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Tangible fixed assets often constitute a key component in the total assets and play an important role in the reflection of the financial situation of enterprises. When determining the first criterion prescribed in Section a, paragraph 06 of each tangible fixed asset, the enterprises must determine the degree of certainty of the acquisition of future economic benefits, on the basis of evidences available at the time of initial recognition, and must bear all related risks.

Though being unable to directly yield economic benefits like other tangible fixed assets, those assets used for the purposes of ensuring production and business safety or protecting the environment are necessary for enterprises to achieve more economic benefits from other assets.

However, only if their historical cost and that of related assets do not exceed the total value recoverable from them and other related assets shall these assets be recognized as tangible fixed assets.

For example, a chemical plant may have to install equipment and carry out new chemical-storing and-preserving processes in order to comply with the environmental protection requirements in the production and storage of toxic chemicals.

Any related installed accompanying fixed assets shall only be accounted as tangible fixed assets if without them the enterprises would not be able to operate and sell their chemical products. The second criterion prescribed in Section b, paragraph 06 for recognizing tangible fixed assets is often satisfied since the historical cost of the fixed assets has been already determined through procurement, exchange, or self-construction.

When determining components of tangible fixed assets, the enterprises must apply the criteria of tangible fixed asset on a case-by-case basis. The enterprises may consolidate secondary, separate parts, such as molds, tools, swages, and apply the criteria of tangible fixed asset to such aggregate value. Accessories and auxiliary equipment are often seen as movables and thereby accounted into use costs. Major accessories and maintenance equipment shall be determined as tangible fixed assets when the enterprises estimate that their useful life would last for over one year.

If they are only used in association with tangible fixed assets irregularly, they shall be accounted as separate tangible fixed assets and depreciated over a period shorter than the useful life of related tangible fixed assets. In each specific case, the total cost of assets may be allocated to their components and separately accounted for each component. This case shall apply when each component of an asset has a different useful life, or contributes to creating for the enterprise economic benefits which are assessed according to different prescribed criteria so it may use different depreciation rates and methods.

For example, an aircraft body and engine should be accounted as two separate tangible fixed assets with different depreciation rates if they have different useful lives. The historical cost of a procured tangible fixed asset consists of the buying price minus - trade discounts and price reductions , taxes excluding reimbursed tax amounts and expenses directly related to the putting of the assets into the ready-for-use state, such as ground preparation expense; initial transportation, loading and unloading expense; installation and trial operation expense minus - amounts recovered from products and wastes turned out from trial operation ; expert cost and other directly-related expenses.

For tangible fixed assets formed from construction investment by contractual mode, their historical costs are the settled costs of the invested construction projects, other directly-related expenses and registration fee if any. Where procured tangible fixed assets are houses, architectural objects associated with the land use right, the land use right value must be separately determined and recognized as intangible fixed asset.

Where procured tangible fixed assets are paid by deferred payment mode, their historical cost shall be shown at the buying price promptly paid at the purchase time. Incurred costs, such as administrative management cost, general production costs, trial operation cost and other costs…, if not directly related to the procurement and the putting of fixed assets into the readyfor-use state, shall not be included into the historical cost of tangible fixed assets.

Self-constructed or self-made tangible fixed assets In these cases, all internal profits must not be included in the historical cost of these assets. Unreasonable expenses, such as wasted materials and supplies, labor or other costs in excess of the normal levels arising in the self-construction or selfgenerating process must not be included in the historical cost of tangible fixed assets. Financial-leasing tangible fixed assets The historical cost of a tangible fixed asset purchased in the form of exchange for a dissimilar tangible fixed asset or other assets shall be determined according to the reasonable value of the received tangible fixed assets, or that of the exchanged ones, after adjusting the cash amounts or cash equivalents which are additionally paid or received.

The historical cost of a tangible fixed asset purchased in the form of exchange for similar one, or possibly formed through its sale in exchange for the right to own similar ones similar assets are those with similar utilities, in the same business field and of equivalent value. In both cases no profit or loss is recognized in the exchange process.

The historical cost of the received fixed asset shall be the residual 8 Peachtree Accounting Software - The best solution for Business Management Download from www. For example, the exchange of tangible fixed assets is similar to exchange of machinery, equipment, means of transport, service establishments or other tangible fixed assets.

Tangible fixed assets augmented from other sources The historical cost of a tangible fixed asset which is donated or presented shall be initially recognized according to the initial reasonable value. The costs incurred after the initial recognition of tangible fixed assets shall be recorded as increase in their historical cost if these costs are certain to augment future economic benefits obtained from the use of these assets.

Those incurred costs which fail to meet this requirement must be recognized as production and business expenses in the period. The repair and maintenance costs of tangible fixed assets for the purpose of restoring or sustaining their capability to bring about economic benefits as in their original operating conditions shall be included into production and business expenses in the period.

The accounting of the costs incurred after the initial recognition of tangible fixed assets must be based on each particular case and the recoverability of these costs. When the residual value of the tangible fixed assets has already been composed of reductions in economic benefits, those costs incurred afterwards to restore economic benefits from these fixed assets shall be included in the historical cost of the fixed assets if their residual value does not exceed their recoverable value.

For example, an enterprise buys a house which needs some repair before it can be used. The house repair cost shall be included in the historical cost of the asset if such cost is recoverable from the future use of the house. Where some parts of tangible fixed assets need to be replaced on a regular basis, they shall be accounted as independent fixed assets if they satisfy all the four 4 criteria of a tangible fixed asset. For example, air-conditioners in a house may be replaced many times throughout the useful life of the house.

The costs incurred in the replacement or restoration of these air-conditioners shall be accounted as an independent asset and the value of the replaced air-conditioners shall be recorded as a decrease. After initial recognition, during their use process, tangible fixed assets shall be determined according to their historical costs, accumulated depreciation and residual values.

The depreciable value of tangible fixed assets shall be allocated systematically during their useful life. The depreciation method must be suited to the economic benefits yielded by the assets to the enterprises.

The depreciated amount of each period shall be accounted into the production and business expenses in the period, unless they are included in the value of other assets, such as depreciation of tangible fixed assets used for activities in the development stage is a cost component of the historical cost of intangible fixed assets according to the regulations of the standard intangible fixed assets , or the depreciation cost of tangible fixed assets used in the process of self-constructing or self-making other assets.

Economic benefits yielded by tangible fixed assets shall be gradually exploited by the enterprises through the use of these assets. Nevertheless, other factors, like technical backwardness, wear-and-tear of these fixed assets due to their non-use, often cause reductions in the economic benefits which the enterprises expect these assets would bring about. The useful life of tangible fixed assets shall be determined by the enterprises mainly on the expected use extent of the assets.

However, due to the asset management policy of the enterprises, the estimated useful life of fixed assets may be shorter than their actual useful life. Three methods of depreciation of tangible fixed assets are: - Straight-line depreciation method; - Declining-balance depreciation method; and - Units-of-output depreciation method.

By the straight-line depreciation method, the annual depreciation amount is kept unchanged throughout the useful life of assets. By the declining-balance depreciation method, the annual depreciation amount gradually declines throughout the useful life of assets. The units-of-output depreciation method is based on the estimated total quantity of product units the assets may turn out. The depreciation method applied by the enterprises to each tangible fixed asset must be implemented consistently, except where appear changes in the mode of its use.

The enterprises must not continue depreciating tangible fixed assets which have been entirely depreciated but still used for production and business operations. The useful life of tangible fixed assets must be reconsidered periodically, usually at the end of the fiscal year.

If there is any considerable change in the estimation of the useful life of assets, the depreciation rate must be adjusted. In the process of using fixed assets, once it has been determined with certainty that the useful life is no longer suitable, it must be adjusted together with the depreciation rate for the current year and subsequent years, which shall be expounded in the financial statements. The tangible fixed asset repair and maintenance regime may help prolong the actual useful life or increase the estimated liquidation value of assets but the enterprises must not change the depreciation rate of these assets.

The method of depreciation of tangible fixed assets must be reconsidered periodically, usually at the end of the fiscal year; if there is any change in the way of using the assets, which brings about benefits for the enterprises, the depreciation method and rate may be changed for the current year and subsequent years. Tangible fixed assets which are liquidated or sold shall be recorded as a decrease. These profits or losses shall be recognized as an income or an expense on the reports on the business results in the period.

The determination of the depreciation method and the estimation of the useful life of tangible fixed assets bear a purely presumptive nature. Therefore, the presentation of the applied depreciation methods and the estimated useful life of tangible fixed assets permits the users of financial statements to examine the correctness of the policies set out by the enterprise management and have basis for comparison with other enterprises.

The enterprises must present the nature and impact of the changes in accounting estimation which bear a crucial influence in the current accounting period or subsequent periods. This standard aims to prescribe and guide the principles and methods of accounting intangible fixed assets, including: criteria of intangible fixed assets, time of recognition and determination of the initial value, costs incurred after initial recognition, determination of the value after initial recognition, depreciation, liquidation of intangible fixed assets and some other regulations serving as basis for recording accounting books and making financial statements.

This standard applies to the accounting of intangible fixed assets, except where other standards permit the application of other accounting principles and methods to intangible fixed assets. A number of intangible fixed assets may be contained within or on physical objects like compact discs in cases where computer software is recorded in compact discs , legal documents in cases of licenses or invention patents.

In order to determine whether or not an asset containing both intangible and tangible elements is accounted according to the regulations of the tangible fixed asset standard or intangible fixed asset standard, the enterprises must base themselves on the determination of which elements being important. For example, if computer software is an integral part of the hardware of a computer, without it the computer cannot operate, such software is a part of the computer and thus it is considered a part of tangible fixed asset.

In cases where software is a part detachable from the related hardware, it is an intangible fixed asset. This standard prescribes the expenses related to the advertisement, personnel training, enterprise establishment, research and development.

Research and development activities oriented at the knowledge development may create an asset in a physical form i. Once the financial-leasing intangible fixed assets have been initially recognized, the lessees must account them in the finance-leasing contracts according to this standard. The rights under licensing contracts to films, video programs, plays, manuscripts, patents and copyright shall fall within the scope of this standard.

Intangible fixed assets mean assets which have no physical form but the value of which can be determined and which are held and used by the enterprises in their production, business, service provision or leased to other subjects in conformity with the recognition criteria of intangible fixed assets. Research means a planned initial survey activity carried out to obtain understanding and knowledge.

Historical cost means all costs incurred by the enterprises to acquire intangible fixed assets as of the time of putting these assets into use as expected. Depreciation means the systematic allocation of the depreciable value of intangible asset throughout their useful life. Liquidation value means the value estimated to be acquired upon the expiry of the useful life of an asset, after subtracting - the estimated liquidation cost.

Residual value means the historical value of an intangible fixed asset after subtracting - the accumulated depreciation of the asset. Reasonable value means the value of assets which may be exchanged between the knowledgeable parties in the par value exchange.

In order to determine whether or not intangible resources specified in paragraph 07 meet the definition of an intangible fixed asset, the following factors shall be considered: Identifiability, resource controllability and certainty of future economic benefits. If an intangible resource fails to satisfy the intangible fixed asset definition, the costs incurred in the formation of such intangible resource must be recognized as production and business expenses in the period or as pre-paid expenses.

Particularly for those intangible resources the enterprises have acquired through enterprise merger of re-purchase character, they shall be recognized as goodwill on the date of arising of the purchase operation under the regulations in paragraph Identifiability Intangible fixed assets must be separately identifiable so that they can be clearly distinguished from goodwill.

Goodwill arising from the enterprise merger of re-purchase character is shown with a payment made by the asset purchaser in order so as to possibly obtain future economic benefits. An intangible fixed asset is considered identifiable when the enterprises may lease, sell or exchange it or acquire concrete future economic benefits therefrom.

Those assets which can only generate future economic benefits when combined with other assets shall be still seen as separately identifiable if the enterprises can determine with certainty future economic benefits to be brought about by such assets. Controllability Market knowledge and expertise may bring about future economic benefits.

The enterprise may control these benefits if they have legal right, for example: Copyright, aquatic resource exploitation permit. Leadership talent and professional techniques shall not be recognized as intangible fixed assets except where these assets are secured with legal rights to use them and acquire future economic benefits and, at the same time, meet all the requirements of the intangible fixed asset definition and recognition criteria.

Future economic benefits Future economic benefits yielded by intangible fixed assets for the enterprises may include: Turnover increase, saved costs, or other benefits originating from the use of intangible fixed assets. The enterprises must determine the degree of certainty to acquire future economic benefits through using reasonable and grounded assumptions on the economic conditions which will exist throughout the useful life of the assets.

Intangible fixed assets must have their initial value determined according to their historical cost. The historical cost of a separately-purchased intangible fixed asset consists of the buying price minus - trade discounts or price reductions , taxes excluding reimbursed tax amounts and expenses directly related to the putting of the asset into use as planned. Where the land use right is purchased together with houses and architectural objects affixed on the land, its value must be separately determined and recognized as intangible fixed asset.

Where a procured intangible asset is paid by deferred payment mode, its historical cost shall be shown at the purchasing price which should have been promptly paid at the time of purchase. If an intangible fixed asset is formed from the exchange involving payment accompanied with vouchers related to the capital ownership of the establishment, its historical cost is the reasonable value of vouchers issued in relation to capital ownership.

Purchase of intangible fixed assets through enterprise merger The historical cost of an intangible fixed asset formed from the process of enterprise merger of repurchase character is the reasonable value of such asset on the date of purchase the date of enterprise merger.

The enterprises must determine the historical cost of intangible fixed assets in a reliable way for separate recognition of these assets. An , Deferred tax assets and deferred tax liabilities should be presented separately from other When an enterprise classifies its assets and liabilities as current and non-current assets and , The tax expense income related to profit or loss from ordinary activities shall be presented , An enterprise should disclose the amount of a deferred tax asset and the nature of the , An enterprise should disclose segment result for each reportable segment.

This standard aims to prescribe and guide the principles and method of accounting the inventories, including: determination of the value of inventories and accounting it as expense; the marking-down of inventories to suit the net realizable value and the method of calculating the value of inventories to serve as basis for recording accounting books and making financial statements.

This standard shall apply to accounting inventories on the original price principle, except when other prescribed accounting standards permit the application of other accounting methods to inventories. Inventories consist of:- Goods purchased for sale: goods in stock, purchased goods being transported en route, goods sent for sale, goods sent for processing;- Finished products in stock and finished products sent for sale;- Unfinished products: uncompleted products and completed products not yet going through the procedures for being put into stores of finished products;- Raw materials, materials, tools and instruments in stock, sent for processing, and already purchased but being transported en route;- Costs of unfinished services.

Net realizable value means the estimated selling price of inventories in a normal production and business period minus - the estimated cost for completing the products and the estimated cost needed for their consumption. Current price means a sum of money payable for the purchase of a similar kind of inventory on the date the accounting balance sheet is made. Inventories are valued according to their original prices. Where the net realizable value is lower than the original price, they must be valued according to the net realizable value.

Original prices of inventories 05 The original price of inventories consists of the purchasing cost, processing cost and other directly-related costs incurred for having the inventories stored in the present place and conditions. Purchasing cost The purchasing cost of inventories consists of the buying price, non-refundable taxes, transportation cost, loading and unloading cost, preservation cost incurred in the buying process and other costs directly 1Standard No 2 - Inventoriesrelated to the purchase of the inventories.

Processing cost The processing costs of inventories consist of those directly related to the manufactured products, such as cost of direct labor, fixed and variable general production costs incurred in the process of turning raw materials and materials into finished products.

Fixed general production costs means indirect production costs, which are often invariable regardless of the volume of manufactured products, such as depreciation cost, maintenance cost of machinery, equipment, workshops… and administrative management cost at production workshops.

Variable general production costs means indirect production costs, which often change directly or almost directly according to the volume of manufactured products, such as costs of indirect raw materials and materials, cost of indirect labor. Fixed general production costs shall be allocated into the processing cost of each product unit on the basis of the normal production capacity of machinery.

Normal capacity is the average quantity of products turned out under normal production conditions. The unallocated amount of general production costs shall be recognized as production and business expense in the period. The variable general production costs shall be entirely allocated into the processing cost of each product unit according to the actually incurred costs.

Where various kinds of products are manufactured in a single production process in the same duration of time and the processing cost of each kind of product is not separately expressed, the processing cost shall be allocated to those kinds of products according to appropriate and consistent norms in all accounting periods.

Where by-products are turned out, their value shall be calculated according to the net realizable value and subtracted from the processing cost already calculated for the principal products. Other directly-related costs Other directly-related costs shall be incorporated into the original prices of inventories, including costs other than the purchasing cost and processing cost of inventories.

For example, the original price of finished products may consist of the product-designing cost for a particular order. Costs not permitted to be incorporated in the original price of inventories Service provision cost2Standard No 2 - Inventories Service provision cost consists of personnel costs and other costs directly related to the service provision, such as supervision cost and related general costs.

Personnel costs and other costs related to goods sale and enterprise management shall not be included in the service provision cost. The specific identification method shall apply to enterprises having a few goods items or stable and identifiable goods items.

By the weighted average method, the value of each kind of inventories shall be calculated according to the average value of each similar kind of goods at the beginning of the period and the value of each kind of inventories purchased or manufactured in the period. The First-in, First-out method shall apply upon the assumption that the first inventories purchased or manufactured is the first inventories delivered, and the inventories left at the end of the period are those purchased or produced at a time close to the end of the period.

By this method, the value of the delivered goods shall be computed according to the price of the lot of goods warehoused at the beginning of the period or at a time shortly after the beginning of the period, the value of the inventories shall be computed according to the price of the goods warehoused at the end of the period or at a time shortly before the end of the period.

The Last-in First-out method shall apply upon the assumption that the most recently purchased or manufactured inventories are delivered first, and the inventories left at the end of the period are those which are purchased or produced earlier. By this method, the value of the delivered goods shall be computed according to the price of the lot of goods warehoused most recently or shortly earlier; the value of the inventories shall be computed according to the price of the goods warehoused at the beginning of the period or shortly after the beginning of the period, which still remain in stock.

The marking-down of inventories to the level equal to the net realizable value is compliant with the principle that assets must not be shown at a value higher than the realized value estimated from their sale or use.

At the end of the accounting period of the year, when the net realizable value of inventories is lower than their original price, the reserve for inventory price decrease must be set up. The amount of the to be-set up inventory price decrease reserve is the difference between the original price of inventories and their net realizable value.

The inventory price decrease reserve shall be set up for each kind of inventories. For services incompletely provided, the inventory price decrease reserve shall be set up for each type of service with different charges.

The estimation of the net realizable value of inventories must be based on reliable evidences gathered at the time of estimation. Such estimation must take into account price fluctuations or costs directly related to events occurring after the ending day of the fiscal year, which have been anticipated through conditions existing at the time of estimation.

When estimating the net realizable value, the purpose of the storage of inventories must be taken into account. For example, the net realizable value of the inventories reserved to ensure the performance of uncancellable sale or service provision contracts must be based on the values inscribed in such contracts.

If the volume of inventories is bigger than that of goods needed for a contract, the net realizable value of the difference between these two volumes shall be appraised on the basis of the estimated selling price.

Raw materials, materials, tools and instruments reserved for use in the manufacture of products must not be valued lower than their original price if the products which have been manufactured with their contributions are to be sold at prices equal to or higher than their production costs. At the end of the accounting period of the subsequent year, a new appraisal of the net realizable value of inventories by the end of such year must be conducted. Where at the end of the accounting period of the current year, if the to be-set up reserve for inventory price decrease is lower than the inventory price decrease reserve already set up at the end of the accounting period of the previous year, the difference thereof must be added thereto under the provisions in paragraph 24 in order to ensure that the value of inventories shown on financial statements is computed according to the original price if the original price is lower than the net realizable value or according to the net realizable value if the original price is higher than the net realizable value.

When selling inventories, the original price of goods sold shall be recognized as production and business expense in the period in consistence with the recognized turnover related thereto. Recognition of the value of goods sold as expense incurred in the period must ensure the expense - turnover matching principle. Presentation of inventories costs in the reports on the production and business results, which are classified functionally. This standard aims to prescribe and guide the accounting principles and methods applicable to tangible fixed assets, including criteria of tangible fixed assets, the time of recognition and determination of initial value, costs incurred after initial recognition, determination of value after initial recognition, depreciation, liquidation of tangible fixed assets and some other regulations serving as basis for recording accounting books and making financial statements.

This standard applies to the accounting of tangible fixed assets, except where other accounting standards permit the application of other accounting principles and methods to tangible fixed assets. Where other accounting standards prescribe methods of determining and recognizing the initial value of tangible fixed assets other than the methods defined in this standard, other contents of tangible fixed asset accounting shall still comply with the regulations of this standard.

Enterprises must apply this standard even when they are affected by price changes, except otherwise prescribed by State decisions related to the re-appraisal of tangible fixed assets. For the purpose of this standard, the terms used herein are construed as follows:Tangible fixed assets means assets in physical forms which are possessed by the enterprises for use in production and business activities in conformity with the recognition criteria of tangible fixed assets. Historical cost means all the costs incurred by the enterprises to acquire tangible fixed assets as of the time of putting such assets into the ready-for-use state.

Depreciation means the systematic allocation of the depreciable value of tangible fixed assets throughout the useful life of such assets. Depreciable value means the historical cost of tangible fixed assets recorded on financial statements, minus - the estimated liquidation value of such assets. Liquidation value means the value estimated to be obtained at the end of the useful life of the assets, after subtracting the estimated liquidation cost. Reasonable value means the value of assets, which may be exchanged among knowledgeable parties in the par value exchange.

Residual value means the historical cost of tangible fixed assets after subtracting the accumulated depreciation thereof.