Circular on Revising and Issuing the Accounting Standards for Business Enterprises No. 21 - Leases
Circular on Revising and Issuing the Accounting Standards for Business Enterprises No. 21 - Leases
Circular on Revising and Issuing the Accounting Standards for Business Enterprises No. 21 - Leases
Cai Kuai [2018] No. 35
December 7, 2018
The ministries and commissions of the State Council and the relevant agencies directly subordinate to the State Council; the finance departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government, and cities with independent planning status; the Financial Bureau of Xinjiang Production and Construction Corps; the financial supervision commissioner's offices of the Ministry of Finance in all provinces, autonomous regions, municipalities directly under the Central Government, and cities with independent planning status; and relevant centrally administered enterprises,
In order to meet the needs of the development of the socialist market economy, regulate the accounting treatment of leasing, and improve the quality of accounting information, pursuant to the Accounting Standards for Business Enterprises - Basic Standards, the Ministry of Finance ("MOF") has revised the Accounting Standards for Business Enterprises No. 21 - Leases, which are hereby promulgated. Relevant matters are hereby notified as follows:
I. Enterprises that are concurrently listed both at home and abroad, as well as enterprises listed overseas and preparing financial statements pursuant to the International Financial Reporting Standards or the Accounting Standards for Business Enterprises shall be subject to these Standards from January 1, 2019; and other enterprises adopting the Accounting Standards for Business Enterprises shall implement these Standards from January 1, 2021.
II. Enterprises whose patent companies or subsidiaries are listed overseas and that prepare overseas financial statements pursuant to the International Financial Reporting Standards or the Accounting Standards for Business Enterprises may implement these Standards in advance, but such implementation shall not be earlier than the date when they concurrently implement the Accounting Standards for Business Enterprises No. 22 -Recognition and Measurement of Financial Instruments promulgated by the MOF on March 31, 2017 and the Accounting Standards or Business Enterprises No. 14 - Revenue promulgated on July 5, 2017.
III. Enterprises that implement these Standards shall no longer carry out the Accounting Standards for Business Enterprises No. 21 - Leases contained in the Circular of the Ministry of Finance on Issuing 38 Specific Standards including the Accounting Standard for Business Enterprises No. 1 - Inventory (Cai Kuai [2006] No. 3) issued by the MOF on February 15, 2006 and the Application Guide to the Accounting Standards for Business Enterprises No. 21 - Leases contained in the Circular of the Ministry of Finance on Issuing the Application Guide to the Accounting Standards for Business Enterprises (Cai Kuai [2006] No. 18) issued by the MOF on October 30, 2006.
Any problems encountered in the implementation should be reported to the MOF in a timely manner.
Accounting Standards for Business Enterprises No. 21 - Leases
Chapter I General Provisions
Article 1 These Standards are developed pursuant to the Accounting Standards for Business Enterprises - Basic Standards, in order to regulate the recognition and measurement of leasing, as well as the presentation of relevant information.
Article 2 "Lease" refers to a contract whereby a lessor transfers the right to use assets to a lessee in return for consideration within a period of time.
Article 3 These Standards shall apply to all leases, except for:
(1) the copyrights, patents and other rights of movies, videos, scripts, manuscripts or other items acquired by lessees through licensing agreements, as well as the right to use the land acquired by assignment, allocation or transfer, to which the Accounting Standards for Business Enterprises No. 6 - Intangible Assets shall apply; and
(2) the intellectual property right granted by a lessor, to which the Accounting Standards for Business Enterprises No. 14 - Revenue shall apply.
These Standards shall not apply to leases involving exploration or use of minerals, petroleum, natural gas or similar non-renewable resources, the lease of biological assets by a lessee, as well as franchise contracts on participation in public infrastructure construction or business operation under such mode as Build-Operate-Transfer ("BOT").
Chapter II Identification, Splitting and Merger of Leases
Section 1 Identification of Leases
Article 4 On the commencement date of a contract, an enterprise shall assess whether the contract is a lease or includes a lease. Where a party to a contract assigns the right to control the use of one or more identified assets for a certain period of time in return for consideration, the contract is a lease or includes a lease.
Unless the contract terms and conditions change, the enterprise is not required to reassess whether the contract is a lease or includes a lease.
Article 5 To determine whether the right to control the use of identified assets within a certain period of time under a contract has been transferred, an enterprise shall assess whether the client in the contract has the right to use almost all of the economic benefits arising from the use of the identified assets during the period of use, and has the right to dominate the use of identified assets during this period of use.
Article 6 Identified assets shall usually be specified in a contract, and may also be implicitly specified when the assets are available for clients. However, even though a contract has specified the assets, if the supplier of the assets has substantial right to replace the assets throughout the period of use, the assets shall not be identified assets.
Where the following conditions are concurrently satisfied, it indicates that the supplier has the substantial right to replace assets:
(1) the asset supplier has the actual capacity to replace assets throughout the period of use; and
(2) the asset supplier will obtain economic benefits by exercising the right to replace assets.
Where it is difficult for an enterprise to determine whether a supplier has substantial right to replace the assets, it shall be deemed that the supplier has no substantial right to replace the assets.
Where a certain part of production capacity of assets and other parts of assets are physically indistinguishable, the part shall not be identified assets, unless it substantially represents the full capacity of the assets, thereby giving clients almost all of the economic benefits arising from the use of the assets.
Article 7 For the assessment that whether it has the right to obtain almost all of the economic benefits arising from the use of identified assets, an enterprise shall, within the agreed scope of the rights of assets that clients may use, consider the economic benefits generated therefrom.
Article 8 Either of the following circumstances may be deemed that a client has the right to dominate the use of identified assets throughout the period of use:
(1) the client has the right to dominate the purposes and methods of using the identified assets throughout the period of use; or
(2) the purposes and methods of using identified assets before the beginning of the period of use have been predetermined, the client has the right to operate the assets on its own or dominate others to operate the assets by the methods determined by it throughout the period of use, or the client has designed the identified assets and the purposes and methods of using the assets throughout the period of use have been predetermined at the time of design.
Section 2 Splitting and Merger of Leases
Article 9 Where a contract concurrently contains multiple separate leases, the lessee and lessor shall split the contract and conduct accounting treatment respectively for each separate lease.
Where a contract concurrently includes both leased and non-leased parts, the lessee and lessor shall split the leased and non-leased parts, unless the enterprise conduct accounting treatment according to the provisions of Article 12 hereof. The leased part shall be subject to accounting treatment in accordance with these Guidelines, and the non-leased part shall be subject to accounting treatment in accordance with other applicable Accounting Standards for Business Enterprises.
Article 10 Where the following conditions are concurrently satisfied, use of the rights of identified assets shall constitute a separate lease in a contract:
(1) the lessee may earn profits from separate use of the assets or joint use with other resources readily available; and
(2) there is no high dependence or high correlation between the assets and other assets in the contract.
Article 11 When splitting the leased and non-leased parts of a contract, the lessee shall apportion the contractual consideration on the basis of the relative proportion of the sum of the separate price of each leased part and the separate price of the non-leased parts, and the lessor shall apportion the contractual consideration pursuant to the provisions of the Accounting Standards for Business Enterprises No. 14 - Revenue on the apportionment of transaction prices.
Article 12 To simplify treatment, the lessee may choose whether to split the leased and non-leased parts included in the contract as per the category of the leased assets.
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Cai Kuai [2018] No. 35
December 7, 2018
The ministries and commissions of the State Council and the relevant agencies directly subordinate to the State Council; the finance departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government, and cities with independent planning status; the Financial Bureau of Xinjiang Production and Construction Corps; the financial supervision commissioner's offices of the Ministry of Finance in all provinces, autonomous regions, municipalities directly under the Central Government, and cities with independent planning status; and relevant centrally administered enterprises,
In order to meet the needs of the development of the socialist market economy, regulate the accounting treatment of leasing, and improve the quality of accounting information, pursuant to the Accounting Standards for Business Enterprises - Basic Standards, the Ministry of Finance ("MOF") has revised the Accounting Standards for Business Enterprises No. 21 - Leases, which are hereby promulgated. Relevant matters are hereby notified as follows:
I. Enterprises that are concurrently listed both at home and abroad, as well as enterprises listed overseas and preparing financial statements pursuant to the International Financial Reporting Standards or the Accounting Standards for Business Enterprises shall be subject to these Standards from January 1, 2019; and other enterprises adopting the Accounting Standards for Business Enterprises shall implement these Standards from January 1, 2021.
II. Enterprises whose patent companies or subsidiaries are listed overseas and that prepare overseas financial statements pursuant to the International Financial Reporting Standards or the Accounting Standards for Business Enterprises may implement these Standards in advance, but such implementation shall not be earlier than the date when they concurrently implement the Accounting Standards for Business Enterprises No. 22 -Recognition and Measurement of Financial Instruments promulgated by the MOF on March 31, 2017 and the Accounting Standards or Business Enterprises No. 14 - Revenue promulgated on July 5, 2017.
III. Enterprises that implement these Standards shall no longer carry out the Accounting Standards for Business Enterprises No. 21 - Leases contained in the Circular of the Ministry of Finance on Issuing 38 Specific Standards including the Accounting Standard for Business Enterprises No. 1 - Inventory (Cai Kuai [2006] No. 3) issued by the MOF on February 15, 2006 and the Application Guide to the Accounting Standards for Business Enterprises No. 21 - Leases contained in the Circular of the Ministry of Finance on Issuing the Application Guide to the Accounting Standards for Business Enterprises (Cai Kuai [2006] No. 18) issued by the MOF on October 30, 2006.
Any problems encountered in the implementation should be reported to the MOF in a timely manner.
Accounting Standards for Business Enterprises No. 21 - Leases
Chapter I General Provisions
Article 1 These Standards are developed pursuant to the Accounting Standards for Business Enterprises - Basic Standards, in order to regulate the recognition and measurement of leasing, as well as the presentation of relevant information.
Article 2 "Lease" refers to a contract whereby a lessor transfers the right to use assets to a lessee in return for consideration within a period of time.
Article 3 These Standards shall apply to all leases, except for:
(1) the copyrights, patents and other rights of movies, videos, scripts, manuscripts or other items acquired by lessees through licensing agreements, as well as the right to use the land acquired by assignment, allocation or transfer, to which the Accounting Standards for Business Enterprises No. 6 - Intangible Assets shall apply; and
(2) the intellectual property right granted by a lessor, to which the Accounting Standards for Business Enterprises No. 14 - Revenue shall apply.
These Standards shall not apply to leases involving exploration or use of minerals, petroleum, natural gas or similar non-renewable resources, the lease of biological assets by a lessee, as well as franchise contracts on participation in public infrastructure construction or business operation under such mode as Build-Operate-Transfer ("BOT").
Chapter II Identification, Splitting and Merger of Leases
Section 1 Identification of Leases
Article 4 On the commencement date of a contract, an enterprise shall assess whether the contract is a lease or includes a lease. Where a party to a contract assigns the right to control the use of one or more identified assets for a certain period of time in return for consideration, the contract is a lease or includes a lease.
Unless the contract terms and conditions change, the enterprise is not required to reassess whether the contract is a lease or includes a lease.
Article 5 To determine whether the right to control the use of identified assets within a certain period of time under a contract has been transferred, an enterprise shall assess whether the client in the contract has the right to use almost all of the economic benefits arising from the use of the identified assets during the period of use, and has the right to dominate the use of identified assets during this period of use.
Article 6 Identified assets shall usually be specified in a contract, and may also be implicitly specified when the assets are available for clients. However, even though a contract has specified the assets, if the supplier of the assets has substantial right to replace the assets throughout the period of use, the assets shall not be identified assets.
Where the following conditions are concurrently satisfied, it indicates that the supplier has the substantial right to replace assets:
(1) the asset supplier has the actual capacity to replace assets throughout the period of use; and
(2) the asset supplier will obtain economic benefits by exercising the right to replace assets.
Where it is difficult for an enterprise to determine whether a supplier has substantial right to replace the assets, it shall be deemed that the supplier has no substantial right to replace the assets.
Where a certain part of production capacity of assets and other parts of assets are physically indistinguishable, the part shall not be identified assets, unless it substantially represents the full capacity of the assets, thereby giving clients almost all of the economic benefits arising from the use of the assets.
Article 7 For the assessment that whether it has the right to obtain almost all of the economic benefits arising from the use of identified assets, an enterprise shall, within the agreed scope of the rights of assets that clients may use, consider the economic benefits generated therefrom.
Article 8 Either of the following circumstances may be deemed that a client has the right to dominate the use of identified assets throughout the period of use:
(1) the client has the right to dominate the purposes and methods of using the identified assets throughout the period of use; or
(2) the purposes and methods of using identified assets before the beginning of the period of use have been predetermined, the client has the right to operate the assets on its own or dominate others to operate the assets by the methods determined by it throughout the period of use, or the client has designed the identified assets and the purposes and methods of using the assets throughout the period of use have been predetermined at the time of design.
Section 2 Splitting and Merger of Leases
Article 9 Where a contract concurrently contains multiple separate leases, the lessee and lessor shall split the contract and conduct accounting treatment respectively for each separate lease.
Where a contract concurrently includes both leased and non-leased parts, the lessee and lessor shall split the leased and non-leased parts, unless the enterprise conduct accounting treatment according to the provisions of Article 12 hereof. The leased part shall be subject to accounting treatment in accordance with these Guidelines, and the non-leased part shall be subject to accounting treatment in accordance with other applicable Accounting Standards for Business Enterprises.
Article 10 Where the following conditions are concurrently satisfied, use of the rights of identified assets shall constitute a separate lease in a contract:
(1) the lessee may earn profits from separate use of the assets or joint use with other resources readily available; and
(2) there is no high dependence or high correlation between the assets and other assets in the contract.
Article 11 When splitting the leased and non-leased parts of a contract, the lessee shall apportion the contractual consideration on the basis of the relative proportion of the sum of the separate price of each leased part and the separate price of the non-leased parts, and the lessor shall apportion the contractual consideration pursuant to the provisions of the Accounting Standards for Business Enterprises No. 14 - Revenue on the apportionment of transaction prices.
Article 12 To simplify treatment, the lessee may choose whether to split the leased and non-leased parts included in the contract as per the category of the leased assets.
......