Annual Report - Li Ning

Notes to the Consolidated Financial Statements (Continued)
(All amounts in RMB unless otherwise stated)
2. Summary of significant accounting policies (Continued)
2.21 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be
received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the income statement as other income over the
period necessary to match them with the costs they are intended to compensate.
Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as
deferred government grants and are recognised in the income statement as other gain on a straight-line basis over the
expected lives of the related assets.
2.22 Dividend distribution
Dividend distribution to the Company’s equity holders, excluding those relating to the Company’sownsharesheldunder
the employees’ share award scheme, is recognised as a liability in the Group’s financial statements in the period in which
the dividends are approved by the Company’s equity holders in case of final dividend and the Company’s directors in case
of interim dividend.
2.23 Comparatives
Certain staff costs amounting to RMB26,356,000 incurred during the year ended 31 December 2005 in aggregate have
been reclassified from distribution costs and administrative expenses to cost of sales in order to conform with the current
year’s presentation.
3. Financial risk management
3.1 Financial risk factors
The activities of the Group expose it to a variety of financial risks, including foreign exchange risk, cash flow and fair value
interest rate risk, credit risk, and liquidity risk.
Risk management is carried out by core management team of the Group under policies approved by the board
of directors.
(a) Foreign exchange risk
The Group mainly operates in the PRC with most of the transactions settled in RMB.
Certain of the Group’s cash and bank deposits are denominated in Hong Kong Dollars (HK$) or United States Dollars
(US$) (Note 14). In addition, the Company is required to pay dividends in HK$ when dividends are declared.
Any foreign currency exchange rate fluctuations in connection with its deposits and investments may have a
financial impact to the Group.
(b) Interest rate risk
The Group’s income and operating cash flows are substantially independent of changes in market interest rates, and
the Group has no significant interest-bearing assets or liability other than cash deposits with banks. The Group has
not used any interest rate swaps to hedge its exposure to interest rate risk.
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