AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 1, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F/A

Amendment No. 1

(Mark One)
☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to
OR
☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	Date of event requiring this shell company report

Commission file number: 001-39859

Kuke Music Holding Limited

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Building 96

4 San Jian Fang South Block

Chaoyang District, Beijing 100024

People's Republic of China

(Address of principal executive offices)

Hoi Tung Chan, Chief Financial Officer

+86-010-6561 0392

Building 96

4 San Jian Fang South Block

Chaoyang District, Beijing 100024

People's Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
American Depositary Shares, each representing one Class A ordinary share, par value US$0.001 per share*	KUKE	New York Stock Exchange

1

* Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2020, there were 24,566,723 Class A ordinary shares outstanding, par value US$0.001.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐  No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
				Emerging growth company	☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☒

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark which basis of accounting the registration has used to prepare the financial statements included in this filing:

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17 ☐  Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

2

EXPLANATORY NOTE

This Amendment No.1 to the Annual Report on Form 20-F for the fiscal year ended 31 December 2020, originally filed with the Securities and Exchange Commission on April 29, 2021 (the “2020 Form 20-F”), is being filed solely for the purposes of (i) adding Exhibit 101 to Item 19 “Exhibits” and furnishing the Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. Exhibit 101 was not previously filed; and (ii) revising the table on page F-52 as follows:

	Leasehold improvements			Music education equipment			Furniture and fixtures			Office equipment			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Cost
At January 1, 2019		2,051			1,749			355			2,637			6,792
Additions		1,587			1,806			109			9			3,511
Disposals		—			—			(232	)		(1,961	)		(2,193	)
Transfer to inventories		—			(762	)		—			—			(762	)
At December 31, 2019		3,638			2,793			232			685			7,348
Acquisition from business combinations    (Note 8)		498			—			103			168			769
Additions		—			15,440			—			68			15,508
Disposals		—			(7	)		—			(42	)		(49	)
At December 31, 2020		4,136			18,226			335			879			23,576
Accumulated depreciation
At January 1, 2019		(1,516	)		(33	)		(241	)		(2,413	)		(4,203	)
Depreciation charge for the year		(711	)		(337	)		(61	)		(142	)		(1,251	)
Disposals		—			—			188			1,961			2,149
Transfer to inventories		—			76			—			—			76
At December 31, 2019		(2,227	)		(294	)		(114	)		(594	)		(3,229	)
Depreciation charge for the year		(631	)		(1,464	)		(65	)		(97	)		(2,257	)
Disposals		—			6			—			39			45
At December 31, 2020		(2,858	)		(1,752	)		(179	)		(652	)		(5,441	)
Net carrying amount
At December 31, 2020		1,278			16,474			156			227			18,135
At December 31, 2019		1,411			2,499			118			91			4,119

Other than as expressly set forth above, this Amendment No. 1 to the 2020 Form 20-F does not, and does not purport to, amend, update or restate the information in any other item of the 2020 Form 20-F, or reflect any events that have occurred after the 2020 Form 20-F was originally filed.

Item 19. EXHIBITS

ExhibitNumber	Description of Document
101. INS	XBRL Instance Document.
101. SCH	XBRL Taxonomy Extension Schema Document.
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101. LAB	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Document.

3

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	Kuke Music Holding Limited
	By:	/s/ HE YU
	Name:	HE YU
Date: June 1, 2021	Title:	Chairman of the Board of Directors and Chief Executive Officer

4

KUKE MUSIC HOLDING LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Profit or Loss and Other Comprehensive Income for the years ended December 31, 2020, 2019 and 2018	F-3
Consolidated Statements of Financial Position as at December 31, 2020 and 2019	F-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7 ‑ F-73

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Kuke Music Holding Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Kuke Music Holding Limited (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young

We have served as the Company’s auditor since 2019.

Hong Kong, The People’s Republic of China

April 29, 2021

F-2

KUKE MUSIC HOLDING LIMITED

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME

			Years ended December 31,
	Notes		2020			2019			2018
			RMB’000			RMB’000			RMB’000
Revenue		4		162,881			146,054			152,241
Cost of sales				(44,281	)		(32,343	)		(34,114	)
Gross profit				118,600			113,711			118,127
Other income, net		9.1		4,385			3,830			3,693
Selling and distribution expenses				(25,808	)		(18,252	)		(21,454	)
Administrative expenses				(65,018	)		(27,312	)		(45,025	)
Impairment losses on financial assets, net				(35,240	)		(3,088	)		(2,875	)
Other operating expenses				(18	)		(42	)		(4	)
Operating (loss)/profit				(3,099	)		68,847			52,462
Share of loss of a joint venture				(9	)		—			—
Finance costs		9.2		(10,105	)		(3,242	)		(1,910	)
Finance income		9.3		1,621			258			59
(Loss)/profit before tax				(11,592	)		65,863			50,611
Income tax expense		10		(3,622	)		(9,101	)		(10,147	)
(Loss)/profit for the year and total comprehensive    (loss)/income for the year				(15,214	)		56,762			40,464
Attributable to:
Equity holders of the parent				(16,423	)		56,106			38,612
Non-controlling interests				1,209			656			1,852
				(15,214	)		56,762			40,464
(LOSS)/EARNINGS PER SHARE ATTRIBUTABLE    TO ORDINARY EQUITY HOLDERS OF THE    PARENT		11
Basic			RMB(0.70)			RMB3.08			RMB2.13
Diluted			RMB(0.70)			RMB3.08			RMB2.13

The accompanying notes are an integral part of the consolidated financial statements.

F-3

KUKE MUSIC HOLDING LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

	Notes		December 31, 2020		December 31, 2019
			RMB’000		RMB’000
NON-CURRENT ASSETS
Property, plant and equipment		12		18,135		4,119
Intangible assets		13		263,101		168,505
Right-of-use assets		24		14,918		10,728
Goodwill		14		237,225		—
Investment in a joint venture				491		—
Prepayments, other receivables and other assets		17		95,376		91,542
Net investments in subleases		24		202		2,325
Deferred tax assets		10		8,917		3,796
Total non-current assets				638,365		281,015
CURRENT ASSETS
Inventories		15		950		1,807
Trade receivables		16		181,722		181,125
Prepayments, other receivables and other assets		17		28,523		14,949
Net investments in subleases		24		211		1,245
Due from related parties		26		1,763		370
Due from shareholders		26		100		105
Cash and cash equivalents		19		25,719		23,010
Total current assets				238,988		222,611
Total assets				877,353		503,626
EQUITY
Issued capital		20		162		118
Reserves		20		655,939		278,584
Equity attributable to equity holders of the parent				656,101		278,702
Non controlling interests				5,068		3,859
Total equity				661,169		282,561
NON-CURRENT LIABILITIES
Other payable		25		—		31,700
Contract liabilities		22		587		436
Deferred tax liabilities		10		1,447		—
Lease liabilities		24		9,830		9,496
Total non-current liabilities				11,864		41,632
CURRENT LIABILITIES
Trade payables		21		27,310		34,697
Other payables and accruals		25		67,121		58,680
Contract liabilities		22		24,314		16,049
Due to a shareholder		26		325		—
Due to a related party		26		7,177		—
Interest-bearing loans and borrowings		23		60,000		55,000
Lease liabilities		24		7,660		5,217
Income tax payable				10,413		9,790
Total current liabilities				204,320		179,433
Total liabilities				216,184		221,065
Total equity and liabilities				877,353		503,626

The accompanying notes are an integral part of the consolidated financial statements.

F-4

KUKE MUSIC HOLDING LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Attributable to equity holders of the parent
	Issued capital		Capital reserve		Retained earnings			Total			Non- controlling interests			Total equity
	RMB’000		RMB’000		RMB’000			RMB’000			RMB’000			RMB’000
At January 1, 2018		105		84,329		22,389			106,823			1,384			108,207
Profit and total comprehensive    income for the year		—		—		38,612			38,612			1,852			40,464
Issuance of ordinary shares		13		77,125		—			77,138			—			77,138
At December 31, 2018 and at    January 1, 2019		118		161,454		61,001			222,573			3,236			225,809
Profit and total comprehensive    income for the year		—		—		56,106			56,106			656			56,762
Acquisition of non-controlling    interests		—		23		—			23			(33	)		(10	)
At December 31, 2019 and at    January 1, 2020		118		161,477		117,107			278,702			3,859			282,561
Loss and total comprehensive    loss for the year		—		—		(16,423	)		(16,423	)		1,209			(15,214	)
Issuance of ordinary shares (Note 20)		11		90,395		—			90,406			—			90,406
Issuance of ordinary shares for the    acquisition of a subsidiary (Note 20)		33		283,967		—			284,000			—			284,000
Equity-settled share-based payments    (Note 29)		—		19,416		—			19,416			—			19,416
At December 31, 2020		162		555,255		100,684			656,101			5,068			661,169

The accompanying notes are an integral part of the consolidated financial statements.

F-5

KUKE MUSIC HOLDING LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years ended December 31,
	Notes		2020			2019			2018
			RMB’000			RMB’000			RMB’000
Cash flows from operating activities
(Loss)/profit before tax				(11,592	)		65,863			50,611
Adjustments for:
Finance costs		9.2		10,105			3,242			1,910
Finance income		9.3		(1,621	)		(258	)		(59	)
Depreciation of property, plant and equipment		9.4		2,257			1,251			834
Depreciation of right-of-use assets		9.4		4,480			1,618			1,939
Amortisation of intangible assets		9.4		5,366			3,762			2,592
Loss on disposal of property, plant and equipment				4			41			4
Covid-19-related rent concessions from a lessor		24		(778	)		—			—
Recognition of equity-settled share-based payment expenses		29		19,416			—			—
Share of loss of a joint venture				9			—			—
Impairment of trade receivables, net				34,983			2,282			2,875
Impairment of other receivables, net				257			806			—
				62,886			78,607			60,706
Working capital adjustments:
Decrease/(increase) in inventories				859			(116	)		(575	)
Increase in trade receivables				(25,909	)		(67,359	)		(31,495	)
Increase in prepayments, other receivables and other assets				(6,050	)		(40,973	)		(1,859	)
Increase in amounts due from related parties				(663	)		(370	)		—
(Decrease)/increase in trade payables				(7,655	)		11,742			10,857
Increase in other payables and accruals				2,011			42,364			13,246
Increase in contract liabilities				8,416			1,047			3,937
Decrease in an amount due to a shareholder				—			—			(1,008	)
Decrease in an amount due to a related party				—			—			(5,400	)
Cash generated from operations				33,895			24,942			48,409
Income tax paid				(7,608	)		(7,554	)		(7,191	)
Net cash flows from operating activities				26,287			17,388			41,218
Cash flows from investing activities
Interest received				45			258			59
Investment in a joint venture				(500	)		—			—
Acquisition of a subsidiary		8		1,073			—			—
Purchase of intangible assets				(10,145	)		(19,119	)		(64,666	)
Purchase of property, plant and equipment				(948	)		(3,511	)		(1,805	)
Advance to a related party				(18,498	)		—			—
Repayment of advance to a related party				17,398			—			—
Repayment from a loan receivable				6,000			—			—
Increase in deposits paid for property, plant and equipment				(9,899	)		(9,956	)		—
Increase in deposits paid for intangible assets				(106,082	)		(42,434	)		(27,970	)
Proceeds from disposal of items of property, plant and equipment				—			3			—
Receipt of the principal portion of net investments in subleases				219			521			—
Decrease/(increase) in a pledged deposit				—			36,930			(36,930	)
Net cash flows used in investing activities				(121,337	)		(37,308	)		(131,312	)
Cash flows from financing activities
Acquisition of non-controlling interests				—			(10	)		—
Proceeds from issuance of ordinary shares				90,406			—			77,138
Proceeds from bank borrowings				10,000			5,000			39,700
Repayment of bank borrowings				(5,000	)		(39,700	)		—
Proceeds from other borrowings				—			50,000			—
Repayment of other borrowings				—			—			(5,000	)
Advance from a related party				7,177			—			—
Repayment from shareholders				105			—			—
Payment of the principal portion of lease liabilities				(2,162	)		(1,996	)		(2,402	)
Interest paid				(2,767	)		(1,492	)		(1,910	)
Net cash flows from financing activities				97,759			11,802			107,526
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS				2,709			(8,118	)		17,432
Cash and cash equivalents at beginning of year				23,010			31,128			13,696
CASH AND CASH EQUIVALENTS AT END OF YEAR				25,719			23,010			31,128

The accompanying notes are an integral part of the consolidated financial statements.

F-6

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate information

The Company was incorporated in the Cayman Islands on September 13, 2017, as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

The principal activity of the Company is investment holding while its subsidiaries are principally engaged in the distribution of commercial copyrights, provision of music education solutions and provision of services related to music events in the People’s Republic of China (the “PRC”).

In February 2020, the Company acquired a 100% equity interest in Rosenkavalier Limited (“Rosenkavalier”), Degas Limited (“Degas”) and Beijing Lecheng Future Culture Media Co., Ltd. (“Beijing Lecheng”) (collectively, the “Rosenkavalier Group”), which provides services related to music festival events, music performance services and the licensing of music catalogues through Beijing Music Festival Culture Communication Co., Ltd (“BMF Culture”).

Variable interest entity agreements (“VIE agreements”) were also entered into, conferring Beijing Lecheng the right to control over and to receive variable returns from BMF Culture. As a result of the VIE agreements, BMF Culture was consolidated as an indirect subsidiary of the Group.

F-7

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate information (continued)

As at the date of these consolidated financial statements, the Company had direct or indirect interests in the subsidiaries as set out below, all of which are private entities with limited liabilities. All companies now comprising the Group have adopted December 31 as their financial year-end date.

		Percentage of ownership/interest/ voting rights
Name	Place and date of incorporation/ establishment	Directly			Indirectly			Issued and fully paid ordinary share capital/ registered capital	Principal activities
Rococo Holding    Limited (“Rococo”)	British Virgin Islands (“BVI”), limited liability company September 21, 2017		100	%		—		United States Dollar (“US$”) 1	Investment holding
Rosenkavalier Limited    (“Rosenkavalier”)	BVI, limited liability company October 2, 2019		100	%		—		US$100	Investment holding
Gauguin Limited    (“Gauguin”)	Hong Kong limited liability company October 6, 2017		—			100	%	Hong Kong Dollars (“HK$”) 60,000,000	Investment holding
Degas Limited (“Degas”)	Hong Kong limited liability company November 1, 2019		—			100	%	HK$60,000,000	Investment holding
Kuke International    Technology (Beijing)    Co., Ltd.*    (“Kuke International”)	PRC, limited liability company December 14, 2017		—			100	%	US$10,000,000	Investment holding
Beijing Lecheng Future    Culture Media Co., Ltd.*    (“Beijing Lecheng”)	PRC, limited liability company November 28, 2019		—			100	%	US$10,000,000	Investment holding
Beijing Kuke Music Co. Ltd.*    (formerly known as    Beijing Cathay Orient    Information Technology    Company Limited)    (“Beijing Kuke Music”)	PRC, June 7, 2000, limited liability company, changed to joint stock limited liability company on February 16, 2016		—			100	%	RMB16,213,275	Distribution of commercial copyrights and provision of music education solutions
n
Beijing Naxos Cultural    Communication Co. Ltd.*    (“Naxos China”)	PRC, limited liability company January 25, 2016		—			51	%	RMB2,000,000	Distribution of commercial copyrights
Beijing Music Festival    Culture Communication    Co., Ltd.* (“BMF Culture”)	PRC, limited liability company August 26, 2003		—			100	%	RMB19,500,000	Distribution of commercial copyrights and provision of services related to music events

* The English names of these companies represent the best efforts made by the Company to translate their Chinese names as these companies do not have official English names.

F-8

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies

2.1  Basis of preparation

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements of the Company were authorised for issue in accordance with a resolution of the directors on April 29, 2021.

The consolidated financial statements are prepared on a going concern basis.

The consolidated financial statements are prepared on a historical cost basis. The consolidated financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousands, except for the number of shares and earnings/(loss) per share data.

2.2  Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) as at December 31, 2020 and 2019. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee

• The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement(s) with the other vote holders of the investee

• Rights arising from other contractual arrangements

• The Group’s voting rights and potential voting rights

The Group re‑assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

F-9

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.2  Basis of consolidation (continued)

Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the parent of the Group and to the non‑controlling interests, even if this results in the non‑controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra‑group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non‑controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

2.3  Summary of significant accounting policies

a) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at the acquisition date fair value, and the amount of any non‑controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non‑controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition‑related costs are expensed as incurred and included in administrative expenses.

The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs.  The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments is measured at fair value with the changes in fair value recognised in profit or loss in accordance with IFRS 9. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognised in profit or loss.

F-10

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non‑controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re‑assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash‑generating units (“CGUs”) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill is allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the operation disposed of and the portion of the CGU retained.

b) Investment in a joint venture

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries. The Group’s investment in a joint venture is accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

F-11

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

The consolidated statement of profit or loss and other comprehensive income reflects the Group’s share of the results of operations of the joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture.

The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the consolidated statements of profit or loss and other comprehensive income outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture.

The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognises the loss within ‘Share of profit/(loss) of a joint venture’ in the consolidated statement of profit or loss and other comprehensive income.

Upon loss of joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

c) Current versus non‑current classification

The Group presents assets and liabilities in the statement of financial position based on current/non‑current classification. An asset is current when it is:

• Expected to be realised or intended to be sold or consumed in the normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months after the reporting period

  Or

• Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non‑current.

A liability is current when:

• It is expected to be settled in the normal operating cycle

• It is held primarily for the purpose of trading

F-12

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

• It is due to be settled within twelve months after the reporting period

Or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

The Group classifies all other liabilities as non‑current.

Deferred tax assets and liabilities are classified as non‑current assets and liabilities.

d) Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of the services or goods are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services or goods. Revenue is recognised net of value added taxes (“VAT”) as the VAT is levied on the customer and the Group is collecting VAT on behalf of third parties. The Group does not adjust the transaction price for the effects of a significant financing component if the period between when the entity transfer the promised good or service and when the customer pays for that good or service is within one year. The revenue arrangements with a significant financing component is immaterial for the reporting periods.

The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 3.

The Group is in the business of distributing commercial copyrights and the sale of music education solutions.

Subscription revenue

Subscription revenue is generated from the sale of smart music devices and providing customers with the right to access the Group’s and third‑party databases through websites and mobile apps. Customers of database subscription services primarily consist of universities, colleges and public libraries in the PRC, which pay for access by their respective students, faculty members or library patrons or, as the case may be, and to a lesser extent, individuals. The Group also offers various smart music devices to institutional customers, allowing offline access to selected music content.

(i) Subscription revenue - music content database services

The Group provides web‑based and mobile‑based access to the music content database to its customers, mainly universities, colleges and public libraries and is the principal of the arrangement. The performance obligation consists of providing music database access and related services (e.g. 24‑hour remote support services) that are not considered distinct in the context of the contract. The performance obligation is satisfied over the subscription period. The payment is generally due in 7 to 365 days after the Group begins to provide the customer access to the music content database. In some contracts, short‑term advances are required before the database service is provided.

F-13

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

d) Revenue from contracts with customers (continued)

Subscription revenue (continued)

(ii) Subscription revenue - third‑party database service

The Group acts as an agent for database owners which provide database services to colleges and public libraries. The Group recognises revenue at the net amount that is retained from these arrangements. The performance obligation is satisfied when the Group has sold the database services and the payment is generally due in 7 to 365 days after the database owners begin to provide database access to the customers.

(iii) Subscription revenue - sale of smart music devices

The Group sells hardware with embedded content and revenue is recognised upon delivery of the devices. The payment is generally due within 1 year from delivery.

Licensing

Licensing revenue is generated by licensing certain music copyrights to internet music service providers for digital streaming or downloading through their online platforms. Licensing customers also include, to a much lesser extent, digital music service providers, smart hardware manufacturers and game developers. The licensing business mainly includes two types of contracts: (i) licensing with fixed payment; and (ii) licensing with a minimum guarantee and a revenue‑sharing arrangement.

(i) Licensing - with a fixed payment

The Group licenses specific music content to the customers. Revenue is recognised when the licensed copyright is made available for the customer’s use and benefit, typically upon transfer of the licensed content to the customer. Payment is generally due within 90 to 365 days from the transfer.

(ii) Licensing - with a minimum guarantee and a revenue‑sharing arrangement

For these arrangements, the Group typically: (i) licenses a specific listing of music content; and (ii) licenses future music content on an if‑and‑when‑available basis over a specified period of time. The performance obligation relating to the licensing of a specific listing of music content is satisfied when the specified licensed copyright is made available for the customer’s use and benefit, typically, upon transfer of the licensed content to the customer. The performance obligation relating to the licensing of future music content is satisfied over the specified licensing period. These arrangements typically include a minimum guarantee payment and a revenue‑sharing arrangement which requires additional payments if the usage of the music content exceeds specified thresholds. Royalties exceeding the minimum guaranteed amount is recognised when the usage occurs. No royalties exceeding the minimum guaranteed amount were received during the reporting period.

The minimum guarantee is generally due in 7 to 365 days from delivery of the existing music content, and the royalties from the revenue‑sharing arrangement is calculated on a monthly or quarterly basis and are due within 30 days from the month or quarter end.

F-14

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

d) Revenue from contracts with customers (continued)

Smart music education business

The Group has two business models for its smart music education business: sale of smart music products and smart music education classes.

(i) Sale of smart music products

Revenue from the sale of smart music products includes the sale of: (i) integrated Kukey smart pianos; (ii) a self‑developed smart teaching system installed on a network storage server; and (iii) piano accessories such as professional around‑ear headphones. Revenue is recognised upon delivery of the specified smart music products. The payment is generally due within 1 year from delivery.

(ii) Smart music education

The Group provides music education classes conducted through Kukey smart pianos. The performance obligation is satisfied overtime as the student attends the music education class and customers have generally prepaid for the smart music education services.

Music events services

(i) Music festival events services

The Group executes music festival events for the organisers. The Group also provides related sponsorship services to the patrons who sponsor these music festivals. The sponsorship services may include placement of advertisements in the music festivals and organising pre-concert events such as cocktail parties, production of publicity materials, and arrangement of media interviews for sponsors.

The Group recognises revenue from services related to music festival events over time as the music festival takes place and recognises sponsorship service revenue over time when such services are provided to the patrons because the customer simultaneously receives and consumes the benefits provided by the Group.

(ii) Music performance services

The Group executes music performance activities for the organisers. The Group also provides related sponsorship services to the patrons who sponsor these music performance activities.

The Group recognises revenue from music performance services over time as the music performance takes place and recognises sponsorship services over time when such services are provided to the patrons because the customer simultaneously receives and consumes the benefits provided by the Group.

F-15

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

d) Revenue from contracts with customers (continued)

Cost to obtain a contract

The Group applies the optional practical expedient to immediately expense costs to obtain a contract if the amortisation period of the asset that would have been recognised is one year or less. As such, sales commissions are immediately recognised as an expense as incurred.

Contract balances

Trade receivables

A receivable is recognised if an amount of consideration that is unconditional is due from the customer (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of financial assets in section l) Financial instruments—initial recognition and subsequent measurement.

Contract liabilities

A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before the Group transfers the related services. Contract liabilities are recognised as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer).

Variable consideration

The licensing with a minimum guarantee and revenue‑sharing arrangement contracts include variable consideration for which if the revenue‑sharing outcome exceeds the minimum guarantee, the consideration should be the revenue‑sharing outcome, and if not, the consideration is the minimum guarantee.

The revenue‑sharing arrangement is a usage‑based royalty promised in exchange for a licence of intellectual property which is only recognised when the subsequent usage occurs.

e) Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.

When the Group receives grants of non‑monetary assets, the asset and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the benefits of the underlying asset by equal annual instalments.

F-16

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

f) Taxes

Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

• In respect of taxable temporary differences associated with investments in subsidiaries and a joint venture, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

Deferred tax assets are recognised for all deductible temporary differences, and the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

• In respect of deductible temporary differences associated with investments in subsidiaries and a joint venture, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re‑assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

F-17

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

f) Taxes (continued)

Deferred tax (continued)

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss.

The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Sales tax

Expenses and assets are recognised net of the amount of sales tax, except:

• When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable.

• When receivables and payables are stated with the amount of sales tax included, the net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

g) Foreign currencies

The Group’s consolidated financial statements are presented in RMB, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation and the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.

F-18

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

i) Transactions and balances

Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment in a foreign operation. These are recognised in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognised in OCI.

Non‑monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non‑monetary asset or non‑monetary liability relating to advance consideration, the date of the transaction is the date on which the Group initially recognises the non‑monetary asset or non‑monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of advance consideration.

ii) Group companies

On consolidation, the assets and liabilities of foreign operations are translated into RMB at the rate of exchange prevailing at the reporting date and their profit or loss is translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is reclassified to profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

h) Property, plant and equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment. When significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

F-19

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

h) Property, plant and equipment (continued)

Depreciation is calculated on a straight‑line basis over the estimated useful lives of the assets as follows:

•Leasehold improvements	Over the lease terms
•Music education equipment	5 years
•Furniture and fixtures	3 to 4 years
•Office equipment	3 to 5 years

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.

i) Leases

The Group assesses at contract inception whether a contract is, or contains, a lease, that is, whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leasesof low‑value assets. The Group recognises lease liabilities to make lease payments and right‑of‑use assets representing the right to use the underlying assets.

i) Right‑of‑use assets

The Group recognises right‑of‑use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right‑of‑use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right‑of‑use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right‑of‑use assets are depreciated on a straight‑line basis over the lease term.

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right‑of‑use assets are also subject to impairment. Refer to the accounting policies in section (n) Impairment of non‑financial assets.

F-20

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

i) Leases (continued)

Group as a lessee (continued)

ii) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in‑substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate the lease. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, similar security, the funds necessary to obtain an asset of a similar value to the right‑of‑use asset in a similar economic environment. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

iii) Short-term leases and leases of low‑value assets

The Group applies the short-term lease recognition exemption to its short-term leases of warehouses (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option).  It also applies the recognition exemption for leases of low-value assets to leases of office equipment that are considered to be low value.  Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Group as a lessor

A lease is classified as a finance lease if the Group transfers substantially all the risks and rewards incidental to ownership of an asset. Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. For subleases, the Group, as the intermediate lessor, classifies the sublease by reference to the right‑of‑use asset arising from the head lease, rather than by reference to the underlying asset.

For subleases classified as finance leases, the Group derecognises the right‑of‑use asset on the head lease and recognises net investments in the sublease. Any difference between the right‑of‑use asset and the net investments in the sublease is recognised in profit or loss. The Group continues to account for the original lease liability. Interest income on the sublease and interest expense on the head lease is recognised during the term of the sublease.

F-21

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

j) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

k) Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category that is consistent with the function of the intangible assets.

An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss.

Research and development costs

Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

• The technical feasibility of completing the intangible asset so that the asset will be available for use or sale

• Its intention to complete and its ability and intention to use or sell the asset

• How the asset will generate future economic benefits

• The availability of resources to complete the asset

• The ability to measure reliably the expenditure during development

F-22

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

k) Intangible assets (continued)

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

Software

Software is stated at cost less any impairment losses and is amortised on the straight‑line basis over its estimated useful economic life of 3 years.

Copyrights

Copyrights are stated at cost less any impairment losses and are amortised on the straight‑line basis over their estimated useful economic lives of 15 to 49 years.

l) Financial instruments—initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

i) Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through OCI, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price as disclosed in section (d) Revenue from contracts with customers.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.

F-23

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

l) Financial instruments—initial recognition and subsequent measurement (continued)

i) Financial assets (continued)

Initial recognition and measurement (continued)

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in one category:

• Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

• The rights to receive cash flows from the asset have expired

Or

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass‑through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass‑through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

F-24

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

l) Financial instruments—initial recognition and subsequent measurement (continued)

i) Financial assets (continued)

Impairment

Further disclosures relating to impairment of financial assets are also provided in the following notes:

•Disclosures of significant estimates and assumptions	Note 3
•Trade receivables	Note 16
•Prepayments, other receivables and other assets	Note 17

The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12‑month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward‑looking information.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial assets at amortised cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables which apply the simplified approach as detailed below.

Stage 1—Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12‑month ECLs

F-25

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

l) Financial instruments—initial recognition and subsequent measurement (continued)

i) Financial assets (continued)

Impairment (continued)

Stage 2—Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit‑impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs

Stage 3—Financial assets that are credit‑impaired at the reporting date (but that are not purchased or originated credit‑impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward‑looking factors specific to the debtors and the economic environment.

ii) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings, payables, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Subsequent measurement

For purposes of subsequent measurement, financial liabilities are classified in one category:

• Financial liabilities at amortised cost (loans and borrowings)

Financial liabilities at amortised cost (loans and borrowings)

After initial recognition, interest‑bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is recognised in profit or loss.

This category generally applies to interest‑bearing loans and borrowings. For more information, refer to Note 18.

F-26

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

l) Financial instruments—initial recognition and subsequent measurement (continued)

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

iii) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

m) Inventories

All inventories are finished goods.

Inventories are valued at the lower of cost (determined on a first‑in, first‑out method) and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. The Group identifies potentially slow‑moving and obsolete inventories through physical counts, monitoring of inventories on hand, and specific identification, and makes adjustments to net realisable value as necessary.

n) Impairment of non‑financial assets

Further disclosures relating to impairment of non‑financial assets are also provided in the following notes:

•Disclosures for significant estimates and assumptions	Note 3
•Property, plant and equipment	Note 12
•Intangible assets	Note 13
•Goodwill	Note 14

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

F-27

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

n) Impairment of non‑financial assets (continued)

The Group bases its impairment calculation on most recent budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long‑term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses are recognised in profit or loss in expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor does it exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

o) Cash and cash equivalents

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and on hand and short‑term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short‑term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group’s cash management.

p) Provisions

General

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in profit or loss net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre‑tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

F-28

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

p) Provisions (continued)

Warranty provisions

The Group provides warranties for general repairs of defects that existed at the time of sale, as required by law. Provisions related to these assurance‑type warranties are recognised when the product is sold or the service is provided to the customer. Initial recognition is based on historical experience. The estimate of warranty‑related costs is revised annually.

Onerous contracts

If the Group has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. However, before a separate provision for an onerous contract is established, the Group recognises any impairment loss that has occurred on assets dedicated to that contract.

An onerous contract is a contract under which the unavoidable costs (i.e., the costs that the Group cannot avoid because it has the contract) of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. The cost of fulfilling a contract comprises the costs that relate directly to the contract (i.e., both incremental costs and an allocation of costs directly related to contract activities).

q) Pensions and other post‑employment benefits

Full time employees of the Group in the PRC participate in a government mandated multi‑employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labour regulations require that the Group make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Group has no legal obligation for the benefits beyond the contributions.

r) Share‑based payments

Employees (including senior executives) and consultants of the Group receive remuneration in the form of share‑based payments, whereby employees and consultants render services as consideration for equity instruments (equity‑settled transactions).

Equity‑settled transactions

The cost of equity‑settled transactions is determined by the fair value at the date when the grant is made.

That cost is recognised in administrative expenses, together with a corresponding increase in equity (other capital reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity‑settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

F-29

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

r) Share‑based payments (continued)

Service and non‑market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non‑vesting conditions. Non‑vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

No expense is recognised for awards that do not ultimately vest because non‑market performance and/or service conditions have not been met. Where awards include a market or non‑vesting condition, the transactions are treated as vested irrespective of whether the market or non‑vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

When the terms of an equity‑settled award are modified, the minimum expense recognised is the grant date fair value of the unmodified award, provided the original vesting terms of the award are met. An additional expense, measured as at the date of modification, is recognised for any modification that increases the total fair value of the share‑based payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

s) Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or of a parent of the Group;

Or

(b) the party is an entity where any of the following conditions applies:

(i) the entity and the Group are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Group are joint ventures of the same third party;

F-30

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

s) Related parties (continued)

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) the entity is a post‑employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

t) Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability

Or

• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1—Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2—Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3—Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

F-31

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.3  Summary of significant accounting policies (continued)

t) Fair value measurement (continued)

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re‑assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.

2.4  Changes in accounting policies and disclosures

The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. Other than the Amendment to IFRS 16, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Amendments to IFRS 3: Definition of a Business

The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any business combinations.

Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform

Amendments to IFRS 9, IAS 39 and IFRS 7 address the effects of interbank offered rate reform on issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative risk-free rate (“RFR”).  The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark introduction of the alternative RFR.  In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments did not have any impact on the financial position and performance of the Group as the Group does not have any interest rate hedging relationships.

Amendments to IAS 1 and IAS 8 Definition of Material

The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to  be any future impact to the Group.

F-32

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Significant accounting policies (continued)

2.4  Changes in accounting policies and disclosures (continued)

Conceptual Framework for Financial Reporting issued on March 29, 2018

The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. This will affect those entities which developed their accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group. 

Amendment to IFRS 16 Covid-19-Related Rent Concessions (early adopted)

On May 28, 2020, the IASB issued Covid-19 related Rent Concession-amendment to IFRS 16 Leases (the “2020 Amendment”). On March 31, 2021, the IASB issued an update to the amendment allows it to be applied to a reduction in the lease payments originally due on or before June 30, 2022 (the “2021 Amendment”).

Amendment to IFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the covid-19 pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before June 30, 2021 (and further extended to June 30, 2022 by the 2021 Amendment); and (iii) there is no substantive change to other terms and conditions of the lease. The 2020 Amendment and 2021 Amendment are effective retrospectively for annual periods beginning on or after June 1, 2020 and April 1, 2021 with earlier application permitted, respectively.

During the year ended December 31, 2020 certain monthly lease payments for the lease of the Group’s office building were reduced by the lessor as a result of the covid-19 pandemic and there were no other changes to the terms of the leases. The Group early adopted both the 2020 Amendment and 2021 Amendment on January 1, 2020 and elected not to apply lease modification accounting for the rent concession granted by the lessor as a result of the covid-19 pandemic during the year ended December 31, 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB778,000 was accounted for as a variable lease payment by derecognizing part of the lease liabilities and crediting to other income, net for the year ended December 31, 2020.

F-33

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Significant accounting judgements, estimates and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Other disclosures relating to the Group’s exposure to risks and uncertainties includes:

•Capital management	Note 6
•Financial instruments risk management and policies	Note 18.4
•Sensitivity analysis disclosures	Note 18.4

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:

Contractual arrangement

As disclosed in Note 7, the Group exercises control over Beijing Kuke Music and BMF Culture (the “VIEs”) and enjoys all the economic benefits of the VIEs through VIE agreements.

The Group considers that it controls the VIEs, notwithstanding the fact that it does not hold any direct equity interest in the VIEs, as it has power over the financial and operating policies and receives substantially all of the economic benefits from the business activities of the VIEs through the VIE agreements. Accordingly, the VIEs have been accounted for as subsidiaries during the reporting period.

Revenue recognition -principal versus agent considerations

The Group enters into contracts with database holders to provide, on their behalf, database services to colleges and libraries. The Group determined that it does not control the database services before they are transferred to customers and it does not obtain benefits from the database services.

F-34

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Significant accounting judgements, estimates and assumptions (continued)

Judgements (continued)

Revenue recognition - principal versus agent considerations (continued)

The following factors indicate that the Group is an agent in these contracts:

• The Group is not primarily responsible for fulfilling the promise to provide database services;

• The Group has no discretion in establishing the pricing for such database services;

• The Group’s consideration is in the form of a commission

Determining the lease term of a contract with a renewal option - Group as lessee

The Group determines the lease term as the non‑cancellable term of the lease, together with any periods covered by an option, to extend the lease if it is reasonably certain to be exercised.

The Group has a lease contract that include extension options, and the Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal option. After the commencement date, the Group reassess the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew.

The Group included the renewal period as part of the lease term for the lease of an office property. The Group typically exercises its option to renew for the lease because there will be a significant negative effect from relocating the Group’s operations.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Provision for expected credit losses on trade receivables and other financial assets at amortised cost

The Group uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns.

The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward‑looking information. At every reporting date, the historical observed default rates are updated and changes in the forward‑looking estimates are analysed.

F-35

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Significant accounting judgements, estimates and assumptions (continued)

Estimates and assumptions (continued)

Provision for expected credit losses on trade receivables and other financial assets at amortised cost (continued)

The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of a customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables and other receivables are disclosed in Notes 16, 17 and 18.4.

The loss allowances for financial assets included in prepayments, other receivables and other assets are based on assumption about risk of default and expected loss rates. The Group makes adjustment in making these assumptions and selecting the inputs to the ECL calculation, based on the Group’s past history, existing market condition as well as forward‑looking estimates at the end of each of the reporting periods. A number of significant judgements and estimation are also required in applying the accounting requirements for measuring ECLs, such as:

• Determining criteria for a significant increase in credit risk;

• Identifying economic indicators for forward‑looking measurements; and

• Estimating future cash flows.

Useful life of intangible assets

The Group’s management determines the estimated useful lives and related amortisation for the Group’s intangible assets with reference to the estimated periods that the Group intends and is able to derive future economic benefits from the use of these assets. Management will revise the amortisation where useful lives are different to that previously estimated, or it will writeoff or writedown commercial obsolete or non‑strategic assets that have been abandoned or sold. Actual economic lives may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and, therefore, amortisation in profit or loss in future periods.

Impairment of non‑financial assets (including goodwill)

The Group assesses whether there are any indicators of impairment for all non‑financial assets at the end of each reporting period or when annual impairment testing for an asset is required. The  non‑financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or CGU and choose a suitable discount rate in order to calculate the present value of those cash flows.

F-36

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Significant accounting judgements, estimates and assumptions (continued)

Estimates and assumptions (continued)

Taxes

Deferred tax assets are recognised for unused tax losses and deductible temporary difference to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.

The Group had tax losses related to subsidiaries that have a history of losses, which may not be used to offset taxable income elsewhere in the Group. The subsidiaries neither have taxable temporary differences nor tax planning opportunities available that could partly support the recognition of these losses as deferred tax assets. On this basis, the Group has determined that it cannot recognise deferred tax assets on the tax losses carried forward. Further details on taxes are disclosed in Note 10.

Share-based payments

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant.  This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. For the measurement of the fair value of equity-settled transactions with employees at the grant date, the Group uses a binomial model for the Share Option Agreement (as defined in Note 29) and the 2020 ESOP Plan.  The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 29.

4. Revenue from contracts with customers

Disaggregated revenue information

Set out below is the disaggregation of the Group’s revenue from contracts with customers:

	Subscription and licensing			Smart music education business			Music events business			Total
	RMB’000			RMB’000			RMB’000			RMB’000
Year ended December 31, 2020
Revenue from contracts with customers		76,583			58,784			27,514			162,881
Cost of sales		(8,725	)		(17,319	)		(18,237	)		(44,281	)
Gross profit		67,858			41,465			9,277			118,600
Year ended December 31, 2019
Revenue from contracts with customers		81,901			64,153			—			146,054
Cost of sales		(20,330	)		(12,013	)		—			(32,343	)
Gross profit		61,571			52,140			—			113,711
Year ended December 31, 2018
Revenue from contracts with customers		90,324			61,917			—			152,241
Cost of sales		(20,342	)		(13,772	)		—			(34,114	)
Gross profit		69,982			48,145			—			118,127

F-37

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Revenue from contracts with customers (continued)

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Geographical markets
Southern China		82,481		55,597		65,007
Northern China		79,020		90,457		87,234
Others		1,380		—		—
Total revenue from contracts with customers		162,881		146,054		152,241
Timing of revenue recognition
Revenue recognised at a point in time		119,998		126,646		123,869
Revenue recognised over time		42,883		19,408		28,372
Total revenue from contracts with customers		162,881		146,054		152,241

The amounts of transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at each reporting dates are as follows:

	2020		2019
	RMB’000		RMB’000
Amounts expected to be recognised    as revenue:
Within 1 year		16,435		10,000
After 1 year		332		1,149
		16,767		11,149

The amounts disclosed above do not include variable consideration which is constrained.

5. Segment information

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker (“CODM”) in order to allocate resources to segments and to assess their performance.

During the year ended December 31, 2020, the Group revised the presentation of reportable segments because of changes in resource allocation and assessment of segment performance by the chief operation decision makers subsequent to the acquisition of Rosenkavalier. Prior to the Rosenkavalier acquisition, the CODM reviewed the financial results of the Group as a whole.  The Group now consists of two reportable operating segments as follows:

(a) Subscription, licensing and smart education business engages in the distribution of commercial copyrights and provision of music education solutions.

(b) Music events business engages in the provision of services related to music festival events and music performance.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable operating segment’s profit/(loss), which is a measure of adjusted profit/(loss) before tax. The adjusted profit/(loss) before tax is measured consistently with the Group’s profit/(loss) before tax except that foreign exchange differences, net, finance income, non-lease-related finance costs, as well as head office and corporate income/expenses are excluded from such measurement.

F-38

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Segment information (continued)

Segment assets exclude amounts due from shareholders and related parties, cash and cash equivalents and other unallocated head office and corporate assets as these assets are managed on a group basis.

Segment liabilities exclude interest-bearing loans and borrowings, amounts due to a related party and a shareholder, income tax payable and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.

The definition of segment assets and segment liabilities was adjusted retrospectively beginning in 2019 and includes deferred tax assets and deferred tax liabilities. Accordingly, segment assets in 2019 has been adjusted with increment of RMB3,796,000.

F-39

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Segment information (continued)

	Subscription, licensing and
	smart education business						Music events business							Total
	For the years ended						For the years ended							For the years ended
	December 31,						December 31,							December 31,
	2020		2019		2018		2020			2019		2018		2020			2019			2018
	RMB’000		RMB’000		RMB’000		RMB’000			RMB’000		RMB’000		RMB’000			RMB’000			RMB’000
Segment revenue:
Sales to external    customers		135,367		146,054		152,241		27,514			—		—		162,881			146,054			152,241
Segment results:
The Group		25,936		70,418		72,209		2,244			—		—		28,180			70,418			72,209
Share of loss of a joint    venture		—		—		—		(9	)		—		—		(9	)		—			—
		25,936		70,418		72,209		2,235			—		—		28,171			70,418			72,209
Reconciliation:
Finance income															1,621			258			59
Foreign exchange    differences, net															361			1,173			(536	)
Other unallocated    gains															8			—			—
Corporate and other    unallocated expenses															(34,209	)		(3,357	)		(19,352	)
Non-lease related    finance costs															(7,544	)		(2,629	)		(1,769	)
(Loss)/profit before    tax															(11,592	)		65,863			50,611
Other segment    information
Depreciation of    property, plant and     equipment		2,001		1,251		834		256			—		—		2,257			1,251			834
Depreciation of right     -of-use assets		3,383		1,618		1,939		1,097			—		—		4,480			1,618			1,939
Amortisation of    intangible assets		5,366		3,762		2,592		—			—		—		5,366			3,762			2,592
Impairment losses on    financial assets, net		34,177		3,088		2,875		1,063			—		—		35,240			3,088			2,875

F-40

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Segment information (continued)

	Subscription, licensing and smart education business				Music events business				Total
	As at December 31,				As at December 31,				As at December 31,
	2020		2019		2020		2019		2020		2019
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
			(Restated)				(Restated)				(Restated)
Segment assets		595,503		480,141		246,773		—		842,276		480,141
Reconciliation:
Corporate and other unallocated assets										35,077		23,485
										877,353		503,626
Segment liabilities		126,604		150,711		1,854		—		128,458		150,711
Reconciliation:
Corporate and other unallocated liabilities										87,726		70,354
										216,184		221,065
Other segment information
Investment in a joint venture		—		—		491		—		491		—
Capital expenditure*		158,755		89,519		769		—		159,524		89,519

* Capital expenditure consists of additions of property, plant and equipment, intangible assets, right-of-use assets I, deposits paid for purchase of non-current assets, including assets from the acquisition of a subsidiary.

Geographical information

Geographical information is not presented since over 90% of the Group’s revenue from external customers is generated in the PRC and over 90% of the non-current assets of the Group (other than financial instruments) are located in the PRC. Accordingly, in the opinion of the directors, the presentation of geographical information would provide no additional useful information to the users of the consolidated financial statements.

Information about major customers

Revenue from major customers of the Group which individually accounted for 10% or more of the Group’s revenue was derived from the subscription, licensing and smart education business segment.  The respective revenue generated by these customers for each reporting period is set out below:

	2020		2019	2018
	RMB'000		RMB'000	RMB'000
Customer 1		22,146	N/A*	N/A*
Customer 2		18,868	N/A*	N/A*

* The corresponding revenue from these customers is not disclosed as it individually did not contribute 10% or more to the Group’s revenue for the year.

F-41

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Capital management

For the purpose of the Group’s capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes to manage capital during the years ended December 31, 2020 and 2019. The Group monitors capital using a gearing ratio, which is ‘net debt’ divided by equity attributable to equity holders of the parent plus net debt. The Group’s policy is to maintain the gearing ratio below 50%. The Group includes within net debt, interest bearing loans and borrowings, lease liabilities, trade payables, other payables and accruals, amount due to a related party and amount due to a shareholder, less cash and cash equivalents.

	December 31, 2020			December 31, 2019
	RMB’000			RMB’000
Interest bearing loans and borrowings (Note 23)		60,000			55,000
Lease liabilities (Note 24)		17,490			14,713
Trade payables (Note 21)		27,310			34,697
Other payables and accruals (Note 25)		67,121			90,380
Amount due to a related party (Note 26)		7,177			—
Amount due to a shareholder (Note 26)		325			—
Cash and cash equivalents (Note 19)		(25,719	)		(23,010	)
Net debt		153,704			171,780
Equity attributable to equity holders of the parent		656,101			278,702
Total equity attributable to equity holders of the parent and    net debt		809,805			450,482
Gearing ratio		19	%		38	%

F-42

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Group information

Subsidiaries

The consolidated financial statements of the Group include:

			% equity interest
Name	Principal activities	Place of incorporation/registration	December 31, 2020			December 31, 2019
Rococo	Investment holding	BVI		100	%		100	%
Rosenkavalier	Investment holding	BVI		100	%	N/A
Gauguin	Investment holding	Hong Kong		100	%		100	%
Degas	Investment holding	Hong Kong		100	%	N/A
Kuke International	Investment holding	PRC		100	%		100	%
Beijing Lecheng	Investment holding	PRC		100	%	N/A
Naxos China	Distribution of commercial copyrights	PRC		51	%		51	%

VIE of the Group include:

			% beneficial interest
Name	Principal activities	Place of registration	Deccember 31, 2020			December 31, 2019
Beijing Kuke Music	Distribution of commercial copyrights and provision of music education solutions	PRC		100	%		100	%
BMF Culture	Distribution of commercial copyrights and provision of services related to music events	PRC		100	%	N/A

As PRC laws and regulations prohibit foreign ownership of companies that engage in online subscription, online educating business, internet audio-video program services and certain other businesses, Kuke International and Beijing Lecheng, the Group’s PRC subsidiaries, are considered foreign-invested enterprises. To comply with the foregoing PRC laws and regulations, the Group conducts its business in the PRC mainly through the VIEs based on a series of contractual arrangements. These contractual arrangements enable the Group to (i) exercise effective control over the Group’s VIEs, (ii) receive substantially all of the economic benefits of the Group’s VIEs, and (iii) exercise an exclusive option to purchase all or part of the equity interests and assets in the Group’s VIEs when and to the extent permitted by PRC law.  Therefore, the Group consolidates the VIEs as required by IFRS 10 Consolidated Financial Statements.

F-43

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Group information(continued)

The principal terms of the VIE agreements are further described below:

(1) Powers of attorney

Pursuant to the powers of attorney signed by Beijing Kuke Music’s nominee shareholders, each nominee shareholder irrevocably authorised Kuke International to act on behalf of such shareholder as its exclusive agent and attorney to exercise all rights and power that such shareholder has in respect of its equity interest in Beijing Kuke Music (including, but not limited to, all of such shareholders’ rights and voting rights to the sale, transfer, pledge or disposition of the equity interest in part or in whole, and the right to designate and appoint the directors and the executive officers of Beijing Kuke Music). The powers of attorney will remain effective ever after, until Kuke International terminates the powers of attorney in writing or the shares or all the assets of Beijing Kuke Music have been legally and effectively transferred to Kuke International and/or its designees.

Beijing Lecheng, BMF Culture and its nominee shareholders have also entered into a power of attorney regarding the exercise of all the shareholders’ rights of the shareholders of BMF Culture, the terms of which are substantially similar to the power of attorney described above.

(2) Exclusive call option agreement

Pursuant to the exclusive call option agreement entered into amongst Beijing Kuke Music’s nominee shareholders, Beijing Kuke Music and Kuke International, each nominee shareholder granted to Kuke International an irrevocable and exclusive right to purchase all or part of its equity interests in Beijing Kuke Music. The purchase price of the equity interests in Beijing Kuke Music will be a nominal price, unless the relevant government authorities or the PRC laws request another amount to be used as the purchase price, in which case the purchase price will be the lowest amount under such request. Subject to relevant PRC laws and regulations, the registered shareholders will return any amount of the purchase price they have received to Kuke International or its designees.

Beijing Lecheng, BMF Culture and its nominee shareholders have also entered into an exclusive call option agreement, the terms of which are substantially similar to the exclusive call option described above.

(3)Exclusive service agreements

Pursuant to the exclusive service agreement entered into between Beijing Kuke Music and Kuke International, Kuke International provides business support and consulting services as the exclusive provider of such services to Beijing Kuke Music, in return for a fee which is equal to 100% of the profits before tax of Beijing Kuke Music and is adjustable at the sole discretion of Kuke International. This agreement remains effective perpetually unless termination is required by Kuke International with one month’s prior written notice.

Beijing Lecheng and BMF Culture have also entered into an exclusive service agreement, the terms of which are substantially similar to the exclusive service agreement described above.

F-44

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Group information(continued)

(4) Share Pledge contract

Pursuant to the share pledge contract among Beijing Kuke Music’s nominee shareholders, Beijing Kuke Music and Kuke International, the nominee shareholders of Beijing Kuke Music pledged all of their respective equity interests in Beijing Kuke Music to Kuke International as a continuing first priority security interest to guarantee the prompt and full performance of these nominee shareholders’ and Beijing Kuke Music’s obligations under the powers of attorney, the exclusive call option agreement and the exclusive service agreement. The nominee shareholders will not have the right to exercise the voting rights and rights to dividend distribution attaching to the equity interests of Beijing Kuke Music. If Beijing Kuke Music or any of the nominee shareholders breaches its obligations, Beijing Kuke Music is dissolved or the enforcement of the pledged equity interests of Beijing Kuke Music is permitted under PRC laws, Kuke International will be entitled to exercise its rights to the pledged equity interests, including the right to sell the pledged equity interests of Beijing Kuke Music through an auction or a private sale.

If the pledged equity interests of Beijing Kuke Music are disposed of for whatever reasons, all proceeds received will be attributed to Kuke International and the nominee shareholders must transfer all proceeds collected to Kuke International without consideration, to the extent permitted by PRC laws. This contract remains effective until the earlier of: (i) the discharge in full of the nominee shareholders’ and Beijing Kuke Music’s obligations under VIE agreements, or (ii) the completion of the disposal of the pledged equity interests in Beijing Kuke Music.

Beijing Lecheng and BMF Culture have also entered into a share pledge contract, the terms of which are substantively similar to those of the share pledge contract described above.

In the opinion of the Company’s legal counsel, (i) the ownership structure of Kuke International, Beijing Lecheng and their VIEs are in compliance with the PRC laws and regulations; and (ii) the contractual arrangements with the VIEs and their nominee shareholders are valid and binding, and not in violation of the current PRC laws or regulations.

F-45

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Business combinations

On February 29, 2020, the Group acquired a 61.6% equity interest from Lung Yu and He Yu, shareholders of the Group, and a 38.4% equity interest from a series of independent third parties in Rosenkavalier through a share swap transaction. Rosenkavalier Group was a related party of the Group before the acquisition and provides music festival event services, music performance services and licensing of music catalogues.

The acquisition was made as part of the Group’s strategy to expand its market share in the industry. Upon completion of the transaction, the Company obtained control over Rosenkavalier.

The Company issued 4,856,273 ordinary shares as non-cash consideration for the acquisition of Rosenkavalier. The shares issued had a total estimated fair value of RMB284,000,000, based on the fair value of the Rosenkavalier Group as at the date of acquisition measured using the income approach.

The fair values of the identifiable assets and liabilities of Rosenkavalier Group acquired as at the date of acquisition were as follows:

	Fair value recognised on acquisition
	RMB’000
Cash and cash equivalents		1,073
Property, plant and equipment (Note 12)		769
Right-of-use assets (Note 24)		2,988
Trade receivables		9,671
Prepayments, other receivables and other assets		12,151
Inventories		2
Identifiable intangible assets (Note 13)		26,000
Deferred tax assets		537
Deferred tax liabilities		(1,472	)
Trade payables		(188	)
Due to related parties		(1,261	)
Lease liabilities		(2,988	)
Other payables and accruals		(507	)
Total identifiable net assets at fair value		46,775
Goodwill arising on acquisition		237,225
Purchase consideration		284,000
Satisfied by:
Issuance of ordinary shares		284,000
Analysis of cash flows on acquisition:
Net cash inflows and cash acquired (including in net cash flows used in investing    activities)		1,073

F-46

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Business combinations (continued)

Since the acquisition, the Rosenkavalier Group contributed RMB31,885,000 revenue and RMB3,362,000 profit to the Group for the year ended December 31, 2020.

Had the above combination taken place at the beginning of the year, the revenue of the Group and the loss of the Group for the year ended December 31, 2020 would have been RMB162,881,000 and RMB16,572,000, respectively.

Goodwill of approximately RMB237,225,000 was recognised as part of this acquisition, which results from the expected synergies from combining the operations of the Rosenkavalier Group with the Group's operations. None of the goodwill recognised is expected to be deductible for tax purposes.

The aggregate fair values (and their respective gross contractual amounts) of the trade receivables and financial assets included in prepayments, other receivables and other assets as at their respective date of acquisition amounted to RMB9,671,000 and RMB10,064,000, respectively, of which other receivables of RMB218,000 are expected to be uncollectable.

Transaction costs of RMB320,000 and RMB934,000 incurred for the acquisition were expensed and included in administrative expenses in the profit or loss for the years ended December 31, 2019 and 2020, respectively.

The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the favourable terms of the leases relative to market terms.

9. Other income and expenses

9.1  Other income, net

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Government grants*		1,218		1,054		805
Waiver of trade payables		—		—		600
Covid-19 - related rent concessions from a lessor (Note 24)		778		—		—
Foreign exchange differences, net		361		1,173		(536	)
Additional deduction of VAT		1,864		684		23
Bad debt recovery		—		200		2,801
Others		164		719		—
Total other income, net		4,385		3,830		3,693

* Various government grants were received with the aim to promote research and development as the Group operates within the cultural and creative industry. There are no unfulfilled conditions or contingencies relating to these grants.

F-47

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Other income and expenses (continued)

9.2  Finance costs

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Interest on loans and borrowings		7,544		2,629		1,769
Interest on lease liabilities		2,561		613		141
Total finance costs		10,105		3,242		1,910

9.3  Finance income

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Bank interest income		45		155		59
Interest income on loans receivable		1,527		—		—
Interest income on net investments in subleases		49		103		—
Total finance income		1,621		258		59

9.4  Depreciation, amortisation and costs of inventories

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Included in cost of sales:
Depreciation of property, plant and equipment		1,448	233		30
Depreciation of right-of-use assets		1,955	66			—
Amortisation of intangible assets		5,326		3,720		2,557
Costs of inventories recognised as an expense		11,489		12,465		15,484
Included in selling expenses:
Depreciation of right‑of‑use assets	516		489		885
Included in administrative expenses:
Depreciation of property, plant and equipment	809			1,018	804
Depreciation of right‑of‑use assets		2,009		1,063		1,054
Amortisation of intangible assets	40		42		35

9.5  Research and development costs

The Group’s research and development concentrates on the development of smart music education solutions, which include music education system, musical software (e.g. Kuke music app, digital music cloud library), Kuke music online platform, audiobook, musical education instruments and hardware (e.g. Kukey smart pianos).

Research and development costs of RMB12,598,000, RMB10,258,000 and RMB10,642,000 that are not eligible for capitalisation were expensed and included in administrative expenses for the years ended December 31, 2020, 2019 and 2018, respectively.

F-48

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Other income and expenses (continued)

9.6  Wages and salaries and pension scheme contributions

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Wages and salaries		29,798		19,245		21,155
Equity-settled share-based payment expenses		19,416		—		—
Pension scheme contributions		129		3,053		4,249

At December 31, 2020, 2019 and 2018, the Group had no forfeited contributions available to reduce its contributions to the pension scheme in future years.

10. Income tax

The major components of income tax expense for the years ended December 31, 2020, 2019 and 2018 are as follows:

Consolidated profit or loss

	2020			2019			2018
	RMB’000			RMB’000			RMB’000
Current income tax:
Current income tax charge		10,143			9,174			10,685
Over provision in prior years		(1,912	)		—			—
Deferred tax		(4,609	)		(73	)		(538	)
Income tax expense reported in profit or loss		3,622			9,101			10,147

Reconciliation of tax expense and the accounting profit multiplied by China’s domestic tax rate of 25% for 2020, 2019 and 2018:

	2020			2019			2018
	RMB’000			RMB’000			RMB’000
Accounting (loss)/profit before tax		(11,592	)		65,863			50,611
At China’s statutory income tax rate		(2,898	)		16,466			12,653
Effect of lower tax rate (Note)		8,691			(6,460	)		(1,625	)
Loss attributable to a joint venture		2			—			—
Non-deductible expenses for tax purposes		1,718			31			148
Super deductions		(2,086	)		(1,028	)		(1,062	)
Adjustments in respect of current tax of previous periods		(1,912	)		—			—
Utilisation of previously unrecognised tax losses		—			—			(133	)
Unrecognised tax losses		107			92			166
At the effective income tax rate of -31% (2019: 14%; 2018: 20%)		3,622			9,101			10,147
Income tax expense reported in profit or loss		3,622			9,101			10,147

Note: The amount represented  (i) a reduced enterprise income tax rate of 15% and certain other preferential tax benefits available to qualified “High and New Technology Enterprises” under PRC tax laws and regulations entitiled by Bejing Kuke Music and (ii) effects of different tax rates in relation to other jurisdictions.

F-49

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income tax (continued)

Deferred tax

Reconciliation of deferred tax assets and liabilities:

	December 31, 2020			December 31, 2019
	RMB’000			RMB’000
Deferred tax assets		8,917			3,796
Deferred tax liabilites		(1,447	)		—
Net deferred tax		7,470			3,796

	January 1, 2019		Acquisition from business combinations		Credited/ (charged) to profit or loss			December 31, 2019
	RMB’000		RMB’000		RMB’000			RMB’000
Leases		33		—		(25	)		8
Expected credit losses on debt financial assets		2,074		—		312			2,386
Accruals and provisions		1,616		—		(214	)		1,402
Total		3,723		—		73			3,796

	January 1, 2020		Acquisition from business combinations			Credited/ (charged) to profit or loss			December 31, 2020
	RMB’000		RMB’000			RMB’000			RMB’000
Leases		8		77			10			95
Expected credit losses on debt financial assets		2,386		55			3,941			6,382
Trade payables, accrual and provisions		1,402		—			1,038			2,440
Tax losses		—		405			(405	)		—
Fair value adjustment arising from business combinations		—		(1,472	)		25			(1,447	)
Total		3,796		(935	)		4,609			7,470

The Group had tax losses arising in Mainland China of RMB550,000 and RMB125,000 as at December 31, 2020 and 2019, respectively, that will expire in one to five years for offsetting against future taxable profits of the companies in which the losses arose.

Deferred tax assets have not been recognised in respect of the tax losses as at December 31, 2020 and 2019 as the directors consider that it is currently not probable that future taxable profits will be available against which the tax losses can be utilised.

F-50

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Income tax (continued)

Reconciliation of deferred tax assets and liabilities (continued)

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For the Group, the applicable rate is 5% or 10%. The Group is therefore liable for withholding taxes on dividends distributed by the subsidiaries established in Mainland China to foreign shareholders in respect of earnings generated.

At December 31, 2020 and 2019, the directors of the Company estimated that the retained earnings of the PRC subsidiaries and a joint venture would be retained in Mainland China for use in future operations and investments. In the opinion of the directors, it is not probable that these subsidiaries and a joint venture will distribute such earnings in the foreseeable future to their foreign shareholders. The aggregate amounts of temporary differences for the undistributed earnings associated with the investments in subsidiaries and a joint venture in Mainland China for which deferred tax liabilities have not been recognised were approximately RMB189,561,000 and RMB152,318,000 at December 31, 2020 and 2019, respectively. The Group has determined that the undistributed profits of its PRC subsidiaries and a joint venture will not be distributed in the foreseeable future.

11. (Loss)/earnings per share

Basic (loss)/earnings per share are calculated by dividing the (loss)/profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

For the year ended December 31, 2020, the effects of all outstanding share options and unvested restricted shares were excluded from the computation of diluted loss per share as their effects were anti-dilutive.

No adjustment is made to the basic earnings per share amount presented for the years ended December 31, 2019 for the dilutive effect of the outstanding share options because they are subject to performance conditions which were not met as of December 31, 2019.

The Group had no dilutive potential ordinary shares for the year ended December 31, 2018.

The following table reflects the income and share data used in the basic and diluted (loss)/earnings per share calculations:

	2020			2019		2018
	RMB’000			RMB’000		RMB’000
(Loss)/profit attributable to ordinary equity holders of the    parent for basic and diluted (loss)/earnings per share    calculations		(16,423	)		56,106	38,612

	2020		2019		2018
Weighted average number of ordinary shares in issue during    the year for basic and diluted (loss)/earnings per share    calculations		23,525,784		18,211,027	18,134,401

F-51

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Property, plant and equipment

	Leasehold improvements			Music education equipment			Furniture and fixtures			Office equipment			Total
	RMB’000			RMB’000			RMB’000			RMB’000			RMB’000
Cost
At January 1, 2019		2,051			1,749			355			2,637			6,792
Additions		1,587			1,806			109			9			3,511
Disposals		—			—			(232	)		(1,961	)		(2,193	)
Transfer to inventories		—			(762	)		—			—			(762	)
At December 31, 2019		3,638			2,793			232			685			7,348
Acquisition from business combinations    (Note 8)		498			—			103			168			769
Additions		—			15,440			—			68			15,508
Disposals		—			(7	)		—			(42	)		(49	)
At December 31, 2020		4,136			18,226			335			879			23,576
Accumulated depreciation
At January 1, 2019		(1,516	)		(33	)		(241	)		(2,413	)		(4,203	)
Depreciation charge for the year		(711	)		(337	)		(61	)		(142	)		(1,251	)
Disposals		—			—			188			1,961			2,149
Transfer to inventories		—			76			—			—			76
At December 31, 2019		(2,227	)		(294	)		(114	)		(594	)		(3,229	)
Depreciation charge for the year		(631	)		(1,464	)		(65	)		(97	)		(2,257	)
Disposals		—			6			—			39			45
At December 31, 2020		(2,858	)		(1,752	)		(179	)		(652	)		(5,441	)
Net carrying amount
At December 31, 2020		1,278			16,474			156			227			18,135
At December 31, 2019		1,411			2,499			118			91			4,119

13. Intangible assets

	Software			Copyrights			Total
	RMB’000			RMB’000			RMB’000
Cost
At January 1, 2019		376			135,061			135,437
Additions - acquired separately		15			41,840			41,855
At December 31, 2019		391			176,901			177,292
Acquisition from business combinations (Note 8)		—			26,000			26,000
Additions - acquired separately		—			73,962			73,962
At December 31, 2020		391			276,863			277,254
Accumulated amortisation
At January 1, 2019		(297	)		(4,728	)		(5,025	)
Charge for the year		(42	)		(3,720	)		(3,762	)
At December 31, 2019		(339	)		(8,448	)		(8,787	)
Charge for the year		(40	)		(5,326	)		(5,366	)
At December 31, 2020		(379	)		(13,774	)		(14,153	)
Net carrying amount
At December 31, 2020		12			263,089			263,101
At December 31, 2019		52			168,453			168,505

F-52

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Goodwill

	Subscription, licensing and smart education business		Music events business		Total
	RMB’000		RMB’000		RMB’000
Cost and net carrying amount at January 1, 2019,    December 31, 2019 and January 1, 2020		—		—		—
Acquisition from business combinations (Note 8)		1,610		235,615		237,225
Cost and net carrying amount at December 31, 2020		1,610		235,615		237,225

Impairment testing of goodwill

Goodwill acquired through business combinations is allocated to the following CGUs for impairment testing:

• Subscription, licensing and smart education business; and

• Music events business

Subscription, licensing and smart education business

The recoverable amount of the CGU is determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The pre-tax discount rate applied to the cash flow projections is 17%.  The growth rate used to extrapolate the cash flows beyond the five-year period is 3%.

The following describes management’s key assumptions in its subscription, licensing and smart education CGU cash flow projections:

Budgeted cash flows – the basis used to determine the budgeted cash flows is based on management’s expectation of the business development.

Discount rate – the discount rate used is before tax and reflects specific risks relating to the relevant unit.

Terminal growth rate – the growth rate is based on management’s expectation of the long-term forecast growth rate of the business.

Based on the result of the impairment testing of goodwill, in the opinion of the directors, no impairment provision was considered necessary for the Group’s goodwill allocated to the subscription, licensing and smart education business CGU as at December 31, 2020.

The determination of the recoverable amount of the subscription, licensing and smart education CGU as at December 31, 2020 was particularly sensitive to changes in the discount rate. In the opinion of the directors, an increase in the pre-tax discount rate by 0.5% to 16.5% would cause the headroom of RMB 2,050,000 to be zero.

Music events business

The recoverable amount of the CGU is determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management.  The pre-tax discount rate applied to the cash flow projections is 18%.  The terminal growth rate used to extrapolate the cash flows beyond the five-year period is 3%.

F-53

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Goodwill(continued)

Impairment testing of goodwill (continued)

The following describes the management’s key assumptions in its music events CGU cash flow projections:

Budgeted cash flows – the basis used to determine the budgeted cash flows is based on management’s expectation of the business development.

Discount rate – the discount rate used is before tax and reflects specific risks relating to the relevant unit.

Terminal growth rate – the growth rate is based on management’s expectation of the long-term forecast growth rate of the business.

Based on the result of the impairment testing of goodwill, in the opinion of the directors, no impairment provision was considered necessary for the Group’s goodwill allocated to the music events CGU as at December 31, 2020.

15. Inventories

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Finished goods		950		1,807

16. Trade receivables

	December 31, 2020			December 31, 2019
	RMB’000			RMB’000
Trade receivables
Receivables from third‑party customers		192,540			184,471
Allowance for ECLs		(10,818	)		(3,346	)
Total trade receivables		181,722			181,125

Trade receivables are non‑interest bearing and are generally on terms of 7 to 365 days.

The movements in allowance for ECLs are as follows:

	2020			2019
	RMB’000			RMB’000
At the beginning of the year		(3,346	)		(3,459	)
Impairment losses, net		(34,983	)		(2,282	)
Amount written off as uncollectible		27,511			2,395
At the end of the year		(10,818	)		(3,346	)

F-54

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Prepayments, other receivables and other assets

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Non-current
Prepayments		—		1,163
Deposits		95,328		57,724
Loan receivable		—		33,323
Other receivables		48		138
		95,376		92,348
Allowance for ECLs		—		(806	)
Total		95,376		91,542
Current
Prepayments		22,146		12,325
Deposits		89		87
Loan receivable		3,000		—
Other receivables		3,288		2,537
Total		28,523		14,949

A loan receivable included in the non-current portion as at December 31, 2019 is unsecured and has an original maturity of three years. An impairment analysis on the loan receivable included in the non-current portion was performed at December 31, 2019 by considering the probability of default of comparable companies with published credit ratings and forecasts of future economic conditions, as appropriate. As at December 31, 2019, the probability of default applied to the loan receivable is 2.67% while the loss given default is estimated to be 62.52%. During 2020, the Group and certain independent third parties entered into an agreement to offset the non-current loan receivable against a non-current loan payable. As a result, both the non-current loan receivable and non-current loan payable were derecognised through a non-cash transaction.

A loan receivable included in the current portion as at December 31, 2020 is unsecured, interest-free and repayable within one year.

Apart from impairment of RMB806,000 of a loan receivable included in the non-current portion as at December 31, 2019, no impairment losses were recorded for the above assets as they were neither past due nor impaired. The financial assets included in the above balances relate to deposits and receivables for which there was no recent history of default. The loss allowance was assessed to be minimal because the deposits and other receivables are not past due.

The movements in allowance for ECLs are as follows:

	2020			2019
	RMB’000			RMB’000
At the beginning of the year		(806	)		—
Impairment losses, net		(257	)		(806	)
Amount written off as uncollectible		1,063			—
At the end of the year		—			(806	)

F-55

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities

18.1  Financial assets

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Financial assets at amortised cost
Current
Trade receivables (Note 16)		181,722		181,125
Financial assets included in prepayments,    other receivables and other assets		6,377		2,624
Net investments in subleases		211		1,245
Amounts due from related parties		1,763		370
Amounts due from shareholders		100		105
Cash and cash equivalents		25,719		23,010
Total current financial assets		215,892		208,479
Non-current
Financial assets included in prepayments,    other receivables and other assets		148		32,755
Net investments in subleases		202		2,325
Total non-current financial assets		350		35,080
Total financial assets		216,242		243,559

18.2  Financial liabilities

Lease liabilities and other financial liabilities at amortised cost, with carrying amounts that are reasonable approximations of fair values

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Current
Trade payables		27,310		34,697
Financial liabilities included in other payables    and accruals		29,485		20,190
Amount due to a related party		7,177		—
Amount due to a shareholder		325		—
Interest-bearing loans and borrowings		60,000		55,000
Lease liabilities		7,660		5,217
		131,957		115,104
Non-current
Other payable		—		31,700
Lease liabilities		9,830		9,496
		9,830		41,196
Total		141,787		156,300

F-56

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.3  Fair values

The Group assessed that the fair values of cash and cash equivalents, trade receivables, the current portion of financial assets included in prepayments, other receivables and other assets, amounts due from related parties and shareholders, trade payables, amounts due to a related party and a shareholder and the current portion of financial liabilities included in other payables and accruals approximate their carrying amounts largely due to the short‑term maturities of these instruments.

The fair values of the non‑current portion of financial assets included in prepayments, other receivables and other assets, net investments in subleases, and financial liablities such as interest-bearing loans and borrowings, and loan payable included in the non‑current portion of other payable are measured at amortised cost. In the opinion of the directors, the fair values of these financial assets and financial liabilities approximate to their carrying amounts.

The Group did not have any financial assets and financial liabilities measured at fair value in the consolidated statements of financial position as at December 31, 2020 and 2019.

During the years ended December 31, 2020 and 2019, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for financial assets and financial liabilities.

The following methods and assumptions were used to estimate the fair values:

The fair values of the Group’s interest‑bearing loans and borrowings and other payable are determined by using the discounted cash flow method using the discount rate currently available for instruments with similar terms, credit risk and remaining maturities as at the end of the reporting period. The changes in fair value as a result of the Group’s own non‑performance risk as at December 31, 2020 and 2019 were assessed to be insignificant. The fair values of the Group’s interest‑bearing loans and borrowings and other payable are approximate to the fair values based on the discounted cash flows.

18.4  Financial instruments risk management objectives and policies

The Group’s principal financial liabilities comprise interest-bearing loans and borrowings, amounts due to a related party and a shareholder, trade payables and other payables and accruals. The main purpose of these financial liabilities is to raise finance for the Group’s operations. The Group’s principal financial assets include trade receivables, other receivables and cash and cash equivalents that derive directly from its operations.

The Group is exposed to foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks, which are summarised below.

Foreign currency risk

The Group has transactional currency exposures. Such exposures mainly arise from cash and cash equivalents, a loan receivable from a Hong Kong entity, trade payables to foreign suppliers and amount due to a related party in currencies other than the Group’s functional currency.

F-57

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.4  Financial instruments risk management objectives and policies (continued)

Foreign currency risk (Continued)

The following tables demonstrate the sensitivity at the end of the reporting period to a reasonably possible change in the United States dollars (“US$”) and HK$ exchange rates, with all other variables held constant, of the Group’s profit/(loss) before tax. The impact on the Group’s profit/(loss) before tax is due to changes in the fair values of monetary assets and liabilities. The Group’s exposure to foreign currency risk for all other currencies is not material.

For the year ended December 31, 2020	Change in exchange rate	Effect on loss before tax
		RMB’000
US$	+5%		(608	)
	−5%		608
HK$	+5%		—
	−5%		—

For the year ended December 31, 2019	Change in exchange rate	Effect on profit before tax
		RMB’000
US$	+5%		(1,302	)
	−5%		1,302
HK$	+5%		1,672
	−5%		(1,672	)

For the year ended December 31, 2018	Change in exchange rate	Effect on profit before tax
		RMB’000
US$	+5%		(924	)
	−5%		924
HK$	+5%		(141	)
	−5%		141

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Maximum exposure and year‑end staging

The tables below show the credit quality and the maximum exposure to credit risk based on the Group’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at December 31, 2020 and 2019. The amounts presented are gross carrying amounts for financial assets.

F-58

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.4  Financial instruments risk management objectives and policies (continued)

Credit risk (continued)

As at December 31, 2020

	12-month Expected Credit losses		Lifetime Expected Credit losses
	Stage 1		Stage 2		Stage 3		Simplified approach		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Trade receivables		—		—		—		192,540		192,540
Financial assets included in prepayments, other    receivables and other assets
—Normal*		6,525		—		—		—		6,525
Net investments in subleases—Normal*		413		—		—		—		413
Amounts due from related parties—Normal*		1,763		—		—		—		1,763
Amounts due from shareholders—Normal*		100		—		—		—		100
Cash and cash equivalents
—not yet past due		25,719		—		—		—		25,719
		34,520		—		—		192,540		227,060

As at December 31, 2019

	12-month Expected Credit losses		Lifetime Expected Credit losses
	Stage 1		Stage 2		Stage 3		Simplified approach		Total
	RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
Trade receivables		—		—		—		184,471		184,471
Financial assets included in prepayments, other    receivables and other assets
—Normal*		36,185		—		—		—		36,185
Net investments in subleases—Normal*		3,570		—		—		—		3,570
Amount due from a related party—Normal*		370		—		—		—		370
Amounts due from shareholders—Normal*		105		—		—		—		105
Cash and cash equivalents
—not yet past due		23,010		—		—		—		23,010
		63,240		—		—		184,471		247,711

* The credit quality of the financial assets included in prepayments, other receivables and other assets, net investments in subleases, and amounts due from related parties and shareholders is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition. Otherwise, the credit quality of the financial assets is considered to be “doubtful”.

F-59

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.4  Financial instruments risk management objectives and policies (continued)

Credit risk (continued)

Trade receivables

Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management.

The Group has significant credit risk concentration from its largest customers’ trade receivables. The Group’s largest customer’s trade receivables represents 7% and 8% of the Group’s gross trade receivables as at December 31, 2020 and 2019, respectively. The Group’s five largest customers’ trade receivables represent 28% and 29% of the Group’s gross trade receivables as at December 31, 2020 and 2019, respectively.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability‑weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written off if past due for more than one year and are not subject to enforcement activity.

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:

				Days past due
	Current			1 - 90 days			91 - 180 Days			>181 days			Total
December 31, 2020
Expected credit loss rate		2.39	%		3.42	%		6.39	%		16.36	%		5.62	%
Gross carrying amount (RMB’000)		95,140			30,351			34,680			32,369			192,540
Expected credit loss (RMB’000)		2,270			1,039			2,215			5,294			10,818

				Days past due
	Current			1 - 90 days			91 - 180 Days			>181 days			Total
December 31, 2019
Expected credit loss rate		1.57	%		1.94	%		2.99	%		6.01	%		1.81	%
Gross carrying amount (RMB’000)		155,781			17,931			2,905			7,854			184,471
Expected credit loss (RMB’000)		2,439			348			87			472			3,346

Liquidity risk

The Group monitors its risk of a shortage of funds using a liquidity planning tool.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, other borrowings and lease liabilities.

F-60

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.4  Financial instruments risk management objectives and policies (continued)

The Group assessed the concentration of risk with respect to refinancing its debts and concluded it to be low.

Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines to focus on the maintenance of a diversified portfolio.

The table below summarises the maturity profile of the Group’s financial liabilities as at the end of the reporting period based on the contractual undiscounted payments:

	On demand		Less than 1 year		>1 year		Total
	RMB’000		RMB’000		RMB’000		RMB’000
As at December 31, 2020
Interest-bearing loans and borrowings		10,000		54,306		—		64,306
Lease liabilities		—		8,263		13,515		21,778
Trade payables		—		27,310		—		27,310
Due to a shareholder		325		—		—		325
Due to a related party		—		7,177		—		7,177
Other payables and accruals		—		29,485		—		29,485
As at December 31, 2019
Interest-bearing loans and borrowings		5,000		54,323		—		59,323
Lease liabilities		—		5,634		14,721		20,355
Trade payables		—		34,697		—		34,697
Other payables and accruals		—		20,190		31,700		51,890

F-61

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Financial assets and financial liabilities (continued)

18.5  Changes in liabilities arising from financing activities

	Interest- bearing					Due		Due to
	loans and borrowings		Lease liabilities			to a shareholder		a related party
	RMB’000		RMB’000			RMB’000		RMB’000
As at January 1, 2018		5,000		4,563			—		—
Changes from financing activities		34,700		(2,543	)		—		—
Accretion of interest		—		141			—		—
As at December 31, 2018 and January 1, 2019		39,700		2,161			—		—
Changes from financing activities		15,300		(2,560	)		—		—
Additions		—		14,499			—		—
Accretion of interest		—		613			—		—
As at December 31, 2019 and January 1, 2020		55,000		14,713			—		—
Changes from financing activities		5,000		(4,688	)		—		7,177
Changes from operating activities		—		(778	)		—		—
Acquisition of a subsidiary		—		—			325		—
Additions		—		5,682			—		—
Accretion of interest		—		2,561			—		—
As at December 31, 2020		60,000		17,490			325		7,177

19. Cash and cash equivalents

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Cash and cash equivalents		25,719		23,010

At December 31, 2020, the cash and cash equivalents of the Group denominated in RMB amounting to RMB22,649,000 (2019: RMB22,919,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

20. Issued capital and reserves

	Number of ordinary shares of US$0.001 each
	Authorised		Issued and fully paid		Nominal value of ordinary shares
					RMB’000
At December 31, 2019		50,000,000		18,211,027		118
At December 31, 2020		50,000,000		24,566,723		162

F-62

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. Issued capital and reserves (continued)

On February 29, 2020, the Company issued 4,856,273 ordinary shares with an aggregate fair value of RMB284,000,000 in exchange for the acquisition of a 100% equity interest of Rosenkavalier.

On March 4, 2020, 1,499,423 ordinary shares were allotted and issued to an independent third party for a cash consideration of US$12,999,997, excluding issuance costs of RMB557,000.

As at December 31, 2019, 1,150,836 shares registered in the name of Lebon Holding Limited were pledged and charged by Lebon Holding Limited in favour of Mount Merry International Limited pursuant to a charge over shares dated September 6, 2019, as amended from time to time. On March 5, 2020, the pledged shares were released.

Statutory restrictions

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s subsidiaries, VIEs and subsidiaries of the VIEs registered in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The consolidated results of operations reflected in the consolidated financial statements prepared in accordance with IFRSs differ from those reflected in the statutory financial statements of the Company’s subsidiaries.

Under PRC law, the Company’s subsidiaries, VIEs and the subsidiaries of the VIEs located in the PRC (collectively referred as the “PRC entities”) are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The PRC entities are required to allocate at least 10% of their after-tax profits on an individual company basis as determined under China Accounting Standards (“CAS”) to the statutory reserve and have the rights to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registered capital of the PRC entities is also restricted.

Amounts restricted that include statutory reserve funds, as determined in accordance with CAS, were RMB9,213,000 and RMB8,694,000, as at December 31, 2020 and 2019, respectively.

21. Trade payables

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Trade payables		27,310		34,697

Terms and conditions of the above financial liabilities are as follows:

• Trade payables are non‑interest‑bearing and are normally settled on terms ranging from 1 to 30 days; and

• For explanations on the Group’s liquidity risk management processes, refer to Note 18.4.

F-63

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. Contract liabilities

The balance represented the receipts in advance from customers.

	December 31, 2020		December 31, 2019		January 1, 2019
	RMB’000		RMB’000		RMB’000
Deferred revenue
Subscriptions and licensing		13,827		13,294		15,296
Smart music education		11,074		3,191		142
Total contract liabilities		24,901		16,485		15,438
Current		24,314		16,049		14,341
Non-current		587		436		1,097

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Amount of revenue recognised in the respective reporting    periods that was included in the contract liabilities at    the beginning of the reporting period		13,874		12,395		10,329

Contract liabilities include deferred revenue relating to the subscription and licensing of music content and music education products and services.

The increase in contract liabilities in 2020 and 2019 was mainly due to the increase in amounts received in relation to the smart music education business at the end of the year.

23. Interest‑bearing loans and borrowings

	Effective interest rate		Maturity	December 31, 2020		December 31, 2019
	%			RMB’000		RMB’000
Current:
Unsecured bank loans	4.25 (2019: 5.23)		On demand		10,000		5,000
Unsecured other borrowings		12	September 19, 2021 (2019: September 19, 2020)		50,000		50,000
					60,000		55,000

F-64

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. Leases

Group as a lessee

The Group has lease contracts for various items of property, plant and equipment. Leases of a building and music education equipment generally have lease terms between 3 and 5 years.

The Group also has certain leases with lease terms of 12 months or less and leases with low value. The Group applies recognition exemptions for “short-term leases” and “leases of low-value assets” for these leases.

Set out below are the carrying amounts of right‑of‑use assets recognised and the movements during the years:

	Building			Music education equipment			Total
	RMB’000			RMB’000			RMB’000
At January 1, 2019		1,938			—			1,938
Additions		6,029			8,470			14,499
Depreciation charge		(1,307	)		(311	)		(1,618	)
Subleases		(4,091	)		—			(4,091	)
At December 31, 2019		2,569			8,159			10,728
Additions		1,286			4,396			5,682
Acquisition from business combinations (Note 8)		2,988			—			2,988
Depreciation charge		(2,525	)		(1,955	)		(4,480	)
As December 31, 2020		4,318			10,600			14,918

Set out below are the carrying amounts of lease liabilities and the movements during the years:

	2020			2019
	RMB’000			RMB’000
At January 1		14,713			2,161
Additions		5,682			14,499
Accretion of interest		2,561			613
Covid-19 - related rent concessions from a lessor		(778	)		—
Payments		(4,688	)		(2,560	)
At December 31		17,490			14,713
Current		7,660			5,217
Non-current		9,830			9,496

F-65

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. Leases (continued)

The following are the amounts recognised in profit or loss:

	2020			2019		2018
	RMB’000			RMB’000		RMB’000
Depreciation expense of right-of-use assets		4,480			1,618		1,939
Interest expense on lease liabilities		2,561			613	141
Covid-19-related rent concessions from a lessor		(778	)		—		—
Expense relating to short term leases and leases of    low-value assets included in administrative    expenses		775			112	108
Total amount recognised in profit or loss		7,038			2,343		2,188

The total cash outflow for leases included in the statement of cash flows is as follows:

	2020	2019		2018
	RMB’000	RMB’000		RMB’000
Total cash outflow for leases	5,463		2,672		2,651

Group as a lessor

The Group entered into sub‑lease agreements on its office. These leases have terms of three and a half years, which are equal to the lease term of the head lease.

Future minimum rentals receivable under non‑cancellable finance leases as at each of the reporting dates are as follows:

	December 31, 2020			December 31, 2019
	RMB’000			RMB’000
Amounts receivable:
Within one year		219			1,290
After one year but within two years		219			1,290
After two years but within five years		—			1,290
Total future undiscounted minimum rentals receivables		438			3,870
Unearned finance income		(25	)		(300	)
Net investments in subleases		413			3,570
Current		211			1,245
Non-current		202			2,325

F-66

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25. Other payables and accruals

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Accruals		11,018		12,925
Other payables		46,210		72,339
Payable to database suppliers		2,189		3,415
Interest payables		7,704		1,701
Total other payables and accruals		67,121		90,380
Current		67,121		58,680
Non-current		—		31,700

Other payables are non‑interest bearing and normally settled within one year, except for a loan from a third party amounting to RMB31,700,000 as at December 31, 2019 was unsecured, interest-free and repayable after one year. The non-current loan payable as at December 31, 2019 was derecognised during the year ended December 31, 2020. Detail of the derecognition was disclosed in Note 17 of these consolidated financial statements.

26. Related party disclosures

Note 7 provides information about the Group’s structure, including details of the subsidiaries. The following table provides the total amount of transactions that are entered into with related parties for the relevant financial years.

		Interest income on net investments in subleases		Revenue from a related party		Acquisition of a subsidiary
		RMB’000		RMB’000
Shareholder of the Company	2020		—		—		174,944
	2019		—		—		—
	2018		—		—		—
BMF Culture*	2020		23		—		—
	2019		85		349		—
	2018		—		—		—

F-67

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26. Related party disclosures (continued)

Outstanding balances at December 31, 2020 and 2019 are unsecured and interest‑free and repayable on demand. There have been no guarantees provided or received for any related party receivables or payables

		Net investments in subleases		Due from related parties /shareholders		Due to a related party/ a shareholder
		RMB’000		RMB’000		RMB’000
BMF Culture*	2020		—		—		—
	2019		2,505		370		—
Shigoo Limited#	2020		—		663		7,177
	2019		—		—		—
Shanghai Xuanshi Culture    Communication Co., Ltd.^	2020		—		1,100		—
	2019		—		—		—
Shareholders of the    Company	2020		—		100		325
	2019		—		105		—

* A director of the Company is the controlling shareholder of Rosenkavalier, the parent company of BMF Culture. The amount due from BMF Culture was unsecured, interest-free and repayable on demand. BMF Culture became a subsidiary of the Group since February 29, 2020. Further details are disclosed in note 8 to consolidated financial statements.

^# A director of the Company is the controlling shareholder of Shigoo Limited. The amount due from Shigoo Limited was unsecured, interest-free and repayable on demand, while the amount due to Shigoo Limited was unsecured, interest-free and repayable within one year.

^{^} A joint venture of the Group. The amount due from the joint venture was unsecured, interest-free and repayable within one year.

The following table provides compensation of key management personnel of the Group:

	2020		2019		2018
	RMB’000		RMB’000		RMB’000
Short term employee benefits		7,875		1,241		1,810
Equity-settled share-based payment expenses		14,269		—		—
Post employment benefits		356		369		430
Total compensation paid to key management    personnel		22,500		1,610		2,240

The amounts disclosed in the table are the amounts recognised as an expense during the reporting periods related to key management personnel.

F-68

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

27. Notes to the consolidated statements of cash flows

Major non‑cash transactions

(a) During the year ended December 31, 2020, the Group acquired 100% equity interest in Rosenkavalier by issuing 4,856,273 ordinary shares of the Company, which had a total value of RMB284,000,000 (Note 8).

(b) During the year ended December 31, 2020, the Group and two independent third parties entered into an agreement to offset the non-current loan receivable against a non-current loan payable. As a result, both the non-current loan receivable and non-current loan payable were derecognised through a non-cash transaction (Note 17 and Note 25).

(c) During the year ended December 31, 2020, the Group had non‑cash additions to right‑of‑use assets and lease liabilities of RMB1,286,000 (2019: RMB6,029,000) in respect of lease arrangements for a leased property (Note 24).

(d) During the year ended December 31, 2020, the Group entered into finance lease arrangements in respect of property, plant and equipment with a total capital value at the inception of the leases of RMB4,396,000 (2019: RMB8,470,000) (Note 24).

28. Standards issued but not yet effective

The new and amended standards that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards, if applicable, when they become effective.

Amendments to IFRS 3	Reference to the Conceptual Framework2
Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16	Interest Rate Benchmark Reform - Phase 21
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and
	its Associate or Joint Venture4
IFRS 17	InsuranceContracts3
Amendments to IFRS 17	InsuranceContracts3,5
Amendments to IAS 1	Classification of Liabilities as
	Current or Non-current3
Amendments to IAS 1	Disclosure of Accounting Policies3
Amendments to IAS 8	Definition of Accounting Estimates3
Amendments to IAS 16	Property, Plant and Equipment:Proceeds before Intended Use2
Amendments to IAS 37	Onerous Contracts - Cost of Fulfilling a Contract2
Annual Improvements to	Amendments to IFRS 1, IFRS 9,
IFRS Standards 2018-2020	Illustrative Examples accompanying
	IFRS 16, and IAS 412

^1. Effective for annual periods beginning on or after 1 January 2021

^2. Effective for annual periods beginning on or after 1 January 2022

^3. Effective for annual periods beginning on or after 1 January 2023

^4. No mandatory effective date yet determined but available for adoption

^5. As a consequence of the amendments to IFRS 17 issued in June 2020, IFRS 4 was amended to extend the temporary exemption that permits insurers to apply IAS 39 rather than IFRS 9 for annual periods beginning before 1 January 2023

The adoption of the above new and amended standards and interpretations are not expected to have a material impact on the Group’s financial statements.

F-69

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29. Share‑based payments

Share OptionAgreement

In October 2019, the Group entered into an agreement with a financial consultant (“Share Option Agreement”), pursuant to which share options of the Company are granted to the financial consultant in respect of his services to the Group in the forthcoming years. The maximum number of share options granted under the Share Option Agreement to the financial consultant is 3% of the total number of shares of the Company on the Listing Dates (as defined below). The exercise price of the share options is the offer price of the underlying shares of the Company issued in the final financing arrangement prior to the Company’s initial public offering (“IPO”). The share options can only be vested if (i) the financial consultant becomes an employee of the Group prior to the date of successful listing of the Company’s shares through the IPO (the “Listing Date”); and (ii) there is the successful listing of the Company’s shares through the IPO (“IPO Performance Condition”); and (iii) the financial consultant remains as an employee of the Group over the vesting period as specified in the Share Option Agreement.All share options will be vested over 24 months after the Listing Date. Unexercised portion will be forfeited after 48 months after Listing Date. There are caps for share options to be exercised in the periods as specified as below:

Vesting period of the relevant percentage of the options	Cap of options exercisable
After 6 months since the Listing Date	1% of the total shares
After 12 months since the Listing Date	2% of the total shares
After 18 months since the Listing Date	2.5% of the total shares
After 24 months since the Listing Date	3% of the total shares

There are no cash settlement alternatives. The Group does not have a past practice of cash settlement for these share options. The Group accounts for the share options granted under the Share Option Agreement as equity‑settled share‑based payments.

In April 2020, the financial consultant was appointed as the Chief Financial Officer of the Group. The share options granted under the Share Option Agreement remain effective and the terms of the share options remain unchanged, except that the exercise price of the share options is now the higher of US$7.5 million and the offer price of the underlying shares the Company issued in its last round of financing prior to the Company’s IPO.

(a) The fair value of equity-settled share options granted during the year was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the model used:

Assumptions	Inputs
Dividend yield (%)		0	%
Expected volatility (%) (note)		49	%
Risk-free interest rate (%)		0.36	%
Suboptimal factor	2.5
Forfeiture rate		0	%
Option life (years)	4.78
Share price (US$ per share)	8.67

Note: Expected volatility is determined by reference to a peer group of publicly traded companies. No other feature of the options granted was incorporated into the measurement of fair value.

F-70

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29. Share‑based payments (continued)

Share OptionAgreement (continued)

(b) The following share options were outstanding under the Share Option Agreement during the year:

	Weighted
	average exercise
	price per share		Numbers
	US$		of options
At January 1, 2020		—		—
Granted during the year	8.46			887,002
Forfeited during the year		—		—
Exercised during the year		—		—
Expired during the year		—		—
At December 31, 2020		8.46		887,002

(c) The exercise prices and exercise periods of the share options outstanding as at the end of the reporting period are as follows:

Exercise period	Number of options		Exercise price US$
July 12, 2021 – January 12, 2025		295,667		8.46
January 12, 2022 – January 12, 2025		295,667		8.46
July 12, 2022 – January 12, 2025		147,834		8.46
January 12, 2023 – January 12, 2025		147,834		8.46
		887,002

2020 ESOP Plan

The Group adopted an equity incentive plan (the “2020 ESOP Plan”) for grants of share options and restricted shares of the Company’s ordinary shares to directors, officers and employees of the Company and its subsidiaries.

In October, 2020, the Group’s board of directors approved the 2020 ESOP Plan. The maximum aggregate number of, ordinary shares that may be issued pursuant to all awards under the 2020 ESOP Plan shall was 1,227,000. The 2020 ESOP Plan lapses on the tenth anniversary of the grant date.

1,125,334 share options and 101,666 restricted shares were granted under the 2020 ESOP Plan, at an exercise price of US$0.01 per share. 50%, 30%, 10% and 10% of the share options and restricted shares will vest on October 1, 2021, October 1, 2022, October 1, 2023 and October 1, 2024, respectively, on the condition that (i) directors, officers, employees and consultants of the Company remain in service; and (ii) the Company completes its initial public offering within 12 months after the adoption of the 2020 ESOP Plan by the board of the directors.

(a) The fair value of equity-settled share options and restricted shares granted during the year was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted.

F-71

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29. Share‑based payments (continued)

2020 ESOP Plan (continued)

The following table lists the inputs to the model used:

Assumptions	Inputs
Dividend yield (%)		0	%
Expected volatility (%) (note)		50	%
Risk-free interest rate (%)		0.88	%
Suboptimal factor	1.0 - 2.5
Forfeiture rate		0	%
Option life (years)		10
Share price (US$ per share)		9.03

Note: Expected volatility is determined by reference to a peer group of publicly traded companies. No other feature of the options granted was incorporated into the measurement of fair value.

(b) The following share options and restricted shares were outstanding under the 2020 ESOP Plan during the year:

	Weighted average exercise price per share US$		Numbers of options		Number of restricted shares
At January 1, 2020		—		—		—
Granted during the year		0.01		1,125,334		101,666
Forfeited during the year		—		—		—
Exercised during the year		—		—		—
Expired during the year		—		—		—
At December 31, 2020		0.01		1,125,334		101,666

(c) The exercise prices and exercise periods of the share options and restricted shares outstanding as at the end of the reporting period are as follows:

Exercise period	Number of options		Number of restricted shares		Exercise price US$
October 1, 2021 – October 30, 2030		562,666		50,832		0.01
October 1, 2022 – October 30, 2030		337,600		30,500		0.01
October 1, 2023 – October 30, 2030		112,534		10,167		0.01
October 1, 2024 – October 30, 2030		112,534		10,167		0.01
		1,125,334		101,666

The fair values of the share options and restricted shares granted under the Share Option Agreement and 2020 ESOP Plan during the year were US$3,182,000 and US$10,950,000, respectively, of which the Group recognised a share-based payment expense of RMB19,416,000 (equivalent to US$2,799,000) for the year ended December 31, 2020.

At the end of the reporting period, the Company had 2,012,336 and 101,666 share options and restricted shares outstanding. If the outstanding share options and restricted shares were exercised in full, an additional 2,114,002 ordinary shares of the Company will be issued, resulting in additional share capital of RMB14,000 (equivalent to US$2,000) and capital reserve of RMB49,020,000 (equivalent to US$7,514,000) (before issue expenses), respectively.

F-72

KUKE MUSIC HOLDING LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

30. Commitments

The Group had the following purchase commitments at the end of the reporting period which are not yet reflected in the financial statements.

	December 31, 2020		December 31, 2019
	RMB’000		RMB’000
Intangible assets		25,025		6,160
Music education equipment		1,028		8,043
		26,053		14,203

31. Events after the reporting period

On January 12, 2021, the Company completed its initial public offering and was listed on the New York Stock Exchange. 5,000,000 ordinary shares were issued at a price of US$10 per share for net proceeds of approximately US$46.5 million, after deducting underwriting discounts and commissions of US$3.5 million. After the initial public offering, there were 29,566,273 ordinary shares outstanding, consisting of 21,285,625 Class A ordinary shares and 8,281,098 Class B ordinary shares, with par value US$0.001.

F-73