NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
68
CITIC ENVIROTECH LTD.
Annual Report
2015
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
2.17 Convertible bonds
Convertible bonds issued by the Company that contain both the liability and conversion option
components are classified separately into respective items on initial recognition. Conversion option
that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed
number of the Company’s own equity instruments is classified as an equity instrument.
On initial recognition, the fair value of the liability component is determined using the prevailing
market interest of similar non-convertible debts. The difference between the gross proceeds of the
issue of the convertible bonds and the fair value assigned to the liability component, representing
the conversion option for the holder to convert the bonds into equity, is included in equity
(convertible bonds reserve). In subsequent periods, the liability component of the convertible bonds
is carried at amortised cost using the effective interest method. The equity component, representing
the option to convert the liability component into ordinary shares of the Company, will remain in
convertible bonds reserve until the embedded option is exercised (in which case the balance
stated in convertible bonds reserve will be transferred to share capital. Where the option remains
unexercised at the expiry date, the balance stated in convertible bonds reserve will be released to
retained earnings. No gain or loss is recognised in profit or loss upon conversion or expiration of the
option.
Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and
equity components in proportion to the allocation of the gross proceeds. Transaction costs relating
to the equity component are charged directly to equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability portion and amortised over the period
of the convertible bonds using the effective interest method.
2.18 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is
reduced for estimated customer returns, rebates and other similar allowances.
Sale of goods
Revenue from the sale of goods is recognised when all the following conditions are satisfied:
the Group has transferred to the buyer the significant risks and rewards of ownership of the
goods;
the Group retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group;
and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Specifically, revenue from the sale of goods is recognised when the goods are delivered and legal
title is passed.
