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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II RECOGNITION CHAPTER III INITIAL MEASUREMENT CHAPTER IV SUBSEQUENT MEASUREMENT CHAPTER V DISPOSAL CHAPTER VI DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of fixed assets as well as the disclosure of relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The following items shall be governed by other relevant accounting standards: (1) The buildings as investment real estates shall be governed by the Accounting Standards No. 3-Investment Real Estates; and (2) The production biological assets shall be governed by the Accounting Standards No. 5-Biological Assets. CHAPTER II RECOGNITION Article 3. The "fixed assets" refer to the tangible assets that simultaneously have the following features: (1) They are held for the purpose of producing commodities, providing labor service, renting or business management; and (2) Their useful life exceeds one fiscal year. The term "useful life" refers to the period of time over which an asset is expected to be used, or number of products or services expected to be produced or provided through the fixed asset. Article 4. No fixed asset may be recognized unless it simultaneously satisfies the following conditions: (1) The economic benefits relating to the fixed asset are likely to flow into the enterprise; and (2) The cost of the fixed asset can be measured reliably. Article 5. If the component parts of a fixed asset have different useful lives or provide economic benefits for the enterprise in different forms and to which different depreciation rates or depreciation methods apply, they shall be recognized as fixed assets on an individual component part basis. Article 6. If the subsequent disbursements relevant to a fixed asset meet the recognition conditions as described in Article 4 of these Standards, they shall be recorded in the cost of fixed asset; otherwise, they shall be recorded in the profits and losses of the current period. CHAPTER III INITIAL MEASUREMENT Article 7. A fixed asset shall be initially measured at its cost. Article 8. The cost of a purchased fixed asset includes the purchase price, relevant taxes, freight, loading and unloading fees, professional service fees and other disbursements that bring the fixed asset to the expected conditions for use and that may be attributed to the fixed asset. If a certain payment is made for purchasing several fixed assets that are not priced separately, the price of each fixed asset shall be determined by allocating the payment according to the proportion of fair value of each fixed asset to the total cost of all assets acquired. If the payment for a fixed asset is delayed beyond the normal credit conditions and it is of financing nature in effect, the cost of the fixed asset shall be determined on the basis of the current value of the purchase price. The difference between the actual payment and the current value of the purchase price shall be recorded in the current profits and losses within the credit period, unless it shall be capitalized under the Accounting Standards No. 17-Borrowing Costs. Article 9. The cost of a self-constructed fixed asset shall be formed by the necessary disbursements incurred for bringing the asset to the expected conditions for use. Article 10. The borrowing costs, which shall be recorded in the cost of a fixed asset, shall be handled in accordance with the Accounting Standards No. 17-Borrowing Costs. Article 11. The cost put into a fixed asset by the investor shall be determined according to the value as stipulated in the investment contract or agreement, with the exception of those of unfair value as is stipulated in the contract or agreement. Article 12. The costs of fixed assets acquired through the exchange of non-monetary assets, debt restructuring, merger of enterprises, and financial leasing shall be respectively determined according to the Accounting Standards No. 7-Exchange of Non-monetary Assets, Accounting Standards for Enterprises No. 12-Debt Restructuring, Accounting Standards for Enterprises No. 20-Merger of Enterprises and Accounting Standards for Enterprises No. 21-Leases. Article 13. The expected discard expenses should be taken into account in the determination of the cost of a fixed asset. CHAPTER IV SUBSEQUENT MEASUREMENT Article 14. An enterprise shall provide depreciation for all its fixed assets. However, if the fixed assets have been fully depreciated but are still in use and the land which is separately measured and recorded, it shall be excluded. The term "depreciation" refers to the systematic amortization of the accrued depreciation amount through a definite method during the useful life of the fixed asset. The term "accrued depreciation amount" refers to the amount of a to-be-depreciated fixed asset's original price minus its expected net salvage value. The fixed asset for which a provision for depreciation has been made, the accumulative amount of provision for impairment of the fixed asset which has been already made shall be deducted. The "expected net salvage value" refers to the estimated amount that an enterprise may obtain from the disposal of a fixed asset at present after deducting the estimated disposal expenses at the expiration or end of its expected useful life. Article 15. An enterprise shall, according to the nature and use of a fixed asset, reasonably determine its useful life and estimated net salvage value. Once the useful life or expected net salvage value of a fixed asset is determined, it shall not be changed randomly except that the provisions of Article 19 of these Standards are satisfied. Article 16. An enterprise shall take into account of the following factors when it determines the useful life of a fixed asset: (1) The expected production capacity or volume of physical output; (2) The expected tangible and intangible wear and tear of the asset; and (3) The statutory or similar limits on the use of asset. Article 17. An enterprise shall reasonably choose a depreciation method for a fixed asset according to the expected form for the realization of the economic benefits related to the fixed asset. The available depreciation methods include the straight-line method, unit-of-production method, double declining balance method, sum-of-the-years-digits method, etc. Once the method of depreciation of a fixed asset is determined, it shall not be changed randomly, except that the provisions of Article 19 of these Standards are satisfied. Article 18. Depreciation shall be conducted for the fixed assets on a monthly basis and shall, according to the purposes of the fixed assets, be recorded in the cost of the relevant assets or in the profits and losses of the current period. Article 19. An enterprise shall, at least at the end of each year, review the useful life, expected net salvage value, and the depreciation method of the fixed assets. If there is any disparity between the expected useful life and the previously estimated useful life of a fixed asset, the expected useful life of the fixed asset should be adjusted. If there is any disparity between the amount of expected net salvage value and the previously estimated amount, the expected net salvage value shall be adjusted. If any significant change is made to the form of the realization of the expected economic benefits related to a fixed asset, the method for the depreciation of the fixed asset shall be changed. Any change made to the useful life, expected net salvage value or the depreciation method of a fixed asset shall be regarded as a change in the accounting estimates. Article 20. The impairment of a fixed asset shall be handled in accordance with the Accounting Standards for Enterprises No. 8-Asset Impairment. CHAPTER V DISPOSAL Article 21. Where a fixed asset meets either of the following conditions, the recognition of it as a fixed asset shall be terminated: (1) It is in a state of disposal; or (2) It is estimated that it is unable to generate any economic benefits through use or disposal. Article 22. An enterprise shall adjust the expected net salvage value of the fixed assets it holds for sale. Article 23. Where an enterprise' fixed assets have been sold, transferred, discarded, damaged or destroyed, the enterprise shall record the amount of the disposal income minus the carrying amount and relevant taxes in the profits and losses of the current period. The carrying amount of the fixed assets is the amount after deducting the accumulative depreciation and accumulative impairment provision from the cost of the fixed assets. The losses of inventories of the fixed assets shall be recorded in the profits and losses of the current period. Article 24. Where an enterprise records the subsequent disbursements for a fixed asset in the cost of the fixed asset under Article 6 of these Standards, it shall terminate the recognition of the carrying amount of the substituted part. CHAPTER VI DISCLOSURE Article 25. An enterprise shall, in the notes, disclose the following information related to fixed assets: (1) The recognition conditions, classifications, measurement basis and depreciation methods for the fixed assets; (2) The useful life, expected net salvage value, and depreciation rate of the various fixed assets; (3) The original beginning and ending prices, accumulative depreciation amount, and accumulative amount of the impairment provisions for fixed assets; (4) The depreciation disbursements recognized in the current period; (5) The limits on the ownership of the fixed assets, the amount of the fixed assets, and the carrying value of fixed assets used for guaranties; and (6) The name, carrying amount, expected disposal disbursements, and expected disposal costs and the expected time for disposal, etc.. |
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