The Financial Impact Of The New Leasing Criteria On The Retail Company Nanjing Xinbai And Its Response

Since 2006,China's Ministry of Finance has promulgated the "Enterprise Accounting Standards No.21-Lease".During the implementation of the guidelines,the practice community has reflected many drawbacks,such as over-emphasizing rule-oriented;most of the lessee's operating lease business does not Incorporate into the balance sheet accounting.As we all know,in early 2018,the draft of the new leasing criteria was issued-"Accounting Standards for Business Enterprises No.21-leasing(Revised)(Draft for Comment)was put out,and the aim of this is to be the more same with the International New Lease Standard the better because China always devote to achieving internantional convergence.In December of the same year,the “Accounting Standards for Business Enterprises No.21 One-to-One Lease”(new lease standard)was officially released.Compared to the 2006 version of the guidelines,the new guidelines have undergone major changes.In order to smoothly pass the transition period of the standard and reduce the series of negative impacts caused by the change of the standard,it is necessary to predict the impact of the new standard on the enterprise in advance,and propose reasonable countermeasures for these potential impacts."Accounting Standards for Business Enterprises No.21-Lease" was promulgated by the Ministry of Finance of China in 2006.During the implementation of the guidelines,the practice community reflected many shortcomings,such as over-emphasizing rule-oriented;most of the lessee's operating lease business was not included in the assets.Balance sheet accounting.the draft of the new leasing criteria was issued-"Accounting Standards for Business Enterprises No.21-leasing(Revised)(Draft for Comment)was put out,and the aim of this is to be the more same with the International New Lease Standard the better,and the other aim is to regulate the domestic leasing industry,in early 2018,the draft of the new leasing criteria was issued-" Accounting Standards for Business Enterprises No.21-leasing(Revised)(Draft for Comment).In December of the same year,the “Accounting Standards for Business Enterprises No.21 One-to-One Lease”(new lease standard)was officially released.Compared to the 2006 version of the guidelines,the new guidelines have undergone major changes.In order to smoothly pass the transition period of the standard and reduce the series of negative impacts caused by the change of the standard,it is necessary to predict the impact of the new standard on the enterprise in advance,and propose reasonable countermeasures for these potential impacts.This article first briefly describes the very important background of and the reason of the new standard,it states it strickly that the shortcomings of the 2006 version of the guidelines,then describes the changes of the new guidelines,then analyzes the differences between the two versions of the guidelines,and finally the case analysis and the literature research method.The specific data analysis was carried out in the case of Nanjing Xinbai.Through the financial report of Nanjing Xinbai 2017,the report items are re-stated according to the new leasing criteria,and the accounting differences between the two leasing criteria and the impacts thereof are compared and analyzed.The paper draws the following conclusions:First,the main impacts of the new standard on financial reports are:(1)internalization of the operating leases in the balance sheet,and the need to depreciate the right-of-use assets,resulting in changes in the financial indicators of the enterprise,such as the net asset ratio of the enterprise.Decline,such changes will have adverse consequences on the company's debt service level,thereby reducing the company's credit rating,which will further hinder the development of the company;(2)the depreciation calculation of the right-of-use assets in the income statement,and not Re-into the rental expenses in the sales or management fees.Such a change in processing will result in a certain degree of profit reduction in the early period of leasing,and in the later stage of leasing,due to the interest accrued by the lease liability,the profit will increase to a certain extent compared with the previous period.At the same time,in the early stage of leasing,the income tax expenses paid by the company will decrease as the profit is reduced.In the latter stage,the stability of the enterprise profit cannot be guaranteed;(3)Under the new lease standard,the rent must be in the cash flow.The account in which the cash outflow from operating activities is included in the table is different from the requirement of the 2006 version of the standard.The rent is calculated in the cash outflow account of the financing activities.This does not result in a change in the total cash flow,but the operating cash of the enterprise.The flow ratio has increased,making financial indicators based on operating cash flow more attractive.Second,the new standards affect the accounting philosophy.In the 2006 edition of the standard,90% and 75% are used as indicators to quantify leased assets and lease terms to divide leases into finance leases and operating leases.The theoretical problem is that the classification method does not match the conditions for confirming assets,and does not conform to the substance.Focusing on form,the problem at the practical level is the breeding of illegal operations such as off-balance sheet financing.Under the new lease criteria,the key point for determining whether a lease exists is whether there is an identified asset and whether the company has the right to control the use of the identified asset.This shifts from the original rule orientation to the principle-oriented accounting concept.Provides more accurate and clear criteria for the difference between leasing and service.Third,after the implementation of the new standards,it will lead to more development of the leasing business model.It is no longer just a leasing of financial leasing and operating leasing,resulting in new models such as short-term rent and low-value leasing.Fourth,for financial personnel,it is necessary to cultivate and reserve relevant leasing business and accounting knowledge to improve their professional judgment.Through the analysis of the theory combined with the analysis of the case company,this paper provides some suggestions for Nanjing Xinbai to deal with the new criteria,enriching the sample of case studies for reference by the practical and theoretical circles.