Finance

Enterprise Financial Systems and Standards

The new Financial Principles for Enterprises which went into force on 1 January 2007 set out clear guidelines covering six major areas of enterprise financial management, namely investment capital, asset management, cost control, revenue allocation, information management and financial supervision. The new Principles also set standards for financial management methods and policies by integrating the different elements of financial management. Moreover, the new Principles have brought innovations to the enterprise financial system by making it more open.

While the section above on the Accounting System for Business Enterprise has covered in detail the recognition and measurement of the assets, liabilities, costs and expenses, and profits of enterprises, the following section will focus on the regulations governing FIEs' financial registration, establishment of financial accounting departments, investment capital, standards and scope of expenses, reorganisation and liquidation, and advance recovery of investment by the foreign party.

 1 Financial Registration

An FIE should apply to the financial authority for financial registration within 30 days after submission of application for business registration or change of registration details. To apply for financial registration, an enterprise should complete the Financial Registration Form for Foreign-invested Enterprises, supported by the following documents: approval certificate for establishment of an enterprise; feasibility study report and its approval document; FIE contract (agreement), articles of association (copy) and their respective approval documents; business licence (copy); and information on the FIE's financial management system and related rules formulated in accordance with the relevant state regulations.

An FIE should submit its financial accounting statements and status report of its financial position to the competent financial or administrative authority and local tax office on a regular basis. The format, content and schedule for submission should follow the relevant stipulations by MOF. Annual financial statements and liquidation reports should be accompanied by an auditor's report prepared by Chinese certified public accountants (CPAs).

 2 Establishment of Financial Accounting Department

FIEs should establish a financial accounting department in the place where it is located, to be manned by qualified financial and accounting personnel responsible for handling financial and accounting matters in accordance with the law. (MOF has strict management guidelines regarding the qualifications of financial and accounting personnel.)

 3 Investment Capital

To establish an enterprise, a certain amount of registered capital is required and registration at the industry and commerce administration department is also necessary.

(a) Forms of Investment

Investors may make contribution to the registered capital of an enterprise in cash, in kind, by intangible assets, by equity, or by specific claims. Among these, specific claims refer to convertible bonds issued by the enterprise in accordance with the law and claims that can be converted into equity share in accordance with the relevant rules and regulations. Investors making contribution in kind or by intangible assets must provide proof of ownership and right of disposal, or other proof of their validity as required by law. Investors are not allowed to contribute leased assets or collateral assets.

Investors making contribution by intangible assets (excluding land-use rights) should provide asset appraisal or valuation reports. In general, the value of the contribution may not exceed 20% of the registered capital of the enterprise. If, under special circumstances, the value of the contribution must exceed 20%, the capital has to be verified by a Chinese CPA and examination and approval have to be sought from the industry and commerce administration department. Moreover, the maximum percentage may not exceed 30% of the registered capital.

If foreign investors are making contribution in cash, it has to be in foreign currencies. However, profits in renminbi made from investment in other FIEs within the Chinese territory may be used as contribution in cash.

When the full amount of the investment capital has been paid up, the FIE should appoint a Chinese CPA to compile a capital verification report.

(b) Rules on Investment Recovery and Share Buyback

In general, during the operation period of the enterprise, investors may not withdraw their share capital by any means except through transfer or reduction of shares according to the law. Enterprises may not buy back the shares issued by themselves except provided for in the Company Law and other laws and regulations. Where an enterprise buys back its own shares, it should comply with the relevant requirements and financial management procedures, and the decision must be made jointly by the investors.

For Sino-foreign contractual joint ventures (JVs) whose contract stipulates that all the fixed assets should be handed over to the Chinese party upon expiry of the JV, provisions can be made in the JV contract that the foreign party may recover its investment during the term of the JV. However, the foreign party should still be jointly responsible for the JV's liabilities in accordance with the relevant laws and regulations as well as the provisions of the contract. Any pre-tax investment recovery should be reported to the competent financial authority for examination and approval.

(c) Sources and Uses of Capital Reserve

The sources of an enterprise's capital reserve include:

Capital (or share capital) premium - When the amount of capital actually contributed by the investor is higher than the amount of paid-in capital of the enterprise, the difference is the capital (or share capital) premium. For a joint stock limited company, when the amount actually received from the shares issued exceeds the total face value of the shares (i.e. share capital), the difference is the capital premium.

Fiscal allocation - In the case of direct investment and capital injection by the state, this refers to the increase in state capital or state-owned capital reserve in accordance with the relevant rules. In the case of investment subsidy, this refers to the increase in capital reserve or paid-in capital.

Other sources - These include non-cash asset reserve in the form of donation, cash donation, equity investment reserve, price difference from related transactions, and price difference from the conversion of foreign currency capital received prior to the implementation of the new Accounting System for Business Enterprises.

The designated uses of an enterprise's capital reserve include: in the event of heavy losses where the un-allocated profits of the previous year, the reserve funds and development funds of the enterprise are inadequate to make up for the shortfall, the board of directors may pass a resolution authorising the use of such funds in making up for the losses; upon the board of directors' decision and completion of the relevant procedures, the funds may be used to increase the capitalisation of the enterprise.

When the statutory reserve is injected into an enterprise to increase its capitalisation, the portion retained by the enterprise should not be less than 25% of the registered capital prior to the injection. When an enterprise increases its paid-in capital or increases its paid-in capital by injecting its capital reserve or surplus reserve, the investors concerned should complete the related financial formalities and business registration alteration procedures after making a financial decision.

 4 Operation of Assets

The recognition and measurement of assets have been detailed in the section on the Accounting System. Summarised below are the administration measures and procedures in relation to the use and safekeeping of assets.

(a) Management of Current Assets

Cash and bank deposits
The cash of an enterprise should be kept by a designated person; bank deposits should be deposited into bank accounts opened in the name of the enterprise.

Prepayments and receivables
Prepayments and receivables should be handled and collected in accordance with stipulations in the contract or agreement.

Foreign currency capital
Receipts, payments and deposits of foreign currency capital should be handled in accordance with the foreign exchange control regulations of the state. Conversion between the foreign currency and the accounting currency should be carried out according to the relevant regulations of the Ministry of Finance.

Inventory
Inventory must be classified accurately, priced reasonably and kept properly, with a sound collection and return procedure and regular stock-taking system in place.

In issuing or collecting merchandise, self-produced semi-manufactures, raw materials, finished products, and in collecting low-value consumables and packaging materials, the standard accounting treatment should be adopted in calculating or amortising their actual costs.

For inventory with a face value greatly different to its realisable net value and the face value needs to be adjusted, adjustment can be made by the enterprise upon approval granted by the supervisory finance department or the central government department in charge of the industry.

External Investment using tangible or intangible assets
Enterprises using tangible or intangible assets to invest in other enterprises must have the assets re-valued. For short-term investment, the difference between the re-valued amount and the face value will be treated as loss for the current period. But for long-term investment, the difference would be treated as deferred investment loss and would be amortised evenly on a yearly basis during the investment period.

(b) Fixed Assets

Fixed assets as investment input
For fixed assets used as investment input, their account value should be the reasonable price agreed in the contract or agreement, or the price set according to market price plus the relevant expenses involved. In determining the value of the equipment contributed by the investor as investment in kind in the enterprise, the original invoice issued by the equipment manufacturer should be produced.

Depreciation
Depreciation of fixed assets is generally calculated using the straight line method or production/service output method, depreciating on a monthly basis starting from the month after the fixed assets were first put into use. For fixed assets which have ceased to be used, depreciation would stop in the month after they have ceased to be used. As for fixed assets requiring other depreciation methods or change in the existing depreciation method, approval has to be sought.

Construction projects
Before proceeding with a construction project, an enterprise must prepare its budget, purchase the equipment and materials required, carry out accurate project costing, make efforts in saving project costs, and work out a project completion plan.

(c) Intangible Assets

In calculating the value of intangible assets, relevant detailed information must be available, which includes copy of ownership certificate, bases and standards for calculation etc. Valuation of proprietary technology, franchise and goodwill must be assessed and recognised by authorised certification bodies or Chinese chartered accountants.

 5 Cost Control

(a) Costs and Expenses

Any payments in relation to the production and operation of an enterprise should be treated as costs and expenses.

(b) Wage Expenses

The levels of wage expenses under costs and expenses are determined by the board of directors in accordance with state regulations on FIE-related labour management, taking into consideration the economic benefits of the enterprise, and in compliance with the principles of "pay according to work and equal pay for same work".

(c) Insurance and Welfare for Chinese Staff

Insurance and welfare expenses for serving Chinese staff can be treated as costs, expenses, insurance and welfare and kept by the enterprise for use in paying for the medical, insurance and welfare expenses of serving staff.

(d) Retirement Fund and Unemployment Insurance Fund for Chinese Staff

Pension and retirement fund and unemployment insurance fund for Chinese staff set aside by the enterprise in accordance with the standards set by the government can be treated as costs and expenses and handed over to the organisation in charge of retirement and unemployment insurance for management. The funds can only be used for labour insurance and not for any other purposes.

(e) Housing and Cost of Living Allowances for Chinese Staff

Allowances for housing and cost of living set aside by the enterprise in accordance with the standards set by the finance department and labour department can be treated as costs and expenses. Housing allowance should be retained by the enterprise in the form of a subsidy fund and used for subsidising the construction, maintenance and purchase of housing for the Chinese staff. Cost of living allowance should be handed over to the local finance department.

(f) Entertainment Fee

Entertainment fee related to production and operation paid from costs and expenses of the enterprise must not be higher than the following ceilings:

For enterprises engaged in industrial production, agriculture, husbandry and commerce with annual net sales of Rmb15 million or below, entertainment fee should not exceed 0.5% of their annual net sales; while those with annual net sales of over Rmb15 million, entertainment fee should not exceed 0.3% of their annual net sales.

For enterprises engaged in tourism, catering, transportation, construction, installation, design, consultancy, finance, leasing and other services with annual business revenue of Rmb5 million or below, entertainment fee should not exceed 1% of their annual revenue; while those with annual business revenue of over Rmb5 million, entertainment fee should be exceed 0.5% of their annual revenue.

For cross-sectoral enterprises, the ceiling of entertainment fee should be calculated according to the respective net sales or business revenue. Where it is difficult to draw the line, entertainment fee can be determined by the principal operation item under the respective sector.

(g) Travel Allowance, Meal Allowance and Director's Fee

The standards and management method for business travel allowance, meal allowance and director's fee should be determined by the board of directors at reasonable levels and be reported to the supervisory finance department or the central government department in charge of the enterprise.

(h) Labour Union Fund

Enterprises should put aside 2% of their total payroll each month as labour union fund, and this item should be treated as costs and expenses. The labour union fund is managed and used by the labour union of the enterprise concerned according to the relevant regulations of the All-China Federation of Trade Unions

(i) Rebates (Commissions)

Rebates (commissions) received by enterprises in accordance with contracts or agreements in the course of their operation should be treated as operation income or used to offset costs and expenses. Rebates (commissions) paid in accordance with contracts or agreements should be added to costs and expenses.

 6 Revenue Distribution Management

(a) Recognition of Income

The income of an enterprise refers to the income received by the investors, operators and other employees of the enterprise in discharging their duties or operating business in the name of the enterprise. Such income includes sales revenue, as well as sales discounts, allowances, commissions, kickbacks, service fees, labour fees, surcharges, rebates, entrance fees and business incentives received.

(b) Profit Distribution

Order of priority for profit distribution
Unless otherwise provided for in the law, the net profit of an enterprise should be distributed in the following order of priority:

(i) Making up for previous years' losses.

(ii) Retaining 10% as statutory reserve. It is only when the cumulative amount of the statutory reserve reaches 50% of the registered capital of the enterprise that retention is no longer required.

(iii) Retaining a certain percentage as arbitrary reserve, with the percentage to be determined by the investors.


(iv) Distributing the profit to investors. Undistributed profits from previous years will be added to the profit of the current year. The profit will be distributed to investors after due consideration is given to the cash flow position.

Unless otherwise provided for in the law, an enterprise must not distribute profit to investors if no profit is left in the current year after making up for previous years' losses and retaining a certain percentage for surplus reserve.

Principles of profit distribution to investors
Equity JVs should distribute profits according to the actual proportion of capital contribution by the respective investors; cooperative JVs should follow the terms as stated in their contracts; whereas foreign enterprises should do so according to their articles of association.

Investors failing to honour their contractual obligations in terms of capital contribution as stipulated in state regulations or other provisions in the contract will not be eligible for profit distribution.

Conversion of profit in renminbi and profit repatriation
Unless otherwise stated in the contract or articles of association, profit to be distributed in cash is on principle in the currency of the income from the enterprise's operation. Investors may convert their profit in renminbi into foreign currencies but have to be responsible for the possible profit and/or losses in currency exchange.

Foreign investors may remit their profit overseas, or they may reinvest it in China.

(c) Reserve Fund, Enterprise Development Fund, Staff Incentive and Welfare Fund

The ratios of contribution to reserve funds, enterprise development funds, staff incentives and welfare funds are determined by the board of directors. Among these, reserve funds must account for at least 10% of an enterprise's after-tax profits. When the reserve funds reach 50% of the enterprise's registered capital, further contribution is not required. It is not mandatory for an enterprise to set aside an enterprise development fund.

Reserve funds are intended primarily to make up for an enterprise's operating losses. Development funds are usually used for expanding the enterprise's scale of production or operation; and upon approval by the original approval authority, such funds may also be used to increase investment. Staff incentives and welfare funds are earmarked for ad hoc incentive programmes and collective benefits such as subsidies for the purchase, construction, maintenance and repair of staff housing.

(d) Procedures for making up losses

Making up losses by pre-tax profits -- the loss incurred by an enterprise in the current year can be made up by the profit before income tax of the following year. After making up the loss, the portion that remains is subject to income tax according to law. If the pre-tax profit of the following year falls short of the amount required to make up for the loss, the process can be carried forward for up to five years consecutively.

Making up losses by after-tax profits -- when the loss of the current year cannot be fully made up by the pre-tax profits of the preceding five years, the shortfall can be made up by the after-tax profits of the enterprise from the sixth year onwards.

Making up losses by surplus reserve – when the loss of an enterprise cannot be fully made up according to the process stipulated by the tax law, the board of directors of the enterprise may propose using the surplus reserve to make up for the remaining loss subject to approval by the decision-making body of the enterprise such as the general shareholders' meeting.

Making up losses by capital surplus -- by nature, capital surplus does not originate from the profit of an enterprise but falls under the scope of investment capital. There is a fundamental difference between capital surplus and retained earnings. Capital surplus is generally used to increase the capitalisation of an enterprise. However, given the actual conditions in China, the capital surplus of state-owned enterprises can be used to make up for major losses due to policy reasons upon approval by the state.

 7 Reorganisation and Liquidation

(a) Reorganisation

Enterprises may undergo reorganisation by means of restructuring, share transfer, merger, separation and custody. Where equity rights are involved, the investors or authorised agents concerned should conduct feasibility studies, execute internal financial decision-making procedures, and implement the following:

(i) Appraise assets, verify liabilities and appoint an accounting firm to audit the accounts.

(ii) Formulate settlement plans for workers, collect feedback from workers and the workers' union or submit the plans to the workers' union general meeting for examination.

(iii) Negotiate with debtors to formulate debt disposal or debt assumption plans.


(iv) Appoint assessment organisations to carry out asset appraisal. The appraised value will serve as reference in calculating the net asset value or in converting the assets into shares.

(v) Formulate share rights distribution plans and capital restructuring implementation plans, and submit the plans for approval after due examination.

Points to note for different types of reorganisation:

Reorganisation through separation - The ownership rights of the enterprise to be established should be clearly defined.

Reorganisation through merger - All the assets, liabilities and business activities of the enterprises before the merger will be inherited by the merged enterprise. The ownership rights and equity ratios of all the investors should be clearly stated.

The assets of a merged enterprise are subject to the relevant tax state rules and regulations. Where the net asset value exceeds the registered capital of the enterprise after merger, the excess portion should be treated as capital reserve. Where the net asset value falls short of the registered capital, the amount of the registered capital should be altered or the investors should make contribution to make up for the shortfall.

Where an enterprise is formed by the merger of insolvent enterprises through the assumption of debts, the parties concerned should formulate enterprise reorganisation measures and consolidate financial resources and fulfil debt repayment obligations according to the merger plan.

Reorganisation through custody - Investors should decide among themselves and sign a custody agreement clearly stating the assets and liabilities under custody, the objectives of the business under custody, the scope of authority in handling the assets under custody, and revenue allocation method. Financial supervision measures should also be put in place.

The enterprise under custody should formulate relevant plans on the basis of the custody agreement restructuring its assets and liabilities. Without the consent of the investors, the enterprise under custody may not be reorganised, restructured or assigned to other parties, and its assets and business operations may not be transferred to other parties. Also, the enterprise under custody or its assets may not be used as external guarantee.

In the course of enterprise reorganisation, the land which has been allocated by the state and occupied by the enterprise should be reviewed under the relevant rules and regulations, and the relevant procedures should be duly followed. Different actions should be taken according to the different situations as follows:

(i) If the land remains to be held on an allocation basis, it could be excluded from the scope of enterprise asset management but the enterprise should clearly define the land-use rights, use the land in accordance with the stipulated purpose, and duly keep the relevant records, unless otherwise provided for by the state.

(ii) Where the land is used as capital contribution, the land transfer fee payable should be converted into state capital. The resulting state-owned equity should be held by the state capital holding unit prior to the reorganisation or by the unit recognised by the competent finance authority.

(iii) Where the land is to be transferred, the enterprise should purchase the land-use rights and pay the assignment fee.

(iv) Where the land is to be leased to the enterprise for use, the enterprise should pay rent at levels based on the prevailing bank lending rate and should stipulate the details in the leasing agreement.

In the course of enterprise reorganisation, priority should be given to pay off overdue workers' wages, medical and disability allowances, and ex gratia payments, as well as basic social security premiums and housing fund in arrears, with the existing assets of the enterprise.

(b) Liquidation

Where an enterprise is ordered to close down, declares bankruptcy in accordance with law, terminates its operation upon expiry of the operation period, or dissolves at the joint decision of the investors, it should go through the liquidation process pursuant to the relevant laws and regulations and its articles of association. If the enterprise declares bankrupt, it should file its case with the people's court for bankruptcy proceedings.

Liquidation is a legal proceeding for the dissolution of an enterprise. It generally involves the following steps:

Appointment of liquidator - Upon dissolution of an enterprise, a liquidator is appointed in accordance with the relevant laws and regulations and the articles of association of the enterprise. The liquidator will manage the assets of the enterprise according to law.

Announcement of liquidation notice - The liquidator should inform creditors within 10 days after confirmation of the liquidation and should post a public announcement in the mass media including newspapers in accordance with law to call on creditors to declare their claims.

Clearance of assets - Balance sheets and assets lists are to be drawn up. The liquidator will act to recover any outstanding debts of the enterprise. Those debts which cannot be recovered will be written off. During the liquidation process, if any assets are found to have been mishandled, efforts should be made to recover them in accordance with law. For assets which cannot be paid as compensation to creditors or distributed to investors in kind or in the form of rights, action should be taken to encash such assets.

Handling of ongoing business activities - Business activities which took place prior to the liquidation may continue if the liquidator reckons such activities will not cause any damage to the enterprise if they continue and that they can be completed within the liquidation period. Otherwise, the liquidator may terminate the contract and include the party concerned as one of the creditors of the enterprise.

Payment of overdue taxes - Overdue taxes prior to liquidation and liquidation tax should be paid by the liquidator from the property that remains after paying the liquidation expenses and all the overdue workers' wages, medical and disability allowances, ex gratia payments, social security premiums, housing funds and economic compensation.

Repayment of debts - After paying the liquidation expenses and all the overdue workers' wages, medical and disability allowances, ex gratia payments, social security premiums, housing funds, economic compensation and overdue taxes, the liquidation property of the enterprise should be used to repay other debts.

Allocation of residual assets - Upon completion of the liquidation process, the liquidation net income will go to the investors and the residual assets will be allocated to the investors according to their equity ratio or as stipulated in the contract or articles of association of the enterprise. In the case of a state-owned enterprise where its subsidiary undergoes liquidation, after the investment amount contributed by the investors has been deducted from the liquidation net income, the balance will be treated as profit (or loss) on investment and allocated to the investors according to their equity ratio. In the case where the parent company undergoes liquidation, all the liquidation net income will be surrendered to the competent finance authority.

The liquidator will then present a liquidation report accompanied by financial statements containing all the data relating to the liquidation. The enterprise will be deregistered and a public notice on its termination will be served.

(c) Financial arrangements relating to the termination of labour relations

In terminating labour relationship with its employees, the enterprise should pay economic compensation and settlement fee to the employees in compliance with the relevant state rules and regulations. Except for expenses that are incurred in the course of normal business operations during the current period, payment should be made as follows:

Labour expenses incurred during reorganisation - To be paid from, in the following order, undistributed profit, surplus reserve, capital reserve and paid-in capital.

Labour expenses incurred during liquidation - To be paid from the liquidation property after deducting the liquidation expenses.

 8 Regulations Governing FIEs Implementing the Accounting System for Business Enterprises

The Accounting System for Business Enterprises promulgated by the Ministry of Finance on 29 December 2000 became effective for FIEs starting from 1 January 2001. At the same time, the Accounting System for Foreign Investment Enterprises of the People's Republic of China and its related regulations governing account titles and financial statements promulgated by the Ministry of Finance on 24 June 1992 were revoked. The regulations governing the Accounting System for Business Enterprises for FIEs are as follows:

(a) Implementation of the Accounting System for Business Enterprises by FIEs has resulted in changes in the accounting policies adopted. Apart from the following items which adopt the retroactive adjustment method, all other changed items adopt the prospective application method:

Short-term investment impairment reserve, long-term investment, fixed assets, intangible assets, work-in- progress and trust lending impairment reserve under the Accounting System for Business Enterprises.
For the balance between receivables bad debt reserve and inventory impairment reserve under the Accounting System for Business Enterprises and that under the old system, the retroactive adjustment method is adopted.


For investments made before the implementation date of the Accounting System for Business Enterprises and are still valid on the date of implementation, they should be handled according to the regulations of the Accounting System for Business Enterprises starting from the day the system was implemented. In other words, all investments and investment proceeds recognised in accordance with the Accounting System for Foreign Investment Enterprises before the implementation of the Accounting System for Business Enterprises are not subject to retroactive adjustment. However, any subsequent recognition of investment proceeds and adjustment to investment face value should be handled in accordance to the Accounting System for Business Enterprises.


In implementing the Accounting System for Business Enterprises, if the unamortised establishment expenses and the construction period exchange loss balance of the FIE are substantial and the direct transfer of which to the income statement of the current period creates a great impact on the profit of the enterprise, they can be handled using the retroactive adjustment method. But if such amounts are relatively small and the direct transfer of which to the income statement of the current period does not create a great impact on the profit of the enterprise, such balances can be transferred to the income statement of the current period directly.

(b) Any other issues arising from the implementation of the Accounting System for Business Enterprises by FIEs can be handled as follows:


Balance under "Prepayment" and balance under "Advance Collection" are transferred to "Accounts Prepaid" and "Advance Receipt" respectively.


Balance under "Inventory Realisation Loss Reserve" is transferred to "Inventory Impairment Reserve".


Credit balance under "Construction Period Exchange Loss" should be treated on a case-by-case basis: for balance to be settled at the time of liquidation, it should be transferred to "Long-term Prepaid Expenses"; for balance to be used to offset the losses incurred during the current financial year in the production and operation of the enterprise, it should be transferred to "Long-term Prepaid Expenses"; for balance to be amortised equally in the five years starting from the year the enterprise commenced production and operation, if its direct transfer to the income statement of the current period creates a great impact on the profit of the enterprise, it can be handled using the retroactive adjustment method; but if such direct transfer does not create a great impact on the profit of the enterprise, the balance can be transferred to the income statement of the current period directly.


Other deferred expenses balances should be treated according to different circumstances: for items that can benefit the subsequent accounting period, they should be transferred to "Long-term Prepaid Expenses"; for those that cannot benefit the subsequent accounting period, they should be transferred to the income statement of the current period directly.


Balance under "Deferred Investment Loss" should be treated according to different circumstances: credit balance should be transferred to "Long-term Prepaid Expenses"; debit balance should be transferred to "Deferred Income".


Payable company debt, payable company debt premium and impairment balance should be transferred to "Payable Bonds".


"Payable Wages" and "Payable Wages and Welfare" are now combined under "Payable Remuneration". In calculating the "Payable Remuneration", the enterprise should use the basis and ratio of contribution prescribed by the relevant state rules where applicable. "Payable Remuneration" includes medical insurance premium, pension insurance premium, unemployment insurance premium, work-related injury insurance premium, maternity insurance premium, housing fund, labour union fee and employee education fund. For items such as staff welfare fund where the basis and ratio of contribution are not prescribed by the state, the enterprise should work out a reasonable amount of the "Payable Remuneration" for the current period based on historical data and actual circumstances. When an enterprise distributes non-monetary items to its employees as welfare, such as products produced by the enterprise itself or products purchased from external parties, the fair value of the products concerned should be recorded as asset cost or expenses of the current period based on the recipients.


Balances under "Reserve Fund", "Enterprise Development Fund" and "Profit Capitalised on Return for Investment" are transferred to "Surplus Reserve".


The item "Deferred Income" is added under "Projected Liabilities" in the balance sheet.


Under "Paid-in Capital" in the balance sheet, the item "Of which: investment by the Chinese party (closing balance of non-renminbi capital) and investment by the foreign party (retained non-renminbi capital)" is added.


For foreign-invested tourism enterprises, on the basis of the Accounting System for Business Enterprises, their income statement and supporting statements should be prepared in accordance with the formats stipulated in the Account Titles and Financial Statements of Foreign Investment Tourist Enterprises.

(c) In preparing comparative financial statements adopting the retroactive adjustment method, if any accounting policy change occurs during the periods the comparative financial statements are prepared, the net profit and loss and other relevant items should be adjusted accordingly. For any cumulative effect arising from policy change in the previous comparable periods, adjustment should be made to the retained income brought forward in the comparative financial statements. The amount of other relevant items in the financial statements should also be adjusted at the same time.

 

 

 

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