Accounting Standards for Business Enterprises No. 21 - Leases
Accounting Standards for Business Enterprises No. 21 - Leases
Accounting Standards for Business Enterprises No. 21 - Leases
Cai Kuai [2006] No. 3
February 15, 2006
Chapter I General Provisions
Article 1 In order to regulate the recognition and measurement of leases, as well as the presentation of lease information, the current Standards have been formulated according to the for Enterprises Accounting Standards - Basic Standard.
Article 2 The term "lease" refers to a contract under which the lessor agrees to provide an asset for use by the lessee for an agreed period of time in return for rent.
Article 3 The following items shall be subject to other accounting standards:
1. The licensing agreements for the use of items such as films, video recordings, plays, manuscripts, patents and copyrights shall be subject to the Enterprises Accounting Standards No. 6 - Intangible Assets.
2. Rights regarding land use and buildings rented out by a lessor by way of operating lease shall be subject to the Enterprises Accounting Standards No. 3 - Investment Real Estates.
3. The limitation of long-term liabilities formed by the finance leases of a lessor shall be subject to the Enterprises Accounting Standards No. 22 - Recognition and Measurement of Financial Instruments.
Chapter II Classification of Leases
Article 4 A lessee and a lessor shall classify a lease as a finance lease or an operating lease from the commencement of the lease. The commencement date shall refer to the conclusion date of lease agreement or the earliest date on which the parties to the lease make commitments on the key terms of the lease.
Article 5 The term "finance lease" refers to a lease under which all the risks and rewards related to the ownership of an asset have been transferred to the lessee. The ownership of it may or may not also eventually be transferred to the lessee.
Article 6 Where a lease satisfies one or more of the following criteria, it shall be recognized as a finance lease:
1. The ownership of the leased asset is transferred to the lessee when the term of lease expires.
2. The lessee has the option to buy the leased asset on the date when the option becomes exercisable at a lower price than the fair value of the leased asset. At the commencement of the lease it can be reasonably determined that this option will be exercised.
3. Even if the ownership of the asset is not transferred, the lease term covers the majority of the leased asset's usable life.
4. The current value of the lessee's minimum lease payments at the commencement of the lease is estimated as equal to the fair value of the leased asset. The current value of the lessor's minimum lease receipts at the commencement of the lease are estimated as equal to the fair value of the leased asset.
5. The leased assets are only to be used by the lessee for reason of their specialized nature unless major modifications are made.
Article 7 The "lease term" refers to the period as specified in the lease agreement, during which time the lease may not be terminated. Once a lease contract is signed, generally it may not be terminated except in the following circumstances:
1.
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