*ST Kerry (002072): Reply To Enquiry

Kerid Cmi Holdings Ltd's reply to Shenzhen stock exchange's letter of concern

Management Department of Shenzhen stock exchange SME Board:

Kerid Cmi Holdings Ltd (hereinafter referred to as "Kai Reed" or "company") received your letter of concern letter to Kay Reed and Cmi Holdings Ltd in January 1, 2020 (concern letter of small and medium board [2020] first]. The company immediately studied and verified the questions in the letter concerned.

1. According to the announcement, the main business of the donation is the rental income of the industrial park. Except for the land use right has the property right certificate, the building on the ground of the donated target has not obtained the planning permission and the property right certificate. Please explain that the book value and the occupying value of the property with defects in the donated assets, the progress in the management of the certificate as of now, and the expected completion time, and indicate the failure to handle the influence of the ownership certificate on the production and operation of the donated target.

Reply:

The total value of the donated assets of this company is 218 million yuan, of which the book value of the property with defects is 102 million yuan, accounting for 47.05% of the total assets, not exceeding half of the total assets. The specific circumstances are as follows:

List of buildings and buildings without property certificate issued by Long Chi property

Up to now, Long Zhi property is actively promoting property management, because property management involves many government departments for approval and needs to prepare for declaration and approval materials. It is expected that the completion time is not yet sure. The company will actively supervise, follow up and coordinate the property management of Long Zhi real estate, and strive to get the authorized department to approve and complete the property management work as soon as possible. Although the above property has not yet been processed by the relevant warrants, the property occupies a complete property right and the ownership is clear, and the tenant and Shanxi Long Zhi Energy Chemical Co., Ltd. all indicate that the donated land and the above ground buildings belong to the Long Zhi property. There is no dispute over ownership. Meanwhile, the upper building has reached the applicable state, and the lessee has already leased the assets and put it into normal use. No certificate of ownership will affect the production and operation of this donation.

2, the Central Accounting Office (special general partnership) has issued an unqualified opinion on the subject matter of donation with the emphasis on paragraphs. It emphasizes that the contents of the paragraph are "no invoice, construction planning permit, final accounts, and property title certificate" of the agent complex. The total assets of the donation subject to audit are 218 million yuan, of which 217 million yuan is investment real estate. I would like to ask the accountant to explain the main audit procedures for the implementation of the investment real estate subjects, to explain whether the impact of the items emphasized on the financial statements is extensive, and whether there is a case of unreserved opinions with emphasis on paragraphs instead of reservations, inability to express opinions or negative opinions.

Reply:

The reply of CIC (special general partnership) is as follows:

1. The main audit procedures and audit evidence that have been implemented in investment real estate subjects.

(1) to obtain and inspect the agent construction agreement of the industrial park complex, the supplementary agreement for agent construction agreement of the industrial park complex, the lease contract for the industrial park, and the supplementary agreement for the lease contract of the industrial park.

(2) obtained and inspected the assets assessment report of Beijing Wan Xin Da Coking Co., Ltd., which was issued by Linfen Zhongyi Asset Appraisal Co., Ltd. for the Shanxi Long Zhi Energy Chemical Industry Co., Ltd. and its affiliated building, and the evaluation report on the full price project (2019, 11209th).

(3) obtained and inspected the settlement agreement for the construction project of the industrial park complex.

(4) obtain and check the confirmation of assets transfer of Linfen Wan Xin Da Coking Co. Ltd. and Long Zhi property about the agent complex.

(5) acquire the subsidiary ledger of Long Zhi property and review the appropriateness of its accounting treatment.

(6) acquiring and inspecting the land leasing contract of Shanxi Long Zhi Energy Chemical Industry Co., Ltd., and calculating the occupied area of the enterprise's internal administrative office and life service facilities within the scope of the transferee.

(7) acquire and check the land use right transfer agreement signed by Shanxi Long Zhi Energy Chemical Co., Ltd. and Long Zhi property.

(8) obtain and check the land use certificate and asset transfer confirmation of Long Zhi property.

(9) obtaining and checking payment vouchers for payment of agent construction complex and land use rights, and checking the authenticity of the amount with the check of bank's running water.

(10) obtained and inspected the summary of the management meeting of Long Zhi property on the accounting of the leased parks and building complexes in the investment real estate accounts and the subsequent measurement of the fair value.

(11) obtaining and inspecting "Shanxi Long Zhi Property Co., Ltd., which is issued by Beijing Guo Rong Xing Hua asset appraisal limited liability company, intends to apply the fair value measurement project assets appraisal report to the real estate subject of investment real estate" ([2019]08081).

(12) acquire the real estate subsidiary ledger of Long Chi property and review the appropriateness of its accounting treatment.

(13) the implementation of supervision procedures for investment real estate;

(14) get the "asset description and commitment" issued by Linfen Wan Xin Da Coking Co., Ltd., and get the statement and commitment of assets issued by Shanxi Long Zhi Energy Chemical Co., Ltd.

(15) the implementation of the on-site interviews, letters Linfen Wan Xin Coking Co., Ltd., Shanxi Long Zhi Energy Chemical Co., Ltd., the investment real estate involved in the construction projects and rental matters were confirmed;

(16) get the explanation of "no relevant license and property right" issued by Long Zhi property.

2. Emphasize the impact of matters involved in the opinion section on the financial statements.

The total assets audited by Long Chi property are 218 million yuan, of which the amount of investment real estate is 217 million yuan, and the impact of investment real estate subjects on financial and financial statements is significant. Our audit procedures and audit evidence for investment real estate subjects are as follows. According to "one", through the implementation of the above procedures, we think that transactions and important matters involved in investment real estate have been processed and disclosed in full according to the actual situation.

3. The adequacy of the basis for making unqualified opinions with emphasis.

China's CPA Auditing Standards No. 1503rd - adding emphasis and other paragraphs in the audit report. Second, if deemed necessary, the CPA can provide supplementary information in the audit report to remind users of the following matters: (1) although it has been reported or disclosed in the financial statements, it is of vital importance for users to understand the financial statements; (two) it does not report or disclose in the financial statements, but matters related to the user's understanding of the audit work, the responsibility of the CPA or the audit report. "

China's CPA Auditing Standards No. 1502nd - Seventh non - reserved opinions in the audit report: "when there is one of the following circumstances, a certified public accountant should publish a non reserved opinion in the audit report: (1) based on the audit evidence obtained, the conclusion of the overall misstatement of the financial statements is obtained; (two) it is impossible to obtain sufficient and appropriate audit certificates. It can not be concluded that there is no gross misstatement in the financial statements as a whole.

Through the implementation of the above procedures, we believe that the transactions and important matters involved in the investment real estate have been processed and disclosed fully according to the actual situation. We have not found that there is a clear violation of the accounting standards, regulations and relevant information disclosure regulations of the companies mentioned above. We are based on the Auditing Standard No. 1503rd of the Chinese CPA in the audit report. In addition, the second paragraph (1) provides an audit report with unqualified opinions with strong paragraphs. There is no substitute for reservations with unqualified opinions with emphasis on paragraphs.

In 3 and November 29, 2019, Beijing Guo Rong Xing Hua asset appraisal limited liability company (hereinafter referred to as "evaluation institution") evaluated the donation target and issued an evaluation report:

(1) please explain the reason and background of this assessment.

Reply:

The reasons and background of the evaluation of the donation target by the Beijing real estate investment limited company are as follows:

1. Long Zhi property is based on its own business needs.

According to Long Zhi property, Shanxi Long Zhi Energy Chemical Co., Ltd. (hereinafter referred to as "Long Zhi energy") and Linfen Wan Xin Da Coking Co., Ltd. (hereinafter referred to as "WAN Xin Da"), the Industrial Park lease contract (contract number: WXDLZZL-01) and the Industrial Park lease contract supplementary agreement (contract number: WXDLZZL-02), Long Zhi property has held itself. The land and ground buildings were leased to Wan Xinda, according to the definition of "investment real estate" in the enterprise accounting standards:

Real estate refers to the real estate held in order to earn rent or capital appreciation, or both. The scope mainly includes: the right to use the land that has been leased, the right to use the land that is held and ready for increment, and the building that has been rented. So long Zhi property is leased to Wan Xinda's comprehensive system investment real estate. According to the relevant provisions of the enterprise accounting standards on the subsequent measurement of investment real estate, the investment real estate can adopt two measurement modes. In view of the fact that the complex has been rented out abroad, the rental price is the true and accurate reflection of the value of the complex. After the decision of the Dragon management office, the dragon's property adopts the fair value model to carry out the follow-up plan for the investment real estate. Quantity. In order to determine the fair value of rental real estate, the long term real estate investment real estate follow-up measurement mode is based on the fair value model. According to the relevant provisions of the accounting standards for enterprises, the real estate company hired the Beijing Guo Rong Xing Hua asset appraisal limited liability company to evaluate the fair value of its investment real estate. Long Zhi property investment real estate account value reference.

Consistency with Kerid's accounting policy

Kerid's current accounting policy on investment real estate accounts for the subsequent measurement of the investment real estate in the form of fair value. As long as the property is donated to Kerid as a donation mark, the accounting policy of Long Zhi property should be consistent with the accounting policy of Kai Reed.

(2) please assess the reasons and reasonableness of the evaluation method which only adopted the method of income method, and explain the concrete assessment method, evaluation process and evaluation results in detail, and explain the key parameters and rationality of the selection.

The assessment agencies replied as follows:

Referring to the guide for financial reporting and the guidance of investment real estate appraisal, the implementation of the evaluation business for the purpose of financial reporting should be based on the relevant conditions of the evaluation object, value type, data collection and data sources, and with reference to the provisions of the accounting standards on the measurement method, and analyze the three basic assessment methods of the market law, the income approach and the cost method. The applicability of the law and other assessment methods and the appropriate selection of one or more assessment methods.

The purpose of this assessment is to estimate the market value of Shanxi Long Zhi Property Co., Ltd., which is intended to be transferred to the real estate appraisal benchmark date of the investment real estate account in October 31, 2019, so as to provide a value reference for the enterprises to adopt the fair value measurement of economic behavior of the investment real estate. Assessment.

The replacement cost method refers to the estimated amount of cash or cash equivalents required to purchase the same or similar assets, minus the estimated amount reflecting the relevant depreciation factors. The devaluation factors mainly include entity depreciation, functional depreciation and economic depreciation. In this assessment, due to the vigorous development of the domestic real estate market, the price of real estate in Linfen has changed greatly in recent years. For commercial property and rental office property, the cost method can no longer reflect the value of the assets, while the estimated investment real estate is mainly used for the out rent operation, so the replacement cost method is not adopted in the evaluation.

The market law refers to the evaluation method of comparing the evaluation objects with the same or similar assets of the existing transaction cases in the market so as to determine the value of the evaluation objects. In this assessment, there are more types of rental assets that are included in the assessment scope, and less information on assets in the market and assets that are exactly the same as those to be estimated. Because the market transaction cases can not be collected and the information is improved, the market law is not adopted.

The income method is also called the present value method of income. It is an evaluation method to determine the value of the evaluation object by capitalizing or discounting the expected return of the investment real estate in the future. In this assessment, because the estimated investment real estate is in the external rental status, the rental income and related maintenance cost of the investment real estate in the future year should be reasonably collected, which can meet the requirements of the related data and parameter data collection of the investment real estate appraisal. While the assets to be assessed as investment real estate, the future enterprises will mainly collect the rents from external rents and get the proceeds. The method of income method can better reflect the value of assets.

After comprehensive analysis, this article mainly adopts the income method to evaluate the investment real estate. The assets value determined by the income method includes the value of the house and the market value depending on the land.

This assessment mainly uses the income method to determine the value of the estimated investment real estate. The income method is also called the present value method of income. It is a method of evaluating the value of the evaluation object by reasonably predicting the future earnings of the valuation object, and then using the rate of return or capitalization rate to reasonably discount the future income. The formula is as follows:

Formula:

V -- real estate market value;

Ai - real estate annual net income in I;

R - Comprehensive capitalization rate of valuation objects;

N - the future income period.

The value of real estate appraisal derived from income method includes the value of land use right based on real estate.

The calculation process of this income approach is as follows:

1) determine the economic life of investment pan real estate. According to the economic life and land expiration date of the real estate in the real estate to be estimated, the useful life of the real estate and land can be verified. According to the principle of the maximum utility of assets, the economic life of the investment real estate can be determined if the real estate or land is short in the investment real estate.

2) determine the rental income of the investment assets during the lease term and the rental income after the expiration of the lease term. According to the actual operating conditions of the investment real estate, the effective external lease contracts should be collected and collate, and the matching relationship with the corresponding real estate and land should be established. The rental income of the estimated assets in the legal effective lease period shall be reasonably determined according to the current contract, and the rents of the rental contract after the expiration of the lease contract shall be evaluated by reasonable rents.

3) estimate the total operating cost of investment real estate. According to the relevant regional tax and fee standards and assets management of the real estate, the cost of business tax and additional, management, maintenance, property tax, land use tax, insurance premium and stamp duty should be reasonably estimated. 4) calculate the capital expenditure to be estimated in the investment real estate operation. According to the principle of short maturity of land and the length of service life of real estate, the economic life of investment real estate can be determined. In this assessment, because the useful life of the main property in the assessment area is longer than the useful life of the land, the investment life of the real estate can be used economically according to the useful life of the land. For assessing the assets and ancillary structure assets that are dependent on the property used in the assessment, it is assumed that the necessary assets renewal and replacement will be carried out after the relevant assets reach their useful life, thus ensuring the normal rental operation of the whole investment real estate. 5) reasonably determine the assessed value of the estimated real estate according to the economic life, rental income, capital expenditure and discount rate. Based on the above assessment work, the following conclusions are drawn: as of the assessment date, in October 31, 2019, under the assumption of continuous use and open market, the book value of Shanxi Long Zhi Property Co., Ltd., which is intended to be included in the investment real estate account, is 15. 3 million 60 thousand and 100 yuan, estimated by the income method, the market value of the benchmark day to be estimated is RMB 217 million 100 thousand yuan, the appreciation value is 64 million 40 thousand yuan, and the appreciation rate is 41.84%. The key parameters involved in the assessment are as follows:

1) determination of future asset income years

Investment real estate is composed of buildings and ancillary land. The value of the related rental income includes the common value of the house and the attached land in the lease term. Because land and property have different economic years, it is necessary to reasonably determine the investment life of the investment real estate according to the specific conditions of the land and property in the real estate to be assessed.

Land economic life

The estimated land was acquired by Shanxi Long Zhi Property Co., Ltd. in October 2017. The land certificate area is 87803.77 square meters, the land use is industrial land, the termination date is October 19, 2067, and the useful life is about 48 years from the base date of October 31, 2019.

(2) the economic life of various assets in the land area.

The economic life of various assets in the parcel is mainly determined by asset structure and construction date.

List of real estate economic years in the parcel

Rationally determining the economic life of investment real estate

For the economic life of investment real estate, it is necessary to verify the useful life of the relevant property and land according to the economic life of the property and the expiration date of the land. According to the principle of the maximum utility of the assets, the economic life of the real estate can be determined by the principle of the real estate and land in the real estate. In this assessment, through the analysis of years of land and real estate, we can see that the useful life of the main housing assets in the investment real estate of Nan Liang Village Industrial Estate in Xiangfen town is longer than the useful life of the land to be assessed. According to the principle of property and land, the economic life of the investment real estate can be determined in accordance with the useful life of the land use right for 48 years. For assessing the assets and ancillary structure assets that are dependent on the property used in the assessment, it is assumed that the necessary assets renewal and replacement will be carried out after the relevant assets reach their useful life, so as to ensure the normal rental operation of the real estate to be assessed. 2) forecast of future rental income of assets to be assessed

(1) the rental income of the investment real estate in Linfen Wan Xinda.

The rental income of Linfen Wan Xinda leasing investment real estate is the rental income in the lease contract.

Calculation of annual rent in A and tenancy period

The annual rent during the lease term mainly refers to the Industrial Park lease contract signed by Long Zhi energy and Linfen Wan Xin Da (contract number:

WXDLZDJ-01) and the three parties of Long Zhi energy, Linfen Wan Xin Da and Long Zhi property signed the agreement on the lease agreement of Industrial Park signed by consensus (contract number: WXDLZZL-02), and confirmed that Linfen Wan Xin Da agreed to complete the lease after the completion of the construction of the South Liang village industrial complex in Xiangfen Town, which is used for the operation Office of Linfen Wan Xin Da. The terms of the lease are as follows

Lease term: the lease term is 20 years, from April 1, 2018 to March 31, 2038, from April 1, 2018 to September 30, 2019. Rent and rent increments: the rent is calculated using the first year fixed rent. After the annual adjustment, the lessee should pay the quarterly rent before the end of each quarter. The rent in the first year is calculated at 12 yuan / month / square meter, referring to the 87803.77 square meter of the land area of the lease, the total rent of the industrial park in the first year is RMB 12 million 643 thousand and 700 yuan. During the tenancy period, the two sides will adjust the rents on the basis of reference to the CPI growth announced in the previous year, for example, the CPI of the previous year is 2.3%, the rent increase in the next year will be 3%.

By querying the CPI statistics released by the National Bureau of statistics in the past 20 years in -2019 in 2000, the average annual growth rate of consumer price index CPI (last year =100) in China in the past 20 years is 2.2%, that is, the average annual inflation rate in China is 2.2% over the past 20 years. Detailed data are shown in the table below:

The annual consumer price index CPI (last year =100) statistics of China in 2000 -2019

Note: the CPI of 2019 is based on the average of 2019 1-10 index released by the National Bureau of statistics.

According to the arithmetic average value of the above table, we can see that the average consumer price index CPI (last year =100) in 2000 -2019 is 2.2% on average. Referring to the Industrial Park lease contract (contract number: WXDLZDJ-01), the adjustment value of the future year will be adjusted according to the CPI increase announced in the previous year. In this assessment, it is assumed that the annual consumer price index CPI (last year =100) of our country will keep the same amplitude as the CPI growth rate in the past 20 years, and the annual rent adjustment growth in the next year will be calculated based on the average annual increase of 3%. In the assessment, taking into account the Industrial Park lease agreement signed by Long Zhi energy and Linfen Wan Xinda (Contract No.:

WXDLZDJ-01) and the three parties of Long Zhi energy, Linfen Wan Xinda and Long Zhi properties have signed a supplementary agreement on Industrial Park lease agreement (contract number: WXDLZZL-02), which is legally valid. The rental income during the lease term is calculated according to the contract rental price and the rent growth mode.

B, the determination of the rent out of the contract term: according to the conditions of renewal in the Industrial Park lease contract (contract number: WXDLZDJ-01), Linfen Wan Xin Da enjoys the priority of tenancy under the same conditions after the lease term expires. According to the lease contract, Linfen Wan Xinda is expected to continue leasing for 20 years after the expiration of the lease contract. At the same time, the two parties should sign a written contract. Linfen Wan Xin Da should submit a renewal application to the Dragon Property in advance 24 months before the lease expires. After receiving the renewal notice issued by the Linfen in the preceding paragraph, the Long Zhi property should agree to the extension, and should extend the same to Linfen Wan Xin Da. A new lease contract shall be signed before the expiry of the preceding lease, and the rental standard for renewal shall be executed according to the calculation method of the lease contract. According to the renewal term, the rental contract has been pre locked 20 years after the expiration of the lease and the lease terms have been locked in advance. Therefore, the determination of the rent for the term of the contract in the assessment is based on the square estimate of the rent level and the rent increase stipulated in the March 2038 lease contract.

In the assessment, the assessor also analyzed the reasonableness of the rent level in the rental contract signed by the real estate. Through the calculation, we can see that the total amount of land payment and agent construction project sum up by the Dragon property is about 154 million yuan through the purchase of the land use right and the WAN Xin Da Construction mode. That is, the total investment cost of Long Zhi property is about 154 million yuan, according to the first year rent of the lease contract 12. 643 thousand and 700 yuan estimate, Long Zhi property is equivalent to the cost of investment in accordance with the annual interest rate of 8.21% years of interest (similar to financing).

The cost of the lease is basically the same as the cost of capital or the cost of financing lease. The rent level of the next year will consider the natural growth of rental real estate and inflation and the rent level. The rent level is reasonable.

Through the above analysis, referring to the market survey and the actual situation of the assets to be assessed, taking into account the relatively small increase in the price of bulk real estate leasing, the growth rate of the annual rent adjustment reference to the historical year CPI will increase according to the annual growth rate of 3%.

3) estimation of total annual operating cost.

Annual total operating cost = management fee + annual maintenance fee + annual premium + business tax and additional plus property tax + land use tax + stamp duty.

Management fee: according to the information provided by the client and on-site understanding, the management of the estimated real estate in the coming years is undertaken by the lessee, and the management expenses and maintenance costs related to the assets are borne by the lessee. However, the rental and collection of the real estate will be managed and operated by the special person. For the assets management personnel wages, office costs, and so on, through the calculation, according to the actual rental income of 0.5%.

Annual maintenance costs: according to the client's information and on-site understanding, the management and maintenance of the estimated real estate in the coming year is the responsibility of the lessee, and the maintenance cost associated with the estimated real estate is borne by the lessee, because the maintenance cost in the coming year is zero.

Annual premium: 0.20%/ fixed assets replacement cost. Because the market price will not change much after the construction of the real estate has just been completed, the replacement cost of the fixed assets should be determined according to the book original value of the corresponding assets on the basis of the assessment date.

Tax and bonus: mainly based on the current tax ratio of property holders.

Value added tax rate: on the spot, it is learned that the Long Zhi property is a small taxpayer (now changed to a general taxpayer), and the rental income is applicable to the value-added tax rate of 5%.

According to the relevant regulations issued by the Ministry of Finance and the State Administration of Taxation on the comprehensive announcement of the pilot scheme of changing business tax to VAT (fiscal 2016 [36]), the value added tax rate of 9% is applicable to real estate leasing. In this assessment, the rental income of the company's future annual forecast is estimated according to the 9% value-added tax rate.

Urban maintenance and construction tax: urban maintenance and construction tax is calculated on the basis of turnover tax, with a tax rate of 5%. Education surcharge: according to the Interim Provisions on the collection of educational fees, the education fee is calculated on the basis of the turnover tax and the tax rate is 3%.

The local educational surcharge is calculated on the basis of the turnover tax and the tax rate is 2%. Property tax: according to the relevant policies of the Ministry of finance, the State Administration of Taxation on the basis of the notice of the tax administration of the Ministry of finance, the tax on property tax, land value-added tax and personal income tax (fiscal 2016 [43]), the real estate tax of rental property is paid by 12% of the tax rent income.

Land use tax: according to the current local tax policy of Xiangfen County, the land use tax is collected according to the different regions. According to the information provided by the property holder, the land use tax applicable to the industrial land in Nan Liang village of Xiangfen town is assessed on the basis of the assessment date. The land tax is multiplied by 1.5 yuan per square meter. Stamp duty: 0.10% of rental income. 4) the assessment of future capital expenditure of the real estate. In this assessment, the useful life of the investment real estate as at the base date of assessment is determined on the basis of the useful life of the investment real estate, and the useful life of each building in the land is determined according to the economic life, the construction date and the useful life of the property or structure. The difference between the useful life of the land and the useful life of various assets is determined in different ways.

(1) the useful life of the houses on the land is larger than that of the land.

According to the on-site verification, the completed property in the estimated real estate is 1 four storey office buildings, 1 two storey restaurants, 1 three storey garage and rest rooms, 1 one floor equipment rooms and 1 one storey gatehouses, all of which are frame structures. The economic life span is 50 years, because the construction time of housing production is not long enough, so the useful life of the property is larger than that of the land. Years, in this case, there is no need to make capital expenditure on the real estate, the normal maintenance of the property can be used.

2. The useful life of some supporting equipment and structures on the site is less than the useful life of the land.

According to the on-site verification, in addition to the completed construction of real estate, the estimated property includes supporting facilities such as basketball courts, garden roads, sidewalks, square tiles, sports fields, moat (interior tile, glass curtain wall protection on both sides), lawn, fence, flagpole, electric door, waterscape and sporadic engineering, outdoor power and electricity, pipeline trench, and other equipment or structures. Since the economic life of the above supporting equipment and structures is less than the useful life of the ancillary land, under such circumstances, considering that there is a longer useful life to rely on the land, in order to make rational use of land resources, it is assumed that in the year when the assets to be estimated to reach the economic life span (the economic life of all kinds of assets in the parcel is based on the economic life table of all kinds of assets mentioned above) Content, referring to the replacement cost of corresponding assets on the basis of the assessment date, and then continuing to enter the rental business after the replacement of the replacement assets. The construction period asset renewal considers the impact of the construction time on the rental income of the corresponding year.

5) to estimate the salvage value of rental real estate at the time of use.

The recoverable salvage value of assets refers to the recoverable value of the residual value of the fixed assets of the estate in the end of the estimated period of real estate operation (reaching the end of the land). After the expiration of the land use right, the residual value of the assets is not estimated. By calculating the end of the investment real estate business in October 2067, the residual value of fixed assets was 9 million 718 thousand and 300 yuan.

6) assessment of discount rate (interest rate).

The reduction of interest rate is the reduction of the net income of the property into the discount rate of the base day income, which is essentially a risk return rate of capital investment. Generally speaking, the risk return rate is directly proportional to the size of the investment risk. The greater the risk, the higher the yield, the lower the risk, the lower the yield. It can be seen that the return rate adopted in the income method should be equivalent to the risk return rate of the capital with the same risk generated by the real estate that is to be estimated. In this assessment, the rate of revaluation of real estate should be determined by cumulation. The discount rate generally includes risk-free return rate, risk return rate and inflation rate. The risk-free rate refers to the level of profit of assets under general conditions; the risk return rate refers to the ratio of remuneration to assets that is risked by risk; and the rate of inflation refers to the annual consumer price quoted by the state. Index CPI. Namely:

Discount rate = risk-free profit margin + risk profit margin + inflation rate

Risk-free rate of return is the risk-free capital yield. We choose the arithmetic average of the yield of treasury bonds over 5 years in the Treasury bond market in October 31, 2019 as the risk-free rate of return. By querying the WIND information data platform, as of October 31, 2019, the average arithmetic yield of treasury bond yields over 5 years was 3.80%.

Risk reward rate: Based on the operating characteristics and income level of the assets to be assessed, the risk of investment in the project is compared with the risks of other projects, and the return rate of normal investment in real estate is taken into consideration. In this assessment, because the real estate needed to be estimated is industrial land, the income level of similar assets is relatively low and the risk is relatively small. According to the survey of the real estate market in the region, the risk adjusted value of the assets to be estimated is 0.5%.

The inflation rate is determined by reference to the annual consumer price index CPI published by the state. By querying the CPI statistics released by the National Bureau of statistics in recent 20 years in China in 2000, the average annual growth rate of consumer price index CPI (last year's =100) in China in the past 20 years is 2.2%, while the inflation rate takes 2.2% of the average of 20 years in -2019.

Discount rate = risk free profit rate + risk profit margin + inflation rate.

=3.80%+0.5%+2.2%=6.50%

(3) the main income of the donation is derived from the rental income of Linfen Wan Xin Da Coking Co., Ltd. (hereinafter referred to as "Linfen Wan Xin Da"). The actual controller Li Jiarong of Linfen Wan Xin Da and Li Xiangyang, the actual controller of dragon energy, as the donor, are brothers and sisters. Will the assessor explain whether the fairness of the rental price is effectively assessed in the assessment process, whether the impact of the close relationship between the main shareholders and the leased objects on the fairness of the rental price is considered to be an inappropriate overvaluation of the donated assets?

This evaluation project is to estimate the market value of the real estate appraisal base date of Long Zhi property which will be included in the investment real estate accounts in October 31, 2019, and provide a valuable reference for Shanxi Long Zhi property limited company to conduct fair value measurement of investment real estate.

In this project, the assessment personnel surveyed the real estate rental situation around Xiangfen County, because the estimated investment real estate construction is relatively standard and luxurious. The overall rental situation of similar real estate is relatively small. The rental cases of Linfen and Xiangfen county industrial land are mainly rented by some warehouses and simple industrial plants, compared with the estimated real estate situation. Therefore, the rent level of rental assets can not be reasonably judged through the rent level of comparable cases.

In the assessment, the assessor analyzed the reasonableness of the rent level in the real estate contract signed by the assessor at the scene. According to the calculation, the sum of the total amount of land payment and agent construction projects paid by the Long Zhi property by purchasing land use rights and letting Linfen Wan Xin Da construction method amount to about 154 million yuan, that is, the total investment cost of Long Zhi property amounted to about 154 million yuan, according to the first year lease of the lease contract. According to the estimate of 12 million 643 thousand and 700 yuan, the property of Long Zhi is equivalent to the interest rate of the current year (similar to the rental cost of the financial leasing mode) according to the 8.21% year interest rate of the input cost. The above capital cost is basically the same as the capital cost or the finance lease cost that the enterprise currently pays through other means of financing. At the same time, the rent level of the future annual rent is taken into account in the subsequent adjustment. The rent level is reasonable because of the natural growth of rent and the effect of inflation on rents.

(4) according to the evaluation hypothesis, the evaluation should be based on the assumption that the asset construction projects conform to the local city and county construction plan and handle the asset warrants smoothly.

Reply:

In this assessment, the assessors have verified the assets ownership status in the scope of the assessment. By verifying that except the land has obtained the immovable property right certificate, the construction land planning permit, the construction project planning permit, the construction project permit and the permit Housing Authority are not available. According to the instructions provided by the trustee, "no real estate certificate in real estate", in December 2017, due to the new sewage treatment project of Linfen Wan Xin Da Coking Co., Ltd., 1 million 500 thousand tons of coke dry quenching project and 2*18MW waste heat power generation project, the company's own land use has been completely saturated. Therefore, Linfen Wan Xin Da leased Long Zhi energy resources through its communication with Long Zhi energy. Industrial parks with suitable area and legal nature are used for operation. In December 2017, Long Zhi energy signed the agreement on Agent Construction of industrial park complex with Linfen Wan Xin Da (contract number:

WXDLZDJ-01), agreed by Linfen Wan Xin Da to build on the industrial site of Long Zhi energy located in Nan Liang village, Deng Zhuang Town, Xiangfen County, in line with the building complex required by Linfen Wan Xinda. After the construction of the complex is completed, it can be leased to Linfen Wan Xin Da for use. Because the project agent construction assets planning units and land rights holders are not consistent, the planning permission of the relevant construction projects has not been processed. Long Chi property wants to complete the planning permission and warrants of the related assets after the completion of the land warrants, the final accounts of the real estate and the incorporation of the company names. In the assessment, Long Chi property provided relevant information that the assets belonged to the company and the property rights were undisputed. Subsequent assets could be handled by relevant assets, and they could be used in compliance. Under such circumstances, considering that the assets to be assessed have not yet been processed for the planning permission and warrants of the construction projects, the evaluation hypothesis assumes that the assets construction projects should be in line with the local city and county construction plans and that the asset warrants can be handled smoothly.

4. Li Jiarong, the actual controller of Linfen Wan Xinda, is one of the close relatives of Li Xiangyang, the actual controller of Longzhi energy, one of the donors. Linfen Wan Xinda is entrusted with the planning, design and construction of the donated target Park, and after the completion of the park, it has leased the park and signed a long-term lease with the donor target.

(1) please explain the specific situation of Linfen Wan Xinda, including, but not limited to, main business, major shareholders, actual controllers, major financial data in the latest year, whether it is related to the listed companies, etc., and explain whether the amount involved in the planning, design and construction of related businesses in the park, whether the relevant transactions are fair or not, and whether Li Jiarong and Li Xiangyang exist. In the case of interest transfer in this transaction, is there any case of inflated donation of underlying assets?

Reply:

Linfen Wan Xinda is mainly engaged in production and sales: coke, coal tar, crude benzene, gas power generation, sales: cleaning coal and other businesses, its main shareholder and actual controller Li Jiarong, holds 90.67% stake in Linfen Wan Xin Da, and the main financial data of Linfen Wan Xin Da in one year are as follows:

Unit: 10000 yuan

After asking about Linfen Wan Xin Da and its main shareholder, Li Jiarong, Linfen Wan Xinda has no relationship with the listed companies.

According to the relevant provisions of the agreement on Agent Construction of the industrial park complex signed by Linfen Wan Xin Da and Long Zhi energy in December 21, 2017, the two sides agreed that the total cost of agent building should not exceed 150 million yuan. Finally, the two sides confirmed that Linfen Wan Xin Da was entrusted with the planning, design and construction of the park related business involving the amount of 133 million yuan, the price was fair and reasonable, and the two sides recognized and entered the price. After settling the settlement, Li Jiarong and Li Xiangyang, Li Jiarong and Li Xiangyang of Linfen Wan Xin Da said that there was no case of using the transaction to carry out the transfer of interests between them. There was no case of inflated donation of the underlying assets.

(2) please indicate whether the price of Linfen Wan Xinda rental donation park is fair, and the terms and conditions of the lease contract include, but are not limited to, the terms of the lease term, liability for breach of contract, rent free period, rent adjustment method and other provisions are fair and reasonable.

Reply:

Linfen Wan Xinda rented the park, which covers an area of 87803.77 square meters and a complex on the ground. The location of the rental park is adjacent to the WAN Xinda factory in Linfen, which is convenient for office and management. The annual rental of the above Park and the above ground buildings is 12 million 640 thousand yuan, and the average daily rent is 0.4 yuan per square meter. The total amount of land and moneymaking projects is about 154 million yuan. According to the estimate of 12 million 643 thousand and 700 yuan in the first year of the lease contract, the property of the dragon is equivalent to the annual interest rate (similar to the rental cost of the financial leasing method) at the 8.21% year interest rate of the input cost, and the cost of the above capital and the capital cost or financing rent paid by the enterprise through other means of financing. The rental cost is basically the same. At the same time, in the subsequent adjustment, the natural growth of rental real estate rents and the inflationary factors on the rental price will be considered in the subsequent adjustment. Based on the above situation, the two sides have determined the rental price for the first year is 12 million 643 thousand and 700 yuan, and the rental rent price is reasonable and fair.

The terms of the lease agreement signed by Linfen Wan Xinda and Long Zhi energy and Long Zhi property are signed by both parties in accordance with the People's Republic of China contract law. The agreement has taken into account the interests of both sides, business needs and inflation. The relevant provisions are the result of negotiations between the two sides, which is fair and reasonable.

According to the term of tenancy, it is understood that the tenancy agreement between Linfen Wan Xin Da and Long Zhi property is the result of negotiation between the two sides. Linfen Wan Xin Da rented the park adjacent to its current coal coking plant area, which is convenient for its implementation and management, and the overall planning is in line with its business needs. The long-term lease is related to its own business development needs, and the total investment cost of the Long Zhi property park is 154 million yuan. The long-term, stable and consistent rent growth is conducive to safeguarding their own interests. Therefore, based on the principle of openness, equality and voluntariness, the two sides have decided that the lease term of 20 years is fair and reasonable. The terms of the breach stipulated in the lease agreement are as follows:

Twelfth liability for breach of contract

12.1 any Party A and B fails to perform any obligation under this contract constitutes a breach of contract and shall be liable for breach of contract, that is, all direct and foreseeable losses caused by breach of contract shall be compensated to the other party. If both parties are at fault, they shall be liable for breach of contract according to their respective fault sizes.

12.2 any party who breaches the contract, the other party may request or adopt remedial measures permitted by this contract and the law, including, but not limited to, actual performance and compensation for economic losses.

12.3 either party shall confirm or submit a written objection or supplementary explanation within 10 days after receiving written notice of breach of contract by the other party's specific instructions. If there is no justification for not giving written answer within 10 days, it shall be deemed to have been accepted by the written notice. Under such circumstances, Party A and Party B should consult on this issue, and if they fail to negotiate, they will be resolved according to the terms of this agreement. The defaulting party shall bear the economic losses caused by the breach of contract.

12.4 if Party A fails to perform this contract due to improper reasons of Party A, Party A shall return to Party B the fees already paid and Party B's various fees based on trust and advance investment.

12.5 if Party A fails to perform this contract due to improper reasons of Party A, Party A shall compensate Party B for damages within 30 days from the date of failure of the contract.

12.6 if Party B fails to perform the contract due to improper reasons, Party B shall compensate the party a loss within 30 days from the date of the failure of the contract. Party A shall not compensate Party B for all kinds of expenses which are initially invested on the basis of trust.

12.7 Party B shall pay rent for overdue payment, and shall pay liquidated damages to Party A on the basis of 30% of the delivered rent per day from the date of overdue payment, but the penalty for breach of contract shall not exceed 12 months' rent.

12.8 Party A fails to deliver the land use right to Party B in accordance with the contract, and pays liquidated damages to Party B 300 thousand yuan per day from the date of overdue payment, but the penalty for breach of contract shall not exceed 12 months' rent.

12.9 if the dispute between the two parties in the performance of this contract can not be settled by consensus, the breach party shall bear the expenses of the contract keeping Party in order to safeguard their own rights and interests, including, but not limited to, travel expenses, litigation costs, forensic fees, attorney fees and so on.

The above provisions are the result of the negotiation between the two parties, and are in line with the relevant provisions of the contract law of the People's Republic of China and other relevant laws and regulations, which are fair and reasonable.

Considering that the whole building needs a certain construction period, and at the same time, in order to control the duration of the building and avoid the long construction period, the two years' agreement has confirmed that the rent free period of one and a half years is in line with the commercial logic and the common interests of both sides, which is fair and reasonable.

Because the lease term is longer, in order to avoid the controversy over the rent caused by macroeconomic fluctuations in the following years, the annual rent growth after the two sides' consensus has been referenced in reference to the CPI increase announced by the state in the previous year. The rent is adjusted to the whole number, and is in line with the relevant provisions of the People's Republic of China contract law and other relevant laws and regulations, which is fair and reasonable.

(3) please explain the reason and reasonableness of Linfen Wan Xinda first generation garden area and then whether it has commercial essence, whether it is a package deal with this donation.

Reply:

According to the "Industrial Park agreement" signed by both sides, Linfen Wan Xinda first generation garden area is mainly responsible for its new sewage treatment works, 1 million 500 thousand tons of coke dry quenching project and 2*18MW waste heat power generation project.

It is completely saturated. Due to the fact that the adjacent areas of the production area are unable to continue to collect land and expand the plant area, it is intending to lease the land with a suitable lease area and legal nature in the most immediate area of the existing production area, while Longzhi energy owns an industrial land located in Nan Liang village, dunzhuang Town, Xiangfen county (hereinafter referred to as the land mark), and the land mark is adjacent to the Linfen Wan Xin Da factory area, with an area of 87803.77 square meters. Fang Mei, the title of the property certificate is Jin (2018). Xiangfen County immovable property No. 0000421 is in line with the needs of the whole business management of Linfen Wan Xin Da. Considering the large investment in the complex, there is a certain pressure on the Dragon Energy Fund. Linfen Wan Xin Da is able to realize its operation and management needs as soon as possible. After the agreement between the two sides, Wan Xinda agreed to take the lease first and then signed the "Industrial Park" agent in December 21, 2017. "Agreement", Linfen Wan Xinda first generation garden area and then renting the park department took into account the current situation and actual needs of both sides, and has commercial essence. The agreement between the first generation and the Leasing Department of Linfen Wan Xin Da and Long Zhi energy agreed on in 2017. The comprehensive system began to start construction in 2018, and the interval between the donation time and the donation time was 2 years. Trading situation.

5, according to the announcement, the donation side Long Zhi energy and Guang Shi Tian promise to increase your company's 5% share in the next 12 months.

(1) please indicate whether there is a relationship between Long Zhi energy and Guang Shi Tian commerce and your company, your main shareholder and Dong Jiangao, and whether there is an undisclosed transaction arrangement.

Reply:

After enquiry by the company to Long Zhi energy and Guang Shi Tian commerce, the reply of Long Zhi energy and Guang Shi Tian commerce clearly indicated that there was no relationship between our company, our company's main shareholder and Dong Jiangao before this donation, and there was no undisclosed transaction arrangement.

(2) Long Zhi energy and Guang Shi Tian commerce intends to increase your company's shareholding purpose. If you hold the shares of your company, will the two parties form a concerted action relationship?

Reply:

After enquiry by the company to Long Zhi energy and Guang Shi Tian commerce, the reply of Long Zhi energy and Guang Shi Tian commerce expressly stated that the plan is based on the expectation and judgement of the company's future. The two parties intend to increase their holdings through their own or their concerted action, and will form a concerted action after holding the company's shares. There is no way to seek the position of controlling shareholder of the company. If there are definite plans and arrangements, it will fulfill the obligation of information disclosure in time. As of the date of this reply, Mr. Li Xiangyang, the legal controller of the actual controller of the Long Chi energy, was Lin Chuyu, who acted in concert in law sense (the mother of Mr. Li Xiangyang's son's spouse, ID card number: 44062019********28), Ms. Xiao Manting (Mr. Li Xiangyang's son's spouse, ID card number: 44200019********49), Ms. Xiao Manni. (the sister of Mr. Li Xiangyang's son's spouse, ID card number: 44200019********2X), Ms. Xiao Manqi (the sister of Mr. Li Xiangyang's son's spouse, ID card number: 44200019********47) bought 7226800 shares of the company's stock in January 2, 2020, accounting for 4.11% of the total share capital of the company, as shown in the company's January 10, 2020 disclosure on the company's assets. With the announcement of the progress of the company's stock holdings (Bulletin number: 2020-L002), the company will fulfill its duty of information disclosure in time if the assets grant Party has further holdings.

(3) your company finds that long Zhi energy and Guang Shi Tian commerce may constitute the affiliated party of your company. Your company will further verify the relationship between Long Zhi energy and Guang Shi Tian commerce and your company, clarify whether there is correlation, explain the basis and rationality of the confirmation, and invite your company's annual auditor to make clear opinions.

Reply:

As of the date of this reply, our company has held shares of Long Zhi property jointly with Long Zhi energy and Guang Shi Tian commerce through holding subsidiary Jingmen de Chi Property Management Co., Ltd. (hereinafter referred to as "de Chi property").

In January 2, 2020, Long Zhi energy and Guang Shi Tian commerce had been listed by the company in the giant tide information network to complete the transfer within 98.9% months after the completion of the transfer of the company's total interest of the company's controlling subsidiary, the German intellectual property. The 12 month after the transfer was completed by the company or its concerted persons, the stock was no less than 5% of the total share capital of the company by way of agreement transfer, block trading and auction in line with the law.

As of the date of this reply, Mr. Li Xiangyang, the legal controller in the legal sense of the actual controller of the Long Chi energy, is Mrs. Lin Chuyu, the legal person of the same action (the mother of Mr. Li Xiangyang's son's spouse, the ID card number:

44062019********28), Ms. Xiao Manting (Mr. Li Xiangyang's son's spouse, identity card number:

44200019********49), Ms. Xiao Manni (the sister of Mr. Li Xiangyang's son's spouse, the ID card number:

44200019********2X), Ms. Xiao Manqi (the sister of Mr. Li Xiangyang's son's spouse, the ID card number:

44200019********47) bought 7226800 shares of the company's stock in January 2, 2020, accounting for 4.11% of the total share capital of the company. Details of the announcement on the progress of the company assets grant side's holdings of the company's stock were announced on January 10, 2020 in the company's information website (Bulletin number: 2020-L002). Therefore, Long Zhi energy and Guang Shi Tian hold 7226800 shares of the company's shares through the legal sense of Mr. Li Xiangyang, the actual controller of the Long Zhi energy company, accounting for 4.11% of the total share capital of the company.

According to the rules of the Shenzhen Stock Exchange listing, "the first section of connected transactions and related juridical persons" in the tenth chapter of related transactions, "10.1.3 is a legal person or other organization with one of the following situations: the related legal person of a listed company" and "10.1.5" A natural person with one of the following circumstances shall be a related natural person of a listed company "and" a legal person or natural person with 10.1.6 as one of the following situations. "

10.1.3 a legal person or other organization with one of the following circumstances shall be an associated legal person of a listed company.

(1) directly or indirectly controlling the legal person or other organization of the listed company;

(two) a legal person or other organization other than the listed company and its holding subsidiary company directly or indirectly controlled by the legal person referred to in the preceding paragraph;

(three) persons directly or indirectly controlled by the associated natural persons listed in article 10.1.5 of this rule, or those who act as directors or senior managers, except those listed companies and their holding subsidiaries.

(four) legal persons or other organizations holding more than 5% of the shares of listed companies and their concerted actions;

(five) other companies or other organizations that have been identified by the CSRC, the local stock exchange or the listed company according to the principle of substance over form, and may have caused the listed companies to tilt their interests to them.

10.1.5 a natural person with one of the following circumstances is the associated natural person of a listed company:

(1) natural persons who directly or indirectly hold more than 5% of the shares of listed companies;

(two) directors, supervisors and senior managers of listed companies;

(three) directors, supervisors and senior managers of legal persons listed in Item (1) of article 10.1.3 of this regulation;

(four) the family members closely related to the persons referred to in Item (1) and (two) of this article, including their spouses, parents and spouses' parents, siblings and their spouses, children aged eighteen and above, their spouses, brothers and sisters of their spouses and parents of their children's spouses;

(five) any other natural person identified by the CSRC, the local stock exchange or the listed company according to the principle of substance over form, which has a special relationship with the listed company, may cause the listed company to tilt its interests.

10.1.6 a legal person or natural person with one of the following circumstances shall be regarded as a related person of a listed company:

(1) if an agreement or arrangement is made with a listed company or its associated parties, it will be one of the circumstances of the provisions of article 10.1.3 or article 10.1.5 of this rule after the agreement or arrangement comes into force or within the next twelve months.

(two) in the past twelve months, it has been one of the provisions of article 10.1.3 or article 10.1.5 of this rule. If the Dragon Energy and Guang Shi Tian trade continue to increase their shares in the next 12 months in accordance with their holdings plan in the next 12 months, they will directly or indirectly share more than 5% of the company's shares with the concerted persons. (now, Long Zhi energy and Guang Shi Tian commerce, the actual controller of the Dragon intelligent source, Mr. Li Xiangyang's legal sense of action will hold 4.11% of the company's shares. It will constitute the associated person of the company.

In January 17, 2020 and January 22nd, the company disclosed the "Notice of changes in stockholders' rights and interests", "detailed rights and interests changes report", "supplementary notice notice on changes in stockholders' rights and interests" and "legal opinions on the detailed reports on changes in rights and interests of the company in Shanghai Haihua Yongtai (Beijing)". The announcement was disclosed in 2020: 1 Month 14 On the same day, the company's shareholders Baocheng International Trading (Beijing) Co., Ltd. and the only shareholder of Ningbo Guang Shi Tian Trading Co., Ltd. jointly contributed to the establishment of Linfen Tianyi business management partnership (limited partnership). According to the management measures of listed companies acquisition, Shanxi Long Zhi Energy Chemical Co., Ningbo Guang Shi Tian commerce Co., Ltd., Baocheng Dingsheng international trade. (Beijing) Limited, Li Xiangyang, Bi Jingxiang, Wang Jian and other related parties (hereinafter referred to as: the main body of interest change) has constituted a consistent action relationship and has become the largest shareholder of the voting rights of the company. The company intends to hire the auditor of the Asia Pacific (Group) accounting firm (special general partnership) for the annual audit.

Based on the information we have obtained and the verification procedures already carried out, we preliminarily judge the correlation between Long Zhi energy and Guang Shi Tian commerce and company.

6, your company is unable to identify the assets donor side as a related party at present, and disclose that the profits derived from the donation of the equity assets will be included in the owner's equity (capital reserve) subject or out of business revenue account according to the relevant provisions of the enterprise accounting standards. If your company is clear about the relationship between the donor and your company, further clarify the accounting treatment your company intends to make, including the specific accounting items, the effect amount and the confirmation period of the transaction.

Reply:

(1) according to the relevant provisions of the enterprise accounting standards, the company shall include the profits derived from the donation of the equity assets into the owner's equity (capital reserve) subject.

According to the relevant provisions of the accounting standards for enterprises, if an enterprise accepts non shareholder's gift assets, the profits derived from the donated assets should be accounted for in the out of business revenue account. If an enterprise accepts the assets donated by shareholders and related parties, the profits derived from the donation shall be included in the owner's equity (capital reserve) subject, as the gift giving Party, Long Zhi energy and broad assets. Shi Tian commerce and Trade Co., Ltd.

Long Zhi energy, a subsidiary of the Department's subsidiary company, is a member of the German intellectual property company.

98.9% shareholding is a shareholder's gift.

2. In January 2, 2020, Mr. Li Xiangyang, the real controller of Long Zhi energy, the owner of the assets grant, has accumulated 7226800 shares of the company's shares, representing 4.11% of the total share capital of the company through its legal sense of action. In January 17, 2020 and January 22nd, the company disclosed the "Notice of changes in stockholders' equity" and "detailed reports on equity changes" in the giant tide information network. "Supplementary notice notice on changes in stockholders' equity" and "legal opinions on detailed reports on changes in rights and interests of Shanghai Haihua Yongtai (Beijing) law firm", announcement: January 2020 14 On the same day, the company's shareholders Baocheng International Trading (Beijing) Co., Ltd. and the only shareholder of Ningbo Guang Shi Tian Trading Co., Ltd. jointly contributed to the establishment of Linfen Tianyi business management partnership (limited partnership). According to the management measures of listed companies acquisition, Shanxi Long Zhi Energy Chemical Co., Ningbo Guang Shi Tian commerce Co., Ltd., Baocheng Dingsheng international trade. (Beijing) Limited, Li Xiangyang, Bi Jingxiang, Wang Jian and other related parties (hereinafter referred to as: the main body of interest change) has constituted a consistent action relationship and has become the largest shareholder of the voting rights of the company. According to the regulations of the Shenzhen Stock Exchange listing 10.1.3, 10.1.5 and 10.1.6, the shareholders and related parties of Long Zhi energy and Guang Shi Tian Department, according to the relevant provisions of the accounting standards for enterprises, if an enterprise accepts the assets of non shareholders, the profits derived from the donated assets shall be accounted for in the out of business revenue items, such as the acceptance of shareholders and related parties by enterprises. The gift assets should be included in the owner's equity (capital reserve) subject. In summary, according to the relevant provisions of the enterprise accounting standards, the company will include the profits derived from the donation of equity assets into the owner's equity (capital reserve) subject.

The company intends to hire the auditor of the Asia Pacific (Group) accounting firm (special general partnership) for the annual audit.

On the basis of the information obtained and the verification procedures already carried out, we preliminarily judged that the accounting treatment of the donated assets of the German subsidiary of the company's subsidiary was in line with the accounting standards for enterprises.

7, the total assets of this donation amount to 218 million yuan, which exceeds 50% of the total audited assets of your company in 2018. According to Article 9.3 of the listing rules, you should submit the transaction to the shareholders' meeting for consideration. When your company did not convene the general meeting of shareholders, the transfer of donated assets was made in December 27, 2019. Your company should combine the accounting standards of enterprises and the shareholders' meeting to consider the donation matters, explain the specific period of confirmation of the donation's influence on the relevant accounting items and the specific time when the donation targets are incorporated into the scope of your company's consolidated statements. Reply:

The company intends to hire the auditor of the Asia Pacific (Group) accounting firm (special general partnership) for the annual audit.

On the basis of the information obtained and the verification procedures already carried out, we preliminarily judged that the scope of the consolidated statements of the companies that will be accepted by the company will be included in the 2019 annual report, which is in line with the provisions of the enterprise accounting standards. We will further examine and verify the matter in the annual audit conducted in 2019, and make corresponding audit confirmation for the above preliminary judgments.

The company intends to hire the auditor of the Asia Pacific (Group) accounting firm (special general partnership) of the Asia Pacific Group (special general partnership) for details.

I hereby reply.

Kerid Cmi Holdings Ltd

March 10, 2020