Laws of the People's Republic of China

The Ministry of Finance

Notice of the Ministry of Finance on Printing and Distribution of "Measures for the Treatment of Accounting concerning the Extension of Value-Added Tax Scope in Northeast Region"

Cai Kuai [2004] No.11

Departments( Bureaus) of finance of all provinces, autonomous regions, municipalities directly under the Central Government, cities specifically designated in the state plan, the bureau of finance of Xinjiang Production and Construction Corps of the Chinese Peoples' Liberation Army, the related ministries and departments under the State Council:

Notice of the Ministry of Finance on Printing and Distribution of Measures for the Treatment of Accounting concerning the Extension of Value-Added Tax Scope in Northeast Region hereby is formulated in accordance with Notice of the Ministry of Finance on Printing and Distribution of Several Issues on the Extension of Value-Added Tax Credit Scope in Northeast Region (Cai Shui [2004] No. 156), and please inform the local enterprises within your jurisdiction of the implementation. For problems emerged in the process of enactment, please feed them back duly to the Ministry hereof.

Annex: Measures for the Treatment of Accounting concerning the Extension of Value-Added Tax Scope in Northeast Region

The Ministry of Finance

September 20, 2004 Annex:Measures for the Treatment of Accounting concerning the Extension of Value-Added Tax Scope in Northeast Region

In accordance with the provisions of the Notice of the Ministry of Finance on Printing and Distribution of the Provisions of Several Issues on the Extension of Value-Added Tax Credit Scope in Northeast Region (Cai Shui[2004] No 156) ( hereinafter referred to as "Provisions ")£¬the treatment of accounting concerning the Extension of Value-Added Tax Scope in Northeast Region is formulated as follows:

Accounting Items

(1)

The enterprise enforcing the extension of VAT credit scope shall add the classification item of "VAT credit" under the item of "accrued tax" and add such columns as "Fixed Asset Income Tax", "Fixed Asset Input Tax Transfer", "Credited Fixed Asset Income Tax" and etc. under the aforesaid classification item.

The column of "Fixed Asset Input Tax" records VAT input tax paid by the enterprise for purchasing fixed asset or taxable labor and granted credit hereof. The sum of input tax paid for purchased fixed assets or taxable labor by enterprise shall be recorded with blue ink; the returned due offset input tax for purchased fixed assets with red ink.

The column of "Fixed Asset Input Tax Transfer" records the amount of transferred input tax of fixed assets purchased by the enterprise due to a failure to claim credit for some reasons.

The column of "Credited Fixed Assets Income Tax" records the credited input tax of an enterprise's fixed assets.

(2)

The enterprise enforcing the extension of VAT credit scope shall add the column of "The Amount of Fixed Assets Input tax of Newly Added VAT Credit" under the item of "Accrued Tax----Accrued VAT" for the record of the newly added credited fixed asset input tax in the year concerned.

Financial Transaction

(1)

The fixed assets purchased domestically shall be charged to the item of " Accrued Tax----Fixed Asset Input Tax to be credited (Input tax of Fixed Assets) " in accordance with the given amount of VAT in the special invoice, with such items as "fixed assets" in accordance with the value of fixed assets recorded in the special invoice, with such items as "Accounts Payable" ,"Notes Payable", " Bank Deposit", " Long-term Accounts Payable" in accordance with the accounts payable or paid. Where return occurs for the purchased fixed assets, the inverse journal entry shall be made.

(2)

The fixed assets transferred into the enterprise as donates shall be charged to the item of "Accrued Tax----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets) " in accordance with the amount of VAT noted in special invoice, with such items as "Fixed Assets", "Project Material" in accordance with the affirmed fixed assets value (VAT deducted, the same hereinafter). Where the input tax of fixed assets has been paid by the donator, the total value of VAT input tax and fixed assets shall be credited to such items as "Donated Assets". Where the VAT of fixed assets has been paid by the enterprise itself, the paid input tax of fixed assets and accepted fixed assets value shall be credited to such items as "Banking Account" and "Donated Assets" respectively. Where the enterprise has accepted donates paid such other charges as transport one, such items as "Banking Credit" shall be credited herein.

(3)

The fixed assets transferred into the enterprise shall be charged to the item of "Tax Payable----Fixed Assets VAT to be Credited (Input Tax of Fixed Assets) " in accordance with the VAT value noted in the special invoice, to such items as "Fixed Assets", "Project Material" in accordance with the affirmed fixed assets value, be credited to such items as "Paid-up Capital" in accordance with the total value of VAT and fixed assets.

(4)

Goods purchased by an enterprise for the manufacture of fixed assets shall be charged to the item of "Tax Payable----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets) " in accordance with the VAT value noted in the special invoice, to the item of " Project Material" in accordance with the sum required to be credited to the item of the cost of engineering material, to such items as " Account Payable", "Notes Payable", " Bank Deposit", " Long-term Accounts Payable" in accordance with the sym payable or paid. Where return occurs for the purchased goods, the inverse journal entry shall be made.

Where the raw material purchased by an enterprise as accounting for inventories is used for the building of fixed assets, the sum equivalent to the cost of the inventories shall be charged to such items as " Construction in Progress", credited to such items as "Raw Material" , the VAT input tax of that part of raw material shall be charged to the item of "Tax Payable----VAT of Fixed Assets to be Credited (Input tax of Fixed Assets) " , credited to "Tax Payable----VAT to be Credited (Input Tax Transfer) ".

(5)

The Taxable Labor accepted by enterprises for manufacture of fixed assets shall be charged to such items as "Tax Payable----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets)", to such items as "Construction in Progress" in accordance with the sum due to be credited to the Construction in Progress, credited to such items as "Account Payable", "Notes Payable", "Bank Deposit" in accordance with the sum payable or paid.

(6)

The fixed assets imported by enterprise hereof shall be charged to the item of such items as "Tax Payable----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets) " in accordance with the sum of VAT noted in tax payment receipt provided by the custom, charged to such items as "Fixed Assets", "Project Material", credited to such items as "Account Payable", "Notes Payable", "Bank Deposit", "Long-term Accounts Payable" in accordance with the sum payable or paid.

(7)

The transport charges paid for the imported fixed assets shall be charged to such item as "Tax Payable----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets)"in accordance with the sum credited, to such items as "Fixed Assets", "Construction in Progress", "Project Material" in accordance with the sum of fixed assets and construction material to be charged, credited to as "Account Payable", "Notes Payable", "Bank Deposit", "Long-term Accounts Payable" in accordance with the sum payable or paid.

(8)

Where the enterprise uses fixed assets self-made or consigned to process for non-taxable or tax-exempt items, such fixed assets shall be considered as distributions goods for the sake of counting VAT payable and charged to such items as "Project under Construction", credited to such item as "Tax Payable----VAT Payable (VAT on Sales) ".

(9)

Where the fixed assets manufactured by the enterprise concerned, by processing deal or purchasing (including those donated or invested) is provided to other units or self-employed as investment, it shall be considered as distributions goods for the sake of counting VAT payable and be charged to such item as "Long-term Equity Investment" and credited to such item as "Tax Payable- VAT Payable (VAT on Sales) ".

(10)

Where the fixed assets manufactured by the enterprise concerned, by processing deal or purchase is allocated by the enterprise concerned to shareholder or investor, it shall be considered as distributions goods for the sake of counting VAT payable and be charged to such items as "Distribution of Profits----Common Stock Dividend", credited to such items as " Tax Payable----VAT Payable (VAT on Sales) ".

(11)

Where the fixed assets manufactured by the enterprise concerned or by processing deal is used for collective welfare and individual consumption, it shall be considered as distributions goods for the sake of counting VAT payable and charged to such items as "Welfare Expenses Payable" and credited to such items as "Tax Payable----VAT Payable (VAT on Sales) ".

(12)

Where the fixed assets manufactured by the enterprise concerned, by processing deal or purchase is donated to others, it shall be considered as distributions goods for the sake of counting VAT payable and charged to such item as "Non-Operating Outlay", credited to such item as " Tax Payable- VAT Payable (VAT on Sales) ".

(13)

Where the fixed assets purchased by the enterprise concerned has been recorded in such item as "Tax Payable----VAT of Fixed Assets to be Credited (Input Tax of Fixed Assets) ", and the fixed assets concerned has been used for non-taxable items or for tax-exempt item and exclusively for collective welfare and individual consumption, as well as for the utilization by the institutions inapplicable to the scope of the "Measure" hereof, the recorded sum in the item aforesaid shall be transferred, charged to the related item and credited to the item of "Tax Payable----VAT of Fixed Assets to be Credited (Transfer of Fixed Assets Income Tax) ".

Where the input tax of fixed assets purchased by the enterprise concerned fails to be credited, it shall be charged to the cost of fixed assets and undertake accounting treatment in accordance with the related regulation of enterprise accounting system.

(14)

Where the used fixed assets is sold, and its VAT input tax is credited to the item of "Tax Payable----VAT of Fixed Assets to be Credited (Transfer of Fixed Assets Income Tax)" in the period of its acquisition, its confirmed VAT in sales shall be charged to the item of "Liquidation of Fixed Assets" and credited to the item of "Tax Payable----VAT Payable (VAT on Sales) ". Where the used fixed assets is sold, and its VAT input tax fails to credited to "Tax Payable- VAT of Fixed Assets Due to be Credited (Transfer of Fixed Assets Income Tax)" in the period of its acquisition, yet its VAT input taxis permitted to be credited in accordance with related regulations of tax law, it shall be charged to the item of "Tax Payable----VAT of Fixed Assets to be Credited (Input tax of Fixed Assets)", credited to the item of "Liquidation of Fixed Assets"; the confirmed VAT input tax in the sale shall be charged to the item of "Liquidation of Fixed Assets" and credited to the item of " Tax Payable- VAT Payable (VAT on Sales)".

(15)

In accordance with the related laws and regulations, the credited fixed assets input tax offsetting the unpaid VAT shall be charged to the item of "Tax Payable----VAT Payable (Unpaid VAT)", and credited to the item of "Tax Payable---- VAT of Fixed Assets to be credited (Credited Fixed Asset Income Tax)".

(16)

Where the newly added VAT is used to credit fixed assets income tax at the end of the period, it shall be charged to the item of "Tax Payable----VAT Payable (Newly Added VAT to Offset Fixed Assets Income Tax)", charged to the item of "Tax Payable----VAT Payable (Credited Fixed Assets Income Tax) ", credited to the item of "Tax Payable----Fixed Assets to be credited". However, in accordance with the means regulated by tax authorities to rebate tax, the enterprise shall count the VAT to be paid hereby and abide by the enterprise accounting system and the related regulations to conduct accounting treatment. Where the enterprise concerned receives the input tax refunded from the nation of the newly added fixed assets to be credited, it shall charge the actually received sum to the item of "Bank Deposit" credited to the item of "Tax Payable---- VAT of Fixed Assets to be Credited (Credited Fixed Assets Income Tax").