Securities code: Jinzhou Cihang Group Co.Ltd(000587) securities abbreviation: ST Jinzhou Announcement No.: 2022018 Jinzhou Cihang Group Co.Ltd(000587)
Reply announcement on the letter of concern of Shenzhen Stock Exchange
The company and all members of the board of directors guarantee that the contents of the announcement are true, accurate and complete without false records, misleading statements or major omissions.
Jinzhou Cihang Group Co.Ltd(000587) (hereinafter referred to as “the company”) recently received the letter of concern on Jinzhou Cihang Group Co.Ltd(000587) issued by Shenzhen Stock Exchange (company department concern letter [2022] No. 103). As the accountants employed by the company are currently carrying out on-site audit work, the main audit procedures have not been completed. The subsequent company will speed up the work progress with intermediaries and supplement relevant information as soon as possible, Actively fulfill the obligation of information disclosure. This reply is a phased reply, and the relevant data will be subject to the audit report. The replies are as follows: 1. At present, your company’s main business is the sales of gold jewelry and silver in Jinzhou, Xiamen and Jinye, Shanghai. The gross profit margin of sales in the first three quarters of 2021 is only 2.92%. Please combine the business essence of gold jewelry and silver sales (including procurement mode, production mode, sales mode, etc.) to explain whether they belong to trade business. If so, please further combine whether your company has the right to independently select suppliers and customers, whether there are customers designated by your company’s suppliers Your company’s customers designate suppliers or suppliers to introduce customers to your company, explain whether your company has the primary responsibility to sell goods to customers, and whether your company recognizes revenue by using the total amount method instead of the net amount method.
Company reply:
The wholesale and retail business of gold jewelry is one of the main businesses of the company, including its subsidiaries. There are two main jewelry businesses: one is to purchase finished jewelry products from relevant processors and suppliers and supply them to downstream customers or consumers; Second, buy gold raw materials from the Shanghai gold exchange or its first-class members, and then hand them over to their own factories or processors with processing capacity for processing, turn the gold raw materials into jewelry, gold bars and other products required by customers, and then wholesale and sell them to dealers, or retail them to consumers through sales channels and retail stores. In 2021, the gold jewelry sales business of Xiamen Jinzhou and Shanghai Jinye also followed the golden leaf jewelry business mode, which is the traditional business of the company. Xiamen Jinzhou purchases gold raw materials from relevant suppliers, then entrusts processing factories to process gold jewelry and other gold products, and then sells them to customers through various channels, or directly purchases gold products from relevant suppliers and then directly sells them to various channel dealers. Shanghai Jinye also sells to customers in the same way. Therefore, from the perspective of business mode, it is the company’s traditional sales business. There are the actual sales and delivery process and cash receipt and payment process of gold products, which is not a simple trade business.
From the perspective of gross profit margin of business sales, there is no contradiction with the wholesale business of gold jewelry and products, and the wholesale gross profit margin of the whole industry is low. The main reason is that the market pricing principle of gold jewelry and products is based on the real-time price of gold materials in Shanghai Gold exchange plus the necessary labor costs that are in line with the scope of market quotation and acceptable to customers, including the gross profit of sales, The labor cost has different prices according to different products. Generally, the price increase per gram ranges from a few cents to a few dollars. Compared with the cost price of gold materials, the gross profit is very low. Therefore, the wholesale gross profit of gold jewelry and products is generally low. As the annual reports of listed companies have not been announced, the gross profit of other peer listed companies cannot be known for the time being. Moreover, each company is located in different positions in the market chain, different sales objects, different sales product structure, and different inventory purchase time. Therefore, the gross profit margin is also different and there is no comparability. According to the information disclosed in the 2020 annual report:
Unit Beijing Kingee Culture Development Co.Ltd(002721) Lao Feng Xiang Co.Ltd(600612) Zhejiang Ming Jewelry Co.Ltd(002574) China National Gold Group Gold Jewellery Co.Ltd(600916)
Gross profit margin of gold sales: 8.41%, 1.26%, 10.61%, 3.59%
At present, the company is calculating the product sales price, sales quantity, customers and classification details, and has not yet formed a concluding opinion. The final data will be subject to the audit report. Subsequently, the company will speed up the work progress with intermediaries and make supplementary disclosure after obtaining legal relevant information.
According to the accounting standards for Business Enterprises No. 14 – income “An enterprise should judge whether it is the principal responsible person or the agent when engaging in the transaction according to whether it has control over the commodity before transferring the commodity to the customer. If the enterprise can control the commodity before transferring the commodity to the customer, the enterprise is the principal responsible person and the income should be recognized according to the total amount of consideration received or receivable; otherwise, if the enterprise is the agent, it should be recognized according to the advance payment The amount of commission or handling fee that the company is entitled to receive in the current period shall be recognized as “income”.
In the gold jewelry sales business carried out by Xiamen Jinzhou and Shanghai Jinye, both parties independently choose suppliers and customers. In the business process, both the buyer and the seller are willing to pursue commercial interests, and there is no situation that the supplier designates customers or the customer designates suppliers. In the procurement process, the company has the right to independently select suppliers and make procurement choices and arrangements (including supplier selection, procurement quantity, price and settlement terms, etc.); After the purchase, the company obtains the control of the goods, the goods enter the company’s warehouse, bear the risk of damage and loss before the transfer of the goods, and enjoy all its economic benefits at the same time; In the sales process, the company assumes the main responsibility for providing goods to customers in accordance with the relevant terms of the sales contract, and transfers the control of goods to customers through the handover of goods. In the process of purchase and sales, the transfer of goods control is clear and relevant documents are complete.
To sum up, the signing, execution and settlement of the above procurement and sales contracts of the company are independent commercial acts. The company has obtained the control of the goods through procurement and assumed the main responsibility for transferring the goods when selling to customers. The company bears the inventory risk of the sold goods, including the risk of damage and loss before delivery and acceptance of the goods and the risk of price fluctuation during the execution of the contract, At the same time, it also enjoys all the economic benefits of commodities; The price of goods sold by the company can be determined independently without being affected by a third party; Therefore, the company has the right to control the goods before transferring them to customers, and the company is the main responsible person rather than the agent in the sales business. The company’s gold jewelry wholesale and retail business is to fulfill the performance obligations at a certain point in time. The specific method of revenue recognition is that the company will deliver the sold goods to the customer or the customer will recognize the revenue after the customer’s acceptance and confirmation. The company adopts the total amount method to confirm that the income complies with the relevant provisions of the accounting standards for business enterprises.
Accountant’s reply:
The following procedures have been completed for the audit of the company’s business income:
(1) Understand the key internal controls related to revenue recognition, evaluate the design of these controls, determine whether they are implemented, and test the operation effectiveness of relevant internal controls;
(2) Select samples to check the corresponding contract terms and conditions, identify the performance obligations in the contract, and evaluate whether the revenue recognition time point meets the requirements of the accounting standards for business enterprises;
(3) Implement analysis procedures for operating revenue and gross profit margin on a monthly and product basis, identify whether there are significant or abnormal fluctuations, and find out the causes of fluctuations;
(4) Check the supporting documents related to revenue recognition by sampling, including sales contract, sales invoice, delivery order, customer receipt, interest income document, etc;
The audit procedures implemented but not completed by the accountant are as follows:
(1) Combined with the audit of accounts receivable and contract liabilities, select the letter sales and balance of main customers, and evaluate the reliability of the reply data;
(2) Conduct a cut-off test on the revenue transactions recorded before and after the balance sheet date to evaluate whether the operating revenue is recognized in an appropriate period.
As of the reply date of this letter of concern, the accountant’s audit procedures for operating income have not been fully implemented and sufficient and appropriate audit evidence has not been obtained. Therefore, a clear opinion on operating income cannot be formed.
2. According to the semi annual report disclosed by your company, your company only achieved an operating revenue of 37 million yuan in the semi annual of 2021, while your company expects to achieve an operating revenue of 130 million yuan to 160 million yuan in 2021. In combination with the actual sales volume and price of various products such as gold and jewelry in each quarter, please explain the reason and rationality that the operating revenue is mainly concentrated in the third and fourth quarters, whether it conforms to the characteristics of the industry, and whether your company increases the revenue scale in 2021 by surprise new businesses and transactions without commercial substance, so as to avoid the implementation of delisting risk warning. At the same time, please check whether your company has deducted the income irrelevant to the main business or without commercial substance in accordance with the relevant requirements on the deduction of operating income in the guidelines for self regulation and supervision of listed companies No. 1 – business handling.
Company reply:
The company has deducted the income irrelevant to the main business and without commercial substance in strict accordance with the relevant requirements on the deduction of operating income in the guide for self regulation and supervision of listed companies No. 1 – business handling. The business income irrelevant to the main business refers to the income that has no direct relationship with the normal business of the company, or although it is related to the normal business, but because of its special nature, contingency and temporary nature, it affects the report users to make a normal judgment on the sustainable operation ability of the company. Income without commercial substance refers to the income generated from various transactions and events that are not commercially reasonable, such as no significant change in future cash flow.
At the beginning of 2021, according to the situation that Dongguan Jinye jewelry is about to be auctioned out by judicial auction, the company assigned the task of the company’s annual sales plan to Xiamen Jinzhou and Shanghai Jinye after the 2020 annual report. Due to the difference between the previous business model of Xiamen Jinzhou and the traditional business model of Jinye jewelry, it is necessary to have a certain preparation stage in terms of business personnel, funds and customers, Business personnel need to strengthen and train them in business mode of thinking, processing, sales ability and risk control, which has a gradual improvement process in sales. Therefore, it is reasonable for sales to increase gradually from the third and fourth quarters. In addition, it actually takes only about three or four days for gold products to be placed by customers and delivered to customers. Therefore, it cannot be considered on a quarterly basis.
The peak sales season of gold jewelry extends from the fourth quarter of each year to the first quarter of the next year. Therefore, the increase of sales in the third and fourth quarters of the company is also in line with the characteristics of the industry. It is not found that the company evades the delisting risk by surprise new business and increasing the income scale in 2021 through transactions without commercial substance.
Quarter (yuan) first quarter second quarter third quarter fourth quarter
Main business income 359642292 1377191535626471835705746595
At present, the company is calculating the product sales price, sales quantity, customers and classification details, and has not yet formed a concluding opinion. The final data will be subject to the audit report. Subsequently, the company will speed up the work progress with intermediaries and make supplementary disclosure after obtaining legal relevant information.
3. On December 27, 2021, the 100% equity of gold leaf jewelry held by your company was auctioned by the judiciary. On January 10, 2022, the reply to the notice of concern disclosed by your company showed that by the end of 2021, your company had receivable 1.118 billion yuan of gold leaf jewelry, and there was still a guarantee balance of 1.186 billion yuan for gold leaf jewelry. Please explain the accounting treatment and compliance of gold leaf jewelry, as well as your company’s provision for bad debts of the above receivables and external guarantees. Company reply:
After the gold leaf jewelry was auctioned by the judiciary in December 2021, the accounting treatment is as follows:
(1) Dealing with the subject of “long-term investment”, since the balance of the company’s long-term investment in gold leaf jewelry is 812 million yuan, and the bad debt provision for this investment has been fully accrued in the previous year, make accounting entries: Debit: bad debt provision for long-term investment is 812 million yuan, credit: long-term investment is 812 million yuan.
(2) The auction price of gold leaf jewelry is 1.3 million yuan, which is used as investment income. Accounting entries: Debit: other receivables 1.3 million yuan, credit: investment income 1.3 million yuan.
(3) The excess loss of gold leaf jewelry was 1.16 billion yuan. By December 31, 2021, the accumulated excess loss of gold leaf jewelry was 1.16 billion yuan. At the level of the company’s consolidated statements, the borrower was 1.16 billion yuan of undistributed profits and capital reserves, and the lender was 1.16 billion yuan of investment income (as of the reply date, the relevant work was in the audit stage of intermediary institutions, and no confirmed audit opinion had been formed).
(4) By December 31, 2021, considering that Jinye jewelry has been gradually repaying the amount owed to the company, the company adopts the aging method to withdraw the impairment provision of 580 million yuan for the current amount receivable from Jinye jewelry; Mainly considering that Jinye jewelry has been communicating the debt restructuring plan with its creditors, and these matters are being promoted according to legal procedures, the specific amount of the company’s guarantee liability for Jinye jewelry cannot be confirmed in the performance forecast, and the company has not accrued the relevant estimated liabilities.
Article 50 of the accounting standards for Business Enterprises No. 33 – consolidated financial statements: if an enterprise loses its control over the investee due to the disposal of part of its equity investment, when preparing the consolidated financial statements, the remaining equity shall be re measured according to its fair value on the date of loss of control. The difference between the sum of the consideration obtained from the disposal of equity and the fair value of the remaining equity minus the share of the net assets of the original subsidiary continuously calculated from the purchase date or the merger date calculated according to the original shareholding ratio shall be included in the investment income of the current period when the control right is lost, and the goodwill shall be offset at the same time. Other comprehensive income related to the equity investment of the original subsidiary shall be transferred to the current investment income when the control right is lost.
At present, the company’s annual audit accountant has entered the site to audit the financial statements in 2021. The specific amount of the current investment income caused by the stripping of gold leaf jewelry cannot be determined temporarily. The specific impact of the release of gold leaf jewelry on the company’s financial situation and operating results in 2021 remains to be confirmed by the final audit opinion. Investors are requested to make prudent decisions and pay attention to investment risks.
After the auction of gold leaf jewelry is completed, it will no longer be included in the scope of consolidated financial statements. At the consolidation level, the loss formed over the years will be reversed and included in the investment income of about 1.16 billion yuan. The company cannot form a clear opinion on whether to withdraw the estimated liabilities and their specific amount for the guarantee of gold leaf jewelry, and the adequacy and accuracy of bad debt reserves for other receivables for the time being.
Accountant’s reply:
