Financial instruments are contracts that form financial assets of enterprises and financial liabilities or equity instruments of other units. Financial instruments include basic financial instruments and derivative instruments. Basic financial instruments include monetary funds, creditor's rights receivable, investment, loans and debts payable. Derivative instruments include forward contracts, futures contracts, swaps and options, and instruments with one or more characteristics of forward contracts, futures contracts, swaps and options. 1. The recognition of financial assets and quantified financial assets mainly includes cash on hand, bank deposits, accounts receivable, bills receivable, loans, advances, other receivables, interest receivable, debt investment, equity investment, fund investment and derivative financial assets. (I) Initial Recognition of Financial Assets When an enterprise becomes a party to a financial instrument contract, it shall recognize a financial asset or financial liability. Financial assets should be divided into the following four categories at initial recognition: (1) financial assets measured at fair value and whose changes are included in current profits and losses; (2) held-to-maturity investment; (3) Loans and receivables; (4) Financial assets available for sale. 1. Financial assets measured at fair value and whose changes are included in current profits and losses. These financial assets can be further divided into trading financial assets and financial assets designated to be measured at fair value and whose changes are included in current profits and losses. (1) Trading financial assets mainly refer to financial assets held by enterprises for sale in the near future. For example, stocks, bonds and funds purchased by enterprises from the secondary market for the purpose of earning the difference. For another example, the financial assets held by an enterprise are part of the identifiable portfolio of financial instruments under centralized management, and there is objective evidence that the enterprise has recently managed the portfolio in the form of short-term profits, so the financial assets should be regarded as transactional financial assets. If derivatives are not used as effective hedging tools, they belong to trading financial assets (or trading financial liabilities). (2) A financial asset designated as being measured at fair value and whose changes are included in the current profits and losses must meet one of the following conditions: First, the designation can eliminate or significantly reduce the inconsistency in the recognition or measurement of related gains or losses caused by different measurement bases of the financial asset; Second, the formal written document of enterprise risk management or investment strategy has explained that the financial asset portfolio or the combination of financial assets and related financial liabilities is managed and evaluated on the basis of fair value and reported to key management personnel. 2. Financial assets such as held-to-maturity investment refer to non-derivative financial assets with fixed maturity date and fixed or determinable recovery amount, and the enterprise has a clear intention and ability to hold them to maturity. "Clear intention of holding to maturity" means that investors have a clear intention when obtaining investment, and will hold it to maturity unless they encounter independent events beyond the control of some enterprises, which are not expected to happen repeatedly and are difficult to predict reasonably; "Holding-to-maturity ability" means that an enterprise has sufficient financial resources and is not affected by external factors to hold investment until maturity. 3. Financial assets such as loans and receivables are non-derivative financial assets that have no quotation in an active market and have a fixed or determinable recovery amount. Under normal circumstances, accounts receivable formed by industrial and commercial enterprises selling goods or providing services, loans issued by commercial banks, etc. , generally divided into loans and accounts receivable, because there is no quotation in the active market, the amount of recovery is fixed or determinable. 4. Available-for-sale financial assets The financial assets are non-derivative financial assets designated as available-for-sale at the time of initial recognition, and financial assets measured at fair value and whose changes are included in the current profit and loss, except for held-to-maturity investments, loans and receivables. When an enterprise classifies financial assets as financial assets measured at fair value and whose changes are included in current profits and losses, it cannot be reclassified as other financial assets; Other types of financial assets cannot be reclassified as financial assets measured at fair value and whose changes are included in current profits and losses. Held-to-maturity investments, loans and receivables, and available-for-sale financial assets shall not be reclassified at will. (II) Initial measurement of financial assets Financial assets initially recognized by an enterprise shall be measured at fair value. For financial assets measured at fair value and whose changes are included in the current profit and loss, relevant transaction costs are directly included in the current profit and loss; For other types of financial assets, relevant transaction costs should be included in the initial recognition amount. The declared but unpaid cash dividend or bond interest that has reached the interest payment period but has not been received included in the price paid by an enterprise for obtaining financial assets shall be separately recognized as accounts receivable, which does not constitute the initial entry amount of financial assets. (III) Subsequent measurement of financial assets Quantification The subsequent measurement of financial assets mainly refers to the measurement of financial assets on the balance sheet date. Different types of financial assets have different subsequent measurement bases. See Chapter II for accounting treatment of impairment of financial assets. 1. Financial assets measured at fair value and whose changes are included in current profits and losses; Financial assets measured at fair value and whose changes are included in the current profits and losses shall be subsequently measured at fair value, without deducting the transaction costs that may occur when disposing of the financial assets in the future; Changes in the fair value of this financial asset are included in the current profits and losses (gains and losses from changes in fair value). The bond interest or cash dividend obtained by an enterprise during the period of holding the financial asset shall be recognized as investment income on the interest-bearing date or the cash dividend announcement date. 2. Held-to-maturity investment The held-to-maturity investment is measured in amortized cost. During the period from holding to maturity, the interest income is calculated and confirmed according to the amortized cost and the actual interest rate, and included in the investment income. The effective interest rate is determined when the held-to-maturity investment is acquired, and remains unchanged during the expected duration of the held-to-maturity investment or a shorter period as applicable. If the real interest rate is not much different from that of coupon rate, the interest income can also be calculated according to coupon rate and included in the investment income. The effective interest rate refers to the interest rate used to discount the future cash flow of financial assets in the expected duration or the applicable short period into the current book value of the financial assets. When determining the real interest rate, the future cash flow should be estimated on the basis of considering all contract terms of financial assets (including early repayment rights, call options and similar options), but the future credit loss should not be considered. When determining the real interest rate, we should consider the fees, transaction fees, premiums or discounts paid or collected between the two parties to the financial asset contract, which are part of the real interest rate.

Chapter II Asset Impairment

Assets acquired by an enterprise shall be accurately priced at the end of the period in strict accordance with the provisions of the Accounting Standards for Business Enterprises, the book value of each asset shall be checked on the balance sheet date, the possible losses of each asset shall be reasonably predicted, and the asset impairment reserve shall be reasonably accrued for the possible losses of each asset. I. Impairment of inventories On the balance sheet date, inventories shall be measured according to the lower of cost and net realizable value. Among them, cost refers to the cost of inventory acquisition, including procurement cost, processing cost and other costs; Net realizable value refers to the estimated selling price of inventory at the time of completion minus the estimated cost, estimated sales expenses and related taxes in daily activities. On the balance sheet date, if the inventory is impaired, the asset impairment loss shall be recognized according to the difference between the net realizable value of the inventory and the cost, and the inventory depreciation reserve shall be accrued. (I) Judgment of inventory depreciation If an enterprise finds any of the following circumstances when checking the inventory on the balance sheet date, it shall consider making provision for inventory depreciation: 1. Market prices continue to fall, and there is no hope of recovery in the foreseeable future. 2. The cost of products produced by enterprises using raw materials is higher than the sales price of products. 3. Due to the upgrading of products, the original raw materials in stock can no longer meet the demand of new products, and the market price of raw materials is lower than its cost. 4. Because the goods or services provided by enterprises are out of date or consumers' preferences change, the market demand changes, resulting in a gradual decline in market prices. 5. Other circumstances sufficient to prove that the inventory has suffered significant impairment. (II) Determination of Net Realizable Value of Inventory and Extraction Method of Inventory Depreciation Reserve An enterprise shall determine the Net Realizable Value of Inventory on the basis of obtaining conclusive evidence, and consider the purpose of holding inventory, the influence of events after the balance sheet date and other factors. 1. If the net realizable value of finished products made of materials held for production is higher than the cost, it shall still be measured according to the cost; If the decline in material prices indicates that the net realizable value of finished products is lower than the cost, it shall be measured according to the net realizable value. 2. Net realizable value of inventories (finished products, commodities and materials for sale, etc.). ) held for the execution of the sales contract or labor service contract shall be calculated at the contract price. If the quantity of inventory held exceeds the quantity ordered in the sales contract, the net realizable value of the excess inventory shall be calculated according to the general sales price. Enterprises should usually make provision for inventory depreciation according to individual inventory items. However, under the following circumstances, an enterprise can make provision for inventory depreciation according to inventory category or consolidation basis: 1. For the inventory with large quantity and low unit price, the inventory depreciation reserve can be withdrawn according to the inventory category. 2. Inventory related to the product series produced and sold in the same area, with the same or similar final use or purpose, and difficult to be measured separately from other items, may be consolidated and accrued for inventory depreciation reserve. (3) When the processing enterprise transferring out the inventory depreciation reserve carries forward the sales cost, if it has accrued the inventory depreciation reserve, it shall also carry forward the inventory depreciation reserve corresponding to the sold inventory, and the carried-forward inventory depreciation reserve will offset the main business cost and production cost of the current period. Inventories transferred out due to debt restructuring and exchange of non-monetary assets shall be carried forward at the same time. The inventory depreciation reserve carried forward shall be handled in accordance with the accounting principles related to debt restructuring and exchange of non-monetary assets. If the provision for inventory depreciation is made according to the inventory category, and a part of similar inventory has been sold or used for debt restructuring or exchange of non-monetary assets, the corresponding provision for inventory depreciation shall be carried forward in proportion. (4) On the date when the inventory depreciation reserve is transferred back to the balance sheet, the enterprise shall re-determine the net realizable value of the inventory. If the factors that have previously written down the inventory value have disappeared, the written-down amount will be reversed in the original inventory depreciation reserve, and the reversed amount will be included in the current profit and loss. 2. An enterprise whose financial assets are impaired shall check the book value of financial assets other than those measured by fair value and whose changes are included in the current profits and losses on the balance sheet date. If there is objective evidence that the financial asset is impaired, provision for impairment shall be made. The financial assets mentioned here include held-to-maturity investments, loans and receivables, and available-for-sale financial assets, but do not include long-term equity investments and long-term equity investments in subsidiaries. (I) Judgment of Impairment of Financial Assets An enterprise shall judge whether a financial asset is impaired according to objective evidence showing that it is impaired. The objective evidence indicating the impairment of a financial asset refers to the events that actually happened after the initial recognition of the financial asset and have an impact on the estimated future cash flow of the financial asset, and the enterprise can reliably measure the impact. Mainly includes the following items: 1. The issuer or debtor has serious financial difficulties; 2. The debtor violates the terms of the contract, such as default or overdue payment of interest or principal; 3. Creditors make concessions to debtors in financial difficulties for economic or legal reasons; 4. The debtor may close down or carry out other financial restructuring; 5. Due to the issuer's major financial difficulties, the financial asset cannot continue to trade in the active market; 6. It is impossible to identify whether the cash flow of an asset in a group of financial assets has decreased, but after the overall evaluation based on the published data, it is found that the expected future cash flow of this group of financial assets has indeed decreased and can be measured. For example, the debtor's ability to pay for this group of financial assets has gradually deteriorated, or the unemployment rate in the debtor's country or region has increased, the price of collateral in the region has dropped significantly, and the industry in which it is located is depressed.

Chapter III Income

Income refers to the total inflow of economic benefits formed by an enterprise in its daily activities, which will increase the owner's equity and has nothing to do with the owner's investment capital, including the income from selling goods, providing services and transferring the right to use assets. Among them, daily activities refer to the regular activities and related activities that enterprises engage in to achieve business objectives. Money collected by an enterprise on behalf of a third party shall be treated as liabilities and shall not be recognized as income. I. Recognition and measurement of sales revenue Commodities include products produced by enterprises for sale and commodities purchased for resale, such as products produced by industrial enterprises and commodities purchased by commercial enterprises, and other inventories sold by enterprises, such as raw materials and packaging materials, are also regarded as enterprises' commodities. (I) Conditions for recognition of income from sales of commodities: 1 only when the income from sales of commodities meets the following conditions. The condition that the enterprise has transferred the main risks and rewards of commodity ownership to the buyer refers to the simultaneous transfer of the main risks and rewards related to commodity ownership. Risks related to commodity ownership refer to losses caused by possible impairment or damage of commodities; Remuneration related to commodity ownership refers to the appreciation of commodity value or the economic benefits arising from the use of commodities. To judge whether the enterprise has transferred the main risks and rewards of commodity ownership to the buyer, we should pay attention to the essence of the transaction rather than the form, and consider the transfer of ownership certificates or the delivery of physical objects. If any losses related to commodity ownership are not borne by the seller, and any economic benefits related to commodity ownership are not owned by the seller, it means that the main risks and rewards of commodity ownership are transferred to the buyer. Usually, after the transfer of commodity ownership certificate and physical delivery, the main risks and rewards of commodity ownership will also be transferred, such as most retail commodities. In some cases, the main risks and rewards of commodity ownership are transferred when the commodity ownership certificate is transferred but the goods are not delivered, and the enterprise only keeps the secondary risks and rewards, such as selling goods by payment and delivery. Sometimes, the goods have been delivered, but the ownership certificate of the goods has not been transferred, and the main risks and rewards of the ownership of the goods have not been transferred, such as the goods entrusted to be sold on a commission basis. 2. The enterprise has neither retained the right to continue business, which is usually associated with ownership, nor effectively controlled the continued business of the sold goods, which may be due to the ownership of the goods it still owns, or it may have nothing to do with the ownership of the goods. If the enterprise still retains the right of continuous management related to the ownership of the goods after the sale, it means that the transaction of selling the goods has not been completed, the sales cannot be established and the income cannot be confirmed. Similarly, if the enterprise can still effectively control the goods it sells after the goods are sold, it also means that the sales have not been completed and the income cannot be confirmed. 3. The amount of income can be measured reliably, which means that the amount of income can be estimated reasonably. When an enterprise sells goods, it usually determines the selling price of the goods. However, due to some uncertain factors in the process of commodity sales, the sales price of commodities may also change. In this case, before the new commodity sales price is determined, the commodity sales income should not be confirmed. 4. Relevant economic benefits are likely to flow into the enterprise. Relevant economic benefits are likely to flow into the enterprise, which means that the possibility of recovering the price of the sold goods is greater than the possibility of not recovering it. When determining the possibility of recovering the price of sold goods, enterprises should analyze the direct experience of previous contact with buyers, relevant government policies and information obtained from other parties. The goods sold by the enterprise meet the requirements of the contract or agreement, the invoice bill has been delivered to the buyer, and the buyer promises to pay, which usually indicates that this confirmation condition is met. 5. Related costs that have occurred or will occur can be reliably measured. Under normal circumstances, the costs that have occurred or will occur related to the sale of goods can be reasonably estimated, such as inventory costs and commodity transportation costs. Sometimes, the costs that have occurred or will occur related to the sale of goods cannot be reasonably estimated. At this time, the enterprise should not recognize income, and the price received should be recognized as liabilities. Enterprises should analyze the essence of each transaction when using the above five conditions to confirm the sales revenue of commodities. Revenue can only be recognized when all transactions meet these five conditions. (2) The measuring enterprise of sales revenue shall determine the amount of sales revenue according to the contract or agreement price received or receivable from the buyer, unless the contract or agreement price received or receivable is unfair. If the contract or agreement price is in the form of deferred payment and has the nature of financing, the amount of income from selling goods shall be determined according to the fair value of the contract or agreement price receivable. The difference between the contract or agreement price of receivables and its fair value shall be amortized according to the amortized cost and actual interest rate of receivables during the contract or agreement period to offset financial expenses. (3) The specific application of the conditions for recognizing the income of sales commodities 1. The sales of the following commodities are usually recognized as income at the specified time, unless there is evidence that the income recognition conditions are not met: (1) If the sales commodities are subject to the acceptance of payment, the income will be recognized when the payment procedures are completed. (2) If the goods are pre-sold, the income is recognized when the goods are issued, and the payment received in advance is recognized as a liability. (3) If the goods to be sold need to be installed and inspected, the income will be recognized only after the buyer accepts the goods and completes the installation inspection, and the income will be recognized when the installation inspection is completed. If the installation procedure is simple, you can confirm the income when you send the goods. (4) Where the old goods are exchanged for new ones, the income of the sold goods shall be confirmed according to the confirmation conditions of the income of the sold goods, and the recovered goods shall be treated as purchased goods. (5) If the commission is paid to sell the goods, the income is usually confirmed when the list of commission is received. 2. If the goods are repurchased after sale, the money received will be recognized as a liability; If the repurchase price is greater than the original selling price, the difference will be accrued on schedule during the repurchase period and included in the financial expenses. If there is conclusive evidence that the after-sale repurchase transaction meets the conditions for confirming the income of the sold goods, the sold goods will be confirmed at the sales price, and the repurchased goods will be treated as purchased goods. 3. If the goods are sold by after-sale leaseback, the money received will be recognized as a liability; The difference between the selling price and the book value of an asset shall be reasonably shared as an adjustment of depreciation expense or lease expense. There is conclusive evidence that the after-sale leaseback transaction confirmed as operating lease is reached at fair value, and the income from selling goods is confirmed at the sales price, and the cost is carried forward at the book value.

Chapter IV Long-term Equity Investment

Long-term equity investment is a kind of equity investment invested by enterprises, which mainly includes the following aspects: first, investment enterprises can control the equity investment of invested units, that is, investment in subsidiaries; Second, the investment enterprise, together with other parties to the joint venture, implements equity investment in the invested entity, that is, investment in the joint venture. Joint control here refers to the control of an economic activity according to the contract; The third is the equity investment that the investment enterprise has a great influence on the invested entity, that is, the investment in the affiliated enterprises. Significant influence here refers to the right to participate in the decision-making of enterprise financial and business policies, but it cannot control or jointly control the formulation of these policies with other parties; Fourth, the equity investment held by the investment enterprise that has no control, the same control or significant influence on the invested entity, and has no quotation in the active market, and its fair value cannot be reliably measured. I. Long-term equity investment (I) Initial investment cost of long-term equity investment 1. Long-term equity investment formed by business combination (1) Long-term equity investment formed by business combination under the same control, according to the share of the book value of the owner's equity of the merged party on the merged date, as the initial investment cost of the long-term equity investment, and the difference between the initial investment cost and the book value of cash paid, non-cash assets transferred and debts undertaken, the capital reserve is adjusted; If the capital reserve is insufficient to be offset, the retained earnings shall be adjusted. (2) For the long-term equity investment formed by business combination not under the same control, the purchaser shall take the confirmed business combination cost as the initial investment cost of the long-term equity investment on the purchase date. 2. The long-term equity investment obtained by other means other than business combination shall be determined in accordance with the following provisions. The initial investment cost of the long-term equity investment shall be paid in cash (1), and the actual purchase price shall be taken as the initial investment cost. However, the cash dividends or profits announced by the investee but not distributed in the payment price do not constitute the cost of obtaining long-term equity investment. (2) The cost of long-term equity investment obtained by issuing equity securities is the fair value of issuing equity securities, but it does not include the declared but undistributed cash dividends or profits that should be collected from the investee. (3) Long-term equity investment invested by investors shall take the value agreed in the investment contract or agreement as the initial investment cost, unless the value agreed in the contract or agreement is unfair. (4) For the long-term equity investment obtained through debt restructuring and exchange of non-monetary assets, the initial investment cost shall be determined according to relevant standards. (II) Follow-up measurement of long-term equity investment During the holding period, long-term equity investment is divided according to factors such as the degree of influence of the investing enterprise on the invested entity, whether there is an active market, whether the fair value can be reliably obtained, and accounted for by the cost method and the equity method respectively. 1. The long-term equity investment accounted by the cost method is mainly divided into the following two categories: first, the investment in subsidiaries held by enterprises; Second, it is a long-term equity investment that does not have the same control or significant influence on the investee, has no quotation in the active market, and its fair value cannot be reliably measured. When the long-term equity investment is accounted by the cost method, the book value of the long-term equity investment should be increased according to the cost of the initial investment or additional investment. Among the cash dividends or profits distributed by the investee, the investing enterprise shall recognize them as investment income according to their share. 2. The long-term equity investment accounted by equity method includes two types: one is investment in joint ventures; The second is to invest in joint ventures. (1) Adjustment of initial investment cost. After the investment enterprise obtains the investment in the joint venture or associated enterprise, it shall compare the initial investment cost with the share of the fair value of the identifiable net assets of the investee, and handle the difference between them separately: if the initial investment cost is greater than the share of the fair value of the identifiable net assets of the investee at the time of obtaining the investment, there is no need to adjust the long-term equity investment cost; If the initial investment cost is lower than the fair value share of the identifiable net assets of the investee when the investment is obtained, the book value of the long-term equity investment shall be adjusted and increased and included in the current profit and loss. (2) Confirmation of investment profit and loss. The book value of long-term equity investment accounted by equity method should be adjusted accordingly with the change of the owner's equity of the invested unit. For the change of owner's equity caused by the net profit and loss of the investee, the share that the investing enterprise should enjoy should be calculated according to the shareholding ratio. When the book value of long-term equity investment increases or decreases, it shall be recognized as the current profit and loss. When calculating and confirming the investment profit and loss, an investment enterprise shall make appropriate adjustments based on the book net profit of the invested entity and considering the influence of relevant factors. Relevant adjustment factors include: if the accounting policies and accounting periods adopted by the investee are inconsistent with those of the investee, the net profit of the investee should be adjusted according to the accounting policies and accounting periods of the investee; Depreciation or amortization is accrued according to the fair value of fixed assets and intangible assets of the investee at the time of investment acquisition, and the impact of the amount of asset impairment reserve determined by the investment enterprise according to the fair value of relevant assets at the time of investment acquisition on the net profit of the investee; When recognizing the investment income, the unrealized gains and losses of internal transactions between the investment enterprise and its associated enterprises and joint ventures shall be offset, but if the internal transaction losses between the investment enterprise and the investee belong to asset impairment losses, they shall be fully recognized. (3) Handling of obtaining cash dividends or profits. For the long-term equity investment accounted by the equity method, the cash dividends or profits obtained by the investing enterprise from the invested entity shall be deducted from the book value of the long-term equity investment. If the cash dividends or profits distributed by the investee are recovered from the investment cost, the long-term equity investment cost will be offset. (4) Confirmation of excess loss. In principle, the long-term equity investment accounted by the equity method is limited to write down the long-term equity investment and other long-term equity that substantially constitute the net investment of the investee to zero when it is confirmed that it should share the losses of the investee. If the investment enterprise is obliged to bear additional losses, it shall also confirm the estimated loss amount in accordance with the provisions of contingent criteria. (5) Changes in the owner's equity of the investee other than the net profit and loss. When accounting by equity method, the investing enterprise should adjust the book value of long-term equity investment and increase or decrease the owner's equity (capital reserve) according to the shareholding ratio and the changes of other owners' equity of the invested unit except the net profit and loss. Delete the conversion of accounting method of long-term equity investment here (III) When a long-term equity investment disposal enterprise sells all or part of its equity in the invested entity, it shall carry forward the book value of the long-term equity investment corresponding to the sold equity, and the difference between the selling price and the book value of the long-term equity investment shall be recognized as disposal profit and loss. Long-term equity investment accounted by the equity method, the amount originally included in the capital reserve, should be carried forward in proportion to the current profit and loss when disposing.