CSBC — Audit Report / Information 2017

Nov 6, 2017

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2017 AND 2016

For the convenience of readers and for information purpose only, the auditors' report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors' report and financial statements shall prevail.

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES Declaration of Consolidated Financial Statements of Affiliated Enterprises

Year ended December 31, 2017, pursuant to "Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises," the company that is required to be included in the consolidated financial statements of affiliates, is the same as the company required to be included in the consolidated financial statements of parent and subsidiary companies under IFRS 10. And if relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies, it shall not be required to prepare separate consolidated financial statements of affiliates.

Hereby declare,

CSBC CORPORATION, TAIWAN

WEN-LON CHENG

March 23, 2018

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR 17000351

To the Board of Directors and Shareholders of CSBC CORPORATION, TAIWAN

Opinion

We have audited the accompanying consolidated balance sheets of CSBC CORPORATION, TAIWAN and its subsidiaries (the "Group") as at December 31, 2017 and 2016, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the "Regulations Governing the Preparations of Financial Reports by Securities Issuers" and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the "Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants" and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the "Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

資誠聯合會計師事務所 PricewaterhouseCoopers, Taiwan 80048 高雄市新興區民族二路 95號 22樓 22F, No. 95, Minzu 2nd Rd., Xinxing Dist., Kaohsiung 80048, Taiwan T: +886 (7) 237 3116, F: +886 (7) 236 5631, www.pwc.tw

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Accounting estimates and assumptions for total cost of construction contract

Description

Please refer to Note 4(13) for a description of the accounting policy on construction contracts. Please refer to Note 5 for critical accounting estimates and assumptions for total cost of construction contracts.

The Group is engaged in in the business of designing and building of various ships and cruisers. Assumptions for estimated construction cost include cost for equipment, material, labor and etc. Data used for assumptions involves subjective judgement and accounting estimates and are highly uncertain. As a result, assumptions used are material to the total construction cost and further affects the calculation of construction profit.

As the data used for assumptions involves subjective judgement and accounting estimates are highly uncertain, this may affect the completeness and relevant assertions. Considering that the estimated total cost of construction contracts is material to the financial statements, therefore, we assessed that these accounting estimates and assumptions as one of the key audit matters for this year.

How our audit addressed the matter

The scope of our audit responded to the risk as follows:

• 1. Assessing the effectiveness of CSBC Group's internal control regarding the estimation process of total cost of construction contract. This includes:
• (1) Whether the data used by management for estimates and assumptions is complete, relevant and accurate.
• (2) Whether accounting estimates and assumptions have been reviewed and approved by proper management level.
• (3) Whether the segregation of duties is appropriate.

• 1. Obtaining the Estimate at Completion Reports, selecting sample reports and verifying the accuracy, completeness and relevance of the data that was used for assumptions and estimations. Checking whether the use of estimates and assumptions in the Estimate at Completion Reports are appropriate.
• Comparing cost at completion for the same or similar ships and then assessing the reasonableness $3.$ of the Estimate at Completion Report.

Assessment of construction loss

Description

Please refer to Note 4(13) for a description of the accounting policy on construction contracts.

There is a concern regarding the oversupply in the shipbuilding industry worldwide. Customers tend to behave conservatively which causes a decline in ship prices. Thus, there is a high possibility of total construction cost exceeding total construction revenue. In accordance with the Group's accounting policy on construction contracts, when there is a high possibility of total construction cost exceeding total construction revenue, estimated loss shall be recognised immediately.

The aforementioned estimated loss shall include constructions that have not yet been initiated. As the estimated loss is material to the financial statements, therefore, we assessed that the estimated loss as one of the key audit matters for this year.

How our audit addressed the matter

The scope of our audit responded to the risk as follows:

• $1.$ Obtaining calculation table of construction in progress – construction income / loss. Checking whether it includes all the construction contracts including those contracts that have not yet been initiated.
• Testing the accuracy of calculation table by selecting samples and performing the following audit 2. procedures:
• (1) Reviewing construction contracts and checking the contractual price and foreign exchange rates in order to verify the accuracy of calculation.
• (2) Verifying estimated total construction cost to management's calculation in order to check the consistency of estimates and assumptions used.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of CSBC CORPORATION TAIWAN, as at and for the years ended December 31, 2017 and 2016.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the "Regulations Governing the Preparations of Financial Reports by Securities Issuers" and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, 1. whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• $2.$ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting $3₁$ estimates and related disclosures made by management.
• $4.$ Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• 1. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or 6. business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

WANG, KUO-HUA

WU, CHIEN-CHIH

For and on behalf of PricewaterhouseCoopers, Taiwan March 23, 2018

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(Expressed in thousands of New Taiwan dollars)

			December 31, 2017		December 31, 2016
	Assets	Notes	AMOUNT	$\overline{\frac{0}{6}}$	AMOUNT	℅
	Current assets
1100	Cash and cash equivalents	6(1)	\$ 281,814	$\mathbf{1}$	\$ 191,133	1
1150	Notes receivable, net		5,790
1170	Accounts receivable, net	6(2)(22)	1,361,950	6	745,273	3
1180	Accounts receivable - related	$6(22)$ and 7
	parties		24,976		3,764
1190	Receivables from customers on	6(3)(22)
	construction contracts		5,326,519	24	7,743,504	28
1195	Receivables from customers on	$6(3)(22)$ and 7
	construction contracts - related
	parties				1,793,119	6
1200	Other receivables		114,854	1	66,608
1210	Other receivables - related parties 7		24,942		42,040
130X	Inventories, net	6(4)(22)	2,321,061	10	3,852,866	14
1410	Prepayments	$6(5)$ and 7	626,292	3	1,118,929	4
1479	Other current assets, others		490		573
11XX	Total current Assets		10,088,688	45	15,557,809	56
	Non-current assets
1550	Investments accounted for under	6(7)
	equity method		1,645		166,616	1
1600	Property, plant and equipment,	$6(8)(9)$ and 10
	net		10,563,764	48	10,709,596	39
1760	Investment property, net	6(8)(9)	234,055	$1^{\degree}$	234,382	$\mathbf{1}$
1780	Intangible assets, net	6(10)	23,010		28,847
1840	Deferred income tax assets	6(29)	1,351,762	6	888,560	$\mathfrak{Z}$
1920	Refundable deposits	7	20,469		85,132	$\qquad \qquad \blacksquare$
15XX	Total non-current assets		12, 194, 705	55	12, 113, 133	44
1XXX	Total assets		\$ 22, 283, 393	100	\$ 27,670,942	100

(Continued)

$\mathcal{A}^{\mathcal{A}}$

$\sim$

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(Expressed in thousands of New Taiwan dollars)

$\bar{z}$

				December 31, 2017		December 31, 2016
	Liabilities and Equity	Notes		AMOUNT	$\overline{\frac{9}{6}}$	AMOUNT	%
	Current liabilities
2100	Short-term borrowings	6(11)	\$	2,287,784	10	\$ 6,395,125	23
2110	Short-term notes and bills payable $6(12)$			699,769	3	999,735	4
2120	Financial liabilities at fair value	6(13)
	through profit or loss - current			280
2150	Notes payable			15
2160	Notes payable - related parties	$6(22)$ and 7		223,073	$\mathbf{1}$	324,457	1
2170	Accounts payable	$6(22)$ and 7		1,170,559	5	1,080,044	4
2190	Payables to customers on	6(3)(22)
	construction contracts			1,060,906	5	2,612,399	9
2195	Payables to customers on	$6(3)(22)$ and 7
	construction contracts - related
	parties			1,023,847	5
2200	Other payables	6(14)		1,284,818	6	1,412,155	5
2230	Current income tax liabilities			222	$\blacksquare$	3,586
2250	Provisions for liabilities - current $6(18)(22)$			140,219	$\mathbf{1}$	139,687	$\mathbf{1}$
2305	Other current financial liabilities - 6(16)
	current					150,000	$\mathbf{1}$
2310	Unearned receipts			91,074		10,302
21XX	Total current Liabilities			7,982,566	36	13, 127, 490	48
	Non-current liabilities
2540 2570	Long-term borrowings Deferred income tax liabilities	6(15)		5,498,057	24		5
2610	Long-term notes, accounts and	6(29) 6(16)		1,324,910	6	1,324,910
	overdue payable			659,156	3	564,603	$\boldsymbol{2}$
2630	Long-term deferred revenue	6(16)		82,344	$\blacksquare$	26,897
2640	Net defined benefit liability, non-	6(17)
	current			171,702	$\mathbf{1}$	180,514
2645	Guarantee deposits received			172,614	1	203,717	$\mathbf{1}$
2670	Other non-current liabilities,
	others			12,960		13,153
25XX	Total non-current liabilities			7,921,743	35	2,313,794	8
2XXX	Total Liabilities			15,904,309	71	15,441,284	56
	Equity attributable to owners of
	parent
	Share capital
3110	Common stock	6(19)		7,435,652	34	7,435,652	27
	Capital surplus
3200	Capital surplus	6(20)		1,965		1,965
	Retained earnings	6(21)(29)
3310 3320	Legal reserve Special reserve			1,065,297	5 14	1,065,297	4
3350	Unappropriated retained earnings			3,190,349 5, 357, 848)	(24)	3,190,349 489,400	11
31XX	Total equity attributable to						$\overline{2}$
	owners of the parent			6,335,415	29	12,182,663
36XX	Non-controlling interest			43,669		46,995	$\frac{44}{1}$
3XXX	Total equity			6,379,084	29	12,229,658	44
	Significant contingent liabilities	$6(31)$ , 7 and 9
	and unrecognized contract
	commitments
	Significant disaster loss	10
	Significant subsequent events	11
3X2X	Total liabilities and equity		$\overline{\mathbf{r}}$	22, 283, 393	100	27,670,942 $\frac{\$}{}$	100

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

$\hat{\mathcal{A}}$

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars, except loss per share)

$\sim$

			Year ended December 31
				2017		2016
	Items	Notes		AMOUNT	$\%$	AMOUNT	$\overline{\frac{9}{6}}$
4000 5000	Operating revenue Operating costs	$6(23)$ and 7 6(4)(10)(26)(27)(3)	\$	16,404,344	100 \$	15,747,699	100
		1) and $7$		$22, 126, 232)$ (	$135)$ (	16,807,927)	107)
5900	Net operating loss			5,721,888)	35)	,060,228) 1	$\overline{1}$
	Operating expenses	6(10)(26)(27)
6100	Selling expenses			78,575)	- (	92,352)
6200	General and administrative
6300	expenses Research and development			301,826) (	$2)$ (	$310, 254$ ) (	2)
	expenses			$126,676$ ) (	$1)$ (	$102, 196)$ (	1)
6000	Total operating expenses			$507,077$ ) (	3)	504,802)	$\overline{3}$ )
6900	Operating loss			$6,228,965$ (	38)	,565,030)	10)
	Non-operating income and
	expenses
7010	Other income	6(9)(16)(24)(31)		45,615		49,984
7020	Other gains and losses	$6(13)(25)$ and 10	€	$127,543$ ) (	1)	49,475
7050	Finance costs	6(3)(8)(16)(28)		21,281)	ä, $\left($	36,052)
7060	Share of loss of associates and	6(7)
	joint ventures accounted for under equity method
7000	Total non-operating income			20,868)		33,779)
	and expenses			$124,077$ ) (	1)	29,628
7900	Loss before income tax			$\overline{6,353,042}$ (	39(	$1,535,402$ ) (	$\overline{10}$
7950	Income tax benefit	6(29)		469,843	3	248,593
8200	Loss for the year		$\sqrt{3}$	5,883,199)	$\overline{36}$ $\sqrt{3}$	1,286,809)	$\frac{2}{8}$
	Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss
8311	Gains on remeasurements of defined benefit plans	6(17)	\$	39,602	\$	33,986
8349	Income tax related to components of other comprehensive income that will not be reclassified to profit or	6(29)
	loss			6,732)		5,778)
8300	Other comprehensive income			32,870		28,208
8500	Total comprehensive loss for the
	year			5,850,329	36) $($ \$	1,258,601)	8)
8610	Profit (loss), attributable to: Equity holders of the company		$($ \$	$5,880,118$ (	$36)$ (\$	$1,287,100$ ) (	8)
8620	Non-controlling interest Total		(\$	3,081) $\overline{5,883,199}$	$\overline{36}$ ) ( $\overline{\$}$	291 $1,286,809$ )	$\overline{\frac{8}{}}$
	Comprehensive (loss) income attributable to:
8710 8720	Equity holders of the company Non-controlling interest		$($ \$	$5,847,248$ ) ( 3,081)	$36)$ (\$)	$1,258,892$ ( 291	8)
	Total		$\overline{\mathfrak{s}}$	$5,850,329$ ) (	$\frac{36}{6}$ (\$)	$1,258,601$ )	$\overline{8}$
9750	Basic loss per share Total basic loss per share	6(30)	(\$		7.91) (\$		1.73)

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

					(Expressed in thousands of New Taiwan dollars)	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CSBC CORPORATION, TAIWAN AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 2017 AND 2016
						Equity attributable to owners of the parent Retained Earnings
	Notes	Share capital - common stock		Capital surplus	Legal reserve	Special reserve		(accumulated deficit) retained earnings Unappropriated	Total		Non-controlling interest			Total equity
2016
Balance at January 1, 2016		7,435,652 ↔	↔	1,965	\$1,018,481	\$3,190,349	↮	2,166,890	↮	13,813,337	⇔	51,035	↔	13,864,372
Distribution of 2015 earnings:
Legal reserve					46,816			46,816)
Cash dividends	6(21)							371,782)		371,782)				371,782)
Net (loss) profit for 2016								1,287,100)		1,287,100)		291		1,286,809)
Other comprehensive income for 2016								28,208		28,208				28,208
Cash dividends distributed to non- controlling interests												4,331)		$4,331$ )
Balance at December 31, 2016		7,435,652 ⇔∣	إجبه	$\frac{200}{200}$	$\frac{1,065,297}{2}$	3,190,349 اومه	↮	489,400	اچە	12,182,663	↮	46,995	إجبه	12,229,658
2017
Balance at January 1, 2017		7,435,652 ÷	↔	1,965	\$1,065,297	\$3,190,349	ڝ	489,400	↮	12,182,663	⇔	46,995	↔	12,229,658
Net loss for 2017								5,880,118)		5,880,118)		3,081)		5,883,199)
Other comprehensive income for 2017								32,870		32,870				32,870
Cash dividends distributed to non- controlling interests												245)		245)
Balance at December 31, 2017		7,435,652 ⊷	ω,	1,965	\$1,065,297	3,190,349 ๛่	의	$5,357,848$ )	s,	6,335,415	⊷	43,669	⊷∣	6,379,084

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

$\frac{1}{2}$

$\frac{2}{7}$

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

	Notes		2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax		$($ \$	6,353,042)	$($ \$
Adjustments					1,535,402)
Adjustments to reconcile profit (loss)
Depreciation of property, plant and equipment	6(8)(26)		515,546		561,389
Depreciation of investment property	6(9)(26)		375		375
Amortization of intangible and other assets	6(10)(26)		15,908
Provision for doubtful accounts	6(2)		7,353		13,348
Loss on investments accounted for using equity method	6(7)				2,611
Profit on valuation of financial assets and liabilities	6(13)(25)		20,868		33,779
Government grant income	6(24)	(	11,463)	-0	824)
Interest income	6(24)	(	$11,018$ )	$\left($	14,452)
Interest expense	6(28)	$\overline{(\ }$	$2,368$ ) 21,281	- (	1,972) 36,052
Disaster loss	$6(25)$ and 10				17,379
Loss on disposal of property, plant and equipment	6(25)		1,221		2,369
Impairment loss	6(7)(25)		144,103
Changes in operating assets and liabilities
Changes in operating assets
(Increase) decrease in notes receivable		$\overline{\mathcal{L}}$	5,790)		2,400
Increase in accounts receivable		€	$624,030$ ) (		457,813)
(Increase) decrease in accounts receivable - related parties		$\overline{(\ }$	21,212)		18,186
Decrease (increase) in receivables from customers on construction
contracts			2,416,985	$\left($	1,258,391)
Decrease (increase) in receivables from customers on construction
contracts - related parties			1,793,119	€	1,793,119)
(Increase) decrease in other receivables		(	48,280)		55,402
Decrease in other receivables - related parties			17,098		21,371
Decrease (increase) in inventories			1,531,805	€	1,469,260)
Decrease in prepayments			492,637		462,261
Decrease in other current assets			83		141
Changes in operating liabilities
Increase in financial liabilities at fair value through profit or loss			11,743		824
Increase in notes payable			15
(Decrase) increase in notes payable - related partie		$\overline{\phantom{a}}$	101,384)		126,058
Increase in accounts payable			90,515		76,985
Decrease in payables to customers on construction contracts		$\left($	1,551,493) (		1,025,495)
Increase (decrase) in payables to customers on construction
contracts - related parties			1,023,847	(	362,765)
(Decrease) increase in other payables		$\left($	5,529)		2,868
Increase (decrease) in provisions for liabilities - current			532	$\left($	27,704)
Increased in unearned receipts			80,772		4,958
Increase in net defined benefit liability - non-current			30,790		33,801
Cash outflow generated from operations			519,013) (		6,474,640)
Interest received			2,402		2,616
Payment of interest			82,089)		41,392)
Income tax paid			3,455)		8,241)
Net cash flows used in operating activities			602,155)		6, 521, 657)

(Continued)

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

	Notes		2017	2016
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of held-to-maturity financial assets		\$		\$ 99,000
Acquisition of investments accounted for using equity method	6(32)			178,156)
Acquisition of property, plant and equipment	6(32)	€	420,965)	279,326)
Proceeds from disposal of property, plant and equipment				5,193
Acquisition of intangible assets	6(10)	(	$10,071$ ) (	5,250)
Increase in refundable deposits		(	$317,125$ ) (	612,781)
Decrease in refundable deposits			381,788	607,609
Net cash flows used in investing activities			366,373)	363,711)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings		$\left($	4,107,341)	5,878,529
(Decrease) increase in short-term notes and bills payable		$\epsilon$	299,966)	999,735
Decrease in other financial liabilities - government grants				150,000)
Proceeds from long-term debt			5,498,057
Increase in guarantee deposit received			102,038	152,317
Decrease in guarantee deposit received		$\left($	$133, 141$ ) (	152,720)
(Decrease) increase in other non-current liabilities		1	193)	1,029
Cash dividends paid	6(21)			371,782)
Cash dividends paid to non-controlling interests			245)	4,331)
Net cash flows from financing activities			1,059,209	6,352,777
Net increase (decrease) in cash and cash equivalents			90,681	532,591)
Cash and cash equivalents at beginning of year	6(1)		191,133	723,724
Cash and cash equivalents at end of year	6(1)	\$	281,814	\$ 191,133

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

CSBC CORPORATION, TAIWAN AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANIZATION

• (1) On May 1, 1946, Taiwan Machinery and Shipbuilding Company was established by merging Taiwan Dockyard Company with Taiwan Steel Works and Tong Kuang Company in Kaohsiung. The Headquarters is located in Kaohsiung.
• (2) In July, 1973, China Shipbuilding Corporation (the "Company") was established and reverted to being a state–owned company. In January, 1978, China Shipbuilding Corporation merged with Taiwan Machinery and Shipbuilding Company resulting in the formation of China Shipbuilding Corporation. The Group is engaged in the business of building, manufacturing and repair of various ships and onshore equipment, ship coating, anti-corrosion coating on large steel structure, surface treatment and professional coating.
• (3) On March 1, 2007, China Shipbuilding Corporation changed its name to CSBC Corporation, Taiwan.

(4) The Company is a listed company since December 22, 2008.

1. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March 23, 2018

• 1. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
• (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards ("IFRS") as endorsed by the Financial Supervisory Commission ("FSC")

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

	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IFRS 10, IFRS 12 and IAS 28, 'Investment entities: applying the consolidation exception'	January 1, 2016
Amendments to IFRS 11, 'Accounting for acquisition of interests in joint operations'	January 1, 2016
IFRS 14, Regulatory deferral accounts'	January 1, 2016
Amendments to IAS 1, 'Disclosure initiative'	January 1, 2016

	Effective date by International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IAS 16 and IAS 38, 'Clarification of acceptable methods of depreciation and amortisation'	January 1, 2016
Amendments to IAS 16 and IAS 41, 'Agriculture: bearer plants'	January 1, 2016
Amendments to IAS 19, 'Defined benefit plans: employee contributions'	July 1, 2014
Amendments to IAS 27, 'Equity method in separate financial statements'	January 1, 2016
Amendments to IAS 36, 'Recoverable amount disclosures for non- financial assets'	January 1, 2014
Amendments to IAS 39, 'Novation of derivatives and continuation of hedge accounting'	January 1, 2014
IFRIC 21, 'Levies'	January 1, 2014
Annual improvements to IFRSs 2010-2012 cycle	July 1, 2014
Annual improvements to IFRSs 2011-2013 cycle	July 1, 2014
Annual improvements to IFRSs 2012-2014 cycle	January 1, 2016

The above standards and interpretations have no significant impact to the Group's financial condition and financial performance based on the Group's assessment.

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

New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as follows: $\sim$

	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IFRS 2, 'Classification and measurement of share-	January 1, 2018
based payment transactions'
Amendments to IFRS 4, 'Applying IFRS 9 Financial instruments	January 1, 2018
with IFRS 4 Insurance contracts'
IFRS 9, 'Financial instruments'	January 1, 2018
IFRS 15, 'Revenue from contracts with customers'	January 1, 2018
Amendments to IFRS 15, 'Clarifications to IFRS 15 Revenue from	January 1, 2018
contracts with customers'
Amendments to IAS 7, 'Disclosure initiative'	January 1, 2017

$\sim$

New Standards, Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendments to IAS 12, 'Recognition of deferred tax assets for unrealised losses'	January 1, 2017
Amendments to IAS 40, 'Transfers of investment property'	January 1, 2018
IFRIC 22, 'Foreign currency transactions and advance consideration'	January 1, 2018
Annual improvements to IFRSs 2014-2016 cycle- Amendments to IFRS 1, 'First-time adoption of International Financial Reporting Standards'	January 1, 2018
Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS 12, 'Disclosure of interests in other entities'	January 1, 2017
Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS 28, 'Investments in associates and joint ventures'	January 1, 2018

Except for the following, the above standards and interpretations have no significant impact to the Group's financial condition and financial performance based on the Group's assessment.

A. IFRS 9, 'Financial instruments'

• (a) Classification of debt instruments is driven by the entity's business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.
• (b) The impairment losses of debt instruments are assessed using an 'expected credit loss' approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognise 12-month expected credit losses or lifetime expected credit losses (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Group shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

B. IFRS 15, 'Revenue from contracts with customers'

IFRS 15, 'Revenue from contracts with customers' replaces IAS 11 'Construction contracts', IAS 18 'Revenue' and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer.

Step 2: Identify separate performance obligations in the contract(s).

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price.

Step 5: Recognise revenue when the performance obligation is satisfied.

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

C. Amendments to IAS 7, 'Disclosure initiative'

This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

The Group expects to provide additional disclosure to explain the changes in liabilities arising from financing activities.

When adopting the new standards endorsed by the FSC effective from 2018, the Group will apply the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. Further, the Group expects to adopt IFRS 15 using the modified retrospective approach. The significant effects of applying the new standards as of January 1, 2018 are summarised below:

A. In accordance with IFRS 9, the Group expects to make an irrevocable election at initial recognition on equity instruments not held for dealing or trading purpose, and to reclassify financial assets at cost into financial assets at fair value through other comprehensive income.

B. Presentation of contract assets and contract liabilities

In line with IFRS 15 requirements, the Group expects to change the presentation of certain accounts in the balance sheet as follows:

(a) IFRS requires revenue arising from construction contracts in relation to shipbuilding, vessel construction and machinery manufacturing to be recognised as contract assets prior to the receipt of consideration or payment from customers. The revenue arising prior to the rendering of services that has been committed but not transferred to customers is recognised as contract liabilities. In accordance with IAS 11, net income or loss will be reclassified as receivables or payables on construction contracts.

Under IAS 37, provision is recognised for onerous contracts. An expected loss associated with the construction work performed during prior reporting period is measured in accordance with IAS 11, 'Construction contracts' and adjusted to receivables or payables on construction contracts accordingly.

The resulting difference is adjusted by decreasing construction contracts receivables and payables on construction contracts in the amount of \$5,326,519 and \$2,084,753, as well as increasing contract assets, contract liabilities and provision in the amount of \$6,269,651, \$877,665 and \$2,150,220, respectively.

(b) Under IFRS 15, ship repairs and anti-corrosion coating contracts whereby services have been rendered but not yet billed are recognised as contract assets. As of January 1, 2018, the balance would amount to \$55,447.

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

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs endorsed by the FSC are as follows:

	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IFRS 9, 'Prepayment features with negative compensation'	January 1, 2019
Amendments to IFRS 10 and IAS 28, 'Sale or contribution of assets between an investor and its associate or joint venture'	To be determined by International Accounting Standards Board
IFRS 16, 'Leases'	January 1, 2019
IFRS 17, 'Insurance contracts'	January 1, 2021
Amendments to IAS 19, 'Plan amendment, curtailment or settlement'	January 1, 2019

	Effective date by
	International Accounting
New Standards, Interpretations and Amendments	Standards Board
Amendments to IAS 28, 'Long-term interests in associates and joint	$\sim$ $\sim$ $\sim$

Amendments to $\text{As } 2\delta$ , Long-term merests in associates and follit ventures'	January 1, 2019
IFRIC 23, 'Uncertainty over income tax treatments'	January 1, 2019
Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group's financial condition and financial performance based on the Group's assessment. The quantitative impact will be disclosed when the assessment is complete.

A. IFRS 16, 'Leases'

IFRS 16, 'Leases', replaces IAS 17, 'Leases' and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

B. IFRIC 23, 'Uncertainty over income tax treatments'

This Interpretation clarifies when there is uncertainty over income tax treatments, an entity shall recognise and measure its current or deferred tax asset or liability applying the requirements in IAS 12, 'Income taxes' based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this Interpretation.

• C. Annual improvements to IFRSs 2015-2017 cycle
• (a) Amendments to IAS 12, 'Income taxes'

The amendment clarified that the income tax consequences of dividends on financial instruments classified as equity should be recognised according to where the past transactions or events that generated distributable profits were recognised. These requirements apply to all income tax consequences of dividends.

(b) Amendments to IAS 23, 'Borrowing costs'

$\bar{\mathcal{A}}$

The amendments clarified that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use or sale, it becomes part of general borrowings.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the "IFRSs").

• (2) Basis of preparation
• A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
  • (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
  • (b) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.
• B. The preparation of financial statements in compliance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
• (3) Basis of consolidation

• A. Basis for preparation of consolidated financial statements:

  • (a) All subsidiaries are included in the Group's consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
  • (b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
  • (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance.

• (d) Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.

• (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

				% of shares held as of
				December 31,
Name of Investor	Name of Subsidiary	Main business activities	2017	2016	Note
CSBC CORPORATION, TAIWAN	CSBC Coating Solutions Co., Ltd.	Marine coating, steel structure painting works. surface treatment, and high- tech anti-corrosion	70	70
CSBC Coating Solutions Co., Ltd.	BLUE ACE CORPORATION	Marine coating, steel structure painting works, surface treatment, and high-tech anti-corrosion	100	100	Note
CSBC Coating Solutions Co., Ltd.	Blue Ocean Wind Power Engineering (Hong Kong) Limited	Marine works services	100	100

B. Subsidiaries included in the consolidated financial statements:

Note: The subsidiary was established in July 2016.

• C. Subsidiaries not included in the consolidated financial statements: None.
• D. Adjustments for subsidiaries with different balance sheet dates: None.
• E. Significant restrictions: None.
• F. Subsidiaries that have non-controlling interests that are material to the Group:

The non-controlling interests are not material to the Group.

(4) Foreign currency translation

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in New Taiwan Dollar, which is the Company's functional and the Group's presentation currency.

• A. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.
• B. Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon retranslation at the balance sheet date are recognised in profit or loss.
• C. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are retranslated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
• D. All foreign exchange gains and losses are presented in the statement of comprehensive income within 'other gains and losses'.
• (5) Classification of current and non-current items

• A. The Company is engaged in the business of shipbuilding, vessel building, major machinery building and ship repairing such that the contractual periods of these projects are usually over one year. Therefore, the assets and liabilities of these projects are classified as current assets or liabilities if the period of the project is shorter than the operating cycle; otherwise they are classified as non-current assets or liabilities. The classification criteria of assets and liabilities that are not project related are as follows : Current assets include cash, the assets held for trading or the assets arising from operating activities that are expected to be consumed or to be realized within twelve months from the balance sheet date; fixed assets and other assets that are not classified as current assets are non-current assets. Current liabilities include the liabilities arising mainly from trading activities and are expected to be settled within twelve months from the balance sheet date. The liabilities that are not classified as current liabilities are non-current liabilities

• B. Classification of current and non-current items of the Company's subsidiaries is as follows:

• (a) Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
  • i. Assets arising from operating activities that are expected to be realised, or are intended to be sold or consumed within the normal operating cycle;
  • ii. Assets held mainly for trading purposes;
  • iii. Assets that are expected to be realised within twelve months from the balance sheet date;
  • iv. Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.
• (b) Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
  • i. Liabilities that are expected to be settled within the normal operating cycle;
  • ii. Liabilities arising mainly from trading activities;
  • iii. Liabilities that are to be settled within twelve months from the balance sheet date;
  • iv. Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
• (6) Cash equivalents

Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

• (7) Financial assets at fair value through profit or loss

• A. Financial assets at fair value through profit or loss are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:

  • (a) Hybrid (combined) contracts; or
  • (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

• (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

• B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using settlement date accounting.
• C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in profit or loss.

(8) Held-to-maturity financial assets

• A. Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity date that the Group has the positive intention and ability to hold to maturity other than those that meet the definition of loans and receivables and those that are designated as at fair value through profit or loss or as available-for-sale on initial recognition.
• B. If the Group has sold or reclassified more than an insignificant amount of held-to-maturity investments before the maturity date during the current or the two preceding financial years, then any financial assets should not be classified as held-to-maturity financial assets and all of its remaining held-to-maturity investments must be reclassified as available-for-sale.
• C. On a regular way purchase or sale basis, held-to-maturity financial assets are recognised and derecognised using trade date accounting.
• D. Held-to-maturity financial assets are initially recognised at fair value on the trade date plus transaction costs and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Amortisation of a premium or a discount on such assets is recognised in profit or loss.

(9) Accounts receivable

Accounts receivable are claims resulting from undertaking construction projects or providing services. Receivables arising from transactions other than undertaking construction projects or providing services are classified as other receivables. Notes, accounts and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.

(10) Impairment of financial assets

A. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

• B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:
• (a) Significant financial difficulty of the issuer or debtor;
• (b) A breach of contract, such as a default or delinquency in interest or principal payments;
• (c) The Group, for economic or legal reasons relating to the borrower's financial difficulty. granted the borrower a concession that a lender would not otherwise consider;
• (d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• (e) The disappearance of an active market for that financial asset because of financial difficulties;
• (f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;
• (g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;
• (h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
• C. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:
• (a) Financial assets measured at amortised cost

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) Financial assets measured at cost

The amount of the impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognised in profit or loss. Impairment loss recognised for this category shall not be reversed subsequently. Impairment loss is recognised by adjusting the carrying amount of the asset directly.

(11) Derecognition of financial assets

The Group derecognises a financial asset when one of the following conditions is met:

• A. The contractual rights to receive the cash flows from the financial asset expire.
• B. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.
• C. The contractual rights to receive cash flows of the financial asset have been transferred; however, the Group has not retained control of the financial asset.

(12) Inventories

The perpetual inventory system is adopted for inventory recognition. Inventories are stated at cost. The cost is determined using the weighted-average method. At the end of period, inventories are evaluated at the lower of cost or net realizable value, and the individual item approach is used in the comparison of cost and net realizable value. The calculation of net realizable value is based on the estimated selling price in the normal course of business, net of estimated costs of completion and estimated selling expenses.

(13) Construction contracts

• A. IAS 11, 'Construction Contracts', defines a construction contract as a contract specifically negotiated for the construction of an asset. If the outcome of a construction contract can be estimated reliably and it is probable that this contract would make a profit, contract revenue should be recognised by reference to the stage of completion of the contract activity, using the percentage-of-completion method of accounting, over the contract term. Contract costs are expensed as incurred. The stage of completion of a contract is measured by the proportion of contract costs incurred for work performed to date to the estimated total costs for the contract. An expected loss where total contract costs will exceed total contract revenue on a construction contract should be recognised as an expense as soon as such loss is probable. If the outcome of a construction contract cannot be estimated reliably, contract revenue should be recognised only to the extent of contract costs incurred that it is probable will be recoverable.

• B. Contract revenue should include the revenue arising from variations from the original contract work, claims and incentive payments that are agreed by the customer and can be measured reliably.

• C. The excess of the cumulative costs incurred plus recognised profits (less recognised losses) over the progress billings on each construction contract is presented as an asset within 'receivables from customers on construction contracts'. While, the excess of the progress billings over the cumulative costs incurred plus recognised profits (less recognised losses) on each construction contract is presented as a liability within 'payables to customers on construction contracts'.

• (14) Investments accounted for under the equity method associates
• A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.
• B. The Group's share of its associates' post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
• C. When changes in an associate's equity are not recognised in profit or loss or other comprehensive income of the associate and such changes do not affect the Group's ownership percentage of the associate, the Group recognises the Group's share of change in equity of the associate in 'capital surplus' in proportion to its ownership.
• D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
• E. When the Group disposes its investment in an associate, if it loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it still retains significant influence over this associate, then the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.

(15) Property, plant and equipment

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

• B. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
• C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.
• D. The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets' residual values and useful lives differ from previous estimates or the patterns of consumption of the assets' future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors', from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Land improvements	$5 \sim 50$ years
Buildings and structures	$5 \sim 65$ years
Machinery and equipment	$3 \sim 58$ years
Transportation equipment	$3 \sim 40$ years
Leasehold improvements	29 years
Other equipment	$3 \sim 14$ years

(16) Operating leases (lessor)

Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(17) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 60 years.

(18) Intangible assets

Computer software is stated at cost and amortised on a straight-line basis over its estimated useful life of 2 to 7 years.

(19) Impairment of non-financial assets

The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.

(20) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

(21) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as effect of discounting is immaterial.

(22) Financial liabilities at fair value through profit or loss

• A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:
• (a)Hybrid (combined) contracts; or
• (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or
• (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.

$\mathbf{r}$

B. Financial liabilities at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss. Derivative liabilities that are linked to equity instruments which do not have a quoted market price in an active market and whose fair value cannot be reliably measured at fair value, and that must be settled by delivery of such unquoted equity instruments are presented in 'financial liabilities measured at cost'.

(23) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability specified in the contract is discharged or cancelled or expires.

(24) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(25) Derivative financial instruments

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognised in profit or loss.

(26) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognised as interest expense. Provisions are not recognised for future operating losses.

(27) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expenses in that period when the employees render service.

B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expenses when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

• (b) Defined benefit plans
• i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) of a currency and term consistent with the currency and term of the employment benefit obligations.
• ii. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.
• iii. Past service costs are recognised immediately in profit or loss.
• C. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group's decision to terminate an employee's employment before the normal retirement date, or an employee's decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognises expense as it can no longer withdraw an offer of termination benefits or it recognises relating restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

D. Employees' compensation and directors' and supervisors' remuneration

Employees' remuneration and directors' and supervisors' remuneration are recognised as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is paid by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.

$(28)$ Income tax

• A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.
• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
• C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
• D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.
• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.
• F. A deferred tax asset shall be recognised for the carryforward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures, employees' training costs and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(29) Dividends

Dividends are recorded in the Company's financial statements in the period in which they are resolved by the Company's shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(30) Revenue recognition

• A. The Company's revenue recognition:
• (a) Details of revenue recognition of construction contract are provided in Note 4(13).
• (b) Service revenue (ship-repair revenue) is recognised when owners of the ship completes inspection.
• B. Consolidated subsidiary's revenues are recognized as follows:
• (a) Revenue from delivering services is recognised under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed. When the estimated contract costs are higher than the contract prices, the estimated loss is recognized immediately. However, when the estimated loss subsequently decreases, the loss reduction which was previously recognized in profit or loss shall be reversed and recognized as gain in current period.
• (b) If a reliable estimate of gain or loss from contracts for providing services cannot be made, and it is probable that contract costs incurred will be recoverable, then contract revenue should be recognized only to the extent of contract costs incurred that is probable to be recoverable; however, if it is improbable that contract costs incurred will be recoverable, then no revenue should be recognized. Contract costs should be expensed as incurred.

(31) Government grants

Government grants are recognised at their fair value only when there is reasonable assurance that the Group will comply with any conditions attached to the grants and the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises expenses for the related costs for which the grants are intended to compensate.

(32) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision-Maker. The Chief Operating Decision-Maker is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgments in applying the Group's accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; and the related information is addressed below:

(1) Critical judgements in applying the Group's accounting policies

None.

(2) Critical accounting estimates and assumptions

Construction contracts

The Group recognises construction contract revenue and costs using the percentage-of-completion method, wherein the revenue to be recognised is equal to the percentage of completed work out of the total estimated work.

Assumptions for estimated construction cost include cost for equipment, material, labor and etc. Data used for assumptions involves subjective judgement and accounting estimates and are highly uncertain. As a result, assumptions used are material to the total construction cost and further affects the calculation of construction profit.

If the estimated total contract costs had increased/ decreased by 1% with all other variables held constant, construction profit for the year ended December 31, 2017 would have decreased by \$355,480 or increased by \$333,684 (the construction profit for the year ended December 31, 2016) would have decreased or increased by \$363,997).

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

	December 31, 2017	December 31, 2016
Cash on hand and revolving funds	260	320
Checking accounts and demand deposits	219,005	118,962
Time deposits	62,549	71,851
	281,814	191,133

A. The Group transacts with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Group has no cash and cash equivalents pledged to others.

(2) Accounts receivable, net

		December 31, 2017	December 31, 2016
Construction receivables	S	1,228,341	673,406
Repair receivables		149,138	80,043
Less: Allowance for doubtful accounts		15,529)	8,176)
		1,361,950	745,273

A. The counterparties to the above accounts receivable are government (including government-run entities) and private enterprises. In order to maintain the quality of accounts receivable, the Group has established procedures to manage operation-related credit risk. The Group assesses the customers' credit quality based on several factors, such as the customers' financial condition, historical transaction records and current economic situation that have influences on the customers' capacity to meet financial commitments. Customers' credit quality are assessed routinely and receivables that are neither overdue nor impaired are assessed to be having good credit quality.

• B. The Group does not hold any individual accounts receivable that are significantly impaired.
• C. Movement analysis of financial assets that were impaired is as follows:

			2017
	Individual provision		Group provision		Total
At January 1	\$	\$	8,176	-\$	8,176
Provision for impairment			7,353		7,353
At December 31			15,529		15,529
			2016
	Individual provision		Group provision		Total
At January 1	\$		5,565	-\$	5,565
Provision for impairment			2,611		2,611
At December 31			8,176		8,176

D. The Group does not hold any collateral as security.

(3) Construction contract

		December 31, 2017		December 31, 2016
Aggregate costs incurred plus recognised profits (less recognised losses)	\$	8,900,203	\$	16,291,984
Less: Progress billings		$5,658,437$ (		9,367,760)
Net balance sheet position for
construction in progress		3,241,766		6,924,224
Presented as:
Receivables from customers on
construction contracts	S	5,326,519	S	7,743,504
Receivables from customers on
construction contracts-related parties				1,793,119
Payables to customers on
construction contracts		$1,060,906$ (		2,612,399)
Payables to customers on
construction contracts-related parties		1,023,847)
	\$	3,241,766		6,924,224

• A. As of December 31, 2017 and 2016, there has been no construction retentions related to construction contracts.
• B. Please refer to Note 6(23) 'Operating revenue' for the information about construction contract revenue for the years ended December 31, 2017 and 2016.
• C. Information for the Group's capitalisation of borrowing costs of construction-in-progress is as follows:

		Years ended December 31,
	2017	2016
Amount capitalised (including in construction in progress)	64,053	30,130
Range of the interest rates for capitalisation	$0.55\%$ ~ 1.05%	$0.24\%$ ~ 0.98%

(4) Inventories

	Book value
	1,940,311
-	380,750
34,862)	2,321,061
Cost $1,975,173$ (\$) 380,750 2,355,923	Allowance for valuation loss $34,862$ \$

		December 31, 2016
		Allowance for
	Cost	valuation loss	Book value
Raw materials	2,730,873 (\$	31,005) \$	2,699,868
Work in process and repair of goods	2,017,900	864,902)	1,152,998
	4,748,773	895,907	3,852,866

The amount of inventories recognised as expense for the years ended December 31, 2017 and 2016 is as follows:

	Years ended December 31,
	2017	2016
Raw materials costs (Gain from reversal of) loss on obsolete	10,756,455	11,468,666
inventories	861,045)	864,528
	9,895,410	12,333,194

The Group reversed a previous inventory write-down and accounted this transaction as a reduction of expenses because the related inventory items were scrapped or sold in 2017.

$(5)$ Prepayments

	December 31, 2017	December 31, 2016
Prepayments of suppliers	560,661	870,419
Excess VAT paid	56,132	237,397
Other prepayments	9.499	11,113
	\$ 626,292	1,118,929

(6) Financial assets measured at cost

• A. The Group has obtained 1.33% of the shares of Welland Shipping Agency Co., Ltd. and 3.13% of the shares of Yi Di Shipping Agency Co., Ltd., which were both formerly held by the Group's debtors, through the compulsory enforcement of the court in the year 2007.
• B. As the shares held by the Group in Welland Shipping Agency Co., Ltd. and Yi Di Shipping Agency Co., Ltd. are not traded in active markets, and no sufficient industry information of companies similar to Welland Shipping Agency Co., Ltd. and Yi Di Shipping Agency Co., Ltd.'s financial information can be obtained, the fair value of the stock warrants cannot be measured reliably. The Group classified those stock warrants as 'financial assets measured at cost'.
• C. The carrying value of the Group's shares held in Welland Shipping Agency Co., Ltd. and Yi Di Shipping Agency Co., Ltd. are assessed to be \$0 by the Group.

(7) Investments accounted for under equity method

A. Details of investments accounted for under equity method are as follows:

	2017		2016
At January 1	\$ 166,616	S	3,051
Additional investments accounted for
using the equity method			197,344
Share of profit or loss of investments
accounted for using the equity method (	$20,868$ ) (		33,779)
Provision for impairment	144,103)
At December 31	1,645		166,616
	December 31, 2017		December 31, 2016
Fuhai Wind Farm Corporation (Note 1) \$		\$	164,238
Taiwan Offshore Wind Farm Services
Corporation (Note 2)	1,645		2,378
	1,645		166,616

Note 1: On August 9, 2016, the Board of Directors resolved to invest in Fuhai Wind Farm Corporation and obtained 37.97% of ownership shares.

Note 2: On March 21, 2014, the Board of Directors has resolved that the Company and Taiwan Generations Corporation will jointly establish Taiwan Offshore Wind Farm Services Corporation. The Company has acquired 40% of share capital in September 2014.

B. The Group's share of the operating results in all individually immaterial associates are summarized below:

		Years ended December 31,
		2017	2016
Profit or loss for the year from continuing operations Other comprehensive income - net of tax	(\$	$20,868$ ) (\$	33,779)
Total comprehensive loss	(\$	20,868)	33,779)

• C. The Group has obtained 41.69% of the Yi Zhuyin Transocean Co., Ltd. shares, which was formerly held by the Group's debtors, through the compulsory enforcement of the court in the year 2010. The carrying value of the Group's shares held in Yi Zhuyin Transocean Co., Ltd. is assessed to be \$0 by the Group. There is no subsequent loss recognised by the Group.
• D. The Group recognised impairment loss of \$144,103 for investments accounted for using equity method as the carrying amount exceeds recoverable amount for the year ended December 31, 2017. The Group did not recognise impairment loss for the year ended December 31, 2016.

E.Beginning in July 2017, the Group ceased recognising its share of loss of associates arising from the investments in Fuhai Wind Farm Corporation which was accounted for using equity method. During the period from July 1 to December 31, 2017, the accumulated unrecognised loss of associates amounted to \$21,588.

Book value	December 31, 2017		December 31, 2016
Land	\$ 6,096,033	-\$	6,096,033
Land improvements	320,903		347,971
Buildings and structures	1,068,750		946,784
Machinery and equipment	2,117,876		2,011,752
Transportation equipment	410,570		454,755
Leasehold improvements	390,194		438,816
Other equipment	55,289		55,113
Construction in progress	104,149		358,372
	\$ 10,563,764	\$	10,709,596

(8) Property, plant and equipment

	Year ended December 31, 2017
		Opening net						Reclassifications		Closing net
Cost		book amount		Additions		Disposals		(Note)		book amount
Land	\$	6,096,033	\$	$\blacksquare$	$\mathbf{s}$		\$			6,096,033
Land improvements		997,998						1,778		999,776
Buildings and structures		7,422,915				6,572)		214,282		7,630,625
Machinery and equipment		9,570,491				55,360)		394,122		9,909,253
Transportation equipment		947,254				1,928)		1,833		947,159
Leasehold improvements		1,072,631								1,072,631
Other equipment		136,678				1,206)		11,097		146,569
Construction in progress		358,372		370,983				625,206		104,149
Total		26,602,372	\$	370,983	(	$65,066$ ) (\$		2,094)		26,906,195
Accumulated depreciation		Opening net		Depreciation				Reclassifications		Closing net
and impairment		book amount		expense		Disposals		(Note)		book amount
Land improvements		650,027) (\$		28,846) \$			\$			678,873)
Buildings and structures		$6,476,131)$ (		93,917)		6,127		$2,046$ (		6,561,875)
Machinery and equipment		7,558,739) (		287,234)		54,596		$\blacksquare$		7,791,377)
Transportation equipment		492,499) (		46,018)		1,928				536,589)
Leasehold improvements		$633,815$ (		48,622)						682,437)
Other equipment		$81,565$ ) (		10,909)		1,194				91,280)
Total		15,892,776) (\$		515,546)	\$	63,845	\$	2,046		16,342,431)
Book value	\$	10,709,596							\$	10,563,764

Note: The reclassifications refer to items transferred into investment property.

		Year ended December 31, 2016
Cost	Opening net								Closing net
	book amount		Additions		Disposals		Reclassifications		book amount
Land	\$ 6,096,033	\$	۰.	\$		\$		\$	6,096,033
Land improvements	981,391						16,607		997,998
Buildings and structures	7,402,890				14,295)		34,320		7,422,915
Machinery and equipment	9,610,397		301		253,317)		213,110		9,570,491
Transportation equipment	951,989		36	-6	9,061)		4,290		947,254
Leasehold improvements	1,072,631								1,072,631
Other equipment	151,030		77	$\overline{ }$	14,965)		536		136,678
Construction in progress	302,431		324,804				268,863)		358,372
Total	26,568,792	\$	325,218	(	291,638)	\$			26,602,372
Accumulated depreciation	Opening net		Depreciation						Closing net
and impairment	book amount		expense		Disposals		Reclassifications		book amount
Land improvements	621,326) (\$		28,701) \$			\$			650,027)
Buildings and structures	$6,334,280$ (		149,925)		8,074				6,476,131)
Machinery and equipment	7,492,795) (		275,746)		210,729	$\epsilon$	$927)$ (		7,558,739)
Transportation equipment	454,245) (		47,296)		9,042				492,499)
Leasehold improvements	585,193) (		48,622)						633,815)
Other equipment	$81,445$ ) (		11,099)		10,052		927		81,565)
Total	15,569,284) (\$		561,389)	\$	237,897	\$			15,892,776)
Book value	\$ 10,999,508								10,709,596

A. Amount of borrowing costs capitalised as part of property, plant and equipment are as follows:

	Years ended December 31,
	2017	2016
Amount capitalised	443 ന
Interest rate	$0.68\% \sim 1.05\%$

B. Significant components and the useful lives of land improvements, buildings, and machinery equipment of the Group are as follows:

• (a) The significant components of land improvements include construction expenses for wharf, which are depreciated over 45 years.
• (b) The significant components of buildings include shipyard, plants and warehouse, and office buildings, which are depreciated over 40, 45 and 60 years, respectively.

• (c) The significant components of machinery equipment include hoisting machine, crane and substation, and carriers, welding machine as well as working platform, which are depreciated over 25, 20 and 10 years, respectively.

• C. The Group does not pledge any property, plant and equipment to others as collaterals.

• D. A portion of the Group's property, plant and equipment has been seriously damaged by Typhoon Meranti on September 14, 2016. Please refer to Note 10 for details of significant disaster loss.

(9) Investment property, net

Carrying amounts of each category			December 31, 2017				December 31, 2016
Land			\$			226,918	\$		226,918
Buildings and structures						7,137			7,464
			\$			234,055	\$		234,382
			Year ended December 31, 2017
							Reclassifications
Cost		At January 1	Additions	Disposals			(Note)		At December 31
Land	\$	226,918 \$		$\boldsymbol{\mathsf{s}}$		\$	$\blacksquare$	\$	226,918
Buildings and structures		22,811					2,094		24,905
Total		249,729		\$		\$	2,094		251,823
Accumulated
depreciation and			Depreciation				Reclassifications
impairment		At January 1	expense	Disposals			(Note)		At December 31
Buildings and structures		$15,347$ ) (\$	375)	\$		΄\$	2,046		17,768)
Book value	S	234,382							234,055

Note: The reclassifications refer to items transferred from property, plant and equipment.

	Year ended December 31, 2016
Cost	At January 1	Additions		Disposals Reclassifications At December 31
Land	226,918 \$ \$		$-$ \$	\$ $\blacksquare$	\$ 226,918
Buildings and structures	22,811				22,811
Total	249,729	\$ $\blacksquare$			249,729
Accumulated
depreciation and		Depreciation
impairment	At January 1	expense		Disposals Reclassifications At December 31
Buildings and structures	14,972) (\$	375)	\$.		15,347)
Book value	234,757				234,382

A. Rental income from the lease of the investment property and direct operating expenses arising from the investment property are shown below:

	Years ended December 31,
		2017		2016
Rental income from the lease of the investment property		7,720	S	7,844
Direct operating expenses arising from the investment property that generate rental income in the
period		1,996		1,410
Direct operating expenses arising from the investment property that did not generate rental income in
the period

The fair value of the investment property held by the Group as at December 31, 2017 and 2016 were \$664,261 and \$665,979, respectively, which was revalued by independent valuers. Valuations were made using the comparison method, cost method for land development analysis and the income approach.

$(10)$ Intangible assets

				Year ended December 31, 2017
Cost	Opening net book amount		Additions-acquired separately		Disposals			Closing net book amount
Software	\$	59,483	$\mathbf S$	10,071	(	$11,602$ \$		57,952
Accumulated amortisation		Opening net		Amortization				Closing net
and impairment		book amount		expense		Disposals		book amount
Software		$30,636$ (\$)		15,908)	\$	11,602		34,942)
Book value	\$	28,847					S	23,010
				Year ended December 31, 2016
		Opening net		Additions-acquired				Closing net
Cost		book amount		separately		Disposals		book amount
Software	\$	64,375	\$	5,250	(S)	$10,142$ \$		59,483
Accumulated amortisation and impairment		Opening net book amount		Amortization expense		Disposals		Closing net book amount
Software		$27,430$ (\$)		$13,348$ ) (\$		10,142)		30,636)
Book value	\$	36,945					\$	28,847

Details of amortisation on intangible assets are as follows:

			Years ended December 31,
			2017	2016
Operating costs			15,894	\$	13,342
Research and development expenses			14		6
		\$	15,908	\$	13,348
$(11)$ Short-term loans
Type of loans		December 31, 2017	Interest rate range		Collateral
Unsecured loans	\$	2,261,689	$0.84\% \sim 1.57\%$		None
Unsecured loans		26,095	$0.48\% \sim 2.89\%$		None
	\$	2,287,784
Type of loans		December 31, 2016	Interest rate range		Collateral
Unsecured loans	\$	6,345,358	$0.77\% \sim 1.40\%$		None
Unsecured loans		49,767	$0.39\% \sim 2.14\%$		None
	\$	6,395,125

Note: Please refer to Note 8 for details of pledged assets.

(12) Short-term notes and bills payable

	December 31, 2017	December 31, 2016
Commercial papers payable	700,000	1,000,000
Less: Unamortized discount	231)	265)
	699,769	999,735
Annual interest rates	$0.51\% \sim 0.60\%$	$0.57\% \sim 0.65\%$

The above commercial paper payables are guaranteed and issued by MEGA Bills Finance Co., Ltd., Taiwan Cooperative Bills Finance Corporation, China Bills Finance Corporation and International Bill Finance Corporation.

(13) Current financial liabilities at fair value through profit or loss

Items	December 31, 2017		December 31, 2016
Financial liabilities held for trading:
Non-hedging derivatives		280

A. The Group recognised net gain of \$11,463 and \$824 on financial liabilities held for trading for the years ended December 31, 2017 and 2016, respectively,

B. The non-hedging derivative instruments transaction and contract information are as follows:

	December 31, 2017
	Contract amount
Derivative financial liabilities	(notional principal)	Contract period
Forward foreign exchange contracts	JPY 400,000 thousand	$2017.12.07 \rightarrow 2018.02.09$

The Group did not conduct such transaction for the year ended December 31, 2016.

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of import proceeds. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

$(14)$ Other payables

	December 31, 2017	December 31, 2016
Accrued expenses	\$ 1,201,058	- S	1,043,508
Construction payment refund	60,503		110,485
Payables on equipment			235,625
Others	23,257		22,537
	1,284,818		1,412,155

(15) Long-term borrowings

	Borrowing period and	Interest
Type of borrowings	repayment term	rate range	Collateral	December 31, 2017
Long-term bank borrowings
Unsecured borrowings
Bank of Taiwan	Borrowing period is from Jun. 22, 2017 to Jun. 22, 2022; principal is repayable in 4 installments beginning in the 4th year.	1.36%	None	\$ 2,000,000
JihSun Bank	Borrowing period is from Dec. 7, 2017 to Jul. 20, 2020; principal is repayable at maturity.	1.25%	None	200,000
				\$ 2,200,000

Borrowing period and	Interest
repayment term	rate range	Collateral	December 31, 2017
Borrowing period is from Jun 22, 2017 to Jun. 22, 2021. Details are set out below.	0.56%	None	500,000
Borrowing period is from Jun. 22, 2017 to Jun. 22, 2020. Details are set out below.	0.61%	None	800,000
Borrowing period is from Sep. 26, 2017 to Sep. 26, 2020. Details are set out below.	0.45%	None	1,000,000
Borrowing period is from Sep. 26, 2017 to Sep. 26, 2020. Details are set out below.	0.64%	None	1,000,000
Less: Discount on commercial papers payable			1,943)
			3,298,057
			\$ 5,498,057

The Group entered into an agreement for recurring issuance (maturity of 60~180 days) of certificates and dealership of commercial papers with the bill finance companies. During the contract term of 3~4 years, the Group is only liable for the service fees and interest and thus the commercial papers payable is included in long-term borrowings.

As of December 31, 2016, there was no such transaction.

(16) Government grants

A. The Republic of China Government started to promote privatization starting from 2008. The Privatization Fund, Executive Yuan, would provide a loan in the amount of \$1,500,000 to cover a portion of the shortfall to settle the pension and severance obligation as a result of the privatization. The Company was required to repay the loan to the Privatization Fund in a period of ten years, under the condition that the Company is profitable.

The Company uses the average long-term loan interest rate on the loan for discounting. The discounted values are recorded under "long-term notes payable and payables", the difference between the discounted value and the amount received is listed in "deferred revenue". The amounts that are payable within one year are listed in "other financial liabilities-current". The unamortised amounts are shown below:

		December 31, 2017	December 31, 2016
Other financial liabilities-current	S		- S	150,000
Long-term notes and accounts
receivable		659,156		564,603
Long-term deferred revenue		82,344		26,897
	S	741,500		741.500

B. Government grants and interest expenses that should be amortised are recognised under 'other revenue' and 'finance costs', respectively, for the years 2017 and 2016. For more information, please refer to Notes $6(24)$ and $(28)$ .

$(17)$ Pension

• A. (a)The Group has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees' service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Group contributes monthly an amount equal to 15% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee. under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by the end of December 31, every year. The Company has assessed that the balance is sufficient to pay the pension calculated by the aforementioned method, to the employees expected to be qualified for retirement next year.
• (b) The amounts recognised in the balance sheet are as follows:

	December 31, 2017	December 31, 2016
Present value of funded obligations (\$	$1,516,485$ (\$)	1,396,332)
Fair value of plan assets	1,344,783	1,215,818
(\$ Net defined benefit liability	$171,702)$ (\$)	180,514)

(c) Movements in net defined benefit liabilities are as follows:

$\bar{\mathcal{A}}$

		Present value of
		defined benefit	Fair value of plan		Net defined
		obligations	assets		benefit liability
Year ended December 31, 2017
Balance at January 1	$($ \$	1,396,332)	\$ 1,215,818	(	180,514)
Current service cost		174,904)			174,904)
Interest (expense) income		24,178)	22,292		1,886)
		1,595,414)	1,238,110		357,304)
Remeasurements:
Return on plan assets			$10,223)$ (		10,223
Experience adjustments		49,825			49,825
		49,825	10,223)		39,602
Pension fund contribution			146,000		146,000
Paid pension		29,104	29,104)
Balance at December 31	$\Im$	1,516,485)	\$ 1,344,783	$($ \$	171,702)
		Present value of
		defined benefit	Fair value of plan $\sim$		Net defined
Year ended December 31, 2016		obligations	assets		benefit liability
Balance at January 1	$($ \$	1,258,771)	\$ 1,078,072
Current service cost		179,147)		$($ \$	180,699) 179,147)
Interest (expense) income		21,882)	20,028		1,854)
		1,459,800)	1,098,100		361,700)
Remeasurements:
Return on plan assets			$11,917)$ (		11,917)
Experience adjustments		45,903			45,903
		45,903	11,917)		33,986
Pension fund contribution			147,200		147,200
Paid pension		17,565	17,565)

• (d) The Bank of Taiwan was commissioned to manage the Fund of the Company's and domestic subsidiaries' defined benefit pension plan in accordance with the Fund's annual investment and utilisation plan and the "Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund" (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan asset fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2016 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.
• (e) The principal actuarial assumptions used were as follows:

	Years ended December 31,
	2017	2016
Discount rate	1.75%	1.75%
Future salary increases	3.5%	3.5%

Future mortality rate is estimated with 70% of the 3rd Taiwan Standard Ordinary Experience Mortality Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

		Discount rate	Future salary increases
	Increase $0.25\%$	Decrease 0.25% Increase 0.25% Decrease 0.25%
December 31, 2017
Effect on present value of defined benefit obligation	(S 39,302)	\$ 40,721	-S 36,375	$\binom{6}{5}$ 35,363)
December 31, 2016
Effect on present value of defined
benefit obligation	41,649)	\$ 36,948	32,918	38,023)

The sensitivity analysis above is based on other conditions thate are unchanged but only one assumption is changed. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

• (f) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2018 amounts to \$140,990.
• (g) As of December 31, 2017 the weighted average duration of that retirement plan is 11 years. The analysis of timing of the future pension payment was as follows:

Within 1 year	S	52,435
$1-2 \text{ year(s)}$		57,734
2-5 years		113,815
Over 5 years		1,773,609

B. Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the "New Plan") under the Labor Pension Act (the "Act"), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees' monthly salaries and wages to the employees' individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment. The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2017 and 2016 were \$104,750 and \$105,228, respectively.

(18) Provisions

The analysis of change in warranty liabilities are as follows:

Unused amounts
At January 1, 2017		Additions		Used	reversed		At December 31, 2017
139.687		67,131 (\$		$56,520$ (\$)	10,079)		140,219

The analysis of provisions is as follows:

	December 31, 2017	December 31, 2016
Realised in one year	61,441 \$		41,568
Realised after one year	78,778		98,119
	140,219		139,687

The Group gives warranties on construction contracts revenue. Provision for warranty is estimated based on historical warranty data of products.

(19) Common stock

As of December 31, 2017, the Company's authorized capital was \$11,138,997 and the paid-in capital was \$7,435,652, consisting of 743,565 thousand shares of ordinary stock with a par value of \$10 (in dollars) per share. All proceeds from shares issued have been collected.

The number of the Company's ordinary shares outstanding at January 1 and December 31, 2017 and 2016 was the same.

The Company's special shareholders' meeting has approved the proposal regarding deficit compensation through capital reduction on December 21, 2017. The capital will be reduced by \$4,305,734, consisting of 430,573 thousand shares and equivalent to 57.91% of paid-in capital. Meanwhile, the shareholders also approved the proposal for private placement in cash of less than 200,000 thousand share of common stock on the same date.

According to the resolution at the special shareholders' meeting, the private placement will be held in multiple times within one year, for at least three times. The first issuance is expected to be 100,000 thousand shares. The investors in this private placement is entitled to the same rights and obligations as those of outstanding shares except that they cannot freely transfer the shares within 3 years of settlement unless under certain circumstances pursuant to Article 43-8 of Securities and Exchange Act. Under the resolution, the Board of Directors are authorised to file for listing the ordinary shares in private placement with the competent authority after 3 years of settlement.

The aforementioned interim proposal for deficit compensation through capital deduction was approved by Financial Supervisory Commission pursuant to Jin-Guan-Zheng-Fa-Zi Letter No.1060051278 dated January 17, 2018. The proposal will be registered accompanying with the proposal of 2018 private placement with the Ministry of Economic Affairs. As of the reporting date of these financial statements, both proposals are still in progress as the investors for the private placement are uncertain.

(20) Capital reserve

Pursuant to the R.O.C. Company Law, capital reserve arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient.

(21) Retained earnings

• A. Under the Company's Articles of Incorporation, the current year's earnings, if any, shall first be used to pay all taxes and offset prior years' operating losses and then 10% of the remaining amount shall be set aside as legal reserve until the legal reserve equals the total capital stock balance. Appropriation of the remainder shall be proposed by the Board of Directors and resolved by the stockholders.
• B. The Company's dividend policy is summarized below:

As the Company operates in a volatile business environment and is in the stable growth stage. the residual dividend policy is adopted taking into consideration the Company's financial structure, operating results and future expansion plans. According to the dividend policy adopted by the Board of Directors, at least 10% of the Company's distributable earnings shall be appropriated as dividends, and cash dividends shall account for at least 10% of the total dividends distributed.

• C. Except for covering accumulated deficit or increasing capital, the legal reserve shall not be used for any other purpose. Capitalization of the legal reserve is permitted, provided that the balance of the reserve exceeds 50% of the Company's paid-in capital and the amount capitalized does not exceed 25% of the balance of the reserve.
• D. a)In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.
• b) The amounts previously set aside by the Company as special reserve amounting to \$3,201,365 on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently. Such amounts are reversed upon disposal or reclassified if the assets are investment property of land, and reversed over the use period if the assets are investment property other than land.
• c) The Company disposed land in 2013. Therefore, the Company reversed special reserve of \$11,016 to undistributed earnings.
• E. The proposals for deficit compensation for the nine-month periods ended September 31, 2017 and 2016, were approved at the regular shareholders' meeting on June 21, 2017 and special shareholders' meeting on December 21, 2017, respectively. At the special shareholders' meeting, the proposal for deficit compensation through capital reduction was also approved. Please refer to Note $6(19)$ for details.

On June 23, 2016, the stockholders resolved that total dividends for the distribution of earnings for the year 2015 was \$371,782 at \$0.5 (in dollars) per share.

On March 23, 2018, the Board of Directors has proposed the deficit compensation for year 2017.

(22) Analysis of assets and liabilities

Assets and liabilities of the Group related to the business of shipbuilding, vessel building, major machinery and ship repair, are classified as current or non-current based on the operating cycle. However, such assets and liabilities were analyzed on "one year" basis as follows:

	Less than		More than
December 31, 2017	12 months		12 months	Total
Assets
Notes receivable	\$ 5,790	$\mathbf{\hat{s}}$		\$	5,790
Accounts receivable, net (including related parties)	1,365,391				1,365,391
Receivables from customers on construction contracts (including related parties)	4,857,047		469,472		5,326,519
Inventories, net	2,321,061				3,852,866
	\$ 8,549,289	\$	469,472	\$	9,018,761
Liabilities
Notes payable (including related parties)	\$ 223,073	\$	-	$\boldsymbol{\hat{\mathsf{s}}}$	223,073
Accounts payable (including related parties)	1,156,762				1,156,762
Payables to customers on construction contracts (including related parties)	170,951		1,913,802		2,084,753
Provision for liabilities	61,441		78,778		140,219
	\$ 1,612,227	\$	1,992,580	\$	3,604,807

December 31, 2016	Less than 12 months		More than 12 months	Total
Assets
Accounts receivable, net (including related parties)	\$ 743,704	-\$		$\boldsymbol{\mathsf{S}}$	743,704
Receivables from customers on construction contracts (including related parties)	9,326,840		209,783		9,536,623
Inventories, net	3,852,866				3,852,866
	\$ 13,923,410	\$	209,783	\$	14,133,193
Liabilities
Notes payable (including related parties)	\$ 324,457	\$		\$	324,457
Accounts payable (including related parties)	1,003,061				1,003,061
Payables to customers on construction contracts (including related parties)	1,330,525		1,281,874		2,612,399
Provision for liabilities	41,568		98,119		139,687
	2,699,611	\$	1,379,993	\$	4,079,604

(23) Operating revenue

$\sim 10^6$

	Years ended December 31,
		2017		2016
Construction contract revenue	\$	13,944,784	- \$	15, 173, 151
Sales revenue		1,345,813
Service revenue		1,098,141		533,079
Others		15,606		41,469
		16,404,344		15,747,699

(24) Other income

$\label{eq:2.1} \frac{1}{\sqrt{2\pi}}\int_{0}^{\infty}\frac{1}{\sqrt{2\pi}}\left(\frac{1}{\sqrt{2\pi}}\right)^{2\alpha}d\mu.$

	Years ended December 31,
		2017		2016
Rental revenue	\$	10,008	-S	7,844
Interest income:
Interest income from bank deposits		2,368		1,603
Other interest income				369
Government grant revenue		11,018		14,452
Indemnity revenue		9,198		4,706
Others		13,023		21,010
		45,615		49,984

(25) Other gains and losses

	Years ended December 31,
	2017	2016
Net gains on financial assets and liabilities at fair value through profit or loss	\$ 11,463 \$	824
Net currency exchange gains	16,299	70,418
Disaster loss (Note 1)	۰.	17,379)
Losses on disposal of property, plant and equipment	$1,221)$ (	2,369)
Impairment loss (Note 2)	144,103)
Other losses	9,981)	2,019)
	127,543)	49,475

Note 1: Details of disaster loss are provided in Note 10, 'Significant disaster loss'.

Note 2: Please refer to Note 6(7) Investments accounted for under equity method for details.

(26) Expenses by nature

$\bar{\bar{z}}$

	Years ended December 31,
		2017		2016
Change in inventory of finished goods and work in process	\$	3,537,016 (\$		2,986,899)
Direct materials		10,756,455		11,468,666
Employee benefit expense		3,823,779		3,986,375
Depreciation and amortisation charges		531,829		575,112
Outsourcing fees		2,352,280		2,690,225
Other expenses		1,631,950		1,579,250
Operating costs and expenses		22,633,309	S	17,312,729

(27) Employee benefit expense

	Years ended December 31,
		2017		2016
Wages and salaries	\$	3,218,248	-8	3,369,775
Labor and health insurance fees		270,153		269,104
Pension cost		281,540		286,229
Other personnel expenses		53,838		61,267
		3,823,779		3,986,375

A. According to the Articles of Incorporation of the Company, the Company shall distribute employees' compensation, based on the distributable profit of the current year, in a ratio of profit. Employees' compensation can be distributed in the form of shares or in cash. If a company has accumulated deficit, earnings should first be channeled to cover losses. Employees' compensation shall account for 1% to 5%, directors' remuneration shall account for less than 5%, of the amount of current year's pre-tax profit but excluding the employees' compensation and directors' remuneration.

B. The Company did not recognise employees' compensation and directors' renumeration as a result of the operating deficit for the years ended December 31, 2017 and 2016.

The Board of Directors resolved not to appropriate employees' compensation and directors' renumeration as a result of the operating deficit for the years ended December 31, 2017 and 2016.

Information about employees' compensation and directors' and supervisors' remuneration of the Company as resolved by the meeting of Board of Directors will be posted in the "Market" Observation Post System" at the website of the Taiwan Stock Exchange.

(28) Finance costs

	Years ended December 31,
		2017		2016
Interest expense:
Bank loans	\$	74,239	-5	30,076
Others		520		21,654
Expenses amortised from government grants payable		11,018		14,452
Less: Capitalisation of qualifying assets		64,496)		30,130
		21,281		36,052

(29) Income tax expense

A. Income tax (benefit) expense

(a) Components of income tax (benefit) expense:

		Years ended December 31,
		2017	2016
Current tax:
Current tax on profits for the
period	S		S	369
Under provision of income tax in
prior year		91		5,064
Total current tax		91		5,433
Deferred tax:
Origination and reversal of
temporary differences		469,934)		254,026)
Income tax benefit		469,843)		248,593)

(b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

	Years ended December 31,
		2017		2016
Remeasurement of defined
benefit obligations		6.732

B. Reconciliation between income tax benefit and accounting profit:

	Years ended December 31,
		2017	2016
Tax calculated based on loss before tax and statutory tax rate (Note)	(\$	$1,081,227$ (\$)	261,018)
Effects from items disallowed by tax regulation		28,904	7,361
Taxable loss not recognised as deferred tax assets		582,389
Under provision of income tax in prior year		91	5,064
Income tax benefit		469,843)	248,593)

Note: The basis for computing the applicable tax rate is the rate applicable in the parent company's country.

C. Amounts of deferred tax assets or liabilities as a result of temporary difference and tax losses are as follows:

	Year ended December 31, 2017
						Recognised
				Recognised		in other
				in profit or		comprehensive
		January 1		loss		income	December 31
Deferred tax assets:
Temporary differences:
Estimation of construction loss	S.	314,983	\$	50,555	\$		\$ 365,538
Unused compensated absences
payable		52,326 (		970)			51,356
Unrealized warranty liability		23,746		91			23,837
Accrued pension liabilities		30,687		$5,234$ (		6,732)	29,189
Unrealised investments gains		50)		219			169
Unrealised exchange losses		31		2,884			2,915
Inventory valuation loss		149,831	$\left($	146,377)			3,454
Allowance for doubtful
accounts		492		147			639
Tax losses		316,514		558,151			874,665
		888,560	\$	469,934	$\left( \mathsf{S}\right)$	6,732)	\$ 1,351,762
Deferred tax liabilities:
Unrealised land value		1,324,910)					1,324,910)
incremental reserve		436,350)	\$	469,934	$\left( \mathbb{S}\right)$	6,732)	\$ 26,852

$\mathcal{A}^{\mathcal{A}}$

						Year ended December 31, 2016
						Recognised in
				Recognised		other
				in profit or		comprehensive
		January 1		loss		income	December 31
Deferred tax assets:
Temporary differences:
Estimation of construction
loss	\$	411,479 (\$		96,496) \$			\$ 314,983
Unused compensated
absences payable		52,353		27)			52,326
Unrealized warranty liability		28,301	- (	4,555			23,746
Accrued pension liabilities		30,717		5,748 (		5,778)	30,687
Unrealised investments gains			- (	50)			50)
Unrealised exchange (gains) losses	$\sqrt{2}$	332)		363			31
Inventory valuation loss		2,861		146,970			149,831
Allowance for doubtful
accounts		492					492
Tax losses		114,441		202,073			316,514
	\$	640,312	\$	254,026	(	\$ 5,778)	888,560
Deferred tax liabilities:
Unrealised land value		1,324,910)					1,324,910)
incremental reserve	(\$	684,598)	\$	254,026	$($ \$	5,778 $)$ $($ \$	436,350)

D. Expiration dates of unused tax losses and amounts of unrecognised deferred tax assets are as follows:

	December 31, 2017
					Unrecognised
					deferred
Year incurred	Amount filed/assessed		Unused amount		tax assets	Expiry year
2015	Assessed	\$	671,021	\$		2025
2016	Amount filed		1,190,829			2026
2017	Estimated filing amount		6,709,058		3,425,820	2027
			December 31, 2016
					Unrecognised
					deferred
Year incurred	Amount filed/assessed		Unused amount		tax assets	Expiry year
2015	Amount filed	\$	671,021	\$		2025
2016	Estimated filing amount		1,190,829			2026

$\frac{1}{2}$ , $\frac{1}{2}$ , $\frac{1}{2}$

• E. The Company's income tax returns through 2015 have been assessed and approved by the Tax Authority. As of March 23, 2018, there was no administrative remedies.
• F. With the abolishment of the imputation tax system under the amendments to the Income Tax Act promulgated by the President of the Republic of China in February, 2018, the information on unappropriated retained earnings and the balance of the imputation credit account as of December 31, 2017, as well as the estimated creditable tax rate for the year ended December 31, 2017 is no longer disclosed.

Unappropriated retained earnings on December 31, 2016:

	December 31, 2016
Earnings generated in and after 1998	489,400

G. As of December 31, 2016, the balance of the imputation tax credit account was \$759,208. The creditable tax rate was 48.15% for the year ended December 31, 2016.

(30) Losses per share

	Year ended December 31, 2017
		Weigthted average
		number of ordinary	Losses per
	Amount	shares outstanding	share
	after tax	(shares in thousands)	(in dollars)
Basic losses per share
Loss attributable to ordinary shareholders	(\$, 5,880,118)	743,565	$($ \$ 7.91)
		Year ended December 31, 2016
		Weigthted average
		number of ordinary	Losses per
	Amount	shares outstanding	share
	after tax	(shares in thousands)	(in dollars)
Basic losses per share
Loss attributable to ordinary shareholders	$(\$1,287,100)$	743,565	$\binom{3}{5}$ 1.73)

(31) Operating leases

A. The Group leases investment property to others under non-cancellable operating lease agreements. These leases will expire on August 31, 2020, and all these lease agreements are not renewable at the end of the lease period. The future aggregate minimum lease payments receivable under non-cancellable operating leases are as follows:

		December 31, 2017	December 31, 2016
Not later than one year	S	6,601		7,704
Later than one year but not
later than five years		10,520		17,121
Later than five years
		17,121		24,825

B. The Group leases in assets for places of business from National Property Administration of Ministry of Finance and Taiwan International Ports Corporation, Ltd. under non-cancellable operating lease agreements. The lease terms are between 1996 and 2027, and all these lease agreements are renewable at the end of the lease period. Partial leases are charged extra rents following the changes in local price indexes. The Group recognised rental expenses of \$262,906 and \$262,892 in profit or loss for the years ended December 31, 2017 and 2016, respectively. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

		December 31, 2017	December 31, 2016
Not later than one year	\$	263,423	-S	263,423
Later than one year but not
later than five years		1,001,217		899,745
Later than five years		810,169		1,021,058
	S	2,074,809		2,184,226

(32) Supplemental cash flow information

A. Investing activities with partial cash payments:

	Years ended December 31,
		2017		2016
Acquisition of investments accounted for using equity method	S		\$	197,344
Add: Beginning balance of other payables		19,188
Less: Ending balance of other payables		$19,188$ ) (		19,188)
Cash paid on acquisition of investments accounted for using
equity method during the year	\$			178,156
Purchase of property, plant and equipment	\$	370,983	\$	325,218
Add: Beginning balance of payable on equipment		110,485		64,593
Less: Ending balance of payable on equipment		$60,503)$ (		110,485)
Cash paid on purchase of property, plant and
equipment during the year	\$	420,965		279,326

B. Investment and financing activities with no cash flow effects:

	Years ended December 31,
		2017		2016
Payable on investments (shown as other payables)		19,188	S	19,188
Long-term notes and accounts payable being transferred to
other financial liabilities-current		$\overline{\phantom{a}}$		150,000
Interest expense amortised from government grants		11,018	S	14,452

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

Names of related parties	Relationship with the Group
CPC Corporation, Taiwan	The Company's legal entity director
China Steel Corporation	The Company's legal entity director
China Steel Express Corporation	Subsidiary of the Company's legal entity director
Fuhai Wind Farm Corporation	Investee accounted for using equity method; it is newly invested beginning at the end of August 2016
Yung Chi Paint & Varnish Mfg. Co., Ltd.	Shareholder who owns 30% of the Company's subsidiar

(2) Significant related party transactions and balances

A. Operating revenue

	Years ended December 31,
		2017		2016
Key management:
Legal entity director
CPC Corporation, Taiwan	\$	73,893	-S	2,524,409
Other related parties:
Fuhai Wind Farm Corporation (Note)		4,987		787
Yung Chi Paint & Varnish Mfg. Co.,		261
Ltd.
China Steel Express Corporation				5,770
		79,141		2,530,966

Note: The investment accounted under equity method starts from the end of August, 2016. Thus, the related party transaction is from September 1 to December 31, 2016 which applies to all the related party transactions for this fiscal year.

• (a) The price was based on the contract signed by both parties, and the collection terms were approximately the same as those to third parties.

• (b) In August and December 2017, the Company was commissioned by China Steel Express Corporation to build 4 208,000 DWT double hull bulk cargo steamers for a total contract price of NT\$5.6 billion. The expected delivery date of the last cargo steamer is by the year-end of 2020. The advance receipts arising for the contract amounted to \$287,090, shown as current liabilities in 'payables to customers on construction contracts'.

• (c) In March 2014, the Company was commissioned by Fuhai Wind Farm Corporation (hereafter referred to as Fuhai) for the construction of a meteorological observation tower, offshore windfarm off the coast of Changhua County included in Changhua Offshore Pilot Project and Fuhai offshore windfarm for a total contract price of NT\$32 billion. However, Bureau of Energy, MOEA decided to reject the development project because of the disapproved Environmental Impact Assessment. For the receivables on contraction contracts, please refer to item D.

• B. Purchases of goods

	Years ended December 31,
	2017	2016
Key management:
Legal entity director
China Steel Corporation	\$ $1,240,118$ \$	2,288,282
CPC Corporation, Taiwan	121,405	112,585
Other related parties:
Yung Chi Paint & Varnish Mfg. Co.,
Ltd.	2,353	135
	1,363,876	2,401,002

The price was based on the contract signed by both parties, and the collection terms were approximately the same as those to third parties.

C. Accounts receivable

		December 31, 2017		December 31, 2016
Key management:
Legal entity director
CPC Corporation, Taiwan	S	22,990	-S
Other related parties:
Yung Chi Paint & Varnish Mfg. Co.,
Ltd.		1,986		1,621
Fuhai Wind Farm Corporation				2,143
	\$	24.976		3,764

D. Receivables from customers on construction contracts

	December 31, 2017		December 31, 2016
Key management:
Legal entity director
CPC Corporation, Taiwan	\$	\$	1,593,109
Other related parties:
Fuhai Wind Farm Corporation (Note)			200,010
	\$	\$	1,793,119
Note: For the year ended December 31, 2017, the Group wrote-off \$202,427 based on its estimate of uncollectability.
E. Other receivables
	December 31, 2017		December 31, 2016
Key management: Legal entity director
China Steel Corporation Other related parties:	\$ 24,942	S	41,849
Yung Chi Paint & Varnish Mfg. Co.,
Ltd.			191
	\$ 24,942	\$	42,040
F. Prepaid accounts
	December 31, 2017		December 31, 2016
Key management:
Legal entity director
China Steel Corporation	\$ 95,958	\$	146,862
CPC Corporation, Taiwan	30,157		9,108
	\$ 126,115	\$	155,970
G. Refundable deposits
	December 31, 2017		December 31, 2016
Key management:
Legal entity director
CPC Corporation, Taiwan	\$ \$		1,512
Other related parties:
Yung Chi Paint & Varnish Mfg.	2,182
Co., Ltd.	\$ 2,182 \$		3,921 5,433

H. Notes payable

$\ddot{\phantom{a}}$

	December 31, 2017		December 31, 2016
Key management:
Legal entity director
China Steel Corporation	\$ 223,073	S,	324,457
I. Accounts payable
	December 31, 2017		December 31, 2016
Other related parties:
Yung Chi Paint & Varnish Mfg. Co., Ltd.	\$ 1,947	$\mathbb{S}$	466
J. Payables to customers on construction contracts
	December 31, 2017		December 31, 2016
Other related parties:
China Steel Express Corporation	\$ $1,023,847$ \$
K. Endorsements and guarantees provided to related parties
	December 31, 2017		December 31, 2016
Other related parties:
Fuhai Wind Farm Corporation	\$ 886,000	\$	886,000
$\lambda$ CD 1 01 0017 10016	$\blacksquare$	11111

$\hat{\mathcal{L}}$

As of December 31, 2017 and 2016, endorsement / guarantees provided by the Group and used both amounted to \$75,000.

(3) Key management compensation

	Years ended December 31,
	2017		2016
Salaries and other short-term employee benefits	25,311 \$		22,766
Post-employment benefits	2,715		3.943
	28,026		26,709

8. PLEDGED ASSETS

None.

$\sim$

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT COMMITMENTS

(1) The balance of the Group's unused letters of credit for import of materials is as follows:
		December 31, 2017		December 31, 2016
Balance of unused letters of credit	\$	1,224,209 \$		2,149,195
(2) The balance of the Group's contracted ship/vessel construction projects to be completed is as
follows:
		December 31, 2017		December 31, 2016
Contracted projects to be completed	\$	14,968,433	$\boldsymbol{\mathsf{S}}$	27,506,964
(3) The amount of the contracted services to be delivered by the Group's subsidiary is as follows:
		December 31, 2017		December 31, 2016
Contracted services to be delivered	$\frac{\mathcal{S}}{\mathcal{S}}$	151,987	\$	627,158
(4) The guaranteed credit by banks for the Group's construction projects is as follows:
		December 31, 2017		December 31, 2016
Guaranteed credit by banks	\$	4,522,610 \$		8,048,499
(5) The amount of the Group's purchase contracts and outsourcing construction contracts to be paid is
as follows:
		December 31, 2017		December 31, 2016
Purchase contracts to be paid	$\mathbb{S}$	3,698,067	$\mathbf{\$}$	8,467,209
Outsourcing construction contracts
to be paid		1,266,499		1,439,039
	\$	4,964,566	\$	9,906,248
(6) The amount of construction performance promissory note issued by the Group for contracted
construction is as follows:
		December 31, 2017		December 31, 2016
Construction performance promissory	\$	99,850	\$	99,850
note

(7) The non-cancellable operating leases with more than one-year lease term for the Group are stated in Note 6 (31).

• (8) The Group, Century Iron and Steel Industrial Co., Ltd. and Taiwan Generations Corp. are the jointoriginators for Fuhai Wind Farm Corporation (Fuhai Corporation). The joint-originators entered into "the Incentive Program of Offshore Wind Power Demonstration System" ("the Government Grant Scheme"), which was granted by the Ministry of Economic Affairs, and committed to be jointly responsible for Fuhai Corporation. The total amount of endorsement/guarantee provided by the Company amounted to NT\$886 million. As of December 31, 2017 and 2016, the amount used is both \$75,000. Please refer to Note 7 for details.
• (9) The ships under construction have all been insured with shipbuilding insurance. On September 14, 2016, Typhoon Meranti caused damages in the third party's property and thus claimed for compensation of approximately NT\$309 million. The case is still ongoing. However, according to Group's designated lawyer, the damage loss is covered by the insurance so no material impact on the Group's operation is expected.

10. SIGNIFICANT DISASTER LOSS

The Group's property, plant and equipment has been insured under typoon insurance. On September 14, 2016, Typoon Meranti caused some damage loss amounting to \$40,572 and insurance compensation amounted to \$28,800. The remaining amount of \$11,772 has been recognised as 'other losses'(shown as 'other gains and losses'). The Group did not incur significant disaster loss for the year ended December 31, 2017

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

• (1) Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China in February, 2018, the Company's applicable income tax rate will be raised from 17% to 20% effective from January 1, 2018. This will increase the Company's deferred tax assets by \$238,546, which will be adjusted in the first quarter of 2018.
• (2) The Company's interim proposal for 2017 deficit compensation through capital deduction has become effective after filing with the Financial Supervisory Commission on January 17, 2018. The proposal for 2017 deficit compensation and the proposal for 2018 private placement will proceed altogether pursuant to Article 168-1 of Company Act. Please refer to 6(19) for details.

12. OTHERS

(1) Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Following the industry practices, the Group uses gearing ratio to control capital.

The Group's policy is to maintain a stable gearing ratio. Ratios are as follows:

	December 31, 2017	December 31, 2016
Gearing ratio	71%	56%

(2) Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Group's financial instruments not measured at fair value (including cash and cash equivalents, notes receivable, accounts receivable, receivables from customers on construction contracts, other receivables, refundable deposits, short-term borrowings, short-term notes and bills payable, notes payable, accounts payable, payables to customers on construction contracts, other payables, other financial liabilities - current, long-term borrowings, long-term notes, accounts and overdue payables and guarantee deposits received) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note $12(3)$ .

B. Financial risk management policies

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial position and financial performance. The Group uses financial instruments, for example, using forward exchange contracts to control its exposure to specific financial risks.

For supervising management, the Board of Directors has set related rules to authorize the management to perform daily operations within acceptable risk range and requires the internal audit to inspect the management and report on a regular basis. The internal audit must report to the Board of Directors if there is any unusual situation at any time, and respond to the situations adequately.

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

i. The foreign exchange risk is mainly arising from USD. Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure with the Group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward foreign exchange contracts, transacted with Group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity's functional currency.

ii. The Group's businesses involve some non-functional currency operations. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

		December 31, 2017
	Foreign Currency
	(in thousands)	Exchange Rate	Book Value (NTD)
Financial assets
Monetary items
USD:NTD	\$ 31,713	29.710	\$ 942,193
Financial liabilities
Monetary items
USD:NTD	737	29,810	21,970
		December 31, 2016
	Foreign Currency
	(in thousands)	Exchange Rate	Book Value (NTD)
Financial assets
Monetary items
USD:NTD	\$ 21,471	32.200	S 691,366
Financial liabilities
Monetary items
USD:NTD	8,908	32.300	287,728
JPY:NTD	47,719	0.2776	13,247

iii.If NTD had appreciated/ depreciated by 1% against USD with all other variables held constant, effect to post-tax profit (loss) is as follows:

	Years ended December 31,
If NTD had appreciated/
depreciated by 1% against tax	2017	2016
Increase (decrease) in net profit (loss) after tax	7,638		3.240

iv. The net exchange gain arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2017 and 2016, amounted to \$16,299 and \$70,418, respectively.

Price risk

The Group is not exposed to significant commodity price risk.

Interest rate risk

The Group's long-term and short-term borrowings carry fixed interest rate and therefore no significant cash flow interest rate risk arises.

$(b)$ Credit risk

Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors.

Cash and cash equivalents and derivative financial instruments

The Group only trades with counterparties with good credit, in accordance with the Group's transaction policies. There is no recent violation of significant cash and cash equivalents and derivative financial products.

Accounts receivable and other receivables

• i. No other receivables were past due (including other receivables, other receivable-related parties and refundable deposits).
• ii. Receivables arising from revenue from ship building shall be classified under accounts receivable or construction contracts receivable.
• iii.Credit information of accounts receivable is stated in Note 6 (2). When the Group enters into ship building contracts, the Group entrusts external agencies to verify customers' credit and was informed that the possibility that the customers will default is low. Therefore, the credit risk of accounts receivable on ship building is low.

(c) Liquidity risk

i. The Group uses cash and cash equivalents, bank borrowings and other contracts to control its liquidity. The table below analyses the Group's non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial liabilities

	Less than 1	Between 1 and Between 2 and
December 31, 2017	vear	2 years	5 years	Over 5 Years
Bank borrowings	2,290,668	\$ - \$
Short-term notes and	700,000
bills payable
Payables	2,880,775	105,209	161,087	595,571
Long-term borrowings	29,772	30,829	5,552,884
	5,901,215	136,038	5,713,971	595,571

Derivative financial instruments

	Less than 1	Between 1 and Between 2 and
December 31, 2017	year	2 years		5 years		Over 5 Years
Total amount
Forward exchange
contracts
$-\ln$ flow	\$ 105,840 \$		- \$		$\overline{\phantom{0}}$	- S	$\mathbf{m}$
$-$ Outflow	106,120				-		$\blacksquare$

Non-derivative financial liabilities

	Less than 1	Between 1 and Between 2 and
December 31, 2016	year.	2 years		5 years		Over 5 Years
Bank borrowings	6,396,856		- \$	- \$
Short-term notes and bills payable	999,735	$\blacksquare$
Payables	3,185,846	418,811		308,324
	10,582,437	418,811		308,324	S

Derivative financial instruments

As of December 31, 2016: None.

ii. Among the borrowings with maturity of 2 to 5 years, principal dues totaled \$200,000 (excluding interest totaling \$6,458). The Group has repaid the principal of \$200,164. Other than that, The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(3) Fair value estimation

• A. Details of the fair value of the Group's financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group's investment property measured at cost are provided in Note 6(9).
• B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group's investment in derivative instruments is included in Level 2.
• Level 3: Unobservable inputs for the asset or liability.
• C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2017 and 2016 is as follows:

December 31, 2017:

	Level 1	Level 2	Level 3	Total
Liabilities
Recurring fair value
measurements
Financial liabilities at fair value through profit or
loss
Forward foreign exchange contracts	ጣ -	S 280	\$ ۰	S 280

December 31, 2016: There was no related liabilities as mentioned above.

D. The methods and assumptions the Group used to measure fair value are as follows:

The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.

E. For the years ended December 31, 2017 and 2016, there was no transfer between Level 2 and Level 3.

13. SUPPLEMENTARY DISCLOSURES

• (1) Significant transactions information
• A. Loans to others: None.
• B. Provision of endorsements and guarantees to others: Please refer to table 1.
• C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): None.
• D. Acquisition or sale of the same security with the accumulated cost exceeding \$300 million or 20% of the Company's paid-in capital: None.
• E. Acquisition of real estate reaching NT\$300 million or 20% of paid-in capital or more: None.
• F. Disposal of real estate reaching NT\$300 million or 20% of paid-in capital or more: None.
• G. Purchases or sales of goods from or to related parties reaching NT\$100 million or 20% of paidin capital or more: Please refer to table 2.
• H. Receivables from related parties reaching NT\$100 million or 20% of paid-in capital or more: None.
• I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes $6(13)$ and $12(3)$ .
• J. Significant inter-company transactions during the reporting periods: Please refer to table 3.
• (2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 4.

• (3) Information on investments in Mainland China
• A. Basic information: None.
• B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: None.

14. SEGMENT INFORMATION

(1) General information

Management has determined the operating segments based on the reports reviewed by the Chief Operating Decision-Maker that are used to make strategic decisions. The Chief Operating Decision-Maker considers the business from a product perspective. The reportable operating segments derive their revenue primarily from the construction of ships and vessels. As other businesses mainly including machinery engineering, ship/vessel repairs and coating do not meet the quantitative thresholds required by IFRS 8, the results of these operations are included in the 'all other segments' column.

(2) Measurement of segment information

The Chief Operating Decision-Maker assesses the performance of the operating segments based on the gross profit of each business category. This measurement basis excludes the effects of operating expenses, non-operating revenue and non-operating expenses from the operating segments.

(3) Information about segment profit or loss, assets and liabilities

The segment information provided to the Chief Operating Decision-Maker for the reportable segments for the years ended December 31, 2017 and 2016 is as follows:

				Year ended December 31, 2017
						Adjustments
						and
		Construction of		All other		eliminations
		ships and vessels		segments		(Note 1)		Total
Revenue from external
customers	\$	15,259,115	\$	1,145,229	\$		\$	16,404,344
Inter-segment revenue				204,185		204,185)
Total segment revenue	\$	15,259,115	\$	1,349,414	$(\$)$	204,185)	\$	16,404,344
Segment loss	(\$	5,649,861)	(S)	72,027)	\$		$\left( \mathcal{S}\right)$	5,721,888)
Undistributed amount:
Operating expenses							$($ \$	494,712)
Depreciation and
amortization							€	12,365)
Interest income								2,368
Interest expense							€	74,759)
Income tax benefit								469,843
Loss on investments
accounted for using
equity method								20,868)
Total undistributed amount							(\$	130,493)
Segment assets (Note 2)								22,283,393
Investments accounted
for under equity method							\$	1,645
Increase in non-current assets								381,054
Segment liabilities (Note 2)							\$	15,904,309

			Year ended December 31, 2016
					Adjustments
					and
		Construction of	All other		eliminations
		ships and vessels	segments		(Note 1)		Total
Revenue from external
customers	\$	15,085,251	\$ 662,448	\$		\$	15,747,699
Inter-segment revenue			534,519		534,519)
Total segment revenue	\$	15,085,251	\$ 1,196,967	$\left( \mathcal{S}\right)$	534,519)	\$	15,747,699
Segment (loss) profit	$\overline{\mathcal{S}}$	1,116,874)	\$ 56,646	\$		$\left( \mathsf{S}\right)$	1,060,228)
Undistributed amount:
Operating expenses						$($ \$	492,809)
Depreciation and
amortization						(	11,993)
Interest income							1,972
Interest expense						(	51,730)
Income tax benefit							248,593
Loss on investments
accounted for using
equity method							33,779)
Total undistributed amount						(\$	339,746)
Segment assets (Note 2)						\$	27,670,942
Investments accounted
for under equity method						\$	166,616
Increase in non-current						\$	330,468
assets
Segment liabilities (Note 2)						\$	15,441,284

Note 1: Refers to the elimination of inter-segment revenue.

$\sim 10$

Note 2: Segment assets and liabilities are regularly provided to the Chief Operating Decision-Maker,
but not distributed to each reportable segment.

(4) Information about segment profit or loss, assets and liabilities

The revenue from external parties reported to the Chief Operating Decision-Maker is measured in a manner consistent with that in the statement of comprehensive income. A reconciliation of segment profit to (loss) profit before tax and discontinued operations is provided as follows:

		Years ended December 31,
		2017	2016
Segment loss	(\$	5,649,861) (\$	1,116,874)
Other segment (loss) profit		72,027)	56,646
Total segments		$5,721,888$ ) (	1,060,228)
Operating expenses		$507,077$ ) (	504,802)
Non-operating income and expenses		124,077)	29,628
Loss before tax and discontinued operations		$6,353,042$ (\$)	1,535,402)

(5) Information on products and services

Revenues from external customers are mainly derived from the construction of ships and vessels. Breakdown of the revenue from all sources is as follows:

	Years ended December 31,
	2017	2016
Construction contract revenue
Revenue from construction of ships
and vessels	\$ 13,913,302 \$	15,085,251
Revenues from machine manufacturing	31,482	87,900
Sales revenue – revenue from construction of ships and vessels	1,345,813
Service revenue	1,098,141	533,079
Other revenue	15,606	41,469
Total	16,404,344	15,747,699

(6) Geographical information

Revenue information by geographic area:

		Year ended and as of		Year ended and as of
		December 31, 2017		December 31, 2016
		Revenue	Non-current assets	Revenue		Non-current assets
Taiwan	$\boldsymbol{\mathsf{S}}$	7,537,306	\$ 10,820,829	\$ 4,057,003	\$	10,972,825
Singapore		4,304,975		1,179,619
Marshall		2,624,566		3,739,045
Japan		1,345,813		2,867
Hong Kong		497,386		6,856,132
Panama		41,704		32,602
Greece			$\overline{\phantom{0}}$	175,539)
Others		52,594		55,970
Total	\$	16,404,344	10,820,829	\$ 15,747,699	S	10,972,825

(7) Major customer information

The customers accounting for more than 10% of the Group's operating revenues are as follows:

		Year ended December 31, 2017
Clients		Sales amount	Department
Client B	\$		8,525,296 Construction of ships and vessels
Client G			2,624,566 Construction of ships and vessels
Client I		2,220,273	Construction of ships and vessels
	S	13,370,135

	Year ended December 31, 2016
Clients	Sales amount	Department
Client H	\$	6,673,401 Construction of ships and vessels
Client G		3,739,045 Construction of ships and vessels
Client J		2,524,409 Construction of ships and vessels
	\$ 12,936,855

							Footnote Note 3		Note 3 and 4
					guarantees to the party in Mainland	China			z
	Provision of Provision of Provision of	endorsements endorsements/ endorsements/	guarantees by		subsidiary to $f$ parent	company			z
						$\frac{\text{subsidary}}{\text{Y}}$
		Ceiling on	total amount of /guarantees		endorsements/ by parent su guarantees company to		$\frac{\text{many}}{6.91}$ = $\frac{\text{provided}}{3,167,708}$		3,167,708
Ratio of	accumulated	endorsement	guarantee amount	to net asset value	of the endorser/ guarantees	guarantor company			13.98
		Amount of	mdorsements/	guarantees	secured with	collateral
					Actual amount	drawn down			75,000
	Jutstanding	endorsement	guarantee	amount at	December 31,	2017	437,938		886,000
Maximum	outstanding	endorsement	guarantee	amount as of		2017	437,938 \$		886,000
		Limit on		guarantees	provided for a December 31,	single party	Note 1 $\overline{3}$ 633,542 $\overline{3}$		633,542
			Relationship endorsements/	with the	endorser/				Note 2
						Company name guarantor	Blue Ocean Wind	Hong Kong) Limited Power Engineering	Corporation
					Endorser/	Number guarantor	O CSBC Corporation,	Taiwan	CSBC Corporation, Fuhai Wind Farm Taiwan

Note 1: The endorser/guarantor parent company and its subsidiaries jointly own more than 50% voting shares of the endorsed/guaranteed company.

Note 2: Having business relationship.

Note 3 : In accordance with the Company's Management Directions for Provision of Endorsements and Guarantees to Others, the total amount of endorsements and guarantees must not exceed 50% of the Company's net assets while the amount of endorsements and guarantees for each entity must not exceed 10% of the Company's net assets.

Note 4: In accordance with the Company's Management Directions for Provision of Endorsements and Guarations, in case the amount of endorsements and guarantees exceeds the limit because of change in circumstances, the Company shall take steps based on the improvement plan submitted to audit committee.

Table 1, Page 1

(Except as otherwise indicated) Expressed in thousands of NTD

Provision of endorsements and guarantees to others

Year ended December 31, 2017

CSBC CORPORATION TAIWAN

Table 1

endorsed/guaranteed Party being

Table 2

CSBC CORPORATION TAIWAN

$\ddot{\phantom{a}}$

$\ddot{\phantom{0}}$

Purchases or sales of goods from or to related parties reaching NT\$100 million or 20% of paid-in capital or more

Year ended December 31, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Notes/accounts receivable

Differences in transaction

				Transaction			terms compared to third party transactions			(payable)
											Percentage of total
		Relationship with the	Purchases		total purchases Percentage of						notes/accounts receivable
Purchaser/seller	Counterparty	counterparty	(sales)	Amount	(sales)		Credit term Unit price Credit term		Balance		(payable)	Footnote
CSBC Corporation, Taiwan	China Steel Corporation	Corporate Director	Purchases	1,240,118	$\frac{12}{2}$	Note 1	Note 1	Note 1		223,073)	$\overline{C}$	Note 2
CSBC Corporation, Taiwan	CPC Corporation, Taiwan	Corporate Director	Purchases	121,405		Note 1	Note 1	Note 1				Note 2
CSBC Corporation, Taiwan	CSBC Coating Solutions Co., Id. Lid	Parent company	dutsourcing expenses	132,093	Note 3	Note 1	Note 1	Note 1		3,204)
CSBC Coating Solutions Co., БÚ	CSBC Corporation, Taiwan	Parent company	Sale	132,093)	88	Note 1	Note 1	Note 1		3,204	$\tilde{a}$

Note 1: Based on the contract, the payment terms is the same as in general transactions.

Note 2: Regarding the prepayments for purchases amounting to \$95,958 from CG Corporation, Taiwan CFC Corporation, Taiwan, prices are determined in accordance

with mutual agreements; payment terms are no different from third parties. Note 3 : Accounting for 7% of the Company's outsourcing overheads.

í ١
i
j
í

Significant inter-company transactions during the reporting periods

Year ended December 31, 2017

Table 3

Expressed in thousands of NTD

(Except as otherwise indicated)

Transaction

operating revenues or total assets Percentage of consolidated total (Note 3)
Transaction terms	Note 4	Note 4	Note 4	Note 4
Amount	132,093	3,204	72,092	14,622
General ledger account	Outsourcing expenses	Accounts payable	Outsourcing expenses	Accounts payable
Relationship (Note 2)	Parent company to subsidiary	Parent company to subsidiary	Parent company to subsidiary	Parent company to subsidiary
Counterparty	CSBC Coating Solutions Co., Ltd.	CSBC Coating Solutions Co., Ltd.	BLUE ACE CORPORATION	BLUE ACE CORPORATION
Company name	CSBC Corporation, Taiwan	CSBC Corporation, Taiwan	CSBC Corporation, Taiwan	CSBC Corporation, Taiwan
Number (Note 1)

Note 1: The numbers filled in for the transaction company in respect of inter-company transactions are as follows: (1) Parent company is ' $0$ '.

(2) The subsidiaries are numbered in order starting from '1'.

Note 2 : If transactions between parent company and subsidiaries or between subsidiaries refer to the same transaction, it is not required to disclose twice.

For example, if the parent company has already disclosed its transaction with a subsidiary, then the subsidiary is not required to disclose the transaction; for transactions between two subsidiaries, if one of the subsidia disclosed the transaction, then the other is not required to disclose the transaction.

Note 3 : Regarding percentage of transaction amount to consolidated total operating revenues or total assets, it is computed based on period-end balance of transaction to consolidated total assets for balance sheet account based on accumulated transaction amount for the period to consolidated total operating revenues for income statement accounts.

Note 4 : Based on the contract, the payment terms is the same as in general transactions.

Year ended December 31, 2017

${\rm Expressed \ in \ thousands \ of \ NTD}$ $({\rm Except \ as \ otherwise \ indicated})$

$\frac{1}{2}$

										Net profit
										(loss)	Investment
					Initial investment amount		Shares held as at December 31, 2017			of the investee	income(loss)
										for the year	recognised by the
				Balance	Balance					ended	Company for the
					as at December as at December	Number of				December 31,	year ended
Investor	Investee	Location	Main business activities	31,2017	31,2016	shares	Ownership (%)	Book value		2017	December 31, 2017	Footnote
CSBC Corporation, Taiwan	Fuhai Wind Farm Corporation	Taiwan	Wind power industry	197,344 69	197,344	15,000,000	57.97 $\bullet$	G)	ن ا	109,885) (\$	20,135)	Note 1
CSBC Corporation, Taiwan	Solutions Co., Ltd. CSBC Coating	Taiwan	Marine coating, steel structure treatment, and high-tech anti- painting works, surface corrosion etc.	87,500	87,500	8,750,000	R		101,895 (	10,156) (	7,189)
CSBC Corporation, Taiwan	Taiwan Generations Corporation	Taiwan	component, power generation Manufacturing of metal structure, building and others	4,000	4,000	400,000	$\downarrow$		1,645 (	$1,832$ ) (	733)
CSBC Coating Solutions Co., E	CORPORATION BLUE ACE	Taiwan	Marine coating, steel structure treatment, and high-tech anti- painting works, surface corrosion etc.	25,000	30,000		$\mathsf{S}$		$24,300$ (	699)	699)	Note 2
CSBC Coating Solutions Co., Ltd.	Power Engineering Blue Ocean Wind (Hong Kong) Limited		Hong Kong Marine works services	304	304	$\overline{0}$	$\approx$		130(	$1,955$ )	1,955)	Note 2

Note 1: Please refer to Note 6(7) for details about investments accounted for under equity method.
Note 2: The amount has been included in the profit (loss) of the Company's investee accounted for using equity method and h

Table 4, Page 1

Table 4

$\hat{\boldsymbol{\beta}}$