Analysis of Accounting Treatment for Land Compensation of Tiansheng New Materials
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Based on the searched information, I will provide a detailed analysis of the accounting treatment for the land compensation of Tiansheng New Materials.
According to public information, Changzhou Tiansheng New Materials Group Co., Ltd. (Stock Code: 300169) signed the Agreement on House Expropriation and Compensation on State-owned Land with the Housing and Urban-Rural Development Bureau of Tianning District, Changzhou on January 27, 2025 [1]. The specific details of the expropriation compensation are as follows:
| Item | Details |
|---|---|
Total Compensation Amount |
RMB 350,000,000 |
Expropriated Land Area |
122,575.7 square meters (equivalent to 183.863 mu) |
Expropriated Building Area |
66,188.47 square meters |
Land Nature |
Industrial Transfer Land |
Compensation Method |
Monetary Compensation |
In accordance with the relevant provisions of Enterprise Accounting Standards No. 16 – Government Grants, the accounting treatment of land expropriation compensation needs to distinguish between types of government grants [2][3]:
| Type | Definition | Accounting Treatment Principles |
|---|---|---|
Asset-related Government Grants |
Government grants used for the purchase, construction or other formation of long-term assets | Recognized as deferred income, and allocated evenly to current profits and losses over the useful life of the relevant assets |
Income-related Government Grants |
Government grants other than asset-related government grants | For compensation of future expenses, recognized as deferred income; for compensation of incurred expenses, directly recognized in current profits and losses |
According to the Enterprise Accounting Standards, enterprises usually adopt the gross method for the accounting treatment of government grants [3]:
Dr: Cash in Bank 350,000,000
Cr: Deferred Income 350,000,000
Dr: Deferred Income
Cr: Non-operating Income
If the net method is adopted, the government grant shall be deducted from the book balance of relevant assets or expenses [3]:
Dr: Cash in Bank 350,000,000
Cr: Fixed Assets/Intangible Assets, etc. 350,000,000
According to the company’s announcement, the land compensation of Tiansheng New Materials includes the following parts [1]:
| Compensation Item | Description |
|---|---|
Compensation for Value of Buildings and Land Use Rights |
Compensation for the market value of expropriated assets |
Compensation for Relocation and Temporary Resettlement |
Compensation for relocation expenses arising from expropriation |
Compensation for Production Suspension and Business Closure |
Compensation for production suspension losses caused by expropriation |
In accordance with Enterprise Accounting Standards No. 7 – Non-monetary Asset Exchanges, if the assets exchanged are fixed assets or intangible assets, the difference between the fair value and the book value is included in non-operating income or non-operating expenses [4]:
Dr: Cash in Bank (Compensation Received)
Accumulated Depreciation/Accumulated Amortization
Cr: Fixed Assets/Intangible Assets (Original Book Value)
Non-operating Income (Difference)
Or Dr: Non-operating Expenses (Difference)
For relocation-related expenditures, in accordance with Enterprise Accounting Standards Interpretation No. 3, government grants received by enterprises for relocation due to public interests such as overall urban planning shall be transferred from special payables to deferred income [2]:
Dr: Cash in Bank
Cr: Special Payables
Dr: Special Payables
Cr: Deferred Income
Dr: Deferred Income
Cr: Non-operating Income (For compensating incurred expenses)
Combined with the actual situation of Tiansheng New Materials, the following accounting treatment process is recommended:
| Accounting Entry | Debit | Credit |
|---|---|---|
| 1 | Cash in Bank | Deferred Income - Compensation |
| 2 | Accumulated Depreciation | Fixed Assets |
| 3 | Deferred Income | Non-operating Income |
| Accounting Entry | Debit | Credit |
|---|---|---|
| 1 | Cash in Bank | Deferred Income - Relocation Compensation |
| 2 | Deferred Income | Administrative Expenses/Non-operating Expenses |
| 3 | Deferred Income | Non-operating Income |
According to the company’s announcement, this transaction will have a positive impact on the company’s financial indicators [1]:
| Impact Item | Specific Performance |
|---|---|
Repayment of Interest-bearing Debts |
Reduce the company’s asset-liability ratio |
Supplement Liquidity |
Improve the company’s cash flow position |
Gain on Asset Disposal |
Increase current non-operating income |
The tax treatment of land compensation needs to consider the following aspects [2]:
| Tax Type | Treatment Method |
|---|---|
Enterprise Income Tax |
Qualified fiscal funds can be treated as non-taxable income |
Value-added Tax (VAT) |
Subsidies unrelated to sales activities are usually not subject to VAT |
Land Value-added Tax |
The received compensation is not included in taxable income, but needs to offset development costs |
The accounting treatment of Tiansheng New Materials’ land compensation shall comply with the relevant provisions of Enterprise Accounting Standards No. 16 – Government Grants and Enterprise Accounting Standards No. 7 – Non-monetary Asset Exchanges [2][3][4]. In specific treatment, the nature of the compensation should be distinguished: compensation related to assets shall be recognized as deferred income and included in profits and losses in installments, while compensation related to income shall be directly recognized in current profits and losses or used to offset relevant costs and expenses. The company shall reasonably determine the attribution of each compensation amount according to the specific terms of the compensation agreement, and carry out the corresponding accounting treatment in accordance with the accounting standards.
[1] Sina Finance - Announcement of Tiansheng New Materials on Signing the Agreement on House Expropriation and Compensation on State-owned Land (http://money.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=300169&id=10733851)
[2] Interpretation of Enterprise Accounting Standards – Government Grants (http://czj.changchun.gov.cn/zwgk/zcjd/201904/P020190417498527432517.pdf)
[3] Enterprise Accounting Standards No. 16 – Government Grants (https://www.cicpa.org.cn/news/newsaffix/307_2006328_16.pdf)
[4] Enterprise Accounting Standards No. 7 – Non-monetary Asset Exchanges (https://www.cicpa.org.cn/news/newsaffix/307_2006328_7.pdf)
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