Laws of the People's Republic of China

The Ministry of Finance

Circular of the Ministry of Finance on Printing and Distributing the Provisions on the Relevant Issues Concerning the Implementation of the Accounting Regulations for Enterprises by Enterprises with Foreign Investment

CaiKuai [2001] No.62

November 29,2001

In order to further standardize the accounting practices of enterprises with foreign investment and to unify the accounting standards for enterprises, this Ministry has enacted the Provisions on the Relevant Issues Concerning the Implementation of the Accounting Regulations for Enterprises by Enterprises with Foreign Investment, please assign the Provisions to your affiliated enterprises with foreign investment for implementation accordingly. If there is any problem in the implementation of the Accounting Regulations for Enterprises, please inform this Ministry by letter without delay.

Attachment:Provisions on the Relevant Issues Concerning the Implementation of the Accounting Regulations for Enterprises by Enterprises with Foreign Investment

From January 1, 2002, enterprises with foreign investment shall implement the Accounting Regulations for Enterprises (CaiKuai [2000] No.25) promulgated by the Ministry of Finance on December 29, 2001. The Accounting Regulations of the People's Republic of China for Enterprises with Foreign Investment (CaiKuaiZi [92] No.33) promulgated by the Ministry of Finance on June 24, 1992 and the relevant provisions on accounting classifications and accounting statements (hereinafter referred to as "accounting regulations for enterprises with foreign investment) shall be nullified simultaneously. The relevant issues concerning the implementation of the Accounting Rules for Enterprises by enterprises with foreign investment are hereby specified as follows:

1.

Where the accounting policies adopted by enterprises with foreign investment are changed as a result of the implementation of the Accounting Rules for Enterprises, except the following changes that are required to be dealt with based on the method of retroactive adjustment, the method of afterward application shall be adopted for the other changes:

1)

Disposition of the provision for price falling of short-term investments and the provision for depreciation of long-term investments, fixed assets, projects under construction and loans by mandate that are set up according to the Accounting Rules for Enterprises. The method of retroactive adjustment shall be applied for the difference between the provision for bad debts of accounts receivable as well as the provision for price falling of inventories set up according to the Accounting Rules for Enterprises and that set up according to the former regulations.

2)

The investments that were made before the day on which the Accounting Rules for Enterprises took effect but were still held on that day shall be dealt with according to the provisions of the Accounting Rules for Enterprises from the day on which the Accounting Rules for Enterprises took effect, namely the investments and the investment incomes that had been recognized according to the accounting regulations for enterprises with foreign investment shall not be adjusted retroactively; and the recognition of investment incomes and the adjustment of investment book value thereafter shall be dealt with according to the provisions of the Accounting Rules for Enterprises.

3)

In the implementation of the Accounting Rules for Enterprises by an enterprise with foreign investment, if the balance of the starting expenses not yet amortized and of the exchange losses during the preparation period is relatively large, and significant impact will be caused to the enterprise's profits if the balance is directly transferred to the current profits and losses, the method of retroactive adjustment may be applied. If the balance of the starting expenses not yet amortized and of the exchange losses during the preparation period is relatively small and no significant impact will be caused to the enterprise's profits with the balance directly transferred to the current profits and losses, the balance may be directly transferred to the current profits and losses.

2.

In the implementation of the Accounting Regulations for Enterprises by an enterprise with foreign investment, the other relevant issues shall be dealt with according to the following provisions:

1)

Balance of the category of "marketable securities" shall be transferred to the category of "short-term investments".

2)

Balance of the category of "prepaid payments" and balance of the category of "payments received in advance" shall be separately transferred to the category of "prepaid accounts" and the category of "accounts received in advance".

3)

Balance of the category of " provision for losses from sale of inventory" shall be transferred to the category of "provision for price falling of inventory".

4)

Credit balance of the "exchange losses during the preparation period" shall be dealt with according to the different circumstances: those retained to be disposed of until liquidation shall be transferred to the category of "long-term expenses to be amortized"; those retained for offsetting the annual losses occurring during the operation period of the enterprise shall be transferred to the category of "long-term expenses to be amortized"; with respect to those written off by equal installments over 5 years after the commencement of operations, if significant impact will be caused to the enterprise's profits with the balance directly transferred to the current profits and losses, the method of retroactive adjustment may be applied; if no significant impact will be caused to the enterprise's profit with the balance directly transferred to the current profits and losses, the balance may be directly calculated as the current profits and losses.

5)

Balance of other deferred expenses shall be dealt with according to the different circumstances: those that will benefit the future accounting periods shall be transferred to the category of "long-term expenses to be amortized"; and those that can't benefit the future accounting periods shall be calculated as the current profits and losses.

6)

Balance of the category of "deferred investment losses" shall be dealt with according to the different circumstances: the debit balance shall be transferred to the category of "long-term expenses to be amortized"; and the credit balance shall be transferred to the category of "deferred incomes".

7)

Corporate bonds payable, and the premium or discount balance of corporate bonds payable shall be transferred to the category of "bonds payable".

8)

Balance of the category of "wages payable" (or "wages and welfares payable") shall be dealt with according to the different circumstances: those that fall within the total amount of wages payable to the employees (including various kinds of wages, bonus, and subsidies, etc. within the total amount of wages) shall be shown in the category of "wages payable"; those that fall within the retirement or old-age pension fund, insurance and welfare expenses, and various kinds of State allowances payable to the employees of the Chinese party shall be transferred to the category of "welfare payable expenses".

9)

The category of "welfare payable expenses", except calculating the items transferred from the category of "wages payable", shall only calculate the employee bonus and welfare fund extracted from the profit after taxation by the enterprise with foreign investment according to the provisions as well as the use of the fund. Other welfare expenses shall be directly calculated as the profits and losses of the period those expenses occur.

10)

Balance of the categories of "reserve fund", "enterprise expansion fund", and "profits returned for investment" shall be transferred to the category of "surplus reserve".

11)

The item of "deferred incomes" shall be added under the item of "estimated debts" in the balance sheet. The item of "among which, the investment of Chinese party (terminal balance of non-Renminbi capital ___) and the investment of foreign party (terminal sum of non-Renminbi capital ___)" shall be added under the item of "paid-in capital" in the balance sheet.

12)

Tourism enterprises with foreign investment shall, on the basis of implementation of the Accounting Regulations for Enterprises and these Regulations, fill in the profit statements and the attachments thereof in the format as specified in the Accounting Classifications and Accounting Statements of Tourism Enterprises with Foreign Investment for the present time.

3.

In the case of adjustment by the retroactive method, in the drawing up of a comparative accounting statement, according to the changes of accounting policies during the period of the comparative accounting statement, the net profits and losses and other relevant items of that period shall be adjusted, and those policies shall be regarded as having been applied during the period of comparative accounting statement. And according to the accumulative impact of the changes of accounting policies before the comparative period of the comparative accounting statement, the initial retention of income of the earliest period of the comparative accounting statement shall be adjusted, and the figures of other relevant items shall also be adjusted.