4. Recording currency and conversion of foreign currencies RMB is the recording currency of the Company. All foreign currency transactions in the period of statement is charged to an account according to RMB converted based on the market rate (middle rate) released by the People’s Bank of China on the first date (or the very date) of the transaction. All the remaining sum of foreign currency account shall be adjusted according to the market rate on the balance sheet date at the end of the term and the exchange gain or loss arising thereof shall be included into current profit and loss or relevant items.
5. The standard for determining money equivalent The investment which could meet four conditions of short term (due within three months after purchasing), strong liquidity, readily convertible to known amount of cash and little risk in value changes could be termed as money equivalent.
6. The accounting method of bad debt Allowance method is used and the bad debt provisions are accrued according to 0.5% of the balances of accounts receivable at the end of the year.
7. The accounting method of inventory Inventory includes raw materials, low priced and easily worn articles, packing materials, goods in installment sales and merchandise inventory. The purchasing of low priced and easily worn articles is charged into an account by using actual cost method and fifty-fifty amortization method is used when sending out the articles. Other inventories are charged into an account by using actual cost method and when sending out, the actual cost is determined based on the method of weighted mean.
8. The accounting method of short-term investment The short-term investment of the Company refers to negotiable securities that could be sold off from time to time and the ownership duration is no more than a year and other investments with no more than a year of ownership duration. The short-term investment is valued according to the actual cost on acquisition.
9. The accounting method of long-term investment The long-term investment of the Company includes equity investment and the long-term investment is charged into an account according to the actual cost on acquisition. If the Company has no de facto control over the invested enterprise, cost method is used in the accounting and if the Company has de facto control over the invested enterprise, equity method is used in the accounting.
10. The accounting method of fixed assets The fixed assets of the Company are valued according to actual cost. The criteria for fixed assets are: house, construction, machine, machinery, means of transportation and other equipment and appliance related to production and operation with over one year of service life and other objects that are not classified as major equipment for production and operation with the unit price of more than RMB2, 000 with over two years of service life. Method of line is used in the valuation of fixed assets depreciation. The original value of fixed assets classes, designed service life, net residual value of 5% of the original value of fixed assets, the projected service life of fixed assets are specified in the following table.