Li Ning Company Limited

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Question 11
Question 22
Question 32
Question 42
Question 53
a.Receivables written off3
b.Adjustment for impairment of receivables3
Question 63
a.Revenue earned on advances from customers3
b.Expiration of prepayment for advertising expenses3
Question 73
a.Inventory costing method3
b.(1) 2010 inventories amount as a percentage of total current assets4
(2) 2010 inventories amount as a percentage of total assets4
c.Significance of lower of cost and NRV4
Question 84
a.Depreciation method4
b.Journal entry for purchase of PPE4
Question 95
Question 105
a.Declaration of cash dividends5
b.Payment of cash dividends5
Question 115
Question 126
Question 136
Financial ratios6
Comment8
Question 148

Question 1
Li Ning Company Limited is listed on the Main Board of the Hong Kong Stock Exchange (SEHK), with the stock code, SEHK: 2331 (page 2). Li Ning Company Limited is an investment holding company (page 92), which means it owns other company’s outstanding shares such as Lotto Sports Goods Co., Ltd and Beijing Double Happiness Sports Goods Sales Co.,Ltd (page 145/146).

Li Ning Company Limited’s principal activities include brand development, research and development (R&D), design, manufacture, sale and distribution of sporting footwear, apparel, equipment and accessories mainly in the People’s Republic of China (PRC) (Page 118) under the LI-NING brand (its core brand), Z-DO brand, Double Happiness brand and Kason Brand (Page 92). For example, the R&D, manufacture and sale of badminton equipment are done under the Kason brand while the Double Happiness brand specialize in table tennis and other sports equipment. In addition, the Group also entered into a joint venture with Aigle International S.A to manufacture, market, distribute and sell outdoor sports products under the French brand AIGLE in PRC. Li Ning Company Limited also sells licensed products, which bear the Italian brand Lotto in PRC through a subsidiary (Page 92).

Li Ning Company Limited prepared its financial statements in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention (Page 118). This means that it requires the management to exercise its judgment in the use of certain critical accounting estimates in the preparation of its financial statements. For instance, the Group estimates and makes assumptions concerning its future for items such as the net realizable value of inventories (page 134). Additionally, the historical cost convention meant that the Group records its assets and liabilities at their initial costs or amount received in exchange for the obligation. Question 2

Li Ning’s independent auditors are PricewaterhouseCoopers (PWC) (page 69). The audit is of the opinion that Li Ning Company Limited’s consolidated financial statements give a “true and fair” view of the Group’s financial position, and the financial statements were prepared in accordance to the IFRS and the disclosure requirements of the Hong Kong Companies Ordinance (page 109).

“True” relates to the factual and reasonable accuracy of the financial statements; “fair” relates to the impartial presentation of information and the view conveyed to the reader and “view” indicates that a professional judgment had been reached. Therefore, by providing a “true and fair” view, it means that the external auditors are of the professional judgment (reasonably assurance) that the consolidated financial statements of the Group accurately reflects the assets and liability of the Group as at 31 December 2010 and its income and expenditure for the period to 31 December 2010. Additionally, the auditors think that the overall impression formed by Li Ning’s financial statements as a whole is presented in a manner that is free from bias and does not misled its readers, reflecting any unreasonable financial situation of the Group. As such, external...
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