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(Promulgated
on March 4, 1985 by the Ministry of Finance of the People's Republic
of China)
Chapter
I General Provisions
Article
1. The present Regulations are formulated to strengthen
the accounting work of joint ventures using Chinese and foreign
investment, in accordance with the provisions laid down in the "Law
of the People's Republic of China on Joint Ventures Using Chinese
and Foreign Investment", the "Income Tax Law of the People's
Republic of China Concerning Joint Ventures Using Chinese and Foreign
Investment" and other relevant laws and regulations.
Article
2. These Regulations are applicable to all joint ventures
using Chinese and foreign investment (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
these regulations on the basis of complying with these regulations
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 these Regulations and the supplementary
provisions made by the relevant public finance department or bureau
of their provinces, autonomous regions or municipalities, 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. proprietory
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 itemised 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 amortized
over the period benefitting from such expenditures. However, the
amortization 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,
practise 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 summarise 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 organising 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, travelling 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, travelling, 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.), amortization 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, travelling,
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,
travelling, 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.
(3)
Expenses of the service-trade enterprises incurred in the course
of operation include operating expenses and administrative expenses.
The
operating expenses include various expenses incurred in business
operation and may be summarised separately for different kinds of
service.
The
administrative expenses include various expenses incurred for the
administration of the enterprise.
Joint
ventures other than the above-mentioned types shall account for
their expenses with reference to the above provisions.
Article
49. A joint venture must distinguish the costs and expenses
of the current period from that of the ensuing period. Neither accrual
nor amortization shall be made arbitrarily. The costs and expenses
of different internal departments shall be distinguished from each
other and shall not be mixed up. An industrial joint venture shall
distinguish the cost of work in process from the cost of finished
goods and the cost of one product from that of the other. Neither
the cost of work in process nor the cost of finished goods shall
be arbitrarily increased or decreased.
Article
50. The joint venture shall select the methods of costing
and of expense allocation appropriate to the characteristics of
its production and operation, its type of product and its purpose
of service.
An
industrial joint venture may select one or more than one of the
following methods for its cost accounting: product type costing,
process costing, job order costing, product category costing, norm
costing and standard costing.
For
enterprises adopting norm costing or standard costing in accounting
for product cost, the variances between actual cost and norm cost
or between actual cost and standard cost shall generally be allocated
according to the proportion of the products sold during a month
and the products held at the end of the month.
Once
the cost accounting method or the cost variance allocation method
is adopted, no arbitrary change shall be allowed. If a change is
necessary, it shall be approved by the board of directors, reported
to the local tax authority for examination and disclosed in the
accounting report.
Article
51. Joint ventures shall strengthen their control over costs
and expenses, establish a responsibility cost system, formulate
plans on costs and expenses, control expenditure at all times in
accordance with the plans, evaluate the condition in implementing
the plans periodically, analyse the cause of fluctuation in costs
and expenses, take appropriate action to reduce the costs and expenses
and to improve the operation and administration of the enterprise.
Chapter
XI Accounting For Sales And Profit
Article
52. The sales of merchandise, products and services of a
joint venture shall be regarded as realized after merchandise and
products are shipped, services are rendered, invoices, bills and
bills of lading issued by the shipping agency and all other shipping
documents are sent to the buyers or are accepted by the bank for
collection.
Under
the condition of delivery upon payment, if the sales proceeds are
received, invoices and delivery orders are sent to the buyers, sales
shall be regarded as realized whether the goods are actually issued
or not.
Article
53. All the sales of a joint venture realized in a month
shall be recognized in the month, and the relevant cost of the sales
and expenses shall be transferred simultaneously. Revenue from sales
must be matched with the cost of sales and expenses attributable.
It is not allowed to recognize merely the sales revenue and disregard
the relevant cost of sales and expenses. On the other hand, it is
not allowed to charge the cost of sales and expenses without crediting
the relevant revenue from sales.
Article
54. The sales returns of a joint venture occurring in a month
shall reduce the sales revenue and cost of sales of the current
month, regardless of to which year the returned sales belong.
Sales
allowances given to the buyers through negotiation due to unsatisfactory
quality of the merchandise or products sold or due to some other
reasons shall be deducted from the sales revenue of the current
month.
Article
55. A joint venture shall account for its profit every month.
Joint ventures in agriculture, animal husbandry, aquaculture and
other business that cannot account for profit monthly shall at least
do their accounting for profit at the end of a fiscal year.
Article
56. The elements of the profit of a joint venture are as
follows:
(1)
The profit of an industrial joint venture includes profit from sales
of the products, profit on other operations, non-operating income
and expenses.
Profit
from sales of the products refers to the profit derived from the
products sold by the joint venture (including finished goods, semi-finished
goods and industrial services).
Profit
from other operations refers to those profits of a joint venture
derived from rendering non-industrial services (such as transportation,
etc.) and from sales of purchased merchandise and surplus materials,
etc.
Non-operating
income and expenses refer to the various gains and losses other
than profit from sales of products and from other operations, including
income from investment, loss on investment, income on disposal of
fixed assets, loss on disposal of fixed asses, penalties and fines
paid, penalties and fines received, donations contributed, bad debts,
extraordinary losses, etc.
(2)
The profit of a commercial enterprise includes profit from sales,
profit from other operations and non- operating income and expenses.
Profit
from sales refers to the profit derived from selling merchandise.
Profit
from other operations refers to that profit derived from operations
other than sales of merchandise (such as occasional repairs, rental,
etc.).
Non-operating
income and non-operating expenses refer to various non-operating
gains and losses other than profit from sales and profit from other
operations, including income on investment, loss on investment,
income from disposal of fixed assets, loss on disposal of fixed
assets, penalties and fines received, penalties and fines paid,
donations contributed, bad debts, extraordinary losses, etc.
(3)
Profit of a service-trade enterprise includes net operating income
and non-operating income and expenses.
Article
57. The profit distributable by a joint venture shall be
the excess of its net profit over income tax payable and the required
provisions of the reserve fund, staff and workers' bonus and welfare
fund and enterprise expansion fund. It shall be distributed to the
participants of the joint venture in proportion to their shares
of contributed capital if the board of directors decides to make
the distribution.
The
reserve fund may be used as a provisional financial cushion against
the possible losses of a joint venture. The staff and workers' bonus
and welfare fund shall be restricted to the payment of bonuses and
collective welfare for staff and workers. The enterprise expansion
fund may be used to acquire fixed assets or to increase the working
capital in order to expand the production and operation of the joint
venture.
Article
58. If a joint venture carries losses from previous years,
the profit of the current year shall first be used to cover the
losses. No profit shall be distributed unless the deficit from the
previous years is made up.
The
profit retained by a joint venture and carried over from previous
years may be distributed together with the distributable profit
of the current year, or after any deficit of the current year's
profit is made up therefrom.
Article
59. A joint venture shall compile a profit distribution programme
at the end of a year, based on the profits or losses realized in
the year and the retained profit or deficit carried over from the
previous years, and submit the programme to the board of directors
for discussion and decision. The distribution shall be recorded
in the books of accounts and recognized in the annual final accounts
after the decision is made.
Chapter
XII Classification of Accounts And Accounting Statements
Article
60. The rules on the classification of accounts and accounting
statements of the joint ventures shall be formulated by the Ministry
of Finance of the People's Republic of China, or by the relevant
business regulatory departments and submitted to the Ministry of
Finance for examination and approval.
A
joint venture may supplement or omit the stipulated ledger accounts
and the stipulated items of the accounting statements according
to its specific circumstances, provided that it does not affect
the accounting requirements and the summarisation of the indexes
in the accounting statements.
Article
61. The accounts of the joint ventures shall generally be
classified according to the operation and management needs into
four broad categories: assets, liabilities, capital, profit and
loss. Profit and loss accounts may also be classified into income
accounts and expense accounts. For industrial joint ventures, another
category may be added for cost accounts. The ledger accounts of
a joint venture shall be coded according to their classification.
Article
62. The accounting statements of a joint venture shall include:
(1)
Balance sheet;
(2)
Income statement;
(3)
Statement of changes in financial position; and
(4)
Relevant supporting schedules.
A
joint venture may add additional information in its accounting statements
after it is approved by all its participants, in order to meet the
need of the foreign participant's head office in consolidation of
financial statements.
Article
63. When a joint venture with subsidiary enterprises combines
its accounting statements with those of its subsidiaries, its funds
appropriated to and its current accounts with its subsidiaries shall
be offset against the corresponding items in the accounting statements
of the subsidiaries.
Article
64. On submitting its annual accounting statements, a joint
venture shall attach a descriptive overview of its financial condition,
primarily explaining:
(1)
Conditions of production and operation;
(2)
Conditions of realisation and distribution of profit;
(3)
Conditions of changes in capital and its turnover;
(4)
Conditions of foreign exchange receipts and disbursements and their
equilibrium;
(5)
Conditions of the payment of consolidated industrial and commercial
tax, income tax, fees for the use of site and fees for the transfer
of technology;
(6)
Conditions of overage, shortage, deterioration, spoilage, damage
and write-off of different properties and supplies; and
(7)
Other necessary issues to be explained.
On
submitting quarterly statements, the joint venture shall also explain
any special conditions.
Article
65. The quarterly and annual accounting statements of a joint
venture shall be submitted to each participant of the joint venture,
local tax authority, the relevant business regulatory department
of the joint venture and the public finance department at the same
level.
The
quarterly accounting statements of a joint venture shall be submitted
within 20 days after the end of each quarter, and the annual accounting
statements shall be submitted together with the audit report made
by the Certified Public Accountants within four months after the
end of a year.
Article
66. The accounting statements of a joint venture shall be
examined and signed by its president and controller and shall be
under the seal of the joint venture.
Chapter
XIII Accounting Documents and Accounting Books
Article
67. A joint venture must acquire or fill out original documents
for every transaction occurring. All the original documents must
carry faithful contents, evidence of all the required procedures
and accurate figures. Original documents from an outside unit must
be signed and sealed by the unit. The original documents shall be
verified and signed by the head of the department and the person
responsible for handling the transaction.
A
joint venture shall check and inspect the original documents seriously.
Any falsified or altered original document, or any fraudulent application
or request or other similar event must be rejected and reported
to the relevant party. The original documents with incomplete contents,
insufficient evidence of required procedures or inaccurate figures
shall be returned, amended or refilled. Only the original documents
examined and proved correct can be taken as the basis for preparing
accounting vouchers.
Article
68. The accounting vouchers of a joint venture include receiving
vouchers, disbursement vouchers, and journal vouchers. All vouchers
must be filled out with the required contents and can be taken as
the basis in bookkeeping only after being signed by the preparer,
the designated verifier and chief officer of the financial and accounting
department. A receiving or disbursement voucher shall also be signed
by the cashier.
Each
kind of accounting voucher shall be filed according to its sequential
number and bound into books monthly together with the original documents
attached thereto, and shall be kept in safety without any loss or
damage. For important documents concerning claims and debts that
need separate safe-keeping, cross reference shall be made on the
original documents of the transaction and on the related vouchers.
Article
69. A joint venture shall number sequentially all documents
issued to the outside, and retain its duplicate copy (or copies)
or the stub. An original of such documents with clerical errors
or withdrawn for cancellation shall be kept together with the duplicate
or stub of the same sequential number. If the original copy is missing
or unable to be recovered, the reason shall be noted on the duplicate
or stub.
Article
70. All the blank forms of important documents, such as cheque
books, cash receipts, delivery orders, etc. shall be registered
in a special registration book by the financial and accounting department.
Requisition of those blank forms shall be approved by the chief
officer or a designated person of the financial and accounting department,
and the person making the requisition shall sign the registration
book for receiving the forms.
Article
71. A joint venture shall set up three kinds of primary accounting
books, namely, journals, general ledgers and subsidiary ledgers,
as well as appropriate supplementary memorandum books.
All
the books shall be kept with complete records, accurate figures,
clear descriptions and prompt registration, on the basis of the
examined original documents and vouchers or summary of vouchers
that are proved correct.
No
record in the books of a joint venture shall be destroyed, amended,
altered or eliminated by correction fluid. When errors are made,
they shall be amended by crossing off the error or by preparing
additional vouchers according to the nature and circumstances of
the error. When the crossing method of amendment is used, the person
making the correction shall sign on the place of amendment.
Article
72. A joint venture keeping its accounts by electronic computer
shall maintain properly its accounting records stored in or printed
out by the computer and shall regard such records as accounting
books. The tapes, discs, etc. shall be kept and no deletion shall
be allowed unless the records in them are printed out in visible
form.
Chapter
XIV Audit
Article
73. A joint venture shall engage the Certified Public Accountants
registered with the government of the People's Republic of China
to audit its annual accounting statements and the books of accounts
of the year and to issue an auditor's report, according to the provisions
of the "Income Tax Law of the People's Republic of China Concerning
Joint Ventures Using Chinese and Foreign Investment".
Article
74. Each participant of a joint venture may audit the accounts
of the joint venture. The expenses thereon shall be paid by the
participant making the audit. Any problem noted in the audit that
needs to be resolved by the joint venture shall be submitted to
the joint venture in a timely manner for discussion and resolution.
Article
75. The joint ventures shall furnish the auditors with all
the documents, books and other relevant data as needed by them.
The auditors shall be responsible for maintaining confidentiality.
Chapter
XV Accounting Files
Article
76. The accounting files of a joint venture, including accounting
documents, accounting books, accounting statements, etc. must be
appropriately kept within the territory of the People's Republic
of China. No loss or spoilage shall be allowed.
Article
77. The annual accounting statements and all other important
accounting files relevant to the rights and interests of all the
participants of a joint venture, such as joint venture agreements,
joint venture contracts, articles of association of the joint venture,
resolutions of the board of directors, investment appraisal lists,
certificates on capital validation, auditing reports of the Certified
Public Accountants, long term economic contracts, etc. must be kept
permanently. General accounting documents, accounting books and
monthly and quarterly accounting statements shall be kept for at
least 15 years.
Article
78. If the accounting files need to be destroyed after the
expiration of the retention period, an itemised list of the files
to be destroyed shall be prepared and reported to the board of directors,
business regulatory department and tax authority for approval. No
files can be destroyed unless such a list is approved. The list
of destroyed accounting files must be kept permanently.
Chapter
XVI Dissolution And Liquidation
Article
79. When a joint venture declares dissolution and goes into
liquidation on or before the expiration of the joint venture contract,
a liquidation committee shall be formed to conduct an overall check
of the assets of the joint venture and its claims and debts, to
prepare a balance sheet and a detailed list of assets, to suggest
a basis for the valuation and calculation of the assets and to formulate
a plan for liquidation. After approval is obtained through submitting
the liquidation plan to the board of directors for its discussion,
the liquidation committee shall dispose of the assets, collect the
claims, pay taxes and clear debts, and resolve all remaining problems
appropriately.
Article
80. The liquidation expenses of a joint venture and the remuneration
to its liquidation committee members shall be given priority in
making payments from the existing assets of the joint venture.
Article
81. The net liquidation income, i.e. the liquidation income
in the process of the liquidation of a joint venture less the liquidation
expenses and various liquidation losses, shall be dealt with as
the profit of the joint venture.
Article
82. The assets of a joint venture left over after the clearance
of all its debts shall be distributed among the participants of
the joint venture according to the proportion of each participant's
investment contribution, unless otherwise provided by the agreement,
contract or articles of association of the joint venture.
Article
83. The accounting statements on liquidation and dissolution
of a joint venture shall be valid only after an examination is made
and a certificate is issued by Certified Public Accountants registered
with the government of the People's Republic of China.
Article
84. After the dissolution of a joint venture, its accounting
books and all other documents shall be left in the care of the Chinese
participant.
Chapter
XVII Other Provisions
Article
85. The present Regulations are formulated by the Ministry
of Finance of the People's Republic of China. If there is any change
in the laws, regulations and other relevant provisions of the People's
Republic of China on which these Regulations are based, the new
provisions shall govern. If the present Regulations need corresponding
amendment, it shall be made by the Ministry of Finance of the People's
Republic of China.
Article
86. For joint ventures established in the special economic
zones, if there are special provisions in the laws or regulations
adopted by the National People's Congress of the People's Republic
of China or its Standing Committee, or by the State Council, such
provisions shall be followed.
Article
87. The right to interpret these Regulations resides in the
Ministry of Finance of the People's Republic of China.
Article
88. The present Regulations shall be implemented on and after
July 1, 1985.
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