2.4.0.8108 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICEStruefalsefalse1false falsefalsecx_01_January_2013_TO_30_June_2013http://www.sec.gov/CIK0001273385duration2013-01-01T00:00:002013-06-30T00:00:001false 4us-gaap_SignificantAccountingPoliciesTextBlockus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICES Basis of preparation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Principle of consolidation The accompanying consolidated financial statements include the financial statements of Nutrastar and its wholly owned subsidiaries, New Resources, Oriental Global and Harbin Baixin, and its VIEs Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi. All significant inter-company balances or transactions have been eliminated on consolidation. The Company has evaluated the relationship with Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi and based on the result of the evaluation, believes that these entities are variable interest entities and that it is the primary beneficiary of these entities. Consequently, the Company has included the results of operations of these variable interest entities in the consolidated financial statements. The Company’s relationships with Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi are governed by a series of contractual arrangements. Under PRC laws, Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi are independent legal persons and none of them is exposed to liabilities incurred by the other parties. The accounts of Heilongjiang Shuaiyi, Daqing Shuaiyi and Harbin Shuaiyi are consolidated in the accompanying financial statements pursuant to the Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics related to the consolidation of variable interest entities. The Company does not have any non-controlling interests in net income and accordingly, did not subtract any net income in calculating the net income attributable to the Company. Because of the contractual arrangements, the Company had a pecuniary interest in the VIEs that require consolidation of the Company’s and the VIEs’ financial statements. Use of estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates under different assumptions or conditions. Significant estimates for the periods ended June 30, 2013 and 2012 include the useful lives of property and equipment and intangible assets, assumptions used in assessing impairment for long-term assets and the fair values of share-based payments granted. Cash and cash equivalents Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Accounts receivable Accounts receivable is stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and provides allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. Inventories Inventories are stated at the lower of cost, determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management will write down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required. Derivative financial instruments The Company evaluates all its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported in the consolidated statements of income. For stock-based derivative financial instruments, the Company uses Monte-Carlo simulation methods to value the derivative instruments at inception and on subsequent valuation dates. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that extend the life of property, plant and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. All ordinary repair and maintenance costs are expensed as incurred. Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="center" width="15%">Useful Life</td> </tr> <tr valign="top"> <td align="left"> </td> <td align="center" style="BORDER-BOTTOM: #000000 1px solid" width="15%">(In years)</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Buildings</td> <td align="center" bgcolor="#e6efff" width="15%"> 20 - 40 </td> </tr> <tr valign="top"> <td align="left">Machinery and motor vehicles</td> <td align="center" width="15%"> 5 - 10 </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Office equipment</td> <td align="center" bgcolor="#e6efff" width="15%"> 5 </td> </tr> </table> Intangible assets The Company’s intangible assets include a ten-year exclusive right to use a proprietary process and computer software. The Company’s amortization policy on intangible assets is as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="center" width="15%">Useful Life</td> </tr> <tr valign="top"> <td align="left"> </td> <td align="center" style="BORDER-BOTTOM: #000000 1px solid" width="15%">(In years)</td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Exclusive right</td> <td align="center" bgcolor="#e6efff" width="15%"> 10 </td> </tr> <tr valign="top"> <td align="left">Computer software</td> <td align="center" width="15%"> 4 </td> </tr> </table> The Company accounts for its intangible assets pursuant to FASB ASC Subtopic 350-30, “General Intangibles Other Than Goodwill”. Under ASC 350-30-35, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology. Impairment of long-lived assets The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. Revenue recognition Revenue is recognized when the following four revenue criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. Sales revenue is recognized net of value added and sales related taxes, sales discounts and returns at the time when the merchandise is delivered to the customer. Based on historical experience, management estimates that sales returns are immaterial and has not recorded an allowance for estimated sales returns. Share-based payments The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period. The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Under FASB ASC Topic 718 and FASB ASC Subtopic 505-50, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as expenses as the goods or services are received. Income taxes The Company is subject to income taxes in the United States and other foreign jurisdictions where it operates. The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes”. FASB ASC Topic 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on the criteria of FASB ASC 740-10-25-5 through 740-10-25-7 and 740-10-25-13 (formerly FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”). The interpretation prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This Interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. Research and development costs Research and development costs are expensed as incurred, and are charged to general and administrative expenses. Research and development costs were $79,699 and $91,354 for the six months ended June 30, 2013 and 2012, respectively, and $40,403 and $57,361 for the three months ended June 30, 2013 and 2012, respectively. Advertising costs The Company expenses all advertising costs as incurred. Advertising costs charged to selling expenses were $10,356 and $2,204 for the six months ended June 30, 2013 and 2012, respectively, and $61 and $16 for the three months ended June 30, 2013 and 2012, respectively. Shipping and handling costs Substantially all costs of shipping and handling of products to customers are included in selling expense. Shipping and handling costs for the six months ended June 30, 2013 and 2012 were insignificant. Comprehensive income FASB ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Accumulated other comprehensive income includes foreign currency translation adjustments. Foreign currency The Company uses the United States dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The PRC subsidiaries and VIEs within the Company maintain their books and records in their functional currency, Chinese Renminbi (“RMB”), being the lawful currency in the PRC. Assets and liabilities of the PRC subsidiaries and VIEs are translated from RMB into US Dollars using the applicable exchange rates prevailing at the balance sheet date. Items on the statements of income and cash flows are translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income. The exchange rates used to translate amounts in RMB into US Dollars for the purposes of preparing the consolidated financial statements are based on the rates as published on the website of People’s Bank of China and are as follows: <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="BORDER-BOTTOM: #000000 1px solid" width="1%"> </td> <td align="center" nowrap="nowrap" style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" width="12%">June 30, 2013</td> <td align="center" nowrap="nowrap" valign="bottom" width="2%"> </td> <td align="center" nowrap="nowrap" style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" width="1%"> </td> <td align="center" nowrap="nowrap" style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" width="12%">December 31, 2012</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Balance sheet items, except for equity accounts</td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.1787 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.2855 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> </table> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom-style: solid; border-bottom-width: 1" width="1%"> </td> <td align="center" colspan="4" style="border-bottom-style: solid; border-bottom-width: 1" width="27%">Three months ended June 30,</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="1%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="12%">2013</td> <td align="center" style="border-top-style: solid; border-top-width: 1" width="2%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="1%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="12%">2012</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Items in the statements of income and cash flows</td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.2053 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.3074 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr> <td> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="1%"> </td> <td width="12%"> </td> <td width="2%"> </td> </tr> </table> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left"> </td> <td align="left" style="border-bottom-style: solid; border-bottom-width: 1" width="1%"> </td> <td align="center" colspan="4" style="border-bottom-style: solid; border-bottom-width: 1" width="27%">Six months ended June 30,</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left"> </td> <td align="left" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="1%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="12%">2013</td> <td align="center" style="border-top-style: solid; border-top-width: 1" width="2%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="1%"> </td> <td align="center" style="BORDER-BOTTOM: 1px solid #000000; ; border-top-style:solid; border-top-width:1" width="12%">2012</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Items in the statements of income and cash flows</td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.2416 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> <td align="left" bgcolor="#e6efff" width="1%"> </td> <td align="right" bgcolor="#e6efff" width="12%"> US$1 =RMB6.3074 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> </table> No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the above rates. The value of RMB against US dollars and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US Dollar reporting. Segment reporting The Company follows FASB ASC Topic 280, “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. The Company believes that during the six months ended June 30, 2013 and 2012, it operated in three business segments –growing and sales of Cordyceps Militaris, which is widely used for Chinese medicine, manufacturing and sale of functional health beverages featuring the Cordyceps Militaris as a core ingredient, and sales of organic and specialty products. Throughout the six months ended June 30, 2013 and 2012, all of the Company’s operations were carried out in one geographical segment - China. Earnings per share The Company reports earnings per share in accordance with the provisions of FASB ASC Topic 260, "Earnings per Share". FASB ASC Topic 260 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 period. Diluted earnings per share takes into account the potential dilution (using the treasury stock method) that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Commitments and contingencies The Company follows FASB ASC Subtopic 450-20, “Loss Contingencies” in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. Recent accounting pronouncements In February 2013, the FASB issued Accounting Standards Update No. 2013-02 Comprehensive Income (Topic 220): The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account (for example, inventory) instead of directly to income or expense in the same reporting period. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this update did not have a significant impact on its consolidated financial statements. In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-05, Foreign Currency Matters, (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (ASU 2013-05), to resolve a diversity in accounting for the cumulative translation adjustment of foreign currency upon derecognition of a foreign subsidiary or group of assets. ASU 2013-05 requires the parent to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Further, ASU 2013-05 clarified that the parent should apply the guidance in subtopic 810-10 if there is a sale of an investment in a foreign entity, including both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. ASU 2013-05 is effective prospectively for the Company in our first quarter of fiscal 2014, with early adoption permitted. The Company does not expect ASU 20 13-05 to have a significant impact on its consolidated result of operations and financial condition. In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740)(ASU 2013-11). The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company does not expect ASU 2013-11 to have a significant impact on its consolidated result of operations and financial condition. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.falsefalsefalsenonnum:textBlockItemTypenaThe entire disclosure for all significant accounting policies of the reporting entity.Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18726-107790 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18861-107790 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18743-107790 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18854-107790 false0SUMMARY OF SIGNIFICANT ACCOUNTING POLICES [Text Block]falseSUMMARY OF SIGNIFICANT ACCOUNTING POLICESUnKnownUnKnownUnKnownUnKnowntruefalsefalseSheethttp://www.nutrastarintl.com/taxonomy/role/NotesToFinancialStatementsSignificantAccountingPoliciesTextBlock11