2015 Annual Report Financial Statements

Financial Statements

Consolidated Balance Sheet million RMB yuan

2014 2015
Current assets
Cash and cash equivalent 312,079.87 342,772.93
Financial assets at fair value through profit or loss 15,889.06 8,386.01
Bills and accounts receivable 134,903.03 132,646.36
Prepayments 155,799.42 252,184.67
Other accounts receivables 55,360.92 21,331.55
Inventories 271,559.06 228,310.10
Other current assets 86,569.57 106,604.43
Total current assets 1,032,160.93 1,092,236.05
Fixed assets
Available-for-sale financial assets 111,994.01 105,723.80
Held-to-maturity investments 105,424.55 109,347.69
Long-term equity investments 136,425.59 93,055.99
Fixed assets-net value 814,374.81 891,011.90
Construction in progress 365,498.23 340,766.92
Oil and gas assets 959,201.39 957,299.20
Intangible assets 82,562.46 86,054.09
Other fixed assets (other long-term assets) 298,653.88 358,602.15
Total fixed assets 2,874,134.92 2,941,861.74
Total Assets 3,906,295.85 4,034,097.79
Current liabilities
Short-term loans 109,804.13 55,361.49
Bills and accounts payable 374,438.30 320,601.92
Prepayments 83,494.86 80,306.50
Employee pay payable 21,306.06 21,311.56
Taxes payable 62,837.70 48,134.39
Other payables 111,929.05 88,431.51
Other current liabilities 350,156.19 450,122.04
Total current liabilities 1,113,966.29 1,064,269.41
Non-current liabilities
Long-term loans 13,323.57 17,266.61
Estimated liabilities 114,240.95 124,243.92
Deferred income tax liabilities 24,007.67 23,621.25
Other non-current liabilities 417,441.83 406,407.95
Total non-current liabilities 569,014.02 571,539.73
Total liabilities 1,682,980.31 1,635,809.14

44
 Financial Statements 2015 Annual Report

Consolidated Balance Sheet (continued) million RMB yuan

2014 2015
Owners equity
Paid-in capital 468,007.69 486,855.00
Other equity instruments 109,540.88 209,511.78
Capital reserves 264,289.14 275,212.89
Other comprehensive income -33,637.66 -44,117.41
Special reserves 29,894.05 30,961.72
Surplus reserves 1,082,961.47 1,105,198.51
General risk preparation 7,072.37 7,752.71
Retained profits 18,143.69 8,020.88
Total owners' equity attributable to parent company 1,946,271.63 2,079,396.08
Minority interests 277,043.91 318,892.57
Total owners' equity 2,223,315.54 2,398,288.65
Total liabilities and owners' equity 3,906,295.85 4,034,097.79

Consolidated Profit Statement million RMB yuan

2014 2015
Operating income 2,729,956.16 2,016,756.66
Income from core businesses 2,725,330.68 2,012,901.65
Income from other businesses 4,625.48 3,855.01
Less: Operating cost 2,085,698.82 1,513,431.54
    Cost of core businesses 2,081,554.94 1,510,337.27
    Cost of other businesses 4,143.88 3,094.27
   Business tax and supertax 237,755.67 207,785.05
  Sales expenses 73,361.80 73,581.19
  Management expenses 114,585.63 107,646.79
  Financial expenses 22,984.11 3,623.02
   Loss on depreciation of assets 19,454.29 40,875.23
  Others 23,896.80 19,823.55
Plus: Income from change in fair value (Loss is presented with "-") 50.08 -15.94
   Income from investments (Loss is presented with "-") 18,522.42 33,034.59
Operating profit (Loss is presented with "-") 170,791.54 83,008.94
  Plus: Non-operating income 17,983.14 15,440.45
  Less: Non-operating expense 15,364.71 15,980.55
Total profit (Loss is presented with "-") 173,409.97 82,468.84
  Less: Income tax expense 49,565.29 26,226.96
Net profit 123,844.68 56,241.88
Net profit attributable to owners' equity of the parent company 100,798.25 44,560.43
Loss and gain from minority 23,046.43 11,681.45

45
2015 Annual Report Financial Statements

Notes to the Financial Statements

A. Description of Principal Accounting asset measured at fair value is converted into RMB yuan at the spot
exchange rate for the date when the fair value was determined, with the
Policies and Accounting Estimates difference thus caused taken into the current profits and losses as a change
in fair value.
1. Accounting standard and accounting system
(2) Conversion of financial statement in foreign currency
CNPC (hereinafter referred to as the Company) follows Accounting
All asset and liability items presented in Foreign Currency Balance Sheet are
Standards for Business Enterprises––Basic Principles and the specific rules
converted into RMB yuan at spot exchange rate on the balance sheet date;
of accounting standards, guidelines for the application of accounting
the owner's equity other than "undistributed profit" is converted at spot
standards, interpretations of accounting standards and relevant regulations
exchange rate when occurred. Foreign incomes and expenses presented in
issued by the Ministry of Finance.
the Income Statement are converted at the average of reference rates for
2. The fiscal period RMB announced by PBC on a daily basis over the period of time covered by
the income statement.
The fiscal period starts on January 1 and ends on December 31 each
calendar year. The opening balances of cash and cash equivalents in the Foreign Currency
Cash Flow Statement are converted at statement's initial exchange rate;
3. Standard accounting currency and the closing balances are converted at the spot exchange rate on
the balance sheet date. And other items are converted at the arithmetic
The Company and most of its subsidiaries adopt RMB yuan as currency
average of reference rates for RMB announced by PBC on a daily basis
used in bookkeeping. The combined financial statement of the Company is
over the period of time covered by the cash flow statement. The
listed in RMB yuan.
converted difference of cash flow statement arising from the conversions
4. Accounting basis and valuation mentioned above is presented separately in Effect of the Change of
Exchange Rate on Cash.
Accounting is based on the accrual system. Unless otherwise specified, all
assets are measured at historical cost. 6. Recognition of cash and cash equivalents

5. Foreign currency accounting and conversion of financial The cash presented in the Cash Flow Statement comprises cash in hand
statements in foreign currency and the deposits available for payment from time to time. Cash equivalents
presented in the Cash Flow Statement are short-term (mature within three
(1) Foreign currency transaction
months), highly liquid investments that are readily convertible into cash
Our foreign currency transactions are converted into RMB yuan at the spot and almost have no risk of change in value.
exchange rate on the days the transactions occurred; the monetary foreign
currency items on the balance sheet date are converted into RMB yuan 7. Financial instruments
at the spot exchange rate on the balance sheet date. The exchange gains Financial instruments include financial assets, financial liabilities and
and losses arising from these translations that occurred in construction comprehensive income.
preparation, production and operation are taken into financial expenses;
(1) Categorization of financial instruments
those related to the acquisition and construction of fixed asset, oil and
gas asset and other assets in line with the capitalization condition are Financial instruments, based on the purpose of obtaining a financial asset or
handled according to relevant provisions about borrowing costs; and those assuming a financial liability, are categorized into: financial assets at fair value
occurred in the period of liquidation are taken into liquidation gain or loss. through profit or loss; loans and receivables; available-for-sale financial assets;
held-to-maturity investments; and other financial liabilities etc.
A non-monetary foreign currency asset measured at historical cost is
converted into RMB yuan at the spot exchange rate on the trading day, (2) Recognition and measurement of financial instruments
with its amount in RMB yuan unchanged. A non-monetary foreign currency a. Financial assets at fair value through profit or loss (financial liabilities)

46
 Financial Statements 2015 Annual Report

Financial assets/liabilities are initially recognized at fair value (minus: cash e. Other financial liabilities
dividends declared but unpaid or interests on bonds due but unpaid), with
Other financial liabilities are initially recognized at fair value plus the
the transaction costs stated in profit and loss accounts.
transaction costs and measured at amortized cost. The Company's other
Interests or cash dividends from the assets held are recognized as financial liabilities include accounts payable, borrowings and notes
investment income. End-of-period change in fair value is recognized in payable etc.
profit or loss. When disposed, the difference between its fair value and
(3) Recognition and measurement of finanicial assets transfer
initially recognized amount is recognized as gain/loss on investment, and
its gain/loss on changes in fair value is adjusted accordingly. Upon the transfer of a financial asset, if all or a substantial part of the risks
and rewards incidental to ownership of the asset are tansferred to the
b. Receivables
transferee, the asset should be derecognized; if all or a substantial part of
Accounts receivable for goods supplied and/or services rendered as well the risks and rewards incidental to ownership of the asset are retained, the
as debts of other enterprises other than debt instruments quoted in asset should not be derecognized.
active market, including accounts receivable, notes receivable and other
To decide whether the transfer of a financial asset will lead to the
receivables, are initially recognized at the contractual amount due from the
derecognition of such asset, the "substance over form" principle shall
buyer; a receivable for financing is initially recognized at its present value
apply. There are two types of asset transfer, i.e. full and partial. When a full
and measured at amortized cost using the effective interest method; when
asset transfer is eligible for the derecognition of such asset, the difference
recovered or disposed, the difference between the price of obtaining such
between the two items listed below should be recorded into profits or
investment and the book value of receivable shall be determined as the
losses of the current period:
income statement.
a. The carrying value of the financial asset being tranferred;
c. Available-for-sale financial assets
b. The consideration received for the transfer, plus the accumulative
Available-for-sale financial assets are initially recognized at fair value (minus:
amount of the changes in fair value originally recorded in owner's equity
cash dividends declared but unpaid or interests on bonds due but unpaid)
(when the financial asset being transferred falls under the category of
plus the transaction costs. Interests or cash dividends from the assets held
available-for-sale financial asset).
are recognized as investment income. End-of-period fair value is measured
and the change in fair value is recognized in other comprehensive (4) Derecognization of financial liabilities
income. When disposed, the difference between the acquisition cost and A financial liability should be derecognized in whole or in part when
the carrying value is recorded as investment income; meanwhile, the the present obligation is fully or partially discharged; if the Company
accumulative amount of the changes in fair value originally recorded in signs an arrangement with its creditor on replacing an exisiting financial
owner’s equity and corresponding to the disposition is recorded into losses liability with a new financial liability on the terms and conditions that
from investment. are substantially different from those of the existing financial liability, the
d. Held-to-maturity investments exsisting financial liability should be derecognized and, at the same time,
the new financial liability should be recognized. For an existing financial
Held-to-maturity investments are initially recognized at fair value (minus:
liability with substaintial changes in all or part of its terms and conditions,
interests on bonds due but unpaid) plus the transaction costs. Interests
the existing financial liabilty should be derecognized in whole or in
from the assets held are measured at amortized cost using the effective
part and such financial liability should be recognized as a new financial
interest method and recorded as investment income. The effective
liabilty on the revised terms and conditions. When a financial liability is
interest rate is determined upon acquisition and remains unchanged in
derecognized in whole or in part, the difference between the carrying value
the expected life thereof or a shorter period of time, if applicable. When
of financial liability derecognized and the consideration paid (including a
disposed, the difference between the acquisition cost and the carrying
non-cash asset being transferred or a new financial liability being assumed)
value is recorded into profits from investment.
should be recorded into profits or losses of the current period. For a partial

47
2015 Annual Report Financial Statements

repurchase of a financial liability, the carrying value of the financial liability 8. Inventories
as a whole should be allocated between the derecognized part and the
(1) Categories of inventory
retained part at their relative fair values on the date of such repurchase. The
difference between the carrying value of the financial liability derecognized Raw materials, work in progress and semi-finished goods, finished goods,
and the consideration paid (including a non-cash asset being transferred goods sold etc.
or a new financial liability being assumed) should be recorded in profits or (2) Acquisition and sales valuation for inventory
losses of the current period.
Inventories are carried at the actual cost when acquired, using perpetual
(5) Determination of fair value for financial assets and liabilities inventory method; actual cost of delivered or sold inventories are carried at
For an asset or liaiblity measured at fair value, the fair value should be weighted average.
determined based on the following assumptions: (3) Amortization of low-value consumption goods and packing materials
a. Fair value measurement assumes an orderly transaction between market Low-value consumption goods and packing materials are amortized using
participants at the measurement date under current market conditions; one-off amortization method when they are put into use.
b. Fair value measurement assumes a transaction taking place in the (4) Year-end inventory valuation, impairment recognition and inventory
principal market for the asset or liability, or in the absence of a principal provision
market, the most advantageous market for the asset or liability;
Year-end inventories are carried at the lower of cost and net realizable
c. The appropriate assumptions that market participants would use in value. Based on wall-to-wall inventory at the end of the period, provision
pricing to maximize their economic benefits. for inventory write-down is retained at the difference between cost and net
A fair value measurement of a non-financial asset takes into account realizable value of inventory on the individual item basis in the following
a market participant’s ability to generate economic benefits by using circumstances, where the net realizable value is lower than the cost. For
the asset in its highest and best use or by selling it to another market inventory of large quantity and low unit price, provision for inventory write-
participant that would use the asset in its highest and best use. down may be recognized by category. The net realizable value is expected
selling price less estimated complete cost, selling cost and related tax.
(6) Impairment of financial assets
a. The market price of inventory continues to fall with no hope of recovery
An assessment of carrying value of financial assets, except for financial
in the foreseeable future;
assets at fair value through profit or loss, is made at the balance sheet date
to determine whether there is objective evidence of impairment. b. The product using the raw material is manufactured at a cost higher than
the selling price thereof;
(7) Entrusted loans
c. The existing raw material fails to meet the needs of new products as a
a. Valuation of entrusted loans and recognition of interests
result of product upgrading and the market price of such raw material is
Entrusted loans are accounted for at the actual amount being entrusted. lower than its carrying cost;
The accrued interest receivable at the end of the reporting period is
d. The goods or services are obsolete or there is a preference-driven
recorded as investment income. For accrued interest that is due and
change in market needs, resulting in a gradual decline in the market price
irrecoverable, the accrual of interest should be stopped and withdrawn.
thereof;
b. Recognition of and provision for impairment of entrusted loans
e. Other circumstances demonstrating a substantial impairment of
A comprehensive review of entrusted loans is conducted at the end of the inventory.
reporting period. If the result indicates the impairment of entrusted loans,
the carrying value of such entrusted loans is written down to its present 9. Long-term equity investment
value of estimated future cash flows, with the amount of impairment (1) Determination of investment costs
recognized in profits or losses of the current period.
For a long-term equity investment obtained through a combination of
entities under common control, the carrying value of the owner's equity in
the combined entity stated in the ultimate controlling party's consolidated
financial statements should be recognized on the combination date as

48
 Financial Statements 2015 Annual Report

investment cost. For a long-term equity investment obtained through a comprehensive income in relation to that investment are accounted for
combination of entities not under common control, the combination cost on the same basis as would have been required if the investee had directly
should be accounted for the cost of the long-term equity investment. disposed of the related assets or liabilities. The changes in the owner's
For long-term equity investments obtained in a manner other than equity other than those arising from the investee's net profit or loss, other
combination of entities, if a long-term equity investment is obtained comprehensive income and profit distribution are transferred to profits or
through payment of cash, the actual purchase price thus paid should be losses of the current period in proportion.
recognized as initial cost of the long-term equity investment; if a long-term
(3) Determination of the basis for joint control and significant influence
equity investment is obtained through issuing equity securities, the fair
over the investee
value of the equity securities being issued should be recognized as initial
cost of investment. Joint control means the contractually agreed sharing of control of an
arrangement which exists only when decisions about the relevant activities
(2) Subsquent measurement and profits & losses recognition
require the unanimous consent of the parties sharing control. A joint
a. Long-term equity investments under cost method venture is a joint arrangement whereby the parties that have joint control
of the investee have rights to the net assets of the investee.
The Company's long-term equity investments in its subsidiaries are
accounted for using the cost method. In addition to the cash dividends or Significant influence means the power to participate in the financial and
profits declared but not yet paid as included in the price or consideration operating policy decisions of the investee but not control or joint control of
actually paid upon acquisition, the cash dividends or profits that the those policies. For an investor with significant influence over the investee,
investee has declared to distribute and the Company's is entitled to are the investee is considered an associate of the investor.
recognized in investment income.
(4) Depreciation test and provisions for depreciation
b. Long-term equity investments under equity method
At the end of the year, the long-term equity investment is reviewed and
Long-term equity investments in associates and joint ventures are the provision for the depreciation of the long-term equity investment is
accounted for using the equity method. For the positive difference retained against the difference between the recoverable amount and the
between the initial cost of investment and the investor's share of the carrying value. Once the provision for the depreciation of the long-term
fair values of the investee's net identifiable assets on acquisition of the equity investment is retained, it should not be reversed during subsequent
investment, no adjustment to the initial cost of such long-term equity accounting periods.
investment is made; for the negative difference between the initial cost
For non-marketable long-term equity investment, depreciation is likely in
of investment and the investor's share of the fair values of the investee's
the following circumstances:
net identifiable assets on acquisition of the investment, such difference is
recorded into profits or losses of the current period. a. There is a change in the political or legal environment of the invested
business, such as an enactment of or amendment to the tax and trade
The investor's share of the net profit/loss and other comprehensive
regulations, that may result in huge losses of the invested business;
income of the investee is recognized in investment income and other
comprehensive income respectively, along with the adjustment to the b. The goods or services of the invested business are obsolete or there is a
carrying amount of the long-term equity investment; distributions of change in market needs, resulting in a serious deterioration in the financial
profits or cash dividends received from the investee reduce the carrying conditions of the invested business;
amount of the investment; adjustments in the carrying amount of the c. The invested business has lost its competitive edge due to a
investment for the changes in the owner's equity other than those arising major technological change etc. in the sector, resulting in a serious
from the investee's net profit or loss, other comprehensive income and deterioration in the financial conditions of the invested business such as
profit distribution are necessary and recognized as owner's equity. clean-up or liquidation;
c. Disposal of long-term equity investments d. Other circumstances demonstrating a substantial failure of the invested
For disposal of long-term equity investments, the difference between the business to generate economic benefits for the Company.
carrying amount and the actual purchase price is recorded into profits or
losses of the current period. Upon disposal of a long-term equity method
investment, all amounts previously recognized in the Company's other

49
2015 Annual Report Financial Statements

10. Government subsidies Deferred tax assets are limited to the taxable income that is likely to be
obtained to reduce temporary differences, deductible losses and tax
(1) Types of government subsidies
credits. For recognized deferred tax assets, when it is unlikely to obtain
Government subsidies comprise mainly of treasury funding, interest sufficient taxable income to offset against deferred tax assets by the future
subsidies, tax rebates and free allocation of non-monetary assets etc. period, a write-down of the carrying amount of deferred tax assets is
(2) Acknowledgment of government subsidies necessary. If it is likely to obtain sufficient taxable income, the write-down
amount should be reversed.
The Company has acknowledged government subsidies that it is eligible
for and granted. Deferred tax assets and deferred tax liabilities are presented on a net basis,
provided that the following conditions are satisfied:
Asset-related governmental subsidies are recognized as asset and deferred
income when received, and contributed averagely to gains/losses of the (1) Deferred tax assets and deferred tax liabilities are related to the
period against the expected useful life of such asset. For a disposal upon income tax imposed by the same taxing authority on the same entity in
or before end of the useful life of such asset, the un-contributed deferred the Company.
income is carried into gains/losses of the period. (2) Such entity in the Company has the legal right to offset current tax
Income-related governmental subsidy used to recover related expenses or assets against current tax liabilities.
losses in the subsequent period is recognized upon receiving as deferred
income, and is taken into the income statement of the period in which the
related expenses is recognized; those used to recover related expenses and
losses occurred in this period are directly recognized upon receiving as the
gains/losses of the current period.

For those that are confirmed to be returned by governmental subsidy,

involve with related deferred income or write down the book balance of
deferred income, and the exceeding portion is taken into the gains/losses
of the current period; those that do not involve with related deferred
income are directly recognized upon receiving as the gains/losses of the
current period.

(3) Measurement of government subsidies

Government subsidies in the form of monetary assets are measured at the

amounts received or receivable.

Government subsidies in the form of non-monetary assets are measured

at fair value, and in the case of inability to determine fair value reliably,
measured at the nominal amount, which is RMB 1.

11. Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are recognized at (temporary)
difference between the carrying value of an asset or liability and the tax
base of such asset or liability. Deductible losses and tax credits that are
carried forward to reduce taxable income in future years under the tax
provisions are deemed temporary differences and accounted for deferred
tax assets. Deferred tax assets and deferred asset liabilities as of the balance
sheet date are measured at the applicable rate for the period when such
assets or liabilities are estimated to be recovered or settled.

50
 Financial Statements 2015 Annual Report

B. Main Taxes

1. Corporate income tax

The rate of corporate income tax applicable to the Company is 15% or 25%. by the Ministry of Finance and the State Administration of Taxation, the
In accordance with the Directive on Tax Policy Issues in Relation to the Further Company has been exempt from exercise tax since January 1, 2009 on self-
Implementation of the Western China Development Strategy announced by provided refined oils used as fuel, power and raw materials to produce oil
the Ministry of Finance, the General Administration of Customs and the products.
State Administration of Taxation, business establishments in the industries
encouraged to develop in the western region are entitled to a reduced
6. Resources tax
corporate income tax rate of 15%. This preferential rate of 15% is applicable
to the calculation and payment of corporate income tax of some of the The resources tax rate is 6%, based on crude oil and natural gas sales.
Company’s branches and subsidiaries located in western China.
7. Mineral resources compensation fee
2. Value added tax The tax rate is 0%, based on oil and natural gas sales.
The value added tax rate is 17% for petroleum and petrochemical products
8. Special oil gain levy
and 13% for natural gas and LNG. Value added tax rates of 11% and 6% are
applicable to some of the Company's pipeline transportation service and The special oil gain levy is based on excess sales revenue from domestic
R&D technology services respectively. crude oil prices exceeding the threshold of USD 65 per barrel and imposed
at the five-level progressive ad valorem rates between 20% and 40%.
3. Business tax
9. Personal income tax
The business tax rate is 3% for construction, 5% for oil and gas
transportation services, finance and insurance, service industry, transfer of The employees are responsible for their own income tax, which is withheld
intangible assets and real estate sales. In accordance with the Directive on and remitted by the Company.
Business tax Exemption Policies Regarding Buying or Selling Personal Financial
Products (CS [2009] No. 111) and the Directive on Business Tax Exemption
for International Transportation Services (CS [2010] No.8) announced by the
Ministry of Finance and the State Administration of Taxation, the Company
(as a domestic enterprise) is exempt from business taxes on overseas
operations in construction and international transportation.

4. Surtaxes and surcharges

The urban maintenance and construction tax rate is 1%, 5% or 7% of the
amounts actually paid for business tax, value added tax and excise tax. The
rate of education surcharge is 3% of the amounts actually paid for business
tax, value added tax and excise tax.

5. Excise tax
In accordance with the Directive on Continued Increase of Excise Tax on Oil
Products (CS [2015] No.11) announced by the Ministry of Finance and the
State Administration of Taxation, the per unit excise tax has increased since
January 13, 2015 from RMB 1.40 per liter to RMB 1.52 per liter for gasoline,
naphtha, solvent oils and lubricants, and from RMB 1.10 per liter to RMB
1.20 per liter for diesel and fuel oils. A suspension of excise tax remains
unchanged for jet kerosene. In accordance with the Directive on Excise Tax
Exemption for Oil Consumption in the Production of Oil Products announced

51