Three-Dimensional Engineering: Announcement Regarding the Provision for Asset Impairment in 2018
Release date:
2019-02-26
Security Code: 002469 Security Abbreviation: Sanwei Engineering Announcement No.: 2019-005
Shandong Sanwei Petrochemical Engineering Co., Ltd.
Announcement Regarding the Provision for Asset Impairment in 2018
Shandong Sanwei Petrochemical Engineering Co., Ltd. (hereinafter referred to as the "Company") held the first meeting of its 4th Board of Directors and the first meeting of its 4th Supervisory Board for 2019 on February 25, 2019. During these meetings, the Company reviewed and approved the "Proposal on Provisioning for Asset Impairment in 2018." In accordance with relevant provisions of the "Guidelines for Standardized Operations of SME Listed Companies on the Shenzhen Stock Exchange," the Company hereby announces the specific details of this asset impairment provision as follows: I. Overview of the Current Asset Impairment Provision
1. The Reason for This Provision for Asset Impairment
According to relevant provisions of the Enterprise Accounting Standards, in order to accurately and truthfully reflect the company's operating results for 2018 as well as the asset values as of December 31, 2018, the company has conducted an analysis and assessment of assets within the scope of its consolidated financial statements, adhering to the principle of prudence, and has made impairment provisions for assets that may be subject to asset impairment losses.
2. The scope, total amount, and reporting period of the asset impairment provisions made this time
The asset items for which the company has recognized impairment reserves this time include accounts receivable, other receivables, and inventory. In 2018, the company recorded an impairment reserve of RMB 26,247,427.65, representing 45.84% of the audited net profit attributable to owners of the parent company in 2017. Details are shown in the table below (unit: RMB).
| Category | The amount of asset impairment provisions accrued from the beginning to the end of the year | The proportion of the audited net profit attributable to owners of the parent company for the year 2017 |
| Accounts receivable | 732,061.27 | 1.28% |
| Other receivables | 21,704,659.39 | 37.90% |
| Inventory | 3,810,706.99 | 6.65% |
| Total | 26,247,427.65 | 45.84% |
3. The reporting period for the proposed asset impairment provision is from January 1, 2018, to December 31, 2018.
4. Approval Process: The provision for asset impairment this time has been reviewed and approved at the first meeting of the 4th Board of Directors in 2019 and the first meeting of the 4th Supervisory Committee in 2019.
II. Impact of This Provision for Asset Impairment on the Company
This time, the company has recognized an asset impairment provision of RMB 26,247,427.65. After considering the impact of income tax, it is expected to reduce the net profit attributable to shareholders of the listed company for 2018 by RMB 22,958,471.71 and decrease the equity attributable to shareholders of the listed company by the same amount. The corresponding accounting treatment has already been reflected in the company's "2018 Annual Performance Quick Report" (Announcement No.: 2019-006), disclosed on the same day. Importantly, this provision does not affect the company's previously released 2018 annual performance quick report data. Please note that the asset impairment provision recognized this time has not yet been audited by an accounting firm; therefore, the final figures will be based on the financial data officially audited by the accounting firm.
III. Explanation of Asset Impairment Provisions
1. Accounts receivable were provided with an allowance for doubtful accounts totaling RMB 732,061.27 in 2018, calculated using the aging analysis method in accordance with the relevant provisions of the *Enterprise Accounting Standards* and the company’s accounting policies. 2. Other receivables were provided with an allowance for doubtful accounts amounting to RMB 21,704,659.39 in 2018, also based on the *Enterprise Accounting Standards* and the company’s accounting policies. Specifically: (1) An allowance of RMB 48,169.38 was calculated using the aging analysis method; (2) For other receivables with individually significant amounts, a separate impairment test was conducted, resulting in an additional allowance of RMB 21,656,490.01. The detailed breakdown is as follows:
| Asset Name | Other Receivables – Weihai Puyi Ship Environmental Technology Co., Ltd. |
| Book Value (CNY) | 52,392,500.00 |
| Asset recoverable amount (CNY) | 30,736,009.99 |
| The process of calculating the recoverable amount of an asset | According to the company's application for property preservation in the litigation, the Zibo Intermediate People's Court has sealed and frozen the corresponding assets of the defendant, Weihai Puyi Ship Environmental Protection Technology Co., Ltd. (hereinafter referred to as "Weihai Puyi"). The assets subject to seizure and freezing include: 1. Industrial land under Weihai Puyi's name (77,190 square meters); 2. Five vehicles registered under Weihai Puyi's name; 3. Four bank accounts held by Weihai Puyi (including the basic deposit account). Determination of recoverable amounts: 1. For the industrial land, the recoverable amount is estimated at RMB 23,099,107.50, based on recent local land transaction prices near the area as of December 31, 2018. 2. As for the seized vehicles, due to their relatively low value, a cautious approach dictates that the recoverable amount is estimated at RMB 0. 3. According to Weihai Puyi's 2017 audit report, the book value of Workshops 1–4 is RMB 12,663,169.16. Applying a 60% discount factor to this book value, the estimated recoverable amount is set at RMB 7,597,901.50. 4. Regarding the frozen bank accounts, the recoverable amount is pegged at RMB 39,000.99. In total, the estimated recoverable value of these assets amounts to RMB 30,736,009.99. After consulting with legal counsel, the company holds priority claims over these assets; therefore, the estimated recoverable amount for the other receivables is also determined to be RMB 30,736,009.99. |
| The basis for this impairment provision | According to the Accounting Standards for Business Enterprises and the company’s accounting policies, accounts receivable include accounts receivable from customers, other receivables, and so forth. These are categorized into: (1) accounts receivable that are individually significant in amount and for which bad debt provisions are made separately; (2) accounts receivable whose bad debt provisions are calculated based on combinations of credit risk characteristics; and (3) accounts receivable that, although not individually significant in amount, are still subject to separate bad debt provisions. |
| Amount accrued this period (CNY) | 21,656,490.01 |
| Reason for provision | The financial assistance provided by Weihai Puyi has reached its maturity date, and the principal and interest remained unrecovered as of the reporting period's end. |
3. According to the relevant provisions of the "Enterprise Accounting Standards" and the company's accounting policies, the company measures its inventory at the lower of cost or net realizable value, and sets aside a provision for inventory write-downs based on the difference between the individual inventory cost and its net realizable value when the cost exceeds the latter. As of December 31, 2018, the company conducted an impairment test on its inventory. The test revealed that the inventory cost associated with Sinopec Sichuan Petrochemical’s 50,000-ton-per-year neodymium-based rare-earth cis-butadiene rubber production line renovation general contracting project exceeded its net realizable value. Consequently, the company recognized an inventory write-down provision of RMB 3,810,706.99 based on this difference.
IV. Explanation from the Board of Directors Audit Committee on the Reasonableness of the Company’s Provision for Asset Impairment
The Audit Committee of the company's Board of Directors believes that: The provision for asset impairment made this time adheres to and complies with the requirements of the "Enterprise Accounting Standards," the "Guidelines for Standardized Operations of Companies Listed on the SME Board of the Shenzhen Stock Exchange," as well as the company's relevant accounting policies. This provision was determined after conducting impairment tests based on the actual conditions of the relevant assets, in accordance with the principle of prudence. Therefore, the provision is adequately supported, fairly reflects the company's asset condition, enhances the authenticity and reliability of the company's accounting information regarding asset values, and is entirely reasonable.
V. Supervisory Board Opinion
The company's Supervisory Board believes that the review process for this provision of asset impairment reserves was legal and compliant, based on sufficient evidence. The provision complies with relevant accounting standards and accurately reflects the company's actual situation, ensuring a more fair representation of the company's asset status. Importantly, this action does not harm the interests of the company or its shareholders. Therefore, the Board approves the provision of asset impairment reserves.
VI. Supporting Documents for Reference
1. Resolution of the First Meeting of the 4th Board of Directors in 2019;
2. Resolution of the First Meeting of the 4th Supervisory Board in 2019. Hereby announced. Shandong Sanwei Petrochemical Engineering Co., Ltd. Board of Directors, February 25, 2019
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