SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below.

These policies have been consistently applied to all reporting periods, unless otherwise stated.

(1) Compliance statement

The financial statements of the TaiwanICDF have been prepared in accordance with the requirements of Regulations Governing Accounting Handling and Preparation of Financial Reports of Foundations established and approved by the Ministry of Foreign Affairs, accounting policies of TaiwanICDF (including proposed revision), the relevant laws and regulations formulated by the central government, Enterprise Accounting Standards (“EAS”) and related interpretations.

The financial statements have been prepared in accordance with the abovementioned regulations and standards.

(2) Basis of preparation

Government funding are recognised as revenue at current expenses plus accrual reserved fund as total annual expenses based on matching of costs with revenues. Others are accounted at accrual basis. In addition, the financial statements of TaiwanICDF adopted accrual basis, anything accounted at cash basis will be adjusted to accrual basis during closing of accounts.

(3) Foreign currency translation

TaiwanICDF maintains its accounts in New Taiwan (NT) dollars. Transactions denominated in foreign currencies are converted into NT dollars at the spot exchange rates prevailing on the transaction dates.

Deposits, receivables and the unreimbursed balance of reserves payable by the Central Bank of the Republic of China due to engaged programmes denominated in foreign currencies are translated at the spot exchange rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or loss. The other assets denominated in foreign currencies are measured at the historical

exchange rate at the date of the transaction.

(4) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

(a) Assets that are expected to be realised, or are intended to be sold or consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realised within twelve months from the balance sheet date;

(d) Cash or cash equivalents, excluding cash and cash equivalents that are restricted from being exchanged, used to settle liabilities for at least twelve months after the balance sheet date or restricted by other factors.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

(a) Liabilities that are expected to be settled within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be settled within twelve months after the balance sheet date;

(d) Liabilities for which the repayment date cannot be deferred unconditionally for at least twelve months after the balance sheet date.

(5) Cash equivalents

Cash equivalents refer to short-term, highly liquid time deposits or investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(6) Allowance for uncollectible accounts

The provision of reserve for bad debts is made based on their risk levels in accordance with the Regulation for TaiwanICDF Dealings with Past Due/Non-Performing Loans and Bad Debts.

(7) Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

B. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and derecognised using trade date accounting.

C. Available-for-sale financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognised in other comprehensive income.

(8) Held-to-maturity financial assets

A. Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity date that the TaiwanICDF has the positive intention and ability to hold to maturity other than those designated as at fair value through profit or loss or as available-for-sale on initial recognition and those that meet the definition of loans and receivables.

B. If the TaiwanICDF has sold or reclassified more than an insignificant amount of held-to-maturity investments before the maturity date during the current or the two preceding financial years, any financial assets should not be classified as held-to-maturity financial assets and all of its remaining held-to-maturity investments must be reclassified as available-for-sale

C. On a regular way purchase or sale basis, held-to-maturity financial assets are recognised and derecognised using settlement date accounting.

D. Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, and subsequently measured at amortised cost using the effective interest method, less impairment loss. Amortised interest of assets is recognised in profit or loss.

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(9) Receivables

Retained money receivable on completed projects

Any unfunded projects that need to be included in the final accounts due to the government budget, or need to be approved to be retained until next year.

(10) Financial assets measured at cost

A. Financial assets measured at cost are equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instrument

B. On a regular way purchase or sale basis, financial assets measured at cost are recognised and derecognised using trade date accounting.

C. Financial assets measured at cost are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition and subsequently measured at cost.

(11) Impairment of financial assets

A. The TaiwanICDF assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

B. The criteria that the TaiwanICDF uses to determine whether there is objective evidence of an impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) For economic or legal reasons relating to the borrower’s financial difficulty, granted the borrower a concession that a lender would not otherwise consider;

(d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) The disappearance of an active market for that financial asset because of financial difficulties;

(f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

(g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;

(h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

C. When the TaiwanICDF assesses that there has been objective evidence of impairment loss of financial assets, the amount of impairment loss is determined as follows according to the category of financial assets:

(a) Financial assets measured at amortised cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying

amount of the asset through the use of an impairment allowance account.

(b) Financial assets measured at cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognised in profit or loss. Impairment loss recognised for this category shall not be reversed subsequently. Impairment loss is recognised by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(c) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss, and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognised, such impairment loss is reversed through profit or loss.

Impairment loss of an investment in an equity instrument recognised in profit or loss shall not be reversed through profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(12) Long-term loans receivable

Foreign currency loans are stated at historical exchange rates.

(13) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.

B. In case of replacement of one part of the property, plant and equipment, the new part is capitalised to the extent that it is probable that future economic benefits associated with the item will flow to the TaiwanICDF, and the carrying amount of the part replaced is derecognised. All other repairs and maintenance are charged to profit or loss when incurred.

C. Property, plant and equipment are measured at cost model subsequently. Land is not depreciated.

Other property, plant and equipment are depreciated using the straight-line method over their estimated useful lives. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately, unless it is impracticable. The estimated useful lives of property, plant and equipment are as follows:

Machinery and equipment 3 ~ 10 years Transportation equipment 2 ~ 10 years Miscellaneous equipment 3 ~ 10 years Leasehold improvements 5 years

D. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under EAS 4, ‘Accounting policies, estimates and errors’, from the date of the change.

(14) Impairment of non-financial assets

A. The TaiwanICDF assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. The impairment loss on revalued assets is recognised in other comprehensive income to the extent of amount of unrealised revaluation surplus; excess is recognised in profit or loss, if any.

B. Where the recoverable amount increases in subsequent period, the book value of the asset is adjusted to its recoverable amount. The carrying amount after reversal should not exceed its book value (less depreciation or amortisation amount) that would have been if the impairment had not been recognised. Reversal of impairment loss is recognised in profit or loss, but gain on reversal of (versión en inglés)

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impairment loss on revalued assets is recognised in profit or loss to the extent of impairment loss initially recognised in profit or loss; excess is recognised in other comprehensive income as unrealised revaluation surplus of the asset.

(15) Accounts payable

Retained money payable on completed projects

Any unfunded projects that need to be included in the final accounts due to the government budget, or need to be approved to be retained until next year.

(16) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred at the dates of the transactions and subsequently measured at amortised cost using the effective interest method. Interest amortised using the effective interest metho is recognised in profit or loss.

(17) Retirement plan

A. TaiwanICDF had a non-contributory pension plan originally, covering all regular employees, which was defined by the Fund. TaiwanICDF contributed monthly an amount based on 7% of the employees’

monthly salaries and wages to the retirement fund deposited with a financial institution. This fund balance was not reflected in the financial statements. Effective September 1, 2009, TaiwanICDF has established a funded defined contribution pension plan (the “New Plan”) under the Labor Pension Act.

Under the New Plan, TaiwanICDF contributes monthly an amount based on 7% of the payroll grades corresponding to the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. No further contributions are made to TaiwanICDF’s retirement fund.

B. Under the defined contribution pension plan, net periodic pension costs are recognized as incurred.

(18) Income tax

Income tax is accounted in accordance with the Standard for Non-profit Organizations Exempt from Income Tax promulgated by the Executive Yuan, and Statement of Financial Accounting Standards.

Under- or over-provision of income tax in the previous year is accounted for as an adjustment of income tax expense in the current year.

(19) Revenues, costs and expenses

Revenues (including government donations) are recognized when the earning process is substantially completed and is realized or realizable. Costs and expenses are recognized as incurred.