Pearl River Holdings Limited — Annual Report 2021

May 9, 2022

PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

Page 1

PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

CONTENTS

	Page
Independent Auditor’s Report	3
Consolidated Statements of Operations	6
Consolidated Statements of Comprehensive Income	7
Consolidated Statements of Financial Position	8
Consolidated Statements of Changes in Equity	9
Consolidated Statements of Cash Flows	10
Notes to the Consolidated Financial Statements	11 - 42

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Crowe MacKay LLP

Elveden House 1700, 717 - 7[th] Avenue SW Calgary, AB T2P 0Z3 Main +1(403) 294-9292 Fax +1(403) 294-9262 www.crowemackay.ca

Independent Auditors' Report

To the Shareholders of Pearl River Holdings Limited

Opinion

We have audited the consolidated financial statements of Pearl River Holdings Limited ("the Group"), which comprise the consolidated statements of financial position as at December 31, 2021 and December 31, 2020 and the consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2021 and December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. 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 ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises:

• Management's Discussion and Analysis

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained the other information prior to the date of this auditors' report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditors' report. We have nothing to report in this regard.

Independent Auditors' Report (continued)

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 International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors' 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 auditors' 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 Canadian generally accepted auditing standards 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 Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• 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.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' 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 auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Independent Auditors' Report (continued)

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.

The engagement partner on the audit resulting in this independent auditors' report is Todd Freer.

Crowe MacKay LLP

Chartered Professional Accountants Calgary, Canada May 9, 2022

PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

	2021 2020 2021 (RMB) (RMB) (CAD)
Sales(Note 7) Cost of goods sold (Note 15) Gross Profit Expenses General and administrative Selling Finance (Note 10) Income before other items Other items Gain on foreign exchange Other income (Note 9) Income before income taxes Income tax(Note 11) Net income for the year Net income attributable to: Common shareholders Non-controlling interest Earnings (loss) per share attributable to commo Basic Diluted	(Note 3c) 332,314,654 321,303,391 66,297,188 250,196,730 226,423,559 49,914,560
	82,117,924 94,879,832 16,382,628
	44,909,907 48,934,422 8,959,582 19,972,483 19,794,371 3,984,535 3,010,706 3,064,845 600,640
	67,893,096 71,793,638 13,544,757
	14,224,828 23,086,194 2,837,871
	(5,390,515) (6,052,669) (1,075,414) 14,869 1,717,574 2,966
	(5,375,646) (4,335,095) (1,072,448)
	8,849,182 18,751,099 1,765,423 207,554 2,305,503 41,407
	8,641,628 16,445,596 1,724,016
	6,741,406 11,284,142 1,344,919 1,900,222 5,161,454 379,097
	8,641,628 16,445,596 1,724,016
	n shareholders: 0.2468 0.4132 0.0492 0.2468 0.4132 0.0492

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

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PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

	2021 2020 2021 (RMB) (RMB) (CAD)
Net income for the year Other comprehensive income : Exchange difference on translation of financial statements of foreign operation Comprehensive income Comprehensive income attributable to: Common shareholders Non-controlling interest	(Note 3c) 8,641,628 16,445,596 1,724,016 (1,412,724) (3,170,461) (281,840)
	7,228,904 13,275,135 1,442,176
	5,390,321 8,744,437 1,075,376 1,838,583 4,530,698 366,800
	7,228,904 13,275,135 1,442,176

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

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PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

	December 31 2021 (RMB)	December 31 December 31 2020 2021 (RMB) (CAD)
Assets Current assets Cash and cash equivalents Accounts receivable (Note 16) Other receivables, deposits and prepaid expenses (Note 28) Inventories (Note 15) Non-current assets Property, plant and equipment (Note 12) Deposit Right of use assets (Note 14) Total assets Liabilities Current liabilities Accounts payable and accrued liabilities (Note 17) Current portion of bank borrowings (Note 18) Lease liabilities (Note 25) Income taxes payable Non-current liabilities Deferred liabilities (Note 19) Bank borrowings (Note 18) Lease liabilities (Note 25) Deferred tax liabilities (Note 20) Total liabilities Equity Share capital (Note 22) Contributed surplus Accumulated other comprehensive income Retained earnings (Note 23) Total equity attributable to common shareholders Non-controlling interest (Note 24) Total equity Total liabilities and equity	44,081,769 58,194,192 10,096,566 47,334,915 159,707,442 26,943,950 - 22,761,517 209,412,909 41,966,468 9,250,000 6,349,457 48,019 57,613,944 2,462,325 5,000,000 19,017,357 476,686	(Note 3c) 51,994,946 8,794,368 64,985,584 11,609,814 7,384,782 2,014,278 33,357,593 9,443,375 157,722,905 31,861,835 25,475,274 5,375,352 - - 20,311,845 4,540,951 203,510,024 41,778,138 46,924,617 8,372,364 7,000,000 1,845,387 4,340,650 1,266,725 80,037 9,580 58,345,304 11,494,056 2,939,311 491,237 3,250,000 997,506 18,290,474 3,793,986 461,840 95,099 24,941,625 5,377,828 83,286,929 16,871,884 52,242,949 10,422,533 7,155,524 1,427,536 1,423,969 14,541 21,749,438 5,522,482 82,571,880 17,387,092 37,651,215 7,519,162 120,223,095 24,906,254 203,510,024 41,778,138
	26,956,368
	84,570,312
	52,242,949 7,155,524 72,884 27,681,442 87,152,799 37,689,798 124,842,597 209,412,909

Approved by the Board:

(Signed) "George Lunick" , Director

(Signed) "Enrique Autrique" , Director

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

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PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

Attributable to common shareholders

				Accumulated
				other			Non-
	**Share **	capital	Contributed	comprehensive	Retained		controlling	Total
	Shares	Amount	Surplus	income	earnings	Total	interests	equity
	Number	(RMB)	(RMB)	(RMB)	(RMB)	(RMB)	(RMB)	(RMB)
Balance, December 31, 2019	27,309,927	52,242,949	7,155,524	3,963,674	10,903,490	74,265,637	34,548,997	108,814,634
Net income for the year	-	-	-	-	11,284,142	11,284,142	5,161,454	16,445,596
Dividend paid to a non-controlling
shareholder of a subsidiary	-	-	-	-	-	-	(1,428,480)	(1,428,480)
Transfer to other reserves	-	-	-	-	(438,194)	(438,194)	-	(438,194)
Other comprehensive loss:
Currency translation adjustment	-	-	-	(2,539,705)	-	(2,539,705)	(630,756)	(3,170,461)
Balance, December 31, 2020	27,309,927	52,242,949	7,155,524	1,423,969	21,749,438	82,571,880	37,651,215	120,223,095
Net income for the year	-	-	-	-	6,741,406	6,741,406	1,900,222	8,641,628
Dividend paid to a non-controlling
shareholder of a subsidiary	-	-	-	-	-	-	(1,800,000)	(1,800,000)
Transfer to other reserves	-	-	-	-	(809,402)	(809,402)	-	(809,402)
Other comprehensive income:
Currency translation adjustment	-	-	-	(1,351,085)	-	(1,351,085)	(61,639)	(1,412,724)
Balance, December 31, 2021	27,309,927	52,242,949	7,155,524	72,884	27,681,442	87,152,799	37,689,798	124,842,597

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

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PEARL RIVER HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

	2021 (RMB)	2020 2021 (RMB) (CAD)
The accompanying notes form an integral part Cash flows provided by (used for): Operating activities Net income for the year Add items not requiring cash Depreciation for property, plant and equipment Depreciation for right-of-use asset Deferred income tax expense Gain (loss) on disposal of property, plant and equipment Impairment of property, plant and equipment Changes in non-cash working capital balances Accounts receivable Inventories Other receivables, deposits and prepaid expenses Accounts payable and accrued liabilities Income taxes Deferred liabilities Effect of foreign exchange rate differences Cash flows from operating activities Investing activities Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Cash flows from investing activities Financing activities Proceeds from bank borrowings Repayments of bank borrowings Dividends paid to non-controlling interests Interest paid on lease liabilities Repayment of lease liability Effect of foreign exchange rate differences Cash flows from financing activities (Decrease) increase in cash during year Effect of exchange rate differences on cash Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year Cash and cash equivalents is comprised of the following: Cash at banks and in hand Supplemental cash flow information: Interest paid Interest received Income taxes paid (received) Supplemental disclosure of non-cash transactions: Accounts receivable settled for property, plant and equipment	of these consolidated financial statements. (Note 3c) 8,641,628 16,445,596 1,724,016 6,490,924 7,356,784 1,294,947 6,274,349 5,163,692 1,251,740 14,846 184,119 2,962 (34,648) 571,785 (6,912) 680,681 - 135,797 22,067,780 29,721,976 4,402,550 6,791,392 (22,236,513) 1,354,891 (13,977,322) 330,772 (2,788,493) (2,711,784) (1,370,900) (541,004) (4,958,149) 19,320,023 (989,157) (32,018) (722,455) (6,388) (476,986) (248,903) (95,159) 2,719,785 2,784,817 542,600 9,422,698 27,578,817 1,879,840 (8,895,839) (3,395,468) (1,774,731) 182,950 194,351 36,499 (8,712,889) (3,201,117) (1,738,232) 5,000,000 11,000,000 997,506 (1,000,000) (8,800,000) (199,501) (1,800,000) (1,428,480) (359,102) (2,393,839) (2,530,214) (477,574) (5,963,421) (4,158,152) (1,189,710) - (62,523) - (6,157,260) (5,979,369) (1,228,381) (5,447,451) 18,398,331 (1,086,773) (2,465,726) (3,801,221) (491,914) 51,994,946 37,397,836 10,373,057 44,081,769 51,994,946 8,794,370 44,081,769 51,994,946 8,794,368 3,010,706 3,064,845 600,640 331,802 2,843,839 66,195 224,726 365,448 44,833 - 1,346,450 -

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

1. GENERAL INFORMATION

Pearl River Holdings Limited (the “Corporation” or “Pearl River” or “Group”) is a public company listed on the TSX Venture Exchange. Pearl River was incorporated under the Canada Business Corporations Act on December 22, 1994. The address of its registered office and principal place of business is 500, 383 Richmond Street, London, ON, N6A 3C4.

Activities

The main activities of the Group are the manufacturing and distribution of plastic products to customers in China, Australia and the United States.

Date of authorization of issue

The financial statements were signed and authorized for issue by the Board of Directors on May 9, 2022.

COVID-19 Pandemic

The outbreak of the global pandemic (“COVID-19”) resulted in uncertainty relating to the economic environment in which the Group operates and impacted the business and operations. The Group’s manufacturing operations in the People’s Republic of China were required to maintain necessary health and safety protocols for its employees in order to continue operations. As at the date of these consolidated financial statements, COVID-19 has not resulted in a material impact to the Group’s financial position. Due to the high degree of uncertainty caused by the pandemic, management cannot predict the potential impact of further changes in economic conditions on the Group’s financial condition or operations in future periods.

2. NEW ACCOUNTING STANDARDS AND AMENDMENTS

(a) Adoption of new/revised IFRSs – effective 1 January 2021

Amendments to IAS 39, IFRS 4, IFRS 7, Interest Rate Benchmark Reform – IFRS 9 and IFRS 16 Phase 2 Amendments to IFRS 16 Covid-19 Related Rent Concessions

The adoption of this standard did not have any material impact on the Group’s accounting policies.

(b) New/revised IFRSs that have been issued but not yet effective

The following amended IFRSs, potentially relevant to the Group’s financial statements, have been issued but are not yet effective and have not been early adopted by the Group. The directors of the Company anticipate that these pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement.

Amendments to IAS 1 Classification of Liabilities as Current or Non-current[4] Amendments to IAS 1 Disclosure of Accounting Policies[4] Amendments to IAS 8 Definition of Accounting Estimates[3] Amendments to IAS 12 Deferred Tax Related to Assets and Liabilities arising from a single Transaction[4] Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use[2] Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract[2] Amendments to IFRS 3 Reference to the Conceptual Framework[3]

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

2. NEW ACCOUNTING STANDARDS AND AMENDMENTS – Continued

(b) New/revised IFRSs that have been issued but not yet effective – continued

Amendments to IFRS 16 COVID-19 Related Rent Concessions beyond June 30 2021[1] Amendments to IFRS 10 Sale or Contribution of Assets between Investor and its Associate & IAS 28 or Joint Venture[5]

• 1 Effective for annual periods beginning on or after 1 April 2021

• 2 Effective for annual periods beginning on or after 1 January 2022

• 3 Effective for business combinations for which the date of acquisition is on or after the beginning of the first annual period beginning on or after 1 January, 2022

• 4 Effective for annual periods beginning on or after 1 January, 2023

• 5 Effective date for annual period beginning on or after a date to be determined

The directors of the Company anticipate that all of the pronouncements will be adopted in the Group’s accounting policy for the first period beginning after the effective date of the pronouncement. The directors of the Company are currently assessing the impact of the new or amended IFRSs upon initial application. So far, the directors of the Company have preliminarily concluded that the initial application of these IFRSs will not result in material financial impact on the consolidated financial statements.

3. BASIS OF PREPARATION

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS)” and IFRIC interpretations ("IFRIC"), as adopted by the International Accounting Standards Board (“IASB”) issued and outstanding as of the date the Board of Directors approved the statements. These policies have been consistently applied to all periods presented.

(b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis, except for certain financial instruments and share-based payment transactions which are measured at fair value.

(c) Functional and presentation currency

The Group operates in countries with different currencies. All companies have, as their functional currency, the local currency of the country in which they operate, which is their primary economic environment. The consolidated financial statements are presented in Chinese Yuan Renminbi (“RMB”) and have been translated to RMB in accordance with IAS 21 - The Effects of Changes in Foreign Exchange Rates as it relates to foreign operations.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

3. BASIS OF PREPARATION - continued

Convenience Translation into Canadian Dollar Amounts

The Corporation functional and presentation currency is Renminbi. The Canadian dollar (“CAD”) amounts provided in the financial statements represent supplementary information solely for the convenience of the reader.

The financial statements are translated into Canadian dollars using a convenience translation at the rate of RMB 5.0125 to CAD $1, based on the exchange rate as of 31 December 2021.

Such presentation is not in accordance with IFRS and should not be construed as a representation that the RMB amount shown could be readily converted, realized or settled in CAD at this or any other rate.

4. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Corporation and its subsidiaries (note 21). Intercompany transactions and balances together with unrealized profits are eliminated in full in preparing the consolidated financial statements. Unrealized losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred in which case the loss is recognized in profit or loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

Acquisition of subsidiaries or businesses is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the acquisition-date fair value of assets transferred, liabilities incurred and equity interests issued by the Group, as the acquirer. The identifiable assets acquired and liabilities assumed are principally measured at acquisition-date fair value. The Group’s previously held equity interest in the acquiree is re-measured at acquisition-date fair value and the resulting gains or losses are recognized in profit or loss. The Group may elect, on a transaction-by-transaction basis, to measure the noncontrolling interest either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs incurred are expensed.

Any contingent consideration to be transferred by the acquirer is recognized at acquisitiondate fair value. Subsequent adjustments to consideration are recognized against goodwill only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognized in profit or loss.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interest and the non-controlling interest are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Corporation.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES - continued

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. Amounts previously recognized in other comprehensive income in relation to the subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of.

Subsequent to acquisition, the carrying amount of non-controlling interest is the amount of those interests at initial recognition plus the non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interest having a deficit balance.

(b) Subsidiaries

A subsidiary is an entity over which the Corporation is able to exercise control. Control is achieved when the Corporation, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights presently exercisable are taken into account. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De-facto control exists in situations where the Corporation has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists, the Corporation considers all relevant facts and circumstances, including:

• The size of the Corporation’s voting rights relative to both the size and dispersion of other parties who hold voting rights;

• Substantive potential voting rights held by the Corporation and other parties who hold voting rights;

• Other contractual arrangements; and

• Historical patterns in voting attendance.

(c) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes its purchase price and the costs directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are recognized as an expense in profit or loss during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value of 10% over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed and adjusted, if appropriate, at the end of each reporting period.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

The estimated useful lives for each category of property, plant and equipment are as follows:

Furniture and equipment	5 years
Machinery	5-20 years
Motor vehicles	5-10 years
Moulds	5-10 years
Leasehold improvements	Over the lease term

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount. Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. If the lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sales proceeds and its carrying amount, and is recognized in profit or loss on disposal.

(d) Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. This policy is applied to contracts entered into, on or after 1 January 2019.

As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has elected not - - to separate non lease components and account for the lease and non lease components as a single lease component.

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES - Continued

(d) Leases - continued

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the following:

• fixed payments, including in substance fixed payments;

• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable under a residual value guarantee; and

• the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

(d) Leases – continued

Short-term leases and leases of low-value assets

The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Group as lessee

The total rentals payable under the operating leases are recognized in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognized as an integrated part of the total rental expense, over the term of the lease.

(e)

Financial Instruments

(i) Financial assets at amortized cost

A financial asset is initially measured at fair value plus, for an item not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. Financial assets at amortized cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain on derecognition is recognized in profit or loss.

(ii) Impairment loss on financial assets at amortized cost

The Group recognizes loss allowances for expected credit loss (“ECL”) on trade and other receivables, amounts due from ultimate parent and fellow subsidiaries. The ECLs are measured on either of the following bases: (1) 12-month ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting date: and (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between all contractual cash flows that are due to the Group and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the assets’ original effective interest rate.

The Group has elected to measure loss allowances for trade receivables and contract assets (if any) using IFRS 9 simplified approach and has calculated ECLs based on lifetime ECLs. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES - Continued

(e) Financial Instruments – continued

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information analysis, based on the Group’s historical experience, informed credit assessment, and forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due.

The Group considers a financial asset to be credit-impaired when: (1) the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or (2) the financial asset is more than 120 days past due.

Interest income on credit-impaired financial assets is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset. For noncredit-impaired financial assets, interest income is calculated based on the gross carrying amount.

(iii) Financial liabilities

The Group has one category of financial liabilities, which is financial liabilities at amortized cost, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities at amortized cost are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective interest basis.

(iv) Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(v) Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

(vi) Derecognition

The Group derecognizes a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for de-recognition in accordance with IFRS 9.

Financial liabilities are derecognized when the obligation specified in the relevant contract is discharged, cancelled or expires.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

(f) Inventories

Inventories are initially recognized at cost, and subsequently at the lower of cost and net realizable value. Cost comprises all costs of purchase, direct labor, manufacturing overhead and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete the sale.

(g) Finance expense

Finance expenses are comprised of interest on borrowings and lease liabilities. Interest expense is recognized on a time-proportion basis, using the effective interest method.

(h) Income taxes

Income taxes for the year comprise current taxes and the realization of deferred taxes. Income taxes are recognized in profit or loss, except for taxes that relate to items recognized in other comprehensive income.

Current taxes on income are the sum of taxes levied on the results before taxes, in the countries where those results were generated, based on local tax regulations and against tax rates of the applicable year. Tax-exempt income and expenses not deductible for tax purposes are taken into account in calculating taxes on income.

Deferred tax assets and liabilities are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for goodwill and recognized assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognized for all temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realized based on tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

(i) Foreign currency

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of each reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

(h) Foreign currency – continued

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognized in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognized in other comprehensive income, in which case, the exchange differences are also recognized in other comprehensive income.

On consolidation, income and expense items of foreign operation are translated into the presentation currency of the Group, Renminbi, at the average exchange rates for the year, unless exchange rates fluctuated significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of reporting period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity as foreign exchange reserve and attributed to minority interests as appropriate. Exchange differences recognized in profit or loss of group entities' separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign operation concerned are reclassified to other comprehensive income and accumulated in equity as foreign exchange reserve.

(j) Revenue recognition

(i) Sales of goods

Sales of plastic products

Sales of plastic products are recognized when the customer takes control of and accepts the products. This is usually taken as the time when the goods are delivered and the customer has accepted the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the goods. There is generally only one performance obligation. Invoices are issued when the customer takes possession of and accepts the goods and are usually payable within 30 days from the invoice date. There is no significant financing component. The transaction price is determined based on a stand-alone selling price specified in the sales contract with the customer.

(ii) Interest income

Interest income is recognized as it accrues under the effective interest method using the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. For financial assets measured at amortized cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset.

(iii) Rental income

Rental income from operating leases is recognized in equal installments over the term of the respective leases and is included in other income.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

(iv) Service fees

Revenue from service fees is recognized upon the rendering of the agreed services provided an arrangement for the services exists, pricing of the service is determinable and collection is reasonably assured. Service fees are recognized in other income.

(k) Government grants and assistance

Government grants are recognized when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognized as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognized in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(l)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowings costs are recognized in profit or loss in the period in which they are incurred.

(m) Employees’ benefits

(a) Short term benefits

Employee entitlements to annual leave and long service leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the end of each reporting period.

(b) Pension obligations

For employees in Hong Kong, the Group participates in a master trust scheme provided by an independent Mandatory Provident Fund (“MPF”) service provider to comply with the requirements under the MPF Schemes Ordinance. Contributions paid and payable by the Group to the scheme are charged to the profit or loss as incurred.

For employees in the PRC, the Group contributes to a state-sponsored retirement plan. The Group’s contributions to the defined contribution retirement scheme are expensed as incurred.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

4. SIGNIFICANT ACCOUNTING POLICIES – Continued

(n) Provisions and contingent liabilities

Provisions are recognized for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(n) Share-based compensation

The Corporation has issued options to acquire common shares to directors, officers and employee. These options are accounted for using the fair-value method which estimates the value of the options at the date of the grant using the Black Scholes option pricing model. The fair value established is recognized as compensation expense over the vesting period of the options using the graded method, with an equivalent increase to contributed surplus. A forfeiture rate is estimated on the grant date and is subsequently adjusted to reflect the actual number of options that vest. At the time the stock options are exercised, the fair value of the associated share-based compensation is reclassified from contributed surplus to share capital.

At each reporting date, the Corporation revises its estimates of the number of options expected to vest and recognizes the impact of the revisions to original estimates, if any, in the statement of operations, with a corresponding adjustment to equity.

(o) Segment reporting

Segments are geographical areas and are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decisionmakers, who are responsible for allocating resources and assessing performance of the segments, has been identified as the Board of Directors of the Group.

The information with regard to these geographical areas is included in a separate note within these financial statements.

(p) Cash and cash equivalents

Cash and cash equivalents consist of cash held in financial institutions and highly liquid investments with original maturity dates of 90 days or less

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

5. CONSOLIDATED CASH FLOWS

The statement of cash flows has been prepared applying the indirect method. Cash in the statement of cash flows comprises cash and cash equivalents as well as current borrowings, which form an integral part of the Group’s cash management. Cash flows in foreign currencies have been translated at average exchange rates. Exchange differences concerning cash items are shown separately in the statement of cash flows.

The purchase price of acquisitions paid, as well as the selling price of disposed subsidiaries received, is included in cash flow from investing activities. This purchase price paid, as well as the selling price received, is included in the statement of cash flows net of cash acquired or disposed of, respectively.

Changes in assets and liabilities resulting from the acquisition and disposal of subsidiaries are taken into account in the calculation of the consolidated cash flows.

6. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.

Actual results differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that periods, or in the period of the revision and future periods if the revision affects both current and future periods.

In the process of applying the Group’s accounting policies, management has made the following judgments apart from those involving estimation as discussed below, which have the most significant effect on the amounts recognized in the financial statements.

In determining whether an asset is impaired or the event previously causing the impairment no longer exists, the Group has to exercise judgment in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may affect the asset value or such event affecting the asset value has not been in existence; (2) whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset or de-recognition; and (3) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of each reporting period that have a significant risk of causing a material adjustment to the carrying amounts of the Corporation’s and the Group’s assets and liabilities within the next financial year are discussed below.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

6. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY - Continued

Useful lives of property, plant and equipment

The Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. The estimates are based on the historical experience of the actual useful lives of property, plant and equipment. Management will increase the depreciation charges where useful lives are less than previously estimated. It will impair technically obsolete or non-strategic assets that have been abandoned or sold. Actual economic lives may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and therefore affect the depreciation charges in future periods.

- Provision against slow moving inventories

Provision for slow-moving inventories is made based on the ageing and estimated net realizable value of inventories. The assessment of the provision required involves management judgment and estimates. Where the actual outcome or future expectation is different from the original estimate, such differences will impact the carrying value of inventories and provision charged/reversed in the period in which the estimate has been changed.

— Estimating the incremental borrowing rate the Group as lessee

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (“IBR”) of the relevant lessee to measure lease liabilities. The IBR is the rate of interest that the lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the lessee would have to pay, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs such as market interest rates when available.

To determine the IBR, the Group:

• Where possible, use recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received, and

• Makes adjustments specific to the lease, e.g. term, country, currency and security.

Impairment of trade receivables

The provision rate of trade receivables is made based on assessment of their recoverability and ageing analysis of trade receivables as well as other quantitative and qualitative information and on management’s judgement and assessment of the forward-looking information. At the end of reporting period, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed. The assessment of the correlation between historical observed default rates, forecast of economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and forecast of economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables is disclosed in Note 29.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

7. SALES

Sales represent the invoiced value of goods sold less discounts and returns. Disaggregation of sales by major product lines is as follows:

General plastic products Coolers	2021 RMB 149,541,594 182,773,060 332,314,654	2020 RMB 96,391,018 224,912,373
		321,303,391

8. SEGMENT INFORMATION

Information regarding the Group’s reportable operating segments as provided to the Group’s chief operating decision makers for the purposes of resource allocation and assessment of segment performance for the period derived only from the trading of plastic products.

In presenting information on the basis of geographical locations, revenue is based on the geographical location of customers. Assets and capital expenditures are based on the geographical location of the assets.

The following tables present the Group’s geographical locations of its revenues and assets:

Revenue from external customers The PRC Australia USA Non-current assets The PRC Hong Kong	2021 RMB 159,553,644 89,506,753 83,254,257 332,314,654 47,563,341 2,142,126 49,705,467	2020 RMB 163,818,700 86,230,830 71,253,861
		321,303,391
		41,300,915 4,486,204
		45,787,119

In fiscal 2021, revenues from one customer amounted to RMB53,066,386 (2020 – RMB 46,633,022), which represents more than 15.97% (2020 – 14.5%) of the consolidated revenues.

9. OTHER INCOME AND EXPENSE

Government subsidy Bank deposit interest income Scrap sales Sundry income Loss on disposal of property, plant and equipment Impairment of property, plant and equipment (note 12)	2021 RMB - 331,802 55,053 274,048 34,647 (680,681) 14,869	2020 RMB 1,796,072 365,448 7,896 119,942 (571,785) -
		1,717,574

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

10. FINANCIAL EXPENSES

Interest on lease liabilities (note 25) Interest on bank borrowings	2021 RMB 2,393,839 616,867 3,010,706	2020 RMB 2,530,214 534,631
		3,064,845

11. INCOME TAX

The Corporation is subject to income taxes in Canada, while the subsidiaries in Asia are subject to the income tax laws of the People’s Republic of China. Guangzhou Rodman Plastics subsidiary is a Sinoforeign joint venture which operates in the Pearl River region of China and is subject to corporate income taxes at a rate of 25% (2020 – 25%). The Hong Kong subsidiaries are subject to corporate income tax rates ranging from 16.5% to 30% (2020- 8.25% - 16.5%) and to date have not been taxable.

Income tax expense differs from the amount that would result from applying Canada federal and provincial income tax rates to earnings before income taxes. The difference is reconciled as follows:

Earnings before income taxes Canadian federal and provincial income tax rates Expected income tax expense Adjustments: Lower statutory tax rates on earnings of foreign subsidiaries GRPC tax exemption Non-deductible expenses Effect of tax exemption on earnings of foreign subsidiaries Withholding taxes on earnings of foreign subsidiary Other Non-recognition of deferred tax assets Income tax expense	2021 RMB 8,849,182 26.50%	2020 RMB 18,751,099 26.50%
	2,345,034 (1,108,000) (2,035,000) 1,202,000 (7,000) 204,000 (782,480) 389,000 207,554	4,969,041 (502,000) (1,607,000) 633,000 181,000 221,000 1,984,538 395,000
		2,305,503

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

11. INCOME TAX – continued

The components of the provision for income taxes for the years ended 31 December 2021 and 2020 are as follows:

Current expense Deferred expense (Note 20) Total income taxes	2021 RMB 192,708 14,846 207,554	2020 RMB 2,121,384 184,119
		2,305,503

The components of deferred income tax assets in Canada for which no benefit has been recognized are as follows:

re as follows:
Deferred income tax asset Non-capital losses carryforwards Non-recognition of deferred tax benefits Net deferred income tax asset	2021 RMB 4,297,000 (4,297,000) -	2020 RMB 3,908,000 (3,908,000)
		-

The financial statements do not reflect potential tax reductions available in Canada through the application of prior years' losses against future years' earnings otherwise subject to Canadian income taxes. These losses, if unutilized, expire as follows:

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041	RMB 869,000 577,000 623,000 669,000 949,000 943,000 874,000 1,006,000 885,000 921,000 878,000 943,000 1,359,000 1,760,000 1,490,000 1,468,000
	16,214,000

The Corporation’s tax filings are subject to the review and assessment of the relevant tax authorities.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

12. PROPERTY, PLANT AND EQUIPMENT

	Furniture
	and		Motor		Leasehold
	equipment	Machinery	vehicles	Moulds	improvements	Total
	RMB	RMB	RMB	RMB	RMB	RMB
Cost:
At January 1, 2020	5,819,941	47,613,874	2,911,863	37,999,719	13,315,037	107,660,434
Additions	313,051	2,157,707	41,081	2,260,079	-	4,771,918
Disposals	(328,593)	(2,182,062)	-	(373,319)	(428,846)	(3,312,820)
Write off	-	-	-	-	-	-
Exchange realignment	(110,609)	-	(22,713)	(1,037,313)	-	(1,170,635)
At December 31, 2020	5,693,790	47,589,519	2,930,231	38,849,166	12,886,191	107,948,897
Additions	933,796	4,015,298	-	3,229,376	717,369	8,895,839
Disposals	(16,277)	-	-	(176,991)	-	(193,268)
Impairment	-	-	-	(1,276,277)	-	(1,276,277)
Write off	(17,196)	-	(318,263)	-	-	(335,459)
Exchange realignment	(86,979)	-	(10,437)	(686,477)	-	(783,893)
At December 31, 2021	6,507,134	51,604,817	2,601,531	39,938,797	13,603,560	114,255,839
Accumulated depreciation:
At January 1, 2020	4,115,142	35,893,340	2,249,661	30,030,830	6,545,185	78,834,158
Charge for the year	678,207	2,808,861	159,924	2,625,308	1,084,484	7,356,784
Written back on disposal	(308,840)	(1,956,591)	-	(373,319)	(102,285)	(2,741,035)
Written back on write off	-	-	-	-	-	-
Exchange realignment	(86,754)	-	(22,713)	(866,817)	-	(976,284)
At December 31, 2020	4,397,755	36,745,610	2,386,872	31,416,002	7,527,384	82,473,623
Charge for the year	512,013	2,793,063	143,272	2,066,027	976,549	6,490,924
Written back on disposal	(16,277)	-	-	(28,689)	-	(44,966)
Written back on write off	(17,196)	-	(318,263)	-	-	(335,459)
Impairment	-	-	-	(595,596)	-	(595,596)
Exchange realignment	(63,937)	-	(10,437)	(602,263)	-	(676,637)
At December 31, 2021	4,812,358	39,538,673	2,201,444	32,255,481	8,503,933	87,311,889
Carrying value:
At December 31, 2021	1,694,776	12,066,144	400,087	7,683,316	5,099,627	26,943,950
At December 31,2020	1,296,035	10,843,909	543,359	7,433,164	5,358,807	25,475,274

The Group recognized an impairment charge of RMB 680,681 (2020 – RMB NIL) based on the expected recoverable values of certain moulds and machinery that are either no longer in productive use or have limited remaining useful lives as at 31 December 2021.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

13. CHINESE-FOREIGN JOINT VENTURE

The Corporation has a 64% equity interest in Guangzhou Rodman Plastics Company Limited (“GRPC”), which was established in the PRC. Pursuant to the Chinese-Foreign Joint Venture Agreement dated on January 23, 1995, the Corporation’s subsidiary, Rodman Enterprises Limited (“REL”) and Guangzhou Plastics Industrial Joint Stock Company Limited (“PRC Party”) undertake the economic activities of GRPC which were subject to joint control and none of the participating parties had unilateral control over the economic activities up until January 1, 2012. Pursuant to the Supplementary Agreement to the Chinese-Foreign Joint Venture Agreement entered into between REL and PRC Party on January 1, 2012, REL has the power to govern the financial and operating policies of GRPC so as to obtain benefits from its activities. On that date, the status of GRPC was changed from a jointly controlled entity to a subsidiary of the Group. There is no change in ownership interests as a result of the agreement.

14. RIGHT-OF-USE ASSETS

At 1 January Additions Depreciation change for the year Exchange realignment	2021 RMB 20,311,845 8,733,845 (6,274,349) (9,825) 22,761,517	2020 RMB 24,110,984 1,426,589 (5,163,692) (62,036)
		20,311,845

15. INVENTORIES

The components of inventories are as follows:

Raw materials Work in progress Finished goods Less: Allowance for inventories	2021 RMB 20,663,162 5,383,293 24,210,186 50,256,641 (2,921,725) 47,334,916	2020 RMB 17,246,352 3,318,856 17,213,924
		37,779,132 (4,421,539)
		33,357,593

Inventories charged to operations and included in cost of goods sold for the year ended 31 December 2021 were RMB250,196,730 (2020 – RMB226,423,559).

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

16. ACCOUNTS RECEIVABLE

• a. The average credit period to the Group’s trade debtors is 30 days.

Trade receivables Less: Allowance for doubtful accounts	2021 RMB 58,194,931 (739) 58,194,192	2020 RMB 69,712,567 (4,726,983)
		64,985,584

• b. The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

2021 RMB At beginning of year 4,726,983 Exchange realignment (114,476) Provision for estimated credit recoveries (losses) (4,611,768) End of year 739 This provision has been determined using the estimated credit loss method. 17. ACCOUNTS PAYABLE 2021 RMB Accounts payable 29,478,047 Others 2,519,019 Accrued expenses 5,688,305 Receipt in advance 2,263,182 Other tax payable 17,447 VAT payable 2,000,468 41,966,468 18. BANK BORROWINGS 2021 RMB Bank borrowings – Interest bearing and secured, denominated in: Renminbi (i) 14,250,000	2020 RMB 4,398,198 (271,336) 600,121
	4,726,983
	2020 RMB 33,052,102 2,754,170 7,449,132 2,797,812 - 871,401
	46,924,617
	2020 RMB 10,250,000

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

18. BANK BORROWINGS - Continued

As at December 31, 2021, the Group had the following bank loans:

(i) Three bank loans aggregating RMB14,250,000 of which, 9,250,000 is due to be repaid within one year. One loan is secured by property and equipment with a total carrying value of RMB8,573,100. Two loans carry floating interest rates of from 3.90% to 4.60% per annum.

As at December 31, 2020, the Group had the following bank loans:

(i) Two loans aggregating RMB10,250,000 of which, RMB7,000,000 is due to be repaid within one year. One loan is secured by property and equipment with a total carrying value of RMB8,573,100. The loans carry floating interest rates ranging from 4.05% to 4.60% per annum.

As at December 31, 2021 and 2020, the Group had no undrawn committed borrowing facilities including bank overdraft and borrowings in respect of which all conditions precedent had been met.

19. DEFERRED LIABILITIES

Balance, beginning of year Reversal of provision Utilization during the year Balance, end of year	2021 RMB 2,939,311 - (476,986) 2,462,325	2020 RMB 3,188,213 - (248,902)
		2,939,311

Deferred liabilities represent undistributed profits attributable to the PRC Party relating to the period prior to the formation of Guangzhou Rodman Plastics Company Limited (“GRPC”). The amount is repayable by GRPC to the PRC Party when employees joining prior to the formation of GRPC retire. On termination or liquidation of GRPC, the remaining balance is repayable to the PRC Party in full in priority to any distributions to shareholders.

20. DEFERRED TAX

EFERRED TAX
At January 1, 2020 Expense (note 11) At December 31, 2020 Expense (note 11) At December 31, 2021	Withholding tax on dividends RMB		Deductible temporary differences RMB	Total RMB
		289,122 189,668	(11,401) (5,549)	277,721 184,119
		478,790 -	(16,950) 14,846	461,840 14,846
		478,790	(2,104)	476,686

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

20. DEFERRED TAX - Continued

Pursuant to the income tax rules and regulations of the PRC, the provision for PRC income tax should be calculated at the statutory tax rate of 25%. Deferred tax assets and liabilities are calculated in full on all deductible temporary differences using the liability method.

For the purpose of presentation in the statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the net deferred tax liabilities for financial reporting purposes:

ng purposes:
Deferred tax assets Deferred tax liabilities	2021 RMB (2,104) 478,790 476,686	2020 RMB (16,950) 478,790
		461,840

21. INTERESTS IN SUBSIDIARIES

Particulars of the subsidiaries, of which all are limited liability companies, as at 31 December 2021 are as follows:

e as follows:
	Country of		Percentage of
	incorporation	Functional	ordinary	shares held	Principal
Name of company	and operation	currency	by the Corporation		activity
			Directly	Indirectly
Pearl River Plastics		HK			Investment
Limited (“PRPL”)	BVI	Dollars	100%	-	holding
Rodman Plastics		HK			Investment
Company Limited	Hong Kong	Dollars	-	100%	holding
Rodman Enterprises		HK			Trading in
Limited (“REL”)	Hong Kong	Dollars	-	100%	plastic products
Guangzhou Rodman
Industrial Design	Peoples
Services Co. Ltd.	Republic of				Trading in
(“GRIDS”)	China	RMB	-	100%	plastic products
Red Door Enterprises		HK			Trading in
Limited (“RDE”)	BVI	Dollars	-	72.5%	plastic products
Rodman International	Hong Kong	Dollars			Trading in
Limited (“RIL”)		HK	-	72.5%	Plastic products
Red Door China Pty		AUS			Trading in plastic
Limited (“RDC”)	Australia	Dollars	-	72.5%	products
Guangzhou Rodman Plastics Company	Peoples Republic of	RMB	-	64% (note 13)	Manufacturing of plastic products
Limited (“GRPC”)	China

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

22. SHARE CAPITAL

a) Authorized:

Unlimited number of common shares without nominal or par value Unlimited number of first preferred shares, issuable in series Unlimited number of second preferred shares, issuable in series

b) Issued:

Balance, beginning of and end of year	2021 2020 Number of common shares Amount RMB Number of common shares Amount RMB
	27,309,927 52,242,949 27,309,927 52,242,949

c) Weighted average number of shares:

The basic weighted average number of shares outstanding for the years ended 31 December 2021 and 2020 are 27,309,927. The diluted weighted average number of shares outstanding for the years ended 31 December 2021 and 2020 are 27,309,927.

d) Stock options

Under the Corporation’s stock option plan, the aggregate number of common shares that may be reserved for issuance pursuant to options shall not exceed 10% of the outstanding common shares at the time of the granting of an option, less the aggregate number of common shares then reserved for issuance pursuant to any other share compensation arrangement. The exercise price per common share for option granted shall not be less than the market price. Every option shall have a term not exceeding and shall expire no later than five years after the date of grant. The options granted under this plan may not be assigned or transferred. The Board of Directors shall determine the manner in which an option shall vest and become exercisable.

As at 31 December 2021, there are 3,050,000 (2020 - 3,050,000) stock options outstanding and exercisable at a weighted average price of RMB1.61 (CAD - $0.32) per share and have a weighted average life remaining of 1.49 years. During fiscal 2021, NIL (2020 – 500,000) stock options were forfeited.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

23. RETAINED EARNINGS

Pursuant to People’s Republic of China (“PRC”) regulations, the Corporation is required to make appropriations to reserve funds, based on 10% of after tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (the “PRC GAAP”) until such time as the reserve fund reaches 50% of the registered capital of the jointly controlled entity. According to the relevant PRC regulations, the reserve fund can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, other usage should not result in the reserve fund falling below 25% of the registered capital of the jointly controlled entity. The reserve funds are established for covering corporate obligations in the event of business liquidation. The reserve funds are recorded as part of retained earnings but are not available for distribution to shareholders other than in liquidation and may limit repatriation of invested capital.

The following is the summary of the reserve funds under PRC regulations recorded as part of the consolidated retained earnings as at 31 December 2021 and 2020:

Balance, beginning of year Transfer from net income for the year Balance, end of year	2021 RMB 8,935,815 809,418 9,745,233	2020 RMB 8,497,621 438,194
		8,935,815

24. NON-CONTROLLING INTEREST

RIL, a 72.5% owned subsidiary, RDE, a 72.5% owned subsidiary and GRPC, a 64% owned subsidiary of the Company, have material non-controlling interests (“NCI”).

Summarized financial information of RIL, before intra-group eliminations, is presented below:

For the year ended December 31 Revenue Loss for the year Other comprehensive loss Loss allocated to NCI	2021 RMB 30,739,124 4,336,057 66,723 (1,192,416)	2022 RMB - - -
		-

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

(Presented in Chinese Yuan Renminbi)

24. NON-CONTROLLING INTEREST - CONTINUED

As at December 31

Current assets Current liabilities Net assets Accumulated non-controlling interests	25,144,860 (7,265,084) 17,879,776 4,916,937	- -
		-
		-

RDE, a 72.5% owned subsidiary and GRPC, a 64% owned subsidiary of the Company, have material non-controlling interests (“NCI”).

Summary financial information in relation to the NCI of RDE, before intra-group eliminations, is presented below:

For the year ended December 31 Revenue Profit for the year Total comprehensive income Profit allocated to NCI Dividend paid to NCI As at December 31 Current assets Non-current assets Current liabilities Net assets Accumulated non-controlling interests	2021 RMB 58,767,629 8,230,525 (290,786) 2,263,394 6,091,005 21,053,515 879,670 (14,401,215) 7,531,970 2,071,288	2020 RMB 86,230,830 (1,649,744) (2,293,657)
		(453,679)
		-
		45,634,314 1,762,882 (25,655,855)
		21,741,341
		5,978,866

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

24. NON-CONTROLLING INTEREST - CONTINUED

Summary financial information in relation to the NCI of GRPC, before intra-group eliminations, is presented below:

For the year ended December 31 Revenue Profit for the year Total comprehensive income Profit allocated to NCI Dividend paid to NCI As at December 31 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Accumulated non-controlling interests	2021 RMB 292,402,402 2,303,402 2,696,598 829,225 1,800,000 116,277,164 47,580,292 (52,095,629) (26,479,681) 85,282,146 30,701,573	2020 RMB 281,724,685 15,597,592 15,610,769
		5,615,133
		1,428,480
		112,277,354 41,317,866 (41,607,118) (24,009,358)
		87,978,744
		31,672,349

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

25. LEASES

Leases as lessee

The Group leases offices, warehouses and factory facilities. The leases typically run for a period of one to twenty-five years. Lease payments are renegotiated every one to two years to reflect market - rentals. For certain leases, the Group is restricted from entering into any sub lease arrangements. All leases comprise only fixed payments over the lease terms.

(i) Lease liabilities

At 1 January 2021 Addition Interest expense (note 10) Lease payments Foreign exchange movements At 31 December 2021 At 1 January 2020 Not later than 1 year Later than 1 year and not later than 5 years At 31 December 2021 Not later than 1 year Later than 1 year and not later than 5 years	2021 RMB 22,631,124 8,733,845 2,393,839 (8,357,260) (34,734) 25,366,814 Minimum lease payments RMB 6,533,390 22,386,667 28,920,057 Minimum lease payments RMB 8,389,118 21,821,018 30,210,136	2020 RMB 25,425,210 1,426,589 2,530,214 (6,688,366) (62,523) 22,631,124 Interest RMB (2,192,740) (4,076,193) (6,288,933) Interest RMB (2,039,661) (2,803,661) 4,843,322	Present value RMB 4,340,650 18,290,474
			22,631,124
			Present value RMB 6,349,457 19,017,357
			25,366,814

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

25. LEASES - Continued

The present value of future lease payments is analyzed as:

Current liabilities Non-current liabilities	2021 2020 RMB RMB 6,349,457 4,340,650 19,017,357 18,290,474 25,366,814 22,631,124

(ii) The analysis of expense items in relation to leases recognized in profit and loss is as follows:

Expenses relating to short-term leases	2021 2020 RMB RMB 633,007 489,929

(iii) Amounts included in the cash flow statement for lease comprise the following:

Within operating cash flows Within financing cash flows	2021 RMB 495,477 8,357,260 8,852,737	2020 RMB 87,286 6,688,366
		6,775,652

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

26. RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT COMPENSATION

Transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

• a. During the year end in the ordinary course of business, the Group had the following material transactions with Guangzhou Plastics Industrial Joint Stock Company Limited, the noncontrolling interest of GPRC:

controlling interest of GPRC:
	2021	2020
	RMB	RMB
Purchase of raw materials	25,421,635	15,224,271
Royalty expenses	292,053	232,075

• b. During the year, the Corporation had the following other transactions included in general and administrative expenses with related parties:

Administrative fees incurred with an entity controlled by a director of the Corporation	2021 2020 RMB RMB 625,760 584,224

Included in accounts payable and accrued liabilities in respect to administrative fees incurred is RMB 122,536 at 31 December 2021 (2020 – RMB 355,138).

• d. The remuneration of directors and other members of key management during the year was as follows:

follows:
	2021	2020
	RMB	RMB
Salaries, benefits and director fees	1,675,565	2,101,036

27. CAPITAL MANAGEMENT

The Group’s objective of managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts. There have been no changes in management’s process of managing capital nor in management’s definition of what constitutes capital.

The capital structure of the Group consists of equity attributable to common shareholders of the Corporation.

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

28. OTHER RECEIVABLES, DEPOSITS AND PREPAID EXPENSES

Prepaid and deferred expenses GZ Plastic industrial joint stock Other receivables Provision for doubtful accounts	2021 RMB 2020 RMB 3,968,092 3,222,635 964,410 - 5,844,360 4,849,825 (680,296) (687,678)
	10,096,566` 7,384,782

29. FINANCIAL RISK MANAGEMENT

The main risks arising from the Group’s financial instruments in the normal course of the Group’s business are credit risk, liquidity risk, interest rate risk and currency risk.

These risks are limited by the Group’s financial management policies and practices described below.

Credit risk

The Group’s credit risk is primarily attributable to cash and cash equivalents, accounts receivable, and other receivables.

The carrying amounts of cash and cash equivalents, accounts receivable, and other receivables represent the Group’s maximum exposure to credit risk in relation to its financial assets. The objective of the Group’s measures to manage credit risk is to control potential exposure to recoverability problems.

For trade and other receivables, management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Most of these balances are due from state-owned enterprises or major customers with good repayment history. There has been no material credit defaults in the past.

Accounts receivable

The Group measures loss allowances for accounts receivable at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group’s historical credit loss experience indicates no significantly different loss patterns by customer segments, the grouping for accounts receivable for the assessment of ECLs is by past due days, except one customer that was assessed as being credit-impaired and at risk of default.

Expected loss rates are based on actual loss experience over the past three years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables.

Expected credit losses for accounts receivable and other receivables are detailed in the respective notes to these consolidated financial statements.

At the end of the reporting period, the Group has a concentration of credit risk of 27% (2020: 34%) of accounts receivable which was due from one customer (2020 : one customer).

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

29. FINANCIAL RISK MANAGEMENT - Continued

Liquidity risk

The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

The following table details the remaining contractual maturities at the end of each reporting period of the Group’s financial liabilities, which are based on contractual undiscounted cash flows including interest payments computed using contractual rates and the earliest date the Group is required to settle the obligations.

All values are in RMB.

2021 Trade payables and accruals Bank borrowings Lease liabilities Deferred liabilities 2020 Trade payables and accruals Bank borrowings Lease liabilities Deferred liabilities	Carrying amount RMB	Total contractual undiscounted cash flows RMB	On demand RMB	Within 1 year RMB	Over 1 year but within 2 years RMB	More than 2 years RMB
	41,966,468 14,250,000 25,366,814 2,462,325 84,045,607	41,966,468 14,624,267 30,210,136 2,462,325	- - - 2,462,325	41,966,468 9,620,669 8,389,118 -	- 5,003,597 7,980,583 -	- - 13,840,435 -
		89,263,196	2,462,325	59,976,255	12,984,180	13,840,435
	Carrying amount RMB	Total contractual undiscounted cash flows RMB	On demand RMB	Within 1 year RMB	Over 1 year but within 2 years RMB	More than 2 years RMB
	46,924,617 10,250,000 22,631,124 2,939,311 82,745,052	46,924,617 10,656,375 28,920,057 2,939,311	- - - 2,939,311	46,924,617 7,357,500 6,533,390 -	- 3,298,875 6,132,664 -	- - 16,254,003 -
		89,440,360	2,939,311	60,815,567	9,431,539	16,254,003

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PEARL RIVER HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 (Presented in Chinese Yuan Renminbi)

29. FINANCIAL RISK MANAGEMENT - Continued

Interest rate risk

The Group’s interest rate risk arises primarily from bank borrowings. Borrowings issued at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest risk, respectively.

The Group’s exposure to interest rate risks relates primarily to the Group’s borrowings with a floating interest rate. The interest rates and terms of repayment of the Group’s borrowings are disclosed in note 18. The Group has not used any financial instruments to hedge potential fluctuations in interest rates.

Currency risk

The Group is exposed to currency risk primarily through transactions that are denominated in a currencies other than the functional currency of the entities to which they relate. The primary operations of the Group’s subsidiaries are located in the PRC with most of the operating assets and transactions denominated and settled in Renminbi, which is the functional currency of the majority of the Group’s subsidiaries. The entity does not have significant financial assets and liabilities or transactions denominated in currencies that are not the functional currency of the entities in which they relate. As a result, the Group does not have significant exposure to risk resulting from changes in foreign currency exchange rates.

Price risk

The Group is not exposed to any commodity price risk.

Fair values

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2021 and 2020.

30. SUMMARY OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES BY CATEGORY

The carrying amounts of the Group’s financial assets and financial liabilities as recognized at 31 December 2021 and 2020 are categorized as follows:

Financial assets Financial assets measured at amortized cost (including cash at banks and in hand) Financial liabilities Financial liabilities measured at amortized cost	2021 RMB 108,404,435 81,782,425	2020 RMB 121,142,667
		79,947,240

Page 42