Interim Report 2012 - TodayIR.com

Notes to Financial Statements30 June 20122.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Foreign currencies (Continued)Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at thedates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined. The gain or loss arising on retranslation of a non-monetary item is treated inline with the recognition of the gain or loss on change in fair value of the item (i.e., translation differences on item whose fair valuegain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profitor loss, respectively).The functional currencies of the Company and certain overseas subsidiaries are currencies other than RMB. As at the end of thereporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at theexchange rates ruling at the end of the reporting period, and their income statements are translated into RMB at the weightedaverage exchange rates for the year.The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuationreserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreignoperation is recognised in the income statement.Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets andliabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing date.For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into RMB at theexchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughoutthe year are translated into RMB at the weighted average exchange rates for the year.3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATESThe preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions thataffect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of thereporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a materialadjustment to the carrying amounts of the assets or liabilities affected in the future.JudgementsIn the process of applying the Group’s accounting policies, management has made the following judgement, apart from thoseinvolving estimations, which has a significant effect on the amounts recognised in the financial statements:Operating lease commitments – Group as lesseeThe Group has entered into commercial property leases as lessee on its restaurant chain stores. The Group has determined, basedon an evaluation of the terms and conditions of the arrangements, that the landlords retain all the significant risks and rewards ofownership of these properties which are leased to the Group on operating leases.40XIAO NAN GUO RESTAURANTS HOLDINGS LIMITED