6. PROPERTY, PLANT AND EQUIPMENT
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Office |
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Transportation |
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and other |
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Construction |
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Buildings |
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Machinery |
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facilities |
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equipment |
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in progress |
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Total |
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Year ended December 31, 2016 |
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Opening net carrying amount |
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27,097,190 |
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51,266,390 |
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818,625 |
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124,497 |
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12,682,514 |
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91,989,216 |
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Currency translation differences |
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239 |
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258 |
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159 |
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39 |
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— |
|
695 |
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Reclassifications and internal transfers |
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3,041,286 |
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1,412,368 |
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18,750 |
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4,485 |
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(4,476,889) |
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— |
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Transfer to intangible assets |
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— |
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— |
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— |
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— |
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(52,716) |
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(52,716) |
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Transfer to land use rights |
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— |
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— |
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— |
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— |
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(156,752) |
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(156,752) |
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Additions |
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4,755 |
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1,403,380 |
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17,335 |
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7,261 |
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8,408,684 |
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9,841,415 |
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Disposals |
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(761,184) |
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(3,098,579) |
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(25,420) |
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(3,238) |
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(230,608) |
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(4,119,029) |
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Depreciation |
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(1,491,627) |
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(4,875,314) |
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(176,383) |
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(34,190) |
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— |
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(6,577,514) |
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Impairment losses |
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(28,670) |
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(28,326) |
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(59) |
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(25) |
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— |
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(57,080) |
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Closing net carrying amount |
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27,861,989 |
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46,080,177 |
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653,007 |
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98,829 |
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16,174,233 |
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90,868,235 |
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As at December 31, 2016 |
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Cost |
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43,221,788 |
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90,645,929 |
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2,938,562 |
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524,045 |
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16,770,699 |
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154,101,023 |
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Accumulated depreciation and impairment |
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(15,359,799) |
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(44,565,752) |
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(2,285,555) |
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(425,216) |
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(596,466) |
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(63,232,788) |
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Net carrying amount |
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27,861,989 |
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46,080,177 |
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653,007 |
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98,829 |
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16,174,233 |
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90,868,235 |
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Office |
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Transportation |
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and other |
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Construction |
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Buildings |
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Machinery |
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facilities |
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equipment |
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in progress |
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Total |
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Year ended December 31, 2017 |
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Opening net carrying amount |
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27,861,989 |
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46,080,177 |
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653,007 |
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98,829 |
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16,174,233 |
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90,868,235 |
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Reclassifications and internal transfers |
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5,334,951 |
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9,722,364 |
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9,064 |
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11,439 |
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(15,077,818) |
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— |
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Transfer to intangible assets (note 5) |
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— |
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— |
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— |
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— |
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(76,179) |
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(76,179) |
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Transfer to land use rights (note 8) |
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— |
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— |
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— |
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— |
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(396,398) |
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(396,398) |
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Transfer to investment properties (note 7) |
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(157,150) |
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— |
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— |
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— |
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— |
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(157,150) |
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Additions |
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8,224 |
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1,027,337 |
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32,257 |
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7,052 |
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9,602,020 |
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10,676,890 |
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Acquisition of a subsidiary |
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889,597 |
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2,600,315 |
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3,410 |
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1,714 |
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99,934 |
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3,594,970 |
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Disposal of subsidiaries |
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(86,945) |
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(62,814) |
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(5,269) |
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(2,114) |
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(108,479) |
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(265,621) |
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Disposals |
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(37,678) |
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(1,140,081) |
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(12,437) |
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(1,123) |
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(334,329) |
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(1,525,648) |
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Depreciation |
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(1,575,776) |
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(4,857,954) |
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(144,508) |
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(28,045) |
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— |
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(6,606,283) |
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Impairment losses |
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— |
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(15,632) |
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— |
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— |
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— |
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(15,632) |
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Currency translation differences |
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(155) |
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(196) |
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(60) |
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(58) |
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— |
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(469) |
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Closing net carrying amount |
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32,237,057 |
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53,353,516 |
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535,464 |
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87,694 |
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9,882,984 |
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96,096,715 |
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As at December 31, 2017 |
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Cost |
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48,882,784 |
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101,507,889 |
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2,860,597 |
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502,779 |
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9,994,982 |
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163,749,031 |
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Accumulated depreciation and impairment |
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(16,645,727) |
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(48,154,373) |
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(2,325,133) |
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(415,085) |
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(111,998) |
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(67,652,316) |
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Net carrying amount |
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32,237,057 |
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53,353,516 |
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535,464 |
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87,694 |
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9,882,984 |
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96,096,715 |
For the years ended December 31, 2015, 2016 and 2017, depreciation expenses recognized in profit or loss are analyzed as follows:
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2015 |
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2016 |
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2017 |
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Cost of sales |
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6,749,735 |
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6,386,276 |
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6,440,128 |
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General and administrative expenses |
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172,524 |
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181,708 |
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159,230 |
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Selling and distribution expenses |
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22,731 |
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9,530 |
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6,925 |
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6,944,990 |
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6,577,514 |
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6,606,283 |
As at December 31, 2017, the Group was in the process of applying for the ownership certificates of buildings with a net carrying value of RMB6,942 million (December 31, 2016: RMB6,759 million). There has been no litigations, claims or assessments against the Group for compensation with respect to the use of these buildings as at the date of approval of these financial statements. As at December 31, 2017, the carrying value of these buildings only represented approximately 3.47% of the Group’s total asset value (December 31, 2016: 3.55%). Management considers that it is probable that the Group can obtain the relevant ownership certificates from the appropriate authorities. The directors of the Company are of the opinion that the Group legally owns and has the rights to use the above property, plant and equipment, and that there is no material adverse impact on the overall financial position of the Group.
For the year ended December 31, 2017, interest expenses of RMB344 million (2015: RMB522 million, 2016: RMB414 million) arising from borrowings attributable to the construction of property, plant and equipment during the year were capitalised at an annual rate ranging from 4.41% to 8.00% (2015: 4.90% to 6.55%, 2016: 3.85% to 6.00%) (note 28), and were included in additions to property, plant and equipment.
As at December 31, 2017, the Group has pledged property, plant and equipment at a net carrying value amounting to RMB5,799 million (December 31, 2016: RMB6,541 million) for bank and other borrowings as set out in note 24 to the financial statements.
As at December 31, 2017, the carrying value of temporarily idle property, plant and equipment of the Group was RMB2,530 million (December 31, 2016: RMB2,828 million).
The net carrying amounts of the Group’s fixed assets held under finance leases included in the total amounts of the machinery and construction in progress at December 31, 2017 were RMB9,955 million (2016: RMB7,200 million) and RMB100 million (2016: RMB194 million), respectively. The accumulated depreciation of the Group’s fixed assets held under finance lease amounted to RMB1,908 million (2016: RMB1,703 million).
Impairment tests for property, plant and equipment
When any indicators of impairment are identified, property, plant and equipment are reviewed for impairment based on each CGU. The CGU is an individual plant or entity. The carrying values of these individual plants or entities were compared to the recoverable amounts of the CGUs, which were based predominantly on value-in-use. Value-in-use calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five‑year period are extrapolated using the same cash flow projections of the fifth year. Other key assumptions applied in the impairment testing include the expected product price, demand for the products, product cost and related expenses. Management determined these key assumptions based on past performance and their expectations on market development. Further, the Group adopts a pre-tax and non-inflation rate of 10.16% (2016: 10.16%) that reflects specific risks related to the CGUs as discount rates. The assumptions above are used in analysing the recoverable amounts of the CGUs within operating segments.
For the CGUs with indicators of impairment identified, the assets were not further impaired during the current year based on the impairment testing (2016: nil).
In addition to the CGUs for which impairment was tested based on value-in-use, the Group also assessed the recoverable amounts for property, plant and equipment about to be disposed or abandoned, and impairment losses of RMB16 million were provided during the year ended December 31, 2017 (2015: RMB10 million, 2016: RMB57 million).