Reasearch On Gold Lease Accounting Issues Of KG Jewelry, INC

In recent years, with the rapid development of the national economy and the increase of resident’s disposable income, the jewelry industry in China shows a dramatic developing trend. China becomes one of the most jewelry processing countries in the world and one of the most important jewelry consumer markets. With the change of macroeconomic environment, the frequent fluctuations of gold price, the jewelry industry’s financial channel need to expand. Jewelry industry began to seek new financing ways to hedging price risk. Gold lease is one of these new financing ways, which not only can reduce the pressure of capital flows, but also has a hedging effect. At the same time, it becomes an investment way for some gold companies to short-term arbitrage.KG Jewelry Co., Ltd(hereinafter referred to as KG) was establish in August 2002, successfully listed on NASDAQ in the United States on August 18,2010, which is the only one gold processing enterprise listed on NASDQ. Its main business is manufacturing and wholesale of gold and platinum. Now it is one of the largest gold jewelry manufacturers in China. According to the corporate annual reports in recent three years, the registered capital of KG is 120 million. And in order to meet the need of product development including investment fund, and the need of market expansion, KG signed the gold lease agreements with China Construction Bank, Shanghai Pudong Development Bank and China CITIC Bank respectively from the end of 2012 until now.However, current accounting standards do not have a clear provision to gold lease and there are some disputes about the enterprises’ s own methods for gold lease accounting treatment. KG treats gold lease accounting as the operating lease accounting, which books the lease cost in the finance costs, and reveals the gold lease out the balance sheet. This approach makes the assets and liabilities in the reports far from the truth. At the same time, when the company purchase gold to repay, the profit or loss from the price spread can not be reflected in the report. In this paper, the author collects the available information and the absorption results of previous studies, and combines study and work experience in KG, in order to analyze the lack of gold lease business accounting methods in KG and show problems in accounting method which impact on the financial statements. Then the author presents modified suggestion and try to study a new gold lease accounting treatment which has a more extensive range applicability.This paper covers five parts of the studies, and generally include: the first part, the paper combined with the actual situation on the background and significance of the study, and make a statement which describes the main idea in domestic and overseas. The second part, this paper compares the existing theoretical knowledge with gold lease to find similarities and differences. The third part, the paper describes the KG gold lease business and its accounting methods. The fourth part, the paper analysis the gold lease accounting method of KG. Then the author presents unreasonable points based on the theory and combined with the actual situation, in order to propose corresponding solutions. The last part is the conclusion and prospect.