Study Guide Chapter 1: Question 1-2 - Boaxin Auto Group Assets, Liabilities and Equity

At year end December 31, 2013 an example of some of Boaxin Auto Group's key Assets, Liabilities and Equity is as follows noting that figures used are RMB 000's:

Assets

1) Inventory = RMB 3,002,286:

This covers mainly vehicles in stock for sale, or expected to be listed for sale to the value of RMB 2,694,793.

It also includes Spare Parts currently in stock to be sold in future to customers to the value of RMB 307,493.

2) Prepayments, deposits and other receivables = RMB 4,168,968:

This covers items such as prepayments to suppliers for future deliverables, rebates, recoverable VAT and Staff Loans.

3) Cash and Cash Equivalents = RMB 2,020,926:

This is fairly straight forward - basically what Boaxin has in cash, bank balances, short term deposits etc - totalling RMB 2,020,926.

Liabilities

1) Bank Loans and other borrowings = RMB 5,857,684:

Again a fairly straight forward item - the amount of borrowings owed by the firm.

2) Trade and Bills payable = RMB 4,364,349:

Basically the costs of doing business - lease of buildings, paying normal bills like electricity, marketing, advertising etc.

3) Income tax payable = RMB 340,055:

Company tax payable to the government,

Equity

1) Share Capital = RMB 20,836:

This is the current value of listed shares in Baoxin Auto Group.

2) Proposed Final Dividend = RMB 303,885:

The dividend for the year per share which is subject to the approval of the Company's shareholders at the AGM (Annual General Meeting)


3) Reserves = RMB 4,345,395:

My understanding of Reserves is that they are a bit like a sinking fund. Boaxin's explanation of its reserves is as follows:

1. (i)  Statutory reserve
   Pursuant to the relevant PRC rules and regulations, those PRC subsidiaries which are domestic enterprises in the PRC are required to transfer no less than 10% of their profits after taxation, as determined under PRC accounting regulations, to the statutory reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before the distribution of a dividend to shareholders.
   
2. (ii)  Merger reserve
   The merger reserve of the Group represents the capital contributions from the equity holders of the Company and the excess of the consideration over the carrying amount of the non-controlling interests acquired. The additions during the year represent the injection of additional paid-up capital by the equity holders of the subsidiaries to the respective companies, which were consolidated from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the Controlling Shareholder. The deductions during the year represent the decrease in the Group’s net assets resulted from distribution to equity holders of the Company, acquisition of equity interests in subsidiaries from the Controlling Shareholder for business combination under common control and the excess of the consideration over the carrying amount of the non-controlling interests acquired.
   
3. (iii)  Exchange fluctuation reserve
   The exchange fluctuation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.