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Accounting Regulations of the People's Republic of China for Joint Ventures Using Chinese and Foreign Investment

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 realised and expenses incurred during the current period shall be recognised 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 recognised 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 recognised 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 recognised 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 recognised as exchange gains or losses.

The exchange gains or losses recognised in the account shall be the realised 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 recognised 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 recognised 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 recognised 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 realisable 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 realisable value and probable loss of its inventories of which the net realisable 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 recognised 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 capitalised 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 recognised 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 organisation 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 amortisation 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 amortised over a period of ten years. The amortisation 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 organisation expenses according to the provisions of the agreement and with the consent of all participants, and shall be amortised after the production or operation starts. The annual amortisation 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 benefitting 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, 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 recognised 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 recognised 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 recognised as deferred charges and amortised 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.), amortisation of organisation expenses, expenses for staff and workers' training, research and development expenses, fees for the use of site, fees for the transfer of technology, amortisation 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 amortisation 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 realised 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 realised whether the goods are actually issued or not.

Article 53. All the sales of a joint venture realised in a month shall be recognised 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 recognise 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 realised 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 recognised 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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