Annual Report 2012

Financial Statements (PRC)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2012
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(2) Transactions in foreign currencies and translation of financial statements in foreign currencies
Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by the People’s Bank of
China (“PBOC rates”) at the transaction dates.
Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly
related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Nonmonetary
items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign
currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference
between the translated amount and the original currency amount is recognised as capital reserve, if it is classified as available-for-sale financial
assets; or charged to the income statement if it is measured at fair value through profit or loss.
The assets and liabilities of foreign operation are translated to Renminbi at the spot exchange rates at the balance sheet date. The equity items,
excluding “Retained profits”, are translated to Renminbi at the spot exchange rates at the transaction dates. The income and expenses of foreign
operation are translated to Renminbi at the spot exchange rates on the transaction dates. The resulting exchange differences are separately
presented in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised
in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs.
(3) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into
known amounts of cash and are subject to an insignificant risk of change in value.
(4) Inventories
Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the
inventories to their present location and condition. The cost of inventories is calculated using the weighted average method. In addition to the
cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing
overhead costs.
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At the balance sheet date, inventories are stated at the lower of cost and net realisable value.
Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of
inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the
estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured
based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory
held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the
quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general
selling prices.
Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include
low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets.
Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or
profit or loss.
Inventories are recorded by perpetual method.
Annual Report 2012 CHINA PETROLEUM & CHEMICAL CORPORATION