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19931213
The Ministry of Finance
Accounting System of the People’s Republic of China for the Chinese-foreign Equity Joint Ventures
CaiKuai [1985] No. 16
March 4,1985
Chapter I General Provisions
Article 1
The present System is formulated to strengthen the accounting work of Chinese-foreign equity joint ventures, in accordance with the
provisions laid down in the “Law of the People’s Republic of China on Chinese-foreign Equity Joint Ventures”, the “Income Tax Law
of the People’s Republic of China Concerning Chinese-foreign Equity Joint Ventures” and other relevant laws and regulations.
Article 2
The System is applicable to all Chinese-foreign Equity Joint Ventures (hereinafter referred to as “joint ventures”) established within
the territory of the People’s Republic of China.
Article 3
The public finance departments or bureaus of provinces, autonomous regions and municipalities directly under the Central Government
as well as the business regulatory departments of the State Council shall be permitted to make necessary supplements to the System
on the basis of complying with the System and in the light of specific circumstances, and submit the supplements to the Ministry
of Finance for the record.
Article 4
Joint ventures shall work out their own enterprise accounting system in accordance with the System and the supplementary provisions
made by the relevant public finance department or bureau of their provinces, autonomous regions or municipalities directly under
the Central Government, or by the relevant business regulatory departments of the State Council, and in the light of their specific
circumstances and submit their own system to their enterprise regulatory departments, local public finance department and tax authority
for the record.
Chapter II Accounting Office and Accounting Staff
Article 5
A joint venture shall set up a separate accounting office with necessary accounting staff to handle its financial and accounting work.
Article 6
A joint venture of large or medium size shall have a controller to assist the president and to take the responsibility in leading
its financial and accounting work. A deputy controller may also be appointed when necessary.
A joint venture of relatively large size shall have an auditor responsible for review and examination of its financial receipts and
disbursements, accounting documents, accounting books, accounting statements and other relevant data and those of its subordinate
branches.
Article 7
The accounting office and accounting staff of a joint venture shall fulfil their duties and responsibilities with due care, make accurate
calculation, reflect faithfully the actual conditions, and supervise strictly over all economic transactions, protect the legitimate
rights and interests of all the participants of the joint venture.
Article 8
Accounting staff who are transferred or leaving their posts shall clear their responsibility transfer procedures with those who are
assuming their positions, and shall not interrupt the accounting work.
Chapter III General Principles for Accounting
Article 9
The accounting work of joint ventures must comply with the laws and regulations of the People’s Republic of China.
Article 10
The fiscal year of a joint venture shall run from 1 January to 31 December under the Gregorian calendar.
Article 11
Joint ventures shall adopt debit and credit double entry bookkeeping.
Article 12
The accounting documents, accounting books, accounting statements and the other accounting records of a joint venture shall be prepared
accurately and promptly according to the transactions actually taken place, with all required routines done and contents complete.
Article 13
All the accounting documents, accounting books and accounting statements prepared by a joint venture must be written in Chinese. A
foreign language mutually agreed by the participants of the joint venture may be used concurrently.
Article 14
In principle, a joint venture shall adopt Renminbi as its bookkeeping base currency. However, a foreign currency may be used as the
bookkeeping base currency upon mutual agreement of the participants of a joint venture.
If actual receipts or disbursements of cash, bank deposits, other cash holdings, claims debts, income and expenses, etc. are made
in currencies other than the bookkeeping base currency, a record shall also be made in the currencies of actual receipts or disbursements.
Article 15
Joint ventures shall adopt the accrual basis in their accounting. All revenues realized and expenses incurred during the current period
shall be recognized in the current period, regardless of whether receipts or disbursements are made. The revenues or expenses not
attributable to the current period shall not be recognized as current revenue or expenses, even if they are currently received or
disbursed.
Article 16
The revenues and expenses of a joint venture must be matched in its accounting. All the revenues and relevant costs and expenses of
a period shall be recognized in the period and shall not be dislocated, advanced or deferred.
Article 17
All the assets of a joint venture shall be stated at their original costs and the recorded amounts are generally not adjusted whether
there is any fluctuation in their market prices.
Article 18
A joint venture shall draw clear distinction between capital expenditures and revenue expenditures. All expenditures incurred for
the increase of fixed assets and intangible assets are capital expenditures. All expenditures incurred to obtain current revenue
are revenue expenditures.
Article 19
Accounting methods adopted by a joint venture shall be consistent from one period to the other and shall not be arbitrarily changed.
Changes, if any, shall be approved by the board of directors and submitted to the local tax authority for examination. Disclosure
of the changes shall be made in the accounting report.
Chapter IV Accounting for Paid-in Capital
Article 20
The participants of a joint venture shall contribute their share capital in the amount, ratio and mode of capital contribution within
the stipulated time limit as provided in the joint venture contract. The accounting for paid-in capital by a joint venture shall
be based on the actual amount contributed by each of its participants.
(1)
For investment paid in cash, the amount and date as received or as deposited into the Bank of China or other banks where the joint
venture has opened its bank account shall be the basis for recording the capital contribution.
The foreign currency contributed by a foreign participant shall be converted into Renminbi or further converted into a predetermined
foreign currency at the exchange rates quoted on the day of the cash payment by the State Administration of Foreign Exchange Control
of the People’s Republic of China (hereinafter referred to as the “State Administration of Foreign Exchange Control”). Should the
cash Renminbi contributed by a Chinese participant be converted into foreign currency, it shall be converted at the exchange rate
quoted by the State Administration of Foreign Exchange Control on the day of the cash payment.
(2)
For investment in the form of buildings, machinery, equipment, materials and supplies, the amount shown on the examined and verified
itemisation list of the assets as agreed upon by each participant and the date of the receipt of the assets shall be the basis of
accounting according to the joint venture contract.
(3)
For investment in the form of intangible assets, i.e. proprietary technology, patents, trade marks, copyright and other franchises,
etc. the amount and date as provided in the agreement or contract shall be the basis of accounting.
(4)
For investment in the form of the right to use sites, the amount and date as provided in the agreement or contract shall be the basis
of accounting.
The capital contributed by each participant shall be recorded into the accounts of the joint venture as soon as they are received.
Article 21
The capital amount contributed by the participants of a joint venture shall be validated by Certified Public Accountants registered
with the government of the People’s Republic of China, who shall render a certificate on capital validation, which shall then be
taken by the joint venture as the basis to issue capital contribution certificates to the participants.
Chapter V Accounting Cash and Current Accounts
Article 22
A joint venture shall open its deposit accounts in the Bank of China or the other banks within the territory of the People’s Republic
of China and approved by the State Administration of Foreign Exchange Control or by one of its branches. All foreign exchange receipts
must be deposited with the bank in the foreign currency deposit account and all foreign exchange disbursements must be made from
the accounts.
Article 23
A joint venture shall set up journals to itemise cash and bank transactions in chronological order. A separate journal shall be set
up for each currency if there are several currencies.
Article 24
The accounts receivable, accounts payable and other receivables and payables of a joint venture shall be recorded in separate accounts
set up for different currencies. Receivables shall be collected and payables shall be paid in due time and shall be confirmed with
the relevant parties periodically. The causes of uncollectible items shall be investigated and the responsibilities thereof shall
be determined. Any item proved to be definitely uncollectible through strict management review shall be written off as a bad debt
after approval is obtained through reporting procedures specified by the board of directors. No “reserve for bad debts” shall be
accrued.
Article 25
For a joint venture using Renminbi as the bookkeeping base currency, its foreign currency deposits, foreign currency loans and other
accounts denominated in foreign currency shall be recorded not only in the original foreign currency of the actual receipts and payments,
but also in Renminbi converted from the foreign currency at an ascertained exchange rate (using the exchange rate quoted by the State
Administration of Foreign Exchange Control).
All additions of foreign currency deposits, foreign currency loans and other accounts denominated in foreign currencies shall be recorded
in Renminbi converted at their recording exchange rates, while deductions recorded in Renminbi and converted at their book exchange
rates shall be recognized as “foreign exchange gains or losses” (hereinafter referred to as “exchange gains or losses”).
The recording exchange rates for the conversion of foreign currency to Renminbi may be the rate prevailing on the day of recording
the transaction or on the first day of the month, etc. The book exchange rate may be calculated by the first-in-first-out method,
or by the weighted average methods, etc. However, for the decrease of accounts denominated in a foreign currency, the original recording
rate may be used as the book rate. Whichever rate is adopted, there shall be no arbitrary change once it is decided. If any change
is necessary, it must be approved by the board of directors and disclosed in the accounting report.
The difference in Renminbi resulting from the exchange of different currencies shall also be recognized as exchange gains or losses.
The exchange gains or losses recognized in the account shall be the realized amount. In case of exchange rate fluctuation, the Renminbi
balances of the foreign currency accounts shall not be adjusted.
Article 26
In a joint venture using a foreign currency as its bookkeeping base currency, its Renminbi deposits, Renminbi loans and other accounts
denominated in Renminbi shall be recorded not only in Renminbi but also in the foreign currency converted from Renminbi at the exchange
rate adopted by the enterprise. Differences in the foreign currency amount resulting from the conversion at different Exchange rates
shall also be recognized as exchange gains or losses as stipulated in Article 25 .
A joint venture using a foreign currency as its bookkeeping base currency shall compile not only annual accounting statements in the
foreign currency but also separate accounting statements in Renminbi translated from the foreign currency at the end of a year. However,
the joint venture’s Renminbi bank deposits, Renminbi bank loans and the other accounts denominated in Renminbi shall still be accounted
for in their original Renminbi amounts, and shall be combined with the other items converted into Renminbi from foreign currency.
The differences between the original Renminbi amount of the Renminbi items and their Renminbi amount from currency translation shall
not be recognized as foreign exchange gains or losses, but shall be shown on the balance sheet with an additional caption as “currency
translation differences”.
Chapter VI Accounting for Inventories
Article 27
The inventories of a joint venture refer to merchandise, materials and supplies, containers, low-value and perishable articles, work
in process, semi-finished goods, finished goods, etc. in stock, in processing or in transit.
Article 28
All the inventories of a joint venture shall be recorded at the actual cost.
(1)
The actual cost of materials and supplies, containers, low-value and perishable articles purchased from outside shall include the
purchase price, transportation expenses, loading and unloading charges, packaging expenses, insurance premium, reasonable loss during
transit, selecting and sorting expenses before taken into storage etc. The cost of imported goods shall further include the custom
duties and industrial and commercial consolidated tax, etc.
For merchandise purchased by a commercial or service-trade enterprise, the original purchase price shall be taken as the actual cost
for bookkeeping.
(2)
The actual cost of self-manufactured materials and supplies, containers, low-value and perishable articles, semi-finished goods and
finished goods shall include the materials and supplies consumed, and wages and relevant expenses incurred during the manufacture
process.
(3)
The actual cost of materials and supplies, containers, low-value and perishable articles, semi-finished and finished goods completed
through outside processing shall include the original cost of the materials and supplies or semi-finished goods consumed, the processing
expenses, inward and outward transportation expenses and sundry charges.
The merchandise of the commercial or service-trade enterprises processed under contract with outside units shall be recorded at the
purchase price after processing, including the original purchase price of the merchandise before processing, processing expenses
and the industrial and commercial consolidated tax attributable.
Article 29
The receipt, issuance, requisition and return of the inventories of a joint venture shall be processed on time through accounting
procedures according to the actual quantity and shall be itemsied in the subsidiary ledger accounts with established columns for
quantities and amounts, so as to strengthen inventory control. The merchandise, materials, etc. in transit shall be accounted for
through subsidiary ledgers and their condition of arrival shall be inspected at all times. For those goods that have not arrived
in due time, the relevant department shall be urged to take action. As to those goods that have arrived but have not yet been checked
or taken into storage, their acceptance test and warehousing procedures shall be carried out in a timely manner.
Article 30
The actual cost or original purchase price of inventories issued or requisitioned from the store of a joint venture may be accounted
for by it under one of the following methods; first-in-first-out, shifting average, weighted average, batch actual, etc. Once the
accounting method is adopted, no arbitrary change shall be allowed. In case a change of accounting method is necessary, it shall
be submitted to the local tax authority for approval and disclosed in the accounting report.
Article 31
In the joint ventures using planned cost in daily accounting for materials and supplies, finished goods, etc. the planned cost of
those issued from stock, shall be adjusted into actual cost at the end of each month.
For commercial and service-trade enterprises using a selling price in daily accounting for merchandise, the cost of goods sold shall
be adjusted from the selling price to the original purchase price at the end of a month.
Article 32
A joint venture shall take physical inventory of its stock periodically, at least once a year. If any overage, shortage, damage, deterioration,
etc. is found, the relevant department shall investigate the cause and write out a report. Accounting treatment shall be made as
soon as the report is approved through strict management review and the reporting procedures specified by the board of directors.
The treatment shall generally be completed before the annual closing of final accounts.
(1)
The inventory shortage (minus inventory overage) and damage (minus salvage) of materials and supplies, work in process, semi-finished
goods, finished goods, and merchandise, etc. shall be charged to the current expenses, except the amount, if any, that should be
indemnified by the persons in fault.
(2)
The net loss resulting from natural disasters shall be charged to non-operating expenses after deducting the salvage value recoverable
and insurance indemnity.
Article 33
If there is any inventory in a joint venture to be disposed of at a reduced price due to obsolescence, it shall be reported for approval
according to the procedures specified by the board of directors, and the net loss on disposal shall be recognized as loss on sales.
If the disposal is not yet done at the end of a year, disclosure shall be made in the annual accounting report for the actual cost
per book, the net realizable value and the probable loss thereof.
Article 34
Disclosure shall be made in the annual accounting report of a joint venture on the actual cost per book, net realizable value and
probable loss of its inventories of which the net realizable value is lower than the actual cost per book due to the decline of the
market price.
Chapter VII Accounting for Long Term Investment and Long Term Liabilities
Article 35
The investment of a joint venture in other units shall be accounted for at the amount paid or agreed upon at the time of the investment,
and shall be shown in the balance sheet with a separate caption as “long term investment.”
Income and loss derived from long term investment shall be recognized as non-operating income or non-operating expense.
Article 36
The bank loans borrowed by a joint venture for capital construction during its preparation period or for increasing fixed assets,
expanding its business, or making renovation and reform of its equipment after its operation has started, shall be accounted for
at the amount and on the date of the loan and shall be presented in the balance sheet with a separate caption as “long term bank
loans”.
The interest expenses on long term bank loans incurred during the construction period shall be charged to construction cost and capitalized
as a part of the original cost of the fixed assets; but interest expense incurred after the completion of the construction and the
transfer of fixed assets for operation purposes shall be charged to current expenses.
Chapter VIII Accounting for Fixed Assets
Article 37
A joint venture shall prepare a fixed assets catalogue as the basis of accounting according to the criteria of fixed assets laid down
in the “Income Tax Law of the People’s Republic of China Concerning Joint Ventures Using Chinese and Foreign Investment” and in consideration
of its specific circumstances.
Article 38
The fixed assets of a joint venture shall be grouped into five broad categories as follows: building and structures; machinery and
equipment; electronic equipment; transport facilities (trains or ships, if any, shall be grouped separately); and other equipment.
The joint venture may further group them into sub-categories according to the need of its management.
Article 39
The fixed assets of a joint venture shall be recorded at their original cost.
For fixed assets contributed as investment, the original cost shall be the price of the assets agreed upon by all the participants
of the joint venture at the time of investment.
For fixed assets purchased, the original cost shall be the total of the purchase price plus freight, loading and unloading charges,
packaging expenses and insurance premium, etc. The original cost of the fixed assets that need installation work, shall include installation
expenses. The original cost of imported equipment shall further include the customs duties, consolidated industrial and commercial
tax, etc. paid as required.
For fixed assets manufactured or constructed by the joint venture itself, the original cost shall be the actual expenditure incurred
in the course of manufacture or construction.
Expenditures of a joint venture on technical innovation and reform that result in the increase of the fixed assets value shall be
recorded as increments of the original cost of the fixed assets.
Article 40
Depreciation on the fixed assets of a joint venture shall generally be accounted for on an average basis under the straight line method.
(1)
Depreciation on fixed assets shall be accounted for on the basis of the original cost and the group depreciation rate of the fixed
assets.
The depreciation rate of fixed assets shall be calculated and determined on the basis of the original cost, estimated residual value
and useful life of the fixed assets.
A joint venture shall determine the specific useful lives and depreciation rates for different groups of fixed assets according to
the minimum depreciation period and the estimated residual value of the fixed assets as provided in the “Income Tax Law Concerning
Joint Ventures Using Chinese and Foreign Investment”.
(2)
In a case where a joint venture needs accelerated depreciation or a change of depreciation method for special reasons, application
shall be submitted by the joint venture to the tax authority for examination and approval.
(3)
Generally, depreciation of the fixed assets of a joint venture shall be accounted for monthly according to the monthly depreciation
rates and the monthly beginning balances of the original cost per book of the fixed assets in use. For fixed assets put in use during
a month, depreciation shall not be calculated for the month but shall be started from the next month. For fixed assets to be used
during the month which are reduced or stopped depreciation shall still be calculated for the month and be stopped from the next month.
(4)
For fixed assets fully depreciated but still useful, depreciation shall no longer be calculated. For fixed assets discarded in advance,
no retroactive depreciation shall be made either.
For fixed assets declared scrap in advance or transferred out, the difference between the net proceeds obtained from disposal (less
liquidation expenses) and the net value of the fixed assets (original cost less accumulated depreciation) shall be recognized as
non-operating income or non-operating expenses of a joint venture.
Article 41
For the purchase, sales, disposal, discarding and internal transfer, etc. of the fixed assets, a joint venture must execute accounting
routines and set up a fixed assets subsidiary ledger for the relevant accounting so as to strengthen the control of fixed assets.
Article 42
A physical inventory must be taken on the fixed assets of a joint venture at least once a year. If any average, shortage or damage
of the fixed assets is found, the cause shall be investigated and a report written out by the relevant department. Accounting treatment
shall be made as soon as the report is approved through strict management review and the reporting procedures specified by the board
of directors. Generally, this work shall be finished before the annual closing of final accounts.
(1)
For fixed assets average, the replacement cost shall be taken as the original cost, the accumulated depreciation shall be estimated
and recorded according to the existing usability and wear and tear of the assets, and the difference between the original cost and
the accumulated depreciation shall be credited to non-operating income.
(2)
For fixed assets shortage, the original cost and accumulated depreciation shall be written off and the excess of original cost over
accumulated depreciation shall be charged as non-operating expenses.
(3)
For damaged fixed assets, the net loss after the original cost deducted by the accumulated depreciation, recoverable salvage value
and the indemnity receivable from the person in fault or from the insurance company, shall be charged as non-operating expenses.
Chapter IX Accounting for Intangible Assets and Other Assets
Article 43
The intangible assets and other assets of a joint venture include proprietary technology, patents, trade marks, copyrights, right
to use sites, other franchises and organization expenses, etc.
For intangible assets contributed as investment by the participants of a joint venture, the original cost shall be the value provided
in the agreement or contract. The original cost of purchased intangible assets shall be the amount actually paid. Monthly amortization
of the intangible assets shall be made over their useful life from the year when they come into use. Those without specified useful
life may be amortized over a period of ten years. The amortization period shall not be longer than the duration of a joint venture.
Article 44
The expenses incurred by a joint venture during its preparation period (not including expenditure for acquiring fixed assets and intangible
assets and the interest incurred during the construction period to be included in the construction cost may be accounted for as organization
expenses according to the provisions of the agreement and with the consent of all participants, and shall be amortized after the
production or operation starts. The annual amortization shall not exceed 20 per cent of the expenses.
Article 45
The expenditure incurred by a joint venture on major repair and improvement of the leased-in fixed assets shall be amortised over
the period benefiting from such expenditures. However, the amortisation period shall not be longer than the lease term of the fixed
assets.
Chapter X Accounting for Costs and Expenses
Article 46
Joint ventures shall maintain complete original records, practice norm control, adhere strictly to the procedures of measuring, checking,
receiving, issuing, requisitioning and returning goods and materials, strengthen the control of and accounting for costs and expenses.
Article 47
All expenditure of a joint venture related to production or operation shall be recognized as its costs or expenses.
Materials consumed by a joint venture in the course of production or operation shall be correctly calculated and charged to costs
or expenses according to the quantity actually consumed and the price per book.
Wages and salaries of the staff and workers shall be calculated and charged to the costs or expenses according to the provisions in
the contract and the decisions of the board of directors on the system of wage standards, wage forms, bonuses and allowances, etc.
as well as the attendance records, time cards and production records. Payment as required on labour insurance, health and welfare
benefits and government subsidies, etc. for the Chinese staff and workers shall also be charged to costs or expenses as the same
item as wages and salaries.
All other expenses incurred by a joint venture in the course of production or operation shall be charged to costs or expenses according
to the amount actually incurred. The expenses attributable to the current period but not yet paid shall be recognized as accrued
expenses and charged to the costs or expenses of the current period; however, the expenses paid but attributable to the current and
future periods shall be recognized as deferred charges and amortized to the costs or expenses of the relevant periods.
Article 48
A joint venture shall summarize all the expenses incurred in the course of production or operation according to the specified cost
and expense items.
(1)
The production cost items of an industrial joint venture shall generally be classified into: direct materials, direct labour, and
manufacturing overheads. A joint venture may set up additional items for fuel and power, outside processing costs, special instruments,
etc. according to its actual needs.
Manufacturing overheads refer to those expenses arising from organizing and controlling production by workshop and factory administrative
departments, including expenses for salaries and wages, depreciation, repairs and maintenance, materials consumed, labour protection,
water and electricity, office supplies, traveling transportation, insurance and so on.
Selling and general administrative expenses of an industrial joint venture shall be accounted for separately and shall not be included
in the production cost of products.
Selling expenses refer to those expenses incurred in selling products and attributable to the enterprise, including expenses for transportation,
loading and unloading, packaging, insurance, traveling, commission and advertising, as well as salaries and wages and other expenses
of specifically established selling organs, etc.
General and administrative expenses include company headquarters expenses (salaries and wages, etc.), labour union dues, interest
expenses (less interest income), exchange losses (less exchange gains), expenses of board of directors’ meetings, advisory fees,
entertainment expenses, taxes (including urban building and land tax, licence tax for vehicles and vessels, etc.), amortisation of
organization expenses, expenses for staff and workers’ training, research and development expenses, fees for the use of site, fees
for the transfer of technology, amortization of intangible assets and other administrative expenses.
(2)
The expenses of commercial enterprises incurred in the course of operation include purchasing expenses, selling expenses and administrative
expenses.
Purchasing expenses include those expenses incurred in the process of merchandise purchase, such as expenses for transportation, loading
and unloading, packaging, insurance, reasonable loss during transit, selecting and sorting before warehousing.
Selling expenses include those expenses incurred in the course of merchandise sales and attributable to the joint venture, such as
expenses for transportation, loading and unloading, packaging, insurance, traveling, commission, advertising, salaries and wages
and other expenses of sales organs, etc.
Administrative expenses include those expenses incurred in the course of merchandise storage, and the expenses of the enterprise administrative
departments, such as expenses for salaries and wages, depreciation, repairs and maintenance, materials consumed, labour protection,
office supplies, traveling, transportation, insurance, labour union dues, interest expenses (less interest income), exchange losses
(less exchange gains), expenses of board of directors’ meetings, advisory fees, entertainment, tax, fees for the use of site, staff
and workers’ training and other administrative expenses.
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