| Summary of Significant Accounting Policies | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Economic and Political Risks The Company’s operations are
conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations in
the PRC are subject to special considerations and significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency
exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and
by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances
abroad, and rates and methods of taxation.
(b) Foreign Currency Translation The Company’s reporting currency
is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s
operating subsidiaries is the Chinese Renminbi (“RMB”). For the subsidiaries whose functional currencies are the RMB,
all assets and liabilities are translated at exchange rates at the balance sheet date and revenue and expenses are translated at
the average yearly exchange rates and equity is translated at historical exchange rates. Any translation adjustments resulting
are not included in determining net income but are included in foreign exchange adjustments to other comprehensive loss, a component
of equity.
(c) Use of Estimates The preparation of the consolidated
financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using
the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
(d) Fair Value Measurement Accounting Standards Codification
(“ASC”) 820 “ Fair Value Measurements and Disclosures “, which defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements. The statement clarifies that the exchange price
is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in
which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the
asset or liability. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and that
market participant assumptions include assumptions about risk and effect of a restriction on the sale or use of an asset. This ASC establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets
that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability; and Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity). As at June 30, 2020, the Company
has no financial assets or liabilities subject to recurring fair value measurements. The Company’s financial instruments
include cash, accounts receivable, advances to suppliers, other receivables, accounts payable, other payables, taxes payables and
related party receivables or payables. Management estimates that the carrying amounts of financial instruments approximate their
fair values due to their short-term nature. The fair value of amounts with related parties is not practicable to estimate due to
the related party nature of the underlying transactions.
(e) Cash and Cash Equivalents The Company considers all highly
liquid investments purchased with original maturities of three months or less to be cash equivalents. All cash and cash equivalents
relate to cash on hand and cash at bank at June 30, 2020 and March 31, 2020. The Renminbi is not freely
convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales
and Payment of Foreign Exchange Regulations, the Company is permitted to exchange Renminbi for foreign currencies through banks
that are authorized to conduct foreign exchange business.
(f) Accounts Receivable Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company extends credit to its
customers in the normal course of business and generally does not require collateral. The Company’s credit terms are dependent
upon the segment, and the customer. The Company assesses the probability of collection from each customer at the outset of the
arrangement based on a number of factors, including the customer’s payment history and its current creditworthiness. If in
management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed. Management performs ongoing credit
evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis.
The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in existing accounts receivable.
Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables.
In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness
of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business
relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its
original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding
the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability. Accounts receivable are recognized
and carried at the original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable
is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. No allowance for doubtful
accounts was made for the three months ended June 30, 2020 and 2019. The followings are the percentages
of accounts receivable balance of the top five customers over total accounts receivable as at June 30, 2020 and March 31, 2020.
June 30, 2020 March 31, 2020
Customer A 23.2 % 5.3 %
Customer B 17.2 % 65.4 %
Customer C 11.9 % 4.3 %
Customer D 8.9 % 4.2 %
Customer E 7.3 % Nil %
(g) Inventories Manufacturing segment inventories
consist of raw materials, work in progress and finished goods and are stated at the lower of cost, determined on a weighted average
basis, or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the
estimated cost of completion and the estimated costs necessary to make the sale. When inventories are sold, their carrying amount
is charged to expense in the period in which the revenue is recognized. Write-downs for declines in net realizable value or for
losses of inventories are recognized as an expense in the period the impairment or loss occurs. No allowance for obsolete finished
goods for both periods ended June 30, 2020 and 2019. During the three months ended June
30, 2020 and 2019, approximately 98% and 74% of total inventory purchases were from the Company’s five largest suppliers,
respectively. Management believes that should the Company lose any one of its major suppliers, other suppliers are available that
could provide similar products to the Company.
(h) Plant and Equipment Plant and
equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives,
using the straight-line method. Estimated useful lives of the plant and equipment are as follows:
Production plant 5-10 years
Motor vehicles 10-15 years
Office equipment 5-10 years The cost
and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss
is included in the statement of income. The cost of maintenance and repairs is charged to the statement of income as incurred,
whereas significant renewals and betterments are capitalized.
(i) Goodwill Goodwill represents the excess of
the purchase price over the net fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities
assumed in acquisitions. ASC350-30-50 “Goodwill and Other Intangible Assets”, requires the testing of goodwill and
indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter
of each years. Under applicable accounting guidance,
the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair
value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds
its fair value, the second step must be performed to measure potential impairment. The second step involves calculating
an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied
fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to
a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. The Company tested goodwill for
impairment as of March 31, 2020 and it was determined that recoverable amount of one of the Company’s reporting units was
lower than the carrying amount of the goodwill recorded. Therefore it was concluded that carrying amount of goodwill of $475,003
was impaired (Nil for 2019). The balance of goodwill was Nil
as of June 30, 2020 and March 31, 2020.
(j) Accounting for the Impairment of Long-Lived Assets Long-lived assets held and used
by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry
changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future
net undiscounted cash flows 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 amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell. There was no impairment
of long-lived assets as of June 30, 2020 and March 31, 2020.
(k) Revenue Recognition Revenue is generated through sale
of goods and delivery services. Revenue is recognized when a customer obtains control of promised goods or services and is recognized
in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. In addition,
the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange
for those goods and services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised
goods and services in the contract; (ii) determination of whether the
promised goods and services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations; and (v) recognition of revenue when
(or as) the Company satisfies each performance obligation. The Company only applies the five-step
model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods
or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception,
the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance
obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective
performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance
obligations are transferred to customers at a point in time, typically upon delivery. For all reporting periods, the Company
has not disclosed the value of unsatisfied performance obligations for all product and service revenue contracts with an original
expected length of one year or less, which is an optional exemption that is permitted under the adopted rules Cost of revenues for manufacturing
segment includes the direct raw material cost, direct labor cost, manufacturing overheads including depreciation of production
equipment and rent. Cost of for service segment includes gasoline and diesel fuel, toll charges and subcontracting fees.
(l) Earnings Per Share The Company reports earnings per
share in accordance with ASC 260 “Earnings Per Share”, which requires presentation of basic and diluted earnings per
share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding
during the reporting period. Diluted earnings per share takes into account the potential dilution that could occur if securities
or other contracts to issue common stock were exercised and converted into common stock. Further, if the number of common shares
outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations
of a basic and diluted earnings per share shall be adjusted retroactively for all periods presented to reflect that change in capital
structure. The Company’s basic earnings
per share is computed by dividing the net income available to holders by the weighted average number of the Company’s ordinary
shares outstanding. Diluted earnings per share reflects the amount of net income available to each ordinary share outstanding during
the period plus the number of additional shares that would have been outstanding if potentially dilutive securities had been issued.
The Company had no potentially dilutive ordinary shares as of June 30, 2020 and March 31, 2020.
(m) Income Taxes The Company accounts for income
taxes using the asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities
using enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The Company records
a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that
some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized as income or loss in the period that includes the enactment date. The Company has a history of tax
losses and there is no convincing evidence that sufficient taxable income will be available against which the deferred tax asset
can be utilised, therefore, the Company does not recognize any tax benefits for the three months ended June 30, 2020 & 2019. The Company is governed by the Income
Tax Laws of the PRC. The PRC federal statutory tax rate is 25%. The Company files income tax returns with the relevant government
authorities in the PRC. The Company does not believe there will be any material changes in its unrecognized tax positions over
the next 12 months. The Company’s policy is to
recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does
not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized
during the three months ended June 30, 2020 and 2019. The Company’s effective tax rate differs from the PRC federal statutory
rate primarily due to non-deductible expenses, temporary differences and preferential tax treatments. New U.S. federal tax legislation,
commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017.
The U.S. Tax Reform modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate
income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business
deductions; migrating the U.S. to a territorial tax system with a one-time transaction tax on a mandatory deemed repatriation of
previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S.
corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers
may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current
and deferred taxes based on the provisions of the Tax legislation. After the Company’s measurement, no deferred tax benefit
nor expense were recorded relating to the Tax Act changes for the months ended June 30, 2020 and 2019.
(n) Related party balances and transactions A related party is generally defined
as: (i) any person that holds the Company’s
securities including such person’s immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly
controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly
influence the financial and operating decisions of the Company. A transaction is considered to be
a related party transaction when there is a transfer of resources or obligations between related parties.
(o) Interest Rate Risk The Company’s exposure to
interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated
by cash invested in cash deposits and liquid investments. As of June 30, 2020, the total outstanding borrowings amounted to $353,854
(RMB 2,500,000) with various interest rate from 4.84% to 6.96% p.a. (Note 10)
(p) Leases The Company determines if an arrangement
is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current
liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment,
other current liabilities, and other long-term liabilities in the consolidated balance sheets. ROU assets represent the right to
use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the
lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. As most of the leases do not provide an implicit rate, The Company generally use the incremental borrowing
rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement
date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease
payments is recognized on a straight-line basis over the lease term.
(q) Recently issued and adopted accounting pronouncements In August 2018, the FASB issued
ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement to ASC Topic 820,
Fair Value Measurement (“ASC 820”) In February 2018, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement
- Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. This standard was effective for the Company on September 1, 2018. The adoption of this
standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. In June 2016, the FASB issued ASU
No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This
standard requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net
amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost
basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.
This standard will be effective for the Company on December 15, 2019. The Company adopted this ASU on April 1, 2020 and determined
it had no impact on its consolidated financial statements. In February 2016, the FASB issued
ASU 2016-02, “Lease (Topic 842) “ The Company reviews
new accounting standards as issued. Management has not identified any other new standards that it believes will have a significant
impact on the Company’s consolidated financial statements. |
