2. Summary of Significant Accounting Policies (Policies)
|9 Months Ended
Sep. 30, 2012
|Notes to Financial Statements
|(a) Accounting standards
The consolidated financial statements
have been prepared on a historical cost basis to reflect the financial position and results of operations of the Company in accordance
with accounting principles generally accepted in the United States of America.
|(b) Fiscal year
The Companys fiscal year ends
on the 31st of December of each calendar year.
The consolidated financial statements
include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.
|(d) Use of estimates
The Companys discussion
and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
|(e) Revenue recognition
We mainly sell food products. We
recognize revenue when title and risk of loss are transferred to our customers. This generally happens upon delivery
of our products.
|(f) Shipping and handling costs
The Company records outward freight,
purchasing and receiving costs in selling expenses; inspection costs and warehousing costs are recorded as general and administrative
|(g) Cash and cash equivalents
Cash and cash equivalents include cash
on hand, demand deposits held by banks, and securities with maturities of three months or less. The Company considers all highly
liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are
composed primarily of investments in money market accounts stated at cost, which approximates fair value.
Inventories are recorded using the weighted
average method and are valued at the lower of cost or market.
|(i) Accounts receivable, net
The carrying amount of accounts receivable
is reduced by a valuation allowance that reflects the Companys best estimate of the amounts that will not be collected.
In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its general allowance,
including aging analysis, historical bad debt records, customer credit analysis and any specific known troubled accounts.
|(j) Property, plant and equipment
Property, plant and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the
estimated useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life
of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance
and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets,
the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation
related to property and equipment used in production is reported in cost of sales.
assets of the Company are reviewed annually to assess whether the carrying value has become impaired, according to the guidelines
established in Statement of Accounting Standards (SFAS) No. 144, "Accounting for the Impairment of Disposal of Long-Lived
Assets." The Company also evaluates the periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. No impairment of assets was recorded in the periods reported.
|(k) Intangible assets
Intangible assets consist of land
use rights and are recorded at cost. Under PRCs current property rights regime, use rights for specified periods (e.g.,
40 to 70 years) can be obtained from the state through the up-front payment of land use fees. The fees are determined by the location, type
and density of the proposed development. This separation of land ownership and use rights allows the trading of land use rights
while maintaining state ownership of land. The Company has over 250,000 acres of agriculture land that are utilized for grazing,
cultivation, and reclamation, of which 50,000 acres are under cultivation using the latest scientific technologies to produce
a wide variety of agricultural products.
|(l) Impairment of long-lived assets
The carrying amounts of long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets
to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
Investments consist primarily of less
than 20% equity positions in non-marketable securities and are recorded at lower of cost or market.
|(n) Foreign currency translation
The accompanying financial statements
are presented in United States (US) dollars. The functional currency is the Renminbi (RMB). The financial statements
are translated into US dollars from RMB at year-end exchange rates for assets and liabilities, and weighed average exchange rates
for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
Gains and losses resulting from foreign
currency translation are recorded in a separate component of shareholders equity. Foreign currency translation adjustments
are included in accumulated other comprehensive income in the consolidated statements of shareholders equity for the years
RMB is not freely convertible into the
currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee
the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.
|(o) Income taxes
As an agricultural enterprise,
the Company and all of its agricultural subsidiaries are exempted from enterprise income taxes with approval from the Gansu Provincial
Bureau of Local Taxation. The only non-agricultural subsidiary, Baiyin Cement Plant, has suffered net loss for the years shown
and therefore has no applicable taxable income. Because of the uncertainty of future profits, no deferred tax assets have been
set up at this time.
|(p) Earnings per share
Basic earnings per share are computed
using the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed using
the weighted average number of common and, if dilutive, potential common shares outstanding during the year. The Company has no
potentially dilutive shares for the periods shown.
|(q) Economic and Political Risks
The Company faces a number of
risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could
have a significant effect on the Company's business.
|(r) Advertising expense
The Company records advertising
expenses in the period incurred.
|(s) Comprehensive income
Comprehensive income is defined
as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions
resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the
accompanying consolidated balance sheets, consists of mainly the cumulative foreign currency translation adjustment.
|Recently Adopted Accounting Guidance
Adopted Accounting Guidance
July 1, 2011, we adopted guidance issued by the Financial Accounting Standards Board (FASB) on disclosure requirements
related to fair value measurements. The guidance requires the disclosure of roll-forward activities on purchases, sales,
issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). Adoption
of this new guidance did not have a material impact on our financial statements.
On January 1, 2012, we adopted
guidance issued by the FASB on accounting and disclosure requirements related to fair value measurements. The guidance limits
the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions
in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and
discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the
unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to
changes in unobservable inputs. Adoption of this new guidance did not have a material impact on our financial statements.
|Recent Accounting Guidance Not Yet Adopted
December 2011, the FASB issued guidance enhancing disclosure requirements about the nature of an entitys right to offset
and related arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure
of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the
related net exposure. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures,
we do not anticipate material impacts on our financial statements upon adoption.
September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to
first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed
two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss
to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is greater
than its carrying amount, the two-step goodwill impairment test is not required. The new guidance will be effective for us beginning
July 1, 2012.
In June 2011, the FASB issued
guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive
income and its components in the statement of changes in stockholders equity. Instead, an entity will be required
to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. This
portion of the guidance will be effective for us beginning July 1, 2012 and will require financial statement presentation
changes only. The new guidance also required entities to present reclassification adjustments out of accumulated other comprehensive
income by component in both the statement in which net income is presented and the statement in which other comprehensive income
is presented. However, in December 2011, the FASB issued guidance which indefinitely defers the guidance related to the presentation
of reclassification adjustments.
|(u) Value added tax (VAT)
Value added tax is a consumption
tax levied on value added. While the standard VAT rate in PRC is 17%, the Company's agricultural subsidiaries enjoy a reduced
VAT rate of 4%.