Shenzhen Zhongheng Huafa Co.Ltd(000020) : reply from Daxin Certified Public Accountants

Wuyige certified public accountants LLP telephone: + 86 (10) 82330558 Xueyuan International Tower, 15 / F, No. 1 Zhichun Road, Haidian District, Beijing Fax: + 86 (10) 82327668 No. 1 Zhichun Road, Haidian dist, 15th floor, College International Building. Website: Internet: www.daxincpa com. cn. Postal Code: Beijing, China 100083

Shenzhen Zhongheng Huafa Co.Ltd(000020) concern letter

Special description of financial and accounting events

Dxbz [2021] No. 5-10021 Shenzhen Stock Exchange listed company management department:

We have received the letter of concern on Shenzhen Zhongheng Huafa Co.Ltd(000020) (company department concern letter [2021] No. 476) transmitted from Shenzhen Zhongheng Huafa Co.Ltd(000020) (hereinafter referred to as "the company") and issued by your ministry. According to your requirements, Daxin Certified Public Accountants (special general partnership) (hereinafter referred to as "we") verified the questions raised in the letter item by item and replied as follows: Question 1 Your company claims that the reason for the above changes in accounting policies is that the company's industrial production inventory turnover is fast, and the cost of inventory goods adopts the one-time weighted average method at the end of the month, which can truly reflect the cost and inventory value. Please compare the inventory turnover of Companies in the same industry and the relevant accounting policies adopted to explain the rationality of your company's current accounting policy change; In combination with the change trend of your company's historical inventory turnover, explain whether the change time point of your company is reasonable. The annual audit accountant is requested to check and give clear opinions. Accountant's reply:

1. We have obtained the inventory turnover rate of Companies in the same industry and the relevant accounting policies adopted are listed as follows:

Accounting period unit abbreviation inventory accounting method inventory turnover days (days) inventory turnover rate (Times)

Shenhuafa (000020) first in first out 43.70 6.18

Haier Smart Home Co.Ltd(600690) (600690) weighted average 74.56 3.62

TCL Technology (000100) weighted average 32.95 8.19

2021 Cpt Technology (Group) Co.Ltd(000536) (000536) standard cost

1-3 quarters 76.97 3.51

BOE a (000725) weighted average 56.47 4.78

Tianjin Jingwei Huikai Optoelectronic Co.Ltd(300120) (300120) weighted average 78.25 3.45

Shentianma a (000050) weighted average 47.24 5.71

It can be seen from the above table that the turnover rate of the company is at a high level in the same industry, and the accounting policies of Companies in the same industry mostly adopt the weighted average method. In order to adapt to the scale of business development, realize the integrated management of business and finance, and provide more reliable and relevant accounting information, according to the accounting standards for Business Enterprises No. 1 - inventory, combined with the actual situation of the company, the company decided to change the pricing method of issued inventory from the first in first out method to the weighted average method at the end of the month, which is reasonable.

Wuyige certified public accountants LLP telephone: + 86 (10) 82330558

Xueyuan International Tower, 15 / F, No. 1, Zhichun Road, Haidian District, Beijing Fax: + 86 (10) 82327668

No. 1 Zhichun Road, Haidian dist, 15th floor, College International Building. Website: www.daxincpa com. cn. Postal Code: Beijing, China 100083

2. We obtained the inventory turnover rate of the company from 2018 to 2020 as follows:

Project 2020 2019 2018

Operating cost (yuan): ① 613228670.00 634502140.00 566691460.00

Ending inventory balance (yuan) ② 70166016.00 66971552.00 62973908.00

Opening inventory balance (yuan) ③ 66971552.00 62973908.00 60387021.65

Inventory turnover rate (Times) ① / (② + ③) / 2) 8.94 9.77 9.19

The inventory turnover rate in the first quarter, interim report and third quarter of this year is as follows:

Project from January to September 2021 from January to June 2021 from January to March 2021

Operating cost (yuan): ① 525633696.00 334484096.00 160682000.00

Ending inventory balance (yuan) ② 99966464.00 129917664.00 103742880.00

Opening inventory balance (yuan) ③ 70166016.00 70166016.00 70166016.00

Inventory turnover rate (Times) ① / (② + ③) / 2) 6.18 3.34 1.85

Note: the above data are the data before retroactive adjustment in the first quarter, half year and third quarter of this year, and are for reference only.

After retroactive adjustment, due to the large amount of calculation, the company will make a separate announcement. The data before and after retroactive adjustment are expected to have little difference and will not have a material impact on the conclusion. According to the above contents, the turnover rate of the company's historical inventory is relatively high. In 2020, the decrease was lower than that in 2019. The main reason was that the sales volume of the foam business and injection business decreased, and the overall operating cost decreased by 3.35% in 2020. The video business of the company affected by the international epidemic situation increased, and the final stock increased, resulting in an increase of 4.28% in the stock balance.

The inventory turnover rates from January to March 2021, January to June 2021 and January to September 2021 are quite different from those from 2018 to 2020. The main reason is that the corresponding operating cost amount calculated by the inventory turnover rates from January to March 2021, January to June 2021 and January to September 2021 is quarterly data, while the operating cost amount from 2018 to 2020 is annual data, The data caliber is not comparable; In addition, due to the shortage of OC screen in the first half of 2021, the video business increased the stock in order to meet the needs of customers according to the company's annual plan, so the inventory balance increased. The above two points lead to a great difference between the inventory turnover rate from January to March 2021, January to June 2021 and January to September 2021 and that from 2018 to 2020. According to the company's year-end sales plan, the inventory balance at the end of December 2021 is expected to increase slightly compared with that in 2020, but the difference is small. The annual inventory turnover rate is expected to be more than 8 times, with no significant difference compared with that in 2020. The final data of 2021 shall be subject to the audit. After preliminary calculation, the difference between the weighted average method and the first in first out method is small, and this change has no significant impact on the financial status and operating results. The company's SAP software was also successfully launched at the end of this year, and the inventory delivery pricing method was adjusted this time

Wuyige certified public accountants LLP telephone: + 86 (10) 82330558

No. 1 Zhichun Road, Haidian dist, 15 / F, Xueyuan International Tower, No. 1 Zhichun Road, Haidian District, Beijing Fax: + 86 (10) 82327668 com. cn. Postal Code: Beijing, China 100083

The change of accounting policy is also to be consistent with the requirements of SAP software, ensure the normal operation of SAP software and improve the management level of the company. Therefore, the time point of this change is reasonable.

Question 2. Your company said that since the inventory value at the beginning of each period in the past could not be recognized and recalculated in batches, it was difficult to confirm the cumulative impact of applying the retrospective adjustment method, so the future application method was adopted for this change. Please explain whether the above accounting treatment complies with the relevant provisions of the accounting standards for business enterprises. The annual audit accountant is requested to check and give clear opinions.

Accountant's reply:

In order to adapt to the scale of business development, realize the integrated management of business and finance, and provide more reliable and relevant accounting information, according to the accounting standards for Business Enterprises No. 1 - inventory and in combination with the actual situation of the company, the company decides to change the pricing method of issued inventory, According to the relevant provisions of the accounting standards for business enterprises - changes in accounting policies, accounting estimates and correction of accounting errors, due to the wide variety and specifications of the company's inventory and fast inventory turnover, it is not feasible to adopt retrospective adjustment. Therefore, we adopt the audit sampling method to select the ten products with the largest single balance at the end of September 2021, 2020, 2019 and 2018. The impact of the change of inventory pricing method on the operating costs and profits at the end of September 2021, 2020, 2019 and 2018 is calculated as follows:

Unit: Yuan

The weighted average method is used to measure the difference, and the first in first out method is used to measure the difference (the impact on the operating cost calculated by the serial number and product name in September 2021 and September 2021)

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