Laws of the People's Republic of China

The Ministry of Finance

Circular of the Ministry of Finance Concerning Printing and Distributing the Provisions on the Accounting of Drawbacks for Purchasing Homemade Equipment and of Donations Received by Enterprises with Foreign Investment

CaiKuai [2000] No.5

July 18,2000

Relevant ministries and committees under the State Council, financial departments or bureaus in all provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan, Xinjiang Production and Construction Corps:

The Provisions on the Accounting of Drawbacks for Purchasing Homemade Equipment and of Donations received by Enterprises with Foreign Investment is hereby disseminated to you, and you are required to implement them in practice. Please contact us in time if have any problem in implementation. Attachment:Provisions on the Accounting of Drawbacks for Purchasing Homemade Equipment and of Donations Received by Enterprises with Foreign Investment

Based on the Circular of State Administration of Taxation Concerning Disseminating the Provisional Measures for Regulating the Drawbacks of Enterprises with Foreign Investment for Purchasing Homemade Equipments (GuoShuiFa [1999] No.171) and the Circular of the State Administration of Taxation Concerning the Taxation on Donations received by Enterprises with Foreign Investment and Foreign Enterprises (GuoShuiFa [1999] No.195), the provisions on the accounting of drawbacks for purchasing homemade equipment and donations received by enterprises with foreign investment and foreign enterprises are as follows:

1.

The drawback of VAT refunded by taxation authorities for an enterprise with foreign investment purchasing homemade equipment shall be treated differently :

(1)

If the purchased homemade equipment hasn't been put into use, the said drawback shall be used to write off the cost of the equipments, the amount of drawback shall be debited to the account of Cash in Bank and credited to the Account of Project Under Construction.

(2)

If the purchased homemade equipment has been put into use, the original book value and accrued depreciation of the equipment shall be adjusted correspondingly and the account of Cash in Bank is debited and the account of Fixed Assets is credited for the adjustment amount. At the same time, the overdrawn depreciation shall be written off and the amount hereof shall be debited to the account of Accumulated Depreciation and credited to the account such as Manufacturing Expense or Management Expense.

If the drawback of VAT is refunded by taxation authorities during a split year for the purchased homemade equipment which has been put into use, the original book value and accumulated depreciation of the equipment shall be adjusted correspondingly and the account of Cash in Bank shall be debited and the account of Fixed Assets shall be credited for the adjusted amount. At the same time, the overdrawn depreciation shall be written off; the amount shall be debited to the account of Accumulated Depreciation and credited to the account of Adjustment of Profit and Loss In Previous Year.

The drawback of VAT received by an enterprise before the issuance of the these Provisions, if not treated as the said measures, shall be adjusted retroactively based on the accounting measures hereof.

2.

Donated assets received by an enterprise with foreign investment shall be treated differently :

(1)

As regards monetary donations received by an enterprise, the actually received amount shall be debited to such account as Cash in Bank; the income tax payable calculated on the value of monetary donations at current income tax rate shall be credited to the account of Tax Payable-Income Tax Payable; the value of such assets after income tax payable shall be credited to the account of Capital Accumulation Fund; at the end of the fiscal year, the balance between the income tax payable calculated according to the value of monetary donations and the actual income tax payable on the basis of the settlement of the enterprise at the end of the year shall be debited to the account of Tax Payable-Income Tax Payable and credited to the account of Capital Accumulation Fund.

(2)

As for monetary donations received by an enterprise, an account of 2203 Donated Assets Value Pending Transfer shall be established for the accounting of the donated assets value pending transfer.

a.

As for non-monetary donations received by an enterprise, the value and relevant costs calculated at market price of similar assets or according to relevant vouchers be debited to such accounts as Fixed Assets, Intangible Assets, Raw Material, and shall be credited to such accounts as Donated Assets Value Pending Transfer and Cash In Bank.

b.

At the end of a fiscal year, the book balance of Donated Assets Value Pending Transfer shall be debited to the account of Donated Assets Value Pending Transfer; income tax payable for donated nonmonetary assets (or income tax payable for such assets after any loss covered, the same for the following), shall be credited to the account of Tax Payable-Income Tax Payable; and the value of donated nonmonetary assets after income tax payable shall be credited to the account of Capital Accumulation Fund.

c.

If the non-monetary assets donation remains a certain large number amount after any loss covered, and if it may be, upon approval, averagely counted in taxable income of the enterprise within 5 years, the value transferred in the amount of taxable income shall be debited to the account of Donated Assets Value Pending Transfer; the current income tax payable shall be credited to the account of Tax Payable-Income Tax Payable; the value transferred in taxable income after the current income tax payable, shall be credited to the account of Capital Accumulation Fund.

3.

If any regulation previously issued is not conformity with the said Provisions, the latter shall prevail.