## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(RMB AND US$ AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) 

## 2. Basis of preparation and accounting policies (cont’d) 

## 2.3 Summary of significant accounting policies (cont’d) 

## (d) Fair value measurement (cont’d) 

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

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

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (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. 

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 33. 

## (e) Foreign currency translation 

The Company’s functional currency is US Dollar. The Group’s consolidated financial statements are presented in Renminbi, which is also the functional currency of Yuchai, the largest operating segment of the Group. 

Each entity in the Group determines its own functional currency, and items included in the financial statements of each entity are measured using that functional currency. 

## 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 retranslated at the functional currency spot rate of exchange at the reporting date. 

Differences arising on settlement or translation of monetary items are recognized in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognized 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 recorded in OCI. 

