Abnormal accounting items Digital China Group Co.Ltd(000034) received the inquiry letter of the annual report of Shenzhen Stock Exchange

Digital China Group Co.Ltd(000034) sz received the annual report inquiry letter from SZSE on April 14, and SZSE asked about the company’s accounts receivable, inventory, cash flow, etc.

Digital China Group Co.Ltd(000034) 2021 achieved operating income of 122385 billion yuan, with a year-on-year increase of 32.94%; The net profit attributable to shareholders of listed companies was 238 million yuan, down 61.85% year-on-year; The net profit attributable to shareholders of listed companies after deducting non recurring profits and losses was 672 million yuan, a year-on-year increase of 3.14%; The net cash flow from operating activities was – 156 million yuan, a year-on-year decrease of 110.72%.

The inquiry letter pointed out that by the end of 2021, the company’s major investment project Shenzhen Bay super headquarters base project had a cumulative investment of 5.882 billion yuan and 746 million yuan during the reporting period. Since the project was launched in 2017, the project progress has reached 80%. On March 29, 2022, the company disclosed and announced that it would terminate the “Shenzhen Bay Digital China Group Co.Ltd(000034) international headquarters project planning and marketing integrated management service agreement” and its supplementary agreement signed with excellence real estate in 2018.

In this regard, the Shenzhen stock exchange requires the company to supplement and disclose the detailed accounting subjects and classification basis of the above investment projects, analyze and demonstrate the sufficiency of the provision for impairment, and explain the cross check relationship between the changes of relevant subjects and the subjects of the cash flow statement; Supplementary disclosure of the capital source of the investment project, as well as the detailed purpose and payment object of the investment capital of RMB 5.882 billion. And specify the geographical location of the project, the latest project progress and the estimated completion time; Supplementary disclosure of the specific reasons for the termination of the agreement related to excellence real estate, the follow-up management of the project and the sales work arrangement; Explain whether the development prospect of the project has changed significantly, as well as the impact on the company’s future asset status and operating results, and fully prompt the potential risks.

According to the financial report, the book balance of the company’s inventory was 14.842 billion yuan, and the provision for inventory falling price was 288 million yuan, all of which were made for inventory goods. During the reporting period, the company’s inventory level increased significantly compared with previous years, mainly the growth of inventory goods and goods in transit.

In this regard, the Shenzhen stock exchange requires the company to disclose the specific situation of inventory goods and goods in transit, the name of main categories and the carrying amount according to the subdivided categories; Combined with the company’s business development, analyze and explain the reasons and rationality of the company’s inventory balance at a high level and significant growth, supplement and disclose the basis and specific process of the calculation of inventory falling price reserves, and explain whether the company’s inventory falling price reserves are sufficient; The auditor is required to explain the audit procedures and audit evidence obtained for the authenticity of inventory and the adequacy of falling price reserves, and explain the specific situation of inventory supervision.

By the end of 2021, the book balance of the company’s accounts receivable was 9.017 billion yuan, and the amount of bad debt provision was 673 million yuan, accounting for 7.47%. The annual audit accountant listed the bad debt reserves of accounts receivable as key audit matters. The amount of accounts receivable derecognized by the company due to non recourse factoring service is 1.548 billion yuan.

Shenzhen stock exchange requires the company to supplement and disclose the industrial and commercial information of the top five debtors of the ending balance collected by the debtors, explain whether there is a relationship with the company, demonstrate the adequacy of the provision for bad debts of accounts receivable, and supplement and disclose the specific conditions of accounts receivable factoring services in the last three years, including but not limited to the amount of accounts receivable derecognized, factoring fee rate and accounting treatment, Supplement and disclose the industrial and commercial information of the factoring service provider and the debtor of relevant accounts receivable, and explain whether there is an association relationship with the company.

The company’s prepayment also increased significantly compared with previous years, with a balance of 3.48 billion yuan. Shenzhen Stock Exchange also requires the company to explain the reasons for the significant increase of prepayment in combination with its business model, and supplement and disclose the industrial and commercial information of the top five ending balances collected according to the prepayment object, indicating whether there is an association relationship with the company.

In terms of cash flow, in 2021, the net cash flow from the company’s operating activities was -156 million yuan, a sharp decline compared with the previous period, due to the increase in procurement and preparation during the reporting period. Shenzhen stock exchange requires the company to supplement the background and reasons for the sharp decline in cash flow from operating activities in combination with the development of industry and main business, whether the relevant factors are sustainable and whether they have an adverse impact on the company’s cash flow and profitability. Among the cash flows from investment activities, the cash paid for the purchase and construction of fixed assets, intangible assets and other long-term assets was 366 million yuan and the cash paid for investment was 473 million yuan. Shenzhen stock exchange requires the company to disclose the formation reasons, specific contents and payment objects of the above cash flow, and to disclose its cross checking relationship with relevant balance sheet accounts.

In addition, by the end of 2021, the balance of other receivables of the company was 303 million yuan, including 241 million yuan of land purchase funds and loans advanced on behalf of the related party Beijing Digital China Group Co.Ltd(000034) Real Estate Development Co., Ltd. The Shenzhen stock exchange requires the company to disclose the formation reasons, specific contents, estimated recovery time and nature of the above funds, and whether there is any occupation of funds by related parties or financial assistance for related parties.

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