FH — Annual Report 2017

Nov 7, 2017

FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES

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CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE YEARS ENDED 31 DECEMBER 2017 AND 2016

Address: No.998, Sec. 1, Jiahou Rd., Houli Dist., Taichung City 421, Taiwan , R.O.C. Telephone: 886-4-2556-5101

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The reader is advised that these consolidated financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.

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Independent Auditors' Report

To FENG HSIN STEEL Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of FENG HSIN STEEL Co., Ltd. and its subsidiaries (the "Group") as of 31 December 2017 and 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended 31 December 2017 and 2016, and notes to the consolidated financial statements, including the summary of significant accounting policies (together "the consolidated financial statements").

In our opinion, based on our audits and the reports of other auditors (please refer to the Other Matter - Making Reference to the Audits of Component Auditors section of our report), the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of 31 December 2017 and 2016, and their consolidated financial performance and cash flows for the years ended 31 December 2017 and 2016, in conformity with the requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of 2017 consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Valuation for inventories

As of 31 December 2107, the Group's net inventories amounted to NT\$3,611,146 thousand which represented 17% of the total consolidated assets. The amount of inventories was significant to the Group's financial statements. The Group manufacture and sell various types of steel products. The main ingredient is iron scrap. The material and finished goods are affected by the fluctuation of international prices that may cause significant changes in inventory prices. As a result, the calculation of net realizable value was complicated, we therefore determined this a key audit mater. Our audit procedures included, but not limited to, understanding and testing the effectiveness of internal control; evaluating the adequacy of accounting policies around obsolete inventories; evaluating stocktaking plan and selecting important storage locations to observe inventory counts to ensure inventory quantities and status; obtaining inventory aging schedule to test whether inbound and outbound records are accurate; re-calculating the unit cost of inventories; evaluating and testing net realized value adopted by management; testing selling prices; and implementing analytical procedures with respect to the gross profit ratios by products. We also assessed the adequacy of disclosures of financial statements. Please refer to Note 6 to the Group's consolidated financial statements.

Other Matter - Making Reference to the Audits of Component Auditors

Those financial statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinions expressed herein are based solely on the audit reports of the other auditors. We did not audit the financial statements of certain associates and joint ventures accounted for under the equity method whose statements are based solely on the reports of other auditors. These associates and joint ventures under equity method amounted to NT\$505,069 thousand and NT\$411,042 thousand, both representing 2% of the consolidated total assets as of 31 December 2017 and 2016. The related shares of profits from the associates and joint ventures under the equity method amounted to NT\$168,797 thousand and NT\$113,674 thousand, both representing 5% the consolidated net income before tax for the years ended 31 December 2017 and 2016, respectively; and the related shares of other comprehensive income from the associates and joint ventures under the equity method amounted to NT\$22 thousand and NT\$(283) thousand, both representing 0% of the consolidated other comprehensive income for the years ended 31 December 2017 and 2016, respectively.

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 requirements of the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards, International Accounting Standards, Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial Supervisory Commission of the Republic of China 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 ability to continue as a going concern of the Group 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 financial reporting process of the Group.

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 auditing standards generally accepted in the Republic of China 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 auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• 1. Identify and assess the risks of material misstatement of the consolidated financial statements, 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.
• 1. 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 internal control of the Group.
• 1. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• 1. 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 ability to continue as a going concern of the Group. 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 accompanying notes, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• 1. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or 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 2017 consolidated financial statements 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.

Other

We have audited and expressed an unqualified opinion on the parent company only financial statements of FENG HSIN STEEL Co., Ltd. as of and for the years ended 31 December 2017 and 2016.

/s/Tu, Chin Yuan

/s/Yen, Wen Pi

Ernst & Young, Taiwan

8 March 2018

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

English Translation of Consolidated Financial Statements Originally Issued in Chinese FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 31 December 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

Assets	Notes	2017.12.31	2016.12.31
Current Assets
Cash and cash equivalents	4, 6. (1)	\$1,981,758	\$4,074,694
Financial assets at fair value through profit or loss	4, 6. (2)		43,900
Notes receivable, net	4	9,038	10,482
Accounts receivable, net	$4, 6.$ (3)	1,579,574	1,004,888
Other receivables		3,679	6,768
Inventories, net	4, 6. (4)	3,611,146	3,020,478
Prepayments	6.(5)	422,500	346,028
Other current assets	$6(6)$ , 12	135,821	1,123,546
Total current assets		7,743,516	9,630,784
Non-current assets
Available-for-sale financial assets	6.(7)	53,741	56,179
Financial assets measured at cost	6.(8)	1,204,518	1,129,783
Investments accounted for under the equity method	4, 6.9)	1,135,445	494,292
Property, plant and equipment	4, 6(10)	8,845,656	7,407,102
Investment properties, net	4, 6. (11)	382,852	230,423
Deferred tax assets	4, 6(21)	224,606	197,113
Other assets	6(12)	1,080,025	491,508
Total non-current assets		12,926,843	10,006,400

Total assets

\$20,670,359 \$19,637,184

(Continued)

English Translation of Consolidated Financial Statements Originally Issued in Chinese FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) 31 December 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

	Notes	2017.12.31	2016.12.31
Current liabilities
Short-term loans	4, 6. (13)	\$158,996	\$354,079
Notes payable		636	807
Accounts payable	7	1,409,150	1,429,618
Other payables	6(14)	866,758	799,285
Current tax liabilities	$\overline{4}$	360,539	217,600
Other current liabilities		82,950	65,110
Total current liabilities		2,879,029	2,866,499
Non-current liabilities
Deferred tax liabilities	4, 6(21)	76	763
Net defined benefit obligation, noncurrent	4, 6. (15)	184,958	186,299
Total non-current liabilities		185,034	187,062
Total liabilities		3,064,063	3,053,561
Equity attributable to the parent company
Capital
Common stock	6(16)	5,815,994	5,815,994
Additional paid-in capital	6.(16)	448,351	447,280
Retained earnings	6(16)
Legal reserve		3,591,351	3,409,772
Special reserve		98,711	56,150
Unappropriated earnings		7,698,777	6,953,138
Total Retained earnings		11,388,839	10,419,060
Other components of equity
Unrealized gains or losses on available-for-sale financial assets	4	(45, 809)	(43, 371)
Effective portion of gains and losses on hedging instruments in a cash flow hedge		(1,079)	(55, 340)
Total Other components of equity		(46, 888)	(98, 711)
Total equity		17,606,296	16,583,623

Total liabilities and equity	\$20,670,359	\$19,637,184

(The accompanying notes are an integral part of the consolidated financial statements)

English Translation of Consolidated Financial Statements Originally Issued in Chinese FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended 31 December 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings per Share)

	Notes	2017	2016
Operating revenues	4,6(17)	\$24,741,937	\$20,932,650
Operating costs	6. (18)	(20, 926, 613)	(17, 769, 739)
Gross Profit-net		3,815,324	3,162,911
Operating expenses	6(18)
Sales and marketing expenses		(462, 684)	(511,600)
General and administrative expenses		(274, 256)	(264, 966)
Research and development expenses		(44, 903)	(44, 018)
Subtotal		(781, 843)	(820, 584)
Operating Income		3,033,481	2,342,327
Non-operating income and expenses
Other income	4,6(19)	51,760	64,157
Other gains and losses	6.(19)	(9, 973)	(321, 426)
Finance costs	6.(19)	(2, 531)	(1,602)
Share of profit or loss of associates and joint ventures	6.(9)	169,409	113,524
Subtotal		208,665	(145, 347)
Income from continuing operations before income tax		3,242,146	2,196,980
Income tax expense	4,6,(21)	(517, 189)	(381, 186)
Net income		2,724,957	1,815,794
Other comprehensive income	6(20)
Items that will not to be reclassified subsequently to profit or loss
Remeasurements of defined benefit pension plans		(12, 527)	(32, 176)
Share of other comprehensive of associates and joint ventures		22	(283)
Income tax related to items that will not to be reclassified
subsequently to profit or loss		2,126	5,518
Items that will be reclassified subsequently to profit or loss
Unrealized loss on available-for-sale financial assets		(2, 438)	18,321
Effective portion of gains on hedging instruments in a cash flow hedge		65,374	(73, 352)
Income tax related to items that will be reclassified subsequently
to profit or loss		(11, 113)	12,469
Total other comprehensive loss, net of tax		41,444	(69, 503)
Total comprehensive income		\$2,766,401	\$1,746,291
Net income attributable to:
Stockholders of the parent		\$2,724,957	\$1,815,794
Non-controlling interests
		\$2,724,957	\$1,815,794
Comprehensive income attributable to:
Stockholder of the parent		\$2,766,401	\$1,746,291
Non-controlling interests
		\$2,766,401	\$1,746,291
Earnings per share (NTD)	4,6(22)
Earnings per share-basic		\$4.69	\$3.12
Earnings per share-diluted		\$4.69	\$3.12

(The accompanying notes are an integral part of the consolidated financial statements)

English Translation of Consolidated Financial Statements Originally Issued in Chinese CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended 31 December 2017 and 2016
(Expressed in Thousands of New Taiwan Dollars) FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES

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					Equity Attributable to the parent company
					Retained earnings		Other components of equity
	Notes	Stock Common	Paid-in Capital Additional	Legal Reserve	Special reserve	Unappropriated Earnings	Unrealized Gains Available-For- Sale Financial or Losses on Assets	losses on hedging Effective portion instruments in a cash flow hedge of gains and	Total Equity
Appropriation and distribution of 2015 retained earnings Balance as of 1 January 2016		15,994 \$5,81	\$447,280	\$3,209,408	\$37,145	\$6,837,652	\$(61, 692)	\$5,543	\$16,291,330
Legal reserve				200,364		(200, 364)			ı
Special reserve					19,005	(19,005)
Cash dividends						(1,453,998)			(1,453,998)
Net income for the year ended 31 December 2016						1,815,794			1,815,794
Other comprehensive income (loss), net of tax for the year ended 31 December 2016	6.(20)					(26,941)	18,321	(60, 883)	(69,503)
Total comprehensive income (loss)						1,788,853	18,321	(60, 883)	1,746,291
Balance as of 31 December 2016		15,994 \$5,81	\$447,280	\$3,409,772	\$56,150	\$6,953,138	S(43,371)	\$(55, 340)	\$16,583,623
Balance as of 1 January 2017		15,994 5,81	\$447,280	\$3,409,772
Appropriation and distribution of 2016 retained earnings					\$56,150	\$6,953,138	\$(43,371)	\$(55,340)	\$16,583,623
Legal reserve				181,579		(181, 579)			$\blacksquare$
Special reserve					42,561	(42, 561)
Cash dividends						(1,744,799)			(1, 744, 799)
Change in other additional paid-in capital			$\overline{5}$						1,071
Net income for the year ended 31 December 2017						2,724,957			2,724,957
Other comprehensive income (loss), net of tax for the year ended 31 December 2017	6(20)					(10,379)	(2, 438)	54,261	41,444
Total comprehensive income (loss)		J				2,714,578	(2, 438)	54,261	2,766,401
Balance as of 31 December 2017		15,994 \$5,81	\$448,351	\$3,591,351	\$98,11	\$7,698,777	\$(45,809)	\$(1,079)	\$17,606,296

(The accompanying notes are an integral part of the financial statements)

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English Translation of Consolidated Financial Statements Originally Issued in Chinese

FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended 31 December 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

	For the years ended 31 December
	2017	2016
Cash flows from operating activities:
Net income before tax	\$3,242,146	\$2,196,980
Adjustments to reconcile net income before tax to net cash provided by operating activities:
Income and expense adjustments:
Depreciation	1,198,304	1,215,091
Amortization	500	352
Net loss of financial assets and liabilities at fair value through profit or loss	834	8,534
Interest expense	2,531	1,602
Interest income	(9, 773)	(16, 119)
Dividend income	(25, 672)	(26, 297)
Share of profit of associates and joint ventures	(169, 409)	(113, 524)
(Gain) Loss on disposal of property, plant and equipment	(1, 121)	55,620
Gain on disposal of investments	(6,076)	(10, 158)
Imapairmaent losses on financial assests		277,000
Changes in operating assets and liabilities:
Decrease (Increase) in notes receivable	2,515	(750)
(Increase) Decrease in accounts receivable	(574, 686)	136,360
Decrease (Increase) in other receivables	2,103	(3,080)
Decrease in inventories, net	(589,761)	(559, 262)
Increase in prepayments	(134, 842)	(63, 283)
Increase in other current assets	(841)	(71, 585)
(Decrease) Increase in notes payable	(171)	322
(Decrease) Increase in accounts payable	(20, 468)	492,420
Increase (Decrease) in other payables	93,651	(19, 254)
Increase in other current liabilities	17,840	32,659
Decrease in net defined benefit obligation	(39,995)	(352, 796)
Cash generated from operations	2,987,609	3,180,832
Interest received	10,759	16,726
Dividends received	25,672	26,297
Interest paid	(2, 582)	(1, 461)
Income tax paid	(411, 417)	(441, 816)
Net cash provided by operating activities	2,610,041	2,780,578

(Continued)

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English Translation of Consolidated Financial Statements Originally Issued in Chinese FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended 31 December 2017 and 2016

(Expressed in Thousands of New Taiwan Dollars)

	For the years ended 31 December
	2017	2016
Cash flows from investing activities:
Acquisition of financial assets at fair value through profit or loss		(49, 881)
Proceeds from disposal of financial assets at fair value through profit or loss	43,066	34,734
Acquisition of available-for-sale financial assets	(49,963)
Proceeds from disposal of available-for-sale financial assets	53,636	430,537
Acquisition of financial assets measured at cost	(77,061)	(14,700)
Proceeds from disposal of financial assets measured at cost	4,729	1,824
Acquisition of investments accounted for under the equity method	(546, 514)	(83, 400)
Proceeds from disposal of investments accounted for under the equity method		12,060
Acquisition of property, plant and equipment	(2, 578, 387)	(749, 541)
Proceeds from disposal of property, plant and equipment	214	260
Acquisition of Investment property	(152, 530)
Decrease (Increase) in other financial assets	1,053,940	(454, 117)
Increase in other assets-others	(589, 017)	(166, 702)
Dividends received	74,792	33,499
Net cash used in investing activities	(2,763,095)	(1,005,427)
Cash flows from financing activities:
(Decrease) Increase in short-term loans	(195,083)	140,440
Cash dividends	(1,744,799)	(1,453,998)
Net cash used in financing activities	(1,939,882)	(1,313,558)
Net (Decrease) increase in cash and cash equivalents	(2,092,936)	461,593
Cash and cash equivalents at beginning of period	4,074,694	3,613,101
Cash and cash equivalents at end of period	\$1,981,758	\$4,074,694

(The accompanying notes are an integral part of the consolidated financial statements)

FENG HSIN STEEL CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended 31 December 2017 and 2016 (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Specified)

1. History and organization

FENG HSIN STEEL Co., Ltd. (the Company) was incorporated in 1969. The Company operates in the blast furnaces and steel mills sector. Its products include angle irons, steel channel, flat structural frames and shafts. The Company's common shares were publicly listed on the Taiwan Stock Exchange on 25 May 1992. The Company's registered office and the main business location is at No. 998, Sec.1, Jiahou Rd., Houli Dist., Taichung, Taiwan (R.O.C.).

2. Date and procedures of authorization of financial statements for issue

The consolidated financial statements of the Company and its subsidiaries ("the Group") for the years ended 31 December 2017 and 2016 were authorized for issue by the Company's board of directors (the Board) on 8 March 2018.

3. Newly issued or revised standards and interpretations

(1) Changes in accounting policies resulting from applying for the first time certain standards and amendments

The Group applied for the first time International Financial Reporting Standards, International Accounting Standards, and Interpretations issued, revised or amended which are endorsed by Financial Supervisory Commission ("FSC") and become effective for annual periods beginning on or after 1 January 2017. The nature and the impact of each new standard and amendment that has a material effect on the Group is described below:

IAS 36 "Impairment of Assets" (Amendment)

This amendments relate to the amendments issued in May 2011 and require entities to disclose the recoverable amount of an asset (including goodwill) or a cash-generating unit when an impairment loss has been recognized or reversed during the period. The amendments also require detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognized or reversed, including valuation techniques used, level of fair value hierarchy of assets and key assumptions used in measurement.

(2) Standards or interpretations issued, revised or amended, which are endorsed by FSC, but not yet adopted by the Group as at the end of the reporting period are listed below.

(a) IFRS 15 "Revenue from Contracts with Customers"

The core principle of the new Standard is for companies to recognize revenue to depict the transfer of promised goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps:

• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The new Standard includes a cohesive set of disclosure requirements that would result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts with customers. The Standard is effective for annual periods beginning on or after 1 January 2018.

(b) IFRS 9"Financial Instruments"

The IASB has issued the final version of IFRS 9, which combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9 Financial Instruments (which include standards issued on classification and measurement of financial assets and liabilities and hedge accounting). Classification and measurement: Financial assets are measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity's business model for managing the financial assets and the financial asset's contractual cash flow characteristics. Financial liabilities are measured at amortized cost or fair value through profit or loss. Furthermore there is requirement that 'own credit risk' adjustments are not recognized in profit or loss.

Impairment: Expected credit loss model is used to evaluate impairment. Entities are required to recognize either 12-month or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition.

Hedge accounting: Hedge accounting is more closely aligned with risk management activities and hedge effectiveness is measured based on the hedge ratio.

The new standard is effective for annual periods beginning on or after 1 January 2018. Consequential amendments on the related disclosures also become effective for annual periods beginning on or after 1 January 2018.

(c) IFRS 10 "Consolidated Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures" – Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures

The amendments address the inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. IAS 28 restricts gains and losses arising from contributions of non-monetary assets to an associate or a joint venture to the extent of the interest attributable to the other equity holders in the associate or joint ventures. IFRS 10 requires full profit or loss recognition on the loss of control of the subsidiary. IAS 28 was amended so that the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized in full.

IFRS 10 was also amended so that the gains or loss resulting from the sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized only to the extent of the unrelated investors' interests in the associate or joint venture.

The effective date of the amendments has been postponed indefinitely, but early adoption is allowed.

(d) IAS 12"Income Taxes" — Recognition of Deferred Tax Assets for Unrealized Losses

The amendments clarify how to account for deferred tax assets for unrealized losses. The amendments are effective for annual periods beginning on or after 1 January 2017.

(e) Disclosure Initiative - Amendment to IAS 7 "Statement of Cash Flows":

The amendments relate to changes in liabilities arising from financing activities and to require a reconciliation of the carrying amount of liabilities at the beginning and end of the period. The amendments are effective for annual periods beginning on or after 1 January 2017.

(f) IFRS 15 "Revenue from Contracts with Customers" $-$ Clarifications to IFRS 15

The amendments clarify how to identify a performance obligation in a contract, determine whether an entity is a principal or an agent, and determine whether the revenue from granting a licence should be recognized at a point in time or over time. The amendments are effective for annual periods beginning on or after 1 January 2018.

(g) IFRS 2 "Shared-Based Payment" $-$ Amendments to IFRS 2

The amendments contain (1) clarifying that vesting conditions (service and non-market performance conditions), upon which satisfaction of a cash-settled share-based payment transaction is conditional, are not taken into account when estimating the fair value of the cash-settled share-based payment at the measurement date. Instead, these are taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction, (2) clarifying if tax laws or regulations require the employer to withhold a certain amount in order to meet the employee's tax obligation associated with the share-based payment, such transactions will be classified in their entirety as equity-settled share-based payment transactions if they would have been so classified in the absence of the net share settlement feature, and (3) clarifying that if the terms and conditions of a cash-settled share-based payment transaction are modified, with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as an equity-settled transaction from the date of the modification. The equity-settled share-based payment transaction is measured by reference to the fair value of the equity instruments granted at the modification date and is recognized in equity, on the modification date, to the extent to which goods or services have been received. The liability for the cash-settled share-based payment transaction as at the modification date is derecognized on that date. Any difference between the carrying amount of the liability derecognized and the amount recognized in equity on the modification date is recognized immediately in profit or loss. The amendments are effective for annual periods beginning on or after 1 January 2018.

(h) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4

The amendments help to resolve issues arising from the different effective dates for IFRS 9 "Financial Instruments" (1 January 2018) and the new insurance contracts standard about to be issued by the IASB (still to be decided, but not before 1 January 2020). The amendments allow entities issuing insurance contracts within the scope of IFRS 4 to mitigate certain effects of applying IFRS 9 "Financial Instruments" before the IASB's new insurance contracts standard becomes effective. The amendments introduce two approaches: an overlay approach and a temporary exemption. The overlay approach allows an entity applying IFRS 9 to remove from profit or loss the effects of some of the accounting mismatches that may occur from applying IFRS 9 before the new insurance contracts standard is applied. The temporary exemption enables eligible entities to defer the implementation date of IFRS 9 until 2021 (these entities that defer the application of IFRS 9 will continue to apply IAS 39).

(i) Transfers of Investment Property $-$ Amendments to IAS 40

The amendments relate to the transfers of investment property. The amendments clarify that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use, the entity should transfer property into and out of investment property accordingly. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. The amendments are effective for annual periods beginning on or after 1 January 2018.

(i) Improvements to International Financial Reporting Standards (2014-2016 cycle):

IFRS 1 "First-time Adoption of International Financial Reporting Standards"

The amendments revise and amend transition requirements relating to certain standards and delete short-term exemptions under Appendix E for first-time adopter. The amendments are effective for annual periods beginning on or after 1 January 2018.

IFRS 12 "Disclosure of Interests in Other Entities"

The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10–B16, apply to an entity's interests that are classified as held for sale or discontinued operations. The amendments are effective for annual periods beginning on or after 1 January 2017.

IAS 28"Investments in Associates and Joint Ventures"

The amendments clarify that when an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and other qualifying entities including investment-linked insurance funds, the entity may elect to measure that investment at fair value through profit or loss in accordance with IFRS 9 "Financial Instruments" on an investment-by-investment basis. Besides, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries on an investment-by-investment basis. The amendments are effective for annual periods beginning on or after 1 January 2018.

(k) IFRIC 22 "Foreign Currency Transactions and Advance Consideration"

The interpretation clarifies that when applying paragraphs 21 and 22 of IAS 21 "The Effects of Changes in Foreign Exchange Rates", in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. The interpretation is effective for annual periods beginning on or after 1 January 2018.

The abovementioned standards and interpretations issued by IASB and endorsed by FSC so that they are applicable for annual periods beginning on or after 1 January 2018. Apart from the potential impact of the standards and interpretations listed under (a), (b), (e), and (f) which is described below, all other standards and interpretations have no material impact on the Group:

(a) IFRS 15 Revenue from Contracts with Customers" (including Amendments to IFRS 15 "Clarifications to IFRS 15 Revenue from Contracts with Customers")

The Group elected to recognize the cumulative effect of initially applying IFRS 15 at the date of initial application (1 January 2018). The Group also elected to apply this standard retrospectively only to contracts that are not completed contracts at the date of initial application.

The Group's principal activities consist of the sale of goods and rendering of services. The impacts arising from the adoption of IFRS 15 on the Group are summarized as follows:

• A. Revenue from sale of goods is currently recognized when goods have been delivered to the buyer. Starting from the date of initial application, in accordance with the requirements of IFRS 15, the Group shall recognize revenue when (or as) the Group satisfies a performance obligation by transferring a promised good to a customer. IFRS 15 has no impact on the Group's revenue recognition from sale of goods. However, for some contracts, if the Group has the right to transfer the goods to customers but does not has a right to an amount of consideration that is unconditional, these contacts should be presented as contract assets. It is different from the accounting treatment of recognizing trade receivables before the date of initial application. The amount reclassified from trade receivables to contracts assets of the Group as at the date of initial application was NT\$210,573 thousand.
• B. For some rendering of services contracts, part of the consideration was received from customers upon signing the contract, then the Group has the obligation to provide the services subsequently. The Group recognized the consideration received in advance from customers as payment received in advance under other current liabilities. Starting from the date of initial application, in accordance with IFRS 15, it should be recognized as contract liabilities. The amount reclassified from other current liabilities to contracts liabilities of the Group as at the date of initial application was NT\$82,076 thousand.
• C. In accordance with the requirements of IFRS 15, more extensive disclosure would have to be made.
• (b) IFRS 9 "Financial Instruments"

The Group elects not to restate prior periods in accordance with the requirements of IFRS 9 at the date of initial application (1 January 2018). The adoption of IFRS 9 has the following impacts on the Group:

A. Classification and measurement of financial assets

Available-for-sale financial assets – equity instrument investments

The assessment of the cash flow characteristics will be based on the facts and circumstances that exited as at the date of initial application.

As these equity instrument investments are not held-for-trading, the Group elected to designate them as financial assets measured at fair value through other comprehensive income. On the date of initial application, the Group will reclassify available-for-sale financial assets to financial assets measured at fair value through other comprehensive income of NT\$1,204,518 thousand. Other related adjustments are described as follow:

• (a) The stocks of unlisted companies currently measured at cost in accordance with IAS 39 had an original cost of NT\$277,000 thousand and was fully impaired. However, in accordance with the requirement of IFRS 9, stocks of unlisted companies must be measured at fair value but are not required to be assessed for impairment. The estimated fair value of the stocks of unlisted companies was NT\$1,157,199 thousand as at the date of initial application. The Group will adjust the carrying amount of financial assets measured at fair value through other comprehensive income and will also adjust retained earnings , other equity and deferred tax liabilities by NT\$277,000 thousand, NT\$352,223 thousand and NT\$27,904 thousand, respectively.
• (b) The stocks of listed companies are currently measured at fair value. As at the date of initial application, except for the reclassification to financial assets measured at fair value through other comprehensive income and other equity accounts, no other difference will incur.

Available-for-sale financial assets – funds investments

As the cash flow characteristics for funds are not solely payments of principal and interest on the principal amount outstanding, funds are classified as financial assets mandatorily measured at fair value through profit or loss in accordance with IFRS 9.

As at the date of initial application, the Group will reclassify available-for-sale financial assets of NT\$53,741 to financial assets mandatorily measured at fair value through profit or loss.

$\Delta$ vailable-for-sale financial assets – de-recognition of equity investments measured at fair value

Upon de-recognition of equity investments currently classified as available-for-sale measured at fair value, the accumulated gains or losses previously recognized in other comprehensive income was recycled to profit or loss from equity. However, under IFRS 9, subsequent fair value changes of the aforementioned equity investments are recognized in other comprehensive income and cannot be recycled to profit or loss. Upon derecognition, the accumulated amounts in other component of equity is reclassified to retained earnings (reclassification to profit or loss is not allowed).

Impairment of financial assets

This is applicable to financial assets not measured at fair value through profit or loss. In accordance with IFRS 9, a loss allowance for debt instruments is measured using the expected credit loss model, whereas trade receivables or contract assets that result from transactions that are within the scope of IFRS 15 is measured using the simplified approach (provision matrix). The aforementioned requirements on impairment is different from the current incurred loss model and have no material impact on the Group.

Besides, under IFRS 9, impairment assessment is not required for equity instruments. Therefore, as the Group elects to classify certain equity investments as financial assets measured at fair value through other comprehensive income.

B. Others

Consequential amendments on the related disclosures in IFRS 7 were also made as a result of the application of IFRS 9, which include the disclosure requirements related to the initial application of IFRS 9. Therefore more extensive disclosure would have to be made.

• (e) Disclosure Initiative Amendment to IAS 7 "Statement of Cash Flows" Additional disclosure of a reconciliation of the carrying amount of liabilities arising from financing activities at the beginning and end of the period would be required.
• (3) Standards or interpretations issued, revised or amended, by IASB but not yet endorsed by FSC at the date of issuance of the Group's financial statements are listed below.
• (a) IFRS $16$ "Leases"

The new standard requires lessees to account for all leases under a single on-balance sheet model (subject to certain exemptions). Lessor accounting still uses the dual classification approach: operating lease and finance lease. The Standard is effective for annual periods beginning on or after 1 January 2019.

(b) IFRIC 23 "Uncertainty Over Income Tax Treatments"

The Interpretation clarifies application of recognition and measurement requirements in IAS 12 "Income Taxes" when there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning on or after 1 January 2019.

(c) IFRS 17 "Insurance Contracts"

IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects (including recognition, measurement, presentation and disclosure requirements). The core of IFRS 17 is the General (building block) Model, under this model, on initial recognition, an entity shall measure a group of insurance contracts at the total of the fulfilment cash flows and the contractual service margin. The fulfilment cash flows comprise of the following:

• (1) estimates of future cash flows;
• (2) Discount rate: an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows; and
• (3) a risk adjustment for non-financial risk.

The carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of the liability for remaining coverage and the liability for incurred claims. Other than the General Model, the standard also provides a specific adaptation for contracts with direct participation features (the Variable Fee Approach) and a simplified approach (Premium Allocation Approach) mainly for short-duration contracts. IFRS 17 is effective for annual periods beginning on or after 1 January 2021.

(d) IAS 28 "Investment in Associates and Joint Ventures" - Amendments to IAS 28

The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture before it applies IAS 28, and in applying IFRS 9, does not take account of any adjustments that arise from applying IAS 28. The amendment is effective for annual reporting periods beginning on or after 1 January 2019.

(e) Prepayment Features with Negative Compensation (Amendments to IFRS 9)

The amendment allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract, to be measured at amortized cost or at fair value through other comprehensive income. The amendment is effective for annual reporting periods beginning on or after 1 January 2019.

(f) Improvements to International Financial Reporting Standards (2015-2017 cycle):

IFRS 3 "Business Combinations"

The amendments clarify that an entity that has joint control of a joint operation shall remeasure its previously held interest in a joint operation when it obtains control of the business. The amendments are effective for annual periods beginning on or after 1 January 2019.

IFRS 11 "Joint Arrangements"

The amendments clarify that an entity that participates in, but does not have joint control of, a joint operation does not remeasure its previously held interest in a joint operation when it obtains joint control of the business. The amendments are effective for annual periods beginning on or after 1 January 2019.

IAS 12 "Income Taxes"

The amendments clarify that an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. The amendments are effective for annual periods beginning on or after 1 January 2019.

IAS 23 "Borrowing Costs"

The amendments clarify that an entity should treats as part of general borrowings any borrowing made specifically to obtain an asset when the asset is ready for its intended use or sale. The amendments are effective for annual periods beginning on or after 1 January 2019.

(g) Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)

The amendments clarify that when a change in a defined benefit plan is made (such as amendment, curtailment or settlement, etc.), the entity should use the updated assumptions to remeasure its net defined benefit liability or asset. The amendments are effective for annual periods beginning on or after 1 January 2019.

The abovementioned standards and interpretations issued by IASB have not yet endorsed by FSC at the date when the Group's financial statements were authorized for issue, the local effective dates are to be determined by FSC. As the Group is evaluating the impact of the standards and interpretations have no material impact on the Group.

4. Summary of significant accounting policies

(1) Statement of compliance

The consolidated financial statements of the Group for the years ended 31 December 2017 and 2016 have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers ("the Regulations"), IFRSs, IASs, IFRIC and SIC, which are endorsed by the FSC (collectively referred to as "TIFRSs").

(2) Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value. The consolidated financial statements are expressed in thousands of New Taiwan Dollars ("NT\$") unless otherwise stated.

(3) Basis of consolidation

Preparation principle of consolidated financial statement

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

• (a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• (b) exposure, or rights, to variable returns from its involvement with the investee, and
• (c) the ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• (a) the contractual arrangement with the other vote holders of the investee
• (b) rights arising from other contractual arrangements
• (c) the Group's voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Subsidiaries are fully consolidated from the acquisition date, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using uniform accounting policies. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Total comprehensive income of the subsidiaries is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

If the Company loses control of a subsidiary, it:

• (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary;
• (b) derecognizes the carrying amount of any non-controlling interest;
• (c) recognizes the fair value of the consideration received;
• (d) recognizes the fair value of any investment retained;
• (e) recognizes any surplus or deficit in profit or loss; and
• (f) reclassifies the parent's share of components previously recognized in other comprehensive income to profit or loss.

The consolidated entities are as follows:

			Percentage of ownership (%) 31 December 31 December
Investor	Subsidiary	Main businesses	2017	2016
The Company	Great Fortune	Trading and	$100\%$	100%
	Holding Limited	holding Group

(4) Foreign currency transactions

The Group's consolidated financial statements are presented in NT\$, which is also the Company's functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency rates prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency closing rate of exchange ruling at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

All exchange differences arising on the settlement of monetary items or on translating monetary items are taken to profit or loss in the period in which they arise except for the following:

• (a) Exchange differences arising from foreign currency borrowings for an acquisition of a qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization.
• (b) Foreign currency items within the scope of IAS 39 Financial Instruments: Recognition and Measurement are accounted for based on the accounting policy for financial instruments.
• (c) Exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation is recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

(5) Current and non-current distinction

An asset is classified as current when:

• (a) The Group expects to realize the asset, or intends to sell or consume it, in its normal operating cycle
• (b) The Group holds the asset primarily for the purpose of trading
• (c) The Group expects to realize the asset within twelve months after the reporting period
• (d) The asset is cash or cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is classified as current when:

• (a) The Group expects to settle the liability in its normal operating cycle
• (b) The Group holds the liability primarily for the purpose of trading
• (c) The liability is due to be settled within twelve months after the reporting period
• (d) The Group does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. 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.

All other liabilities are classified as non-current.

(6) Cash and cash equivalents

Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly liquid time deposits (including ones that have maturity within 6 months) or investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(7) Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

(a) Financial Assets

The Group accounts for regular way purchase or sales of financial assets on the trade date.

Financial assets of the Group are classified as financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The Group determines the classification of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. A financial asset is classified as held for trading if:

• $\mathbf{i}$ . it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term
• ii. on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of shortterm profit-taking
• iii. it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument)

If a contract contains one or more embedded derivatives, the entire hybrid (combined) contract may be designated as a financial asset at fair value through profit or loss; or a financial asset may be designated as at fair value through profit or loss when doing so results in more relevant information, because either:

• i. it eliminates or significantly reduces a measurement or recognition inconsistency; or
• $ii.$ a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Financial assets at fair value through profit or loss are measured at fair value with changes in fair value recognized in profit or loss. Dividends or interests on financial assets at fair value through profit or loss are recognized in profit or loss (including those received during the period of initial investment).

If financial assets do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial assets measured at cost on balance sheet and carried at cost net of accumulated impairment losses, if any, as at the reporting date.

Available-for-sale financial assets

Available-for-sale investments are non-derivative financial assets that are designated as available-for-sale or those not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, or loans and receivables.

Foreign exchange gains and losses and interest calculated using the effective interest method relating to monetary available-for-sale financial assets, or dividends on an available-for-sale equity instrument, are recognized in profit or loss. Subsequent measurement of available-for-sale financial assets at fair value is recognized in equity until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit or loss.

If equity instrument investments do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial assets measured at cost on balance sheet and carried at cost net of accumulated impairment losses, if any, as at the reporting date.

Held-to-maturity financial assets

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold it to maturity, other than those that are designated as available-for-sale, classified as financial assets at fair value through profit or loss, or meet the definition of loans and receivables.

After initial measurement held-to-maturity financial assets are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or transaction costs. The effective interest method amortization is recognized in profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group upon initial recognition designates as available for sale, classified as at fair value through profit or loss, or those for which the holder may not recover substantially all of its initial investment.

Loans and receivables are separately presented on the balance sheet as receivables or bond investments for which no active market exists. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or transaction costs. The effective interest method amortization is recognized in profit or loss.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset other than the financial assets at fair value through profit or loss is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more loss events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset. The carrying amount of the financial asset impaired, other than receivables impaired which are reduced through the use of an allowance account, is reduced directly and the amount of the loss is recognized in profit or loss.

A significant or prolonged decline in the fair value of an available-for-sale equity instrument below its cost is considered a loss event.

Other loss events include:

• $\ddot{1}$ significant financial difficulty of the issuer or obligor; or
• ii. a breach of contract, such as a default or delinquency in interest or principal payments; _or
• iii. it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• iv. the disappearance of an active market for that financial asset because of financial difficulties.

For held-to-maturity financial assets and loans and receivables measured at amortized cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial asset that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exits for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. Interest income is accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Receivables together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to profit or loss.

In the case of equity investments classified as available-for-sale, where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss - is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recognized in profit or loss. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Derecognition of financial assets

A financial asset is derecognized when:

• $\mathbf{i}$ . The rights to receive cash flows from the asset have expired
• ii. The Group has transferred the asset and substantially all the risks and rewards of the asset have been transferred
• iii. The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the consideration received or receivable including any cumulative gain or loss that had been recognized in other comprehensive income, is recognized in profit or loss.

(b) Financial liabilities and equity

Classification between liabilities or equity

The Group classifies the instrument issued as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The transaction costs of an equity transaction are accounted for as a deduction from equity (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

Financial liabilities

Financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss or financial liabilities measured at amortized cost upon initial recognition.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. A financial liability is classified as held for trading if:

• i. it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; or
• ii. on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or
• iii. it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

If a contract contains one or more embedded derivatives, the entire hybrid (combined) contract may be designated as a financial liability at fair value through profit or loss; or a financial liability may be designated as at fair value through profit or loss when doing so results in more relevant information, because either:

• $\mathbf{i}$ it eliminates or significantly reduces a measurement or recognition inconsistency; or
• ii. a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the key management personnel.

Gains or losses on the subsequent measurement of liabilities at fair value through profit or loss including interest paid are recognized in profit or loss.

If the financial liabilities at fair value through profit or loss do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial liabilities measured at cost on balance sheet and carried at cost as at the reporting date.

Financial liabilities at amortized cost

Financial liabilities measured at amortized cost include interest bearing loans and borrowings that are subsequently measured using the effective interest rate method after initial recognition. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate method amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified (whether or not attributable to the financial difficulty of the debtor), such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

(c) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

(8) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• (a) In the principal market for the asset or liability, or
• (b) In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

(9) Inventories

Inventories are valued at lower of cost and net realizable value item by item.

Costs incurred in bringing each inventory to its present location and condition are accounted for as follow:

Materials	— Weighted average of actual procurements
Finished goods and	- Cost of direct materials and labor and a proportion of
work in process	manufacturing overheads based on normal operating capacity.
	Finished goods and work in process are accounted under the
	weighted average method.

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

(10) Investments accounted for under the equity method

The Group's investment in its associate is accounted for under the equity method other than those that meet the criteria to be classified as held for sale. An associate is an entity over which the Group has significant influence. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture.

Under the equity method, the investment in the associate or an investment in a joint venture is carried in the balance sheet at cost and adjusted thereafter for the post-acquisition change in the Group's share of net assets of the associate or joint venture. After the interest in the associate or joint venture is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the Group's related interest in the associate or joint venture.

When changes in the net assets of an associate or a joint venture occur and not those that are recognized in profit or loss or other comprehensive income and do not affects the Group's percentage of ownership interests in the associate or joint venture, the Group recognizes such changes in equity based on its percentage of ownership interests. The resulting capital surplus recognized will be reclassified to profit or loss at the time of disposing the associate or joint venture on a prorata basis.

When the associate or joint venture issues new stock, and the Group's interest in an associate or a joint venture is reduced or increased as the Group fails to acquire shares newly issued in the associate or joint venture proportionately to its original ownership interest, the increase or decrease in the interest in the associate or joint venture is recognized in Additional Paid in Capital and Investment accounted for under the equity method. When the interest in the associate or joint venture is reduced, the cumulative amounts previously recognized in other comprehensive income are reclassified to profit or loss or other appropriate items. The aforementioned capital surplus recognized is reclassified to profit or loss on a pro rata basis when the Group disposes the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or an investment in a joint venture is impaired in accordance with IAS 39 Financial Instruments: Recognition and Measurement. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognizes the amount in the 'share of profit or loss of an associate' in the statement of comprehensive income in accordance with IAS 36 Impairment of Assets. In determining the value in use of the investment, the Group estimates:

• (a) Its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or
• (b) The present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.

Because goodwill that forms part of the carrying amount of an investment in an associate or an investment in a joint venture is not separately recognized, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in IAS 36 Impairment of Assets.

Upon loss of significant influence over the associate or joint venture, the Group measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in profit or loss. Furthermore, if an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest.

The Group recognizes its interest in the jointly controlled entities under the equity method other than those that meet the criteria to be classified as held for sale. A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity.

$(11)$ Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of dismantling and removing the item and restoring the site on which it is located and borrowing costs for construction in progress if the recognition criteria are met. 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 is depreciated separately. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognized such parts as individual assets with specific useful lives and depreciation, respectively. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of IAS 16 Property, plant and equipment. When a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.

Items	Useful Lives
Buildings	$6{\sim}56$ years
Machinery and equipment	$3 \sim 41$ years
Transportation equipment	$4{\sim}16$ years
Furniture, fixtures and equipment	$3 \sim 17$ years
Leasehold improvements	$2 \sim 5$ years

Depreciation is calculated on a straight-line basis over the estimated economic lives of the following assets:

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognized in profit or loss.

The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

$(12)$ Investment property

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are measured using the cost model in accordance with the requirements of IAS 16 for that model, other than those that meet the criteria to be classified as held for sale (or are included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Depreciation is calculated on a straight-line basis over the estimated economic lives of the following assets:

Items	Useful Lives
Buildings	$30 \sim 50$ years

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition.

Assets are transferred to or from investment properties when there is a change in use.

$(13)$ Leases

Group as a lessee

Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

(14) Impairment of non-financial assets

The Group assesses at the end of each reporting period whether there is any indication that an asset in the scope of IAS 36 Impairment of Assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cashgenerating unit's ("CGU") fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cashgenerating unit's recoverable amount. A previously recognized impairment loss is reversed only if there has been an increase in the estimated service potential of an asset which in turn increases the recoverable amount. However, the reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.

A cash generating unit, or groups of cash-generating units, to which goodwill has been allocated is tested for impairment annually at the same time, irrespective of whether there is any indication of impairment. If an impairment loss is to be recognized, it is first allocated to reduce the carrying amount of any goodwill allocated to the cash generating unit (group of units), then to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). Impairment losses relating to goodwill cannot be reversed in future periods for any reason.

An impairment loss of continuing operations or a reversal of such impairment loss is recognized in profit or loss.

(15) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognized:

Sale of goods

Revenue from the sale of goods is recognized when all the following conditions have been satisfied: the significant risks and rewards of ownership of the goods have transferred to the buyer; neither continuing managerial involvement nor effective control over the goods sold have been retained; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest income

For all financial assets measured at amortized cost (including loans and receivables and heldto-maturity financial assets) and available-for-sale financial assets, interest income is recorded using the effective interest rate method and recognized in profit or loss.

Dividends

Revenue is recognized when the Group's right to receive the payment is established.

(16) Borrowing cost

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(17) Post-employment benefits

All regular employees of the Company and its domestic subsidiaries are entitled to a pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee's name in the specific bank account and hence, not associated with the Company and its domestic subsidiaries. Therefore fund assets are not included in the Group's consolidated financial statements. Pension benefits for employees of the overseas subsidiaries and the branches are provided in accordance with the respective local regulations.

For the defined contribution plan, the Company and its domestic subsidiaries will make a monthly contribution of no less than 6% of the monthly wages of the employees subject to the plan. The Company recognizes expenses for the defined contribution plan in the period in which the contribution becomes due. Overseas subsidiaries and branches make contribution to the plan based on the requirements of local regulations.

Post-employment benefit plan that is classified as a defined benefit plan uses the Projected Unit Credit Method to measure its obligations and costs based on actuarial assumptions. Remeasurements, comprising of the effect of the actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets, excluding net interest, are recognized as other comprehensive income with a corresponding debit or credit to retained earnings in the period in which they occur. Past service costs are recognized in profit or loss on the earlier of:

• (a) the date of the plan amendment or curtailment, and
• (b) the date that the Group recognizes restructuring-related costs

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset, both as determined at the start of the annual reporting period, taking account of any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payment.

$(18)$ Income taxes

Income tax expense (income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Current income tax relating to items recognized in other comprehensive income or directly in equity is recognized in other comprehensive income or equity and not in profit or loss.

The 10% income tax for undistributed earnings is recognized as income tax expense in the subsequent year when the distribution proposal is approved by the Shareholders' meeting.

Deferred tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

• i. Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
• ii. In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

• i. Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
• ii. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets are reassessed at each reporting date and are recognized accordingly.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

5. Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements require management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumption and estimate could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

(1) Judgement

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements:

(a) Investment Properties

Certain properties of the Group comprise a portion that is held to earn rentals or for capital appreciation and another portion that is owner-occupied. If these portions could be sold separately, the Group accounts for the portions separately as investment properties and property, plant and equipment. If the portions could not be sold separately, the property is classified as investment property in its entirety only if the portion that is owner-occupied is unsignificant.

(b) Operating lease commitment – Group as the lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and accounts for the contracts as operating leases.

(2) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Pension benefits

The cost of post-employment benefit and the present value of the pension obligation under defined benefit pension plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate and future salary increases, mortality rates and future pension increases. Please refer to Note 6 for more details.

(b) Income tax

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

Deferred tax assets are recognized for all carryforward of unused tax losses and unused tax credits and deductible temporary differences to the extent that it is probable that taxable profit will be available or there are sufficient taxable temporary differences against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized. The amount of deferred tax assets determined to be recognized is based upon the likely timing and the level of future taxable profits and taxable temporary differences together with future tax planning strategies.

(c) Accounts receivables-estimation of impairment loss

The Group considers the estimation of future cash flows when there is objective evidence showed indications of impairment. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. However, as the impact from the discounting of shortterm receivables is not material, the impairment of short-term receivables is measured as the difference between the asset's carrying amount and the estimated undiscounted future cash flows. Where the actual future cash flows are lower than expected, a material impairment loss may arise. Please refer to Note 6 for more details.

(d) Inventories

Estimates of net realizable value of inventories take into consideration that inventories may be damaged, become wholly or partially obsolete, or their selling prices have declined. The estimates are based on the most reliable evidence available at the time the estimates are made. Please refer to Note 6 for more details.

6. Contents of significant accounts

(1) Cash and cash equivalents

		As of 31 December
	2017	2016
Cash on hand	\$915	\$934
Demand deposits	1,381,292	1,475,123
Time deposits	300,000	1,700,000
Cash equivalents	299,551	898,637
Total	\$1,981,758	\$4,074,694

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

	As of 31 December
	2017	2016
Held for trading:
Non-derivative financial assets
Stocks	\$-	\$49,881
Less: Adjustments for change in value of
investment		(5,981)
Total	\$	\$43,900

Financial assets held for trading were not pledged.

(3) Accounts receivables

	As of 31 December
	2017	2016
Accounts receivables	\$1,581,692	\$1,007,006
Less: allowance for doubtful debts	(2,118)	(2,118)
Total	\$1,579,574	\$1,004,888

Accounts receivables were not pledged.

Accounts receivables are generally on 10-75 day terms. The movements in the provision for impairment of accounts receivables are as follows (please refer to Note 12 for credit risk disclosure):

	Individually	Collectively
	impaired	impaired	Total
As of 1 January 2017	\$ -	\$2,118	\$2,118
Charge/reversal for the current period
Unrecoverable write-offs
As of 31 December 2017	\$ -	\$2,118	\$2,118
As of 1 January 2016	$\mathbb{S}$ -	\$2,118	\$2,118
Charge/reversal for the current period
Unrecoverable write-offs
As of 31 December 2016	$\mathbb{S}$ -	\$2,118	\$2,118

			Past due but not impaired
As of $31$	Neither past due		31-60	61-90	91-120	$>= 121$
December	nor impaired	$\leq 30$ days	davs	days	days	days	Total
2017	\$1,560,544	\$19,030	$S -$	\$-	\$-		\$1,579,574
2016	985,838	19,050	$\overline{\phantom{a}}$	$\overline{\phantom{0}}$	$\overline{\phantom{0}}$	-	1,004,888

Ageing analysis of trade receivables as follows:

(4) Inventories

Details as follows:

	As of 31 December
	2017	2016
Raw materials	\$1,222,505	\$1,282,818
Work in progress	1,048,648	740,232
Finished goods	1,006,654	805,923
Supplies & parts	333,339	191,505
Total	\$3,611,146	\$3,020,478

The cost of inventories recognized in expenses amounts to NT\$20,926,613 thousand and NT\$17,769,739 thousand, respectively for the years ended 31 December 2017 and 2016.

Inventories were not pledged.

(5) Prepayments

	As of 31 December
	2017	2016
Factory supplies	\$337,301	\$284,743
Prepayments of purchases	75,210	49,447
Other prepayments	9,989	11,838
Total	\$422,500	\$346,028

Prepayments were not pledged.

(6) Other current assets

	As of 31 December
	2017	2016
Other financial assets	\$134,160	\$1,122,727
Temporary payments	1,661	819
Total	\$135,821	\$1,123,546

(7) Available-for-sale financial assets

	As of 31 December
	2017	2016
Stocks	\$99,551	\$99,551
Less: Adjustments for change in value of
investment	(45, 810)	(43, 372)
Total	\$53,741	\$56,179
	As of 31 December
	2017	2016
Current	$\mathbf{s}$ -	$\mathbb{S}$ -
Noncurrent	53,741	56.179
Total	\$53,741	\$56,179

Available-for-sale financial assets were not pledged.

(8) Financial assets measured at cost, noncurrent

	As of 31 December
Investee	2017	2016
Shihlien China Holding Co., Ltd.	\$693,013	\$615,952
Wen-Shan Enterprise Co., Ltd.	209,777	209,777
Chien Shing Harbour Service Co., Ltd.	96,759	99,085
Gwo Uei Metals Industry Co., Ltd.	83,419	83,419
Gwo Huei Iron & Steel Co., Ltd.	55,464	55,464
Fung-So Investment Co. Ltd.	42,156	42,156
Ascentek Venture Capital Corporation	19,600	19,600
Feng Xin Development Enterprise Co., Ltd.	1,731	1,731
Feng Ying Enterprise Co., Ltd.	1,604	1,604
Taichung International Entertainment Corporation	970	970
China Trade And Development Corporation	25	25
Total	\$1,204,518	\$1,129,783

The above investments in the equity instruments of unlisted entities are measured at cost as the fair value of these investments are not reliably measurable due to the fact that the variability in the range of reasonable fair value measurements is significant for that investment and that the probabilities of the various estimates within the range cannot be reasonably assessed and used when measuring fair value.

In the first quarter of 2017, the Group disposed of the shares of Chien Shing Harbour Service Co., Ltd. in the amount of NT\$2,326 thousand and recognized gain on disposal of investment amounting to NT\$2,403 thousand.

In the first half of 2017, the Group invested NT\$77,061 thousand in Shihlien China Holding Co., Ltd.

Financial assets measured at cost were not pledged.

(9) Investments accounted for under the equity method

The following table lists the investments accounted for under the equity method of the Group:

	As of 31 December
		2017		2016
Investees	Carrying amount	Percentage of ownership	Carrying amount	Percentage of ownership
Investment in associates:
Taiwan Steel Union Co., Ltd.	\$505,069	22.01%	\$411,042	22.01%
Fong Yu Resources Co., Ltd.	371,387	29.71%	83,250	29.83%
Feng Ying Development Enterprise Co., Ltd.	258,989	35.57%
Total	\$1,135,445		\$494,292

In May and December of 2017, the Group invested in Fong Yu Resources Co., Ltd. and Feng Ying Development Enterprise Co., Ltd. NT\$288,300 thousand and NT\$258,214 thousand.

In June of 2016, the Group invested in Fong Yu Resources Co., Ltd. NT\$83,400 thousand.

In September of 2016, the Group disposed of 335 thousand shares of Taiwan Steel Union Co., Ltd. and recognized gain on disposal of investments amounting to NT\$6,861 thousand.

The Group's investments in Taiwan Steel Union Co., Ltd., Fong Yu Resources Co., Ltd. and Feng Ying Development Enterprise Co., Ltd. are not individually material. The summarized financial information based on Group's share of Taiwan Steel Union Co., Ltd. , Fong Yu Resources Co., Ltd. and Feng Ying Development Enterprise Co., Ltd. is as follows:

For the years ended
31 December
2017	2016
\$169,409	\$113,524
19	(235)
\$169,428	\$113,289

The associates had no contingent liabilities or capital commitments as of 31 December 2017 and 2016. Investment in the associates were not pledged.

Our audit, insofar as it related to the investments accounted for under the equity method amounting to NT\$505,069 thousand and NT\$411,042 thousand as of 31 December 2017 and 2016; the related shares of investment income from the associates and joint ventures amounted to NT\$168,797 thousand and NT\$113,674 thousand for the years ended 31 December 2017 and 2016, respectively; and the related shares of other comprehensive income from the associates and joint ventures amounted to NT\$22 thousand and NT\$(283) thousand for the years ended 31 December 2017 and 2016, respectively; are based solely on the reports of other independent accountants.

							Construction in
							progress and
							equipment
			Machinery and	Office	Transportation	Leasehold	pending
	Land	Buildings	equipment	equipment	equipment	improvements	inspection	Total
Cost:
As of 1 January 2017	\$1,169,451	\$2,463,163	\$14,560,549	\$23,972	\$361,820	\$258,500	\$351,690	\$19,189,145
Additions	26,956	9,888	216,919		21,946	3,431	2,299,247	2,578,387
Disposals		(350)	(464, 193)	(1, 197)	(12,680)			(478, 420)
Other changes		73,167	1,137,999				(1,152,796)	58,370
As of 31 December 2017	\$1,196,407	\$2,545,868	\$15,451,274	\$22,775	\$371,086	\$261,931	\$1,498.141	\$21,347,482
Depreciation and impairment:
As of 1 January 2017	${\mathbb S}$ .	\$1,082,539	\$10,423,036	\$22,509	\$239,347	\$14,612	\$-	\$11,782,043
Depreciation		87,922	1,067,711	617	26,223	15,730		1,198,203
Disposals		(350)	(464, 193)	(1, 197)	(12,680)	ř.		(478, 420)
Other changes		$\tilde{\phantom{a}}$		$\blacksquare$			$\blacksquare$
As of 31 December 2017	\$-	\$1,170,111	\$11,026,554	\$21,929	\$252,890	\$30,342	\$-	\$12,501,826
Cost
As of 1 January 2016	\$1,169,451	\$2,599,009	\$14,151,947	\$27,744	\$357,380	\$235,658	\$490,777	\$19,031,966
Additions			182,599		5,670	2,786	558,486	749,541
Disposals		(173, 456)	(472, 541)	(3,772)	(1,230)			(650, 999)
Other changes		37,610	698,544			20,056	(697, 573)	58,637
As of 31 December 2016	\$1,169,451	\$2,463,163	\$14,560,549	\$23,972	\$361,820	\$258,500	\$351,690	\$19,189,145

(10) Property, plant and equipment

Depreciation and impairment:

As of 1 January 2016 Depreciation Disposals Other changes As of 31 December 2016	Land $\mathsf{s}\text{-}$ \$-	Buildings \$1,109,850 84,650 (111,961) ٠ \$1,082,539	Machinery and equipment \$9,802,198 1,087,734 (466, 896) \$10,423,036	Office equipment \$25,600 681 (3,772) $\blacksquare$ \$22,509	Transportation equipment \$212,372 28,205 (1,230) $\bullet$ \$239,347	Leasehold improvements \$791 13,821 ٠ \$14,612	Construction in progress and equipment pending inspection \$- \$-	Total \$11,150,811 1,215,091 (583, 859) \$11,782,043
Net carrying amount:
As of 31 December 2017	\$1,196,407	\$1,375,757	\$4,424,720	\$846	\$118,196	\$231,589	\$1,498,141	\$8,845,656
As of 31 December 2016	\$1,169,451	\$1,380,624	\$4,137,513	\$1,463	\$122,473	\$243,888	\$351,690	\$7,407,102

There is no capitalization of interest due to purchase of property, plant and equipment.

As of 31 December 2017 and 2016 deeds of certain agriculture land, in the amount of NT\$55,425 thousand and NT\$28,469 thousand, respectively. It were not transferred to the Group. The land is categorized as other assets and the Group had entered into a trust deed with the entrusted registrant for certain agriculture land.

Property, plant and equipment were not pledged.

(11) Investment properties

	Land	Buildings	Total
Cost:
As of 1 January 2017	\$230,423	$\mathbf{s}$ -	\$230,423
Additions	146,444	6,086	152,530
As of 31 December 2017	\$376,867	\$6,086	\$382,953
Depreciation and impairment :
As of 1 January 2017	\$ -	$\mathbb{S}$ -	$\mathbf{\$}$ -
Depreciation		101	101
As of 31 December 2017	\$ -	\$101	\$101

Cost:

		Land	Buildings	Total
As of 1 January 2016		\$230,423	$\mathbf{s}$ -	\$230,423
Additions
As of 31 December 2016		\$230,423	$\mathbf{s}$ -	\$230,423
Depreciation and impairment:
As of 1 January 2016		$\hat{\mathbb{S}}$ -	$\hat{\mathbb{S}}$ -	\$-
Depreciation
As of 31 December 2016		$\hat{\mathbf{s}}$ -	$\mathbb{S}$ -	$\frac{1}{2}$ .
Net carrying amount:
As of 31 December 2017		\$376,867	\$5,985	\$382,852
As of 31 December 2016	\$230,423		\$-	\$230,423
			For the years ended 31 December
		2017		2016
Rental income from investment property		\$4,034		\$4,017
Less:
Direct operating expenses from investment property generating rental income
Direct operating expenses from
investment property not generating rental income
Total		\$4,034		\$4,017

Investment properties were not pledged.

Investment properties held by the Group are not measured at fair value but for which the fair value is disclosed. The fair value measurements of the investment properties are categorized within Level 3. The fair value of investment properties was NT\$627,522 thousand and NT\$398,886 thousand as at 31 December 2017 and 31 December 2016, respectively. The fair value has been determined based on valuations performed by an independent appraiser and on transactions observable in the market. The valuation method used is direct capitalized method, and the inputs used are as follows:

2017	2016
5.58%	5.73%
		As of 31 December

(12) Other assets

	As of 31 December
	2017	2016
Advance payments in equipments	\$983,958	\$409,154
Long-term prepaid rent	59,537	62,273
Refundable deposits	8,344	6,394
Other non-current assets - other	28,186	13,687
Total	\$1,080,025	\$491,508

(13) Short-term loans

		As of 31 December
	InterestRates (%)	2017	2016
Unsecured bank loans	$0.57\% - 2.80\%$	\$158,996	\$354,079

The Group's unused short-term lines of credits amounted to NT\$10,883,711 thousand and NT\$11,094,827 thousand as of 31 December 2017 and 2016, respectively.

(14) Other payables

	As of 31 December
	2017	2016
Accrued Salary and bonus	\$345,484	\$283,849
Accrued Utilities	150,936	166,585
Accrued Discount	157,306	165,061
Pollution control payable	101,776
Defined benefit obligation-current	27,655	53,782
Accrued Salary-non-leave bonus	25,517	36,865
Sales Tax Payable	6,944	41,637
Others	51,140	51,506
Total	\$866,758	\$799,285

(15) Post-employment benefits

Defined contribution plan

The Group adopt a defined contribution plan in accordance with the Labor Pension Act of the R.O.C. Under the Labor Pension Act, the Company will make monthly contributions of no less than 6% of the employees' monthly wages to the employees' individual pension accounts. The Company has made monthly contributions of 6% of each individual employee's salaries or wages to employees' pension accounts.

Pension expenses under the defined contribution plan for the years ended 31 December 2017 and 2016 were NT\$16,419 thousand and NT\$14,610 thousand, respectively.

Defined benefits plan

The Company adopt a defined benefit plan in accordance with the Labor Standards Act of the R.O.C. The pension benefits are disbursed based on the units of service years and the average salaries in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the 15th year. The total units shall not exceed 45 units. Under the Labor Standards Act, the Company and its domestic subsidiaries contribute an amount equivalent to 2% of the employees' total salaries and wages on a monthly basis to the pension fund deposited at the Bank of Taiwan in the name of the administered pension fund committee. Before the end of each year, the Company and its domestic subsidiaries assess the balance in the designated labor pension fund. If the amount is inadequate to pay pensions calculated for workers retiring in the same year, the Company and its domestic subsidiaries will make up the difference in one appropriation before the end of March the following year.

The Ministry of Labor is in charge of establishing and implementing the fund utilization plan in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund. The pension fund is managed by the in-house managers or under discretionary accounts, based on a passive-aggressive investment strategy for long-term profitability. The Ministry of Labor establishes checks and risk management mechanism based on the assessment of risk factors including market risk, credit risk and liquidity risk, in order to maintain adequate manager flexibility to achieve targeted return without overexposure of risk. With regard to utilization of the pension fund, the minimum earnings in the annual distributions on the final financial statement shall not be less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. Treasury Funds can be used to cover the deficits after the approval of the competent authority. As the Company does not participate in the operation and management of the pension fund, no disclosure on the fair value of the plan assets categorized in different classes could be made in accordance with paragraph 142 of IAS 19. The Group expects to contribute NT\$4,824 thousand to its defined benefit plan during the 12 months beginning after 31 December 2017.

The weighted average duration of the defined benefits obligation was 9 years of 31 December 2017.

Pension costs recognized in profit or loss are as follows:

	For the years ended 31
	December
	2017	2016
Current period service costs	\$14,853	\$15,372
Interest income or expense	2,760	8,067
Past service cost		879
Gains and losses arising from settlements	760	8,738
Total	\$18,373	\$33,056

Reconciliations of liabilities(assets) of the define benefit obligation and plan assets at fair value are as follows:

	As of
	31 December 31 December		1 January
	2017.	2016	2016
Defined benefit obligation at 1 January	\$726,213	\$730,101	\$765,400
Plan assets at fair value	(513,600)	(490, 020)	(204, 698)
Net defined benefit obligation	212,613	240,081	560,702
Less: current portion	(27, 655)	(53, 782)	(314, 349)
Net defined benefit obligation-noncurrent	\$184,958	\$186,299	\$246,353

recognized on the consolidated balance sheets

Reconciliation of liabilities (assets) of the defined benefit plan are as follows:

	As of
	Defined
	benefit	Fair value of	Benefit
	obligation	plan assets	liability (asset)
As of 1 January 2016	\$765,400	\$(204,698)	\$560,702
Current period service costs	15,372		15,372
Interest expense (income)	11,291	(3,224)	8,067
Past service cost and gains and losses arising
from settlements	(54, 680)	64,297	9,617
Subtotal	(28, 017)	61,073	33,056

		As of
	Defined
	benefit	Fair value of	Benefit
	obligation	plan assets	liability (asset)
Remeasurements of the defined benefit
liabilities/assets:
Actuarial gains and losses arising from
changes in demographic assumptions	49		49
Actuarial gains and losses arising from
changes in financial assumptions	25,529		25,529
Experience adjustments	4,810		4,810
Remeasurements of the defined benefit assets		1,788	1,788
Subtotal	30,388	1,788	32,176
Payments of benefit obligation	(37,670)	20,356	(17, 314)
Contributions by employer		(368, 539)	(368, 539)
As of 31 December 2016	\$730,101	\$(490,020)	\$240,081
Current period service costs	14,853		14,853
Interest expense (income)	8,950	(6,190)	2,760
Past service cost and gains and losses arising
from settlements	(5,605)	6,365	760
Subtotal	18,198	175	18,373
Remeasurements of the defined benefit
liabilities/assets:
Actuarial gains and losses arising from
changes in demographic assumptions	29		29
Actuarial gains and losses arising from
changes in financial assumptions	16,186		16,186
Experience adjustments	(5,898)		(5,898)
Remeasurements of the defined benefit assets		2,210	2,210
Subtotal	10,317	2,210	12,527
Payments of benefit obligation	(32, 403)	30,842	(1, 561)
Contributions by employer		(56, 807)	(56, 807)
As of 31 December 2017	\$726,213	\$(513,600)	\$212,613

The principal assumptions used in determining the Companys defined benefit plan are shown below:

	As of 31 December
	2017	2016
Discount rate	1.00%	1.25%
Expected rate of salary increases	$0.55\%$	$0.57\%$

	For the years ended 31 December
	2017		2016
	Defined Defined		Defined	Defined
	benefit	benefit	benefit	benefit
	obligation	obligation	obligation	obligation
	increase	decrease	increase	decrease
Discount rate increase by 0.25%	$\mathbf{s}$ -	\$17,352	$\mathbf{\$}$ -	\$18,131
Discount rate decrease by 0.25%	17,973		18,804
Future salary increase by 0.25%	18,009		18,885
Future salary decrease by 0.25%		17,471	$\blacksquare$	18,296

Sensitivity analysis for significant assumption are shown below:

The sensitivity analyses above are based on a change in a significant assumption (for example: change in discount rate or future salary), keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation of one another.

There was no change in the methods and assumptions used in preparing the sensitivity analyses compared to the previous period.

$(16)$ Equities

(a) Common stock

The Company's authorized capital was both NT\$7,000,000 thousand as of 31 December 2017 and 2016, each at a par value of NT\$10. The Company has issued 581,599,424 common shares both as of 31 December 2017 and 2016. The paid-up capital was NT\$5,815,994 thousand. Each share has one voting right and a right to receive dividends.

(b) Capital surplus

	As of 31 December
	2017	2016
Additional paid-in capital	\$271,134	\$271,134
Treasury share transactions	175,263	175,263
Gain on sale of assets	665	665
Donated assets	218	218
Other	1,071
Total	\$448,351	\$447,280

According to the Company Act, the capital reserve shall not be used except for making good the deficit of the company. When a company incurs no loss, it may distribute the capital reserves related to the income derived from the issuance of new shares at a premium or income from endowments received by the company. The distribution could be made in cash or in the form of dividend shares to its shareholders in proportion to the number of shares being held by each of them.

(c) Legal reserve

The Company Act provides that companies must retain at least 10% of their annual earnings, as defined in the Act, until such retention equals the amount of paid-in capital. This retention is accounted for as a legal reserve account. When the Company incurs no loss, it may distribute the portion of legal serve which exceeds 25% of the paid-in capital by issuing new shares or by cash in proportion to the number of shares being held by each of the shareholders.

(d) Special reserve

When the Company distributed the earnings, it shall set aside supplemental special reserve based on the difference between the amount already set aside and other net deductions from shareholders' equity. For any subsequent reversal of other net deductions from shareholders' equity, the amount reversed may be distributed.

(e) Retained earnings and dividend policies

According to the Company's Articles of Incorporation, current year's earnings, if any, shall be distributed in the following order:

• a. Payment of all taxes and dues;
• b. Offset prior years' operation losses;
• c. Set aside 10% of the remaining amount after deducting items (a) and (b) as legal reserve:
• d. Set aside or reverse special reserve in accordance with law and regulations; and
• e. The distribution of the remaining portion, if any, will be recommended by the Board of Directors and resolved in the shareholders' meeting.

As the Company's industry is mature and the Company makes stable profits, most of the dividends will be distributed to shareholders as cash dividends. However, when there is significant capital expenditure, no more than 70% of total dividends appropriation to shareholders can be distributed as stock dividends.

According to the Company Act, the Company needs to set aside amount to legal reserve unless where such legal reserve amounts to the total authorized capital. The legal reserve can be used to make good the deficit of the Company. When the Company incurs no loss, it may distribute the portion of legal serve which exceeds 25% of the paid-in capital by issuing new shares or by cash in proportion to the number of shares being held by each of the shareholders.

Details of the 2017 and 2016 earnings distribution and dividends per share as approved and resolved by the Board of Directors' meeting and shareholders' meeting on 8 March 2018 and 8 June 2017 respectively, are as follows:

	Appropriation of earnings		Dividend per share (NT\$)
	2017	2016	2017	2016
Legal reserve	\$272,496	\$181,579
Special reserve	(51, 823)	42,561
Common stock -cash dividend	2,035,598	1,744,799	\$3.5	\$3.0
Total	\$2,256,271	\$1,968,939

Please refer to Note 6(18) for further details on employees' compensation and remuneration to directors and supervisors.

(17) Operating revenues

. .		For the years ended 31 December
	2017	2016
Sale revenues	\$25,642,497	\$21,792,604
Less: Sales returns and discounts	(900, 560)	(859, 954)
Total	\$24,741,937	\$20,932,650

(18) Summary statement of employee benefits, depreciation and amortization expenses by function for the year ended 31 December 2017 and 2016:

		2017			2016
Function Nature	Operating	Operating		Operating	Operating	Total
	costs	expenses	Total amountl	costs	expenses	amount
Employee benefits expense
Salaries	\$615,852	\$234,188	\$850,040	\$576,065	\$201,000	\$777,065
Labor and health insurance	45.468	14,987	60,455	42,551	14,227	56,778
Pension	27.224	6.208	33,432	38.768	8,719	47,487
Other employee benefits	25,297	6.422	31,719	22,547	6,003	28,550
expense
Depreciation	1,171,126	27,178	1,198,304	1,190,774	24,317	1,215,091
Amortization	500		500	352		352

The number of employees of the Group as of 31 December 2017 and 2016 were 853 and 838, respectively.

According to the Articles of Incorporation, no less than 2% of profit of the current year is distributable as employees' compensation and no higher than 2% of profit of the current year is distributable as remuneration to directors and supervisors. However, the company's accumulated losses shall have been covered. The Company may, by a resolution adopted by a majority vote at a meeting of Board of Directors attended by two-thirds of the total number of directors, have the profit distributable as employees' compensation in the form of shares or in cash; and in addition thereto a report of such distribution is submitted to the shareholders' meeting. Information on the Board of Directors' resolution regarding the employees' compensation and remuneration to directors and supervisors can be obtained from the "Market Observation Post System" on the website of the TWSE.

Based on profit for the years ended 31 December 2017, the Company estimated the amounts of the employees' compensation and remuneration to directors and supervisors for the period ended of 31 December 2017 to be 7.84% and 1.12% of profit, respectively. The employees' compensation and remuneration to directors and supervisors for the period ended of 31 December 2017 amount to NT\$279,182 thousand and NT\$40,000 thousand respectively, recognized as employee benefits expense.

A resolution was passed at a Board of Directors meeting to distribute NT\$279,182 thousand and NT\$40,000 thousand in cash as employees' compensation and remuneration to directors and supervisors of 2017, respectively. Differences between the estimated amount and the actual distribution of the employee compensation and remuneration to directors and supervisors for the year ended 31 December 2017 are recognized in profit or loss of the subsequent year in 2018.

The employees' compensation and remuneration to directors and supervisors for the period ended of 31 December 2016 amount to NT\$231,950 thousand and NT\$26,000 thousand respectively. No material differences exist between the estimated amount and the actual distribution of the employee bonuses and remuneration to directors and supervisors for the year ended 31 December 2016.

• (19) Non-operating income and expenses
• (a) Other income

	For the years ended 31 December
	2017	2016
Interest income	\$9,773	\$16,119
Rental income	4.743	4,726
Dividend income	25.672	26,297
Others	11,572	17,015
Total	\$51,760	\$64,157

(b) Other gains and losses

	For the years ended 31 December
	2017	2016
Loss of financial assets at fair value through
profit or loss	\$(834)	\$(8,534)
Foreign exchange (losses) gains, net	(11, 166)	12,188
Gains on disposal of investments	6,076	10,158
Gains (Losses) on disposal of property, plant and
equipment, net	1,121	(55,620)
Others	(5,170)	(2,618)
Impairment losses on financial assets		(277,000)
Total	\$(9,973)	$$$ (321,426)

(c) Finance costs

	For the years ended 31 December
	2017	2016
Interest on loans from bank	\$(2,531)	\$(1,602)

(20) Components of other comprehensive income

For the year ended 31 December 2017:

	Arising during the	Reclassification adjustments during the	Other comprehensive income,	Income tax	Other comprehensive income,
	period	period	before tax	effect	net of tax
Not to be reclassified to profit or loss
in subsequent periods:
Remeasurements of defined benefit
plans	\$(12,527)	\$-	\$(12,527)	\$2,129	\$(10,398)
Share of other comprehensive
income of associates and joint
ventures accounted for under the
equity method	22		22	(3)	19
To be reclassified to profit or loss in
subsequent periods:
Unrealized gains (losses) from
available-for-sale financial assets	(2, 438)		(2, 438)		(2, 438)
Effective portion of gains and losses
on hedging instruments in a cash
flow hedge	65,374		65,374	(11, 113)	54,261
Total of other comprehensive income	\$50,431	$\mathsf{s}$ .	\$50,431	\$(8,987)	\$41,444

For the year ended 31 December 2016:
--------------------------------------	--

	Arising during the period	Reclassification adjustments during the period	Other comprehensive income, before tax	Income tax effect	Other comprehensive income, net of tax
Not to be reclassified to profit or loss
in subsequent periods:
Remeasurements of defined benefit
plans	\$(32,176)	\$ -	\$(32,176)	\$5,470	\$(26,706)
Share of other comprehensive
income of associates and joint
ventures accounted for under the
equity method	(283)		(283)	48	(235)
To be reclassified to profit or loss in
subsequent periods:
Unrealized gains (losses) from
available-for-sale financial assets	18,321		18,321		18,321
Effective portion of gains and losses
on hedging instruments in a cash
flow hedge	(73, 352)		(73, 352)	12,469	(60, 883)
Total of other comprehensive income	\$(87,490)	$\mathbb{S}$ -	\$(87,490)	\$17,987	\$(69,503)

$(21)$ Income tax

The major components of income tax expense (income) are as follows:

Income tax expense (income) recognized in profit or loss

		For the years ended 31 December
	2017	2016
Current income tax expense:
Current income tax charge	\$554,356	\$417,618
Deferred tax income:
Deferred tax income relating to origination and reversal of temporary
differences	(37, 167)	(36, 432)
Total income tax expense	\$517,189	\$381,186
Income tax relating to components of other comprehensive income		For the years ended 31 December
	2017	2016
Deferred tax expense (income):
Remeasurements of defined benefit plans	\$(2,129)	\$(5,470)
Share of other comprehensive income of associates and joint ventures accounted for under the equity method Effective portion of gains and losses on hedging instruments in a cash flow	3 11,113	(48) (12, 469)
hedge	\$8,987
Income tax relating to components of other comprehensive income		\$(17,987)

Income tax relating to components of other comprehensive income

	For the years ended 31 December
	2017	2016
Accounting profit before tax from continuing operations	\$3,242,146	\$2,196,980
Tax at the domestic rates applicable to profits in the country
concerned	\$551,165	373,486
Tax effect of revenues exempt from taxation	(34, 181)	(26,765)
Tax effect of expenses not deductible for tax purposes	205	2,801
10% surtax on undistributed retained earnings		31,664
Total income tax expenses recognized in profit or loss	\$517,189	\$381,186

A reconciliation between tax expense and the product of accounting profit multiplied by applicable tax rate is as follows:

Deferred tax assets (liabilities) relate to the following:

For the year ended 31 December 2017:

			Recognized in
			other	Balance as
	Balance as of	Recognized in	comprehensive	of 31
Items	1 January	profit or loss	income	December
Temporary difference
Bonus payable	\$6,267	\$(1,929)	$S -$	\$4,338
Impairment losses on available-for-sale	3,679			3,679
financial assets
Loss from price reduction of inventories	1,112			1,112
Unrealized foreign exchange gains or losses	(690)	1,111		421
Investments accounted for under the equity method	47,094	26		47,120
Share of other comprehensive of associates and joint ventures	(73)		(3)	(76)
Non-current liability - Defined benefit Liability	33,772	(6, 799)		26,973
Remeasurements of defined benefit plans	6,676		2,129	8,805
Difference between book depreciation expense and tax depreciation expense	87,179	44,758		131,937
Effective portion of gains and losses on hedging instruments in a cash flow hedge	11,334		(11, 113)	221
Deferred tax income		\$37,167	\$(8,987)
Net deferred tax assets	\$196,350			\$224,530
Reflected in balance sheet as follows:
Deferred tax assets	\$197,113			\$224,606
Deferred tax liabilities	\$(763)			\$(76)

			Recognized in
			other	Balance as
	Balance as of	Recognized in	comprehensive	of 31
Items	1 January	profit or loss	income	December
Temporary difference
Bonus payable	\$6,095	\$172	$\mathsf{\$}$ -	\$6,267
Impairment losses on available-for-sale
financial assets	3,679			3,679
Loss from price reduction of inventories	1,112			1,112
Unrealized foreign exchange gains or losses	(43)	(647)		(690)
Investments accounted for under the
equity method	(4)	47,098		47,094
Share of other comprehensive of associates and
joint ventures	(121)		48	(73)
Non-current liability - Defined benefit Liability	93,747	(59, 975)		33,772
Remeasurements of defined benefit plans	1,206		5,470	6,676
Difference between book depreciation expense
and tax depreciation expense	37,395	49,784		87,179
Effective portion of gains and losses on hedging
instruments in a cash flow hedge	(1, 135)		12,469	11,334
Deferred tax income		36,432	17,987
Net deferred tax assets	\$141,931			\$196,350
Reflected in balance sheet as follows:
Deferred tax assets	\$143,234			\$197,113
Deferred tax liabilities	\$(1,303)			\$(763)

For the year ended 31 December 2016:

Imputation credit information

As of 31 December
2017	2016
$S -$	\$1,300,873

The actual creditable ratio for 2016 was 21.99%. According to the Article 66-6 of Income Tax Act, the imputation credit ratio for the earnings of 2016 distributed to individual stockholders residing in R.O.C. is half of the original ratio. On 18 January 2018, the Legislative Yuan passed the amendments to the Income Tax Act that abolished the imputation tax scheme under the integrated income tax system.

There are no earnings generated before the year ended 31 December 1997.

The assessment of income tax returns

As of 31 December 2017, the Company's income tax returns through 2015 have been assessed and approved by the Tax Authority.

(22) Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

Basic earnings per share

	For the years ended 31 December
	2017	2016
Profit attributable to ordinary equity holders of the Company	\$2,724,957	\$1,815,794
Weighted-average number of ordinary shares for basic earnings per share (in thousands)	581,599	581,599
Basic earnings per share (NT\$)	\$4.69	\$3.12

The Company's diluted earnings per share amounts equal to its basic earnings per share amounts.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date the financial statements were authorized for issue.

7. Related party transactions

Information of the related parties that had transactions with the Group during the financial reporting period is as follows:

Name and nature of relationship of the related parties

Name of the related parties	Nature of relationship of the related parties
Gei Tai International Ltd	Substantive related party
Taiwan Steel Union Co., Ltd.	Associate
Feng Ying Development Enterprise Co., Ltd.	Associate

Significant transactions with the related parties

(a) Purchases

	For the years ended 31 December
	2017	2016
Substantive related party	\$296,450	\$299,244
Associates	3,880
Total	\$300,330	\$299,244

The purchase price from the above related parties was determined through mutual agreement based on the market rates. The payment terms from the related party suppliers are comparable with third party suppliers.

(b) Account Payable

	As of 31 December
	2017	2016
Associates	\$3,238	\$3,703

(c) Other

Taiwan Steel Union Co., Ltd was commissioned to process the electric arc furnace dust. Other expenditures paid to Taiwan Steel Union Co., Ltd for the years ended 31 December 2017 and 2016 were NT\$40,446 thousand and NT\$38,552 thousand, respectively, and were recorded as manufacturing expenses. The unpaid amounts as of 31 December 2017 and 2016 were NT\$3,238 thousand and NT\$3,703 thousand.

(d) Key management personnel compensation

	For the years ended 31 December
	2017	2016
Short-term employee benefits	\$92,947	\$71,126
Post-employment benefits	785	854
Total	\$93,732	\$71,980

8. Assets pledged as security

None.

9. Commitments and contingencies

• (1) As of 31 December 2017 and 2016, the Group issued guaranty notes as security for borrowings in the amount of NT\$13,362,450 thousand and NT\$12,242,450 thousand, respectively.
• (2) As of 31 December 2017 and 2016, the Group was issued letters of guarantee by banks both in the amount of NT\$35,500 thousand for importing goods.
• (3) Amounts available under unused letters of credit are as follows:

	Carrying amount
Currency	2017.12.31	2016.12.31
USD	\$19,915	\$16,291
IPY	113,306	734,483
EUR.	4,225	28,072

The amounts that are available under unused letters of credit above are unguaranteed.

(4) The following table lists major purchase contracts of the Group :

Contract	Contract	Contract	Contract	Unpaid amount as of 31
counterparty	content	amount	amount paid	December
Company A	Equipment	EUR 21,765	EUR 19,262	EUR 2,503
	purchase case	(in thousands	(in thousands)	(in thousands
		of Euros)	of Euros)	of Euros)
			$(\$660,156)$
Company B	Machinery and	EUR 6,390	EUR 6,071	EUR 319
	equipment	(in thousands	(in thousands	(in thousands)
		of Euros)	of Euros)	of Euros)
			(\$208,611)
Company C	Factory equipment purchase	\$477,500	\$444,352	\$33,148
Company D	Machinery and	EUR 4,650	EUR 4,185	EUR 465
	equipment	(in thousands	(in thousands)	(in thousands)
		of Euros)	of Euros)	of Euros)
			(\$143,466)
Company E	Factory equipment purchase	\$109,164	\$83,461	\$25,703
Company F	Factory equipment purchase	\$160,000	\$112,222	\$47,778
Company G	New building	\$300,000	$\hat{\mathbb{S}}$ -	\$300,000

10. Losses due to major disasters

None.

11. Significant subsequent events

On 18 January 2018, the Legislative Yuan passed amendments to the Income Tax Act. According to the amended Income Tax Act, the corporate income tax rate increased from 17% to 20% for income earned from January 2018 onwards. The increase in income tax rate would therefore increase the deferred tax assets and deferred tax liabilities NT\$39,636 thousand and NT\$13 thousand, respectively in 2018.

12. Others

(1) Categories of financial instruments

Financial assets	As of 31 December
	2017	2016
Financial assets at fair value through profit or loss:
Designated financial assets at fair value
through profit or loss-current	$\mathbb{S}$ -	\$43,900
Available-for-sale financial assets
Financial assets at fair value	53,741	56,179
Financial assets at cost-noncurrent	1,204,518	1,129,783
Subtotal	1,258,259	1,185,962
Loans and receivables:
Cash and cash equivalents (exclude cash	1,980,843	4,073,760
on hand)
Notes and accounts receivable	1,588,612	1,015,370
Other receivables	3,679	6,768
Subtotal	3,573,134	5,095,898
Other financial assets	134,160	1,122,727
Total	\$4,965,553	\$7,448,487
Financial liabilities
Financial liabilities at amortized cost:
Short-term loans	\$158,996	\$354,079
Notes and accounts payable	1,409,786	1,430,425
Total	\$1,568,782	\$1,784,504

(2) Financial risk management objectives and policies

The Group's principal financial risk management objective is to manage the market risk, credit risk and liquidity risk related to its operating activities. The Group identifies measures and manages the aforementioned risks based on the Group's policy and risk appetite.

The Group has established appropriate policies, procedures and internal controls for financial risk management. Before entering into significant financial activities, due approval process by the board of directors and audit committee must be carried out based on related protocols and internal control procedures. The Group complies with its financial risk management policies at all times.

(3) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in market prices. Market prices comprise currency risk, interest rate risk and other price risk.

In practice, it is rarely the case that a single risk variable will change independently from other risk variables, there is usually interdependencies between risk variables. However the sensitivity analysis disclosed below does not take into account the interdependencies between risk variables.

Foreign currency risk

The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in a different currency from the Group's functional currency).

The Group has certain foreign currency receivables to be denominated in the same foreign currency with certain foreign currency payables, therefore natural hedge is received.

The foreign currency sensitivity analysis of the possible change in foreign exchange rates on the Group's profit is performed on significant monetary items denominated in foreign currencies as of the end of the reporting period. The Group's foreign currency risk is mainly related to the volatility in the exchange rates for USD, JPY and EUR.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's loans and receivables at variable interest rates, bank borrowings with fixed interest rates and variable interest rates.

The interest rate sensitivity analysis is performed on the borrowings and investments with variable interest rates as of the end of the reporting period, under the assumption that, a change of 10 basis points of interest rates in a reporting period.

Equity price risk

The fair value of the Group's listed and unlisted equity securities and conversion rights of the Euro-convertible bonds issued are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group's listed and unlisted equity securities are classified under held for trading financial assets or available-for-sale financial assets, while conversion rights of the Euro-convertible bonds issued are classified as financial liabilities at fair value through profit or loss as it does not satisfy the definition of an equity component. The Group manages the equity price risk through diversification and placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Group's senior management on a regular basis. The Group's Board of Directors reviews and approves all equity investment decisions.

Pre-tax sensitivity analysis of changes in related risk factors for the years ended 31 December 2017 and 2016 are as follows:

$\mathcal{L}$ and $\mathcal{L}$ and $\mathcal{L}$ and $\mathcal{L}$

$\sim$ $\sim$ $\sim$

		Sensitivity of	Sensitivity of
Main Risk	Fluctuation	profit/loss	equity
Foreign currency risk	NTD/USD rate $+/- 1\%$	$+/-$ \$3,225	$+/-$ \$18
	NTD/JPY rate $+/- 1\%$	$+/-$ \$(132)	$+/-$ \$68
	NTD/EUR rate $+/- 1\%$	$+/-$ \$(344)	$+/-$ \$1,255
Interest rate risk	Market rate $+/- 10$	$+/-$ \$159
	basis points
Equity price risk	Stock price $+/- 1\%$		$+/-$ \$537

For the year ended 31 December 2017

		Sensitivity of	Sensitivity of
Main Risk	Fluctuation	profit/loss	equity
Foreign currency risk	NTD/USD rate $+/- 1\%$	$+/-$ \$1,313	$+/-$ \$430
	NTD/JPY rate $+/- 1\%$	$+/-$ \$(118)	$+/-$ \$1,527
	NTD/EUR rate $+/- 1\%$	$+/-$ \$(70)	$+/-$ \$9,256
Interest rate risk	Market rate $+/- 10$	$+/-$ \$354
	basis points
Equity price risk	Stock price $+/- 1\%$		$+/-$ \$562

For the year ended 31 December 2016

(4) Credit risk management

Credit risk is the risk that counterparty will not meet its obligations under a contract, leading to a financial loss. The Group is exposed to credit risk from operating activities (primarily for trade receivables and notes receivables) and from its financing activities, including bank deposits and other financial instruments.

Customer credit risk is managed by each business unit subject to the Group's established policy, procedures and control relating to customer credit risk management. Credit limits are established for all customers based on their financial position, ratings from credit rating agencies, historical experiences, prevailing economic condition and the Group's internal rating criteria, etc. Certain customer's credit risk will also be managed by taking credit enhancing procedures, such as requesting for prepayment.

As of 31 December 2017 and 2016, amounts receivables from top ten customers represented 6.25% and 15.60% of the total accounts receivable of the Group, respectively. The credit concentration risk of other accounts receivable is insignificant.

Credit risk from balances with banks, fixed income securities and other financial instruments is managed by the Group's treasury in accordance with the Group's policy. The Group only transacts with counterparties approved by the internal control procedures, which are banks and financial institutions, companies and government entities with good credit rating and with no significant default risk. Consequently, there is no significant credit risk for these counter parties.

(5) Liquidity risk management

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of cash and cash equivalents, highly liquid equity investments and bank loans. The table below summarizes the maturity profile of the Company's financial liabilities based on the contractual undiscounted payments and contractual maturity. The payment amount includes the contractual interest. The undiscounted payment relating to borrowings with variable interest rates is extrapolated based on the estimated interest rate yield curve as of the end of the reporting period.

Non-derivative financial instruments

	Less than 1	2 to 3	$4$ to 5
	year	vears	years	$>$ 5 years	Total
As of 31 December 2017
Short-term loans	\$162,845	$\mathbb{S}$ -	$\mathbb{S}$ -	$S -$	\$162,845
Notes and accounts payable	1,409,786	$\blacksquare$		$\blacksquare$	1,409,786
As of 31 December 2016
Short-term loans	\$358,990	$\mathbb{S}$ -	$\mathbb{S}$ –	$\mathbb{S}$ -	\$358,990
Notes and accounts payable	1,430,425	$\blacksquare$		٠.	1,430,425

Derivative financial instruments

None.

• (6) Fair value of financial instruments
• a. The methods and assumptions applied in determining the fair value of financial instruments:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used by the Group to measure or disclose the fair values of financial assets and financial liabilities:

• i. The carrying amount of cash and cash equivalents, accounts receivables, accounts payable and other current liabilities approximate their fair value.
• ii. For financial assets and liabilities traded in an active market with standard terms and conditions, their fair value is determined based on market quotation price (including listed equity securities and bonds) at the reporting date.

• iii. Fair value of equity instruments without market quotations (including unquoted public company and private company equity securities) are estimated using the market method valuation techniques based on parameters such as recent fund raising activities, valuation of similar companies, individual company's development, market conditions and other economic indicators

• iv. Fair value of debt instruments without market quotations, bank loans, bonds payable and other non-current liabilities are determined based on the counterparty prices or valuation method. The valuation method uses DCF method as a basis, and the assumptions such as the interest rate and discount rate are primarily based on relevant information of similar instrument (such as yield curves published by the Taipei Exchange, average prices for Fixed Rate Commercial Paper published by Reuters and credit risk, etc.)

• b. Fair value of financial instruments measured at amortized cost

The book value of the Group's financial assets and financial liabilities measured at amortized cost is very close to the fair value.

c. Fair value measurement hierarchy for financial instruments

Please refer to Note 12. (8) for fair value measurement hierarchy for financial instruments of the Group.

(7) Derivative financial instruments

None.

• (8) Fair value measurement hierarchy
• a. Fair value measurement hierarchy

All asset and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole. Level 1, 2 and 3 inputs are described as follows:

Level $1 -$ Quoted (unadjusted) market prices in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level $3$ – Unobservable inputs for the asset or liability

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization at the end of each reporting period.

b. Fair value measurement hierarchy of the Group's assets and liabilities

The Group does not have assets that are measured at fair value on a non-recurring basis. Fair value measurement hierarchy of the Group's assets and liabilities measured at fair value on a recurring basis is as follows:

As of 31 December 2017

	Level 1	Level 2	Level 3	Total
Financial assets:
Available-for-sale financial assets
Stocks	\$53,741	$\mathbb{S}$ -	$\mathbb{S}$ -	\$53,741
Other financial assets
Deposits designated as hedging instruments	134,160			134,160
As of 31 December 2016
	Level 1	Level 2	Level 3	Total
Financial assets:
Financial assets at fair value through profit or
loss
Stocks	\$43,900	$\sqrt{s}$ .	\$ -	\$43,900
Available-for-sale financial assets
Stocks	56,179			56,179
Other financial assets
Deposits designated as hedging instruments	1,122,727			1,122,727

Transfers between Level 1 and Level 2 during the period

During the period ended 31 December 2017 and 2016, there were no transfers between Level 1 and Level 2 fair value measurements.

c. Fair value measurement hierarchy of the Group's assets and liabilities not measured at fair value but for which the fair value is disclosed

	Level 1	Level 2	Level 3	Total
Financial assets not measured at fair value
but for which the fair value is disclosed:
Investment properties (Note $\sim$ 11)	\$-	$S -$	\$627,522	\$627,522
As of 31 December 2016
	Level 1	Level 2	Level 3	Total
Financial assets not measured at fair value
but for which the fair value is disclosed:
Investment properties (Note $\cdot$ 11)	\$-	$S -$	\$398,886	\$398,886

(9) Significant assets and liabilities denominated in foreign currencies

Information regarding the significant assets and liabilities denominated in foreign currencies is listed below:

				Unit: Thousands
		As of 31 December 2017			As of 31 December 2016
		Foreign		Foreign
	Foreign	exchange		Foreign	exchange
	currencies	rate	NTD.	currencies	rate	NTD
Financial assets
Monetary items:
USD	\$18,204	29.79	\$542,295	\$19,907	32.22	\$641,315
EUR	3,568	35.50	126,674	27,485	33.72	926,708
JPY	25,992	0.26	6,836	557,642	0.27	152,682
Financial liabilities
Monetary item:
USD	\$7,294	29.89	\$217,981	\$14,407	32.32	\$465,495
EUR	991	35.86	35,550	$\bullet$	$\qquad \qquad \blacksquare$
JPY	49,432	0.27	13,188	42,375	0.28	11,772

The Company has a number of different functional currencies; therefore, we are unable to disclose the exchange loss and gain of monetary financial assets and financial liabilities under each foreign currency that has significant impact. The Company had NT\$(11,166) thousand and NT\$12,188 thousand foreign exchange (loss)gains for the years ended 31 December 2017 and 2016, respectively.

The above information is disclosed based on the carrying amount of foreign currency (after conversion to functional currency).

(10) Capital management

The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize the shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust dividend payment to shareholders, return capital to shareholders or issue new shares.

• 1. Other disclosure
• (1) Information at significant transactions
  • a. Financing provided to others for the year ended 31 December 2017: None.
  • b. Endorsement/Guarantee provided to others for the year ended 31 December, 2017: None.

			31 December, 2017
Name of company	Type of securities	Name of securities	Relationship	Financial statement account		Book value	Percentage of ownership (% )	Market value/Net assets value	Note
GREAT	Stock	Shihlien China Holding Co.,		Financial assets measured at	27,033,543	\$693,013	5.63%		Note
FORTUNE		Ltd		cost, noncurrent
HOLDING
LIMITED.
FENG HSIN	Stock	Wen-Shan Enterprise Co.,		Financial assets measured at	18,000,000	209,777	18.00%		Note
STEEL		Ltd		cost, noncurrent
CO.,LTD.
		Chien Shing Harbour Service		Financial assets measured at	8,358,800	96,759	11.38%		Note
		Co., Ltd.		cost, noncurrent
		Gwo Uei Metals Industry Co.,		Financial assets measured at	3,800,000	83,419	19.00%		Note
		Ltd.		cost, noncurrent
		Gwo Huei Iron & Steel Co.,		Financial assets measured at	3,800,000	55.464	19.00%		Note
		Ltd.		cost, noncurrent
		Fung-So Investment Co. Ltd		Financial assets measured at	3,640,000	42,156	18.20%		Note
				cost, noncurrent
		Ascentek Venture Capital		Financial assets measured at	1,960,000	19,600	5.35%	$\blacksquare$	Note
		Corporation		cost, noncurrent
		Feng Xin Development		Financial assets measured at	160,200	1.731	16.95%		Note
		Enterprise Co., Ltd		cost, noncurrent
		Feng Ying Enterprise Co.,		Financial assets measured at	132,000	1,604	8.99%		Note
		Ltd.		cost, noncurrent
		Taichung International		Financial assets measured at		970	0.03%		Note
		Entertainment Corporation		cost, noncurrent

c. Securities held as of 31 December 2017:

					31 December, 2017
Name of company	Type of securities	Name of securities	Relationship	Financial statement account	Shares	Book value	Percentage of ownership (% )	Market value/Net assets value	Note
		China Trade And		Financial assets measured at	1,925	25	$-9/6$	$\overline{a}$	Note
		Development Corporation The Twins Metal Technology Co., Ltd.	$\blacksquare$	cost, noncurrent Financial assets measured at cost, noncurrent	2,164,341		2.99%	$\blacksquare$	Note
				Total		\$1,204,518
HSIN FENG STEEL CO.,LTD.	Stock	Taiwan Fertilizer Co., Ltd.	$\bullet$	Available-for-sale financial assets, noncurrent	1,390,000	\$99,248	$\bullet$	\$53,306
		Pacgen Biopharmaceuticals	$\bullet$	Available-for-sale financial assets, noncurrent	282,346	303		435
				Subtotal		99,551		\$53,741
				Less: Adjustments for change in value of investment		(45, 810)
				Total		\$53,741

Note: Investments that do not have quoted prices in an active market and their fair values cannot be reliably measured are not listed.

• d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT\$300 million or 20% of the paid-in capital for the year ended 31 December 2017: None.
• e. Acquisition of individual real estate with amount exceeding the lower of NT\$300 million or 20% of the paid-in capital for the year ended 31 December 2017: None.
• f. Disposal of individual real estate with amount exceeding the lower of NT\$300 million or 20% of the capital stock for the year ended 31 December 2017: None.
• g. Related party transactions for purchases and sales amounts exceeding the lower of NT\$100 million or 20 percent of the capital stock for the year ended 31 December 2017:

					Intercompany Transactions		Details of non-arm's length transaction			Notes and accounts receivable (payable)
Related-party	Counter-party	Relationship	Purchases (Sales)	Amount	Percentage of total consolidated purchase (Sales)	Terms	Unit price	Terms	Carrying amount	Percentage of total consolidatedi receivables (payable)	Note
The Company	GEI TAI INTERNATION AL Co., Ltd	Associates	Purchase	\$296,450	1.74%	30 days	N/A		\$-	- %

• h. Receivables from related parties with amounts exceeding the lower of NT\$100 million or 20% of capital stock as of year ended 31 December 2017: None.
• $i$ . Financial instruments and derivative transactions: None.
• j. Others: The business relationship, significant transactions and amounts between parent company and subsidiaries: None.
• (2) Information on investees

Names, locations, main businesses and products, original investment amount, investment as of 31 December 2017, net income (loss) of investee company and investment income (loss) recognized as of 31 December 2017 (excluding investees in mainland China):

					Initial Investment				Investment as of 31 December, 2017 Net income
Investment company	Investee company	Address	Main businesses and products	Ending balance	Beginning balance	Number of Shares (thousand)	Percentage of ownership $(\%)$	Book value	(loss) of investee company (Note)	Investment income (loss) recognized	Note
FENG HSIN GREAT		Offshore	General	\$971.367	\$894,271	31,406,834	100.00%	\$694,192	\$(152)		\$(152) Subsidiary
STEEL	FORTUNE	Chamber, P.O. investment									company
CO.,LTD.	HOLDING	Box217, Apia, business									of the
	LIMITED	Samoa									Company
FENG HSIN FENG		YING No.716, Sec. 1, Manufacturing		\$258,214	\$.	4,268,012	35,57%	\$258,989	\$7,741	\$775	Associated
STEEL	DEVELOPMENT Guoji		Rd., and Selling white								company
CO.,LTD.	ENTERPRISE	Taoyuan	Dist., pig iron								of the
	CO., LTD.	Taoyuan City									Company
		330, Taiwan
		(R.O.C.)
	FENG HSIN TAIWAN STEEL No. 36,		General business	\$99,980	\$99,980	21,997,587	22.01%	\$505,069	\$766,915		\$168,797 Associated
[STEEL	UNION	CO., Xiangong N. 1st	and hazardous								company
CO.,LTD.	LTD.	Rd., Shengang	industrial waste								of the
		Township,	treatment, the								Company
		Changhua	manufacture and
		County 509,	sale of zinc
		Taiwan	oxide and non-
		(R.O.C.)	metallic mineral
			Inroducts.

					Initial Investment		Investment as of 31 December, 2017 Net income
Investment			Main businesses			Number of	Percentage		$(\text{loss})$ of	Investment income
company	Investee company	Address	and products	Ending	Beginning	Shares	of	Book value	investee	$(\text{loss})$	Note
				balance	balance	(thousand)	ownership		company	recognized
							$(\%)$		(Note)
FENG	HSIN FONGYU	No.998, Jiahou	General business	\$371,700	\$83,400	37,170,000	29.71%	\$371,387	S(546)		$$(163)$ Associated
STEEL	IRESOURCES	Rd., Sec. 1,	and hazardous								company
CO.LTD.	CO., LTD.	Houli Dist	industrial waste								of the
		Taichung City	itreatment								Company
		421. Taiwan
		(R.O.C.)

Note: The Company has recognized investment income from subsidiaries, and the investment income was eliminated in the consolidated report.

• (3) Information on investments in mainland China
• a. Information on investments in mainland China from the subsidiaries through GREAT FORTUNE HOLDING LIMITED as of 31 December 2017:

Investee company	Main Businesses and Products	Total Amount of Paid-in Capital	Method of Investment	Accumulated Outflow of Investment from Taiwan as of 1 January 2017	Outflow Inflow		Investment Flows Accumulated Outflow of Investment from Taiwan as of 31 December 2017	Net income (loss) of investee company	Percentage of Ownership	Investment recognized	Carrying Value as of income (loss) 31 December 2017 (Note 1)	Accumulated Inward Remittance of Earnings as of 31 December 2017
Shihlien	Sodium	USD	Investment	\$814,840	٠	$\blacksquare$	\$814,840	Note 1	3.15%	$\mathbb{S}$ -	\$646,632	$\mathbb S$ .
Chemical	carbonate,			800,000,000 in Mainland (USD27,352,800)			(USD27, 352, 800)
Industrial	which is		China
Jiangsu Co. the			companies
	ingredient		through a
	of glass		company
	production		invested and
			established
			in a third
Shihlien	Brine,	USD	region Investment	\$44,292	$\blacksquare$	٠	\$44,292	Note 1	3.94%	$\mathbb{S}$ .	\$46,381	$\mathsf S$ .
Brine	which is	32,000,000 in Mainland		(USDI, 486, 800)			(USD1, 486, 800)
Huaian Co.	the		China
	ingredient		companies
	of sodium		through a
	carbonate		company
			invested and
			established
			in a third
			region

Accumulated Investment in Mainland	Investment Amounts Authorized by	Upper Limit on Investment
China as of 31 December 2017	Investment Commission, MOEA	The lender's net accounts value×60%
(Note 3)	(Note 3)
\$859,132	\$859,132	\$10,563,778
(USD 28,839,600)	(USD 28,839,600)	(Note 2)

Note 1: The Company's subsidiary's investment in Mainland China was made indirectly through a cost method investee established in the third region.

• Note 2: Pursuant to the Investment Commission, Ministry of Economic Affairs, R.O.C., the Company's investment in Mainland China is limited to 60% of net worth or consolidated net worth.
• Note 3: Initial investment amounts denominated in foreign currencies are translated into New Taiwan Dollars using the spot rates at the financial statement reporting date.
• b. Directly or indirectly significant transactions through third regions with the investees in Mainland China, including price, payment terms, unrealized gain or loss, and other events with significant effects on the operating results and financial condition: None.

14. Segment information

(a) The Company is considered as a single operating segment as judged by the managements that, the organization's primary income comes from manufacturing and processing various angle irons, round irons, and flat irons.

(b) Geographical information

i. Revenue from external customers:

2017	2016
\$21,014,345	\$18,123,032
2,115,007	1,265,404
1,612,585	1,544,214
\$24,741,937	\$20,932,650
	For the years ended 31 December

The revenue information above is based on the location of the customers.

ii. Non-current assets:

		As of 31 December
	2017	2016
Taiwan	\$10,308,533	\$8,129,033

(c) Information about major customers

No single customer's sales revenue accounted for over 10% of revenue on the Company's income statement for the years ended 31 December 2017 and 2016.