report_UIH_AL2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.2 Capital management (Continued) 3.2 Consistent with others in the industry, the Group monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (include borrowings and lease liabilities) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet, plus net debt, where applicable. The Group has initially applied HKFRS 16 using 16 the modified retrospective approach. Under this approach, the Group recognises right-of-use assets and corresponding lease liabilities for almost all leases previously accounted for as operating leases from 1st July 2019. This caused a significant increase in the Group’s total debt when comparing to its position as at 30th June 2019. 200 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.2 Capital management (Continued) 3.2 The Group’s adjusted net debt-to-capital ratio at the 16 end of the current and previous reporting periods and at the date of transition to HKFRS 16 was as follows: Note 30th June 1st July 30th June 2020 2019 2019 二零二零年 六月三十日 (Note) (Note) HK$’000 HK$’000 HK$’000 千港元 Current liabilities: 28 9,863 9,414 7 Lease liabilities 9,863 9,414 7 Non-current liabilities: 28 5,612 9,985 – Lease liabilities 15,475 19,399 7 Total debt Less: Cash and cash 24 (106,949) (178,228) (178,228) (91,474) (158,829) (178,221) equivalent 經調整淨債務 Adjusted net debt 354,892 380,934 380,934 經調整資本 354,892 380,934 380,934 Total equity Adjusted capital 經調整淨債務資本 N/A N/A N/A 比率 不適用 Adjusted net debt-to- capital ratio Note: The Group has initially applied HKFRS 16 using the 16 modified retrospective approach and adjusted the 17 opening balances at 1st July 2019 to recognise lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. Under this approach, the comparative information as at 30th June 2019 is not restated. See note 2.1(i). 2.1(i) 寰宇娛樂文化集團有限公司 二零二零年年報 201

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement 3.3 (i) Financial assets and liabilities measured at (i) fair value 13 Fair value hierarchy The following table presents the fair value of the Group’s financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair Value Measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: • Level 1 valuations: Fair value measured • using only Level 1 inputs that is, unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date • Level 2 valuations: Fair value measured • using Level 2 inputs that is, observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available • Level 3 valuations: Fair value measured • using significant unobservable inputs The Group has a team headed by the finance manager performing valuations for the financial instruments. The team reports directly to the directors of the Company and the audit committee. Valuation reports with analysis of changes in fair value measurement are prepared by the team at each annual reporting date, and is reviewed and approved by the directors of the Company. Discussion of the valuation process and results with the directors and the audit committee is held once a year, to coincide with the reporting date. 202 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS 3.3 (Continued) (i) 3.3 Fair value measurement (Continued) (i) Financial assets and liabilities measured at fair value (Continued) Fair value hierarchy (Continued) Fair value measurements as at Fair value measurements as at 30th June 2020 categorised into 30th June 2019 categorised into 於二零二零年六月三十日之公平值計量分類為 Fair value at Fair value at 30th June 2020 30th June 於 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 2019 二零二零年 第一級 第二級 第三級 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 六月三十日 之公平值 HK$’000 千港元 千港元 千港元 千港元 Recurring fair value 經常性公平值 – – 322 322 – – 317 317 計量 measurements – – 8,336 8,336 – – 2,058 2,058 Assets: – Other financial assets – – 1,350 1,350 – – 7,199 7,199 a – – 3,300 3,300 – – 8,691 8,691 – Unlisted – investment –––––––– funds (Note a) a – – 13,308 13,308 – – 18,265 18,265 – – Derivative financial instruments a (Note a) d – Unlisted limited partnership b (Note a) Trading securities (Note d) Contingent consideration receivable (Note b) Liabilities: c Contingent – – (20,400) (20,400) – – (20,400) (20,400) consideration payable (Note c) – – (20,400) (20,400) – – (20,400) (20,400) 寰宇娛樂文化集團有限公司 二零二零年年報 203

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) 1,791,000 Fair value hierarchy (Continued) During the year ended 30th June 2020, there were no transfer between Level 1, Level 2 or transfer into or out of Level 3. (2019: the Group reclassified two listed equity security, amounted to HK$1,791,000, from Level 1 to Level 3 due to suspension of trading. The listed equity security suspended trading as at 30th June 2019 and was still suspended from trading up to the date of approval of these consolidated financial statements. The transfer between Level 1 and Level 3 of the fair value hierarchy is deemed to have occurred at the end of the reporting period. Apart from the above, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 during the years ended 30th June 2019.) Notes: (a) (a) For unlisted investment funds and limited 10% partnership classified under Level 3 of the 10% fair value measurement hierarchy, the fair values are determined based on the net 167,000 asset values of those investment funds 752,000 and limited partnership determined with reference to third party valuation of underlying investment portfolio and adjustments of related expenses. When the net asset values of the unlisted investment funds and limited partnership increases/decreases by 10% (2019: 10%), the fair value will increase/ decrease by HK$167,000 (2019: HK$752,000). The higher the net assets values, the higher the fair value. 204 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (a) (Continued) (a) During the year ended 30th June 2019, the 16(i) Group entered into certain arrangement to dispose one of the unlisted investment funds at a fixed consideration in December 2021. In the opinion of the directors of the Company, the arrangement constituted a derivative contract which should be recognised as a derivative financial instrument (“DFI”) (note 16(i)). The DFI is net of deferred day one gain, which arise from the difference between its fair value at initial recognition and its transaction price of HK$Nil. The deferred day one gain is amortised over the period from March 2019 to December 2021. The valuation techniques and key inputs used for the DFI in Level 3 fair value measurement at the end of the reporting period are as follows: Valuation Significant Range techniques unobservable input 重大不可觀察 範圍 估值方法 HK$ 輸入數據 Derivative financial Marking-to-market Fair value of equity interest HK$322,000 instruments approach and in unlisted investment (2019: HK$317,000) discounted cash fund flow approach Credit value adjustment 322,000 factor 317,000 7.06%–11.89% (2019: 4.85%–13.3%) 7.06%-11.89% 4.85%–13.3% 寰宇娛樂文化集團有限公司 二零二零年年報 205

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (a) (Continued) (a) As at 30th June 2020, it was estimated 5% that a 5% increase or decrease in the fair value of the unlisted investment fund while holding all other variables constant would not significantly affect the value of the DFI. As a result, no sensitivity analysis for the year ended 30th June 2020 was disclosed for the impact of changes in the fair value of the unlisted investment fund. As at 30th June 2020, a 5% increase or 5% decrease in the credit value adjustment factor while holding all other variables 442,000 constant would decrease or increase the 724,000 carrying amount of the DFI by approximately HK$442,000 (2019: HK$724,000) or 442,000 HK$442,000 (2019: HK$715,000), 715,000 respectively. 206 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) (a) Notes: (Continued) (a) (Continued) The following table represents the changes in other financial assets included in Level 3 fair value measurements: Unlisted Derivative financial instruments Unlisted Total investment limited 總計 衍生金融工具 Net partnership funds 非上市 HK$’000 非上市 Deferred 淨額 有限合夥 投資基金 day HK$’000 企業 HK$’000 Gross one gain 遞延 HK$’000 總額 首日收益 HK$’000 HK$’000 As at 1st July 2018 1,049 – – – 64,833 65,882 – 15,500 (15,500) ––– Addition Gain/(losses) included in (732) 422 – 422 (19,127) (19,437) profit or loss – – 1,636 1,636 – 1,636 Amortisation of deferred – – – – (38,507) (38,507) day one gain Return of capital 317 15,922 (13,864) 2,058 7,199 9,574 As at 30th June 2019 733 (4,319) (3,581) 5 733 – 5,545 and 1st July 2019 5,545 – (1,530) – – 5,545 – (1,530) Gains/(loss) included in ––– 10,008 profit or loss 8,336 1,350 Amortisation of deferred day one gain Return of capital As at 30th June 2020 322 16,655 (8,319) 寰宇娛樂文化集團有限公司 二零二零年年報 207

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (b) The valuation techniques and key inputs used (b) for contingent consideration receivable in Level 3 fair value measurement at the end of the reporting period are as follows: Valuation Significant Range techniques unobservable input 重大不可觀察 範圍 估值方法 HK$ 輸入數據 Contingent consideration Discounted cash Expected net loss (2019: Expected loss of receivable flow approach same) HK$1,875,845 (2019: same) Discount rate 1,875,845 100% (2019: same) 100% The fair value of the contingent consideration 22 receivable represented the profit guarantee in relation to the adjustments to the consideration from the acquisition of AP Group Investment Holdings Limited (“AP Group”) as detailed in note 22. 208 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (b) (Continued) (b) As at 30th June 2020 and 2019, the 5% contingent consideration receivable is 5% determined by reference to the financial statements of AP Group and its subsidiaries for the years ended 31st December 2016 and 2017, in which the consolidated results showed a net loss position. As at 30th June 2020 and 2019, it was estimated that a 5% increase or decrease in the expected net loss of AP Group while holding all other variables constant would not significantly affect the value of contingent consideration receivable. As at 30th June 2020 and 2019, it was estimated that a 5% increase or decrease in the discount rate used while holding all other variables constant would not significantly affect the value of contingent consideration receivable. 寰宇娛樂文化集團有限公司 二零二零年年報 209

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (b) (Continued) (b) The movement during the year in the balance of these Level 3 fair value measurements are as follows: Contingent consideration 應收或然代價： 2020 2019 receivable: 二零二零年 HK$’000 At the beginning of the year Total loss included in profit HK$’000 3,796 or loss 千港元 (3,796) At the end of the year – – 2019 – HK$’000 – (3,796) Total loss included in profit or 2020 loss for assets held at the 二零二零年 end of the reporting period HK$’000 千港元 – 210 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (c) The valuation techniques and key inputs used (c) for contingent consideration payable in Level 3 fair value measurement at the end of the reporting period are as follows: Valuation Significant Range techniques unobservable input 重大不可觀察 範圍 估值方法 HK$ 輸入數據 Contingent consideration Discounted cash Expected net loss (2019: Expected loss of payable flow approach same) HK$1,875,845 (2019: same) 1,875,845 The fair value of the contingent consideration 31 payable represented the profit guarantee in relation to the adjustments to the consideration from the disposal of AP Group as detailed in note 31. 寰宇娛樂文化集團有限公司 二零二零年年報 211

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (c) (Continued) (c) As at 30th June 2020, the contingent 5% consideration payable is determined by reference to the financial statements of AP Group and its subsidiaries for the years ended 31st December 2016 and 2017, in which the consolidated results showed a net loss position. As at 30th June 2020 and 30th June 2019, it was estimated that a 5% increase or decrease in the expected net loss of AP Group while holding all other variables constant would not significantly affect the value of contingent consideration payable. The amount would become payable once the actual results of AP Group is finalised and no discount factor is applied to the amount. As a result, no sensitivity analysis for the years ended 30th June 2020 and 30th June 2019 were disclosed for the impact of changes in expected net loss and discount rate. 212 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (c) (Continued) (c) The movement during the year in the balance of these Level 3 fair value measurements are as follows: Contingent consideration 應付或然代價： 2020 2019 payable: 二零二零年 HK$’000 At the beginning of the year and at the end of the year HK$’000 (20,400) 千港元 (20,400) 寰宇娛樂文化集團有限公司 二零二零年年報 213

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (d) The financial assets at fair value through (d) profit or loss classified under Level 3 of the fair value measurement hierarchy represent investment in a listed equity security suspended from trading. The fair value of those equity instruments 5% is mainly valued based on Guideline Publicly Traded Company (the “GPTC”) method whereas the key inputs to the valuation models include the market multiples, share prices of similar companies that are traded in a public market and discount for lack of marketability. The discount for lack of marketability used are unobservable input. As at 30th June 2020, if any of the significant unobservable input above was 5% higher/ lower while all the other variables were held constant, the changes in fair value of the listed equity security would not be significant to the Group. 214 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 3 FINANCIAL RISK MANAGEMENT AND FAIR 3 VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value measurement (Continued) 3.3 (i) Financial assets and liabilities measured at (i) fair value (Continued) Fair value hierarchy (Continued) Notes: (Continued) (d) (Continued) (d) The movement during the year in the balance of these Level 3 fair value measurements are as follows: Listed equity security suspended 2020 2019 from trading 二零二零年 HK$’000 At the beginning of the year Transfer from Level 1 HK$’000 9,465 Total loss included in profit or 千港元 1,791 loss (2,565) 8,691 8,691 At the end of the year – 2019 HK$’000 (5,391) 3,300 (2,565) Total loss included in profit or 2020 loss for assets held at the 二零二零年 end of the reporting period HK$’000 千港元 (5,391) (ii) Financial assets and liabilities at other than (ii) fair value The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 30th June 2020 and 2019. 寰宇娛樂文化集團有限公司 二零二零年年報 215

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions (a) The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Impairment of film rights, films in progress (i) and film related deposits The Group assesses annually whether there 2 is any indication for impairment on the film rights, films in progress and film related deposits for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights segment and further assesses if they have suffered any impairment, in accordance with the accounting policy stated in note 2. 216 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (i) (i) Impairment of film rights, films in progress and film related deposits (Continued) As at 30th June 2020, the Group assessed 950,000 16,954,000 that there were impairment indication for certain films included in films rights, film in 25,157,000 progress and film related deposit with gross carrying amount of approximately HK$950,000, 46,000 13,205,000 HK$16,954,000 and HK$25,157,000 respectively because of the change of 13,801,000 comparable market information and expected performance. As at 30th June 2020, these film 11% rights, film in progress and film related deposit 14% have been reduced to their recoverable amount of approximately HK$46,000, HK$13,205,000 and HK$13,801,000 respectively. The recoverable amount was determined on a title-by-title basis, and is assessed with reference to a value-in-use calculation at the end of the reporting period, which was derived from discounting the projected cash flow forecast using a discount rate of 11% (2019: 14%). Key assumptions for the value-in-use calculations related to the estimation of cash inflow include the budget film exhibition income, budget licensing and sub-licensing income revenue and discount rate. Such estimation is based on the historical box office of the same director and main cast members, the market comparable data of films with the same theme, and management’s expectations of the market development. The discount rate used is before tax and reflected current market assessment of the time value of money and the risks specific to the film production business. 寰宇娛樂文化集團有限公司 二零二零年年報 217

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (i) (i) Impairment of film rights, films in progress and film related deposits (Continued) Taking into account the impairment 904,000 assessment performed by the management, 165,000 an impairment loss of film rights of approximately HK$904,000 (2019: 11,356,000 HK$165,000), an impairment loss of 67,000 film related deposits of approximately HK$11,356,000 (2019: HK$67,000), and 3,749,000 an impairment loss of films in progress of approximately HK$3,749,000 (2019: 290,106,000 HK$Nil) were recognised respectively in the 309,730,000 consolidated statement of comprehensive income for the year ended 30th June 2020 to reduce the carrying amounts of certain film rights, films in progress and film related deposits to their recoverable amounts. The directors and management have considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amount of film rights, film in progress and film related deposits to exceed its recoverable amount as at 30th June 2020. As at 30th June 2020, the aggregate carrying amount of film rights, films in progress and film related deposits amounted to approximately HK$290,106,000 (2019: HK$309,730,000). 218 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (ii) (ii) Provision for impairment of accounts 73,105,000 receivable 11,161,000 Accounts receivable are reviewed by management at the end of each reporting period to determine the expected credit losses. The management bases the estimates on the historical credit loss experience, adjusted for factors that are specific to the debtors and assessments of both current and forecast general economic conditions. Credit risk assessments focus on the customers’ past history of making payments when due and current ability and willingness to pay, taking into account the financial position of the customers and the macroeconomic environment in which the customers operate. If the financial conditions of the customers and/or the macroeconomic environment of the Group were to deteriorate, resulting in an impairment of their ability to repay, additional impairment provision may be reputed. If the financial conditions of these customers were to deteriorate, additional provision for impairment may be required. As at 30th June 2020, the carrying amount of accounts receivable amounted to approximately HK$73,105,000 (2019: HK$11,161,000). 寰宇娛樂文化集團有限公司 二零二零年年報 219

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (iii) (iii) Estimated valuation of investment properties 31,460,000 31,460,000 In determining the fair value, the valuer has based on property valuation techniques which involve, inter alia, certain estimates including comparable sales in the relevant market, appropriate discount rates and expected future market rents. In relying on the valuation report, management has exercised their judgement and is satisfied that the method of valuation is reflective of the current market condition. As at 30th June 2020, the carrying amount of investment properties amounted to approximately HK$31,460,000 (2019: HK$31,460,000). (iv) Estimation of fair value of financial assets (iv) measured at fair value through profit or loss The fair value of financial assets measured at fair value through profit or loss that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Changes in these estimates and assumptions could have a material effect on the fair value of the financial assets measured at fair value through profit or loss. 220 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (iv) (iv) Estimation of fair value financial assets 10,008,000 measured at fair value through profit or loss 9,574,000 (Continued) As at 30th June 2020, the carrying amount of other financial assets amounted to approximately HK$10,008,000 (2019: HK$9,574,000). (v) Recognition of deferred tax assets (v) Deferred tax assets are recognised to the 271,000 extent that it is probable that future taxable 341,000 profit will be available against which the deductible temporary differences and tax losses can be utilised, and is measured at the tax rates that are expected to apply when the related deferred income tax assets are realised. In determining the deferred tax assets to be recognised, management is required to estimate the future applicable tax rate for each entity within the Group at each tax jurisdiction and the profitability of each entity, so as to estimate the future utilisation of tax losses. Any difference between these estimates and the actual outcome will impact the Group’s results in the period in which the actual outcome is determined. As at 30th June 2020, the carrying amount of deferred tax assets amounted to approximately HK$271,000 (2019: HK$341,000). 寰宇娛樂文化集團有限公司 二零二零年年報 221

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (vi) (vi) Impairment of loans receivable and other 7,216,000 receivables 61,630,000 The impairment loss for using the expected 4,288,000 53,000 credit loss model is subjected to a number of key parameters and assumptions, including 19,549,000 the identification of loss stages, estimates 81,143,000 of probability of default, loss given default, exposures at default and discount rate, adjustments for forward-looking information and other adjustment factors. The expected credit losses for loans receivable and other receivables are derived from estimates whereby management takes into consideration historical data, the historical loss experience and other adjustment factors. Historical loss experience is adjusted on the basis of the relevant observable data that reflect current economic conditions and the judgment based on management’s historical experience. Management reviews the selection of those parameters and the application of the assumptions regularly to reduce any difference between loss estimates and actual loss. As at 30th June 2020, the carrying amount of loans receivable, loan to an associate, amount due from an associate and financial assets included in deposits paid, prepayments and other receivables amounted to approximately HK$7,216,000 (2019: HK$61,630,000), HK$Nil (2019: HK$4,288,000), HK$53,000 (2019: HK$Nil), and HK$19,549,000 respectively (2019: HK$81,143,000). 222 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (vii) (vii) Useful lives of other intangible assets The Group amortises its other intangible 2,239,000 assets with a finite useful life on a straight-line 2,387,000 basis over their estimated useful lives. The estimated useful lives reflect management’s (viii) estimate of the period that the Group intends to derive future economic benefits from the 10,963,000 use of the other intangible assets. At 30th 9,217,000 June 2020, the carrying amount of other intangible assets amounted to approximately HK$2,239,000 (2019: HK$2,387,000). (viii) Net realisable value of inventories The Group’s management reviews the inventory ageing analysis periodically, and makes allowance on an annual basis for obsolete and slow-moving inventory items identified that are no longer marketable. The Group carries out an inventory review on a product-by-product basis at the end of each reporting period and makes allowance for obsolete and slow-moving items through management’s estimation of the net realisable value for such obsolete and slow-moving items based primarily on the latest invoice prices and current market conditions. At 30th June 2020, the carrying amount of inventories amounted to approximately HK$10,963,000 (2019: HK$9,217,000). 寰宇娛樂文化集團有限公司 二零二零年年報 223

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (a) Critical accounting estimates and assumptions (a) (Continued) (ix) (ix) Fair value of contingent consideration 20,400,000 receivable and payable 20,400,000 The fair value of contingent consideration receivable and payable was determined by using valuation techniques. The Group’s management uses its judgement to select a variety of methods and make assumptions, including the discount rates and estimation of future performance. Changes in assumptions used could materially affect the fair value of the balances and, as a result, affect the Group’s financial condition and results of operation. At 30th June 2020, the carrying amount of contingent consideration receivable and contingent consideration payable amounted to HK$Nil (2019: HK$Nil) and HK$20,400,000 (2019: HK$20,400,000) respectively. (x) Impairment of interests in associates (x) Determining whether interests in associates 1,065,000 are impaired requires an estimation of the 1,085,000 recoverable amount of the associates and joint ventures. Recoverable amount is the greater of fair value less costs of disposal and value in use. Management evaluates the recovery of the investments based on such estimates and is confident that the allowance for impairment, where necessary, is adequate. During the year ended 30th June 2020, impairment losses of HK$Nil (2019: HK$1,065,000) were recognised in respect of interests in associates. As at 30th June 2020, the carrying amount of the interests in associates amounted to HK$Nil (2019: HK$1,085,000). 224 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 4 CRITICAL ACCOUNTING ESTIMATES AND 4 JUDGEMENTS (Continued) (b) Critical accounting judgement in applying the (b) Group’s accounting policies In the process of applying the Group’s accounting policies, management has made the following accounting judgements: Classification of joint arrangements 90% 5% 5% 90% The Group has entered into joint arrangements to produce and distribute television series, films and 2.5 webisodes. The Group has participating interests ranging from 5% to 90% (2019: from 5% to 90%) in these joint arrangements. The Group has joint control over these arrangements as, under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The Group’s joint arrangements involve the joint control by the venturers of the assets contributed to the joint arrangement and dedicated to the purposes of each joint arrangement for the benefits of the venturers. Each venturer may take a share of the output from the assets and each bears an agreed share of the expenses incurred. These joint arrangements do not involve the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Therefore, these arrangements are classified as joint operations of the Group and the Group recognises in relation to its interest in a joint operation in accordance with the accounting policy stated in note 2.5. The determination of the relevant activities under joint operations requires management’s significant judgement. 寰宇娛樂文化集團有限公司 二零二零年年報 225

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION 5 The Group manages its businesses by divisions, which are organised by business lines (products and services). In a manner consistent with the way in which information is reported internally to the Chairman of the Company, being the Group’s chief operating decision maker (“CODM”) for the purposes of resources allocation and performance assessment. During the year ended 30th June 2018, the Group ceased its business in securities brokerage and margin financing which are classified as discontinued operations for the year ended 30th June 2019 and 2020. The Group has presented the following reportable segments. Continuing operations – – Video distribution, film distribution and exhibition, – licensing and sub-licensing of film rights – – Trading, wholesaling and retailing of optical products – and watches products – – – Leasing of investment properties – – Securities investments – Money lending – Entertainment business – Financial printing services Discontinued operation – – Securities brokerage and margin financing (ceased during the year ended 30th June 2018) 226 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) Segment revenue, results, assets and (a) liabilities Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of profit/(loss) before tax from continuing operations. The profit/(loss) before tax from continuing operations is measured consistently with the Group’s loss before tax from continuing operations except fair value change of contingent consideration receivable, impairment loss of interest in an associate, fair value change of other financial assets, amortisation of deferred day one gain in respect of derivative instruments, finance income, unallocated finance costs, share of loss of associates, and unallocated corporate expenses. Segment assets exclude unallocated other intangible assets, interests in associates, other financial assets, unallocated loan receivable, unallocated time deposits with maturity over 3 months at acquisition, unallocated cash and cash equivalents, deferred tax assets, loan to an associate, amount due from an associate, contingent consideration receivable, tax recoverable and other unallocated corporate assets as these assets are managed on a group basis. Segment liabilities exclude tax payable, deferred tax liabilities, contingent consideration payable and other unallocated corporate liabilities as these liabilities are managed on a group basis. 寰宇娛樂文化集團有限公司 二零二零年年報 227

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) Segment revenue, results, assets and (a) liabilities (Continued) Information regarding the Group’s reportable segments as provided to the Group’s CODM for the purposes of resources allocation and assessment of segment performance for the years ended 30th June 2020 and 2019 is set out below: 2020 二零二零年 Continuing operations Discontinued operation 持續經營業務 已終止經營業務 Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities Total for distribution, wholesaling, investment investments printing Elimination continuing brokerage discontinued properties lending business operations Total film and and operations distribution retailing 持續經營 margin 總計 of optical 業務總額 financing HK$’000 and products HK$’000 exhibition, 出租 證券投資 放貸 娛樂業務 財經印刷 抵銷 證券經紀及 已終止 千港元 licensing and and HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 千港元 經營業務 sub-licensing watches 投資物業 孖展融資 of film rights products HK$’000 千港元 千港元 千港元 千港元 千港元 HK$’000 總計 HK$’000 錄像發行、 眼鏡產品及 千港元 千港元 千港元 電影發行及 鐘錶產品 放映、授出 之貿易、 及轉授電影 批發及零售 HK$’000 版權 千港元 HK$’000 千港元 Segment revenue 分部收益 154,864 51,018 – –– 2,042 – – 207,924 33 33 207,957 Disaggregate by timing of – 9,814 – 9,814 – – 9,814 – – – – –– revenue recognition – –– – 9,029 – – 9,029 – Point in time – – – 1,140 – 7,889 2,042 9,814 – 226,767 33 33 226,800 – Over time 154,864 51,018 1,140 – 7,889 (371) – – –– – Revenue out of scope of 15 –– – 371 (371) 226,767 33 33 226,800 – –– – 7,889 2,042 10,185 (371) (25,304) 795 795 (24,509) HKFRS 15 154,864 51,018 1,140 (857) (11,134) External revenue Inter-segment sales Segment results 分部業績 17,355 (12,101) 928 (5,754) (13,370) Fair value change of other (3,581) – (3,581) financial assets carried at fair value through profit or 5,545 – 5,545 loss 2,987 – 2,987 Amortisation of deferred day one gain in respect (3) (3) of derivative financial instruments (1,085) – (1,085) Finance income Finance cost (7,065) – (7,065) Share of losses of (28,506) 795 (27,711) associates Unallocated corporate expenses Loss before tax 228 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) (a) Segment revenue, results, assets and liabilities (Continued) 2020 二零二零年 Continuing operations Discontinued operation 持續經營業務 已終止 經營業務 Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities distribution, wholesaling, investment investments printing continuing brokerage and retailing properties lending business operations and margin Total film financing distribution of optical and exhibition, products and 出租 證券投資 放貸 娛樂業務 財經印刷 持續經營 證券經紀及 總計 licensing and HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 sub-licensing watches 投資物業 業務總額 孖展融資 of film rights products HK$’000 千港元 千港元 千港元 千港元 HK$’000 HK$’000 千港元 千港元 千港元 千港元 錄像發行、 眼鏡產品及 電影發行及 鐘錶產品 放映、授出及 之貿易、 轉授電影版權 批發及零售 HK$’000 HK$’000 千港元 千港元 Assets 資產 371,841 27,636 31,502 3,300 1,348 4,250 6,537 446,414 4,950 451,364 Segment assets 負債 10,008 – 10,008 Other financial assets 271 – 271 Deferred tax assets 53 – 53 Amount due from an associate 1,858 – 1,858 Unallocated other intangible 5,868 – 5,868 assets Unallocated loans receivable 108,640 – 108,640 Unallocated time deposits with maturity over 3 months at 102,976 – 102,976 acquisition 2,750 – 2,750 Unallocated cash and cash 4,950 683,788 equivalents 678,838 Unallocated corporate assets 253,615 20,659 251 8,512 400 2,208 6,543 292,188 802 292,990 Total consolidated assets 5,960 – 5,960 84 – 84 Liabilities Segment liabilities 20,400 – 20,400 Taxation payable 9,462 – 9,462 Deferred tax liabilities 802 328,896 Contingent consideration 328,094 payable Unallocated corporate liabilities Total consolidated liabilities 寰宇娛樂文化集團有限公司 二零二零年年報 229

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) (a) Segment revenue, results, assets and liabilities (Continued) 2020 二零二零年 Continuing operations Discontinued operation 持續經營業務 已終止 經營業務 Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities distribution, wholesaling, investment investments printing continuing brokerage and retailing properties lending business operations and margin Total film financing distribution of optical and exhibition, products and 出租 證券投資 放貸 娛樂業務 財經印刷 持續經營 證券經紀及 總計 licensing and HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 sub-licensing watches 投資物業 業務總額 孖展融資 of film rights products HK$’000 千港元 千港元 千港元 千港元 HK$’000 HK$’000 千港元 千港元 千港元 千港元 錄像發行、 眼鏡產品及 電影發行及 鐘錶產品 放映、授出及 之貿易、 轉授電影版權 批發及零售 HK$’000 HK$’000 千港元 千港元 Other information 其他資料 Additions of property, plant and equipment 78 1,573 26 –– 2 1,399 3,078 – 3,078 Additions of right-of-use assets 225 6,113 – –– – 1,352 7,690 – 7,690 Additions of unallocated property, – 56 plant and equipment –– 56 – 541 Additions of unallocated –– 541 right-of-use assets –– – 11,365 –– 11,365 – 1,414 Total additions of property, plant –– – 1,414 1,414 – 30,089 and equipment –– – – 30,089 – 30,007 –– – – 30,007 – 2,992 Additions of intangible assets –– – –– 1 310 2,992 – 35 Additions of film rights and films in –– – – 35 – 44,149 30,089 – – – – 44,149 – 11,471 progress 30,007 – – –– 35 2,413 11,471 – 68 Additions of film related deposits –– – – 68 – 397 104 2,566 11 –– – 249 397 – 59,112 Depreciation –– – –– Unallocated depreciation – –– 59,112 – 1,090 Amortisation of film rights 44,149 – – – 1,165 Depreciation of right-of-use assets 3,628 5,395 – 1,090 1,090 – 2,069 Unallocated depreciation of – – 1,165 1,165 – 4,653 –– – 2,069 2,069 – 11,356 right-of-use assets – – – 4,653 Amortisation of other intangible – 148 – – 11,356 assets Total depreciation and amortisation Impairment loss of property, plant – –– and equipment – –– – –– Impairment loss of other intangible 4,653 – – assets 11,356 – – Impairment loss of right-of-use assets Impairment loss of film rights and films in progress Impairment loss of film related deposits Change in ECLs – Accounts receivable – 87 – – – – 23 956 1,066 (1,500) (434) – Loans receivable – 127 – – – 18,653 – – 18,780 – 18,780 – Other receivables – (647) – – – 386 – (257) – (257) Unallocated change in ECLs 4 3,586 – 3,586 Total change in ECLs 23,175 (1,500) 21,675 Fair value change of trading securities – – – 5,391 – – – 5,391 – 5,391 230 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) (a) Segment revenue, results, assets and liabilities (Continued) 2019 Continuing operations Discontinued operation Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities Total for distribution, wholesaling, investment investments printing continuing brokerage discontinued properties lending business Elimination operations Total film and and operations distribution retailing margin of optical financing and products exhibition, licensing and and sub-licensing watches of film rights products HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment revenue 分部收益 7,782 35,651 – – – 5,793 – – 49,226 196 196 49,422 Disaggregate by timing of – – – – –– – 3,649 – 3,649 – – 3,649 revenue recognition – – Point in time – – – 1,107 – 7,687 – – – 8,794 – – 8,794 – Over time 7,782 35,651 1,107 196 61,865 – Revenue out of scope of 15 – –– –– HKFRS 15 7,782 35,651 1,107 196 61,865 External revenue – 7,687 5,793 3,649 – 61,669 196 Inter-segment sales –– – 625 (625) – – – 7,687 5,793 4,274 (625) 61,669 196 Segment results 分部業績 (52,387) (10,679) 2,904 (4,597) (12,981) (632) (8,503) – (86,875) (3,118) (3,118) (89,993) Fair value change of (3,796) – (3,796) contingent consideration (1,065) – (1,065) receivable Impairment loss of interest (19,437) – (19,437) in an associate Fair value change of other 1,636 – 1,636 financial assets carried at 2,392 – 2,392 fair value through profit or loss (725) – (725) Amortisation of deferred day one gain in respect (10,730) – (10,730) of derivative financial (118,600) (3,118) (121,718) instruments Finance income Share of losses of associates Unallocated corporate expenses Loss before tax 寰宇娛樂文化集團有限公司 二零二零年年報 231

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) (a) Segment revenue, results, assets and liabilities (Continued) 2019 Discontinued Continuing operations operation Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities distribution, wholesaling, investment investments printing continuing brokerage and retailing properties lending business operations and margin Total film financing distribution of optical and exhibition, products and licensing and sub-licensing watches of film rights products HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Assets 資產 385,615 23,412 31,488 8,691 59,922 5,497 4,846 519,471 13,736 533,207 Segment assets 負債 1,085 – 1,085 Interests in associates 9,574 – 9,574 Other financial assets 341 – 341 Deferred tax assets Loan to an associate 4,288 – 4,288 – 2,242 2,242 Tax recoverable 45 – 45 Tax certificate Unallocated other intangible 1,858 – 1,858 1,881 – 1,881 assets Unallocated loan receivables 169,055 – 169,055 Unallocated cash and cash 1,118 – 1,118 15,978 724,694 equivalents 708,716 Unallocated corporate assets 287,519 6,679 229 –– 7,238 2,184 303,849 818 304,667 Total consolidated assets 6,730 – 6,730 90 – 90 Liabilities Segment liabilities 20,400 – 20,400 Taxation payable 11,873 – 11,873 Deferred tax liabilities 818 343,760 Contingent consideration 342,942 payable Unallocated corporate liabilities Total consolidated liabilities 232 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (a) (a) Segment revenue, results, assets and liabilities (Continued) 2019 Discontinued Continuing operations operation Video Trading, Leasing of Securities Money Entertainment Financial Total for Securities distribution, wholesaling, investment investments printing continuing brokerage and retailing properties lending business operations and margin Total film financing distribution of optical and exhibition, products and licensing and sub-licensing watches of film rights products HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Other information 其他資料 Additions of property, plant and equipment 9 3,636 7 – – 1 144 3,797 – 3,797 Additions of unallocated 24 – 24 property, plant and equipment – 3,821 3,821 – 155,495 Total additions of property, plant – – 155,495 – 40,471 and equipment – – 40,471 51 2,510 8 647 2,459 – 385 Additions of films in progress 155,495 – – –– – 1,747 Additions of film related deposits 40,471 – – –– 385 – 148 – – 1,747 Depreciation 331 1,470 3 – – – – 148 51 4,790 Unallocated depreciation Amortisation of film rights 1,747 – – – – 4,739 – 1,611 Amortisation of brand name – 148 – – – – 165 – 1,607 1,611 – 67 Total depreciation and – – 165 amortisation – – 67 Write-off of property, plants and – 4 – –– equipment 165 – – – – 67 – – – – Impairment loss of film rights Impairment loss of film related deposits Change in ECLs – Account receivable – (716) (137) – – – (11) 84 (780) (3,500) (4,280) – Loans receivable – – – – – 18,710 – – 18,710 – 18,710 – Other receivables – (185) – 7,995 – 7,995 Unallocated change in ECLs 7,620 130 – – 430 Total change in ECLs 898 – 898 26,823 (3,500) 23,323 Increase in fair value of investment property – – (2,100) –– – – (2,100) – (2,100) Fair value change of trading – – – 5,288 – – – 5,288 – 5,288 securities 寰宇娛樂文化集團有限公司 二零二零年年報 233

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (b) Geographical information (b) The Company is domiciled in Hong Kong. The Group’s operations are mainly located in Hong Kong and the PRC. The revenue information below is based on the location of the operations. 2020 二零二零年 Revenue Non-current assets (other than financial instruments and deferred tax assets) 非流動資產 （不包括金融 工具及遞延 收益 稅項資產） HK$’000 HK$’000 千港元 千港元 CONTINUING OPERATIONS 持續經營業務 Hong Kong (place of domicile) Macau 83,456 314,385 PRC and other Asian countries 230 – (other than Hong Kong and Macau) 142,365 26,691 Others 716 – 226,767 341,076 DISCONTINUED OPERATION 已終止經營業務 Hong Kong (place of domicile) 33 – Total 226,800 341,076 234 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (b) Geographical information (Continued) (b) 2019 Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 CONTINUING OPERATIONS 持續經營業務 Hong Kong (place of domicile) Macau 39,702 315,547 PRC and other Asian countries 154 – (other than Hong Kong and Macau) 21,766 33,764 Others 47 – DISCONTINUED OPERATION 已終止經營業務 61,669 349,311 Hong Kong (place of domicile) 196 – Total 61,865 349,311 寰宇娛樂文化集團有限公司 二零二零年年報 235

Notes to the Consolidated Financial Statements 5 SEGMENT INFORMATION (Continued) 5 (c) Information about major customers (c) For the year ended 30th June 2020, one of the 10% customers from video distribution, film distribution 23,460,000 and exhibition, licensing and sub-licensing of film rights segment contributed 10% or more of the 10% Group’s revenue amounting to approximately HK$23,460,000 (2019: there is no single customer contributed 10% or more of the Group’s revenue.) (d) Revenue expected to be recognised in the (d) future arising from contracts with customers in existence at the reporting date 15 121 The Group has applied the practical expedient in paragraph 121 of HKFRS 15 to its sales contracts for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights, entertainment business, trading, wholesaling and retailing of optical products and watch products and provision of financial printing services, such that the Group does not disclose information about revenue that the Group will be entitled to when it satisfies the remaining performance obligations under the sales contracts as their performance has an original expected duration of one year or less. 236 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 6 PROPERTY, PLANT AND EQUIPMENT 6 Other properties, Leasehold Machinery Furniture Motor Office Total plant and improvements and and fixtures vehicles equipment equipment 總額 租賃物業裝修 equipment HK$’000 leased for own HK$’000 use carried 機器及設備 傢俬及裝置 汽車 辦公室設備 at cost HK$’000 HK$’000 HK$’000 HK$’000 按成本入賬 租賃以作自用的 其他物業、 機器及設備 HK$’000 Costs 成本 – At 1st July 2018 – Additions – 10,285 25,746 2,726 3,739 10,267 52,763 Disposals – 1,962 – 295 – 1,564 3,821 Write-off – – (674) (1,848) Exchange realignment – (845) (21) (308) (1,281) – (341) – (796) (2,418) At 30th June 2019 19,392 – (58) Impact on initial application of 19,392 (377) (5) (30) (470) 8,231 HKFRS 16 (Note) 9,744 25,725 2,314 3,734 10,331 51,848 – 16 – – – – – – 19,392 (125) At 1st July 2019 (339) 9,744 25,725 2,314 3,734 10,331 71,240 Additions 27,159 2,331 1 313 – 489 11,365 Disposals – – (28) – (153) (181) Write-off – Exchange realignment – (248) – (473) – – (721) Lease modification – – (40) – (98) (5) (27) (295) At 30th June 2020 – – – – – – (339) Accumulated depreciation – 11,729 25,726 2,086 3,729 10,640 81,069 and impairment loss 11,539 At 1st July 2018 累計折舊及減值虧損 8,314 25,719 2,137 1,853 9,035 47,058 Depreciation charge (Note 33) 33 – Disposals – 1,382 15 204 813 481 2,895 Write-off 33 (8) – (436) (1,494) Exchange realignment 33 2,069 (750) (21) (287) 賬面淨值 13,600 (559) – (76) – (172) (807) At 30th June 2019 and – (55) 1st July 2019 13,559 (363) (5) (30) (453) Depreciation charge (Note 33) – 8,024 25,713 1,923 2,661 8,878 47,199 Disposals Write-off 1,635 11 163 714 504 14,566 Exchange realignment – – (28) – (153) (181) Impairment (Note 33) (248) – (473) – – (721) At 30th June 2020 (88) – (30) (72) (26) (224) 743 – 39 – 308 3,159 Net carrying amount At 30th June 2020 10,066 25,724 1,594 3,303 9,511 63,798 At 30th June 2019 1,663 2 492 426 1,129 17,271 1,720 12 391 1,073 1,453 4,649 Note: The Group has initially applied HKFRS 16 using the modified retrospective method and adjusted the opening balances at 1st July 2019 to recognise right-of-use assets 16 17 relating to leases which were previously classified as operating leases under HKAS 17. See note 2.1(i). 2.1(i) 237 寰宇娛樂文化集團有限公司 二零二零年年報

Notes to the Consolidated Financial Statements 6 PROPERTY, PLANT AND EQUIPMENT 6 (Continued) As at 30th June 2020, the carrying amount of machinery 9,000 and equipment held by the Group under finance leases is approximately HK$Nil (2019: HK$9,000). Depreciation of approximately HK$411,000 (2019: 411,000 HK$10,000) has been charged to “cost of revenue” and 10,000 approximately 14,155,000 (2019: HK$2,885,000) has been charged to “administrative expenses” in the consolidated 14,155,000 statement of comprehensive income. 2,885,000 In accordance with the Group’s accounting policy, 2.8 property, plant and equipment (note 2.8) and right-of-use assets (note 2.10(i)) are stated at cost less accumulated 2.10(i) depreciation and impairment loss. During the year, property, plant and equipment and right-of-use assets for financial printing business were fully impaired as the value-in-use of those assets are estimated by the management of the Group to be HK$Nil because of the past poor financial performance of the business segment and it is foreseen that those assets will not be able to be used to generate positive future cash inflow. The impairment loss of property, plant and equipment 1,090,000 and right-of-use assets of approximately HK$1,090,000 2,069,000 (2019: HK$Nil) and HK$2,069,000 (2019: HK$Nil) were recognised in the consolidated statement of comprehensive income respectively. (a) Right-of-use assets (a) The analysis of the net book value of right-of-use assets by class of underlying asset is as follows: Other properties leased for own As at As at used, carried at depreciated cost 30th June 1st July Motor vehicle leased for own used, 2020 2019 carried at depreciation cost 於二零二零年 HK$’000 六月三十日 HK$’000 19,392 千港元 – 13,441 19,392 118 13,559 238 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 6 PROPERTY, PLANT AND EQUIPMENT 6 (Continued) (a) Right-of-use assets (Continued) (a) The analysis of expenses items in relation to leases recognised in profit or loss is as follows: 2020 2019 二零二零年 HK$’000 HK$’000 (Note) 千港元 – Depreciation charge of 33 11,432 – right-of-use assets by class of 107 – underlying asset: (Note 33) 33 – Other properties leased 33 11,539 – for own use 2,069 Motor vehicle leased 33 542 – for own use 33 – 2,887 Impairment loss of right-of-use 17 64 12,780 assets (Note 33) 912 – Interest on lease liabilities (Note 33) 633 Expense relating to short-term leases and other leases with remaining lease term ending on or before 30th June 2020 (Note 33) Expense relating to leases of low-value assets (Note 33) Total minimum lease payments for leases previously classified as operating leases under HKAS 17 Variable lease payments not included in the measurement of lease liabilities 寰宇娛樂文化集團有限公司 二零二零年年報 239

Notes to the Consolidated Financial Statements 6 PROPERTY, PLANT AND EQUIPMENT 6 (Continued) (a) Right-of-use assets (Continued) (a) Note: The Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1st July 2019 to recognise 16 17 right-of-use assets relating to leases which were 2.1(i) previously classified as operating leases under HKAS 17. After initial recognition of right-of-use assets at 1st July 2019. The Group as a lease is required to recognise the depreciation of right- of-use assets, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. Under this approach, the comparative information is not restated. See note 2.1(i). During the year, additions to right-of-use assets 8,231,000 were approximately HK$8,231,000. This amount primarily related to the capitalised lease payments payable under a new tenancy agreement. Details of total cash outflow for leases and the 45(c) 28 maturity analysis of lease liabilities are set out in notes 45(c) and 28 respectively. (b) Other properties leased for own use (b) The Group has obtained the right to use other properties as its office, warehouse and retail stores through tenancy agreements. The leases typically run for an initial period of 2 to 3 years. The lease of retail stores contain variable lease payment terms that are based on sales generated from the retail stores and minimum annual lease payment terms that are fixed. These payment terms are common in retail stores in Hong Kong and the PRC where the Group operates. Other than the retail stores, other leases do not include variable lease payments. (c) Other leases (c) The Group leases a motor vehicle under leases expiring in one year. The leases include an option to renew the lease when all terms are renegotiated and include an option to purchase the motor vehicle at the end of the lease term at a price deemed to be a bargain purchase option. The lease does not include variable lease payments. 240 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 7 INVESTMENT PROPERTIES 7 At fair value 按公平值 2020 2019 At the beginning of the year 二零二零年 HK$’000 Fair value change HK$’000 29,360 At the end of the year 千港元 2,100 31,460 31,460 – 31,460 Fair Value Measurement of Investment Properties (a) (a) Fair value hierarchy 13 The following table presents the fair value of the 11 Group’s investment properties measured at the end of the reporting period on a recurring basis, 22 categorised into the three-level fair value hierarchy 1 as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available Level 3 valuations: Fair value measured using 3 significant unobservable inputs 寰宇娛樂文化集團有限公司 二零二零年年報 241

Notes to the Consolidated Financial Statements 7 INVESTMENT PROPERTIES (Continued) 7 Fair Value Measurement of Investment Properties (a) (Continued) (a) Fair value hierarchy (Continued) Fair value measurements at 30th June 2020 categorised into 於二零二零年六月三十日公平值計量歸類為 Fair value at Level 1 Level 2 Level 3 30th June 2020 HK$’000 HK$’000 HK$’000 於二零二零年 六月三十日 第1級 第2級 第3級 HK$’000 HK$’000 HK$’000 之公平值 HK$’000 千港元 千港元 千港元 千港元 Recurring fair value 31,460 – – 31,460 measurement Investment properties: – Residential – Hong Kong – – Fair value measurements at 30th June 2019 categorised into Fair value at Level 1 Level 2 Level 3 30th June 2019 HK$’000 HK$’000 HK$’000 HK$’000 1 2 3 HK$’000 HK$’000 HK$’000 Recurring fair value 31,460 – – 31,460 measurement Investment properties: – Residential – Hong Kong – – During the year ended 30th June 2020, there 12 were no transfers between Level 1 and Level 2, 3 or transfer into or out of Level 3 (2019: Nil). The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur. 242 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 7 INVESTMENT PROPERTIES (Continued) 7 Fair Value Measurement of Investment Properties (a) (Continued) – (a) Fair value hierarchy (Continued) 3 All investment properties of the Group were revalued as at 30th June 2020. The valuations were carried out by an independent firm of surveyors, Ravia Global Appraisal Advisory Limited, who have amongst their staff members of the Hong Kong Institute of Surveyors with recent experience in the location and category of properties being valued. The management of the Group has discussions with the surveyors on the valuation assumptions and valuation results when the valuation is performed at each annual reporting date. (b) Information about Level 3 fair value measurements (b) Valuation Range of techniques Unobservable inputs unobservable inputs 估值方法 不可觀察之輸入 不可觀察輸入數據 於香港之投資物業 數據 之範圍 Direct comparison Investment properties approach Discount on quality 10%–15% (2019: in Hong Kong of properties 14%–16%) – Residential properties 10%–15% – 14%–16% The fair value of investment properties located in Hong Kong is determined using direct comparison approach by reference to recent sales price of comparable properties on a price per square foot basis, adjusted for a premium or discount specific to the quality of the Group’s properties compared to recent sales of comparable transactions. Higher discount for lower quality properties will result in a lower fair value measurement. 寰宇娛樂文化集團有限公司 二零二零年年報 243

Notes to the Consolidated Financial Statements 7 INVESTMENT PROPERTIES (Continued) 7 Fair Value Measurement of Investment Properties (b) 3 (Continued) 3 (b) Information about Level 3 fair value measurements 2020 二零二零年 (Continued) HK$’000 The movements during the year in the balance 千港元 of these Level 3 fair value measurements are as follows: 31,460 – Investment properties 投資物業 2019 – Residential – Hong Kong – 住宅 – 香港 31,460 HK$’000 At the beginning of the year 29,360 Fair value change 2,100 At the end of the year 31,460 244 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 8 OTHER INTANGIBLE ASSETS 8 Computer Brand name Club Total software 品牌名稱 membership 總額 HK$’000 HK$’000 電腦軟件 會籍 HK$’000 HK$’000 Cost 成本 At 1st July 2018 and 30th June 2019 Addition – 1,108 1,858 2,966 1,414 – – 1,414 At 30th June 2020 1,414 1,108 1,858 4,380 Accumulated amortisation – and impairment losses 累計攤銷及減值虧損 431 – 431 At 1st July 2018 33 – Amortisation for the year – 148 – 148 (Note 33) 33 579 – 579 33 249 At 30th June 2019 賬面值 1,165 148 – 397 Amortisation for the year 1,414 – – 1,165 – 2,141 (Note 33) – 727 Impairment (Note 33) – 1,858 2,239 381 1,858 2,387 At 30th June 2020 529 Carrying amount At 30th June 2020 At 30th June 2019 In accordance with the Group’s accounting policy 2.13(f) (note 2.13(f)), computer software is stated at cost less accumulated amortisation and impairment loss. 1,165,000 During the year, computer software for financial printing business was fully impaired as the value-in-use of the computer software is estimated by the management of the Group to be HK$Nil because of the past poor financial performance of the business segment and it is foreseen that the computer software will not be able to be used to generate positive future cash inflow. The impairment loss of the other intangible assets of approximately HK$1,165,000 (2019: HK$Nil) was recognised in the consolidated statement of comprehensive income. 寰宇娛樂文化集團有限公司 二零二零年年報 245

Notes to the Consolidated Financial Statements 9 FILM RIGHTS AND FILMS IN PROGRESS 9 Film Films in Total rights progress 總額 電影版權 製作中 HK$’000 HK$’000 之電影 HK$’000 Cost 成本 At 1st July 2018 Additions 76,470 79,652 156,122 Transfers from films in progress – 155,495 155,495 Transfers from film related deposits (41,100) Write-off of expired film rights 41,100 – 968 150 1,118 At 30th June 2019 and 1st July 2019 – (16,292) (16,292) Additions (i) 194,197 296,443 Refund of film production cost (Note (i)) 102,246 29,965 30,089 累計攤銷及減值 124 Transfer from film related deposits 33 – (3,864) Write-off of expired film rights (3,864) 78 9,033 33 8,955 (5,707) At 30th June 2020 (5,707) – 325,994 101,754 224,240 Accumulated amortisation and impairment 75,519 – 75,519 At 1st July 2018 1,747 – 1,747 Amortisation for the year (Note 33) – Impairment (Note 33) 165 – 165 Write-off of expired film rights (16,292) (16,292) – At 30th June 2019 and 1st July 2019 61,139 – 61,139 44,149 3,749 44,149 Amortisation for the year (Note 33) 33 – 4,653 Impairment (Note 33) 33 904 (5,707) Write-off of expired film rights (5,707) 3,749 104,234 賬面值 At 30th June 2020 100,485 221,760 Carrying amount 1,269 220,491 235,304 At 30th June 2020 41,107 194,197 At 30th June 2019 Note (i) During the year, the Group received a refund of (i) film production cost from a film production house 3,864,000 amounting approximately HK$3,864,000 on a film that recognised as film rights last year. Amortisation of approximately HK$44,149,000 (2019: 44,149,000 HK$1,747,000) is included in the cost of revenue in the 1,747,000 consolidated statement of comprehensive income. 246 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 9 FILM RIGHTS AND FILMS IN PROGRESS 9 (Continued) Impairment test for film rights and films in progress The Group observes whether the film rights and films 16,954,000 2.16 in progress for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights 13,205,000 950,000 segment are subject to any impairment indication, in 11% 46,000 accordance with the accounting policies set out in note 14% 2.16 of these consolidated financial statements. During the year ended 30th June 2020, management assessed whether there was an impairment indicator in relation to the film rights and films in progress for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights segment by reviewing the cast or scale of each films, current market condition, the trade history, current financial position and popularity of film outline stories. Management has further performed an assessment on the recoverable amount of the film rights and film in progress based on each film sales forecast. As at 30th June 2020, the Group assessed that there were impairment indication for certain films included in films rights and film in progress with gross carrying amount of approximately HK$950,000 and HK$16,954,000 respectively because of the change of comparable market information and expected performance. As at 30th June 2020, these film rights and film in progress have been reduced to its recoverable amount of approximately HK$46,000 and HK$13,205,000 respectively. The recoverable amount was determined on a title-by-title basis, and is assessed with reference to a value-in-use calculation at the end of the reporting period, which was derived from discounting the projected cash flow forecast using a discount rate of 11% (2019: 14%). Key assumptions for the value-in-use calculations related to the estimation of cash inflow include the budget film exhibition income, budget licensing and sub-licensing income revenue and discount rate. Such estimation is based on the historical box office of the same director and main cast members, the market comparable data of films with the same theme, and management’s expectations of the market development. The discount rate used is before tax and reflected current market assessment of the time value of money and the risks specific to the film production business. 寰宇娛樂文化集團有限公司 二零二零年年報 247

Notes to the Consolidated Financial Statements 9 FILM RIGHTS AND FILMS IN PROGRESS 9 (Continued) Impairment test for film rights and films in progress 904,000 165,000 (Continued) 3,749,000 Taking into account the impairment assessment performed by the management, an impairment loss of film rights of approximately HK$904,000 (2019: HK$165,000) and an impairment loss of films in progress of approximately HK$3,749,000 (2019: HK$Nil) were recognised respectively in the consolidated statement of comprehensive income for the year ended 30th June 2020 to reduce the carrying amounts of certain film rights and films in progress to their recoverable amounts. The directors and management have considered and assessed reasonably possible changes for other key assumptions and have not identified any instances that could cause the carrying amounts of film rights and film in progress to exceed their recoverable amounts as at 30th June 2020. 248 Universe Entertainment and Culture Group Company Limited Annual Report 2020

Notes to the Consolidated Financial Statements 10 PRINCIPAL SUBSIDIARIES 10 The following is a list of the principal subsidiaries as at 30th June 2020. Place of incorporation/ Principal Proportion Proportion of ordinary of ordinary Proportion establishment and kind Particulars of activities and shares shares of ordinary Name of legal entity issued share capital place of operation directly held by shares held held by other group by non- parent (%) entities controlling 直接由 (%) interests (%) 母公司持有 由集團 的普通股 比例(%) 其他成員 由非控股 100% 持有 權益持有的 名稱 註冊成立╱成立地點 已發行股本詳情 主要業務及營業地點 的普通股 普通股 及法律實體類別 Ordinary US$100 比例(%) 比例(%) Universe Films (Holdings) Investment holding in Limited* The British Virgin Islands, 100 Hong Kong –– limited liability company Universe Films Distribution Hong Kong, limited Ordinary HK$2 Sub-licensing of film – 100% – Company Limited liability company rights and television series, film exhibition and leasing of investment properties in Hong Kong 2 Unique Model Limited* Hong Kong, limited Ordinary HK$100 Model agency in – 100% – liability company 100 Hong Kong – 100% – Universe Digital Entertainment Hong Kong, limited Ordinary HK$10,000 5% Distribution of films in Limited liability company deferred HK$10,000 various videogram formats in Hong Kong 10,000 5% 10,000 Universe Management Services Hong Kong, limited Ordinary HK$10,000 5% Provision of management – 100% – deferred HK$10,000 services for the Group Limited liability company in Hong Kong 10,000 5% 10,000 寰宇娛樂文化集團有限公司 二零二零年年報 249