China XLX Fertiliser Ltd

NOTES TO THE FINANCIAL STATEMENTS31 December 20082. Summary of significant accounting policies (cont’d)2.3 Subsidiaries and basis of consolidation(a)SubsidiariesA subsidiary is an entity over which the Group has the power to govern the financial and operatingpolicies so as to obtain benefits from its activities. The Group generally has such power when itdirectly or indirectly, holds more than 50% of the issued share capital, or controls more than half ofthe voting power, or controls the composition of the board of directors.(b)Basis of consolidationThe consolidated financial statements comprise the financial statements of the Company andits subsidiary as at the balance sheet date. The financial statements of the subsidiary used in thepreparation of the consolidated financial statements are prepared for the same reporting date asthe Company. Consistent accounting policies are applied for like transactions and events in similarcircumstances.All intra-group balances, transactions, income and expenses and unrealised gains and losses resultingfrom intra-group transactions are eliminated in full.Consolidation of the subsidiary in the PRC is based on the subsidiary’s financial statements preparedin accordance with FRS. Profits reflected in the financial statements prepared in accordance with FRSmay differ from those reflected in the PRC statutory financial statements of the subsidiary, preparedfor PRC reporting purposes. In accordance with the relevant laws and regulations, profits availablefor distribution by the PRC subsidiary are based on the amounts stated in the PRC statutory financialstatements.2.4 Functional and foreign currency(a)Functional currencyThe Group’s principal operations are conducted in the PRC. The management has determined thecurrency of the primary economic environment in which the Group operates, i.e. functional currency,to be Renminbi (Rmb). Sales prices and major costs of providing goods and services including majoroperating expenses are primarily influenced by fluctuations in Rmb.(b)Foreign currency transactionsTransactions in foreign currencies are measured and recorded in Rmb at exchange ratesapproximating those ruling at the transaction dates. Monetary assets and liabilities denominated inforeign currencies are translated at the rate of exchange ruling at the respective balance sheet date.Non-monetary items that are measured in terms of historical cost in a foreign currency are translatedusing the exchange rates as at the dates 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.Exchange differences arising on the settlement of monetary items or on translating monetary itemsat the balance sheet date are recognised in the income statement except for exchange differencesarising on monetary items that form part of the Group’s net investment in foreign operations, whichare recognised initially in equity as foreign currency translation reserve in the consolidated balancesheet and recognised in the consolidated income statement on disposal of the foreign operation.Annual Report 200850