(Promulgated by the Ministry of Finance of the People's Republic of China on June 24, 1992)
Contents
Chapter I General Provisions
Chapter II Accounting Principles
Chapter III Accounting Records and Accounting Books
Chapter IV Current Assets
Chapter V Long-term Investment
Chapter VI Fixed Assets and Construction in Progress
Chapter VII Intangible Assets and Other Assets
Chapter VIII Current Liability, Long-term Liability and Other Liabilities
Chapter IX Investor's Equity
Chapter X Costs and Expenses
Chapter XI Income, Profit and Profit Distribution
Chapter XII Foreign Currency Transactions
Chapter XIII Liquidation Transactions
Chapter XIV Account Title and Accounting Report
Chapter XV Accounting Archives
Chapter XVI Supplementary Provisions
Chapter I General Provisions
Article 1
Pursuant to laws and regulations of the People's Republic of China on enterprises with foreign investment and for the purposes of strengthening the accounting work of enterprises with foreign investment and protecting the legitimate rights and interests of such enterprises and their investors.
Article 2
This System shall apply to enterprises with foreign investment established in the territory of the People's Republic of China, including Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and foreign-capital enterprises.
Article 3
The Ministry of Finance shall uniformly administer the accounting work of enterprises with foreign investment throughout the country.
Departments or bureaux of finance of provinces, autonomous regions and municipalities directly under the Central Government and the competent departments of the State Council shall be in charge of the accounting work of enterprises with foreign investment in their respective regions or under their respective administration and, subject to this System and in the light of the actual needs, may formulate supplementary regulations and shall submit them to the Ministry of Finance for the record, if any.
Pursuant to this System and the relevant supplementary regulations and in the light of its own actual conditions, an enterprise with foreign investment shall formulate its own accounting system and submit it to the competent department of finance, the local tax authority and the competent department in charge of the enterprise for the record.
Chapter II Accounting Principles
Article 4
The accounting work of enterprises with foreign investment must be under the provisions of relevant laws and regulations of the People's Republic of China and this System.
Article 5
Enterprises with foreign investment shall determine their respective accounting periods (month, quarter and year).
The accounting year of an enterprise with foreign investment shall coincide with the calendar year, i.e. from January 1 to December 31 on the Gregorian calendar.
Article 6
The accounting work of enterprises with foreign investment shall be based on the transactions which have actually taken place, of which the recording must be accurate and complete, methods must be correct and appropriate, procedures must be complete and time-limits must be observed.
Article 7
Enterprises with foreign investment shall use the accrual accounting. All incomes realized and expenses incurred during the current period shall be accounted for as income and expenses of the current period, regardless of whether the amount has been received or paid during the current period. Income and expenses not attributable to the current period shall not be accounted for as income and expenses of the current period, even if the amount has been received or paid during the current period.
Article 8
Incomes and expenses of an enterprise with foreign investment shall be matched in its accounting. Incomes earned and related costs and expenses during an accounting period shall be entered in the account of the same accounting period.
Article 9
Assets of enterprises with foreign investment shall be accounted for at their historical costs. Unless otherwise provided, no enterprise may adjust the recorded value of its assets at its own.
Article 10
An enterprise with foreign investment shall draw a clear distinction between its capital expenditure and revenue expenditure. Expenditure shall be regarded as capital expenditure where the benefits to the enterprise last for more than one (not including one) accounting year and as revenue expenditure where the benefits to the enterprise last only for the current accounting year.
Article 11
The accounting method adopted by an enterprise with foreign investment must be consistent within each accounting period and from one period to the another and may not be changed arbitrarily. Where necessary, such change shall generally be introduced at the beginning of a new accounting year and shall be disclosed in the accounting report of that accounting year.
Chapter III Accounting Records and Accounting Books
Article 12
Enterprises with foreign investment shall employ the debt and credit double entry method.
Article 13
An enterprise with foreign investment may adopt Renminbi as the base currency of its bookkeeping and may also adopt a foreign currency (generally, the foreign currency shall be one for which the exchange rate is quoted by the State Administration of Exchange Control, the same below) as the base currency. The base currency, once adopted, may not be changed arbitrarily. Where such a change is necessary, an approval must be obtained from the competent department of finance or the relevant competent department of the State Council and such a change shall be introduced at the beginning of a new accounting year and disclosed in the statement of financial affairs of that accounting year.
An enterprise engaged in multi-currency financing or finance leasing may maintain its account in Renminbi as well as other related foreign currencies according to its actual needs.
Article 14
Accounts of enterprises with foreign investment shall be kept in Chinese or in both Chinese and a foreign language.
Article 15
An enterprise with foreign investment shall obtain or fill out the original evidence for every transaction which occurs. All original evidences must be true to fact, complete and accurate and shall be obtained or prepared through proper procedures. An original evidence, only after being verified as correct, may be used as an accounting evidence.
Article 16
An enterprise with foreign investment must keep three types of key books of account, namely the journal, general ledger and subsidiary ledger, as well as other necessary auxiliary books of account.
All books of account shall be kept based on the original evidences, accounting evidences or summaries of evidences, which have been verified as correct. All entries to the books of account must be made on a timely basis and must be complete, accurate and denoted with clear particulars.
In the case of any change to the book of account, it must follow strictly the working rules for accounting personnel.
Article 17
In the case of Chinese-foreign contractual joint ventures where parties to the joint ventures pay their taxes separately, combined books of account shall be kept by applying mutatis mutandis the provisions of Article 16 of this System in respect of assets and liabilities and income and expenses commonly shared and borne by the parties. The parties shall also keep relevant books of their own.
Article 18
Where enterprises with foreign investment use computers in keeping their accounts, the software used shall meet the requirements provided in this System and possess functions for safety and secrecy and confidentiality.
All data and documents stored in magnetic or other media shall be supported by back-up files and hard copies shall be printed on a regular basis.
Chapter IV Current Assets
Article 19
Current assets of enterprises with foreign investment include cash, deposits at bank, marketable securities, receivables, prepayments and inventories.
Cash, deposits at bank and marketable securities shall be accounted for separately; receivables shall be accounted for separately according to bills receivable, accounts receivable, short-term loans receivable and other receivables; prepayments shall be accounted for separately according to advances to suppliers (advance deposits), income tax prepaid and deferred expenses; inventories shall be accounted for separately according to merchandise, raw materials, work-in-progress, self-manufactured semi-finished goods, finished goods, containers and low-value and perishable articles.
Receivables which are more than one year old from the date of the balance sheet shall be itemized separately under the long-term investment in the balance sheet.
Article 20
A journal shall be prepared for cash and deposits at bank and shall be kept in chronological order of transaction occurrence on a daily basis. In the case of several currencies (including foreign exchange certificates, the same below), a separate journal shall be prepared and kept for each currency.
Article 21
Marketable securities, including share and bond certificates which are to be realized within one year, shall be entered in the account according to the amounts actually paid. Where the amounts actually paid includes a dividend issued or interest accrued, the dividend and interest related to the amount shall be accounted for as a temporary payment under other receivables.
The difference between dividend or interest income from marketable securities, the amounts received from sale of securities or on maturity, and their book cost and dividends or interest receivable as recorded in the accounts shall be, as gains and losses on investment, included in the non-operating expenses or income.
Article 22
Receivables and prepayments shall be separately recorded in a separate account according to each currency.
An enterprise may make the provision for bad debts which may not exceed 3 % of the balance of total receivables, such as accounts and bills receivable or loans balance at the end of the accounting year.
Provision for bad debts shall be accounted for separately and stated in the balance sheet as a deduction from receivables or loans. Where the amount of provision to be provided at the end of the accounting year exceeds the amount of provision already made in the accounts, the difference may be made up by making an additional provision in the accounts; if it is less than the amount already made, the book balance of the provision should be adjusted downward accordingly.
Losses from bad debts of an enterprise shall be included in administrative expenses. In the case of an enterprise which makes a provision for bad debts, actual bad debts occurred shall be written off in advance against the provision for bad debts. If confirmed bad debts are later recovered, an adjustment shall be made as an addition to the provision for bad debts or as offset reduction to administrative expenses.
The bad debts shall be confirmed in accordance with the relevant regulations of the State.
Article 23
Inventories shall be entered in the account according to their historical costs.
The historical cost of inventory purchased includes the purchase consideration, transportation, loading and unloading expenses, insurance, reasonable loss incurred in transit, preparatory expenses incurred before warehousing and taxes payable. For commercial and service enterprises, the historical cost of commodities purchased includes purchase consideration and taxes payable.
The historical cost of materials manufactured, produced or exploited by the enterprise itself shall be the actual expenses incurred in the process of manufacturing, production and exploitation of the materials.
The historical cost of inventory completed through outside-processing includes costs of raw materials or semi-finished goods actually used plus the processing charges, transportation, loading and unloading expenses, insurance and taxes payable. For commercial or service enterprises, the historical cost of commodities processed by third parties includes the original cost of unprocessed materials, processing charges and taxes payable.
The historical cost of inventory obtained as donation includes the price of the inventory determined based on the provisions set out in the second paragraph of Article 49 of this System and transportation, loading and unloading expenses, insurance and taxes payable borne by the enterprise.
Inventory overage shall be entered in the account according to its original historical cost or the historical cost of similar inventory.
An enterprise of which inventory is accounted for according to the planned cost (or standard cost, the same below) shall account for separately any difference between the planned cost and historical cost.
Article 24
Inventory shall be accounted for by using the perpetual inventory method.
If merchandise, raw materials, self-manufactured semi-finished goods and finished-products shall be accounted for at historical cost, the historical cost may be determined using the first-in-first-out, weighted average, moving average, last-in-first-out or actual batch costing methods. Where the planned cost is used, the difference in cost in each period shall be taken up to adjust the planned cost of inventory acquired or delivered to the historical cost.
Low-value and perishable articles and containers for repetitive use, after being put into use, may be amortized using the lump-sum basis method, fifty-fifty method or deferred method. Low-value and perishable articles acquired in large quantities on commencement of business may be accounted for as other assets.
Article 25
All inventories shall be taken stock periodically, at least once a year. If the results of stocktaking do not tally with the book records, the difference shall be adjusted for as quick as possible after the reasons for such difference are identified. The adjustment shall normally be made before the annual closing of final accounts.
Overages of inventory shall generally be used to offset against corresponding expenses. Shortages or damages of inventory shall be included in the corresponding expenses after deduction for indemnity from the person(s) causing such losses or damage or from insurance companies and for the salvage value of the inventory. Net losses as a result of extraordinary causes shall be included in the non-operating expenses.
In a case where, at the accounting year end, the net realizable value of any merchandise, finished goods or self-manufactured semi-finished goods available for sale to outside, due to reasons of being sub-standard, obsolete or unsalable, etc., is less than its book cost, such loss may be included in the cost of sale in the current year after approval is obtained from the competent department of finance or the relevant competent department under the State Council, and concurrently is accounted for separately as a provision for realizable loss in inventory and stated as a deduction under inventory on the balance sheet. On actual sale of inventory for which the provision has been made, any over-provision shall be used to write down the cost of sale. Net realizable value shall be determined based on the expected realizable proceeds less any necessary processing or renovating expenses.
Chapter V Long-term Investment
Article 26
Long-term investments of enterprises with foreign investment mean investments in other units for a period of more than one year, including cash, material objects and intangible assets which are directly invested in other units and shares and bond purchased which are not expected to be realized within one year. Long-term investments shall be accounted for separately and itemized in the balance sheet separately.
Any long-term investment to be recovered within one year from the opening date of the annual balance sheet shall be itemized separately under current assets in the balance sheet.
Investments in other units shall be entered in the account according to the actual payments or the prices of materials or intangible assets contributed as agreed in the investment contracts or agreements.
Investments in shares shall be entered in the account according to the actual payments or the prices of materials or intangible assets contributed as agreed in the investment contracts or agreements including expenses related to the transactions. Where the actual payments include dividends issued, the dividend shall be accounted for as a temporary payment and disclosed under other receivables.
Investments in bond shall be entered in the account according to the actual payments. Where the actual payments include interest accrued, the interest shall be accounted for as a temporary payment and disclosed under other receivables.
The difference between the amounts actually paid and the face value of the bond certificates purchased at a premium or at a discount shall be amortized by installments using the straight line method or effective interest rate method over the period to maturity of the bond certificates in order to adjust the interest income and the book value of the long-term investments.
The difference between the appraised values of material objects or intangible assets contributed as investment and their book values shall be treated as deferred investment loss or gain which shall be entered in the non-operating expenses or income over the investment period by equal annual installments. The net amount of such deferred investment loss or gain at the accounting year end shall be itemized separately under other assets or other liabilities in the balance sheet.
Article 27
The cost method shall generally be used in accounting for investments in other units and shares. The equity method may also be used where an enterprise's investment exceeds 25% of the total capital or total share capital of the invested enterprise and has a significance effect over its operation and management.
The difference between the amounts actually received of all dividend and interest income from long-term investment and their book cost, recorded dividends receivable, accrued interest at the time of maturity or transfer of the long-term investment, and the increase or decrease in the book value of the long-term investment which is caused by an increase or decrease in the equities of the invested enterprise, shall be included as investment loss or gain in the non-operating expense or income.
Article 28
Funds appropriated to subsidiary enterprises which are independent for accounting but not independent for tax shall be accounted for through appropriated subsidiary funds and itemized separately under long-term investments in the balance sheet.
The appropriated subsidiary funds shall be entered in the account according to the amounts actually appropriated or the book value of the material objects or intangible assets actually contributed.
Chapter VI Fixed Assets and Construction in Progress
Article 29
Fixed assets of enterprises with foreign investment shall be accounted for separately and itemized separately in the balance sheet. Assets under finance leases shall be accounted for separately until ownership is obtained. Assets under operating leases shall be recorded in auxiliary memorandum books and shall be disclosed in the notes to the balance sheet.
Article 30
Fixed assets shall be entered in the account according to their original cost.
The original cost of fixed assets contributed by the investors shall be the amount stated in contracts, agreements, the enterprise's application document or the statement of examination and receipt, plus transportation, loading and unloading expenses, insurance and taxes payable borne by the enterprise.
The original cost of fixed assets purchased shall be the purchase price plus transportation, loading and unloading expenses, insurance and taxes payable.
The original cost of self-manufactured or self-constructed fixed assets shall be the actual expenses incurred in the course of manufacture or construction.
The original cost of fixed assets under finance leases shall be the prices provided in the contracts plus transportation, loading and unloading expenses, insurance and taxes payable borne by the enterprise. Where the prices provided in the contracts includes interest and handling charges, they shall be deducted from the original cost. Such interest and handling charges need not be accounted for separately if the value of the fixed assets under finance leases is not high and the term of the lease is not long.
The original cost of fixed assets donated to the enterprise shall be the price determined in accordance with the provisions set out in the second paragraph of Article 49 of this System, plus transportation, loading and unloading expenses, insurance and taxes payable borne by the enterprise. If the fixed assets are already used, the rate of depreciation shall be estimated according to the condition of these assets.
The original cost of overages of fixed assets shall be the replacement cost of such assets and their rates of depreciation shall be estimated according to the condition of these assets.
Expenses incurred in modifying fixed assets for the purpose of expansion, replacement, renovation or technological improvement may be included in the original cost of fixed assets.
Expenses for installation of fixed assets, if any, shall be included in the original cost.
Article 31
Generally, fixed assets shall be depreciated using the straight-line method. The output method may also be used where the straight-line method is not appropriate.
Depreciation of fixed assets shall generally be determined based on the original cost of fixed assets and the depreciation rate by kind. The individual depreciation rate may also be adopted where the depreciation rate by kind is not appropriate. The depreciation rate of fixed assets shall be determined based on the original cost, estimated residual value which shall generally be not less than 10% of the original cost, and the useful life.
Accelerated depreciation shall generally be calculated only by the double declining balance method or sum-of-the-year'-digits method.
Fixed assets shall be depreciated on a monthly basis from the month following that in which the assets are used in operation. Depreciation on fixed assets which are no longer used in operation shall cease to be made from the month following that in which the assets cease to be used. No depreciation on fixed assets which may continue to be used after they have been fully depreciated shall be required. Depreciation shall also cease to be made on fixed assets damaged before the end of their expected useful lives.
Where the original cost of fixed assets is adjusted for the purpose of expansion, replacement, renovation or technological improvement, depreciation on such fixed assets shall be calculated on the basis of the original cost after adjustment, accumulated depreciation, estimated residual value and the remaining useful life. Fixed assets used in construction work during the set-up period of the enterprise may be depreciated in full on completion of work or be equal installments over the period of construction and the depreciation shall be included in the cost of related construction. Depreciation on fixed assets used during the set-up period but not directly related to the construction work shall be included in the pre-operating expenses. Fixed assets under finance and operating leases shall also be depreciated. Fixed assets, other than buildings, idle for a long period, shall not be depreciated.
Accumulated depreciation shall be accounted for separately and disclosed as a separate deduction under fixed assets in the balance sheet. Accumulated depreciation for fixed assets under finance leases shall be accounted for separately.
Article 32
A physical inventory of fixed assets shall be taken on a regular basis, at least once a year. The difference, if any, between the physical inventory results and book records shall be adjusted in accounting as quick as possible after the reasons for such difference are identified. The adjustment shall normally be completed before the annual closing of final accounts. The original cost of overages of fixed assets less estimated accumulated depreciation shall be included in the non-operating income, while the original cost of shortages of fixed assets less accumulated depreciation and the compensation from person(s) causing such losses or from insurance companies shall be included in the non-operating expenses. Overages or shortage of fixed assets incurred during the construction period shall be included in the related construction cost.
Net loss or gain on disposal of fixed assets arising from sale, obsolescence or damage shall be included in the non-operating expenses or income. Net loss or gain on disposal of fixed assets arising during the period of construction shall be included in the related construction cost.
Overages, shortages and net loss or gain on disposal of fixed assets incurred during the set-up period of the enterprise, which are not directly related to construction, and net loss on disposal of fixed assets as a result of extraordinary causes shall be included in the pre-operating expenses.
Article 33
Construction in progress of an enterprise with foreign investment shall include constructions and installations in the preparatory period and under construction stage, and those completed but not yet used in operation. Construction in progress shall be accounted for separately and itemized separately in the balance sheet. Where the period of preparation exceeds one year, and construction projects are numerous and construction cost is substantial, each project may be accounted for separately.
Construction in progress shall be entered in the account according to the following methods:
Materials used in construction -- by applying mutatis mutandis the provisions of Article 23 of this System;
Equipment to be installed -- by applying mutatis mutandis the provisions of Article 30 of this System;
Prepayment on construction -- according to the actual amount prepaid;
Management expenses of the construction work -- according to the management expenses actually incurred;
Construction undertaken by the enterprise itself -- according to the direct materials, direct labor, direct mechanical work expenses and attributable management expenses;
Construction contracted to the outside -- according to the price amount payable and attributable management expenses;
Installation of equipment -- according to the original cost of the equipment, installation charges, trial run expenses and attributable management expenses.
Equipment purchased or invested during the set-up period of the enterprise, which need not install, may also be accounted for as construction in progress.
Article 34
Where there is spoilage or damage to the construction in progress, net loss resulting shall generally be included in the continuing construction cost after deduction of the salvage value and compensation from person(s) causing such loss or from insurance companies. Net losses arising from spoilage or damage as a result of extraordinary causes shall be included in the pre-operating expenses if the construction is undertaken during the set-up period and in the non-operating expenses if the construction has already been used in operation.
Net expenses arising from trial runs before the construction is used in operation shall be included in the construction cost. Where products produced during trial runs can be sold, the actual or estimated sale proceeds shall be recognized as the cost of finished products and shall be offset against the cost of construction in progress concurrently.
Article 35
A construction which is used in operation but the final settlement has not yet occurred shall, from the day after the use takes place, be transferred to fixed assets at the estimated value based on the construction budget or construction cost, and shall be depreciated according to the provisions of Article 31 of this System. The estimated value of the asset and its accumulated depreciation shall be adjusted for after the actual cost of the asset is ascertained.
Chapter VII Intangible Assets and Other Assets
Article 36
Intangible assets of enterprises with foreign investment, including industrial property, proprietary technology, rights to use of sites and other intangible assets, shall be accounted for separately and itemized separately in the balance sheet.
Intangible assets contributed by the investors shall be entered in the account according to the amount specified in the contracts, agreements or the enterprise's application document, plus related expenses borne by the enterprise.
Intangible assets purchased shall be entered in the account according to the amount actually paid.
Article 37
Intangible assets shall be amortized by equal installments over the specified period from the time the enterprise starts deriving benefit from the intangible assets or, where there is no specified period, over the estimated beneficiary period or a period of not less than 10 years.
Article 38
Other assets of enterprises with foreign investment, including pre-operation expenses, exchange losses during the set-up period, deferred investment losses and other deferred expenses to be amortized by installments, shall be accounted for separately and itemized separately in the balance sheet.
Pre-operating expenses shall be entered in the account according to business registration fees, wages and salaries, business trip expenses, training expenses, expenses by the board of directors (or the joint management committee, the same below) and other expenses not included in the cost of purchase or construction of fixed assets and intangible assets, which are incurred during the set-up period of the enterprise.
Exchange losses during the set-up period shall be entered in the account
according to the actual amounts realized during the set-up period.
Deferred investment losses shall be entered in the account according to the
difference between the actual appraised value and the book value of the
invested assets.
Other deferred expenses shall be entered in the account according to the amounts actually incurred.
Article 39
Other assets shall be amortized according to the following methods:
Pre-operating expenses and exchange losses during the set-up period shall be amortized by equal installments over a period of not less than 5 years from the date the enterprise commences operation;
Deferred investment losses shall be amortized by equal installments over the investment period or a period of not less than 10 years;
Other deferred expenses shall be amortized by equal installments over the estimated beneficiary period or a period of not less than 10 years.
Chapter VIII Current Liability, Long-term Liability and Other Liabilities
Article 40
Current liability of enterprises with foreign investment include short-term liabilities, payables, advance on sale (advance deposits) and accrued expenses, etc.
Short-term liabilities, advance on sale (advance deposits) and accrued expenses shall be accounted for separately. Payables shall be accounted for separately according to bills payable, accounts payable, wages and salaries payable, taxes payable, dividends payable and other payables. Current liability of different currencies shall be separately accounted for according to the different currencies.
Staff and workers' bonus and welfare fund and other liability funds shall be accounted for as current liabilities.
Payables in more than one year from the annual balance sheet date shall be separately itemized under long-term liability in the annual balance sheet.
Article 41
Long-term liability of enterprises with foreign investment, including long-term liabilities, bonds payable and amounts payable of fixed assets under finance leases, etc., shall be accounted for separately and itemized separately in the balance sheet.
Long-term liabilities repayable within one year from the annual balance
sheet date shall be separately itemized under current liability in the annual balance sheet.
Article 42
Bonds payable shall be entered in the account according to
the face value of the bonds issued. The difference between the actual proceeds of issue and the face value of the bonds shall, as the premium or discount on issue, be accounted for separately and separately disclosed as an addition to or a deduction under the bonds payable in the balance sheet. Accrued interest included in the actual proceeds of issue shall be recognized as a temporary receipt and accounted for under other payables.
Premium or discount on the issue of bonds payable shall be amortized by installments using the straight-line method or effective interest method over the period to maturity of the bonds and shall be charged against the related interest expenses.
Handling charges paid to financial institutions which act as agents to the issue shall be directly included in the financial expenses.
Article 43
Other liabilities of enterprises with foreign investment, including exchange gain during the set-up period and income derived from deferred investment, etc., shall be accounted for respectively in the "exchange loss during the set-up period" account and the "deferred investment losses" account.
Article 44
Interest on all liabilities shall be calculated periodically according to the agreed interest rate.
Interest directly related to fixed assets purchased or constructed shall be included in the purchase or construction cost of the assets before the assets are used in operation or before final accounting has been completed for assets already used in operation. Other interest shall be included in pre-operating expenses during the set-up period and shall be recognized as expenses of the current period after the enterprise has commenced production or operation.
Chapter IX Investor's Equity
Article 45
Investors' equity in enterprises with foreign investment, including paid-in capital, accumulated capital, reserve funds, enterprise expansion funds and undistributed profits, etc., shall be accounted for separately and itemized separately in the balance sheet.
Article 46
Paid-in capital means the amounts actually contributed by investors in accordance with the contract, agreement or the enterprise's application document.
Contributions in the form of cash shall be entered in the account according to the amount actually deposited at the bank account of the enterprise.
Contributions in the form of tangible assets shall be entered in the account according to the amount specified in the contract, agreement, the enterprise's application document or the statement of inspection and receipt of assets contributed.
Contributions in the form of intangible assets shall be entered in the account according to the amount specified in the contract, agreement or the enterprise's application document.
The difference between the paid-in capital already recorded and the amount stated in the certificate of paid-in capital by a certified public accountant in China shall be adjusted correspondingly in accounting according to the regulations.
Article 47
Conversion of capital contributed by investors into the bookkeeping base currency, if any, shall be made in the relevant assets account in accordance with Article 61 of this System. In the paid-in capital account, such conversion shall be made at the foreign exchange rate quoted by the State Administration of Foreign Exchange Control (hereinafter referred to as the state foreign exchange rate) as agreed in the contract. Where the contract fails to provide, conversion shall be made at the state foreign exchange rate quoted on the date when the capital is received by the enterprise.
In a case where an enterprise converts a currency according to the state foreign exchange rate quoted on the date when the capital is received, if the currency adopted at the time of registration is different from the bookkeeping base currency and the capital is contributed at different times, such conversion shall, in the paid-in capital account, be made at the state foreign exchange rate prevailing at the time when the first contribution is received. If the capital is contributed by installments, each amount received shall be converted at the state foreign exchange rate prevailing at the time of the first receipt in the first installment.
The difference arising from the adoption of different exchange rates for conversion in the corresponding assets account and the paid-in capital account shall be accounted for as the accumulated capital.
Enterprises with foreign investment shall generally convert their paid-in capital account at the State foreign exchange rate quoted at the time when the contribution is received.
Article 48
Capital returned to investors by Chinese-foreign contractual joint ventures in accordance with relevant laws and regulations during the contractual period shall be accounted for separately and separately disclosed as a deduction under the paid-in capital in the balance sheet.
Article 49
Accumulated capital includes accumulated donations, the difference on capital conversion and the premium on capital, etc.
Accumulated donation means the increase in investor's equity arising from the receipt of a donation in cash or in the form of assets. The donation in cash shall be entered in the account at the amount received. The donation in the form of assets shall be entered in the account at the amount stated in the invoice if such invoice is available or, where there is no invoice,
with reference to domestic or international market prices of the objects of similar type. If the donation is the used fixed assets, it shall be entered in the account at the original cost less estimated accumulated depreciation.
The difference on capital conversion means the difference to bookkeeping base currency arising from the adoption of different conversion exchange rates in the corresponding assets account and the paid-in capital account as mentioned in Paragraph 3 of Article 47 of this System.
The premium on capital means the excess of the amount contributed by investors over the amount of the registered capital.
Chapter X Costs and Expenses
Article 50
Material consumption, labor cost and all expenses incurred in the course of production and operation by enterprises with foreign investment shall be included in the costs or expenses in accordance with the regulations.
Materials consumed by the enterprise in the course of production and operation shall be calculated and included in the costs or expenses based on quantities actually consumed and the book unit prices.
Wages and salaries of staff and workers shall be correctly calculated and included in the costs or expenses based on the specified wages standards, types, bonuses and allowances schemes, and working hours and production volume. Payments in relation to social welfare insurance, retirement benefits schemes, unemployment insurance schemes, housing allowance according to the regulations and various government subsidies for employees from the Chinese party, shall also be included in costs or expenses as a wages and salaries item.
All other expenses of the enterprise incurred in the course of production and operation shall be included in costs or expenses at the amount actually incurred. Expenses attributable to the current period but not yet paid shall, as accrued expenses, be included in costs or expenses of the current period. Expenses already paid but attributable to the current and future periods shall, as deferred charges or deferred expenses, be amortized by installment to costs or expenses.
Article 51
An enterprise shall collect all expenses incurred in the course of production and operation in accordance with the stipulated cost items and expense items.
1. The production cost items of industrial enterprises include direct materials, direct labor and manufacturing overheads. Enterprises may, based on actual requirements, establish additional cost items for fuel and power, external processing cost, special purposes tools and other items which need to be accounted for separately.
Direct materials mean raw materials and self-manufactured semi-finished products which may be directly included in the product cost.
Direct labor mean the wages and salaries of those workers who are directly engaged in production.
Manufacturing overheads mean all expenses incurred by the workshop and the factory management departments in organizing and managing production, including wages and salaries, depreciation, repairs and maintenance expenses, materials consumed, amortization of low-value perishable articles, labor protection expenses, water and electricity charges, office
expenses, traveling expenses, transportation charges, insurance, lease rental, design and drawing expenses, experimental and inspection expenses, environmental protection expenses and inventory shortages (less overages), etc.
Expense items of industrial enterprises include selling costs, administrative expenses and financial expenses which shall not be included in the production costs of products but shall be accounted for separately as the period expenses, and separately itemized in the profit statement.
Selling costs are expenses incurred in the selling of products and industrial services, which shall be attributed to the enterprise, including transportation, loading and unloading expenses, packaging expenses, insurance, sales commission, service charges to sales agents, advertising
expenses, lease rental and sales services charges. Selling expenses also include operating expenses of the sales department, such as salaries and wages, business trip expenses, depreciation charges, repairs and maintenance expenses, office expenses, materials consumed, amortization of low-value and perishable articles and other expenses.
Administrative expenses include general office expenses, labor union expenses, expenses of the board of directors, consulting fees, legal fees, entertainment expenses, taxes (including urban real estate tax and license tax for vehicles and vessels), property rental charges, technology transfer fees, amortization of intangible assets, amortization of other assets, bad debts written off, training expenses, research and development expenses and other administrative expenses.
Financial expenses include interest expenses (less interest income), exchange losses (less exchange gains), service fees charged by financial institutions and other expenses incurred in financial operations.
2. Expenses incurred by commercial enterprises in the course of operation include purchase expenses, selling expenses, administrative expenses and financial expenses.
Purchase expenses include transportation charges, loading and unloading expenses, packaging expenses and insurance expenses incurred during the purchasing process, normal losses in transit and sorting and material handling expenses incurred before warehousing, etc.
Administrative expenses are expenses incurred during storage of merchandise and expenses incurred by the management departments of the enterprise, including salaries and wages, depreciation charges, repairs and maintenance expenses, materials consumed, amortization of low-value and perishable articles, labor protection expenses, water and electricity charges, office expenses, business trip expenses, transportation charges, insurance expenses, lease rental, inventory shortages (less overages), labor union expenses, expenses incurred by the board of directors, consulting fees, legal fees, entertainment expenses, taxes (including urban real estate tax and license tax for vehicles and vessels), property rental charges, amortization of intangible and other assets, bad debts written off, training expenses and other administrative expenses.
Selling expenses and financial expenses are similar to those of industrial enterprises.
3. Expenses incurred by service-trade enterprises during operation include operating expenses, administrative expenses and financial expenses.
Operating expenses include all expenses incurred during business operation and may be categorized into different types in accordance with services provided.
Administrative expenses include all expenses incurred in the management of the enterprise.
Financial expenses are similar to those of industrial enterprises.
4. Other enterprises may be dealt with by applying mutatis mutandis the foregoing provisions.
Article 52
Costs of sample products and machinery manufactured during product development of an industrial enterprise shall be separately accounted for if they can be sold or, if they cannot be sold, the costs may be included in administrative expenses or product costs on commencement of production, after deduction of the residual value.
Chapter XI Income, Profit and Profit Distribution
Article 53
Operating income of enterprises with foreign investment includes income from main line of business and income from other lines of business, which shall be accounted for separately. Income from main line of business in different industries may be classified into sales income, income from transport operation, income from construction, and income from various labors or services, etc.
Article 54
Operating income shall generally be realized on delivery of products or merchandise, hand-over of construction projects, provision of labor or service, receipt of the sale consideration or having obtained the entitlement to the collection of payment.
In every case where the bank is entrusted for collection, the entitlement to the collection of payment is obtained at the time when all collection
procedures have been completed with the bank; and in the case of sale on commission, the entitlement to the collection of payment is obtained at the time when the list of sales is received from the agency unit. In the case of the Chinese-foreign contractual joint venture who adopts the product distribution method, the operating income shall be deemed as being realized when products are distributed to the investors. The realization of operating income of the enterprise engaged in the hire purchase business may be determined according to the collection date specified in the contract. In the case of long-term contracts, the realization of operating income may be determined according to the schedule of completion or work actually completed.
Operating income shall be entered in the account according to the amount already received or the amount receivable. Sales returns shall be netted
off against operating income; sales discounts or sales allowances shall be accounted for separately and shall be separately disclosed as deduction to operating income in the profit statement.
Article 55
The profit of an enterprise with foreign investment includes the operating profit and the net non-operating result.
Operating profit means the net amount of gross profit gained from the excess of the income from main line of business over business taxes and costs, less selling expenses, administrative expenses and financial expenses (and purchase expenses for commercial enterprises shall also be deducted), plus profit from other lines of businesses. The profit from other lines of business means the net amount of the income from other lines of business less the business expenses.
The net non-operating result means the net amount of the non-operating income subtracting the non-operating expenses. Non-operating income includes investment income, surplus on revaluation of investments, overages of fixed assets, income on disposal of fixed assets, income from penalty and surcharge and previous years' income. Non-operating expenses include investment losses, deficit on revaluation of investments, shortages of fixed assets, loss on disposal of fixed assets, payments for penalty and surcharge, donation payments, extraordinary losses and previous years'
losses. Non-operating income and non-operating expenses shall be accounted for separately and itemized separately in the profit statement.
Article 56
An enterprise with foreign investment shall generally account for its profit monthly. The enterprise which has difficulty to do it may account for quarterly or annually subject to approval of the competent department of finance or the relevant competent department under the State Council.
In respect to profit calculation, the tabulating method shall be adopted within the year and the account closing method shall be used at the end of the year.
Article 57
Enterprises with foreign investment shall draw the reserve fund, the staff and workers' bonus and welfare fund and the enterprise expansion fund (foreign-capital enterprises may be exempt from the enterprise expansion fund) from their profit after taxation in accordance with relevant laws and regulations.
Subject to approval, the reserve fund may be used as a provisional financial cushion against losses and used to increase capital; and the enterprise expansion fund may be used to increase capital, but their book balance may not be decreased. The staff and workers' bonus and welfare fund shall be used in the payment of special bonuses or collective welfare to the staff and workers of the enterprise, but assets acquired through this fund such as buildings and facilities may not be taken as property of the enterprise.
Profit after appropriations to the reserve fund, the staff and workers' bonus and welfare fund and the enterprise expansion fund shall be the profit distributable to investors.
Article 58
An adjustment of accounting event, if any, which is discovered as being necessary after the account of the current year have been finalized, shall be made in the relevant account of the following year and shall be properly disclosed in the financial statement. Previous years' gains or losses shall be included in the non-operating income or expense according to the situation or, in such a case, the adjustment in the undistributed profit and tax payable shall be made.
Article 59
Total profit, income tax payable, drawings for the reserve fund, the staff and workers' bonus and welfare fund and the enterprise expansion fund, dividends distributed to investors (including distributions in the current year from undistributed profits of previous years), as well as undistributed profits at the beginning of the year and its adjustments, and undistributed profits at the end of the year, of the enterprise with foreign investment in the current year, shall be itemized separately in the profit distribution statement.
Chapter XII Foreign Currency Transactions
Article 60
Foreign currency transactions of enterprises with foreign investment mean all the transactions conducted in currencies other than the bookkeeping base currency, such as payments and receipts of money, settlement of current accounts and pricing.
Foreign currency accounts, including foreign currency cash and deposits at bank, creditor's rights (such as accounts receivable and bills receivable) and debts (such as accounts payable, bills payable, wages and salaries payable and dividends payable) denominated in foreign currencies, and corresponding accounts in non-foreign currency, shall be separately set up and shall be accounted for separately.
Article 61
When a foreign currency transaction takes place, the foreign currency amount shall be converted into the amount in the bookkeeping base currency for recording purpose. Unless otherwise provided, the state foreign exchange rate (in principle the middle rate, the same below) quoted at the time when the transaction takes place shall be used as the conversion rate, whether for increase or decrease in accounts related to the foreign currency transaction (including the foreign currency account and the corresponding non-foreign currency account), and the state foreign exchange rate on the first day of the month when the transaction takes place may also be adopted as the conversion rate.
Article 62
At the time when a month ends, balances of foreign currency accounts (not including those foreign currency accounts which have been recorded separately at the rates of foreign exchange quoted by the swap center) shall be converted into the bookkeeping base currency amount according to the state foreign exchange rate prevailing at the end of that month. The difference between the amount in the bookkeeping base currency converted at the state foreign exchange rate prevailing at the end of the month and the amount in the bookkeeping base currency stated in the books shall be, as exchange gains or losses, included in the gains or losses of the period.
Exchange gains and losses incurred during the preparatory period shall be accounted for separately in the exchange loss account during the preparatory period. Net exchange losses incurred after the offsetting of exchange losses against exchange gains of the same period shall be amortized according to the provisions of Article 39 of this System and the amortized surplus value shall be separately disclosed under other assets in the balance sheet. If a net gain is realized, its accounting treatment shall be determined by the enterprise from the following three ways:
1. Written off by equal installments over five years from the date of commencement of production and operation of the enterprise;
2. Retained for setting off annual losses in future years; or
3. Retained for combination with the enterprise liquidation income.
The book balance of the exchange gains arising during the preparatory period shall be separately itemized under other liabilities in the balance sheet.
Exchange gains and losses directly relating to acquisition or construction of fixed assets shall, before the assets are not put into use or before the final cost of the asset which are already put into use is not determined, be included in the purchase or construction cost of the assets.
Article 63
Foreign currency purchased or sold through the swap center shall be entered in the account at the actual swap rate.
The difference between the actual value of a foreign currency sold and the historical amount of that foreign currency account in the bookkeeping base currency shall be adjusted at the end of the month according to the provisions of the first paragraph of Article 62 of this System.
Foreign currency purchased shall be entered in the account separately at
the actual swap rate and, when the foreign currency is utilized, the amount shall be recorded in the bookkeeping base currency converted at the book swap value. The book swap value may be determined by using the first-in-first-out method, the weighted average method or the specific item method.
Article 64
Purchases of foreign exchange quotas shall be accounted for separately and itemized separately under current assets in the balance sheet.
Purchases of foreign exchange quotas shall be entered in the account at the amount actually paid. Foreign currencies purchased by using the foreign exchange quotas and the corresponding Renminbi funds shall be entered in the account at the book cost of purchases of the foreign exchange quotas if the enterprise uses Renminbi as its bookkeeping base currency; and in the case of an enterprise using a foreign currency as its bookkeeping base currency, it shall be entered in the account at the amount of the currency actually received (if the amount of the currency actually received is not the same as the bookkeeping base currency, the amount of the currency actually received shall be converted into the amount in the bookkeeping base currency at the state foreign exchange rate prevailing on the day of actually receiving the amount of the currency or on the first day of the month when the currency actually received). The difference between payments received on sale of foreign exchange quota and its book cost shall be dealt with as exchange gains or losses.
Foreign exchange quotas acquired by the enterprise in sales activities shall be recorded in the auxiliary memorandum book and disclosed in the
notes to the balance sheet. Income received from the sale of such foreign exchange quotas through swap center shall be dealt with as exchange gains or losses.
Chapter XIII Liquidation Transactions
Article 65
The liquidation transactions of an enterprise with foreign investment which goes into dissolution or termination in accordance with the relevant laws and regulations include the valuation and disposal of assets, the settlement of claims and liabilities, accounting for liquidation expenses and the gains and loss, and the distribution of remaining assets, which take place at the time of liquidation.
Article 66
The method of valuation of assets for liquidation purposes shall be determined by the liquidation committee subject to the relevant laws and regulations.
Article 67
Liquidation expenses include all expenses for liquidation incurred by the enterprise during the liquidation process. The liquidation gains or losses include gains or losses arising from the continuation of business after the commencement of liquidation, gains or losses on the disposal of assets, as well as claims unable to be recovered and debts unable to be repaid, etc. Net liquidation gains or losses mean the net amount arrived at after offsetting the liquidation loss and the liquidation gain, plus or minus liquidation expenses, and shall be separately itemized in the balance sheet.
Subject to the provisions of the tax laws, the income tax must be paid on net liquidation gains after liquidation, if any.
Article 68
Assets of the enterprise remaining after liquidation shall be distributed in accordance with the regulations.
Article 69
An accounting year shall be deemed to have ended on the date of commencement of liquidation of an enterprise. The enterprise shall prepare and submit its accounting report in accordance with Articles 71 and 72 of this System. Where the liquidation period extends into the following year, the enterprise shall prepare and submit its balance sheet and liquidation gain and loss statement at the year's end, and shall prepare its liquidation gain and loss statement for the period from the commencement to the completion of the liquidation process, and its assets distribution statement on the completion of the liquidation.
The accounting statements on the completion of the liquidation must be
submitted before the cancellation of the industrial and commercial registration of the enterprise.
Chapter XIV Account Title and Accounting Report
Article 70
An enterprise with foreign investment shall, based on accounting requirements, set up its account title with reference to the account title for the industry drawn up or approved by the Ministry of Finance. Where such account title is not provided, the enterprise may set up its account title with reference to the account title for other industries.
Generally, the account title shall be classified into four major categories: assets, liabilities, investors' equity and gains and losses. Industrial enterprises may also add in the accounts for costs. Account titles shall be classified and numbered with reference to the regulations on the account title for the industry.
Article 71
The accounting report of the enterprise with foreign investment includes the accounting statement and the explanatory statement on the financial positions.
The accounting statement includes the balance sheet, the profit statement, the statement of changes in financial position and the relevant schedules such as the profit distribution statement. Enterprises which are required to submit the consolidated balance sheet, profit statement and profit distribution statement must prepare them in accordance with the standard accounting statement forms and specifications for industries drawn up or approved by the Ministry of Finance. Other statements may be prepared based on the enterprise's requirements and by reference to the standard accounting statement forms and specifications for industries drawn up
or approved by the Ministry of Finance. Where the standard accounting statement form is not available for a particular industry, reference may be made to the standard accounting statement forms of other industries.
The main contents of the explanatory statement on the financial positions shall include:
1. Total amount of investment, investment composition and investment progress;
2. Changes in capital;
3. Condition of production and operation;
4. Gains and losses and profit distribution;
5. Funds movement and liquidity;
6. Foreign exchange position;
7. Principal taxes paid;
8. Overage, shortage, spoilage and damage of assets;
9. Changes in accounting policies; and
10. Other contents necessary to explain.
Article 72
The enterprise with foreign investment shall submit its quarterly accounting statement and annual accounting report separately to the competent department of finance, the local tax authority, the department in charge of the enterprise and its investors. In addition, the enterprise shall submit its annual accounting report to the original authority of approval.
The quarterly accounting statement shall be submitted within fifteen days following the expiry of each quarter, and the annual accounting report shall be submitted within a period of four months following the expiry of each year, together with the audit statement of the certified public accountant registered in China.
Article 73
In the case of the enterprise using a foreign currency as its bookkeeping base currency, a conversion of the foreign currency into Renminbi shall be made in its annual balance sheet, profit statement and profit distribution statement.
Generally, the conversion for items in the balance sheet shall be made at the State foreign exchange rate prevailing at the date of the year end. In a case where the foreign currency in an item was converted from Renminbi, the calculation shall be made also at the original amount in Renminbi. In respect to items of paid-up capital, the enterprise using
Renminbi as the base currency shall make the calculation based on the Renminbi amount at the time of contribution or the Renminbi amount converted from the foreign currency; and the enterprise using a foreign currency as its base currency shall make the conversion at the State foreign exchange rate prevailing on the date of the year end.
The operating income in foreign currency included in the profit statement shall be converted at the weighted average exchange rate of the year, and the amount after the conversion shall be added to the amount of operating income in Renminbi to arrive at the tot.
Chapter XV Accounting Archives
Article 76. Accounting records of enterprises with foreign investment include accounting vouchers, accounting books, accounting reports, certificates of capital contributed, audit reports, documentation of accounting systems and other important documents related to business management and investors ' interests, such as contracts, articles of association,
resolutions of the board of directors and long term business contracts.
Article 77. Enterprises with foreign investment shall maintain accounting records and a system for maintaining these records. Accounting records must be properly kept at the place of business of the enterprise in China and protected from loss and damage. Accounting vouchers, accounting books and monthly and quarterly financial statements shall be kept for at least fifteen years. Annual accounting reports (including accounting statements on liquidation) and other important accounting records must be kept permanently.
Article 78. Accounting records due to be destroyed on expiration of the storage period shall be listed out. Prior approval for destroying such accounting records shall be obtained from the original responsible authorities.
Article 79. On completion of liquidation, the accounting records of the enterprise shall be transferred to the original responsible authorities for storage. A copy of the list of accounting records transferred shall be submitted to the original responsible finance bureau.
Chapter XVI Supplementary Provisions
Article 80. These Regulations shall be construed and amended by the Ministry of Finance.
Article 81. Where tax adjustments are required in complying these Regulations, adjustments shall be made in accordance with provisions of the tax laws on filing of tax returns.
Article 82. These Regulations shall become effective on 1 July 1992. The ¡§Accounting Regulations of the People ' s Republic of China for the Joint Ventures Using Chinese and Foreign Investment¡¨ promulgated by the Ministry of Finance on 4 March 1985 shall be annulled on the same date. Where there are discrepancies between the provisions of special regulations concerning accounting issues of enterprises with foreign investment promulgated prior to the implementation of these Regulations and the provisions of these Regulations, the provisions of these Regulations shall prevail.
| 
