Lately, the Ministry of Finance ("MOF") has issued the Provisions on Regulating the Accounting Treatments for Relevant Businesses of Addressing Overcapacity, Destocking, Deleveraging, Lowering Corporate Costs, and Improving Weak Links (the "Provisions"), which shall come into force as of the date of promulgation.
The Provisions regulate the "accounting treatment for free transfer of equities in subsidiaries between wholly state-owned enterprises or exclusively state-funded enterprises", "accounting treatment for zombie enterprises to be closed down or to undergo liquidation" and "accounting treatment for special rewards and subsidies granted by central government-owned enterprises to industrial enterprises for the structure adjustment". Regarding zombie enterprises, the Provisions respectively specify the accounting treatment for such enterprises themselves, their parent companies and equity investors other than parent companies. Relevant enterprises shall, from the beginning of the period when they are listed as zombie enterprises, measure their assets at the liquidation value and their liabilities at the estimated settlement amount, and record the relevant differences as the non-business expenditure (income), and shall not depreciate or amortize the fixed assets and intangible assets. Meanwhile, the above-mentioned enterprises shall disclose in the notes the basis and reasons for preparing financial statements and the important information such as the status of assets and liabilities on the financial statements.