Article 79 | | Owners' equity is the economic interest in the assets of an enterprise attributable to the owners. The amount is the balance of assets after deducting all liabilities. Owners' equity includes paid-in capital (or share capital), capital reserve, surplus reserve, and unappropriated profits. |
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| Article 80 | | Paid-in capital is the actual amount of capital contributed by the investors in an enterprise in accordance with the memorandum and articles of incorporation/establishment of the enterprise, investment contracts or agreements. |
| | (1) | | Paid-in capital of general enterprises [that is, enterprises other than joint stock limited enterprises] should be accounted for as follows: |
| | | | 1. | | For capital contributed in cash by an investor, paid-in capital should be recorded at the amount actually received or deposited in the enterprise's bank account. The excess of the amount received or deposited over an investor's proportion of registered share capital should be recognized as capital reserve. |
| | | | 2. | | For capital contributed in non-cash assets by an investor, paid-in capital should be recorded at an amount agreed by all investing parties. An intangible asset contributed by an investor for the enterprise's initial issue of shares should be recorded at its carrying amount in the books of the investor. |
| | | | 3. | | Foreign currencies contributed by an investor should be translated at the rate prevailing on the date of receipt of the foreign currencies, if exchange rates are not specified in the investment contract. If exchange rates are specified in the investment contract, foreign currencies contributed should be translated at the specified rates. The translation difference resulting from different exchange rates should be accounted for as capital reserve. |
| | | | 4. | | If a Sino-foreign co-operative enterprise returns certain amounts invested back to the investors in accordance with relevant laws and regulations during the co-operative period, the invested amounts returned back to the investors should be accounted for separately and presented separately as a deduction from paid-in capital in the balance sheet. |
| | (2) | | Share capital of a joint stock limited company should be accounted for as follows: |
| | | | 1. | | A company should obtain its share capital by issuing shares within the limit of its authorized amount of share capital and authorized number of shares. When a company issues shares, share capital should be recognized at par value. Any excess of the share issue proceeds over the par value of the share capital issued represents share premium and should be recognized as capital reserve. |
| | | | 2. | | For companies listed outside mainland China and domestic companies that issue foreign shares within mainland China, the paid-in capital should be recorded at an amount equal to the par value per share denominated in RMB multiplied by the number of shares issued. The difference between the amount of share issue proceeds translated to RMB at the exchange rate prevailing on the date the proceeds were received and the aggregate par value of share capital should be recognized as capital reserve. |
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| Article 81 | | Capital (or share capital) of an enterprise should not be changed arbitrarily. Changes may be made under the following circumstances: |
| | (1) | | If an enterprise meets the conditions to increase capital and the increase is approved by relevant authorities, it should record the increase when it receives the contributions from the investors. |
| | (2) | | If an enterprise applies for reduction of registered capital in accordance with statutory procedures, the reduction should be recorded when capital invested is actually returned. If an enterprise reduces its capital by way of share repurchases, the reduction should be recorded when the shares are actually repurchased. |
| | (3) | | The information in relation to cancellation of shares, repayment of share capital, and changes in details of shares as a result of capital reduction should be recorded in the relevant sub-ledgers under share capital account and relevant memorandum records. |
| | | | Where an investor transfers his contributed capital to another party according to relevant regulations, an enterprise should update the relevant sub-ledgers under the capital (or share capital) account and relevant memorandum records by recording the amount of capital being transferred from the transferor to the transferee once the transfer is completed. |
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| Article 82 | | Capital reserves include capital premium (or share premium) and reserves arising from asset donations, government grants and translation differences of foreign currency. Capital reserves mainly comprise the following sub-ledger accounts: |
| | (1) | | "capital premium (or share premium)", being the amount of funds contributed by an investor in excess of the investor's share of the registered capital; |
| | (2) | | "restricted capital reserve arising from non-cash asset donations received" [Translator note: Restricted capital reserve cannot be used to increase capital], being an increase in capital reserve resulting from the acceptance of non-cash asset donations. [When the asset is ultimately disposed of, the amount will be transferred from this sub-ledger account to the "other capital reserves" sub-ledger account.]; |
| | (3) | | "cash donations received", being an increase in capital reserve resulting from the acceptance of cash donations; |
| | (4) | | "restricted reserve arising from equity investment", being an increase in capital reserve in the accounts of an investing enterprise resulting from its proportional share of an investee enterprise's own increase in capital reserve (due to acceptance of donations, etc) under equity accounting; |
| | (5) | | "government grants received"; When an enterprise receives grants from the State for technology improvement and research projects, the enterprise should, upon completion of such projects, transfer the appropriate amount to capital reserve in accordance with relevant regulations, and record the transferred amount accordingly. |
| | (6) | | "exchange difference related to foreign currency capital contribution", being differences arising from translating foreign capital contribution received at different exchange rates; |
| | (7) | | "other capital reserves", being items other than the above, and transfers from "capital reserve provision accounts". Any debt waived by the enterprise's creditors is accounted for under this item. |
| | | | "Restricted capital reserves cannot be used to increase capital (or share capital). |
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| Article 83 | | Surplus reserves should include the following items in accordance with the nature of an enterprise. |
| | (1) | | For general enterprises and joint stock limited companies, surplus reserves include the following: |
| | | | 1. | | statutory surplus reserve, being a surplus reserve appropriated from net profit in accordance with a percentage prescribed in regulations; |
| | | | 2. | | discretionary surplus reserve, being a surplus reserve appropriated from net profit in accordance with a prescribed percentage approved in a general meeting of the shareholders or a similar body; |
| | | | 3. | | statutory public welfare fund, being a fund set aside from net profit for the purpose of staff welfare. When the statutory public welfare fund is utilized to provide staff welfare, the amount utilized should be transferred to discretionary surplus reserve; |
| | | | | | Surplus reserves of an enterprise can be used to offset accumulated losses or increase capital (or share capital). Where an enterprise satisfies the stipulated conditions, surplus reserves can also be used to distribute cash dividends. |
| | (2) | | For foreign investment enterprises, surplus reserves include the following: |
| | | | 1. | | reserve fund, [see above] being a fund appropriated from net profit in accordance with laws and administrative regulations which, when approved, can be used to offset accumulated losses or increase capital; |
| | | | 2. | | enterprise expansion fund,[ SEE ABOVE] being a fund set aside from net profit in accordance with laws and administrative regulations for the purpose of production and development of the enterprise which, when approved, can be used to increase capital; |
| | | | 3. | | return of capital invested from profits, being return of capital invested back to the investors from profits by a Sino-foreign co-operative enterprise during the co-operative period in accordance with rules and regulations. |
