balances. Accordingly, instead of “obligations under finance leases”, these amounts are included within “lease liabilities”, and the depreciated carrying amount of the corresponding leased asset is identified as a right-of-use asset. There is no impact on the opening balance of equity. 106 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 16 (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) b. Lessee accounting and transitional b. impact (Continued) The following table summarises the impacts of the adoption of HKFRS 16 on the Group’s consolidated balance sheet: Carrying Capitalisation Carrying amount at of operating amount at 30th June lease contracts 1st July 2019 2019 經營租賃合約 於二零一九年 撥充資本 於二零一九年 HK$’000 六月三十日之 七月一日之 的賬面值 賬面值 HK$’000 HK$’000 Line items in the consolidated 受採納香港財務報告準則第16號 balance sheet impacted by 影響之綜合資產負債表項目： the adoption of HKFRS 16: Property, plant and equipment 4,649 19,392 24,041 365,110 19,392 384,502 Total non-current assets 非流動資產總額 7 (7) – Obligations under a finance lease – 9,414 9,407 9,414 Lease liabilities (current) 343,670 (9,407) 353,077 15,914 9,985 Current liabilities 流動負債 381,024 9,985 6,507 9,985 391,009 Net current assets 流動資產淨值 – 9,985 Total assets less current liabilities 總資產減流動負債 90 10,075 Lease liabilities (non-current) Total non-current liabilities 非流動負債總額 寰宇娛樂文化集團有限公司 二零二零年年報 107

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group After the initial recognition of right-of-use 17 assets and lease liabilities as at 1st July 2019, the Group as a lessee is required to recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right- of-use asset, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. This results in an insignificant impact on the reported profit from operations in the Group’s consolidated statement of comprehensive income, as compared to the results if HKAS 17 had been applied during the year. 108 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 45(b) 17 (i) Application of new or revised HKFRSs 17 16 (Continued) 45(c) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) In the cash flow statement, the Group as a lessee is required to split rentals paid under capitalised leases into their capital element and interest element (see note 45(b)). These elements are classified as financing cash outflows, similar to how leases previously classified as finance leases under HKAS 17 were treated, rather than as operating cash outflows, as was the case for operating leases under HKAS 17. Although total cash flows are unaffected, the adoption of HKFRS 16 therefore results in a significant change in presentation of cash flows within the cash flow statement (see note 45(c)). 寰宇娛樂文化集團有限公司 二零二零年年報 109

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 16 (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) 16 17 16 The following tables give an indication of the estimated impact of the adoption of HKFRS 16 on the Group’s financial result, segment results and cash flows for the year ended 30th June 2020, by adjusting the amounts reported under HKFRS 16 in these consolidated financial statements to compute estimates of the hypothetical amounts that would have been recognised under HKAS 17 if this superseded standard had continued to apply in 2019/20 instead of HKFRS 16, and by comparing these hypothetical amounts for 2019/20 with the actual 2018/19 corresponding amounts which were prepared under HKAS 17. 17 110 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) 2020 2019 二零二零年 二零一九年 Amounts Deduct: Compared reported Estimated to amounts amounts reported for under related to 2019 under HKFRS 16 Add back: operating Hypothetical HKFRS 16 leases as amounts HKAS 17 depreciation if under for 2020 as and interest HKAS 17 if under 與根據香港 expense (note 1) HKAS 17 加回： 減：根據香港 根據香港 根據香港 香港財務 會計準則 會計準則 會計準則 報告準則 第17號所得出 第17號 第17號 財務報告 準則第16號 第16號下 有關經營租賃 所得出之 所呈報之 所呈報之金額 折舊及 之估計金額 二零二零年 二零一九年 (A) 利息開支 （附註1） 假設金額 金額進行比較 HK$’000 (B) (C) (D=A+B+C) HK$’000 HK$’000 HK$’000 HK$’000 Financial result for the year ended 16 30th June 2020 impacted by the adoption of HKFRS 16: (80,987) 11,128 (11,624) (81,483) (73,989) (16,943) 411 (328) (16,860) (12,572) Administrative expenses Selling expenses (542) 542 – – – Finance costs Loss before taxation from (28,506) 12,081 (11,952) (28,377) (118,600) continuing operations (28,365) 12,081 (11,952) (28,236) (118,477) Loss for the year from (27,570) 12,081 (11,952) (27,441) (121,575) continuing operations Loss for the year 寰宇娛樂文化集團有限公司 二零二零年年報 111

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) 2020 2019 二零二零年 二零一九年 Amounts Deduct: Compared reported Estimated to amounts amounts reported for under related to 2019 under HKFRS 16 Add back: operating Hypothetical HKFRS 16 leases as amounts HKAS 17 depreciation if under for 2020 as and interest HKAS 17 if under 與根據香港 expense (note 1) HKAS 17 加回： 減：根據香港 根據香港 根據香港 香港財務 會計準則 會計準則 會計準則 報告準則 第17號所得出 第17號 第17號 財務報告 準則第16號 第16號下 有關經營租賃 所得出之 所呈報之 所呈報之金額 折舊及 之估計金額 二零二零年 二零一九年 (A) 利息開支 （附註1） 假設金額 金額進行比較 HK$’000 (B) (C) (D=A+B+C) HK$’000 HK$’000 HK$’000 HK$’000 Reportable segment profit/(loss) for 16 the year ended 30th June 2020 (note 5(a)) impacted by the adoption of HKFRS 16: – Video distribution, film distribution – 5(a) and exhibition, licensing and sub-licensing of film rights – 17,355 3,781 (3,813) 17,323 (52,387) – Trading, wholesaling and – (12,101) 5,694 (5,629) (12,036) (10,679) retailing of optical products – and watches products (857) 36 (22) (843) (632) – Entertainment business (11,134) 2,499 (2,418) (11,053) (8,503) – Financial printing 112 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) 2020 2019 二零二零年 二零一九年 Estimated Compared amounts to amounts related to operating Hypothetical reported Amounts leases as amounts under reported if under for 2020 as under HKAS 17 if under HKAS 17 HKFRS 16 (notes 1 & 2) HKAS 17 根據香港 會計準則 根據香港 第17號 根據香港 會計準則 與根據香港 所得出有關 第17號 財務報告 會計準則 準則第16號 經營租賃之 所得出之 第17號 所呈報之金額 估計金額 二零二零年 所呈報之 (A) （附註1及2） 假設金額 金額進行比較 HK$’000 (B) (C=A+B) HK$’000 HK$’000 HK$’000 Line items in the consolidated statement of 受採納香港財務報告準則第16號 cash flows for year ended 30th June 2020 影響之截至二零二零年六月 impacted by the adoption of HKFRS 16: 三十日止年度綜合現金流量表 內項目： Cash generated from operations 87,507 (12,177) 75,330 227,249 Net cash generated from operating 營運活動所產生之淨現金 89,448 (12,177) activities (11,642) 11,635 77,271 223,247 Capital element of lease rentals paid (542) 542 (7) (18) Interest element of lease rentals paid (12,184) 12,177 – – Net cash used in financing activities 融資活動所用之淨現金 (7) (408,003) 寰宇娛樂文化集團有限公司 二零二零年年報 113

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 17 17 (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) c. Impact on the financial result, segment c. results and cash flows of the Group (Continued) Note 1: The “estimated amounts related 1: to operating leases” is an estimate of the amounts of the cash flows in 2019/20 that relate to leases which would have been classified as operating leases, if HKAS 17 had still applied in 2019/20. This estimate assumes that there were no differences between rentals and cash flows and that all of the new leases entered into in 2020 would have been classified as operating leases under HKAS 17, if HKAS 17 had still applied in 2019/20. Any potential net tax effect is ignored. 17 Note 2: In this impact table these cash 2: outflows are reclassified from 17 financing to operating in order to compute hypothetical amounts of net cash generated from operating activities and net cash used in financing activities as if HKAS 17 still applied. 114 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 2.1 Basis of preparation (Continued) (i) Changes in accounting policy and disclosures 16 (Continued) 40 (i) Application of new or revised HKFRSs (Continued) HKFRS 16, Leases (Continued) d. Leasehold investment property d. Under HKFRS 16, the Group is required 16 to account for all leasehold properties 16 as investment properties when these properties are held to earn rental income and/or for capital appreciation (“leasehold investment properties”). The adoption of HKFRS 16 does not have a significant impact on the Group’s financial statements as the Group previously elected to apply HKAS 40, Investment properties, to account for all of its leasehold properties that were held for investment purposes as at 30th June 2019. Consequentially, these leasehold investment properties continue to be carried at fair value. 寰宇娛樂文化集團有限公司 二零二零年年報 115

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 Basis of preparation (Continued) 2.1 Changes in accounting policy and disclosures (ii) (Continued) (ii) New Standards and amendments to standards not yet adopted The following new standards, amendments to standards and interpretations to existing standards have been issued but are not yet effective for the financial year beginning 1st July 2019 and have not been early adopted: HKFRS 17 Insurance Contracts Effective for annual 17 Definition of a business periods beginning Reference to the Conceptual Framework on or after Amendments to HKFRS 3 Interest Rate Benchmark Reform 於以下日期或 3 之後開始的 年度期間生效 Amendments to HKFRS 3 1st January 2021 3 1st January 2020 Amendments to HKFRS 9, HKAS 39 & HKFRS 7 1st January 2022 9 39 1st January 2020 7 Sale or Contribution of Assets between an a date to be determined Amendments to HKFRS 10 & HKAS 28 Investor and its Associate or Joint Venture 10 COVID-19-Related Rent Concessions 1st June 2020 28 1st January 2023 Amendments to HKFRS 16 Classification of Liabilities as Current or Non-current 16 Amendments to HKAS 1 1 116 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.1 Basis of preparation (Continued) 2.1 Changes in accounting policy and disclosures (ii) (Continued) (ii) New Standards and amendments to standards not yet adopted (Continued) Amendments to HKAS 1 & HKAS 8 Definition of Material Effective for annual 18 periods beginning on or after Amendments to HKAS 16 於以下日期或 之後開始的 16 年度期間生效 Amendments to HKAS 37 1st January 2020 37 Amendments to HKFRSs Property, Plant and Equipment – Proceeds 1st January 2022 1st January 2022 before Intended use 1st January 2022 – Onerous Contracts – Cost of Fulfilling a Contract – Annual Improvements to HKFRSs 2018–2020 The Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements. 寰宇娛樂文化集團有限公司 二零二零年年報 117

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.2 Subsidiaries and non-controlling interests 2.2 Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra- group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. 118 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.2 Subsidiaries and non-controlling interests 2.2 (Continued) Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the owners of the Company. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet. Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture. 寰宇娛樂文化集團有限公司 二零二零年年報 119

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.2 Subsidiaries and non-controlling interests 2.2 (Continued) 2.12(b) Changes in the Group’s ownership interests in existing subsidiaries (Continued) In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 2.12(b)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale). 2.3 Business combinations 2.3 Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition- related costs are generally recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities, and assets • or liabilities related to employee benefit arrangements are recognised and measured in 12 accordance with HKAS 12 Incomes Taxes and 19 HKAS 19 Employee Benefits respectively; 120 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.3 Business combinations (Continued) 2.3 • liabilities or equity instruments related • to share-based payment arrangements of the acquiree or share-based payment 2 arrangements of the Group entered into to 5 replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date; and • assets (or disposal groups) that are classified • as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re- assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. 寰宇娛樂文化集團有限公司 二零二零年年報 121

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.3 Business combinations (Continued) 2.3 Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the relevant subsidiary’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction- by- transaction basis. Other types of non-controlling interests are measured at their fair value. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured to fair value at subsequent reporting dates, with the corresponding gain or loss being recognised in profit or loss. 122 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.3 Business combinations (Continued) 2.3 When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (that is, the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), and additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. 2.4 Investments in associates 2.4 An associate is an entity in which the Group has a 20% long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The Group’s investments in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. 寰宇娛樂文化集團有限公司 二零二零年年報 123

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.4 Investments in associates (Continued) 2.4 The Group’s share of the post-acquisition results and other comprehensive income of associates are included in the consolidated statement of comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s investments in the associates, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates is included as part of the Group’s investments in associates. 2.5 Interests in joint operations 2.5 A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group recognises in relation to its interest in a joint operation: • its assets, including its share of any assets • held jointly; • its liabilities, including its share of any liabilities • incurred jointly; 124 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.5 Interests in joint operations (Continued) 2.5 • its revenue from the sale of its share of the • output arising from the joint operation; • its share of the revenue from the sale of the • output by the joint operation; and • its expenses, including its share of any • expenses incurred jointly. The assets, liabilities, revenues and expenses relating to the Group’s interest in a joint operation are accounted for in accordance with the HKFRSs applicable to the particular assets, liabilities, revenue and expenses. 2.6 Segment reporting 2.6 Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Chairman of the Company (the chief operating decision maker) for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria. 寰宇娛樂文化集團有限公司 二零二零年年報 125

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.7 Foreign currency translation 2.7 (a) Functional and presentation currency (a) 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 Hong Kong dollars (“HK$”), which is the Company’s functional and the Group’s presentation currency. (b) Transactions and balances (b) 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 re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income within ‘other gains/ (losses) – net’. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. The transaction date is the date on which the Group initially recognises such non-monetary assets or liabilities. Non- monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured. 126 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.7 Foreign currency translation (Continued) 2.7 (c) Group companies (c) The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) 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 (a) sheet presented are translated at the closing rate at the date of that balance sheet; (b) i n c o m e a n d e x p e n s e s f o r e a c h (b) statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) a l l r e s u l t i n g c u r r e n c y t r a n s l a t i o n (c) differences are recognised in other comprehensive income and accumulated separately in equity in the translation reserve. 寰宇娛樂文化集團有限公司 二零二零年年報 127

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.7 Foreign currency translation (Continued) 2.7 (d) Disposal of foreign operation and (d) partial disposal On the disposal of a foreign operation (that is, a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the currency translation differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss. In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are re- attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (that is, reductions in the Group’s ownership interest in associates or joint ventures that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange difference is reclassified to profit or loss. 128 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.8 Property, plant and equipment 2.8 All property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 expensed to the consolidated statement of comprehensive income during the financial period in which they are incurred. Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Leasehold improvements Shorter of useful life 35 or lease term 5 Machinery and equipment Right-of-use assets 3–5 years 2.12(b) Others Over the lease term 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 2.12(b)). 寰宇娛樂文化集團有限公司 二零二零年年報 129

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.8 Property, plant and equipment (Continued) 2.8 Gains and losses on disposals are determined – by comparing the proceeds with the carrying 2.10 amount and are recognised within ‘other gains/ (losses) – net’ in the consolidated statement of 2.28(d) comprehensive income. 2.9 Investment properties 2.9 Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 2.10) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property. Investment properties are stated at fair value, unless they are still in the course of construction or development at the end of the reporting period and their fair value cannot be reliably measured at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in note 2.28(d). In the comparative period, when the Group holds 2.10 a property interest under an operating lease to 2.10 earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see note 2.10), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in note 2.10. 130 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets 2.10 At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use. (i) As a lessee (i) (A) Policy applicable from 1st July 2019 (A) Where the contract contains lease 12 component(s) and non-lease component(s), the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases. At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short- term leases that have a lease term of 12 months or less and leases of low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term. 寰宇娛樂文化集團有限公司 二零二零年年報 131

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets (Continued) 2.10 (i) As a lessee (Continued) (i) (A) Policy applicable from 1st July 2019 (A) (Continued) Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred. The right-of-use asset recognised when 2.8 a lease is capitalised is initially measured at cost, which comprises the initial 2.12(b) amount of the lease liability plus any 2.9 lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right- of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 2.8 and 2.12(b)), except for the right-of-use asset that meet the definition of investment property are carried at fair value in accordance with note 2.9. 132 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets (Continued) 2.10 (i) As a lessee (Continued) (i) (A) Policy applicable from 1st July 2019 (A) (Continued) The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets that do not meet the definition of investment property in ‘other property, plant and equipment’ and presents lease liabilities separately in the statement of financial position. (B) Policy applicable prior to 1st July 2019 (B) In the comparative period, as a leasee the Group classified leases as finance lease if the leases transferred substantially all the risks and rewards of ownership to the Group. Leases which did not transfer substantially all the risks and rewards of ownership to the Group were classified as operating leases, with the following exceptions: 寰宇娛樂文化集團有限公司 二零二零年年報 133

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets (Continued) 2.10 (i) As a lessee (Continued) (i) (B) Policy applicable prior to 1st July 2019 (B) (Continued) (a) (a) Classification of assets leased to the – Group – property held under operating leases that would otherwise meet the definition of an investment property was classified as an investment property on a property- by-property basis and, if classified as investment property, was accounted for as if held under a finance lease (see note 2.9); and – land held for own use under 2.9 an operating lease, the fair – value of which could not be measured separately from the fair value of a building situated thereon at the inception of the lease, was accounted for as being held under a finance lease, unless the building was also clearly held under an operating lease. For these purposes, the inception of the lease was the time that the lease was first entered into by the Group, or taken over from the previous lessee. 134 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 2.10 Leased assets (Continued) (i) (i) As a lessee (Continued) (B) Policy applicable prior to 1st July 2019 (B) (Continued) (b) (b) Assets acquired under finance leases Where the Group acquired the use 2.8 of assets under finance leases, 2.12(b) the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments of such assets were recognised as property, plant and equipment and the corresponding liabilities, net of finance charges, were recorded as obligations under finance leases. Depreciation was provided at rates which wrote off the cost of the assets over the term of the relevant lease or, where it was likely the Group would obtain ownership of the asset, the life of the asset, as set out in note 2.8. Impairment losses were accounted for in accordance with the accounting policy as set out in note 2.12(b). Finance charges implicit in the lease payments were charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. 寰宇娛樂文化集團有限公司 二零二零年年報 135

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets (Continued) 2.10 (i) As a lessee (Continued) (i) (B) Policy applicable prior to 1st July 2019 (B) (Continued) (c) (c) Operating lease charges Where the Group had the use of assets under operating leases, payments made under the leases were charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis was more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received were recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals were charged to profit or loss in the accounting period in which they were incurred. The cost of acquiring land held 2.9 under an operating lease was amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property (see note 2.9). 136 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.10 Leased assets (Continued) 2.10 (ii) As a lessor (ii) When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the case, the lease is classified as an operating lease. When a contract contains lease and non- 2.28(d) lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. The rental income from operating leases is recognised in accordance with note 2.28(d). 寰宇娛樂文化集團有限公司 二零二零年年報 137

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.11 Other investments in equity securities and 2.11 derivative financial instruments (a) 其他股本證券投資 (a) Other investments in equity securities The Group’s policies for investments in equity securities, other than investments in subsidiaries, associates and joint ventures, are as follows: Investments in equity securities are 3.3 recognised/derecognised on the date the Group commits to purchase/sell the investment. The investments are initially stated at fair value plus directly attributable transaction costs, except for those investments measured at fair value through profit or loss (FVPL) for which transaction costs are recognised directly in profit or loss. For an explanation of how the Group determines fair value of financial instruments, see note 3.3. These investments are subsequently accounted for as follows, depending on their classification: An investment in equity securities is classified 2.28(f) as FVPL unless the equity investment is not held for trading purposes and on initial recognition of the investment the Group makes an election to designate the investment at FVOCI (non-recycling) such that subsequent changes in fair value are recognised in other comprehensive income. Such elections are made on an instrument- by-instrument basis, but may only be made if the investment meets the definition of equity from the issuer’s perspective. Where such an election is made, the amount accumulated in other comprehensive income remains in the fair value reserve (non-recycling) until the investment is disposed of. At the time of disposal, the amount accumulated in the fair value reserve (non-recycling) is transferred to accumulated losses. It is not recycled through profit or loss. Dividends from an investment in equity securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income in accordance with the policy set out in note 2.28(f). 138 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.11 Other investments in equity securities and 2.11 derivative financial instruments (Continued) (b) (b) Derivative financial instruments Derivative financial instruments are recognised at fair value. At the end of each reporting period, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. 2.12 Credit losses and impairment of assets 2.12 (a) Credit losses from financial instruments, (a) contract assets and lease receivables The Group recognises a loss allowance for expected credit losses (ECLs) on the following items: – financial assets measured at – amortised cost (including cash and cash equivalents, time deposits, loans receivable, accounts and other receivables and loans to associates); – contract assets as defined in HKFRS 15 – 15 (see note 2.18); 2.18 – lease receivables; and – – – loan commitments issued, which are not measured at FVPL. Other financial assets measured at fair value, including equity securities measured at FVPL, and derivative financial assets, are not subject to the ECL assessment. 寰宇娛樂文化集團有限公司 二零二零年年報 139

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). For undrawn loan commitments, expected (i) cash shortfalls are measured as the difference between (i) the contractual cash flows that (ii) would be due to the Group if the holder of the loan commitment draws down on the loan and (ii) the cash flows that the Group expects to receive if the loan is drawn down. 140 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Measurement of ECLs (Continued) The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material: – fixed-rate financial assets, accounts and – other receivables and contract assets: effective interest rate determined at initial recognition or an approximation thereof; – variable-rate financial assets: current – effective interest rate; – lease receivables: discount rate used – in the measurement of the lease receivable; – loan commitments: current risk-free rate – adjusted for risks specific to the cash flows. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions. 寰宇娛樂文化集團有限公司 二零二零年年報 141

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Measurement of ECLs (Continued) ECLs are measured on either of the following bases: – 12-month ECLs: these are losses that – 12 are expected to result from possible default events within the 12 months 12 after the reporting date; and – lifetime ECLs: these are losses that – are expected to result from all possible default events over the expected lives of the items to which the ECL model applies. Loss allowances for accounts receivables, lease receivables and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. For all other financial instruments 12 (including loan commitments issued), the Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs. 142 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, (i) contract assets and lease receivables (ii) (Continued) 90 Significant increases in credit risk In assessing whether the credit risk of a financial instrument (including a loan commitment) has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or (ii) the financial asset is 90 days past due. The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward- looking information that is available without undue cost or effort. 寰宇娛樂文化集團有限公司 二零二零年年報 143

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Significant increases in credit risk (Continued) In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition: – failure to make payments of principal or – interest on their contractually due dates; – an actual or expected significant – deterioration in a financial instrument’s external or internal credit rating (if available); – an actual or expected significant – deterioration in the operating results of the debtor; and – existing or forecast changes in the – technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group. For loan commitments, the date of initial recognition for the purpose of assessing ECLs is considered to be the date that the Group becomes a party to the irrevocable commitment. In assessing whether there has been a significant increase in credit risk since initial recognition of a loan commitment, the Group considers changes in the risk of default occurring on the loan to which the loan commitment relates. 144 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, 30 contract assets and lease receivables (Continued) Significant increases in credit risk (Continued) For margin client receivables, the Group considers there has been a significant increase in credit risk when clients cannot meet margin call requirement and uses the loan-to-collateral value (“LTV”) to make its assessment. The Group considers a margin client receivable is in default when payments under the margin call requirement are 30 days past due. However, in certain cases, the Group may also consider a margin client receivable to be in default when there is a margin shortfall which indicates that the Group is unlikely to receive the outstanding contractual amounts in full, taking into account the pledged securities held by the Group. A margin client receivable is written off when there is no reasonable expectation of recovering the contractual cash flows. Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings. 寰宇娛樂文化集團有限公司 二零二零年年報 145

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Significant increases in credit risk (Continued) ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. Basis of calculation of interest income 2.28(e) Interest income recognised in accordance with note 2.28(e) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset. At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. 146 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Basis of calculation of interest income (Continued) Evidence that a financial asset is credit- impaired includes the following observable events: – significant financial difficulties of the – debtor; – a breach of contract, such as a default or – past due event; – it becoming probable that the borrower – will enter into bankruptcy or other financial reorganisation; – significant changes in the technological, – market, economic or legal environment that have an adverse effect on the debtor; or – the disappearance of an active market – for a security because of financial difficulties of the issuer. 寰宇娛樂文化集團有限公司 二零二零年年報 147

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 Credit losses and impairment of assets 2.12 (Continued) (a) (a) Credit losses from financial instruments, contract assets and lease receivables (Continued) Write-off policy The gross carrying amount of a financial asset, lease receivable or contract asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs. (b) Impairment of other assets (b) Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased: – property, plant and equipment including – right-of-use assets; – other intangible assets; – 148 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 2 SUMMARY OF SIGNIFICANT ACCOUNTING 2 POLICIES (Continued) 2.12 2.12 Credit losses and impairment of assets (b) (Continued) – (b) Impairment of other assets (Continued) – – film related deposits; – film rights and films in progress; and – investments in subsidiaries and – associates in the Company’s balance – sheet. If any such indication exists, the asset’s recoverable amount is estimated. In addition, for intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment. – Calculation of recoverable amount The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash-inflows independently (that is, a cash generating unit). 寰宇娛樂文化集團有限公司 二零二零年年報 149