YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

27. | LEASE LIABILITIES (continued)

Movements of carrying amounts of lease liabilities during the year are as follows:

| 2020 | 2019
| US$ | US$
At 1 January | 4,830,675 | 5,245,122
Additions | 3,645,562 | 2,653,846
Acquisitions through subsidiaries and businesses (Note 33) | 1,769,989 | –
Termination of leases | (862,057) | (39,622)
Disposal of subsidiaries and businesses (Note 34) | – | (221,340)
Accretion of interest | 147,840 | 113,785
Payments | (3,943,982) | (2,909,061)
Covid-19-related rent concessions from lessors | (791,495) | –
Exchange realignment | 68,320 | (12,055)
At 31 December | 4,864,852 | 4,830,675

The amounts recognised in profit or loss in relation to leases are as follows:

| 2020 | 2019
| US$ | US$
Interest on lease liabilities (Note 8) | 147,840 | 113,785
Depreciation charge of right-of-use assets (Note 6) | 4,580,241 | 2,794,323
Expenses relating to short-term leases (Note 6) | 263,090 | 373,199
(Gain)/loss on termination of leases (Note 6) | (31,142) | 2,716
Covid-19-related rent concessions from lessors | (791,495) | –
Impairment of right-of-use assets | 63,538 | –
Total amount recognised in profit or loss | 4,232,072 | 3,284,023

The Company had total cash outflows for leases of US$4,207,072 (2019: US$3,282,260). The Company also had non-cash additions of right-of-use assets and lease liabilities of US$3,645,562 (2019: US$2,653,846).

As disclosed in note 2.2 to the financial statements, the Group has early adopted the amendment to IFRS 16 and applied the practical expedient to all eligible rent concessions granted by the lessors for leases of certain plant and equipment during the year 31 December 2020.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

28. | DUE TO A DIRECTOR

The amount due to a director was unsecured, interest-free and repayable on demand.

29. | DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities

| Accelerated tax depreciation | Fair value adjustments arising from acquisition of subsidiaries | Right-of-use assets | Others | Total
| US$ | US$ | US$ | US$ | US$
At 1 January 2019 | 19,049 | 316,976 | 1,045,727 | 47,031 | 1,428,783
Disposal of subsidiaries and businesses (Note 34) | (2,402) | – | (26,791) | (2,935) | (32,128)
Deferred tax charged/ (credited) to profit or loss during the year (Note 10) | 7,038 | (32,388) | (171,370) | 59,665 | (137,055)
Exchange realignment | 196 | 4,187 | 4,261 | 317 | 8,961
Gross deferred tax liabilities at 31 December 2019 and 1 January 2020 | 23,881 | 288,775 | 851,827 | 104,078 | 1,268,561
Acquisition of subsidiaries and businesses (Note 34) | – | – | – | 24,185 | 24,185
Deferred tax credited to profit or loss during the year (Note 10) | (22,131) | (31,657) | (314,557) | (38,506) | (406,851)
Exchange realignment | 552 | (8,747) | 39,602 | 4,831 | 36,238
Gross deferred tax liabilities at 31 December 2020 | 2,302 | 248,371 | 576,872 | 94,588 | 922,133

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

29. | DEFERRED TAX (continued)

Deferred tax assets

| Defined benefit liabilities | Tax losses | Provision and other liabilities | Lease liabilities | Total
| US$ | US$ | US$ | US$ | US$
At 1 January 2019 | – | 384,169 | 741,958 | 1,060,600 | 2,186,727
Deferred tax charged to profit or loss during the year (Note 10) | – | (200,463) | (387,342) | (181,308) | (769,113)
Exchange realignment | – | 5,009 | 10,994 | 805 | 16,808
Gross deferred tax assets at 31 December 2019 and 1 January 2020 | – | 188,715 | 365,610 | 880,097 | 1,434,422
Acquisition of subsidiaries and businesses (Note 33) | – | – | 20,061 | – | 20,061
Deferred tax credited/ (charged) to profit or loss during the year (Note 10) | 20,323 | 313,506 | 360,959 | (335,093) | 359,695
Deferred tax credited to other comprehensive income during the year (Note 30) | 1,428 | – | – | – | 1,428
Exchange realignment | 467 | 20,050 | 32,299 | 39,715 | 92,531
Gross deferred tax assets at 31 December 2020 | 22,218 | 522,271 | 778,929 | 584,719 | 1,908,137

For presentation purposes, certain deferred tax assets and liabilities within individual subsidiaries have been offset in the statement of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

| 2020 | 2019 | 1 January 2019
| US$ | US$ | US$
Net deferred tax assets recognised in the combined statement of financial position | 1,237,353 | 559,497 | 1,104,827
Net deferred tax liabilities recognised in the combined statement of financial position | (251,349) | (393,636) | (346,883)
| 986,004 | 165,861 | 757,944

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

29. | DEFERRED TAX (continued)

Deferred tax assets (continued)

Deferred tax assets have not been recognised in respect of the following items:

| 2020 | 2019 | 1 January 2019
| US$ | US$ | US$
Tax losses | 3,087,189 | 4,525,691 | 1,947,044

The Group has unrecognised tax losses of US$2,002,057 (2019: US$2,375,285) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. The Group also has unrecognised tax losses of US$1,085,132 (2019: US$2,150,406) that will expire in one to ten years for offsetting against future taxable of the companies in which the losses arose.

Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that is not considered probable that taxable profits will be available against which the tax losses can be utilised.

30. | DEFINED BENEFIT LIABILITIES

The Group recognised employment benefit liabilities for all its qualifying employees pursuant to Indonesia Labour Law No. 13/2003. The provision for employment benefits is based on the calculation by an independent actuary, PT Sigma Prima Solusindo, using the projected unit credit actuarial valuation method.

The movements in the defined benefit liabilities as follows:

| 2020
| US$
At 1 January | –
Service cost | 87,972
Interest expense | 4,407
Actuarial changes arising from: |
- changes in demographic assumptions | (24,367)
- changes in financial assumptions | 30,857
Exchange realignment | 2,123
At 31 December | 100,992

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

30. | DEFINED BENEFIT LIABILITIES (continued)

The amounts recognised in profit or loss and other comprehensive income in relation to the defined benefit expense are as follows:

| Note | 2020
|  | US$
Defined benefit expense charged to profit or loss |  |
Service cost |  | 87,972
Interest expense |  | 4,407
|  | 92,379
Deferred tax effect | 29 | (20,323)
Total amount recognised in profit or loss, net of tax |  | 72,056
Remeasurement losses/(gains) in other comprehensive income |  |
Actuarial changes arising from: |  |
- changes in demographic assumptions |  | (24,367)
- changes in financial assumptions |  | 30,857
Deferred tax effect | 29 | (1,428)
Total amount recognised in other comprehensive income, net of tax |  | 5,062

The principal actuarial assumptions used as at the end of the reporting period are as follows:

| 2020
Discount rate (%) | 7.04
Retirement age (years old) | 56
Expected rate of salary increases (%) | 10

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

30. | DEFINED BENEFIT LIABILITIES (continued)

A quantitative sensitivity analysis for significant assumptions as at the end of the reporting period is shown below:

| 2020
| Increase/ (decrease) in rate | Increase/ (decrease) in defined benefit obligation
| % | US$
Discount rate | 1/(1) | (18,663)/23,467
Future salary increase | 1/(1) | 22,533/(18,363)

The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit liabilities as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analysis is based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analysis may not be representative of an actual change in the defined benefit liabilities as it is unlikely that changes in assumptions would occur in isolation of one another.

31. | RESERVES

The amounts of the Group's reserves and the movements therein are presented in the combined statement of changes in equity.

Exchange fluctuation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations and from the translation of financial liability designated as a hedge of net investment in the foreign operations, as well as foreign exchange differences on monetary items which form part of the Group’s net investments in the foreign operations.

Defined benefit reserve

Defined benefit reserve comprises the gain or loss on remeasurement of defined benefits plans of its subsidiaries. Remeasurements comprising actuarial gains or losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liabilities are recognised immediately in other comprehensive income in the period in which they arise.) Remeasurements are recognised in retained profits and are not reclassified to profit or loss in subsequent periods.

Capital reserve

Capital reserves comprises of the share capital of YCP Holdings Limited.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

31. | RESERVES (continued)

Capital reserve (continued)

|  | 2020 | 2019 | 1 January 2019
|  | US$ | US$ | US$
Issued and fully paid: 16,331,276 (2019: 16,401,000) ordinary shares |  | 744,504 | 500,000 | 500,000

A summary of movements in YCP Holdings Limited’s share capital is as follows:

|  | Number of shares in issue | Share capital
|  |  | US$
1 January 2019 |  | 5,467 | 500,000
Share Split (note a) |  | 16,395,533 | –
At 31 December 2019 and 1 January 2020 |  | 16,401,000 | 500,000
Shares repurchase (note b) |  | (303,724) | (30,871)
New shares issue (note c) |  | 234,000 | 275,375
At 31 December 2020 |  | 16,331,276 | 744,504

Notes:

(a) Pursuant to a written resolution of the shareholders dated 13 December 2019, every issued shares of YCP Holdings Limited were subdivided into 3,000 shares (“Share Split”).

(b) On 9 June 2020, YCP Holdings Limited exercised its Call Option in the derivative financial asset, to repurchase and cancel 234,865 of the Issued Shares from the Ex-Solidiance Shareholders, for a total cash consideration of HK$78.2 (equivalent to US$10). The resulting cash consideration, derivative financial asset and other liabilities amounting to US$10, US$1,135,986 and (US$1,105,125) respectively were charged/(credited) to the capital reserve as set out in the combined statement of changes in equity.

On 28 December 2020, certain Ex-Solidiance shareholders exercised its Put Option in the other liabilities, and requested YCP Holdings Limited to repurchase and cancel 68,859 of their Issued Shares at a total cash consideration of US$344,295.

(c) On 13 November 2020, 234,000 ordinary shares were allotted to the Subscribers (refer to note 24) at US$5 per share, to provide additional working capital for YCP Holdings Limited. Pursuant to the Subscription Agreement, the Subscribers are entitled to a conditional right to request YCP Holdings Limited to repurchase the subscribed shares. As a result, the total proceeds of US$1,170,000 from the share allotment were split into liability and equity component of US$894,625 and US$275,375 respectively.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

32. | SHARE OPTION SCHEME

YCP Holdings Limited operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group's operations. Eligible participants of the Scheme include a director and certain employees of the Group. The Scheme became effective on 1 October 2020 and, unless otherwise cancelled or amended, will remain in force for 6 years from the date of the successful listing of YCP Holdings Limited in any recognised stock exchange ("IPO Date").

The following share options were outstanding under the Scheme during the year:

Under the Scheme, eligible participants are granted options which only vest on the conditions that (i) the grantee remain as employee with the Group for 3 years from the IPO Date; and (ii) certain market conditions and performance target of the Group are met. Once vested, the options remain exercisable until 6 years from the IPO Date.

| Weighted average exercise price US$ per share | Number of options
At 1 January 2020 | – | –
Granted during the year | 5.00 | 938,904
At 31 December 2020 | 5.00 | 938,904

As at 31 December 2020, no outstanding share options were exercisable.

The fair value of the share options granted during the year was US$734,108 (approximately US$0.78 each), of which the Group recognised a share option expenses of US$17,479 during the year ended 31 December 2020.

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 management's best estimate for the effects of non-transferability and exercise restrictions (including the probability of meeting market conditions attached to the options); and terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

| 2020
Dividend yield (%) | 3.55
Expected volatility (%) | 38.89
Risk-free interest rate (%) | 0.46
Expected life of options (years) | 6.5
Weighted average share price (US$ per share) | 4.85

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

32. | SHARE OPTION SCHEME (continued)

The expected life of the options is based on the historical data over the past years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

At the end of the reporting period, YCP Holdings Limited had 938,804 share options outstanding under the Scheme. The exercise in full of the outstanding share options would, under the present capital structure of YCP Holdings Limited, result in the issue of 938,804 additional ordinary shares and additional share capital of US$4,694,020 (before issue expenses).

Subsequent to the end of the reporting period, on 1 March 2021, a total of 55,465 share options were granted to certain employees in respect of their services to the Group in the forthcoming year. These share options have the same vesting conditions under the Scheme.

33. | BUSINESS COMBINATIONS

On 31 July 2020, Lifemate Veterinary Hospital, Inc. entered into (i) a sale and purchase agreement to acquire 100% equity interest in Ecoroguard, a company principally engaged in the operation of veterinary hospital; and (ii) a debt assignment agreement to settle certain the total debts payable to the ex-shareholders of Ecoroguard. The total consideration for the equity interest and the debt assignment amounted to approximately JPY189,000,000 (approximately equivalent to US$1,825,736) in the form of cash.

On 31 January 2020, YCP Holdings Limited entered into (i) a sale and purchase agreement to acquire 100% equity interest in J-Foods, a company principally engaged in the operation of Japanese style restaurants; and (ii) a debt assignment agreement to settle certain the total debts payable to the ex-shareholders of J-Foods. The total consideration for the equity interest and the debt assignment amounted to approximately JPY60,000,000 (approximately equivalent to US$553,083) in the form of cash. The acquisition resulted in a gain on bargain purchase of US$1,590,312, which is attributable to the Group’s bargaining power and ability in negotiating the agreed terms of the transaction with the seller.

In December 2019, YCP Holdings Limited acquired a business which is involved in the production, sale and distribution of food products, from a third party. The acquisition was made as part of the Group's strategy to expand its food and beverage business. The purchase consideration of SGD150,000 (equivalent to US$110,990) for the acquisition was in the form of cash.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

33. | BUSINESS COMBINATIONS (continued)

The fair values of the identifiable assets and liabilities of the above acquisitions as at the dates of acquisitions were as follows:

|  | 2020
|  | Fair value recognised on acquisition of
| Note | Ecoroguard | J-Food | Total
|  | US$ | US$ | US$
Property, plant and equipment | 12 | 325,541 | 693,284 | 1,018,825
Other intangible assets | 14 | 690 | 108 | 798
Deferred tax assets | 29 | 20,061 | – | 20,061
Right-of-use assets | 12 | 254,340 | 1,515,649 | 1,769,989
Trade receivables |  | 63,786 | 16,936 | 80,722
Prepayments, deposits and other receivables |  | 153,039 | 1,516,184 | 1,669,223
Inventories |  | 48,158 | 72,204 | 120,362
Cash and bank balances |  | 48,452 | 273,470 | 321,922
Lease liabilities | 27 | (254,340) | (1,515,649) | (1,769,989)
Trade payables |  | (172,997) | (134,668) | (307,665)
Other payables and accruals |  | (202,797) | (294,123) | (496,920)
Deferred tax liabilities | 29 | (24,185) | – | (24,185)
Total identifiable net assets at fair value |  | 259,748 | 2,143,395 | 2,403,143
Gain on bargain purchase | 5 | – | (1,590,312) | (1,590,312)
Goodwill on acquisitions | 13 | 1,565,988 | – | 1,565,988
|  | 1,825,736 | 553,083 | 2,378,819

Cash consideration |  | (1,825,736) | (553,083) | (2,378,819)
Cash and bank balances acquired |  | 48,452 | 273,470 | 321,922
Net cash outflow |  | (1,777,284) | (279,613) | (2,056,897)

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

33. | BUSINESS COMBINATIONS (continued)

| Note | 2019
|  | Fair value recognised on acquisition of Go-Food
|  | US$
Total identifiable net assets at fair value |  | –
Goodwill on acquisition | 13 | 110,990
|  | 110,990
Consideration, representing net cash outflow |  | (110,990)

J-Foods contributed revenue of US$3,171,262 and loss of US$751,473; and Ecoroguard contributed revenue of US$587,008 and profit of US$113,622 to the Group for the year ended 31 December 2020. Had the business combinations of J-Foods and Ecoroguard taken place at the beginning of 2020, the revenue and profit of the Group for the year ended 31 December 2020 would have been US$60,775,719 and US$6,280,076 , respectively.

Go-Food contributed revenue of US$152,525 and loss of US$9,667. Had the business combination of Go-Food taken place at the beginning of 2019, the revenue and loss of the Group for the year ended 31 December 2019 would have been US$52,279,788 and US$1,328,087.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

34. | DISPOSAL OF SUBSIDIARIES AND BUSINESSES

| Note | 2020 | 2019
|  | US$ | US$
Net assets disposed of: |  |  |
Property, plant and equipment | 12 | 16,573 | 77,822
Right-of-use assets | 12 | – | 216,167
Goodwill | 13 | – | 208,532
Other intangible assets | 14 | 142,158 | 13,501
Inventories |  | 27,849 | 794
Trade receivables |  | 25,464 | 268,962
Prepayments, deposits and other receivables |  | 72,617 | 223,445
Cash and bank balances |  | 21,084 | 202,407
Trade payables |  | (10,732) | (290,731)
Other payables and accruals |  | (62,935) | (639,649)
Interest-bearing bank and other borrowings |  | (58,539) | (68,013)
Income tax payable |  | (17,581) | (19,607)
Deferred tax liabilities | 29 | – | (32,128)
Lease liabilities | 27 | – | (221,340)
Total identifiable net assets at fair value |  | 155,958 | (59,838)
Gain on disposal of subsidiaries and businesses | 5,6 | 466,537 | 509,841
Satisfied by cash |  | 622,495 | 450,003

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries and businesses is as follows:

| 2020 | 2019
| US$ | US$
Cash consideration | 622,495 | 450,003
Cash and bank balances disposed of | (21,084) | (202,407)
Cash consideration and net inflow of cash and cash equivalents in respect of the disposal of subsidiaries and businesses | 601,411 | 247,596

35. | NOTES TO THE STATEMENT OF CASH FLOWS

(a) | Major non-cash transactions

During the year 31 December 2020, the Group had non-cash additions to right-of-use assets and lease liabilities of US$3,645,562 (2019: US$2,653,846) and US$3,645,562 (2019: US$2,653,846), respectively.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

35. | NOTES TO THE STATEMENT OF CASH FLOWS (continued)

(b) | Changes in liabilities arising from financing activities

| Lease liabilities | Interest-bearing bank and other borrowings (excluding bank overdrafts)
| US$ | US$
At 1 January 2019 | 5,245,122 | 14,411,672
Changes from financing cash flows | (2,795,276) | 749,307
New leases | 2,653,846 | –
Decrease arising from early termination of leases | (39,622) | –
Decrease arising from disposal of subsidiaries and businesses (Note 34) | (221,340) | (68,013)
Interest expenses | 113,785 | –
Interest paid classified as operating cash flows | (113,785) | –
Foreign exchange movement | (12,055) | 182,106
At 31 December 2019 and 1 January 2020 | 4,830,675 | 15,275,072
Changes from financing cash flows | (3,796,142) | (1,452,580)
New leases | 3,645,562 | –
Increase arising from acquisition of subsidiaries | 1,769,989 | –
Decrease arising from early termination of leases | (862,057) | –
Decrease arising from disposal of subsidiaries and businesses (Note 34) | – | (58,539)
Interest expenses | 147,840 | –
Interest paid classified as operating cash flows | (147,840) | –
Covid-19-related rent concessions from lessors | (791,495) | –
Foreign exchange movement | 68,320 | 854,136
At 31 December 2020 | 4,864,852 | 14,618,089

(c) | Total cash outflow for leases

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

| 2020 | 2019
| US$ | US$
Within operating activities | 263,090 | 373,199
Within financing activities | 3,943,982 | 2,909,061
| 4,207,072 | 3,282,260

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

36. | RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with the related parties during the year 31 December 2020 and 2019:

(a) On 13 November 2020, YCP Holdings limited allotted 25,000 ordinary shares to certain directors, which provided US$125,000 to the Group for working capital purpose.

In January 2019, YCP Holdings Limited disposed of a subsidiary, YCP Shanghai Inc., and Rainbow Bird Inc, to a shareholder of YCP Holdings Limited at a consideration of RMB 1 (equivalent to approximately US$-), which was mutually agreed between the parties and resulted in a gain on disposal of approximately US$251,000.

(b) Outstanding balances with related parties:

As disclosed in the statement of financial position, the Group had outstanding balances with a director as at 31 December 2019, particulars of which are set out in note 28 to the financial statements.

(c) Compensation of key management personnel of the Group:

| 2020 | 2019
| US$ | US$
Short term employee benefits | 2,918,640 | 2,751,533
Share option expenses | 2,170 | –
| 2,920,810 | 2,751,533

Further details of the directors' emoluments are included in note 9 to the financial statements.

37. | FINANCIAL INSTRUMENTS BY CATEGORY

| 2020 | 2019
| US$ | US$
Financial assets |  |
Financial assets at fair value through profit or loss – designated as such upon initial recognition: |  |
Derivative financial instruments mandatorily designated as such: |  |
Derivative financial instruments | – | 1,117,217
Equity investments at fair value through profit or loss | 9,954,946 | 8,599,580
Loans and receivables: |  |
Trade receivables | 6,964,543 | 6,692,593
Financial assets included in prepayments, deposits and other receivables | 2,995,384 | 2,510,320
Cash and bank balances | 9,906,705 | 8,494,881
| 29,821,578 | 27,414,591

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

37. | FINANCIAL INSTRUMENTS BY CATEGORY (continued)

| 2020 | 2019
| US$ | US$
Financial liabilities at amortised cost: |  |
Trade payables | 2,012,490 | 1,654,769
Financial liabilities included in other payables and accruals | 4,831,610 | 5,543,879
Interest-bearing bank and other borrowings | 14,703,004 | 15,476,791
Lease liabilities | 4,864,852 | 4,830,675
Due to a director | – | 301,232
Other liabilities | 6,120,276 | 6,444,150
| 32,532,232 | 34,251,496

38. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

Fair value hierarchy

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 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly

Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

Fair value measurements that use inputs of different hierarchy levels are categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

38. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Assets and liabilities not measured at fair value

Management has assessed that the fair values of trade receivables, deposits and other receivables, cash and bank balances, trade payables, other payables and accruals, current portion of interest-bearing bank and other borrowings, an amount due to a director and other liabilities approximate to their carrying amounts largely due to the short term maturities of these instruments, no material change in credit risk of counterparty, or with floating interest rates.

The fair values of the non-current portion of interest-bearing bank and other borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The changes in fair value as a result of the Group's non-performance risk for interest-bearing bank and other borrowings as at 31 December 2020 and 2019 were assessed to be insignificant.

Financial assets and liabilities measured at fair value

The following table illustrate the fair value measurement hierarchy of the Group's financial instruments as at 31 December 2020:

Financial instruments measured at fair value

|  | Fair Value measurement using
|  | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total
|  | US$ | US$ | US$ | US$
Financial asset |  |  |  |  |
Equity investment at fair value through profit or loss |  | 9,954,946 | – | – | 9,954,946

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

38. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Financial assets and liabilities measured at fair value (continued)

The following table illustrates the fair value measurement hierarchy of the Group's financial instruments as at 31 December 2019:

|  | Fair Value measurement using
|  | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total
|  | US$ | US$ | US$ | US$
Financial asset |  |  |  |  |
Equity investment at fair value through profit or loss |  | 8,599,580 | – | – | 8,599,580
Derivative financial instruments |  | – | – | 1,117,217 | 1,117,217
|  | 8,599,580 | – | 1,117,217 | 9,716,797

Quoted prices in active markets (Level 1)

The fair value of the listed equity investment in Japan is derived from quoted prices in active markets.

Significant unobservable inputs (Level 3)

Below is a summary of significant unobservable inputs to the valuation of derivative financial instruments together with a quantitative sensitivity analysis as at 31 December 2019:

| Valuation technique | Significant unobservable input | Value | Sensitivity of fair value to the input
Derivative financial instruments | Binomial tree pricing model | Underlying equity price per share | US$4.77 | 5% increase/(decrease) in price per share would result in fair value increase/(decrease) by US$55,861/US$(55,861)

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

38. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

There have been no transfers between Level 1 and Level 2 during the year (2019: Nil), and no transfer into or out of Level 3 for financial assets (2019:Nil). The movements in fair value measurement of the financial assets at fair value through profit or loss - designated as such upon initial recognition in Level 3 during the year were presented in Note 25 of the combined financial statement.

Financial assets and liabilities not measured at fair value, for which fair value is disclosed

| Carrying amount | Fair value | Significant observable inputs (Level 2)
| US$ | US$ | US$
Interest-bearing bank and other borrowings - non-current portion |  |  |
31 December 2020 | 10,630,251 | 11,087,456 | 11,087,456
31 December 2019 | 10,691,074 | 11,247,476 | 11,247,476
1 January 2019 | 9,333,582 | 9,771,525 | 9,771,525

Determination of fair value

The fair values as disclosed in the table above are estimated by discounting expected future cash flows at the market incremental lending rate.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group's principal financial instruments comprise interest-bearing bank and other borrowings, lease liabilities, an amount due to a director and other liabilities. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Group's financial instruments are interest rate risk, credit risk, liquidity risk, foreign currency risk and equity price risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group's exposure to the risk of changes in market interest rate risks relates primarily to the Group's interest-bearing bank borrowings with floating interest rates. The effective interest rates and terms of repayment of the interest-bearing bank and other borrowings of the Group are disclosed in Note 26 to the financial statements. Interest rate risk is managed on an ongoing basis with the primary objective of limiting the extent to which net interest expense could be affected by adverse movements in interest rates.

Assuming the bank borrowings and other outstanding at the end of the reporting period were outstanding for the whole year, a 100 basis point increase/decrease in interest rates would decrease/increase the Group's profit before tax for the current year by approximately US$147,030 (2019: US$154,768). In the opinion of the directors, the sensitivity to the interest rate used above is considered reasonable with the other variables held constant.

Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in a loss to the Group. The Group’s exposure to credit risk arises primarily from trade and other receivables. For other financial assets (mainly cash at banks), the Group minimises credit risk by dealing exclusively with high credit rating counterparties.

The Group has adopted a policy of only dealing with creditworthy counterparties. The Group performs ongoing credit evaluation of its counterparties’ financial condition and generally do not require a collateral.

The Group considers the probability of default upon initial recognition of asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period.

The Group has determined the default event on a financial asset to be when internal and/or external information indicates that the financial asset is unlikely to be received or when there is significant difficulty of the counterparty.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risk (continued)

To minimise credit risk, the Group has developed and maintained the Group’s credit risk gradings to categorise exposures according to their degree of risk of default. The credit rating information is supplied by publicly available financial information and the Group’s own trading records to rate its major customers and other debtors. The Group considers available reasonable and supportive forward-looking information which includes the following indicators:

- Internal credit rating

- Actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the debtor’s ability to meet its obligations

The Group determined that its financial assets are credit-impaired when:

- There is significant difficulty of the debtor

- A breach of contract, such as a default or past due event

- It is becoming probable that the debtor will enter bankruptcy or other financial reorganisation

The Group categorises a receivable for potential write-off when there is evidence indicating that the debtor is in severe financial difficulty and the debtor has no realistic prospect of recovery.

Maximum exposure and year-end staging

The table below shows 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 31 December 2020. The amounts presented are gross carrying amounts for financial assets.

| 12-month ECLs | Lifetime ECLs
| Stage 1 | Stage 2 | Stage 3 | Simplified approach | Total
| US$ | US$ | US$ | US$ | US$
As at 31 December 2020 |  |  |  |  |
Trade receivables* | – | – | – | 7,060,380 | 7,060,380
Contract assets* | – | – | – | 698,571 | 698,571
Financial assets included in prepayments, deposits and other receivables |  |  |  |  |
- Normal** | 2,995,384 | – | – | – | 2,995,384
Cash and bank balances | 9,906,705 | – | – | – | 9,906,705
| 12,902,089 | – | – | 7,758,951 | 20,661,040

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

| 12-month ECLs | Lifetime ECLs
| Stage 1 | Stage 2 | Stage 3 | Simplified approach | Total
| US$ | US$ | US$ | US$ | US$
As at 31 December 2019 |  |  |  |  |
Trade receivables* | – | – | – | 6,838,143 | 6,838,143
Financial assets included in prepayments, deposits and other receivables |  |  |  |  |
- Normal** | 2,510,320 | – | – | – | 2,510,320
Cash and bank balances | 8,494,881 | – | – | – | 8,494,881
| 11,005,201 | – | – | 6,838,143 | 17,843,344

* For trade receivables and contract assets to which the Group applies the simplified approach for impairment, information is disclosed in Note 19 to the financial statements.

** The credit quality of the financial assets included in prepayments, deposits and other receivables 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".

The Group trades only with recognised and creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis.

Further quantitative data in respect of the Group's exposure to credit risk arising from trade receivables and contract assets are disclosed in Note 19 to the financial statements.

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets and projected cash flows from operations. The Group's objective is to maintain a balance between continuity of funding and flexibility.

The maturity profile of the Group's financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

| On demand | Within 1 year | 1 to 5 years | Over 5 years | Total
2020 | US$ | US$ | US$ | US$ | US$
Trade payables | – | 2,012,490 | – | – | 2,012,490
Financial liabilities included in other payables and accruals | – | 4,831,610 | – | – | 4,831,610
Interest-bearing bank and other borrowings (excluding lease liabilities) | 84,915 | 4,305,903 | 9,856,994 | 1,230,462 | 15,478,274
Lease liabilities | – | 3,131,106 | 1,840,687 | – | 4,971,793
Other liabilities | – | 5,198,955 | 921,321 | – | 6,120,276
| 84,915 | 19,480,064 | 12,619,002 | 1,230,462 | 33,414,443

| On demand | Within 1 year | 1 to 5 years | Over 5 years | Total
2019 | US$ | US$ | US$ | US$ | US$
Trade payables | – | 1,654,769 | – | – | 1,654,769
Financial liabilities included in other payables and accruals | – | 5,535,397 | 8,482 | – | 5,543,879
Due to a director | – | 301,232 | – | – | 301,232
Interest-bearing bank and other borrowings (excluding lease liabilities) | 201,719 | 4,892,108 | 11,125,916 | 121,560 | 16,341,303
Lease liabilities | – | 2,834,391 | 2,093,030 | 18,257 | 4,945,678
Other liabilities | – | 6,444,150 | – | – | 6,444,150
| 201,719 | 21,662,047 | 13,227,428 | 139,817 | 35,231,011

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Foreign currency risk

The Group's exposure to the risk of changes in foreign currency exchange rates relates primarily to the Group's operating activities to the extent that revenue or expenses denominated in a currency that is different from the functional currency of the relevant subsidiaries of the Group. The Group has no significant foreign currency risk because the transaction currencies are mainly denominated in the respective local currency of the operating subsidiaries, principally the JPY, SGD, HK$ and RMB which are translated and combined to the Group's combined financial statement in US$.

The directors are of the view that the Group's operating cash flows and liquidity are not subject to significant foreign exchange rate risks and therefore no hedging arrangements were made. However, the Group will review and monitor the relevant foreign exchange exposure from time to time based on its business development requirements and may enter into foreign exchange hedging arrangements when appropriate.

Equity price risk

Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the levels of equity indices and the values of individual securities. The Group is exposed to equity price risk arising from individual listed equity investments classified as equity investment at fair value through profit or loss (Note 17) as at 31 December 2020.

The Group's listed investment is listed on the Tokyo Stock Exchange and are valued at quoted market prices at the end of the reporting period.

The market equity index for the Tokyo Stock Exchange, at the close of business of the nearest trading day in the year to the end of the reporting period, and the respective highest and lowest points during the year were as follows:

| 2020 | High/low | 2019 | High/low
| US$ | US$ | US$ | US$
Nikkei index | 27,444 | 27,603/16,358 | 23,657 | 24,066/19,562

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

39. | FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Equity price risk (continued)

The following table demonstrates the sensitivity to every 5% change in the fair values of the equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the listed equity investments designated at fair value through profit or loss, the impact is deemed to be on the profit before tax.

| Carrying amount of equity investment | Changes in profit before tax
| US$ | US$
2020 |  |
Equity investment in Japan |  |
Equity investment at fair value through profit or loss (Note 17) | 9,954,946 | 497,747
2019 |  |
Equity investment in Japan Equity investment at fair value through profit or loss (Note 17) | 8,599,580 | 429,979

40. | CAPITAL MANAGEMENT

The primary objectives of the Group's capital management are to safeguard the Group's ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders' value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies or processes for managing capital during the year ended 31 December 2020 and 2019.

The Group monitors capital by ensuring that it maintain a positive net assets value. Net assets attributable to owners of the parent represent share capital, exchange fluctuation reserve and retained profits. The net assets value attributable to owners of the parent at 31 December 2020 and 2019 were as follows:

| 2020 | 2019
| US$ | US$
Reserves | 14,987,118 | 8,445,619
Equity attributable to owners of the parent | 14,987,118 | 8,445,619

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

41. | SUBSEQUENT EVENTS

(a) Subsequent to the reporting period, the Group entered into a sale and purchase agreement to acquire the remaining 50% equity interest in Musashino Gobyo, a company principally engaged in the supporting service for graveyard. The total consideration for the equity interest amounted to JPY16,000,000 (approximately equivalent to US$154,085) was prepaid to the ex-shareholder in December 2020, recognised as prepayments in the combined statement of financial position. Subsequent to the acquisition of the remaining 50% equity interest, the joint venture investment in Musashino Gobyo will become a wholly-owned subsidiary of the Group thereafter. The Group is in the process of assessing the impact of the acquisition and it is not practicable to disclose further details about the acquisition.

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

| US$
Property, plant and equipment | 32,461
Deferred tax assets | 292,480
Right-of-use assets | 49,920
Trade receivables | 48,530
Prepayments, deposits and other receivables | 13,934
Cash and bank balances | 89,482
Lease liabilities | (49,920)
Trade payables | (4,237)
Other payables and accruals | (215,996)
Interest-bearing bank and other borrowings | (1,897,146)
Total identifiable net assets at fair value | (1,640,492)
Goodwill on acquisitions | 1,794,577
Satisfied by cash | 154,085

YCP Holdings (Global) Limited

Notes to Combined Financial Statements

For the financial years ended 31 December 2019 and 2020

41. | SUBSEQUENT EVENTS (continued)

(b) Subsequent to the reporting period, the Group entered into a sale and purchase agreement to acquire the equity interest in Sapporo Midorigaoka Veterinary Hospital, a company principally engaged in the operation of veterinary hospital. The total consideration for the equity interest amounted to JPY127,000,000 (approximately equivalent to US$1,205,163). The Group is in the process of assessing the impact of the acquisition and it is not practicable to disclose further details about the acquisition.

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

| US$
Property, plant and equipment | 49,244
Other intangible assets | 242,124
Deferred tax assets | 202,205
Right-of-use assets | 542,843
Prepayments, deposits and other receivables | 113,507
Inventories | 41,899
Lease liabilities | (542,843)
Other payables and accruals | (22,754)
Total identifiable net assets at fair value | 626,225
Goodwill on acquisitions | 578,938
Satisfied by cash | 1,205,163

42. | APPROVAL OF THE COMBINED FINANCIAL STATEMENTS

The combined financial statements were approved and authorised for issue by the board of directors on 19 October 2021.

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